Russel Metals Inc.
TSX : RUS

Russel Metals Inc.

August 05, 2008 16:12 ET

Russel Metals Reports Second Quarter 2008 Net Earnings of $1.25 Per Share

TORONTO, ONTARIO--(Marketwire - Aug. 5, 2008) - Russel Metals Inc. (TSX:RUS) reported second quarter net earnings of $79 million or $1.25 per share. Net earnings reported in the second quarter of 2007 were $29 million or $0.47 per common share. Consolidated revenues for the second quarter of 2008 were $856 million, an increase of 31% from the second quarter of 2007 revenues of $653 million and an increase of 20% from $712 million reported in the first quarter of 2008.

Revenues for our energy tubular products segment were $235 million for the second quarter of 2008 compared to $167 million for the second quarter of 2007. Steel price increases and increased volumes in our U.S. energy operations and our operation servicing the oil sands of Northern Alberta produced operating profits of $29 million for the second quarter of 2008 compared to $11 million for the second quarter of 2007. The strength of our U.S. energy operations and Alberta oil sands businesses outweighed the seasonal downturn in our operations that service Alberta-based gas drilling.

Metals service center revenues increased 34% to $497 million for the second quarter of 2008 compared to 2007. Operating profits for our metals service centers for the second quarter of 2008 were $72 million, up $41 million from the second quarter of 2007. The metals service centers results strengthened from the second quarter of 2007 due to steel price increases initiated in the first quarter of 2008, improved same store volumes and the acquisition of JMS Russel Metals.

Steel distributors produced operating profits of $26 million for the second quarter of 2008 compared to $12 million for the second quarter of 2007. The increase is a result of higher margins which more than offset the reduced volumes. Volumes in this segment were lower compared to 2007 due to lower import levels as strong worldwide steel demand, higher steel prices outside of the region and the weak U.S. dollar have made imports uneconomical for some products.

Bud Siegel, President and Chief Executive Officer, commented, "We are extremely pleased with our results for the second quarter. The primary sectors serviced by our metals operations have outperformed the rest of the Canadian economy and even our same store volumes were up in the second quarter. In addition, our energy tubular products segment had increased volumes which further strengthened their results. Although economic uncertainty is evident in certain sectors, many of the sectors we service remain buoyant."

Free cash flow for the second quarter 2008 was $79 million and was $116 million for the six months ended June 30, 2008. Our focus on working capital management allowed the Company to moderate the impact of steel price increases and net working capital increased by only $8 million for the first six months of 2008. Marion Britton, Vice President and Chief Financial Officer, commented "Our strong cash flow over the cycle supports our industry leading dividend policy. The strength of our year to date cash flow in an environment of significant steel price increases reflects positively on the working capital management skills of our operations."

The Board of Directors approved a quarterly dividend of $0.45 per common share and a supplemental dividend of $0.05 per common share payable September 15, 2008 to shareholders of record as of August 28, 2008.

The Company will be holding an Investor Conference Call on Wednesday, August 6, 2008 at 9:00 a.m. ET to review its second quarter results for 2008. The dial-in telephone numbers for the call are 416-641-6130 (Toronto and International callers) and 1-866-226-1793 (U.S. and Canada). Please dial in 10 minutes prior to the call to ensure that you get a line.

A replay of the call will be available at 416-695-5800 (Toronto and International callers) and 1-800-408-3053 (U.S. and Canada) until midnight, Wednesday, August 13, 2008. You will be required to enter pass code 3264763 in order to access the call.

Additional supplemental financial information is available in our investor conference call package located on our website at www.russelmetals.com.

Russel Metals is one of the largest metals distribution companies in North America. It carries on business in three distribution segments: metals service centers, energy tubular products and steel distributors, under various names including Russel Metals, A.J. Forsyth, Acier Leroux, Acier Loubier, Acier Richler, Arrow Steel Processors, B&T Steel, Baldwin International, Comco Pipe and Supply, Fedmet Tubulars, JMS Russel Metals, Leroux Steel, McCabe Steel, Megantic Metal, Metaux Russel, Metaux Russel Produits Specialises, Milspec Industries, Pioneer Pipe, Russel Metals Specialty Products, Russel Metals Williams Bahcall, Spartan Steel Products, Sunbelt Group, Triumph Tubular & Supply, Wirth Steel and York-Ennis.

Statements contained in this press release or on the related conference call that relate to Russel Metals' beliefs or expectations as to certain future events are not statements of historical fact and are forward-looking statements. Russel Metals cautions readers that there are important factors, risks and uncertainties, including but not limited to economic, competitive and governmental factors affecting Russel Metals' operations, markets, products, services and prices that could cause its actual results, performance or achievements to be materially different from those forecasted or anticipated in such forward looking statements.

The forward-looking statements in this document reflect management's current beliefs and are based on information currently available to management. The material assumptions applied in making the forward-looking statements in this document include the following: demand from the manufacturing, resource and construction segments of the Canadian economy will be consistent with what we experienced in the second quarter of 2008, oil and gas prices will not change materially, the recent stability in the price of steel will either remain constant or increase, and the Canadian dollar will maintain recent gains while not appreciating significantly. Although the forward-looking statements contained in this document are based upon what management believes to be reasonable estimates and assumptions, Russel Metals cannot ensure that actual results will not be materially different from those expressed or implied by these forward-looking statements.



RUSSEL METALS INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

June 30, December 31,
(millions) 2008 2007
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ASSETS
Current
Cash and cash equivalents $ 235.5 $ 181.8
Accounts receivable 478.4 341.8
Inventories 620.5 572.6
Prepaid expenses and other assets 5.5 8.5
Income taxes 0.3 3.9
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1,340.2 1,108.6

Property, Plant and Equipment 231.8 227.9
Deferred Financing Charges 0.2 0.3
Future Income Tax Assets 1.0 1.0
Other Assets 9.0 12.1
Goodwill and Intangibles 54.5 53.4
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$ 1,636.7 $ 1,403.3
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 442.7 $ 294.2
Income taxes payable 19.6 2.8
Current portion long-term debt 1.1 0.9
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463.4 297.9

Derivatives 39.1 39.5
Long-Term Debt 180.4 174.9
Pensions and Benefits 1.3 1.4
Future Income Tax Liabilities 6.8 5.8
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691.0 519.5
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Shareholders' Equity
Common shares 507.3 504.2
Retained earnings 462.8 411.7
Contributed surplus 8.6 6.2
Accumulated other comprehensive loss (33.0) (38.3)
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945.7 883.8
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$ 1,636.7 $ 1,403.3
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RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

(millions, except per Quarters ended June 30, Six months ended June 30,
share data) 2008 2007 2008 2007
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Revenues $ 856.3 $ 652.8 $ 1,568.6 $ 1,336.5
Cost of sales and operating
expenses 734.9 603.9 1,395.1 1,241.6
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Earnings before the following 121.4 48.9 173.5 94.9
Other income (expense) 0.7 - (2.5) -
Interest expense, net (2.3) (1.6) (4.4) (3.4)
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Earnings before income taxes 119.8 47.3 166.6 91.5
Provision for income taxes (41.0) (18.0) (58.6) (33.5)
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Net earnings for the period $ 78.8 $ 29.3 $ 108.0 $ 58.0
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Basic earnings per common
share $ 1.25 $ 0.47 $ 1.71 $ 0.93
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Diluted earnings per common
share $ 1.24 $ 0.47 $ 1.71 $ 0.92
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RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)

Quarters ended Six months ended
June 30, June 30,
(millions) 2008 2007 2008 2007
----------------------------------------------------------------------------
Retained earnings, beginning of the
period, as previously reported $ 412.5 $ 414.3 $ 411.7 $ 411.1
Transitional adjustment -
financial instruments - - - (0.5)
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Retained earnings, beginning of the
period, as restated 412.5 414.3 411.7 410.6
Net earnings for the period 78.8 29.3 108.0 58.0
Dividends on common shares (28.5) (28.3) (56.9) (53.3)
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Retained earnings, end of the period $ 462.8 $ 415.3 $ 462.8 $ 415.3
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RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

Quarters Six months
Ended June 30, Ended June 30,
(millions) 2008 2007 2008 2007
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Net earnings for the period $ 78.8 $ 29.3 $ 108.0 $ 58.0
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Other comprehensive income (loss)
Unrealized foreign exchange gains
(losses) on translating financial
statements of self sustaining foreign
operations (U.S. subsidiaries) (2.6) (16.2) 9.6 (18.5)
Gains and (losses) on derivatives
designated as net investment hedges 0.5 5.6 (1.6) 6.4
Gains and (losses) on derivatives
designated as cash flow hedges (2.2) 1.4 (2.7) 2.3
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Other comprehensive income (loss) (4.3) (9.2) 5.3 (9.8)
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Comprehensive income $ 74.5 $ 20.1 $ 113.3 $ 48.2
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RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS
(UNAUDITED)

Quarters Six months
Ended June 30, Ended June 30,
(millions) 2008 2007 2008 2007
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Accumulated net unrealized foreign
currency translation gains (losses)
Balance, beginning of period $ (33.5) $ (13.5) $ (45.7) $ (11.2)
Net unrealized gain (loss) on
translation of net investment
in foreign operations (2.6) (16.2) 9.6 (18.5)
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Balance, end of period (36.1) (29.7) (36.1) (29.7)
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Accumulated net unrealized loss on cash
flow and net investment hedges
Balance, beginning of period 4.8 (7.6) 7.4 -
Transitional adjustment - - - (9.3)
Unrealized gains (losses) on items
designated as net investment hedges 0.5 5.6 (1.6) 6.4
Unrealized gains (losses) on items
designated as cash flow hedges (2.2) 1.4 (2.7) 2.3
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Balance, end of period 3.1 (0.6) 3.1 (0.6)
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Total accumulated other
comprehensive loss $ (33.0) $ (30.3) $ (33.0) $ (30.3)
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RUSSEL METALS INC.
CONSOLIDATED CASH FLOW STATEMENTS
(UNAUDITED)

Quarters ended Six months ended
June 30, June 30,
(millions) 2008 2007 2008 2007
--------------------------------------------------------------------------
Operating activities
Net earnings $ 78.8 $ 29.3 $ 108.0 $ 58.0
Depreciation and amortization 5.7 5.0 11.4 9.9
Future income taxes 1.2 1.5 1.3 1.9
Gain on sale of fixed assets 0.1 0.1 0.1 (0.6)
Stock-based compensation 0.4 3.1 2.9 3.9
Pension expense (funding) - 0.3 (0.1) (1.3)
Other (0.7) 0.1 2.7 0.3
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Cash from operating activities
before working capital 85.5 39.4 126.3 72.1
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Changes in non-cash working
capital items
Accounts receivable (62.4) 18.4 (133.7) (38.6)
Inventories (55.3) (12.7) (42.6) 9.6
Accounts payable and accrued
liabilities 90.1 (14.2) 145.8 18.8
Current income taxes 13.1 (4.1) 21.9 (12.7)
Other (0.9) (0.8) 0.2 0.1
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Change in non-cash working capital (15.4) (13.4) (8.4) (22.8)
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Cash from operating activities 70.1 26.0 117.9 49.3
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Financing activities
Issue of common shares - options
exercised 1.5 10.0 2.5 10.8
Dividends on common shares (28.5) (28.3) (56.9) (53.3)
Repayment of long-term debt (0.2) - (0.4) -
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Cash used in financing activities (27.2) (18.3) (54.8) (42.5)
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Investing activities
Purchase of fixed assets (6.1) (4.9) (10.4) (8.6)
Proceeds on sale of fixed assets 0.1 - 0.1 1.3
Other (0.8) (0.5) (0.3) 0.2
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Cash used in investing activities (6.8) (5.4) (10.6) (7.1)
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Effect of exchange rates on cash (0.2) (2.7) 1.2 (2.9)
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Increase (decrease) in cash and
cash equivalents 35.9 (0.4) 53.7 (3.2)
Cash and cash equivalents,
beginning of the period 199.6 207.1 181.8 209.9
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Cash and cash equivalents,
end of the period $ 235.5 $ 206.7 $ 235.5 $ 206.7
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Supplemental Cash flow information:
Income taxes paid $ 25.5 $ 21.6 $ 35.7 $ 44.9
Interest paid $ 0.1 $ - $ 7.5 $ 7.6


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