Reliance Steel Hit by Drop in Carbon Steel Prices

Reliance Steel & Aluminum Co., Los Angeles, CA, reported its first quarterly net loss since becoming a public company in 1994. In the second quarter, Reliance had a net loss of $5.8 million, compared with profit of $156.6 million in the 2008 quarter, and $20.1 million for the first quarter of 2009.

Sales in the second quarter were $1.2 billion, down 41% from the prior-year period, and down 20% from the first quarter.

(The 2009 second quarter financial results include in cost of sales a pre-tax LIFO income amount of $75 million, compared with a pre-tax LIFO expense amount of $40 million for the 2008 second quarter, and $75 million of LIFO income for the 2009 first quarter.)

"The 2009 second quarter was the most difficult operating environment we have ever experienced at our company," CEO David H. Hannah said. "Carbon steel prices fell sharply during the quarter, much more than expected, which caused increased destocking activity and much lower gross profit margins than we had anticipated."

He said that Reliance tons sold for the 2009 second quarter were down 7%, and the average price per ton sold was down 35% from the prior-year period. On a same store basis, excluding 2008 acquisitions, tons sold were down 39%, and average price per ton sold was down 21%.

For the 2009 second quarter carbon steel sales were 57% of Reliance's revenues; aluminum sales were 19%; stainless steel sales were 12%; alloy sales were 6%; other sales were 4% and toll processing sales were 2%.

For the six months ended June 30, 2009, profit was $14.3 million, down from $264 million in the prior-year period. Sales for the six months were $2.8 billion, compared with 2008 six-month sales of $4 billion.

"We do believe that the worst is behind us, but overall we don't anticipate any meaningful improvement in demand for the balance of the year," Hannah said. "There is some good news, however, on the pricing side where it appears that we have bounced off the bottom as pricing on most all our products is increasing some. That, coupled with a better inventory position, should lead us to better gross profit margins in the second half of the year. Due to the continued uncertainty regarding economic conditions, we are not comfortable providing earnings guidance for the 2009 third quarter, except to state that we do expect to be profitable."

Reliance Steel & Aluminum Co. is a metals service center company in North America with a network of more than 200 locations in 38 U.S. states and Belgium, Canada, China, Mexico, Singapore, South Korea, and the United Kingdom. The company distributes a full line of over 100,000 metal products to more than 125,000 customers in a broad range of industries.