01—Abstract
Summary
Summary of the 10-K filed February 28, 2018. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. reported record gross profit in 2017, with net sales of $9.72 billiona, up from $8.61 billion in 2016, and net income attributable to Reliance of $613.4 million, compared with $304.3 million in 2016.
Diluted earnings per share were $8.34b, which the company says would have been $5.52 excluding a provisional $207.3 million net tax benefit from the Tax Cuts and Jobs Act of 2017. Gross profit reached $2.79 billion, with a gross profit margin of 28.7% against 30.1% in 2016, and operating income rose to $662.4 million from $517.8 million. Management attributed the higher sales to both higher tons sold and higher metals prices, with same-store average selling price per ton up 9.1%.
Cash flow from operations fell to $399.0 millionc from $626.5 million, mainly due to higher working capital needs from higher metal prices and stronger demand. Capital expenditures were $161.6 million in 2017, and the company plans a 2018 capital expenditure budget of approximately $225 million, its largest ever. The net debt-to-total capital ratio improved to 27.2% from 30.3%, and the company had $908.7 million available under its $1.5 billion revolving credit facility at year-end.
The Board raised the quarterly dividend 11.1% to $0.50d per share in February 2018, and the company repurchased $25.0 million of shares in 2017. The company operates more than 300 metals service center locations in 40 states and 13 other countries and describes itself as the largest metals service center company in North America.
Carbon steel accounted for 52% of 2017 sales, and about 48% of orders included value-added processing. The filing identifies risks including metal price volatility, cyclical end markets, supplier concentration, and $1.91 billion of outstanding indebtedness, of which $1.16 billion bears variable interest rates.
02—Key points
Key Highlights
- Net sales of $9.72 billion in 2017, up 12.9% from $8.61 billion in 2016, the second highest annual sales in company history.
- Gross profit of $2.79 billion, the highest in company history, with gross profit margin of 28.7% compared with 30.1% in 2016.
- Net income attributable to Reliance of $613.4 million, or $8.34 diluted EPS, including a provisional $207.3 million net tax benefit from the Tax Cuts and Jobs Act; excluding tax reform, EPS was $5.52.
- Operating income of $662.4 million, up from $517.8 million in 2016.
- Operating cash flow declined to $399.0 million from $626.5 million due to higher working capital requirements tied to higher metal prices and increased shipping volumes.
- Net debt-to-total capital ratio improved to 27.2% from 30.3%, with $908.7 million available on the $1.5 billion revolving credit facility at December 31, 2017.
- Quarterly dividend increased 11.1% to $0.50 per share in February 2018; the company has paid quarterly dividends for 58 consecutive years.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Reliance kept $0.06.
- Revenue$9.72B100.0%
- Cost of revenue−$6.93B71.3%
- Gross profit$2.79B28.7%
- Operating costs−$2.13B21.9%
- Operating income$662.4M6.8%
- Interest, other & tax−$49.0M0.5%
- Net income$613.4M6.3%
Where FY2017 revenue went
$9.72B- Cost of revenue: $6.93B, 71% of revenue
- SG&A: $1.90B, 20% of revenue
- Net income: $613.4M, 6.3% of revenue
- Other operating costs: $222.6M, 2.3% of revenue
- Interest, other & tax: $49.0M, 0.5% of revenue
Kept 6.3% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 28, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $9.72B$8.61B | +12.9% |
| Cost of Revenue | $6.93B$6.02B | +15.1% |
| Gross Profit | $2.79B$2.59B | +7.6% |
| SG&A Expenses | $1.90B$1.80B | +5.8% |
| Operating Expenses | $9.06B$8.10B | +11.9% |
| Operating Income | $662.40M$517.80M | +27.9% |
| Interest Expense | $73.90M$84.60M | −12.6% |
| Net Income | $613.40M$304.30M | +101.6% |
| EPS (Basic) | $8.42$4.21 | +100.0% |
| EPS (Diluted) | $8.34$4.16 | +100.5% |
| Shares Outstanding (Basic) | 72.85M72.36M | +0.7% |
| Shares Outstanding (Diluted) | 73.54M73.12M | +0.6% |
05—Questions
Frequently Asked Questions
What drove the increase in net income in 2017?
The filing attributes the increase in net income mainly to the favorable impact of Tax Reform, which contributed a provisional $207.3 million net tax benefit. Higher operating income from record gross profit dollars, lower impairment and restructuring charges, and lower interest expense also contributed. Net income attributable to Reliance was $613.4 million, compared with $304.3 million in 2016.
Why did operating cash flow decline in 2017?
Net cash provided by operating activities fell to $399.0 million from $626.5 million. The filing says the decrease was due to increased working capital requirements, primarily accounts receivable and inventory less accounts payable, to support higher metals prices and increased shipping volumes. Income taxes paid rose to $171.1 million from $95.1 million.
What is the company's capital spending plan for 2018?
The company's 2018 capital expenditure budget is approximately $225 million, its largest ever, much of it related to internal growth. The budget also includes about $40 million of projects carried over from the 2017 budget. Maintenance capital expenditures are estimated at approximately $80 to $90 million annually, and the company says it could significantly reduce capital spending if economic conditions warrant.
How is the company's debt position and liquidity?
Total debt at December 31, 2017 was $1.91 billion, down slightly from $1.95 billion a year earlier. Of this, $1.16 billion was variable-rate debt. The company had $538.0 million of revolver borrowings and $908.7 million available for borrowing, and it reported being in compliance with all financial covenants. The interest coverage ratio was approximately 9.3 times against a minimum requirement of 3.0 times.
What are the main risks identified for investors?
The filing highlights metal price volatility, particularly when prices decline and the company cannot pass on costs; cyclical end markets such as non-residential construction, energy, and heavy industry; competition from a large number of companies; dependence on suppliers, as consolidation among mills has reduced the number of suppliers; and substantial indebtedness with variable-rate exposure. The company also notes it does not currently use derivatives to hedge metal prices or interest rates.
06—Continue