RUSSEL METALS $26.27 - Toronto symbol RUS

RUSSEL METALS $26.27 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 60.9 million; Market cap: $1.6 billion; Dividend yield: 5.3%) is one of North America’s largest metal distributors. It serves 39,000 clients at 54 locations in Canada and 12 in the U.S.

In the quarter ended March 31, 2013, revenue rose 2.4%, to $821.8 million from $802.9 million a year earlier. The steel-distribution division’s revenue fell 26%, and the metal-services business saw a 10% decline. The slower economy cut steel demand.

However, the energy tubular products division, which supplies pipes for oil and gas development, saw its revenue increase 42% on more drilling.

Steel prices, labour unrest hurt profits

Earnings fell 34.0%, to $21.7 million, or $0.36 a share, from $32.9 million, or $0.55. Russel’s earnings fell even with the higher revenue because steel prices declined in the latest quarter. That cuts Russel’s profit margins and causes it to suffer losses on its inventory.

As well, in September 2012, the union at its Boucherville, Quebec, operation went on strike. That dispute, which was resolved on February 7, 2013, also hurt Russel’s profits.

Russel holds cash of $137.8 million, or $2.27 a share. Its long-term debt of $454.5 million is a reasonable 28.4% of its market cap. The stock yields 5.3%.

The company gets 30% of its revenue from clients in the oil and gas drilling industry. That, plus its exposure to fluctuating steel prices, adds risk. However, its long-term outlook remains positive.

Russel Metals is still a buy.

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