Downtown L.A. Company Forges Healthy Quarter

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If steel and aluminum sales can be considered a bellwether of general economic performance, then the news from Reliance Steel and Aluminum Co. last week shows that the economy is not doing badly.

The downtown L.A. metals service company reported strong second quarter earnings, with net income of $98.7 million, up 60 percent from a year ago.

“We are pleased with our results, which were slightly better than we originally expected,” Chief Executive David Hannah said in a statement.

A day earlier, the company announced it had secured a $1.5 billion credit facility from a consortium of 26 banks. That’s 40 percent larger than its previous credit line and the agreement allows for an additional $500 million increase next year. That showed that the credit crunch might be easing for certain companies, and it also signaled Reliance’s readiness to make more acquisitions.

The company’s fundamentals look good, said Timothy Hayes, research analyst with Richmond, Va.-based Davenport & Co. LLC. Hayes reiterated his “buy” recommendation last week.

“The better economy has led to two things for Reliance: more sales volume and, just as important, an increase in sales of metal that’s more expensive,” he said.

As one of the nation’s largest metals service center companies, Reliance buys raw steel and aluminum from mills and shapes it into smaller blocks that meet the demands of its customers, typically machine shops serving industries such as aerospace or energy.

During the second quarter, demand was particularly strong for more expensive metals – particularly aluminum – used in the energy and aerospace sectors. Reliance also benefited from a general run-up in metal commodity prices that peaked early in the quarter. The combination of these trends pushed sales to $2.05 billion, up 26 percent from second quarter 2010, but just below the consensus analyst estimate of $2.07 billion.

In a conference call with investors, Reliance CEO Hannah said uncertain economic times can sometimes lead to more sales for his company because it makes smaller order batches. In those conditions, machine shops and other customers sometimes buy more of those instead of bigger orders.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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