Reliance Steel & Aluminum Co. reported net income of $92.1 million on sales of $1.27 billion for the fourth quarter and net income of $148.2 million on sales of $5.32 billion for the fiscal year ended December 31, 2009.
Fourth Quarter Results — The $92.1 million net income ($1.25 per diluted share) reflects a 39% increase from net income of $66.3 million ($.90 per diluted share) in the year-ago fourth quarter and a solid improvement over net income of $41.8 million ($.57 per diluted share) in the previous quarter (3Q09). Sales of $1.27 billion reflect a 41% decrease from year-ago quarterly sales of $2.14 billion and a 2% increase from previous quarter (3Q09) sales of $1.24 billion.
Results include in cost of sales a pre-tax LIFO credit, or income, of $87.5 million, compared with pre-tax LIFO credits of $27.3 million in the 2008 fourth quarter and $67.5 million in the 2009 third quarter. Results also include $.20 per diluted share from a favorable change in Reliance’s 2009 annual effective tax rate vs. the year-to-date rate used at September 30, 2009 mainly due to the favorable resolution of certain tax matters in the 2009 fourth quarter.
Reliance’s tons sold for the fourth quarter were down 23% from the year-ago fourth quarter. Average prices per ton sold were down 24% vs. the year-ago fourth quarter. Business conditions during the fourth quarter improved as average pricing increased 5% compared to the previous quarter (3Q09), and tons sold decreased only 3%.
Full Year Results — The $148.2 million net income ($2.01 per diluted share) for the year compares with record net income of $482.8 million ($6.56 per diluted share) for 2008. Sales of $5.32 billion were down 39% from record 2008 sales of $8.72 billion. Results include in cost of sales a pre-tax LIFO credit of $305.0 million, compared with a pre-tax LIFO charge (expense) of $109.2 million for 2008. The LIFO adjustments, in effect, reflect cost of sales at current replacement costs.
Reliance’s tons sold for 2009 were down 15% from 2008. Average prices per ton sold were down 28% in 2009 as compared to 2008. For the year, carbon steel sales were 56% of revenues; aluminum sales were 18%; stainless steel sales were 13%; alloy sales were 7%; other sales were 4%; and toll processing sales were 2%.
Management Comments — “As we stated in our fourth quarter earnings update, both demand and pricing were at better levels than expected, given the seasonal pressures that we typically experience in the fourth quarter,” commented David H. Hannah, Chairman and CEO of Reliance. “Our gross profit margins improved sequentially in the 2009 fourth quarter due to stronger pricing and a larger LIFO credit than in the 2009 third quarter. Our 2009 results for the quarter and the year also benefited from lower tax rates during those periods than we had originally estimated. Our FIFO gross profit margins troughed in the 2009 second quarter at just under 17% and then steadily improved through the remainder of the year to 25% in the 2009 fourth quarter.
“Although demand is still at relatively low levels, because pricing is more stable and our inventory costs are more current, we are now able to generate more consistent and higher FIFO gross profit margins, which we expect to continue into the 2010 first quarter,” continued Hannah. “Although we do not expect our 2010 earnings to have the benefit of LIFO credits, or income, which improved our earnings greatly last year, we also do not expect our FIFO gross profit margins to return to the low levels experienced during 2009.
“As we enter 2010, we are a financially stronger company than a year ago. During 2009, resulting from our focus on working capital management and expense reductions, we generated record cash flow from operations of $943 million and paid down approximately $830 million of debt, ending the year with a net debt-to-total capital ratio of only 25.6%, down from 41.4% at December 31, 2008. Additionally, at the end of 2009, we only had $115 million outstanding on our $1.1 billion credit facility,” commented Hannah.
“Currently, we anticipate that demand overall will recover slowly as the year progresses, and we also expect pricing to stay at or near current levels through the 2010 first quarter. Our January 2010 FIFO gross profit margins improved over 2009 fourth quarter levels, and revenues per day were up from December’s rate and were the highest since March 2009, but still below those of January a year ago. Although we do expect shipments in the 2010 first quarter to continue to increase and our FIFO gross profit margins to be at least at fourth quarter levels, we are not comfortable providing earnings guidance at this time because of our uncertainty regarding the extent of the demand improvement in the 2010 first quarter,” concluded Hannah.
Headquartered in Los Angeles, Calif., Reliance Steel & Aluminum is the largest metals service center company in North America. Through a network of more than 200 locations in 38 states and Belgium, Canada, China, Mexico, Singapore, South Korea, and the United Kingdom, the Company provides value-added metals processing services and distributes a full line of over 100,000 metal products to more than 125,000 customers in a broad range of industries.