RUSSEL METALS (Toronto symbol RUS; www.russelmetals.com) is one of North America’s largest metal distributors. It serves 39,000 clients at 53 locations in Canada and 12 in the U.S.
In the quarter ended December 31, 2013, Russel’s revenue rose 5.9%, to $811.1 million from $765.9 million a year earlier. Sales at the company’s metal services business rose 4%, as higher demand offset lower selling prices. The energy tubular products division, which supplies pipes for oil and gas exploration and development, saw its revenue rise 12%.
Earnings gained 13.4%, to $22.8 million from $20.1 million. Per-share earnings rose 8.8%, to $0.37 from $0.34, on more shares outstanding.
Russel holds cash of $116.2 million, or $2.64 a share. The company’s long-term debt of $457.2 million is 25.0% of its market cap. The stock yields 4.6%.
In December 2013, the company bought Monarch Supply, an oilfield services firm that mainly operates in Alberta’s Drayton Valley area, for $33 million. Monarch’s annual sales are about $50 million. Customers in the oil and gas industry supply about 35% of Russel’s revenue.
Investing in stocks: Churchill makes $250 million addition to record backlog
THE CHURCHILL CORP. (Toronto symbol CUQ; www.churchillcorporation.com) provides building-construction, commercial and industrial electrical contracting, earthmoving and industrial insulation services to government and private sector clients, mainly in Western Canada.
In the three months ended December 31, 2013, Churchill earned $3.3 million, or $0.13 a share. That’s a big improvement from a loss of $62.8 million, or $2.56 a share, a year earlier. The year-ago results include a one-time writedown of $64.6 million.
Revenue increased 2.5%, to $297.0 million from $289.9 million. Churchill has worked through most of the less-profitable contracts it took on as part of its acquisitions, or that it negotiated when its markets were more competitive in 2009 and 2010.
The company’s order backlog stood at a record $2.12 billion at the end of December 2013, up 25.2% from $1.69 billion a year previous. The company added to its backlog last week after two of its divisions won $250 million worth of contracts.
Churchill’s stock has rebounded from its low of $7 in May 2013 to $11.05. Meanwhile, its $0.48 annual dividend yields a high 4.3%.
The company’s long-term debt of $132.2 million is 51% of its market cap.
In the latest edition of Stock Pickers Digest, we examine Russel’s outlook in light of the added risk of its exposure to the oil and gas industry and to fluctuating steel prices. We also look at Churchill’s earnings prospects and high long-term debt and whether it can maintain its high dividend. We conclude with our clear buy-hold-sell-advice on these two stocks.
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Along with its high dividend yield and record order backlog, Churchill Corp. carries very high debt—in fact, double the debt load at Russel Metals. Do you look carefully at a company’s debt when you invest in it? Have you had stocks whose performance justified a high level of debt? Have you owned stocks whose performance significantly deteriorated as a result of the way they handled their debt?
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