Will Higher Prices Drive Reliance Steel's (RS) Q2 Earnings?

Reliance Steel & Aluminum Co. RS is set to release second-quarter 2018 results, before the opening bell on Jul 26.

The company saw its profits jump 51% in the first quarter of 2018 buoyed by higher demand and pricing levels. Earnings per share of $2.30 topped the Zacks Consensus Estimate of $2.01.

Net sales of $2,757.1 million improved 14% year over year and also surpassed the consensus mark of $2,704 million.

Reliance Steel beat earnings estimates in each of the trailing four quarters, the average beat being 11.6%.

The company’s shares have gained 0.7% in the last six months, underperforming the industry’s 13% decline.

Let’s see how things are shaping up for this announcement.


Earnings Whispers

Our proven model shows that Reliance Steel is likely to beat the Zacks Consensus Estimate this earnings season. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP for Reliance Steel for the second quarter is +1.07%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at $2.74 and $2.71, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Reliance Steel currently carries a Zacks Rank #1, which when combined with a positive ESP, makes us confident of an earnings beat.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

Reliance Steel, in its first-quarter call, said that it is expected to benefit from a favorable metal pricing environment. The company is optimistic about second-quarter business activity levels and sees continued growth in the end markets in which it operates. The company expects earnings per share in the band of $2.60-$2.70 for the quarter.

The Zacks Consensus Estimate for revenues stands at $2,982 million, reflecting an increase of 20.5% from the year-ago quarter.

Second-quarter results are expected to show continued gains from acquisitions and momentum in automotive and aerospace markets.

Demand in the aerospace market has been driven by higher commercial aerospace build rates. Strong demand is also witnessed in the automotive market, backed by increased use of aluminum in the industry.

Reliance Steel is also expected to benefit from an improving metal pricing environment. The company expects an increase of 5-8% in average selling prices on a sequential basis in second-quarter 2018. This should support margins as well.

Moreover, Reliance Steel, in its first-quarter call, noted that it expects tons sold to decline 1% to rise 1% in the second quarter on a sequential basis. Some downward pressures on shipments are expected in second quarter due to pre-buying activities that took place in first quarter.

The Zacks Consensus Estimate for second-quarter shipments is pegged at 1,594000 tons. This reflects an increase of around 3.5% year over year and flat sequentially.

Reliance Steel & Aluminum Co. Price and EPS Surprise


Reliance Steel & Aluminum Co. Price and EPS Surprise | Reliance Steel & Aluminum Co. Quote

Other Stocks Poised to Beat Estimates

Here are some companies in the basic materials space you may want to consider as our model shows that they too have the right combination of elements to post an earnings beat this quarter:

Schnitzer Steel Industries, Inc. SCHN has an Earnings ESP of +3.26% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hi-Crush Partners LP HCLP has an Earnings ESP of +5.60% and carries a Zacks Rank #3.  

Commercial Metals Company CMC has an Earnings ESP of +4.82% and carries a Zacks Rank #3.

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