RUSSEL METALS $27.96 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 60.1 million; Market cap: $1.7 billion; Dividend yield: 5.0%) is one of North America’s largest metal distributors. The company serves its roughly 33,000 customers through a network of 51 locations in Canada and 12 in the U.S.
In the three months ended June 30, 2012, Russel’s revenue rose 16.2%, to $718.7 million from $618.6 million a year earlier. All three of the company’s divisions saw gains: higher sales volumes pushed up revenue by 11% at both the steel-distribution and metalservices businesses. And revenue jumped 32% at the energy tubular products division, which supplies pipes for oil and gas firms, thanks to an increase in drilling activity.
Without one-time items, earnings per share fell 13.5%, to $0.45 from $0.52 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.
The company holds cash of $272.1 million, or $4.53 a share. Its long-term debt of $450.8 million is a reasonable 26.5% of its market cap. The stock yields 5.0%.
Russel gets 30% of its revenue from customers in the oil and gas drilling industry. That, plus its exposure to fluctuating steel prices, adds risk. However, the company’s long-term outlook remains positive, and it is well positioned to gain as the economy recovers.
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