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Reliance Steel (RS) to Post Q2 Earnings: What's in Store?

Reliance Steel RS is set to release its second-quarter 2017 results before the opening bell on Jul 27.
 
In the first quarter, the company delivered a positive earnings surprise of 7%. Reliance Steel logged a profit of 1.7 million or $1.52 per share in the last quarter, up around 21% from $92.2 million or $1.27 per share a year ago. Earnings per share, however, topped the Zacks Consensus Estimate of $1.42. 
 
Revenues rose around 12% year over year to $2.4 billion in the reported quarter, beating the Zacks Consensus Estimate of $2.3 billion.
 
Reliance Steel beat earnings estimates in three of the trailing four quarters while missing one, with an average beat of 4.6%.
 
Let’s see how things are shaping up for this announcement.
 
Reliance Steel & Aluminum Co. Price and EPS Surprise
 

Reliance Steel & Aluminum Co. Price and EPS Surprise | Reliance Steel & Aluminum Co. Quote

Factors to Consider

Reliance Steel, last month, provided its updated earnings outlook for the second quarter. The company anticipates earnings per share in the range of $1.30–$1.40 for the second quarter of 2017 compared with the previous outlook of $1.50–$1.60 per share.

Reliance Steel announced that the favorable momentum it witnessed with respect to demand and price in the first quarter of 2017 will not accelerate into the second quarter as it had expected earlier owing to challenging market conditions. The company’s gross profit margin also witnessed a downward pressure due to increased uncertainty in metals pricing. 
 
Reliance Steel remains optimistic regarding market demand and lower imports. The company is expected to gain from strong momentum across automotive and aerospace markets. It is also likely to benefit from its aggressive acquisition strategy, broad and diversified product base and wide geographic footprint. The company also remain focused on boosting gross profit margin and maximizing market opportunities to drive earnings while managing operating expenses and inventory levels.
 
However, the company’s business in the energy markets is expected to remain under pressure due to depressed oil pricing. The non-residential construction market (Reliance Steel’s biggest end-market) also remains on a slow road to recovery.
 
Reliance Steel's shares have lost 5.2% in the last three months, underperforming the industry’s decline of 2.4%.
 
 
Earnings Whispers
 
Our proven model does not conclusively show that Reliance Steel is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below:
 
Zacks ESP: Earnings ESP for Reliance Steel is currently -0.73%. This is because the Most Accurate estimate is at $1.37 per share while the Zacks Consensus Estimate is pegged at $1.38 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Zacks Rank: Although Reliance Steel’s Zacks Rank #3 increases the predictive power of ESP, its negative ESP makes surprise prediction difficult. 
 
Note that Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.
 
Stocks to Consider
 
Here are some other companies in the industrial space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
 
AGCO Corporation AGCO has an Earnings ESP of +2.88% and a Zacks Rank #1.You can see the complete list of today’s Zacks #1 Rank stocks here.
 
AptarGroup, Inc. ATR has an Earnings ESP of +1.03% and a Zacks Rank #2.
 
Caterpillar, Inc. CAT has an Earnings ESP of +2.38% and a Zacks Rank #2.
 
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AptarGroup, Inc. (ATR): Free Stock Analysis Report
 
Caterpillar, Inc. (CAT): Free Stock Analysis Report
 
AGCO Corporation (AGCO): Free Stock Analysis Report
 
Reliance Steel & Aluminum Co. (RS): Free Stock Analysis Report
 
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