Russel Metals Inc.
TSX : RUS

Russel Metals Inc.

May 03, 2007 16:15 ET

Russel Metals Reports First Quarter 2007 Net Earnings of $0.46 Per Share and Increases Dividend

TORONTO, ONTARIO--(CCNMatthews - May 3, 2007) - Russel Metals Inc. (TSX:RUS) reported first quarter 2007 net earnings of $28.7 million or $0.46 per common share, which are below net earnings of $37.3 million or $0.71 per common share reported in the first quarter of 2006. Revenues for the first quarter 2007 were $684 million, a decrease from the first quarter of 2006 revenues of $741 million but up from the $593 million reported in the fourth quarter of 2006.

Bud Siegel, President and Chief Executive Officer, commented, "For the second time since the peak in 2004, the price of steel dropped and, within a relatively short period of time, started to recover once the producers were able to bring supply in line with demand. This bodes well for the entire industry. Our operating profits as a percentage of revenues at 6.7% were above the previous 2005 low of 6.1%, which is positive as we always strive to have a higher EBIT with each succeeding trough."

Mr. Siegel continued, "As indicated last quarter, we experienced a year-end bulge in the steel distributors inventory levels. This was eliminated in the first quarter of 2007, through a $39 million reduction in inventory. I am pleased that our inventory turns improved in all three operating segments but we remain concerned with the inventory levels in our energy tubular products segment. We do not foresee any meaningful reduction in inventory levels in this segment until the fourth quarter due to the seasonal slowdown in drilling activity in the second and third quarters."

The metals service centers operating profits for the first quarter of 2007 were $24.8 million, representing 6.8% of revenues of $363 million. The metals service centers results strengthened from the fourth quarter of 2006 due to price increases late in the first quarter of 2007. The price increases helped to relieve the negative impact on margins of the excess inventory overhang throughout the service center industry. Shipments, while below the first quarter of 2006, improved from the fourth quarter of 2006.

The steel distributors segment, which sells primarily to third party service centers, had first quarter 2007 operating profits of $11.5 million, or 8.2% of revenues of $140 million. The operating profits and margins were both below the same quarter last year and the fourth quarter of 2006. Revenues improved from the fourth quarter of 2006 but margins were negatively impacted by the same factors as the metals service centers.

The energy tubular products segment revenues were $179 million for the first quarter of 2007, up from the previous quarter and slightly down from $186 million in the first quarter of 2006. An abundance of product and cautious drilling activity levels put downward pressure on the margins resulting in operating profit of $14.8 million or 8.3% of revenues. The seasonal slowdown in the second quarter is expected to be more pronounced than in recent years as year over year drilling rig counts have declined.

For the sixth consecutive year the Board of Directors approved an increase in the quarterly dividend to $0.45 per common share payable June 15, 2007 to shareholders of record as of May 18, 2007.

The Company will be holding an Investor Conference Call on Friday, May 4, 2007 at 9:00 a.m. ET to review its first 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, Friday, May 11, 2007. You will be required to enter pass code 3220026 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 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)

March 31, December 31,
(millions) 2007 2006
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ASSETS
Current
Cash and cash equivalents $ 207.1 $ 209.9
Accounts receivable 385.2 329.0
Inventories 639.9 664.0
Prepaid expenses and other assets 6.6 7.4
Income taxes 1.5 2.1
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1,240.3 1,212.4

Property, Plant and Equipment 187.5 189.5
Deferred Financing Charges 0.6 6.8
Future Income Tax Assets 0.5 0.4
Other Assets 3.8 3.9
Goodwill 9.2 9.2
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$ 1,441.9 $ 1,422.2
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 316.8 $ 283.9
Income taxes payable 6.5 15.0
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323.3 298.9

Other Accrued Liabilities - 15.4
Derivatives 28.8 -
Long-Term Debt 196.5 203.9
Pensions and Benefits 1.1 2.6
Future Income Tax Liabilities 2.7 6.8
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552.4 527.6
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Shareholders' Equity 889.5 894.6
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$ 1,441.9 $ 1,422.2
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RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

Quarters ended March 31,
(millions, except per share data) 2007 2006
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Revenues $ 683.7 $ 740.7
Cost of sales and operating expenses 637.7 679.5
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Earnings before the following 46.0 61.2
Interest expense, net (1.8) (3.2)
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Earnings before income taxes 44.2 58.0
Provision for income taxes (15.5) (20.7)
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Net earnings for the period $ 28.7 $ 37.3
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Basic earnings per common share $ 0.46 $ 0.71
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Diluted earnings per common share $ 0.46 $ 0.70
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RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)

Quarters ended March 31,
(millions) 2007 2006
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Retained earnings, beginning of the period, as
previously reported $ 411.1 $ 341.8
Transitional adjustment - financial instruments (0.5) -
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Retained earnings, beginning of the period, as
restated 410.6 341.8
Net earnings for the period 28.7 37.3
Dividends on common shares (25.0) (17.8)
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Retained earnings, end of the period $ 414.3 $ 361.3
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RUSSEL METALS INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)

Quarter ended
(millions) March 31, 2007
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Net earnings for the period $ 28.7
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Other comprehensive income
Unrealized foreign exchange gains and losses on
translating financial statements of self sustaining
foreign operations (2.3)
Gains and losses on items designated as net investment
hedges, net of tax of $0.1 0.8
Gains and losses on derivatives designated as cash flow
hedges, net of tax of $0.4 0.9
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Other comprehensive income (0.6)
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Comprehensive income $ 28.1
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RUSSEL METALS INC.
CONSOLIDATED CASH FLOW STATEMENTS
(UNAUDITED)

Quarters ended March 31,
(millions) 2007 2006
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Operating activities
Earnings from continuing operations $ 28.7 $ 37.3
Depreciation and amortization 4.9 4.8
Future income taxes 0.4 1.1
Loss (gain) on sale of fixed assets and assets
held for sale (0.7) -
Stock-based compensation 0.8 0.9
Pension expense (funding) (1.6) (6.9)
Other 0.2 -
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Cash from operating activities before working
capital 32.7 37.2
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Changes in non-cash working capital items
Accounts receivable (57.0) (52.3)
Inventories 22.3 (45.2)
Accounts payable and accrued liabilities 33.0 15.6
Current income taxes (8.6) 3.8
Other 0.9 0.7
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Change in non-cash working capital (9.4) (77.4)
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Cash from (used in) operating activities 23.3 (40.2)
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Financing activities
Increase (decrease) in bank borrowing - (2.1)
Issue of common shares - public issue - 271.4
Issue of common shares - options exercised 0.8 4.8
Dividends on common shares (25.0) (17.8)
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Cash (used in) from financing activities (24.2) 256.3
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Investing activities
Purchase of fixed assets (3.7) (6.6)
Proceeds on sale of fixed assets 1.3 0.1
Other 0.7 (1.0)
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Cash used in investing activities (1.7) (7.5)
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Effect of exchange rates on cash (0.2) (0.2)
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(Decrease) increase in cash and cash equivalents (2.8) 208.4
Cash and cash equivalents, beginning of the
period 209.9 47.1
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Cash and cash equivalents, end of the period $ 207.1 $ 255.5
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