Shares of Reliance Steel & Aluminum (NYSE:RS) traded up 13.7% on Thursday after the metals company reported third-quarter results that came in ahead of expectations. The company's results trended down from the previous quarter but indicate that the business is holding up well in a tough operating environment.
Before markets opened, Reliance reported third quarter non-GAAP (generally accepted accounting principles) (adjusted) earnings of $2.39 per share on revenue of $2.69 billion, beating analyst expectations of $1.95 per share in earnings on sales of $2.67 billion. Net income for the quarter at $162.7 million was down from the second quarter of 2019 but up 9.7% year over year, despite a 9% drop in net sales compared to the third quarter of 2018.
CEO Jim Hoffman said in a statement that the company's execution helped it to generate strong results "despite metal prices declining more than we had anticipated."
"We continued to execute our strategy of focusing on high levels of customer service across diverse products and end markets with increasing levels of value-added processing which once again produced strong financial results during the third quarter of 2019," Hoffman said. "Demand was somewhat better than we had anticipated, which, along with outstanding performance by our managers in the field, generated quarterly net sales of $2.69 billion and a gross profit margin of 30.3%."
Reliance said shipments were higher than anticipated in the quarter, benefiting from the company's ability to generate small quantities on a just-in-time basis. Shipments declined by 2% compared to the second quarter, better than Reliance's expected 4% to 6% seasonal decline.
Reliance said it expects "steady" demand in the fourth quarter, including the typical slowdown around the holiday season, and expects overall metals pricing to remain near current levels. Steady would be a win for the company, with investors concerned that commodity and metals producers could be adversely impacted if the U.S. economy falls into a recession.
The company is forecasting earnings of between $1.60 and $1.70 per share in the fourth quarter, ahead of the $1.57 per-share consensus. Non-residential construction, aerospace, and automotive markets are leading the way for now, with energy and oil and gas demand trailing.
Shares of Reliance are up 39% for the year, easily outpacing the S&P 500's 9.8% gain. Given the uncertainty about the economy, it's hard to see that sort of outperformance continuing indefinitely, but Reliance has shown great strength so far in 2019.