Russel Metals Inc.
TSX : RUS

Russel Metals Inc.

July 27, 2005 14:54 ET

Russel Metals Announces 2nd Quarter 2005 Earnings of $0.47 and a 25% Increase in the Quarterly Dividend to $0.25 Per Common Share

TORONTO, ONTARIO--(CCNMatthews - July 27, 2005) - Russel Metals Inc. (TSX:RUS) reported 2005 second quarter net earnings of $23.5 million or $0.47 per share. The net earnings declined from the 2004 second quarter net earnings of $50.4 million or $1.03 per share due primarily to declining margins. This was caused by steel price decreases, which generated inventory holding losses of approximately $18 million versus holding gains of approximately $27 million in the second quarter of 2004. The approximate $45 million swing from inventory holding gains to losses in 2005 was partially offset by lower variable operating expenses.

The 2005 second quarter revenues were $644.8 million, up 10% from the second quarter of 2004 revenues of $588.0 million. The increase in sales was primarily generated by the energy tubular products segment due to higher volumes related to oil sands projects in northern Alberta.

The net earnings for the six months ended June 30, 2005 were $57.0 million or $1.13 per share, versus $75.7 million or $1.58 per share in 2004. The comparative 2005 earnings were impacted by an unfavorable inventory holding swing from gains to losses of approximately $73 million between 2005 and 2004.

Bud Siegel, President and Chief Executive Officer, commented: "As we exited our record-setting year in 2004, we viewed 2005 with significant uncertainty due to the pricing policies of the steel producing sector. In our 2004 Annual Report we asked: "What actually transpired in 2004? Was this the year that the industry realized it had to generate an acceptable return on capital in order to survive, which would require a financially disciplined and sustainable approach to steel pricing? Or was this a year where the steel producers merely reacted to numerous factors?" At the end of the first quarter, their discipline was still in question as the emerging trends raised concerns. Now that the second quarter has been completed, we realize that "nothing has changed" as the steel producers have cut steel prices in all product areas at an accelerating rate through the first six months of 2005.

This industry remains a very cyclical industry and will remain as such until excess and obsolete capacity is permanently removed from the system. Consolidation without rationalization is not a panacea for the steel producers as these past six months have proven. The extreme cyclicality we have seen over the last eighteen months has been supply side generated, as true demand has remained relatively stable."

The second quarter 2005 cash generated from operating activities was $61.3 million, which reflects the counter-cyclical nature of our cash flow as we generate cash from working capital as the price of steel declines. Both inventory and accounts receivable decreased in the quarter. The year to date cash used in operating activities was $16.3 million, despite the $100 million payment of one time payables in the first quarter of 2005 relating to 2004. The working capital balances are anticipated to be a positive source of cash generation during the balance of 2005.

The Company reports its inventory using average costs, whereas several of the other publicly reported U.S. metals service centers use the last in first out (LIFO) inventory valuation model which is an accepted valuation method in the U.S. but not permitted in Canada. The operating profit generated by the changing inventory valuation would have been lower in 2004 and higher in 2005 had the Company used a LIFO valuation model.

The Board of Directors approved a 25% increase in the quarterly dividend to $0.25 per common share. The dividend is payable September 15, 2005 to shareholders of record as of August 9, 2005.

The Company will be holding an Investor Conference Call on Thursday, July 28, 2005 at 9:00 a.m. ET to review its second quarter results for 2005. The dial in telephone number for the call is 1-800-291-5032.

For those unable to participate in the conference call, it will be recorded and available for listening at 1-800-558-5253 until midnight, August 4, 2005. You will be required to enter reservation number 21214191 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, Leroux Steel, McCabe Steel, Megantic Metal, Metaux Russel, Milspec Industries, Pioneer Pipe, Russel Leroux, Russel Metals Williams Bahcall, Spartan Steel Products, Sunbelt Group, Triumph Tubular & Supply, Vantage Laser, Wirth Steel and York-Ennis.



RUSSEL METALS INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

June 30, December 31,
($000's) 2005 2004
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ASSETS
Current
Cash $ 3,552 $ 634
Accounts receivable 385,039 360,696
Inventories 511,235 553,915
Prepaid expenses and other assets 6,201 7,069
Income taxes recoverable 1,435 5,996
Discontinued operations (Note 4) - 9,483
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907,462 937,793

Property, Plant and Equipment 183,173 180,655
Assets Held For Sale (Note 9) - 6,291
Deferred Financing Charges 7,796 8,357
Goodwill 9,205 9,205
Future Income Tax Assets 1,449 1,614
Other Assets 2,851 2,566
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$ 1,111,936 $ 1,146,481
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness $ 69,436 $ 33,242
Accounts payable and accrued
liabilities 297,407 348,166
Income taxes payable 1,827 60,049
Discontinued operations (Note 4) 2,937 9,403
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371,607 450,860

Other Accrued Liabilities 9,240 11,440
Long-Term Debt 214,480 210,630
Pensions and Benefits (Note 7) 10,323 10,146
Future Income Tax Liabilities 7,181 6,831
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612,831 689,907
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Shareholders' Equity (Note 8)
Shareholders' equity 499,105 456,574
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499,105 456,574
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$ 1,111,936 $ 1,146,481
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RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(UNAUDITED)

Quarters ended Six months ended
June 30, June 30,
($000, except
per share data) 2005 2004 2005 2004
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Revenues $ 644,845 $ 588,014 $ 1,338,734 $ 1,100,416
Cost of sales and
operating expenses 605,640 497,208 1,240,722 949,639
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Earnings before the
following 39,205 90,806 98,012 150,777
Restructuring (Note 9) 2,787 (520) 2,382 (1,352)
Debt restructuring costs - (1,862) - (13,172)
Interest expense (Note 3) (5,400) (5,679) (10,299) (10,835)
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Earnings before income
taxes 36,592 82,745 90,095 125,418
Provision for income
taxes (13,052) (31,441) (33,065) (48,463)
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Earnings from continuing
operations 23,540 51,304 57,030 76,955
Loss from discontinued
operations (Note 4) (16) (897) (62) (1,244)
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Net earnings for the
period 23,524 50,407 56,968 75,711

Retained earnings --

Dividends on
preferred shares - - - (611)
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Earnings available to
common shareholders 23,524 50,407 56,968 75,100
Dividends on common
shares (10,109) (4,903) (20,124) (8,818)
Retained earnings,
beginning of
the period 286,162 131,280 262,733 110,502
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Retained earnings, end
of the period $ 299,577 $ 176,784 $ 299,577 $ 176,784
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Basic earnings per
common share
- continuing operations $ 0.47 $ 1.05 $ 1.13 $ 1.60
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Basic earnings per
common share $ 0.47 $ 1.03 $ 1.13 $ 1.58
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Diluted earnings per
common share
- continuing operations $ 0.46 $ 1.01 $ 1.12 $ 1.56
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Diluted earnings per
common share $ 0.46 $ 1.00 $ 1.12 $ 1.54
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RUSSEL METALS INC.
CONSOLIDATED CASH FLOW STATEMENTS
(UNAUDITED)

Quarters ended Six months ended
June 30, June 30,
($000) 2005 2004 2005 2004
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Operating activities
Earnings from
continuing operations $ 23,540 $ 51,304 $ 57,030 $ 76,955
Depreciation and
amortization 4,766 4,808 9,403 9,437
Future income taxes 2,990 2,070 8,676 1,721
Loss (gain) on sale of
fixed assets (265) 80 (266) 219
Stock-based compensation 658 168 851 558
Debt redemption costs - 429 - 2,525
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Cash from operating
activities before
working capital 31,689 58,859 75,694 91,415
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Changes in non-cash
working capital items
Accounts receivable 33,811 (14,051) (24,485) (106,479)
Inventories 17,495 (44,068) 44,130 (62,414)
Accounts payable and
accrued liabilities (18,355) 13,107 (50,606) 61,237
Current income taxes (3,131) 21,026 (61,850) 29,183
Other (181) (246) 860 (1,334)
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Change in non-cash
working capital 29,639 (24,232) (91,951) (79,807)
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Cash from (used in)
operating activities 61,328 34,627 (16,257) 11,608
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Financing activities
Increase (decrease)
in bank borrowing (48,701) 11,377 36,194 (59,539)
Issue of common shares 166 442 3,882 50,567
Issuance of long-term debt - - - 235,200
Redemption of long-term
debt - (27,097) - (184,715)
Redemption of preferred
shares - - - (30,000)
Dividends on common shares (10,109) (4,903) (20,124) (8,818)
Dividends on preferred
shares - - - (611)
Deferred financing costs (31) (24) (156) (6,983)
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Cash from (used in)
financing activities (58,675) (20,205) 19,796 (4,899)
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Investing activities
Purchase of fixed assets (7,084) (5,381) (12,159) (12,086)
Proceeds on sale of fixed
assets 1,242 279 1,365 518
Proceeds from assets held
for sale 5,869 2,200 5,869 2,200
Other (3,358) 1,579 (2,138) 1,623
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Cash used in investing
activities (3,331) (1,323) (7,063) (7,745)
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Discontinued operations
Operating activities (16) 174 (62) (173)
Investing activities 2,415 - 6,504 -
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Cash from (used in)
discontinued
operations 2,399 174 6,442 (173)
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Increase (decrease)
in cash 1,721 13,273 2,918 (1,209)
Cash position, beginning
of the period 1,831 4,526 634 19,008
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Cash position, end of
the period $ 3,552 $ 17,799 $ 3,552 $ 17,799
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