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Russel Metals Inc. Connecting The Dots: RUS flash read-through – US distributors Q4 results
TSX: RUS | CAD 42.28 | Outperform | Price Target CAD 50.00
Sentiment: Positive
Our view. Overall, we view the US distributors Q4 results and outlooks as a positive read through for Russel, with companies noting higher seasonal volumes and stable/improving pricing in Q1. Key for us was the positive commentary on the demand environment and elevated pricing on improving market fundamentals and the impact from tariffs; however, we flag some of the recent strength in demand is being driven, in our view, by forward ordering in anticipation of the tariffs. We also flag recent news articles noting that the Trump administration may adjust steel tariffs to apply to downstream steel goods, which we see as further impacting pricing for distributors. Key highlights below.
Q1 guides. Q1 guides were mixed with RS guiding to Q1 EPS of $3.30 to $3.50 up 53% Q/Q (at the midpoint) but below consensus expectations, which represents upside compared to RUS' commentary on an improving Q1/25 of EPS "somewhere between Q3/24 and Q4/24" or up +13% at the midpoint
Demand environment. Overall, companies were upbeat on the demand environment entering 2025. Reliance noted it expects non-residential construction demand to remain at healthy levels in the first quarter of 2025, supported by new construction projects. Over the past 30 days, Ryerson saw a "significant increase in sales quote, and order activity, particularly in transactional and value added sales" and sees improving business conditions as a function of restocking, scrap price increases and commodity price resets from bottoms. We view the demand commentary as incrementally positive for Russell and in line with our expectations of an improving industrial backdrop in 2025.
Tariffs. On tariffs, Olympic noted a rush of transactional buyers post the tariff announcement with expectations that prices will continue to rise. Similarly, Reliance views potential tariffs as a positive for its pricing and profitability consistent with historical trends. This aligns with our view, and we continue to see Russel's US business (39% of total) as a beneficiary of tariffs though see the impact to the Canadian business as more nuanced.
M&A. Olympic noted that the tariffs could lead to more M&A activity in the industry, as potential sellers may look to take advantage of the higher valuations given a sluggish 2024. We view this as positive for Russel, given the company's solid balance sheet and FCF generation.
What happened?
RS (Reliance Inc.; not rated) reported Q4/24 EPS of $2.22, below consensus of $2.74, and below the company's guidance range of $2.65 to $2.85. The company also guided to Q1/25 EPS of $3.30 to $3.50, below prior consensus of $3.73.
RYI (Ryerson Holding; not rated) reported Q4/24 EPS of -$0.14, above consensus of -$0.48, and above the company's guidance range of -$0.53 to -$0.47. The company also guided to Q1/25 EPS of -$0.27 to -$0.20, in line with prior consensus of -$0.23.
ZEUS (Olympic Steel; not rated) reported Q4/24 EPS of $0.33, above consensus of $0.10.
