01—Abstract
Summary
Summary of the 10-K filed February 26, 2016. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. reported net sales of $9.35 billiona for 2015, down 10.5% from $10.45 billion in 2014, and net income attributable to Reliance of $311.5 million, down from $371.5 million.
The company describes itself as the largest metals service center company in North America, with more than 300 locations in 39 states and 12 other countries, more than 100,000 products, and more than 125,000 customers. Management attributes the sales decline mainly to lower metals pricing caused by high levels of imported metal, a strong U.S. dollar, and weak global economies, along with a significant decline in volume to the energy (oil and gas) market. Average same-store selling price per ton fell 10.3%b, while same-store tons sold fell 3.2%, which management says outperformed the industry decline of 7.5% reported by MSCI.
Cash generation was a clear bright spot. Net cash provided by operating activities was a record $1.03 billionc, driven largely by a $433.1 million reduction in FIFO inventory. The company used this cash to pay down $376.6 million of net debt, repurchase $355.5 million of stock, and pay $120.1 million in dividends.
Total outstanding debt fell to $1.94 billiond from $2.32 billion, and the net debt-to-total capital ratio improved to 31.8% from 34.9%. The company recorded a $53.3 million impairment of long-lived assets, mainly tied to energy-related businesses, and management said the energy downturn would continue to weigh on near-term earnings. The company acquired Tubular Steel, Inc. (TSI) effective January 1, 2016, which had 2014 net sales of approximately $200.0 million.
Management expects 2016 capital expenditures of approximately $180 million, and it highlighted that gross profit margin increased in each successive quarter of 2015 despite falling metal prices. Investors should weigh the strong cash flow and balance sheet improvement against continued pricing pressure from imports and the uncertain duration of the energy downturn.
02—Key points
Key Highlights
- Net sales were $9.35 billion in 2015, down 10.5% from $10.45 billion in 2014; net income attributable to Reliance was $311.5 million, versus $371.5 million in 2014.
- Record operating cash flow of $1.03 billion, supported by a $433.1 million reduction in FIFO inventory.
- Total debt was reduced to $1.94 billion from $2.32 billion; the net debt-to-total capital ratio improved to 31.8% from 34.9%.
- Same-store average selling price per ton declined 10.3%, and same-store tons sold declined 3.2%, which management said outperformed the 7.5% industry decline reported by MSCI.
- Capital returns in 2015 totaled $355.5 million in share repurchases and $120.1 million in dividends; the quarterly dividend was raised 14% to $0.40 per share.
- A $53.3 million impairment of long-lived assets was recorded, primarily related to energy-related businesses, with energy-market tons sold down approximately 41%.
- Acquired Tubular Steel, Inc. (TSI) effective January 1, 2016, with 2014 net sales of approximately $200.0 million; 2016 capital expenditure budget is approximately $180 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Reliance kept $0.03.
- Revenue$9.35B100.0%
- Cost of revenue−$6.80B72.8%
- Gross profit$2.55B27.2%
- Operating costs−$2.00B21.4%
- Operating income$549.8M5.9%
- Interest, other & tax−$238.3M2.5%
- Net income$311.5M3.3%
Where FY2015 revenue went
$9.35B- Cost of revenue: $6.80B, 73% of revenue
- SG&A: $1.73B, 18% of revenue
- Net income: $311.5M, 3.3% of revenue
- Other operating costs: $271.8M, 2.9% of revenue
- Interest, other & tax: $238.3M, 2.5% of revenue
Kept 3.3% as net incomeNet income $311.5M · 3.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 26, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $9.35B$10.45B | −10.5% |
| Cost of Revenue | $6.80B$7.83B | −13.1% |
| Gross Profit | $2.55B$2.62B | −2.8% |
| SG&A Expenses | $1.73B$1.79B | −3.6% |
| Operating Expenses | $8.80B$9.83B | −10.5% |
| Operating Income | $549.80M$617.40M | −10.9% |
| Interest Expense | $84.30M$81.90M | +2.9% |
| Net Income | $311.50M$371.50M | −16.2% |
| EPS (Basic) | $4.20$4.78 | −12.1% |
| EPS (Diluted) | $4.16$4.73 | −12.1% |
| Shares Outstanding (Basic) | 74.10M77.68M | −4.6% |
| Shares Outstanding (Diluted) | 74.90M78.62M | −4.7% |
05—Questions
Frequently Asked Questions
How did Reliance perform financially in 2015?
Net sales were $9.35 billion, down 10.5% from $10.45 billion in 2014. Operating income was $546.6 million, versus $617.4 million, and net income attributable to Reliance was $311.5 million, or $4.16 diluted EPS, compared with $371.5 million and $4.73 in 2014. The decline was driven mainly by lower metal prices and the energy-related impairment.
Why did sales and pricing decline in 2015?
The filing attributes lower pricing to continued high levels of imported metal into the U.S., a strong U.S. dollar, and weak global economies, including a slowdown in China. Mill prices for many products ended 2015 down 30% to 40% from the beginning of the year. The energy (oil and gas) market also declined sharply, with tons sold to that market down approximately 41%.
How strong is Reliance's balance sheet and cash flow?
Operating cash flow was a record $1.03 billion in 2015, up from $356.0 million in 2014. Total debt was $1.94 billion at year-end, down from $2.32 billion, and the net debt-to-total capital ratio was 31.8%. The company stated it was in compliance with all material debt covenants, with an interest coverage ratio of approximately 7.0 times against a 3.0 times minimum.
What are the main risks the filing highlights?
Key risks include volatile metal prices, high import levels that pressure pricing and competition, cyclical end markets, and continued weakness in the energy market, which could lead to additional impairment and closure charges. Other risks include reliance on senior management in a decentralized structure, acquisition integration, and exposure to floating-rate debt, where a 100 basis point increase would add approximately $8.0 million in annual interest expense.
What is the company's capital allocation outlook?
The company paid $120.1 million in dividends and repurchased $355.5 million of stock in 2015, and it has about 8.4 million shares remaining under its repurchase authorization, which runs through December 31, 2018. The 2016 capital expenditure budget is approximately $180 million, largely for internal growth, and the company acquired Tubular Steel, Inc. on January 1, 2016, funded with revolver borrowings.
06—Continue