Verdict vs. Reliance Steel in Texas Antitrust Case - Analyst Blog

A Houston, TX-based jury returned a verdict against Reliance Steel & Aluminum Co. RS, Chapel Steel Corp. (Chapel) – a subsidiary of Reliance Steel – and four other co-defendants in an antitrust lawsuit filed in the U.S. District Court for the Southern District of Texas.

Reliance Steel has been involved in legal affairs with two former employees of the company who started their own business after leaving Reliance Steel. These former employees claim that Reliance Steel and the co-defendants have engaged in anticompetitive practices.

Reliance Steel has discussed about their involvement in the legal proceedings in its Annual Report on Form 10-K for the period ending Dec 31, 2013, filed with the Securities and Exchange Commission.

The TX-based jury has come up with a verdict in favor of the claimants charging all six defendants jointly for an amount of $52 million for the damages caused.

However, Reliance Steel and Chapel disagree with this outcome as they believe that they acted appropriately and within their legal rights. They are now ready to take the matter up on appeal or find any other available remedies. Presently, the ultimate amount of any final judgment that Reliance Steel may have to bear is unknown.

Reliance Steel posted its fourth-quarter 2013 results last month. The company's profit fell roughly 23% year over year to $61.8 million or 79 cents per share in the quarter from $80.4 million or $1.06 per share a year ago. Profits sagged in the reported quarter as result of lower pricing and higher costs which dragged down its bottom line.

Barring one-time items such as impairment and restructuring charges, earnings were 92 cents per share, down from $1.08 per share a year ago. It missed the Zacks Consensus Estimate by 6 cents.

Revenues, however, shot up roughly 22% year over year to $2,306.7 million in the reported quarter, but missed the Zacks Consensus Estimate of $2,375 million. Strength in the automotive market coupled with Metals USA acquisition supported the top line. Metals USA, which makes steel and aluminum components, is a strategic fit with Reliance Steel's portfolio and complements its existing customer base, product mix, and geographic footprint.

Looking ahead, Reliance Steel expects metals pricing and demand environment to improve in first-quarter 2014, amid a slow but steady recovery in the U.S. economy. The company expects earnings per share for the quarter to be in the range of $1.20 to $1.30.

Reliance Steel believes, there is continued strength in the automotive market and expects healthy operating results across end-markets such as aerospace, energy, semiconductor/electronics, and manufactured goods in 2014. While pricing is expected to remain under pressure, the company expects aerospace demand to improve in 2014. Reliance Steel also foresees a modest recovery in non-residential construction market in 2014.

Reliance Steel currently carries a Zacks Rank #3 (Hold).

Other metals companies having favorable Zacks Rank are Mitsui & Co. Ltd. (MITSY), Noranda Aluminum Holding Corp. NOR and Worthington Industries, Inc. WOR. All of these stocks carry a Zacks Rank #2 (Buy).