Reliance Steel & Aluminum Co. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request metadata references 2021 Q4, this filing reports full-year results; it does not provide a clear standalone Q4 financial summary in the supplied text.
Business context
Reliance is a metals service center and processing provider operating approximately 315 locations in 40 U.S. states and 13 other countries. It distributes more than 100,000 metal products and serves over 125,000 customers across diverse end markets. It reported one operating and reportable segment: metals service centers.
Financial performance
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Net sales | $14.09 billion | $8.81 billion |
| Tons sold | 5.47 million; up 4.6% | 5.23 million |
| Average selling price per ton | $2,594; up 54.3% | $1,681 |
| Gross profit / margin | $4.49 billion / 31.9% | $2.78 billion / 31.5% |
| Operating income | $1.95 billion | $565.8 million |
| Income before taxes | $1.88 billion | $478.2 million |
| Net income attributable to Reliance | $1.41 billion | $369.1 million |
| Diluted earnings per share | $21.97 | $5.66 |
| Cash from operations | $799.4 million | $1.17 billion |
Gross margin was a record despite a $704.8 million LIFO inventory charge, which reduced margin by approximately 500 basis points. The effective tax rate was 24.7%, versus 22.1% in 2020.
Liquidity, debt and capital allocation
- Year-end cash and cash equivalents were $300.5 million, down from $683.5 million. Operating cash flow fell 31.8%, primarily because higher metal prices and demand increased working-capital needs, particularly receivables and inventory; the filing cites more than $950 million of additional working-capital requirements.
- Total debt was approximately $1.66 billion, broadly unchanged year over year. The company had no borrowings on its $1.5 billion revolving credit facility and reported $1.49 billion available. Net debt-to-total capital was 18.1%, up from 15.8%.
- Debt maturities include $500 million of senior notes due in 2023 and $400 million due in 2025. The company reported compliance with its credit covenants.
- FY 2021 capital expenditures were $236.6 million; the 2022 budget is a record $350 million. The company also spent $439.3 million on four acquisitions, paid $177.0 million in dividends and repurchased $323.5 million of shares.
Material changes and management commentary
- Sales rose 59.9% year over year, driven mainly by the 54.3% increase in average selling price per ton, alongside 4.6% higher tons sold. Tons remained below pre-pandemic 2019 levels, which management attributed partly to supply and labor constraints.
- Record profitability reflected high metal prices, solid demand in most served markets, pricing discipline, expense control and greater value-added processing. Approximately 50% of orders included value-added processing, compared with a historical range of roughly 40%–45%.
- FY 2021 included four acquisitions—Merfish United, Admiral Metals, Nu-Tech Precision Metals and Rotax Metals. Their combined post-acquisition sales included in reported results were $171.0 million; full-year pro forma sales were approximately $900 million.
- 2020 included $157.8 million of impairment and restructuring charges and $19.4 million of postretirement plan settlement charges. FY 2021 impairment and restructuring charges were $4.8 million.
Outlook, risks and contingencies
The filing gives no specific earnings or sales guidance. Management said liquidity and cash generation should support operations, planned investment, acquisitions and shareholder returns, and cited the $350 million 2022 capital expenditure budget. It cautioned that investment plans may be adjusted as economic conditions warrant.
- Key operating risks include ongoing COVID-19 effects, labor shortages, supply-chain and raw-material constraints, cyclical end-market demand, and volatile metal prices. A sharp decline in metals prices could pressure selling prices and margins while higher-cost inventory is sold.
- The business generally has limited long-term customer and supplier contracts and does not hedge metal-price exposure with financial derivatives. Rising prices can also increase working-capital demands.
- Debt service and refinancing are risks, including the $500 million note maturity in 2023; variable-rate borrowings could expose the company to higher interest costs.
- Goodwill was $2.11 billion and other intangible assets were $1.08 billion at year-end. No goodwill impairment was recorded in 2021, but management noted that failure of the commercial aerospace market to recover as expected could lead to a potentially significant impairment.
- The company disclosed an environmental remediation matter related to former EMJ manufacturing operations; insurance is expected to cover most related costs, and management does not expect a material adverse impact. Routine legal proceedings were not expected to have a material effect.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether strong margins and pricing persist as metal prices, supply conditions and demand normalize—and how much earnings were affected by the unusually large LIFO charge.
- Whether working capital converts back into cash as receivables and inventory levels change; operating cash flow declined despite record earnings.
- Debt refinancing plans and liquidity ahead of the 2023 note maturity, alongside planned capital spending, acquisitions, dividends and share repurchases.
- Integration and returns from the four 2021 acquisitions, and the valuation assumptions supporting goodwill and intangible assets.
- Updates on COVID-related labor and supply constraints, commercial aerospace recovery, and the insured environmental remediation matter.