TD's Take Event
Russel reported strong Q4/21 results that were well ahead of expectations,
capping off a record year for the company (F2021 adj. net income of $434mm).
Conference call at 9:00 a.m. ET (1-888-390-0546).
Impact: POSITIVE
Overall, we characterize the release as positive. Q4/21 results notably
outperformed expectations (adj. EBITDA was ~13% above consensus).
Meanwhile, Russel provided what we would describe as a reasonably
balanced outlook commentary (steel availability said to have improved, but
demand expected to continue to improve into 2022). That said, we note that steel
prices have continued to decline of late (benchmark U.S. HRC price is now
down 43% since peaking in early-October 2021), which may serve to temper
what would likely otherwise be a favourable market reaction to RUS' strong
results.
Q4/21 adjusted EBITDA was $164.3mm (14.3% margin) – above consensus
of $145.1mm (13.8% margin) and our estimate of $145.2mm (14.1% margin).
Adjusted EBIT was $149.7mm (13.1% margin) vs. consensus of $130.1mm
(12.4% margin) and TD at $131.0mm (12.7% margin).
EBIT margins for Metals Service Centers (14.0% vs. TD at 13.5%) and Energy
Products (12.4% vs. TD at 5.0%) were above our expectations, while Steel
Distributors (14.5% vs. TD at 20.5%) underperformed.
Revenue was $1,147mm (+3% q/q; +71% y/y) – above consensus/TD at
$1,050mm/$1,030mm.
Service Centers average selling price/ton was +6% q/q and +89% y/y, while
same-store tons shipped were -7% y/y (volumes said to be negatively affected
by weather-related shipping constraints in Q4/21).
Q4/21 CFO before changes in non-cash working capital was $156mm;
however, RUS invested $136mm in working capital in the year's final quarter.
RUS' balance sheet is very healthy; net debt/TTM adj. EBITDA at 0.2x.
RUS Outlook Commentary
RUS noted that steel availability has improved and inventory in the supply
chain has increased. Management expects this improvement in availability
to continue in 2022, albeit with certain ongoing constraints (i.e., COVID-19-
related, transportation issues). Demand is expected to continue to improve into
2022, supported by non-res construction, infrastructure projects and general
manufacturing. RUS expects a favourable supply/demand balance in 2022,
although steel prices are expected to remain volatile. Meanwhile, management
expects energy sector activity to continue to improve.