TD's Notes Q2/21 First Look: Another Incredibly Strong Quarter from Russel
Event
For a second consecutive quarter, Russel reported very strong results that
were significantly ahead of expectations. The Q2/21 earnings beat was driven
by a combination of higher-than-expected revenues and margins.
Conference call at 9:00 a.m. ET (1-888-390-0546).
Impact: POSITIVE
We characterize the release as POSITIVE, given the magnitude of Q2/21's
outperformance (EBITDA ~36% above consensus) and management's
overall constructive near-term outlook commentary. Regarding the outlook,
management did note that gross margins are expected to moderate going forward,
although this should not come as a surprise to investors given recent margin
strength (Service Centers and Steel Distributors delivered what appear to be
record gross margins in Q2/21). Meanwhile, the fact that North American steel
prices (already incredibly strong by historical standards) have continued to rise
further thus far in Q3/21 bodes well for RUS' outlook, in our view.
Q2/21 adjusted EBITDA was $177.8mm (16.6% margin) – well above
consensus of $130.6mm (14.0% margin) and our $130.5mm (13.8% margin)
estimate.
Adjusted EBIT was $163.5mm (15.3% margin) vs. consensus of $115.6mm
(12.4% margin) and TD at $116.1mm (12.3% margin).
EBIT margins in all segments were well above our expectations: Metals Service
Centers 18.9% vs. TD's 15.1%; Steel Distributors 22.1% vs. TD's 17.0%; and
Energy Products 5.9% vs. TD's 3.3%. Service Centers and Steel Distributors
gross margins were 32.9% (+0.4% q/q; +12.0% y/y) and 34.7% (+0.7% q/q;
+24.4% y/y), respectively.
EPS was $1.88 vs. consensus/TD at $1.29/$1.30.
Revenue was $1,068mm (+21% q/q; +82% y/y) – above consensus/TD at
$931mm/$946mm.
Revenues were +92% y/y in Service Centers, +123% y/y in Steel Distributors,
and +38% y/y in Energy Products. Service Centers average selling price/ton
was +19% q/q and +53% y/y, while tons shipped were +3% q/q and +25% y/y.
CFO was strong at +$110mm (~$1.75/share).
RUS Outlook Commentary:
RUS noted that overall demand remains solid with strong backlogs, limited
inventory in the supply chain and extended lead times expected to continue
over the near-term. The positive momentum of steel prices continues into
Q3/21; however, gross margins are expected to moderate due to the rising cost
of inventory. Meanwhile, Energy Products continues to recover, consistent with
rising energy demand.