An anonymous director reports

RUSSEL METALS ANNOUNCES 2023 ANNUAL & FOURTH QUARTER RESULTS

Russel Metals Inc. has released financial results for the fourth quarter and the year ended Dec. 31, 2023:

• Revenues of $4.5-billion in 2023 and $1.0-billion in Q4 2023;
• EBITDA (earnings before interest, taxes, depreciation and amortization) of $426-million in 2023 and $82-million in Q4 2023;
• Generated $146-million of cash from working capital in 2023 and $82-million in Q4 2023;
• Advancing capital investment growth initiatives;
• Repurchased $82-million of shares in 2023;
• Declared a quarterly dividend of 40 cents per share;
• Strong capital structure with liquidity of $1.0-billion.

Its net earnings for the year ended Dec. 31, 2023, were $267-million or $4.33 per share compared with net earnings of $372-million or $5.91 per share for 2022. Revenues for the year ended Dec. 31, 2023, were $4.5-billion compared with $5.1-billion in 2022. EBITDA was $426-million compared with $579-million in 2022.

In fourth quarter 2023, its revenues, EBITDA and net earnings per share were $1.0-billion, $82-million and 78 cents per share, respectively, compared with $1.1-billion, $97-million and 93 cents per share in the fourth quarter of 2022 and $1.1-billion, $96-million and 99 cents per share in the third quarter of 2023. During fourth quarter 2023, operating days and related shipment volumes were negatively impacted by normal seasonal factors as compared with the third quarter, but service centre shipments were higher than the comparable fourth quarter of 2022 as the company continued to focus on market share opportunities. In addition, it realized an improvement in gross margins in each of its three operating segments in the fourth quarter of 2023 versus the third quarter of 2023 as a result of its value-added investment initiatives and strong cost controls. EBITDA was negatively impacted by the mark to market on stock-based compensation of $7-million for the fourth quarter and $15-million for the year, due to the increase in its share price. In addition, the third quarter of 2023 benefited from the income and gain related to its interest in the TriMark joint venture that was sold in the third quarter and therefore did not contribute to earnings in the fourth quarter.

Its working capital management practices allowed it to generate $146-million of cash from working capital during 2023, including $82-million in the fourth quarter. This was driven by a $112-million reduction in inventories during 2023, including $39-million in the fourth quarter.

Market conditions

The average steel prices in 2023 were lower than the 2022 averages, but prices began to recover late in the fourth quarter, which has continued into the first quarter of 2024.

Its energy field stores continued to benefit from favourable dynamics in the energy sector with continuing capital-spending activities.

Capital investment growth initiatives

The company invested $73-million in capital expenditures in 2023, including $28-million in the fourth quarter, that included a series of value-added equipment and facility modernization initiatives in both Canada and the United States. It expects its 2024 capital expenditure level to be greater than $100-million as a result of additional projects.

It continued to actively evaluate acquisition opportunities to build its business and deploy capital at attractive returns. On Oct. 2, 2023, it completed the acquisition of Alliance Supply Ltd. for approximately $7-million in cash. The two Alliance locations have been integrated into its Canadian energy field store network.

On Dec. 4, 2023, it announced that it had entered into an agreement to acquire seven service centre locations from Samuel, Son & Co. Ltd. for approximately $225-million. The acquisition is very complementary from both geographic and product mix perspectives. In Western Canada, Samuel's five locations will be a strong fit with its current footprint, including providing new opportunities to benefit from Samuel's focus on non-ferrous products and its focus on value-added processing. In the U.S. northeast, the two locations will provide an eastern extension of its existing operations in the U.S. Midwest. In addition, it believes there will be opportunities to achieve operating efficiencies by more effectively managing the combined footprint, including enhanced inventory management, procurement, location integration/rationalization and systems. These reorganization initiatives are expected to be implemented over a two-year period. This acquisition is subject to Canadian regulatory clearance and is expected to close in second quarter 2024.

TriMark joint venture

In the third quarter of 2023, the company sold its equity interest in TriMark to its venture partner for $60-million, which included a $10-million gain. The transaction was the final step in its exit from the OCTG/line pipe business. Over the last three years, it repatriated approximately $375-million in capital from the OCTG/line pipe business.

Returning capital to shareholders

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

In the second quarter of 2023, it announced a 5-per-cent increase on its quarterly dividend from 38 cents per share to 40 cents per share. In 2023, it paid dividends of $97-million or $1.58 per share. In addition, it has declared a dividend of 40 cents per share, payable on March 15, 2024, to shareholders of record at the close of business on Feb. 29, 2024.

During 2023, it purchased for cancellation 2,159,656 shares for $82-million, including 390,300 shares for $17-million in the fourth quarter. Since the beginning of its normal course issuer bid in August, 2022, it has purchased for cancellation 3,159,656 shares at an average price per share of $34.65 for total consideration of $109-million.

Liquidity and capital structure

During 2023, it generated $462-million of cash from operating activities and ended the year with total available liquidity of over $1-billion.

Outlook

Steel prices and its margins recovered toward the end of 2023 and through the early part of 2024. The company expects steel prices to remain relatively stable over the near term as a result of the solid market activity. Shipment volumes are expected to improve in the first quarter of 2024 as compared with the fourth quarter of 2023, due to the normal seasonal pickup in operating days and customer demand. However, weather-related factors may impact shipments in certain of its operating regions. Over the medium term, it expects growth in North American steel consumption as a result of onshoring activities and infrastructure spending initiatives in both Canada and the United States. In addition, it is positioned to gain market share through its continuing investment initiatives. Its energy field stores are expected to continue to benefit from solid energy activity in 2024.

Investor conference call

The company will be holding an investor conference call on Friday, Feb. 9, 2024, at 9 a.m. ET, to review its fourth quarter 2023 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, Friday, Feb. 23, 2024. You will be required to enter passcode 0427668 followed by the number sign to listen to the call.

Additional supplemental financial information is available in its investor conference call package located on its website.

About Russel Metals Inc.

Russel Metals is one of the largest metal distribution companies in North America with a growing focus on value-added processing. It carries on business in three segments: metal service centres, energy field stores and steel distributors. Its network of metal 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 distributor 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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