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Reliance sees improvement despite headwinds

Keywords: Tags  Reliance Steel & Aluminum, David Hannah, Gregg Mollins, earnings results, metals pricing, toll processing, capital spending, Corinna Petry

CHICAGO — Pricing was the largest headwind against earnings power for Reliance Steel & Aluminum Co. for most of last year, and has yet to gain real strength, given demand and capacity utilization and economic uncertainty.

Global economic and domestic political uncertainty will continue to affect metal sales in 2013, chairman and chief executive officer David H. Hannah said during the company’s Feb. 21 earnings conference call.

From a demand standpoint, the Los Angeles-based service center chain will see growth from a number of major end use industries, president and chief operating officer Gregg J. Mollins said, including automotive for its toll processing operations, commercial aerospace, and heavy industry, such as rail cars, barges, tanks and transmission towers.

Mollins also believes there will be an uptick in demand from the North American energy plays.

Reliance plans to expand two of its toll processing plants and add new equipment to keep up with automotive steel demand. It expects to spend $180 million on capital projects this year vs. $214 million last year.

This year is starting off more slowly than last year, Hannah said. In terms of tons sold per day, January was off 4 percent from 2012 and pricing was down 5.4 percent, which is having more of an impact on Reliance’s guidance than tonnage.

"Keep in mind that last year’s first quarter was our best in terms of earnings, tons and pricing. This year, we expect to return to a more normal pattern, with the second quarter being our best," he said, but the third quarter could be good if the nonresidential construction business improves.

"We are seeing an improvement in quoting. ... We are doing a lot more quoting. We just toured several large steel suppliers and their inclination is similar to our own. They are seeing more quotes and they think some projects will be let," Mollins said.

The federal budget issues are what "has a foot on the brake," Hannah said. "If you’re building a stadium or strip mall, you want to know what’s going on with the economy. And we don’t know that. We need to get the folks in Washington moving in the right direction."

Reliance posted 2012 net income of $403.5 million, up 17.4 percent from $343.8 million the previous year, on sales that improved 3.8 percent to $8.44 billion. Fourth-quarter net income of $80.4 million was up 18.4 percent from $67.9 million a year earlier despite a 7.1-percent decline in sales to $1.89 billion.

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