Russel Metals Inc.
TSX : RUS

Russel Metals Inc.

October 31, 2007 13:18 ET

Russel Metals Reports Third Quarter 2007 Net Earnings of $0.44 Per Share

TORONTO, ONTARIO--(Marketwire - Oct. 31, 2007) - Russel Metals Inc. (TSX:RUS) reported third quarter 2007 net earnings of $28 million or $0.44 per common share, compared with second quarter 2007 earnings of $29 million or $0.47 per common share. The net earnings reported in the third quarter of 2006 were $45 million or $0.72 per common share. Revenues for the third quarter of 2007 were $624 million, compared to $672 million for the third quarter of 2006 and $653 million reported in the second quarter of 2007.

Bud Siegel, President and Chief Executive Officer, commented, "Although demand in the quarter was soft in metals service centers and steel distributors, our concentration on obtaining inventory levels that were consistent with forecasted demand, led to a meaningful reduction in inventory levels. In energy tubular products, lower drilling activity in Alberta was offset by strength in our Canadian operation servicing the oil sands as well as our U.S. operation in this segment."

Mr. Siegel continued "We are very excited that during the 2007 third quarter we were able to close our acquisition of the JMS Metal Services group of companies. As I have stated previously, we waited for a company whose culture would fit with Russel Metals, had an operation that would be immediately accretive to earnings and that would serve as a platform for future growth, both organic and through acquisitions, in a new geographical region, the southeast United States."

Metals service centers operating profits for the third quarter of 2007 were $23 million, or 6.9% of revenues of $340 million. Our metals service centers results were weaker than the second quarter of 2007 due to lower demand levels. The metals service center operating results do not include any results from the recent acquisition of JMS Metal Services as it was purchased on the last business day of the quarter. The preliminary allocation of the opening balance sheet has been reflected on our consolidated balance sheet.

Our steel distributors segment, which sells primarily to third party service centers, had third quarter 2007 operating profits of $10 million, or 9.5% of revenues of $108 million. Operating profits and margins were both below the same quarter last year and the second quarter of 2007. Demand softness at North American service centers due to overstocking and the decline in the U.S. dollar which has reduced the demand for offshore steel have adversely affected the steel distributors' revenues.

Our energy tubular products segment had 2007 third quarter operating profits of $16 million, or 9.1% of revenues of $175 million. Operating profits of $16 million approximate those reported in the third quarter of 2006 but are up from the second quarter of 2007 operating profit of $11 million on revenues of $167 million. This segment continues to provide strong operating results led by our U.S. operations and the Canadian operation that services the oil sands in Alberta. Low drilling activity levels continue to exert downward pressure on margins in the operations that service the oil and gas drilling industry in Canada.

As disclosed on August 23, 2007, we hold an investment of $11 million in non-bank Asset Backed Commercial Paper which was not repaid at maturity. Limited information is available on the quality of the trust's underlying assets, however, during the quarter, we recorded a $1.0 million unrealized loss to bring the investment to fair value considering the uncertainty on timing of recovery and the time value of money.

Net earnings for the nine months ended September 30, 2007 were $86 million or $1.37 per common share versus $128 million or $2.17 per common share for the comparable period in 2006.

The Board of Directors approved a quarterly dividend of $0.45 per common share payable December 15, 2007 to shareholders of record as of November 15, 2007.

The Company will be holding an Investor Conference Call on Thursday, November 1, 2007 at 9:00 a.m. ET to review its third quarter results for 2007. The dial-in telephone numbers for the call are 416-340-8010 (Toronto and International callers) and 1-866-540-8136 (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, Thursday, November 8, 2007. You will be required to enter pass code 3237741 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 Metal Services, Leroux Steel, McCabe Steel, Megantic Metal, Metaux Russel, Milspec Industries, Pioneer Pipe, 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: there will be steady demand in the manufacturing, resource and construction segments of the Canadian economy, oil and gas prices will not change materially, there will be continued consolidation of steel producers, the recent stability in the price of steel will continue, 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)

September 30, December 31,
(millions) 2007 2006
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ASSETS
Current
Cash and cash equivalents $ 103.6 $ 209.9
Accounts receivable 406.2 329.0
Inventories 592.3 664.0
Prepaid expenses and other assets 6.9 7.4
Income taxes 2.3 2.1
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1,111.3 1,212.4

Property, Plant and Equipment 230.4 189.5
Deferred Financing Charges - 6.8
Future Income Tax Assets 0.4 0.4
Other Assets 13.4 3.9
Goodwill and Intangibles 53.8 9.2
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$ 1,409.3 $ 1,422.2
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 293.0 $ 283.9
Income taxes payable 2.8 15.0
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295.8 298.9


Other Accrued Liabilities - 15.4
Derivatives 42.0 -
Long-Term Debt 176.8 203.9
Pensions and Benefits 1.5 2.6
Future Income Tax Liabilities 6.5 6.8
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522.6 527.6
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Shareholders' Equity 886.7 894.6
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$ 1,409.3 $ 1,422.2
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RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

Quarters ended Nine months ended
September 30, September 30,
(millions, except per share data) 2007 2006 2007 2006
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Revenues $ 624.3 $ 672.3 $ 1,960.8 $ 2,098.9
Cost of sales and operating
expenses 577.5 603.1 1,819.1 1,898.5
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Earnings before the following 46.8 69.2 141.7 200.4
Unrealized loss on investment (1.0) - (1.0) -
Ineffectiveness on cash flow hedges (0.6) - (0.6) -
Restructuring - - - 1.2
Interest expense, net (1.5) (0.9) (4.9) (5.3)
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Earnings before income taxes 43.7 68.3 135.2 196.3
Provision for income taxes (15.8) (23.7) (49.3) (68.2)
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Net earnings for the period $ 27.9 $ 44.6 $ 85.9 $ 128.1
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Basic earnings per common share $ 0.44 $ 0.72 $ 1.37 $ 2.17
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Diluted earnings per common share $ 0.44 $ 0.71 $ 1.36 $ 2.15
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RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)

Quarters ended Nine months ended
September 30, September 30,
(millions) 2007 2006 2007 2006
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Retained earnings, beginning of the
period, as previously reported $ 415.3 $ 385.7 $ 411.1 $ 341.8
Transitional adjustment - financial
instruments - - (0.5) -
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Retained earnings, beginning of the
period, as restated 415.3 385.7 410.6 341.8
Net earnings for the period 27.9 44.6 85.9 128.1
Dividends on common shares (28.5) (24.9) (81.8) (64.5)
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Retained earnings, end of the period $ 414.7 $ 405.4 $ 414.7 $ 405.4
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RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

Quarter ended Nine months ended
(millions) September 30, 2007 September 30, 2007
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Net earnings for the period $ 27.9 $ 85.9
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Other comprehensive loss
Unrealized foreign exchange losses
on translating financial
statements of self sustaining
foreign operations (12.6) (31.1)
Gains on items designated as net
investment hedges, net of tax 4.3 10.7
Gains on items designated as cash
flow hedges, net of tax 0.7 3.0
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Other comprehensive loss (7.6) (17.4)
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Comprehensive income $ 20.3 $ 68.5
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RUSSEL METALS INC.
CONSOLIDATED CASH FLOW STATEMENTS
(UNAUDITED)

Quarters ended Nine months ended
September 30, September 30,
(millions) 2007 2006 2007 2006
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Operating activities
Net earnings $ 27.9 $ 44.6 $ 85.9 $ 128.1
Depreciation and amortization 4.9 5.3 14.8 14.9
Future income taxes 0.5 2.0 2.4 2.3
Loss (gain) on sale of fixed assets
and assets held for sale - - (0.6) (1.4)
Unrealized loss on investments and
derivative ineffectiveness 1.6 - 1.6 -
Stock-based compensation 0.5 0.8 4.4 2.6
Pension expense (funding) 0.1 0.7 (1.2) (5.5)
Other 0.1 - 0.4 -
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Cash from operating activities
before working capital 35.6 53.4 107.7 141.0
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Changes in non-cash working capital
items
Accounts receivable (30.3) (7.9) (68.9) (54.1)
Inventories 62.8 (68.2) 72.4 (154.8)
Accounts payable and accrued
liabilities (19.1) 11.2 (0.3) 48.8
Current income taxes 0.7 6.2 (12.0) 11.7
Other 0.7 0.5 0.8 0.8
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Change in non-cash working capital 14.8 (58.2) (8.0) (147.6)
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Cash from (used in) operating
activities 50.4 (4.8) 99.7 (6.6)
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Financing activities
Increase (decrease) in bank
borrowing - 0.5 - (1.6)
Issue of common shares - public
issue - - - 271.4
Issue of common shares - options
exercised 0.1 1.0 10.9 6.4
Dividends on common shares (28.5) (24.9) (81.8) (64.5)
Deferred financing costs - - - (0.9)
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Cash from (used in) financing
activities (28.4) (23.4) (70.9) 210.8
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Investing activities
Purchase of fixed assets (4.4) (8.2) (13.0) (21.7)
Proceeds on sale of fixed assets 0.1 0.1 1.4 1.6
Purchase of business (109.0) - (109.0) -
Proceeds from assets held for sale - - - 6.2
Reclassification of cash
equivalents to other assets (11.0) - (11.0) -
Other 0.2 (3.3) 0.4 (4.6)
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Cash from (used in) investing
activities (124.1) (11.4) (131.2) (18.5)
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Effect of exchange rates on cash (1.0) (0.2) (3.9) (1.7)
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(Decrease) increase in cash and
cash equivalents (103.1) (39.8) (106.3) 184.0
Cash and cash equivalents,
beginning of the period 206.7 270.9 209.9 47.1
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Cash and cash equivalents, end of
the period $ 103.6 $ 231.1 $ 103.6 $ 231.1
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