Reliance Steel (NYSE: RS) reported Q2 EPS of $3.10, $0.35 better than the analyst estimate of $2.75. Revenue for the quarter came in at $2.99 billion versus the consensus estimate of $3 billion.

Second Quarter 2018 Financial Highlights

• Net sales of $2.99 billion set a new Company record, and were up 20.8% from $2.48 billion in the second quarter of 2017 and up 8.4% from $2.76 billion in the first quarter of 2018.
• Tons sold were up 2.9% from the second quarter of 2017 and down 0.7% from the first quarter of 2018, with the average selling price per ton sold up 18.1% from the second quarter of 2017 and up 9.6% from the first quarter of 2018.
• Gross profit dollars were a record $917.5 million with a gross profit margin of 30.7%, compared to 28.4% in the second quarter of 2017 and 29.7% in the first quarter of 2018. FIFO gross profit margin was the second highest in the Company’s history at 32.8%, compared to 28.8% in the second quarter of 2017 and 30.6% in the first quarter of 2018.
• Pre-tax income was a record $306.6 million, up 101.2% from $152.4 million in the second quarter of 2017 and up 36.1% from $225.2 million in the first quarter of 2018.
• Net income attributable to Reliance was $230.8 million, up 124.1% from $103.0 million in the second quarter of 2017 and up 36.6% from $169.0 million in the first quarter of 2018.
• Earnings per diluted share were the second highest in the Company’s history at $3.16, up 125.7% from $1.40 in the second quarter of 2017 and up 37.4% from $2.30 in the first quarter of 2018.
• Non-GAAP earnings per diluted share were a record at $3.10, up 121.4% from $1.40 in the second quarter of 2017 and up 34.8% from $2.30 in the first quarter of 2018.
• The effective tax rate was 24.0%, compared to 31.2% in the second quarter of 2017 and 24.0% in the first quarter of 2018.
• Cost of sales includes a pre-tax net LIFO inventory valuation charge, or expense, of $62.5 million in the second quarter of 2018, compared to $10.0 million in the second quarter of 2017 and $25.0 million in the first quarter of 2018.
• Cash flow from operations was $83.7 million in the second quarter of 2018 and net debt-to-total capital was 27.9% at June 30, 2018.
• A quarterly cash dividend of $0.50 per share was declared on July 25, 2018 for stockholders of record as of August 17, 2018 and will be payable on September 7, 2018.

Management Commentary“Pricing momentum continued to build throughout the second quarter, resulting in yet another quarter of milestone achievements, of which we are extremely proud,” said Gregg Mollins, President and Chief Executive Officer of Reliance. “We generated record quarterly net sales and gross profit dollars for the second consecutive quarter. Our record sales of $2.99 billion, coupled with our strong gross profit margin of 30.7%, produced the highest ever quarterly gross profit dollars in Reliance’s history of $917.5 million. The continued strong execution by our managers in the field, supported by the positive business environment, drove record quarterly pre-tax income of $306.6 million, and generated the second highest quarterly earnings in our Company’s history at $3.16 per diluted share, exceeded by only the fourth quarter of 2017, which included a significant benefit from tax reform.”

Mr. Mollins continued, “The metal pricing environment was significantly stronger than we had anticipated, gaining strength as the second quarter progressed, with prices increasing in each month of the quarter across all of our major commodities. Solid demand, coupled with ongoing Section 232 activity, drove metal price increases on almost every product we sell. As a result, our average selling price per ton sold increased 9.6% compared to the first quarter of 2018, exceeding our expectation of up 5% to 8%. Tons sold in the quarter were down 0.7%, in-line with our expectation given pre-buying activity by certain of our customers in the first quarter of 2018. However, underlying demand remained strong.”

Mr. Mollins concluded, “Throughout the second quarter, our managers in the field successfully executed on Reliance’s core principles that include strong pricing discipline, inventory management and expense control, helping to generate record quarterly sales, gross profit dollars and pre-tax income, as well as our second highest quarterly earnings per share. Looking ahead, despite some continued uncertainty regarding trade actions, we are encouraged by the positive pricing momentum and continuing solid demand conditions. We remain confident in our ability to maximize our earnings power in the current environment and maintain our focus on increasing value to our stockholders.”

Business Outlook

Reliance management is optimistic in regard to business conditions in the third quarter of 2018 and anticipates that the end markets in which the Company operates will continue to gradually improve. The Company expects that demand in the third quarter of 2018 will remain solid, subject to normal seasonal patterns, which include a decline in shipping volume due to customer shutdowns and vacation schedules. In addition, there is one less shipping day in the third quarter of 2018 compared to the second quarter of 2018. As a result, the Company estimates tons sold will be down 2% to 4% in the third quarter of 2018 compared to the second quarter of 2018. Reliance management also believes pricing fundamentals will remain steady based on current demand levels and ongoing trade actions. Accordingly, the Company expects its average selling price per ton sold for the third quarter to be up 1% to 3% compared to the second quarter of 2018. As a result, management currently expects earnings per diluted share to be in the range of $2.65 to $2.75 for the third quarter of 2018.

GUIDANCE:

Reliance Steel sees Q3 2018 EPS of $2.65-$2.75, versus the consensus of $2.15.

For earnings history and earnings-related data on Reliance Steel (RS) click here.