Russel Metals Inc. (TSX: RUS) today announced third quarter
earnings of $17 million or $0.28 per share, in line with the
results reported for the second quarter of 2010 of $0.31 per share.
These results were stronger than the comparable net earnings for
the 2009 third quarter of $0.21 per share. For the nine months
ended September 30, 2010 net earnings were $52 million or $0.87 per
share on revenues of $1.6 billion.
Consolidated revenues for the third quarter of 2010 were $582
million, up 15% from the second quarter of 2010. Our volumes
increased sequentially from the second quarter of 2010 and the
comparable third quarter of 2009. Margins of 18.2%, however, were
down from the second quarter margins of 20.8%.
Metals service centers tons shipped increased 16% from the
comparable quarter in 2009 and 1% from the second quarter of 2010
resulting in revenues for the quarter of $316 million. Gross margin
dollars due to higher cost inventory declined and resulted in a
segment operating profit of $13 million for the third quarter of
2010 compared to $13 million in the third quarter of 2009 and $20
million in the second quarter of 2010. During the quarter, the
Company announced plans for the closure of its Port Robinson
facility and to combine its Ontario structural steel and other long
products operations at its Cambridge facility. Costs relating to
the closure of Port Robinson, including severance and fixed asset
write-downs of $3 million or $0.03 per share, were charged to
earnings in the quarter.
Brian R. Hedges, President and CEO, commented, "We have reacted
to reduced volumes and have produced earnings at current business
levels to support our dividend. We believe that the short and
medium term economic outlook is for modest growth in the markets
that we serve. Our decision to resize, move and combine our
structural steel operations in Ontario with our long product
operations was a proactive step to reflect the reduced activity of
the Ontario manufacturing base."
Energy tubular products revenues were $187 million in the third
quarter of 2010, an increase from the second quarter of 2010 due to
improved seasonal activity and from the third quarter of 2009.
Operating profits in this segment were $15 million for the third
quarter of 2010 compared to $11 million in the second quarter of
2010.
Mr. Hedges said, "In the first three quarters of 2010, we have
been encouraged by the strength of the drilling activity in Canada
and the U.S. as the shale drilling activity has increased and
conventional drilling for oil has also been strong. For our energy
operations the next two quarters should be stronger than the last
year despite weakness in oil country tubular product pricing due to
low flat rolled steel pricing."
Revenues for our steel distributors operations increased to $76
million, the highest level for any quarter in the past year.
Operating profits for the third quarter of 2010 were $5 million,
down from $7 million in the second quarter of 2010 as gross margins
decreased from 18.6% in the second quarter to 12.6% in the third
quarter. A large volume sale at low margins contributed to the
margin decline.
Our cash position remains strong with cash of $318 million at
September 30, 2010. Cash generated from operating activities in the
quarter was $57 million and $55 million for the nine months ended
September 30, 2010. Cash generated from operations prior to working
capital was $77 million for the nine months then ended. Cash of
$130 million has been utilized year to date to support higher
accounts receivable and inventory due to higher revenues. Cash
generated from income tax was $59 million including cash received
due to the application of 2009 losses to prior years.
Mr. Hedges commented further on growth opportunities, "We are
starting to see some earnings accretive acquisition opportunities.
We have engaged in some discussions but, to date, the acquisition
prices have exceeded our comfort levels. We will continue to be
patient and evaluate each opportunity as it is presented."
The Board of Directors approved a quarterly dividend of $0.25
per common share payable December 15, 2010 to shareholders of
record as of November 23, 2010.
The Company will be holding an Investor Conference Call on
Wednesday, November 3, 2010 at 9:00 a.m. ET to review its third
quarter results for 2010. The dial-in telephone numbers for the
call are 416-340-2216 (Toronto and International callers) and
1-866-226-1792 (U.S. and Canada). Please dial in 10 minutes prior
to the call to ensure that you get a line.
A replay of the call will be available at 416-695-5800 (Toronto
and International callers) and 1-800-408-3053 (U.S. and Canada)
until midnight, Wednesday, November 17, 2010. You will be required
to enter pass code 4501206 in order to access the call. Additional
supplemental financial information is available in our investor
conference call package located on our website at
www.russelmetals.com.
Russel Metals is one of the largest metals distribution
companies in North America. It carries on business in three
distribution segments: metals service centers, energy tubular
products and steel distributors, under various names including
Russel Metals, A.J. Forsyth, Acier Leroux, Acier Loubier, Acier
Richler, Arrow Steel Processors, B&T Steel, Baldwin
International, Comco Pipe and Supply, Fedmet Tubulars, JMS Russel
Metals, Leroux Steel, McCabe Steel, Megantic Metal, Metaux Russel,
Metaux Russel Produits Specialises, Milspec, Norton Metals, Pioneer
Pipe, Russel Metals Specialty Products, Russel Metals Williams
Bahcall, Spartan Steel Products, Sunbelt Group, Triumph Tubular
& Supply, Wirth Steel and York-Ennis.
Statements contained in this press release or on the related
conference call that relate to Russel Metals' beliefs or
expectations as to certain future events are not statements of
historical fact and are forward-looking statements. Russel Metals
cautions readers that there are important factors, risks and
uncertainties, including but not limited to economic, competitive
and governmental factors affecting Russel Metals' operations,
markets, products, services and prices that could cause its actual
results, performance or achievements to be materially different
from those forecasted or anticipated in such forward-looking
statements.
The forward-looking statements in this document reflect
management's current beliefs and are based on information currently
available to management. The material assumptions applied in making
the forward-looking statements in this document include the
following: demand from the manufacturing, resource and construction
segments of the Canadian economy and oil and gas prices have all
been significantly negatively impacted by the economic conditions
and these conditions will improve at a slow pace throughout 2010;
the price of steel will remain stable or decline during the fourth
quarter due to lack of demand; and the value of the Canadian dollar
relative to the U.S. dollar will be range bound consistent with the
third quarter of 2010. Although the forward-looking statements
contained in this document are based upon what management believes
to be reasonable estimates and assumptions, Russel Metals cannot
ensure that actual results will not be materially different from
those expressed or implied by these forward-looking statements.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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September December
30 31
(millions) 2010 2009
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ASSETS
Current
Cash and cash equivalents $ 317.8 $ 359.6
Accounts receivable 315.5 217.8
Inventories 546.0 517.9
Prepaid expenses and other assets 4.3 4.9
Income taxes 1.9 53.0
--------------------------------------------------------------------------
1,185.5 1,153.2
Property, Plant and Equipment 219.9 231.9
Future Income Tax Assets 5.2 5.9
Pensions and Benefits 7.9 8.0
Other Assets 3.5 8.3
Goodwill and Intangibles 27.7 28.4
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$ 1,449.7 $ 1,435.7
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 300.1 $ 252.3
Income taxes payable 4.3 1.4
Current portion long-term debt 1.3 1.3
--------------------------------------------------------------------------
305.7 255.0
Derivatives - 30.9
Long-Term Debt 331.0 340.8
Pensions and Benefits 6.1 5.9
Future Income Tax Liabilities 9.6 9.9
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652.4 642.5
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Shareholders' Equity
Common shares 479.1 478.9
Retained earnings 322.3 315.3
Contributed surplus 12.9 11.4
Accumulated other comprehensive income (loss) (28.6) (24.0)
Equity component of convertible debenture 11.6 11.6
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797.3 793.2
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$ 1,449.7 $ 1,435.7
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CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (UNAUDITED)
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Quarters ended Nine months ended
September 30 September 30
(millions, except per share data) 2010 2009 2010 2009
----------------------------------------------------------------------------
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Revenues $581.9 $434.3 $1,613.9 $1,539.1
Cost of sales 476.1 351.1 1,306.0 1,438.4
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Gross margin 105.8 83.2 307.9 100.7
Operating expenses 75.3 60.6 216.3 203.2
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Earnings (loss) before the following 30.5 22.6 91.6 (102.5)
Other income (expense) (0.4) - 0.9 4.3
Interest expense, net (7.2) (4.0) (20.4) (13.2)
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Earnings (loss) before income taxes 22.9 18.6 72.1 (111.4)
(Provision for) recovery of income taxes (6.3) (5.8) (20.3) 44.6
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Net earnings (loss) for the period $ 16.6 $ 12.8 $ 51.8 $ (66.8)
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Basic earnings (loss) per common share $ 0.28 $ 0.21 $ 0.87 $ (1.12)
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Diluted earnings (loss) per common share $ 0.28 $ 0.21 $ 0.87 $ (1.12)
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CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
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Quarters ended Nine months ended
September 30 September 30
(millions) 2010 2009 2010 2009
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Retained earnings, beginning of
the period $ 320.7 $ 357.6 $ 315.3 $ 467.0
Net earnings (loss) for the
period 16.6 12.8 51.8 (66.8)
Dividends on common shares (15.0) (15.0) (44.8) (44.8)
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Retained earnings, end of the
period $ 322.3 $ 355.4 $ 322.3 $ 355.4
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended Nine months ended
September 30 September 30
(millions) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net earnings (loss) for the
period $ 16.6 $ 12.8 $ 51.8 $ (66.8)
----------------------------------------------------------------------------
Other comprehensive income
(loss)
Unrealized foreign exchange
gains (losses) on translation
of self-sustaining U.S.
operations (10.4) (34.1) (5.6) (55.4)
Unrealized gains (losses) on
items designated as net
investment hedges 4.4 4.8 3.6 8.2
Unrealized gains (losses) on
items designated as cash flow
hedges - 7.6 (2.5) 12.8
Losses (gains) on derivatives
designated as cash flow
hedges transferred to net
income in the current period 0.3 (5.2) (0.1) (9.9)
----------------------------------------------------------------------------
Other comprehensive income
(loss) (5.7) (26.9) (4.6) (44.3)
----------------------------------------------------------------------------
Comprehensive income (loss) $ 10.9 $ (14.1)$ 47.2 $ (111.1)
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CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS)(UNAUDITED)
----------------------------------------------------------------------------
Quarters ended Nine months ended
September 30 September 30
(millions) 2010 2009 2010 2009
----------------------------------------------------------------------------
Accumulated net unrealized
foreign currency translation
gains and losses
Balance, beginning of period $ (25.2) $ 15.6 $ (30.0) $ 36.9
Unrealized foreign exchange
gains (losses) on translation
of self-sustaining U.S.
operations (10.4) (34.1) (5.6) (55.4)
----------------------------------------------------------------------------
Balance, end of period (35.6) (18.5) (35.6) (18.5)
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Accumulated net unrealized gains
(losses) on cash flow and net
investment hedges
Balance, beginning of period 2.3 (2.7) 6.0 (12.0)
Transitional adjustment - - - 5.4
Unrealized gains (losses) on
items designated as net
investment hedges 4.4 4.8 3.6 8.2
Unrealized gains (losses) on
items designated as cash flow
hedges - 7.6 (2.5) 12.8
Losses (gains) on derivatives
designated as cash flow hedges
transferred to net income in
the current period 0.3 (5.2) (0.1) (9.9)
----------------------------------------------------------------------------
Balance, end of period 7.0 4.5 7.0 4.5
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Accumulated other comprehensive
income (loss) $ (28.6) $ (14.0) $ (28.6) $ (14.0)
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CONSOLIDATEDCASH FLOW STATEMENTS(UNAUDITED)
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Quarters ended Nine months ended
September 30 September 30
(millions) 2010 2009 2010 2009
---------------------------------------------------------------------------
Operating activities
Net earnings (loss) for the
period $ 16.6 $ 12.8 $ 51.8 $ (66.8)
Depreciation and amortization 6.3 6.6 18.8 19.6
Future income taxes (0.9) 2.4 2.1 6.4
Loss (gain) on investment and
long-lived assets 1.2 - (0.3) (4.5)
Stock-based compensation 0.4 0.7 1.5 1.6
Difference between pension expense
and amount funded 0.1 - 0.3 (0.3)
Debt accretion, amortization
and other 1.5 0.1 2.8 0.5
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Cash from (used in) operating
activities
before non-cash working
capital 25.2 22.6 77.0 (43.5)
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Changes in non-cash working
capital items
Accounts receivable (37.7) 0.4 (98.5) 182.6
Inventories (12.3) 58.8 (31.0) 323.6
Accounts payable and accrued
liabilities 33.3 (19.7) 48.4 (191.9)
Current income taxes 47.3 7.9 58.5 (77.0)
Other 1.0 1.7 0.8 3.6
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Change in non-cash working
capital 31.6 49.1 (21.8) 240.9
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Cash from operating activities 56.8 71.7 55.2 197.4
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Financing activities
Decrease in bank borrowings - (47.0) - (64.9)
Dividends on common shares (15.0) (15.0) (44.8) (44.8)
Repayment of long-term debt (0.3) (0.4) (8.8) (1.1)
Deferred financing - (0.2) (0.7) (2.5)
Swap termination - - (35.2) -
Issue of common shares 0.1 - 0.1 -
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Cash used in financing
activities (15.2) (62.6) (89.4) (113.3)
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Investing activities
Purchase of property, plant
and equipment (4.7) (7.8) (8.1) (14.5)
Proceeds on sale of property,
plant and equipment 0.2 - 0.5 5.6
Proceeds on sale of
investment - - 6.0 -
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Cash used in investing
activities (4.5) (7.8) (1.6) (8.9)
---------------------------------------------------------------------------
Effect of exchange rates on
cash
and cash equivalents (3.1) 5.2 (6.0) 0.1
---------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents 34.0 6.5 (41.8) 75.3
Cash and cash equivalents,
beginning of the period 283.8 113.7 359.6 44.9
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Cash and cash equivalents,
end of the period $ 317.8 $ 120.2 $ 317.8 $ 120.2
====================================================-======================
Contacts: Russel Metals Inc. Marion E. Britton, C.A. Vice
President and Chief Financial Officer (905) 819-7407
info@russelmetals.com www.russelmetals.com
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