Q4/24 RESULTS IN-LINE; LOOKING FOR A PICK- UP IN EARNINGS IN 2025
THE TD COWEN INSIGHT
Q4/24 results were broadly in line with expectations. Although weaker steel markets weighed on RUS' 2024 results, we expect improved earnings in 2025. Recent steel price gains are encouraging, while RUS will also benefit from value-added processing investments and the recent Samuel and Tampa Bay Steel acquisitions. We see healthy upside potential for RUS' share price over a 12-month period.
Event
Russel reported Q4/24 results that were broadly in line with expectations, and provided an updated outlook commentary.
Impact: NEUTRAL
Q4/24 reported EBITDA was $61.3mm (5.9% margin) vs. consensus of $60.2mm (5.8%
margin) and TD Cowen at $61.2mm (6.0% margin). Note, Q4/24 EBITDA was negatively impacted by a $2mm expense related to the non-cash mark-to-market on RUS' stock- based compensation, $2mm for other non-cash charges, and a $1mm expense related to acquisitions and other non-recurring items. Revenue was $1,039.2mm (-4.6% q/q; +2.0% y/y) versus consensus/TD Cowen at $1,034.3mm/$1,015.4mm.
Outlook: RUS provided generally constructive commentary regarding the demand environment and steel pricing outlook. Management noted that steel market demand is "very solid", and it is trending better than expected in both Canada and the U.S. thus far in Q1/25. Further, RUS indicated that mill lead times have been increasing (some larger pipe orders at HRC mills were said to have pushed the availability for spot tons at these mills well into Q3/25). Management sees these factors as helping to underpin steel prices. We note that HRC (now at US$800/st) is +16% YTD (+11% since the end of January).
Regarding U.S. steel/aluminum import tariffs, although management believes the primary effects on the company will be indirect, RUS indicated that, similar to what happened in 2018, it sees potential for steel prices to increase further due to U.S. tariffs and potential retaliatory measures from other countries. See our discussion about potential tariff impacts on RUS HERE and HERE.
Capital Allocation: RUS remains active in pursuing M&A opportunities (focus on tuck- ins and medium-sized acquisitions). RUS' 2025 capex is expected to be similar y/y at ~ $90mm (continued focus on value-added projects and modernization initiatives). RUS' multi-year capex pipeline of potential projects was said to exceed $200mm.
Overall, our earnings forecasts are little changed (apart from our Q1/25 earnings estimate, which has declined primarily due to our lower margin expectation). Our target price increases slightly (to $52.00 from $50.00), driven largely by the changes to our net- debt forecast.