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| === Business Segments === | === Business Segments === | ||
| - | Reliance Steels operates in a wide range of geographies with numerous product offerings. Most of its sales (96%) are generated in Northern America with a bulk of its revenue (55%) coming from Carbon Steel products. <ref name=10K,7/> <ref name=10K,8/> Most deliveries originate in the US or Canada, but there is also a small presence internationally.<ref name=10K,1/> Most of Reliance's international expansion comes through strategic acquisitions, especially in Canada.<ref name=10K,6>[http://www.rsac.com/files/financial/2008_Form10K/HTML2/default.htm Reliance Steel (RS) Form 10-K, Fiscal Year 2008, "Customers", p.6]</ref> With over, 125,000 customers, Reliance focuses mainly on small customers with quick turnaround.<ref name=10K,4/> In 2008, 85% of orders were from repeat customers.<ref name=10K,6> | + | Reliance Steels operates in a wide range of geographies with numerous product offerings. Most of its sales (96%) are generated in Northern America with a bulk of its revenue (55%) coming from Carbon Steel products. <ref name=10K,7/> <ref name=10K,8/> Most deliveries originate in the US or Canada, but there is also a small presence internationally.<ref name=10K,1/> Most of Reliance's international expansion comes through strategic acquisitions, especially in Canada.<ref name=10K,6>[http://www.rsac.com/files/financial/2008_Form10K/HTML2/default.htm Reliance Steel (RS) Form 10-K, Fiscal Year 2008, "Customers", p.6]</ref> With over, 125,000 customers, Reliance focuses mainly on small customers with quick turnaround.<ref name=10K,4/> In 2008, 85% of orders were from repeat customers.<ref name=10K,6/> |
| [[Image:Revenue_RS.jpg |thumb|right|450px| This graph is a breakdown of Reliances' markets by geographic location in 2008. Reliance operates primarily in the Midwest but also has a large presence in the Southeast.<ref name=10K,7/>]] | [[Image:Revenue_RS.jpg |thumb|right|450px| This graph is a breakdown of Reliances' markets by geographic location in 2008. Reliance operates primarily in the Midwest but also has a large presence in the Southeast.<ref name=10K,7/>]] | ||
Revision as of 02:47, May 20, 2009
Reliance Steel & Aluminum Company (NYSE: RS) is the largest metals service center company in North America.[1] As a metal service provider it purchases, processes, and delivers metals to end-users.[2] It provides over 100,000 different metal products in over 200 locations globally.[2] Reliance Steel's primary business strategy is to increase operating results through acquisitions. Since 1994 it has acquired 40 other metal service centers.[3] Its largest acquisition to date was completed in August 2008 with the acquisition of PNA Group Holding Corporation for $1.1 billion dollars.[3] This acquisition increased sales by $888 million over the last five months of 2008 and led to highest ever sales of $8.72 billion and a record net income of $482.8 million in 2008.[2]
The economic downturn in 2008 has had many effects on Reliance Steel's operations. As demand for metals decreased, numerous mills began to cut prices. This led Reliance to destock its inventory in order to replace higher price stock with lower cost materials.[4]. Leading up to 2008, suppliers have been gaining power as mills have been consolidating their operations. But, Reliance's lack of dependence on a single supplier and its long term relationships with its numerous suppliers have allowed it to purchase products at favorable prices.[5] These fluctuations in price had a strong effect on the industry causing many service centers to incur a fourth quarter loss.[2] However, Reliance was able to remain profitable in the fourth quarter by reducing its operating costs and working capital budget by 62%.[6] [7] Furthermore, its lack of dependence on a single customer group or product type have made it less vulnerable to economic instability in specific customer groups or industries.[8].
Company Overview
As a metal services center Reliance Steel acts as a middle man between metal mills and end-users. Reliance provides delivery of raw materials, processing, and inventory management to its customers.[3] In 2008, 35% of its sales were orders requiring processing of metals while 40% of sales required minimal processing and are delivered within 24 hours.[3] Reliance offers its services for a wide range of metals in numerous locations worldwide.[2] Its largest sources of revenue are steels, aluminum, and alloys.[8]
Reliance's primary business strategy is the acquisition of smaller service centers.[2] Through the acquisition of PNA in 2008 it was able to boost its sales by $888 million dollars to a record level of $8.72 billion.[2]
Business Financials
| [9] [10] | 2008 | 2007 | 2006 |
|---|---|---|---|
| Revenue | $8,718 | $7,255 | $5,742 |
| Gross Profit | $2,162 | $1,838 | $1,511 |
| Gross Profit Margin | 24.8% | 25.3% | 26.3% |
| Operating Expenses | $1,309 | $1,114 | $884 |
| Operating Income | $852 | $723 | $627 |
| Net Income | $483 | $408 | $355 |
2008 would be the year of record revenue, profits, and cash flows for Reliance Steel. [11] Despite a slow fourth quarter, Reliance was able to perform strongly during the first 9 months of 2008.[11] With the acquisition of PNA, Reliance was able to increase its sales by $888 million and expand geographically.[11]
Sales increased by 20.2% from 2007.[10] There was an 11.8% increase in tons sold and an 8.2% increase in the average price per ton sold.[10] Even without the contribution of PNA and 2007 acquisitions, same store sales had increased by 7.0% from 2007 to 2008.[10]
Although gross profits increased by 17.7% in 2008 due to increased sales, there has been a steady decrease in gross profit margins since 2006. The mill pricing volatility is the main driver of profit margins.[10] With mills announcing increasing prices Reliance was able to sell its current stock at higher profit margins during the first half of 2008. However, with suddenly decreasing prices in the 2nd half profit margins for the last quarter dropped substantially.[10]. Furthermore, the acquisition of PNA, which tradititionally operated on lower margins led to a decrease in Reliance's profit margins.[10] Without PNA, profit margins for 2008 can be calculated at 28%.[10]
$152 million had been spent by the end of 2008 on capital expenditures for growth such as facilities, processing capabilities, geographical expansion, and new product offerings.[11] However, the 2009 capital expenditure budget is set at $80 million and acquisitions were suspended at the start of 2009.
The record breaking net income of $482.8 million can be attributed to higher gross profit and operating income from high commodity prices and the contribution of its 2008 acquisitions.[10]
The fourth quarter of 2008 would end the year with record cash flows for 2008 of $665 million.[11] This increase in cash flow was primarily due to the inventory destocking caused by lower prices set by mills.[11]
Business Segments
Reliance Steels operates in a wide range of geographies with numerous product offerings. Most of its sales (96%) are generated in Northern America with a bulk of its revenue (55%) coming from Carbon Steel products. [5] [8] Most deliveries originate in the US or Canada, but there is also a small presence internationally.[2] Most of Reliance's international expansion comes through strategic acquisitions, especially in Canada.[12] With over, 125,000 customers, Reliance focuses mainly on small customers with quick turnaround.[3] In 2008, 85% of orders were from repeat customers.[12]
Reliance offers more than 100,000 products with a focus on alloys, aluminum, brass, copper, carbon steel, stainless steel, titanium, and specialty metal products.[2]
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References
- ↑ Reliance Steel & Aluminum Co. Completes PNA Group Acquisition for $1.1 Billion; Raises $500 Million in a New Senior Unsecured Term Loan; and Settles Cash Tender Offers for PNA’s Senior Notes, August 4, 2008
- ↑ 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 Reliance Steel (RS) Form 10-K, Fiscal Year 2008, "Business", p.1
- ↑ 3.0 3.1 3.2 3.3 3.4 Reliance Steel (RS) Form 10-K, Fiscal Year 2008, "Aquisitions", p.4
- ↑ Reliance Steel (RS) Form 10-K, Fiscal Year 2008, "Industry and Market Cycles", p.10
- ↑ 5.0 5.1 5.2 Reliance Steel (RS) Form 10-K, Fiscal Year 2008, "Suppliers", p.7
- ↑ Reliance Steel (RS) Annual Report 2008, p.5
- ↑ Reliance Steel (RS) Form 10-K, Fiscal Year 2008, "Other Developments", p.5
- ↑ 8.0 8.1 8.2 Reliance Steel (RS) Form 10-K, Fiscal Year 2008, "Products and Processing Services", p.8
- ↑ Reliance Steel (RS) Form 10-K, Fiscal Year 2008, "Selected Financial Data", p.25
- ↑ 10.0 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 Reliance Steel (RS) Form 10-K, Fiscal Year 2008, "Selected Financial Data", p.30
- ↑ 11.0 11.1 11.2 11.3 11.4 11.5 Reliance Steel (RS) Form 10-K, Fiscal Year 2008, "Selected Financial Data", p.27
- ↑ 12.0 12.1 Reliance Steel (RS) Form 10-K, Fiscal Year 2008, "Customers", p.6
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