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>>> Reliance Steel (RS) Gains on Demand Strength, Acquisitions


Zacks Equity Research

June 5, 2023


https://finance.yahoo.com/news/reliance-steel-rs-gains-demand-122700030.html


Reliance Steel & Aluminum Co. RS is gaining from strong demand across key end-use markets, a diversified product base and strategic acquisitions.

Shares of Reliance Steel have gained 23% in the past year compared with 12.8% decline of the industry.

Reliance Steel, a Zacks Rank #3 (Hold) stock, is benefiting from strong underlying demand in its major markets. It envisions healthy demand to continue in the second quarter of 2023.

Demand in non-residential construction, the company’s biggest market, improved in the first quarter. The company is optimistic that demand for non-residential construction activity in the areas in which it operates will remain at healthy levels in the second quarter.

Reliance Steel also witnessed higher year over year demand in the semiconductors market in the first quarter. RS expects the semiconductor market to remain strong and its long-term outlook for semiconductor demand remains favorable.

Demand across the broader manufacturing sectors that it serves improved modestly and the company sees stable demand in the second quarter. Demand in energy (oil and natural gas) improved year over year in the first quarter and the company is cautiously optimistic that demand will remain steady in the second quarter.

The company also witnessed higher demand for the toll processing services that it provides to the automotive market and expects demand to increase in the second quarter. Additionally, demand in commercial aerospace improved during the first quarter and the company is cautiously optimistic that demand will continue to improve in the second quarter.

Reliance Steel has also been following an aggressive acquisition strategy for a while as part of its core business policy to drive operating results. The acquisitions of Rotax Metals, Admiral Metals and Nu-Tech Precision Metals are in sync with its strategy of investing in high-quality businesses.

However, Reliance Steel faces headwinds from cost inflation. It is witnessing higher fuel, freight and labor costs. Its selling, general and administrative expenses went up around 6.4% year over year in the first quarter. The company is expected to continue to face headwinds from inflationary pressure in the second quarter.

The company also continued to face pricing pressure in the first quarter. The first-quarter average selling price per ton sold declined 6.3% from the fourth quarter of 2022, mainly due to shifts in product mix. It also fell 17.7% year over year. RS anticipates its average selling price per ton sold to be flat to up 2% sequentially in the second quarter. However, lower year-over-year selling prices are expected to affect its second-quarter performance.

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