On Dec 18, we issued an updated research report on metal processor Reliance Steel & Aluminum Co. RS.
Reliance Steel’s profit for third-quarter 2015 tumbled year over year, hurt by lower metals pricing. Adjusted earnings for the quarter topped the Zacks Consensus Estimate while sales missed expectations. The company saw pricing pressure due to high levels of metal imports in the quarter.
Reliance Steel’s broad and diversified product base along with a wide geographic footprint position it well in the industry. The company continues its aggressive acquisition strategy to drive growth. The acquisition of steel and aluminum components maker Metals USA is a strategic fit for the company’s portfolio and complements its existing customer base, product mix and geographic footprint.
Moreover, the acquisition of Aluminium Services UK Limited has allowed Reliance Steel to expand its presence in the aerospace market. The purchase of Fox Metals and Alloys has also strengthened the company's foothold in the oil and gas space. The recently announced acquisition of Tubular Steel, Inc will also expand Reliance Steel's product range and supports its customer diversification strategy.
Reliance Steel is also seeing strong demand for its products across aerospace and automotive markets. Demand in the aerospace market is backed by higher commercial aerospace build rates. Strong demand is also witnessed in the automotive market, supported by the company’s toll processing businesses in the U.S. and Mexico as well as increased use of aluminum in the industry.
However, Reliance Steel continues to be challenged by weak steel industry fundamentals and soft steel and metals pricing. The U.S. steel industry has been hit hard by high levels of imports of cheaper steel products.
Prices for carbon steel products are expected remain soft in the near term. Excessive imports are keeping prices for flat roll and plate under pressure.
Moreover, the non-residential construction market – Reliance Steel’s biggest end-market – continues to be a weak link. While there has been some recovery of late, demand still remains significantly below the peak levels achieved in 2006. In addition, the company’s business in the energy markets is expected to remain under pressure in the near term due to weak oil pricing.
Reliance Steel is a Zacks Rank #3 (Hold).
Other Stocks to Consider
Other companies in the basic materials space worth considering are Grupo Simec S.A.B. de C.V. SIM, Coeur Mining, Inc. CDE and Richmont Mines Inc. RIC, all retaining a Zacks Rank #2 (Buy).
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