Can Higher Metal Pricing Aid Reliance Steel (RS) Q1 Earnings?
Zacks Investment Research | Apr 20, 2018 08:56AM ET
Reliance Steel & Aluminum Co. (NYSE:RS) is set to release its first-quarter 2018 results before the opening bell on Apr 26.
Reliance Steel saw its profits jump roughly five-fold in the fourth quarter of 2017, buoyed by a sizable tax benefit. Its adjusted earnings of $1.22 per share for the quarter topped the Zacks Consensus Estimate of $1.00.
Net sales went up around 15% year over year to $2,376.4 million for the fourth quarter, also surpassing the Zacks Consensus Estimate of $2,307 million.
The company benefited from strong overall demand and higher year over year pricing levels in the quarter, which also contributed to its earnings.
Reliance Steel beat earnings estimates in each of the trailing four quarters, delivering an average beat of 9.7%.
Reliance Steel’s shares have moved up 18.2% in the last six months, underperforming the Earnings ESP Filter .
Zacks Rank: Reliance Steel currently carries a Zacks Rank #2, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.
Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Factors at Play
Reliance Steel, in its fourth-quarter call, said that it is seeing an improvement in overall customer sentiment and demand and expects the ongoing reduction in imports will support higher metal pricing. The company is optimistic about business activity levels in first-quarter 2018 and sees continued growth in the end markets in which it operates. It expects earnings per share to be in the band of $1.90 to $2.00 for the first quarter.
The Zacks Consensus Estimate for revenues for Reliance Steel for the to-be-reported quarter stands at $2,704 million, reflecting an increase of 11.8% from the year-ago quarter and a 13.8% rise from the sequentially prior quarter.
Reliance Steel should continue to gain from synergies of acquisitions and continued strong momentum across automotive and aerospace markets in the to-be-reported quarter.
Demand in the aerospace market has been supported by higher commercial aerospace build rates. Strong demand is also witnessed in the automotive market, backed by the company’s toll processing businesses in the United States and Mexico as well as increased use of aluminum in the industry.
Reliance Steel is also expected to benefit from an improving metal pricing environment. The company sees its average selling prices to increase 4-6% on a sequential basis in first-quarter 2018. This should support its margins in the first quarter.
Currently, the Zacks Consensus Estimate for average selling price per ton sold for the first quarter stands at $1,735, reflecting an increase of 11% from the year-ago quarter and a 6.3% rise from the sequentially prior quarter.
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Moreover, Reliance Steel, in its fourth-quarter call, noted that it expects tons sold will be up 6% to 8% in the first quarter on a sequential comparison basis.
The Zacks Consensus Estimate for shipments for the first quarter are pegged at 1,571,000 tons. This reflects an expected increase of around 2% on a year over year basis and an 8.3% rise on a sequential comparison basis.
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