RUSSEL METALS $26.72 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 60.9 million; Market cap: $1.6 billion; Dividend yield: 5.2%) is one of North America’s largest metal distributors. It serves 39,000 clients at 54 locations in Canada and 12 in the U.S.
In the quarter ended June 30, 2013, revenue rose 5.5%, to $758.1 million from $718.7 million a year earlier. Revenue at the company’s metal-services business declined 13%. That’s because the slower economy pushed down steel demand.
However, the energy tubular products division, which supplies pipes for oil and gas exploration and development, saw its revenue jump 63% on higher drilling activity.
Earnings fell 11.6%, to $19.9 million, or $0.33 a share, from $22.5 million, or $0.37, a year earlier. The company’s earnings fell despite the higher revenue because steel prices declined in the latest quarter. That cuts Russel’s profit margins and causes it to suffer losses on its current inventory.
Russel holds cash of $160.6 million, or $2.64 a share. Its long-term debt of $455.2 million is a reasonable 28.5% of its market cap. The stock yields 5.2%.
The company gets about 35% of its revenue from customers in the oil and gas drilling industry. That, plus its exposure to fluctuating steel prices, adds risk. However, Russell’s long-term outlook remains positive, and it is well positioned to gain as the economy recovers.
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