Reliance Steel and Alum (RS)

Company Products/Services/Markets:

Reliance Steel & Aluminum Co. is one of the largest metals service center companies in the United States. Through a network of more than 180 locations in 37 states, Belgium, Canada, China and South Korea, the Company provides value-added metals processing services and distributes a full line of more than 100,000 metal products. These products include galvanized, hot-rolled and cold-finished steel, stainless steel, aluminum, brass, copper, titanium and alloy steel sold to more than 125,000 customers in a broad range of industries. Some of these metals service centers provide processing services for specialty metals only. A summary of the Company's 2006 sales by product, commodity and region follows:

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Steel analyst Sal Tharani of Goldman Sachs says that Reliance accounts for about $7 billion of the "very fragmented" $15 billion market service centers catering to the metals industry. The company's largest competitor, Ryerson, agreed to be acquired by a private-equity group earlier this year. [20]

Strategy:

The Company's primary business strategy is to enhance its operating results through strategic acquisitions and expansion of its existing operations. This strategy is driven in part by the continued growth and consolidation of the metals service center industry. The Company seeks businesses that are strategically positioned to diversify or enhance its customer base, product breadth and geographic coverage. The Company has successfully completed over 30 acquisitions since its 1994 IPO. Reliance is also expanding its facilities and product offerings in several of its existing geographic locations while penetrating new markets for its products.

2006 consolidated net income was $354.5 million, an increase of 73%, compared with net income of $205.4 million in 2005. Earnings per diluted share were $4.82 for 2006, compared with earnings of $3.10 per diluted share for the year 2005. 2006 consolidated net sales were $5.74 billion, an increase of 71%, compared with $3.36 billion in 2005. [10]

Competitors:

Ryerson, Worthington Industries

Industry Trends and News:

Near-term pressures caused by lower nickel and steel prices have cut the value of the metal bars, sheet, tubing and fittings, coil and plate products that Reliance supplies to manufacturers. Mark Parr, senior steel analyst at KeyBanc Capital Markets, believes that nickel (used in stainless steel) and steel prices are now poised for a recovery. [20]

Acquisitions, Divestitures, Major Transactions, Spin-offs :

According to the company's CEO the core growth-by-acquisition strategy has been a means to "reduce the cyclicality [of the business]" through geographic and product diversification. Reliance diversifies by acquiring smaller, well-run service centers that immediately contribute to earnings. Acquired companies continue to operate independently and retain their names but benefit from Reliance's purchasing power. According to Steel analyst Sal Tharani of Goldman Sachs Reliance does not acquire companies to build synergies and, except for one instance, pays cash for the deals. The service centers retain their management and names to preserve their local relationships.

In late August 2007, Reliance authorized a 12-million share repurchase program and started buying shares at around $44 a piece. [20]

Management – Pros & Cons, Changes:

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Buy Rationale:

Wouldn't you buy this company? [30]

Sell Rationale:

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