01—Abstract
Summary
Summary of the 10-K filed February 24, 2017. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. reported 2016 net sales of $8.61 billiona, down 7.9% from $9.35 billion in 2015, with net income attributable to Reliance of $304.3 million, or $4.16 diluted earnings per share, flat with 2015.
Pricing was the main drag: same-store average selling price per ton fell 7.3%, while same-store tons sold decreased 2.7%. Despite lower revenue, gross profit margin rose to 30.1%, the highest in the company's history, and operating income was $512.6 millionb compared with $546.6 million in 2015. Impairment and restructuring charges totaled $69.1 million, mainly tied to energy-related businesses affected by low oil prices.
Cash flow from operations was $626.5 millionc, which funded $154.9 million of capital expenditures, $348.7 million for acquisitions, and $120.4 million of dividends. In September 2016 the company entered a $2.1 billion unsecured five-year credit agreement, including a $1.5 billion revolver and a $600.0 million term loan.
Total debt was $1.95 billiond at year-end, the net debt-to-total capital ratio improved to 30.3% from 31.8%, and $897.4 million was available on the revolver. In February 2017 the board raised the quarterly dividend 5.9% to $0.45 per share, its 24th increase since the 1994 IPO.
02—Key points
Key Highlights
- Net sales of $8.61 billion in 2016, down 7.9% from $9.35 billion in 2015, driven by lower metal pricing and lower tons sold.
- Record gross profit margin of 30.1% in 2016, up from 27.2% in 2015, with gross profit of $2.59 billion.
- Net income attributable to Reliance of $304.3 million, with diluted EPS of $4.16, the same as 2015.
- Impairment and restructuring charges of $69.1 million in 2016, primarily for energy-related businesses.
- Operating cash flow of $626.5 million, down from $1.03 billion in 2015, reflecting lower working capital release.
- Three acquisitions in 2016 (Tubular Steel, Best Manufacturing, Alaska Steel) with $348.7 million net of cash acquired, plus a new $2.1 billion credit agreement.
- Quarterly dividend increased to $0.45 per share in February 2017, the 24th increase since the 1994 IPO, with dividends paid for 57 consecutive years.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Reliance kept $0.04.
- Revenue$8.61B100.0%
- Cost of revenue−$6.02B69.9%
- Gross profit$2.59B30.1%
- Operating costs−$2.07B24.1%
- Operating income$517.8M6.0%
- Interest, other & tax−$213.5M2.5%
- Net income$304.3M3.5%
Where FY2016 revenue went
$8.61B- Cost of revenue: $6.02B, 70% of revenue
- SG&A: $1.80B, 21% of revenue
- Net income: $304.3M, 3.5% of revenue
- Other operating costs: $274.4M, 3.2% of revenue
- Interest, other & tax: $213.5M, 2.5% of revenue
Kept 3.5% as net incomeNet income $304.3M · 3.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 24, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $8.61B$9.35B | −7.9% |
| Cost of Revenue | $6.02B$6.80B | −11.5% |
| Gross Profit | $2.59B$2.55B | +1.7% |
| SG&A Expenses | $1.80B$1.73B | +4.2% |
| Operating Expenses | $8.10B$8.80B | −8.0% |
| Operating Income | $517.80M$549.80M | −5.8% |
| Interest Expense | $84.60M$84.30M | +0.4% |
| Net Income | $304.30M$311.50M | −2.3% |
| EPS (Basic) | $4.21$4.20 | +0.2% |
| EPS (Diluted) | $4.16$4.16 | 0.0% |
| Shares Outstanding (Basic) | 72.36M74.10M | −2.3% |
| Shares Outstanding (Diluted) | 73.12M74.90M | −2.4% |
05—Questions
Frequently Asked Questions
How did Reliance perform in 2016 despite lower metal prices?
Net sales fell 7.9% to $8.61 billion because pricing was significantly lower and tons sold declined. Gross profit margin still reached a company record of 30.1%, which kept operating income margin near prior-year levels at 6.0% versus 5.8%. Operating income was $512.6 million compared with $546.6 million in 2015.
What drove the impairment charges in 2016?
The company recorded $52.4 million of impairment of long-lived assets and total impairment and restructuring charges of $69.1 million. These mainly related to certain energy-related businesses affected by the decline in oil prices and drilling activity, along with charges for the planned closure or sale of certain locations.
How strong is the balance sheet and liquidity position?
Total debt was $1.95 billion at December 31, 2016, and the net debt-to-total capital ratio improved to 30.3% from 31.8%. The company had $897.4 million available on its $1.5 billion revolving credit facility, and it was in compliance with all financial covenants, with an interest coverage ratio of about 7.0 times against a 3.0 times minimum.
What is the outlook for capital spending and dividends?
The 2017 capital expenditure budget is approximately $200 million, mostly for internal growth, with maintenance capital expenditures estimated at $80 to $90 million. In February 2017 the board raised the quarterly dividend to $0.45 per share from $0.425, and the company did not repurchase any shares in 2016.
06—Continue