Shareholders of this metal distributor continue to benefit from its rising sales on both sides of the U.S.-Canada border. That regional diversity helped lift overall revenue by 11% in the most-recent quarter as selling prices in both markets improved.
Given the company’s unique business model, it’s been largely able to stay out of the way of higher U.S. tariffs. Its shares now trade at just 7.6 times the company’s 2019 earnings forecast. That only adds to the stock’s appeal.
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RUSSEL METALS (Toronto symbol RUS; www.russelmetals.com) is one of North America’s largest metal distributors. It serves over 29,000 clients at 51 locations in Canada and 12 in the U.S.
In the three months ended March 31, 2019, revenue rose 11.0%, to $1.03 billion from $931.3 million a year earlier. The increase came from higher selling prices as well as the acquisition of DuBose Steel in 2018.
DuBose is a structural steel service operation with processing capabilities. From its facilities in Roseboro and Fayetteville, North Carolina, it serves customers along the U.S. East Coast, including the southeast.
Total revenue for DuBose over the last year was roughly $85 million. That’s small in comparison to Russel’s annual sales of over $3.3 billion. But DuBose added immediately to profits and allowed Russel to expand further into the U.S.
Earnings in the latest quarter were $34.3 million, or $0.55 a share. That’s a 10.9% decrease from $38.5 million, or $0.62, a year earlier. The decline came from higher costs for the steel that Russel distributes.
Value Stocks: Tariffs aren’t a problem but oil and gas markets might be
Oil and gas clients supply about 38% of the company’s revenue. That adds to its cyclical risk.
Russel is mostly unaffected by U.S. tariffs on foreign steel. That’s because the company is a steel distributor, rather than a producer. It distributes steel as well as processes it into products according to customer specifications. It generates about 30% of its revenues in the U.S.
Restrictions on steel imports into the U.S., including tariffs, push up prices in that country. In the short term, it raises the value of Russel’s steel inventory. At the same time, the company passes on any price increases directly to its customers.
The company holds cash of $117.2 million, or $1.89 a share; its $443.0 million of debt is a reasonable 35% of its market cap.
The stock trades at just 7.6 times the 2019 forecast earnings of $2.63 per share. That kind of value bodes well for future stock-price gains. The shares also yield a high 7.6%.
Re August 7th report on Russel Metals. Three inconsistent hence confusing comments.
“stays out of the way of U.S. tariffs”
“decrease (in earnings 10.9%) came from higher costs for steel”
“the company passes on price increases to customers”
Thanks for your question. You are correct…Russel in general sources the steel products it distributes in the country it sells them in. Rising prices, however, are a short-term negative for the company in that it may not be able to immediately pass on increases to its customer. As well, accounting rules require the company to write up or down the value of steel it has in inventory on a regular basis…so that can help or hurt reported earnings.
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Re August 7th report on Russel Metals. Three inconsistent hence confusing comments.
“stays out of the way of U.S. tariffs”
“decrease (in earnings 10.9%) came from higher costs for steel”
“the company passes on price increases to customers”
Please explain.
Thanks
Thanks for your question. You are correct…Russel in general sources the steel products it distributes in the country it sells them in. Rising prices, however, are a short-term negative for the company in that it may not be able to immediately pass on increases to its customer. As well, accounting rules require the company to write up or down the value of steel it has in inventory on a regular basis…so that can help or hurt reported earnings.