01—Abstract
Summary
Summary of the 10-K filed February 27, 2020. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. reported record financial results for 2019 despite softening demand and weaker metals pricing.
Net sales were $10.97 billiona, down $560.7 million, or 4.9%, from $11.53 billion in 2018. Gross profit rose 1.5% to $3.33 billion, and the gross profit margin reached a record 30.3% versus 28.4% in 2018. Net income attributable to Reliance was a record $701.5 million, up 10.7%, and diluted earnings per share were a record $10.34, up 18.2%.
Management attributed the margin gains to investments in processing equipment, which lifted the share of orders with value-added processing to 51% from 49% in 2018. Cash flow and balance sheet strengthened significantly. Cash provided by operations was a record $1.30 billionb, up 95.8%, driven by profitability and lower working capital.
The company repaid roughly $620 millionc of debt, reducing the net debt-to-total capital ratio to 21.4% from 30.8%. Total debt fell to $1.60 billion, and $1.09 billion was available on the $1.5 billion revolving credit facility. Capital expenditures were a record $242.2 million, and the 2020 capital expenditure budget is approximately $250 million.
Shareholder returns continued. The Board increased the quarterly dividend 13.6% to $0.625d per share in February 2020, the 27th increase since the 1994 IPO.
In 2019 the company repurchased 592,934 shares for $50.0 million and paid $151.3 million in dividends. The 10-K also notes the acquisition of Fry Steel Company on December 31, 2019, and an audit report from KPMG LLP with an unqualified opinion on the financial statements and internal control over financial reporting.
02—Key points
Key Highlights
- Net sales of $10.97 billion in 2019, down 4.9% from $11.53 billion in 2018, with same-store tons sold down 4.2%.
- Record gross profit margin of 30.3% versus 28.4% in 2018; gross profit of $3.33 billion, up 1.5%.
- Record net income attributable to Reliance of $701.5 million, up 10.7%, and record diluted EPS of $10.34, up 18.2%.
- Record cash provided by operations of $1.30 billion, up 95.8%, with net debt-to-total capital falling to 21.4% from 30.8%.
- Total debt reduced to $1.60 billion from $2.21 billion, with $1.09 billion available on the revolving credit facility.
- Record capital expenditures of $242.2 million in 2019; 2020 capital expenditure budget of approximately $250 million.
- Quarterly dividend raised 13.6% to $0.625 per share in February 2020, the 27th increase since the 1994 IPO.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 27, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $10.97B$11.53B | −4.9% |
| SG&A Expenses | $2.10B$2.09B | +0.2% |
| Operating Expenses | $9.96B$10.60B | −6.0% |
| Operating Income | $1.01B$937.50M | +8.1% |
| Interest Expense | $85.00M$86.20M | −1.4% |
| Net Income | $706.10M$641.80M | +10.0% |
| EPS (Basic) | $10.49$8.85 | +18.5% |
| EPS (Diluted) | $10.34$8.75 | +18.2% |
| Shares Outstanding (Basic) | 66.89M71.62M | −6.6% |
| Shares Outstanding (Diluted) | 67.86M72.44M | −6.3% |
05—Questions
Frequently Asked Questions
Why did gross profit margin improve even though sales declined?
Management credited continued investment in processing equipment, which increased the share of orders with value-added processing to 51% in 2019 from 49% in 2018, along with pricing discipline and strong execution by field managers. Lower carbon steel costs also produced LIFO income of $156.0 million in 2019, compared with a LIFO charge of $271.8 million in 2018.
How much debt did the company repay and how strong is its liquidity?
Net debt repayments were $617.9 million in 2019. Total outstanding debt at December 31, 2019 was $1.60 billion, and cash and cash equivalents were $174.3 million. The company had $1.09 billion available on its $1.5 billion revolving credit facility, and it stated it was in compliance with all financial covenants.
What did the company return to shareholders in 2019?
Dividends and dividend equivalents paid totaled $151.3 million, and the company repurchased 592,934 shares for $50.0 million at an average cost of $84.33 per share. Approximately 6.4 million shares remained authorized under the repurchase plan, which runs through December 31, 2021.
What acquisitions did the company complete?
The company acquired Fry Steel Company on December 31, 2019, and no Fry Steel sales were included in 2019 net sales. Its 2018 acquisitions included All Metals Holding, LLC, Acero Prime (purchase of the remaining 40% noncontrolling interest), KMS Companies, and DuBose National Energy Services. The 10-K states that the company has acquired 67 businesses since its 1994 IPO.
What are the main risks to future results?
The filing identifies metal price volatility as a key risk, since the company generally does not use hedging and may be unable to pass on cost increases or may hold higher-cost inventory when prices fall. It also cites cyclical end markets, import pressure and the future of Section 232 tariffs, supplier concentration, and a $1.60 billion debt load with variable-rate exposure, where a 100 basis point rate increase would add about $8.5 million of annual interest expense.
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