Russel Metals Inc.
Q4 in line to slightly above ex. items; and commentary on the outlook positive
TSX: RUS | CAD 41.52 | Outperform | Price Target CAD 51.00
Sentiment: Positive
Our view. Q4 EBITDA of $61MM compared to consensus $63MM; results included, however, unfavourable non-cash charges ($2MM), MTM on stock-based compensation ($2MM), and M&A related expenses ($1MM), all of which negatively impacted EBITDA in the quarter. On the outlook, management expects to benefit from a solid backdrop in the US and the Energy Field Stores segment from solid energy activity – a much more favourable tone compared to last quarter when management flagged "uncertainty" in their steel price outlook. Net-net, we view the quarter as in line to slightly ahead and commentary on the outlook as favourable, and are therefore taking a positive view on the Q4 print. On tariffs, management flagged that Russel does not have any significant exports into the U.S. and that Russel is generally a cost pass-through business; they therefore believe the primary effects on Russel are indirect. This aligns with our view, and we continue to see Russel's US business (39% of total) as a beneficiary of tariffs and see the impact to the Canadian business as more nuanced. Key on the call tomorrow will be colour on tariffs and an update on the opportunity from Samuel.
Q4 results in line. Russel reported EBITDA of $61MM, a touch below cons. of $63MM (RBCe: $59MM), though in line to slightly above ex non-operating items. The company's revenues were $1,039MM vs cons. of $1,057MM (RBCe: $1,023MM).
• Metals service centers. EBIT $21MM (RBCe: $16MM). Revenue increased 6% y/y to $707MM, below our expectation of $754MM, though gross margin of 18.2% came in above our 17.3% contributing to the variance to our EBIT estimate.
• Energy field stores. EBIT $20MM (RBCe: $20MM). Revenues of $220MM were flat y/y and in line with our estimate. Gross margin came in at 27.1% vs our 24.9%.
• Steel distributors. EBIT $4MM (RBCe: $9MM). Revenues decreased -3% y/y to $89MM, below our estimate of $102MM.
• Outlook. On steel tariffs, the company noted it is not a significant exporter to the U.S. and usually passes costs on to customers, though could still be indirectly affected through changes in material prices, supply chains, or the export activities of its Canadian customers. In the medium term, Russel expects growth in North American steel and specialty metals consumption as a result of onshoring activities and infrastructure spending initiatives in the U.S and believes they are well positioned to gain market share through ongoing investments in value-added equipment, facility modernizations, and acquisitions. Energy field stores are expected to continue to benefit from solid energy activity in 2025 and maintain a solid margin profile.
Conference call details
February 13th at 9:00AM ET; dial-in 1-888-510-2154