Tag Archives: RS

Reliance Steel 4Q16 Earnings Call Notes

Posted on by

Gregg J. Mollins

Macro environment continues to be challenging

“Although somewhat improved from 2015, the macro environment for our industry continue to be challenging with overall lower demand levels and pricing volatility”

Encouraged by signs of life in energy

“we are encouraged by early signs of life in the energy market. In regard to energy, the general consensus from our customer base throughout the country is more positive today than it was 90 days ago. We’ve been seeing improved quoting activity and order flows, though order sizes have been much smaller. As the downturn in oil prices and drilling activity began toward the end of 2014, we proactively addressed the declines in this market through facility closures and asset write-downs at certain of our energy-related businesses and believe we are well-positioned to participate in any recovery.”

Pleased with results in January and Feb

“Well, we were pleased with our results in January, and February continues to be at a similar pace. So, we’re happy with that. Could things change? Yeah, they can always change. That’s the business we’re in. But so far so good and we’re hopeful. ”

Everyone anticipates spending

“I think everybody is optimistic. It’s just a matter of the timing. A lot of things are happening in Washington right now. It’s all really sounds great for the steel business in Reliance. I think everybody anticipates spending, just a matter of when does it come, does it come in 2017, that’d be great. I think that if you took a poll, most would say, it’d be more into 2018, because of just the length of the time to plan these projects from what have you. But overall, it sounds very optimistic to us.”

Everything is doing better than we would have thought

“Last year. Okay. So, on 8% to 10%, we just feel as though given that we were very pleased with our January results, we thought that the momentum was going to continue, which is why we gave the guidance that we did. But to answer your question, Aldo, it’s really not specific to one particular industry, okay. It’s really across the board and it’s across the country, whether it be if you’re on the East Coast, West Coast, the mid chapters, what have you, all of our companies are all simultaneously doing better than, frankly, we would have thought.”

We’re not seeing big pre-buys ahead of potential price increases

“It happens all the time when price increases go up, some of the companies, the end users, they buy ahead of it. But we don’t see huge buys ahead of it that’s going to impact our inventories and then future purchases. So, I think it’s going to – it’s nothing unusual. I think it’s pretty much business as usual.”

Miscellaneous Earnings Call Notes

Posted on by

PepsiCo (PEP) Indra K. Nooyi on Q1 2016 Results

It’s a difficult environment indeed

“Most of the developed world outside the United States is grappling with slow growth. GDP growth in developing and emerging markets is also challenged with many D&E markets experiencing significant political unrest and high unemployment. Key energy-producing countries are dealing with significant budgetary gaps; and high levels of local inflation in many of these markets are eroding disposable income and dampening consumer spending. It’s a difficult environment indeed.”

Hugh F. Johnston – Vice Chairman, Chief Financial Officer & EVP

Incrementally less optimistic in South America and Eastern Europe

“I think the two places where we’re probably incrementally less optimistic, number one is South America, not Mexico. Mexico, I think, we’re quite positive on, but the balance of South America obviously is a challenge. And then number two is Eastern Europe. Eastern Europe is obviously continuing to be challenged from a GDP perspective and that flows through to disposable income and therefore to consumer spending on our products. The balance I think were probably roughly in line with where we’ve been.””

Hasbro’s (HAS) CEO Brian Goldner on Q1 2016 Results

Seeing impact from ongoing economic challenges

“While consumer demand remains robust, we are beginning to see an impact on some retailers from the ongoing economic challenges.”

Retailers are excited about toy category

“I would say this is the second year of strong growth year-to-date; we are seeing high single digit growth rates, both in developed economies like U.S. and also throughout Europe. Retailers are very excited about the category, as we continue to have more story driven brands, more integrated play brands and more innovation in the category. Overall, POS was very strong, as I said, but as we’ve noted before, online POS was even stronger, and many additional retailers that have been historically brick retailers are doing a very good job in omni-channel.”

Morgan Stanley (MS) James Patrick Gorman on Q1 2016 Results

Seeing a better turn in markets now

“where are we now? Though it’s impossible to predict the future, we’re seeing a slightly better turn in markets, certainly, in comparison to what was evident at the start of the first quarter, leading into the early days of February. The M&A pipeline is strong and some green shoots suggest the equity underwriting calendar may open up. The S&P level at the end of the first quarter will help with asset pricing in our Wealth Management business, where we continue to grow our lending book and see flows into managed accounts. ”

Brinker International’s (EAT) CEO Wyman Roberts on Q3 2016 Results

QSR is taking share with promotions

“I mean there’s just such a strong value proposition being played out there. And we don’t think that that’s sustainable or it’s a long term issue, I think it’s more of those are limited time offers, but they also are interesting that the QSR category is kind of showing us that they’re rethinking how they deliver value and their value propositions ”

The Coca-Cola (KO) Ahmet Muhtar Kent on Q1 2016 Results

James Quincey – President & Chief Operating Officer

The degree to which our industry was affected by the slowdown in China was worse than expected

“In China, we are adjusting our plans to reflect these realities. China’s macro environment was challenging in 2015, and that continued to be so in the first quarter. While the economic slowdown is not new, the degree to which the NARTD industry was impacted this past quarter was worse than expected.”

Chicago Bridge & Iron NV (CBI) Philip K. Asherman on Q1 2016

Customers aren’t canceling work, just delaying

“I would have to say if there’s customer impact in today’s environment, it has to do with just again a delay in making financial commitments and we’ve seen that. However, we haven’t seen any cancellations in current backlog or in prospective work. So, that’s good. It just seems to be pushing out a little further.”

Knight Transportation (KNX) CEO Dave Jackson on Q1 2016 Results

April has been better y/y

“if I were to look into April thus far, we would say what we have seen so far in April has been more of the same where we’re seen our trucks run a little bit better in terms of miles’ year-over-year and we’re seeing — so therefore we’re seeing decent volumes on a year-over-year basis.”

PulteGroup (PHM) Richard J. Dugas, Jr. on Q1 2016 Results

No V-shaped rebound

“We have believed since the outset of this housing recovery that it would be more gradual than the V-shaped rebound, typical of most housing cycles. Our thesis is unchanged as we expect an extended recovery will continue to unfold for the next several years supported by improving economy, favorable demographics, years of relative under-building and a supportive mortgage rate environment.”

Inventory of available homes remains tight

“The inventory of homes available for sale remains tight in most of our markets; and at least on the new home side it will likely remain that way for a while given the limited supply of finished lots available. ”

Fifth Third Bancorp (FITB) Gregory D. Carmichael

Would grow investment portfolio at slightly higher rates

“So, frankly, if rates were to stay at these pretty low levels, you could expect from us just to reinvest cash flows because the entry points don’t look real good. But if rates were to have a little bit of a sell-up here and present more opportunity, then you would expect our investment portfolio to grow in line with earning assets. But I don’t think you’ll see a lot of movement in the book one way or the other throughout 2016.”

Cohen & Steers’ (CNS) CEO Bob Steers on Q1 2016 Results

The asset management industry is no longer a growth industry

“The simplest takeaway from the letter is that the asset management industry in its current form is no longer a growth industry for a majority of traditional active asset managers. Overcapacity, chronically poor investment performance, high fees, competition from passive strategies, growing barriers to entry for access to distribution and the rapidly growing cost of regulatory compliance, taken together will challenge future growth and profitability for most legacy investment managers. However, we’re convinced that asset managers who are focused on a limited number of historically inefficient markets, with strong brands and track records of consistent outperformance, will be among the relatively small number of big winners.”

Real estate is under-allocated in retirement plans but not among institutional investors

“I would say that large institutions are not under-allocated to real assets. The largest endowments in sovereign wealth funds have had a 10% to 30% allocation to real-assets for some time. However, most of those allocations have been executed to private equity strategies. Where the under-allocation is more pronounced is both in the wealth and what I would call the retirement channel, the fine contribution channel which as you know we’ve been adding to our DCIO team because there’s virtually no representation in the 401(k) market in real assets.”

Reliance Steel & Aluminum (RS) Gregg Mollins on Q1 2016

Rising steel prices for the first time in over a year thanks to positive trade case filings

“for the first time in well over a year, we’ve begun to experience rising metal pricing for carbon steel products as well as stainless steel flat-rolled products. This pricing improvement, which accelerated towards the end of first quarter, was mainly result of the recent trade case filings by U.S. steel producers. We continued to support these trade actions which seem to be having a positive impact on reducing the overall level of imports in the United States marketplace and on metal prices.”

Not seeing anyone build inventory in anticipation of higher prices

“You have to realize that our average order size is about $1,600, so we are dealing with a lot of small to mid-size job shops. That’s probably the vast majority of our businesses is not with large OEMs, and so therefore they are really not buying in advance. We have not seen or heard from our guys in the field that anybody is building inventory in anticipation of higher prices. So I’d have to say basically its business as usual with our customer base and we don’t see anybody really trying to build inventories ahead of price increases.”

Reliance Steel and Aluminum 4Q15 Earnings Call Notes

Posted on by

Reliance Steel & Aluminum (RS) Gregg J. Mollins on Q4 2015 Results

Trade cases appear to have reduced imports somewhat

“Mill prices for many of our products ended the year down 30% to 40% compared to the beginning of the year, due to continued high levels of imports flooding the U.S. market resulting from a strong U.S. dollar and a weak global economy. These factors caused U.S. steel producers to file trade cases for most flat-rolled carbon steel products in the second half of 2015. We support these trade actions and it appears the pending actions have reduced imports somewhat, prompting the domestic mills to announce moderate price increases on almost all carbon steel products so far in 2016.”

Demand and pricing were softer than anticipated in 4Q

“During the fourth quarter, both demand and pricing were softer than we had anticipated. We had expected fourth quarter pricing to be down 1% to 2%. However, conditions continued to soften throughout the quarter resulting in our average selling price per ton sold declining 4.5% compared to the prior quarter and 16.6% compared to the fourth quarter of 2014.”

Demand for auto was strong and we expect that to continue

“Demand for automotive, which we service mainly through our toll processing operations in the U.S. and Mexico, was strong throughout the year; a trend we expect to continue in 2016.”

Road construction trending up

“On a positive note, demand in the road construction equipment market is trending up and is poised to increase in 2016 as a result of the Five-Year Infrastructure Bill that was passed in December of 2015.”

Non-resi construction improved but still below peak levels

“Demand in our largest end-market, non-residential construction, improved in 2015 from 2014 levels, yet our volume remains well below peak levels. We expect that demand will continue to improve in 2016 and beyond.”

You really can’t tell a whole lot from anything before March

“Really where we see the turning point, Timna, is really in the month of March. January, February is always a little bit soft in the first quarter and March really is kind of indicative of what we were going to see basically in the second quarter. So I think we will always be a little bit conservative on our guidance in the first quarter based on what we’re seeing in January and partly through February with the telling point being really in the month of March.”

Stability may mean that companies are more comfortable with M&A

“I think – here’s just one opinion, right, there is four of us sitting in the room, so you will probably get four different opinions if you want to know the truth, but the fact of the matter is, 2015 was challenging with the prices going down basically 15 months in a row, starting in September of 2014 in each and every month going forward on basically every product that we stock. When you’re going through a period of time like that, companies aren’t doing as well financially and they’re not as willing to shop their company in the marketplace and sell their company. They think the values are going to be undervalued for the reasons I just explained. So with stability unfortunately at a very low level, okay, but we believe that hopefully we’ll get a little bit of upswing going forward in the year.”

William K. Sales – Executive Vice President-Operations

Aerospace continues to be one of the strongest end markets

“Thanks, Jim. Good morning, everyone. I’ll begin with aerospace, which continues to be one of our strongest end markets for us, due to its relatively stable pricing and strong demand trends.”

A lot of foreign aluminum mills are not certified to produce aerospace products

“Well, most of the pressure, if you are referring to heat treat products and general engineering, a lot of it’s coming from Asia, coming out of China. There’s several new mills there. But it comes from really all over the world. There will be some coming in from South Africa. So there is – on the general engineering side, there is a lot of import availability. Now, on the aerospace side, many of those mills are not qualified or certified to produce aerospace products, so you don’t get that same pressure on the aerospace side.”

Karla R. Lewis – Chief Financial Officer & Senior Executive VP

January is showing healthy demand

“we’re using the visibility from what we’ve seen so far in January, which we think is healthy demand. We’ve seen it bounce back from where we were. There is still the energy drag on tons, which is only a small portion of our business, but we may be a bit conservative, but we tried to make what we felt was a reasonable estimate. “

Reliance Steel 3Q15 Earnings Call Notes

Posted on by

Reliance Steel & Aluminum’s (RS) CEO Gregg Mollins on Q3 2015 Results

Customer demand remained relatively strong

“Overall customer demand remained relatively strong with our tons sold per day increasing sequentially each month of the quarter.”

Pressure on metals prices from concerns about China, but demand is healthy outside of energy industry

“Although we sent some hesitation in the market at this time, mainly due to recent announcements about slower growth in China, resulting in even further downward pressure on metal pricings, we believe customer demand across our business is relatively healthy outside of the energy industry.”

Heavy industry and heavy equipment sales were strong

“heavy industry which includes railcar, truck trailer, ship building, barge manufacturing, tank manufacturing and wind and transmission towers, demand for this quarter remained fairly steady with the prior quarter. Our exposure to heavy equipment also includes sales into the agriculture equipment market which has weakened recently but has not impacted us the same — to the same extent as our OEMs. On a positive note, demand in the construction equipment market is trending up.”

Energy market deteriorated further

“In our opinion, the overall energy market deteriorated further in the third quarter from the second quarter which continued downward pressure on both pricing and activity levels due to low oil prices and the related reduction in drilling activities.”

Aerospace continues to represent one of our strongest end markets

“The aerospace market continues to represent one of our strongest end markets from a demand perspective”

Stainless steel pricing has fallen with nickel

“Pricing for flat rolled stainless steel products has declined more than any other product in 2015 with September pricing down about 40% from the beginning of the year. Pricing for these products is heavily impacted by nickel prices which began the year at $7.37 per pound and is currently down $2.79 per pound to pound to $4.58 per pound for October.”

Active with share repurchases

“Given what we believe to be an undervalued share price, we have been very active repurchasing our shares this year with repurchases of $142.3 million or $2.5 million shares in the third quarter of 2015”

Energy, ag and mining are weak, but other than that demand is pretty good

“We know energy is down and we think that will continue for longer period of time than I would have told you two quarters ago. Ag, mining, the heavy Ag, I mean and mining, it’s just down and there’s a lot of geopolitical things in the future and present that are going to keep it that way. It’s kind of an interesting time actually. The demand other than what I just mentioned, it’s pretty good.”

Outside of energy the problem is pricing, not demand

“there was like 170 of our managers there, was there really wasn’t a lot of sniffling, if you will, about demand, okay, other than the guys in our energy business, they were all at the bar for quite most of the evening. Okay. But demand wasn’t really the issue. The issue was pricing.”

Energy was 10% of sales down 40% y/y

“energy was about 10% of our sales dollars, not pounds, but dollars and their volumes are down over 40% this year compared to last year. So certainly that took away a bit from us. I don’t know if we can quantify what demand would be, ”

But demand is healthy elsewhere. If it weren’t for imports to the US, we think pricing would be higher

“but what I think we can say is that with the demand levels that exist which we still think are generally healthy, if it weren’t for the imports in the U.S., we think that pricing would be higher because we think the demand is strong enough to help support pricing absent the import activity we’ve seen.”

I’m pleased with our overall inventory position

“we still have a little bit more inventory for the energy sector than we would like. We’re continuing to work that down on a daily basis. But really that’s the only area. Our flat roll inventories and all products are turning well. We have long lead times on aerospace key tree plate but that’s okay. You know, we do well from a profitability point-of-view on those products. So if we’re going to be a little heavy, it would be more on the long lead time items which really the only long lead time items we have in the entire company are the heat replate for aerospace. We’re okay on inventory. I’m very, very pleased with our position in inventory as we speak.”

Reliance Steel 2Q15 Earnings Call Notes

Posted on by

Strength in aerospace, automotive and non res construction

“the aerospace and automotive end markets remain strong and we see ongoing opportunities for continued growth in these markets. We also continue to be encouraged by slowly improving momentum in our activity levels in the nonresidential construction market our largest end market. ‘

Pricing softer than expected for commodity types

“Pricing for all commodity types continued to weaken as the second quarter progressed, primarily due to historically high level of imports, supported in part by the strength of the U.S. dollar. In fact, pricing was even softer than we had projected heading into the second quarter.”

Have seen prices start to firm though

“On a positive note we have started to see pricing begin to firm with certain products in recent weeks. And we’re cautiously optimistic that overall metal prices will trend modestly higher in the second half of 2015.”

Non res has improved but well below peak levels

“Nonresidential construction is our largest end market and although we have seen demand continue to improve, it remains well-below the peak levels. We are optimistic that this important market will continue to improve gradually throughout 2015 and 2016. ”

Second quarter tons were down y/y

Given the market conditions discussed earlier our 2015 second quarter tons sold and average selling prices were down compared to the 2014 second quarter as well as the 2015 first quarter.”

Not seeing any change in behavior from OEMs other than that they know prices are down

“The behavior of the OEMs has not changed dramatically other than the fact that they have seen prices going down, so they’re being more conservative on their buys. So and Metals USA has gained more momentum on the smaller order size business because of the environment that they’re now in Reliance Steel.

But you know as far as the OEMs we’re just seeing the OEMs reduced their buying patterns. It’s not like they’re cutting back their tonnage, they are just buying it more frequently more often, okay and just being cautious of the fact that metal prices are under pressure due to offshore – you know. But they’re not – we don’t see a lot of buying OEMs going outside of the country it is still remaining pretty much with the domestic producers, so we’re not seeing any change in behavior there.”