01—Abstract
Summary
Summary of the 10-K filed February 24, 2012. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. reported 2011 net sales of $8.13 billiona, up 28.9% from $6.31 billion in 2010, and net income attributable to Reliance of $343.8 million, up 76.9% from $194.4 million.
Diluted EPS was $4.58b versus $2.61. Management said the company is the largest metals service center in North America, operates more than 220 locations, and offers over 100,000 metal products to more than 125,000 customers. Same-store tons sold rose 9.8% in 2011, while gross profit margin slipped to 24.4% from 25.1% due to pricing volatility and competition.
Growth investments were significant in 2011. The company acquired Continental Alloys & Services (effective August 1, 2011) for approximately $313.3 millionc net of cash acquired and debt assumed, and capital expenditures reached a record $156.4 million. Total debt rose to $1.33 billion from $941.3 million, with $645.0 million outstanding on a $1.5 billion revolving credit facility.
The net debt-to-total capital ratio increased to 28.4% from 23.5%. Management reported compliance with all debt covenants, with an interest coverage ratio of about 9.5 times against a 3.0 times minimum. Looking ahead, management planned a 2012 capital expenditure budget of approximately $250 milliond and said it expects improved results in 2012 versus 2011, though it expects results to remain below its view of true earnings power until demand, especially in non-residential construction, improves materially.
The Board raised the quarterly dividend 25% to $0.15 per share in February 2012. The company also acquired McKey Perforating Co., Inc., effective February 1, 2012, with approximately $18 million in annual sales, funded by its credit facility.
02—Key points
Key Highlights
- 2011 net sales of $8.13 billion, up 28.9%; net income attributable to Reliance of $343.8 million, up 76.9%
- Gross profit margin declined to 24.4% from 25.1% in 2010, reflecting pricing volatility and competitive pressure
- Same-store tons sold increased 9.8% in 2011; non-residential construction, about 30% of sales, remained near recessionary lows
- Continental Alloys & Services acquisition (August 2011) for about $313.3 million net; capital expenditures of a record $156.4 million
- Total debt rose to $1.33 billion; net debt-to-total capital ratio increased to 28.4% from 23.5%; in compliance with all covenants
- 2012 capital expenditure budget of approximately $250 million; quarterly dividend raised 25% to $0.15 per share
- McKey Perforating acquisition effective February 1, 2012, with approximately $18 million in annual sales
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Reliance kept $0.04.
- Revenue$8.13B100.0%
- Cost of revenue−$6.15B75.6%
- Gross profit$1.99B24.4%
- Operating costs−$1.41B17.4%
- Operating income$572.8M7.0%
- Interest, other & tax−$229.0M2.8%
- Net income$343.8M4.2%
Where FY2011 revenue went
$8.13B- Cost of revenue: $6.15B, 76% of revenue
- SG&A: $1.28B, 16% of revenue
- Net income: $343.8M, 4.2% of revenue
- Other operating costs: $133.1M, 1.6% of revenue
- Interest, other & tax: $229.0M, 2.8% of revenue
Kept 4.2% as net incomeNet income $343.8M · 4.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 24, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $8.13B$6.31B | +28.9% |
| Cost of Revenue | $6.15B$4.73B | +30.1% |
| Gross Profit | $1.99B$1.58B | +25.3% |
| SG&A Expenses | $1.28B$1.10B | +16.0% |
| Operating Expenses | $7.56B$5.95B | +27.0% |
| Operating Income | $572.80M$360.70M | +58.8% |
| Interest Expense | $59.80M$61.20M | −2.3% |
| Net Income | $343.80M$194.35M | +76.9% |
| EPS (Basic) | $4.60$2.62 | +75.6% |
| EPS (Diluted) | $4.58$2.61 | +75.5% |
| Shares Outstanding (Basic) | 74.77M74.23M | +0.7% |
| Shares Outstanding (Diluted) | 75.04M74.47M | +0.8% |
05—Questions
Frequently Asked Questions
How profitable was Reliance in 2011 compared with 2010?
Net income attributable to Reliance was $343.8 million, up 76.9% from $194.4 million, and diluted earnings per share were $4.58 versus $2.61. Net sales rose 28.9% to $8.13 billion, while operating income increased to $572.8 million from $360.7 million.
Why did gross profit margin decline in 2011?
The gross profit margin fell to 24.4% from 25.1% mainly because of increased pricing volatility. Prices rose early in 2011 and then declined for most of the year, which pressured selling prices and increased competition.
How is Reliance funding its growth, and how much debt does it carry?
Growth was funded largely by operating cash flow and net revolver borrowings of $283.7 million. Total debt was $1.33 billion at December 31, 2011, with $645.0 million drawn on the $1.5 billion revolving credit facility, which matures July 26, 2016. Management stated the company was in compliance with all debt covenants.
What is the outlook for 2012?
Management expects the business climate to improve slowly but steadily and anticipates improved financial results in 2012 compared with 2011. It also said results would stay below its view of true earnings power until demand, especially in non-residential construction, improves significantly. The 2012 capital expenditure budget is approximately $250 million.
Are there any concentration risks in the customer base?
No single customer represented more than 1% of 2011 sales, and 16 customers had annual sales above $25 million. California accounted for 11% of 2011 sales, and the Midwest was the largest region at 27%.
06—Continue