Reliance Steel & Aluminum: A Very Reliable Operator

Core Viewpoint - Reliance Steel & Aluminum Co. has achieved all-time high share prices despite a decline in sales and earnings compared to an exceptionally strong 2022, indicating strong underlying business performance and resilience in a cyclical industry [2][4]. Company Overview - Reliance Steel is the largest metals service center in North America, operating over 300 locations across 40 states and 12 other countries, providing value-added metal services and distributing over 100,000 products [3]. - The company focuses on small orders averaging just over $3,000, catering to customers who cannot cost-effectively perform these services in-house, showcasing its niche market strength [3]. Current Financial Results - In 2023, revenues decreased by 13% to $14.8 billion, while tons sold increased by nearly 4% [4]. - Gross margins remained stable at approximately 30%, with adjusted operating profits down 28% to $1.74 billion and reported earnings down 27% to $1.34 billion [4]. - The final quarter of 2023 saw tons sold increase by 5%, with revenues down nearly 8% to $3.3 billion [5]. Financial Health and Shareholder Returns - The company reported a net debt of only $70 million at year-end, indicating a strong balance sheet [5]. - A quarterly dividend was increased by 10% to $1.10 per share, marking the 31st consecutive dividend increase since going public in 1994 [5]. - The company has provided a positive outlook for 2024, anticipating adjusted earnings of $5.40 per share for the first quarter [5]. Recent Developments - Reliance Steel has rebranded to reflect its broader service offerings beyond steel and aluminum [6]. - Recent acquisitions include Cooksey Iron & Metal, contributing approximately $90 million in revenue, and American Alloy Steel, adding $310 million in sales [6]. Valuation Insights - Following the earnings release, shares rose over 10% to $330, giving the company a $19.1 billion equity valuation [7]. - The company trades at 15 times the earnings of $22 per share for 2023, down from around $30 per share in 2022, with operating margins currently around 11-12% [7]. - Even with potential margin contraction, the company is expected to maintain strong profitability, suggesting that long-term prospects remain favorable despite current valuations [7].