RUSSEL METALS $19.08 (Toronto symbol RUS; TSINetwork Rating: Speculative)(905-819-7777; www.russelmetals.com; Shares outstanding: 61.7 million; Market cap: $1.2 billion; Dividend yield: 8.0%) is one of North America’s largest metal distributors, serving 39,000 clients at 53 locations in Canada and 12 in the U.S.
In the three months ended September 30, 2015, Russel’s revenue fell 25.5%, to $773.4 million from $1.04 billion a year earlier. Sales mainly declined because revenue fell 40% at the company’s energy products division, which sells pipes to oil and gas drillers.
Earnings dropped sharply, to $12.8 million, or $0.21 a share, from $33.0 million, or $0.54. The latest figure included a $2-million charge related to a more than 7% cut to the company’s workforce. Russel’s earnings fell faster than revenue because steel prices moved down in the latest quarter. That hurts its profit margins and causes it to suffer losses on its inventory.
Russel holds cash of $94.4 million, or $1.53 a share, and its $464.8 million of long-term debt is a reasonable 42% of its market cap. The stock yields a high 8.0%, and its dividend looks safe: the company’s management recently said it believes the payout is sustainable through 2016.
However, oil and gas clients supply about 35% of Russel’s revenue, which adds to its cyclical risk. The stock has dropped on investor concern that falling oil prices will keep slowing exploration and development, but the company’s long-term outlook remains positive.
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