01—Abstract
Summary
Summary of the 10-K filed February 27, 2019. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. reported record 2018 results, with net sales of $11.53 billiona, up $1.81 billion or 18.7% from 2017, and net income attributable to Reliance of $633.7 million.
Management attributed the growth mainly to higher metals pricing, including the favorable impact of Section 232 tariffs, along with healthy demand and increased value-added processing. Gross profit reached a record $3.28 billionb, with a gross profit margin of 28.4%, near the high end of the company's sustainable 27% to 29% range. Diluted earnings per share were $8.75, compared with $8.34 in 2017.
Cash flow from operations rose to $664.6 millionc from $399.0 million, despite significantly higher working capital requirements. Capital expenditures were a record $239.9 million, and the company returned capital through $145.3 million of dividends and $484.9 million of share repurchases. Net debt-to-total capital rose to 30.8% from 27.2%, and total debt was $2.21 billion.
The company stated it was in compliance with all financial covenants, with an interest coverage ratio of 11.5 times against a 3.0 times minimum. The filing also highlights risks, including metal price volatility, potential reversal of Section 232 tariff benefits, cyclical end markets, growing reliance on acquisitions, and $1.46 billiond of variable-rate debt. In 2018 the company completed three acquisitions (DuBose, KMS and All Metals) and bought the remaining 40% noncontrolling interest in Acero Prime, and in February 2019 it raised its quarterly dividend 10.0% to $0.55 per share.
02—Key points
Key Highlights
- Record net sales of $11.53 billion in 2018, up 18.7% from 2017, mainly driven by higher metals prices.
- Record gross profit of $3.28 billion, with a gross profit margin of 28.4%, near the high end of its sustainable 27% to 29% range.
- Record pretax income of $850.6 million and diluted EPS of $8.75, versus $8.34 in 2017 (which included a $207.3 million net tax benefit from Tax Reform).
- Operating cash flow of $664.6 million, up from $399.0 million, despite higher working capital needs.
- Record capital expenditures of $239.9 million and record share repurchases of $484.9 million.
- Net debt-to-total capital rose to 30.8% from 27.2%; total debt was $2.21 billion, and the company was in compliance with all covenants.
- Quarterly dividend increased 10.0% to $0.55 per share in February 2019, the 26th increase since the 1994 IPO.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Reliance kept $0.06.
- Revenue$11.53B100.0%
- Cost of revenue−$8.25B71.6%
- Gross profit$3.28B28.4%
- Operating costs−$2.34B20.3%
- Operating income$937.5M8.1%
- Interest, other & tax−$295.7M2.6%
- Net income$641.8M5.6%
Where FY2018 revenue went
$11.53B- Cost of revenue: $8.25B, 72% of revenue
- SG&A: $2.09B, 18% of revenue
- Net income: $641.8M, 5.6% of revenue
- Other operating costs: $252.2M, 2.2% of revenue
- Interest, other & tax: $295.7M, 2.6% of revenue
Kept 5.6% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 27, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $11.53B$9.72B | +18.7% |
| Cost of Revenue | $8.25B$6.93B | +19.0% |
| Gross Profit | $3.28B$2.79B | +17.7% |
| SG&A Expenses | $2.09B$1.90B | +9.9% |
| Operating Expenses | $10.60B$9.06B | +17.0% |
| Operating Income | $937.50M$662.40M | +41.5% |
| Interest Expense | $86.20M$73.90M | +16.6% |
| Net Income | $641.80M$613.40M | +4.6% |
| EPS (Basic) | $8.85$8.42 | +5.1% |
| EPS (Diluted) | $8.75$8.34 | +4.9% |
| Shares Outstanding (Basic) | 71.62M72.85M | −1.7% |
| Shares Outstanding (Diluted) | 72.44M73.54M | −1.5% |
05—Questions
Frequently Asked Questions
What drove the increase in Reliance's 2018 results?
The filing attributes the increase mainly to higher metals prices, including the favorable pricing impact of Section 232 tariffs, healthy demand, and a higher share of value-added processing. Net sales rose 18.7% to $11.53 billion, and gross profit rose 17.7% to $3.28 billion.
How significant is the risk of metal price volatility for Reliance?
The filing describes metal price volatility as a key risk. Reliance generally does not use long-term supply agreements or hedging arrangements, and it notes that falling prices can compress gross margins because higher-cost inventory is sold at lower prices. It also states that the Section 232 tariffs have favorably affected prices and that their expiration or relaxation could create downward pressure on U.S. metal prices.
How leveraged is the company and how is its debt structured?
Total debt was $2.21 billion at December 31, 2018, including $1.46 billion of variable-rate debt. Each 100 basis point increase in interest rates would add approximately $14.6 million of annual interest expense. The company stated its interest coverage ratio was 11.5 times against a 3.0 times minimum, and its leverage ratio was 32.5% against a 60% maximum.
How is Reliance returning capital to shareholders?
In 2018 Reliance paid $145.3 million in dividends and repurchased shares for $484.9 million, including about 6.1 million shares at an average cost of $79.94. The board raised the quarterly dividend to $0.50 in February 2018 and to $0.55 in February 2019. The repurchase authorization was extended through December 31, 2021, with about 7.0 million shares remaining.
06—Continue