An anonymous director reports

RUSSEL METALS ANNOUNCES 2023 THIRD QUARTER RESULTS

Russel Metals Inc. has released its financial results for three months ended Sept. 30, 2023.

• Revenues of $1.1-billion and EBITDA (earnings before interest, taxes, depreciation and amortization) of $96-million;
• Cash generated from operating activities of $115-million;
• Completed the divestiture of the company's TriMark equity interest for $60-million;
• Returned $45-million to shareholders through dividends and share buybacks;
• Liquidity of $965-million.

The company's basic earnings per share of 99 cents for the quarter ended Sept. 30, 2023, was lower than the $1.45 per share recorded in the third quarter of 2022 and the $1.37 recorded in the 2023 second quarter. For the nine months ended Sept. 30, 2023, the company's basic earnings per share of $3.55 compared with $4.98 for the same period in 2022. Revenues of $1.1-billion were lower than the $1.3-billion experienced in the third quarter of 2022 and the $1.2-billion in the second quarter of 2023. The company's gross margins of 20.2 per cent compared with 21.5 per cent in the same quarter of 2022 and 23.1 per cent in the 2023 second quarter.

The company's third quarter 2023 results reflected the resiliency of the company's business model in volatile steel market conditions, as the company generated strong free cash flow and increased the company's cash position by $119-million. In the quarter, the company generated $96-million of EBITDA, $58-million in cash from a reduction in working capital, including a $72-million reduction in the company's inventories, as well as $60-million from the sale of the company's retained interest in TriMark. In the quarter, the company returned $45-million in capital to its shareholders through a combination of dividends and share buybacks.

EBITDA in the third quarter of 2023 was impacted by a $1-million non-cash expense for the mark to market on stock-based compensation compared with $2-million in the 2023 second quarter and nil in the 2022 third quarter. In addition, the third quarter 2023 EBITDA benefited from the $10-million gain on sale of the company's investment in the TriMark joint venture.

The company's metals service centres and steel distributors navigated through volatile market conditions in the 2023 third quarter and remained disciplined on inventory management. Quarter-over-quarter selling prices in the company's metals service centres decreased 5 per cent compared with the 2023 second quarter and were 14 per cent lower than the same quarter in 2022. Tons shipped in the company's metals service centres were 7 per cent lower than the 2023 second quarter due to the typical summer holiday impacts and was comparable with the company's shipments in the same quarter in 2022. In the company's energy field store segment, its growing market position and the continuation of solid industry conditions led to revenues growing by 7 per cent compared with the 2023 second quarter and 6 per cent compared with the 2022 third quarter.

Market conditions

Steel prices declined in the 2023 third quarter due to a variety of macroeconomic factors including the uncertainty caused by automotive labour disruptions. However, producers have moderated their operating rates and distributor inventories are below historical averages. The company's energy field stores continue to benefit from the recovery of the energy sector.

Capital investment growth initiatives

For the nine months ended Sept. 30, 2023, the company invested $45-million in capital expenditures, that included a series of value-added equipment and facility modernization initiatives in both Canada and the U.S. In addition, the company is continuing to advance other projects that should be implemented in the balance of 2023, 2024 and beyond. The company is also continuing to actively evaluate acquisition opportunities to grow its business and deploy capital at attractive returns. On Oct. 2, 2023, the company acquired Alliance Supply Ltd. for approximately $8-million in cash. The Alliance locations have been integrated into the company's Canadian energy field store network.

TriMark joint venture

On Sept. 1, 2023, Russel sold itsequity interest in TriMark to its venture partner for $60-million, which included a $10-million gain. The transaction was the final step in the company's staged exit from the OCTG/line pipe business. Over the last three years the company repatriated approximately $375-million in capital from the OCTG/line pipe business.

Returning capital to shareholders

The company has adopted a flexible approach to returning capital to shareholders through: (i) its continuing dividend; and (ii) share buybacks.

In May, 2023, the company announced a 5-per-cent increase on its quarterly dividend from 38 cents per share to 40 cents per share. In the third quarter, the company paid dividends of $25-million or 40 cents per share. The company has declared a dividend of 40 cents per share, payable on Dec. 15, 2023, to shareholders of record at the close of business on Nov. 29, 2023.

In August, 2023, the company renewed its normal course issuer bid to purchase for cancellation up to 6.1 million of its common shares over 12 months. In the 2023 third quarter, the company purchased and cancelled 500,000 shares for total consideration of $20-million. During 2023, 1.8 million shares were purchased for total consideration of $65-million. In the period since the August, 2022, normal course issuer bid was established, 2.8 million shares at an average price per share of $33.43 were purchased for total consideration of $93-million.

Liquidity and capital structure

During the 2023 third quarter, the company generated $115-million of cash from operating activities and ended the quarter with total available liquidity of $965-million. As a result, the company remains well positioned to continue to pursue both internal and external opportunities to deploy capital.

Outlook

Steel prices declined over the past several months but remain above the long-term historical averages. Going forward, prices are expected to stabilize over the near term, depending on the evolution of various macro conditions, including the continuation of steel producer discipline in managing supply. Over the medium term, Russel expects growth in North American steel consumption as a result of onshoring activities and infrastructure spending initiatives in both Canada and the U.S. In addition, the company is positioned to gain market share through its continuing investment initiatives. The company's energy field stores are expected to continue to benefit from solid energy activity in the 2023 fourth quarter and 2024.

Investor conference call

The company will be holding an investor conference call on Thursday, Nov. 9, 2023, at 9 a.m. ET to review its 2023 third quarter results. The dial-in telephone numbers for the call are 416-764-8688 (Toronto and international callers) and 1-888-390-0546 (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 416-764-8677 (Toronto and international callers) and 1-888-390-0541 (U.S. and Canada) until midnight, Thursday, Nov. 23, 2023. You will be required to enter pass code pound key followed by 197003 to access the call.

Additional supplemental financial information is available in the company's investor conference call package located on Russel's website.

About Russel Metals Inc.

Russel Metals is one of the largest metals distribution companies in North America with a growing focus on value-added processing. It carries on business in three segments: metals service centres, energy field stores and steel distributors. Its network of metals service centres carries an extensive line of metal products in a wide range of sizes, shapes and specifications, including carbon hot rolled and cold finished steel, pipe and tubular products, stainless steel, aluminum, and other non-ferrous specialty metals. Its energy field stores carry a specialized product line focused on the needs of energy industry customers. Its steel distributors operations act as master distributors selling steel in large volumes to other steel service centres and large equipment manufacturers mainly on an "as-is" basis.

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