Reliance Steel irons out its difficulties from the downturn

You've probably never heard of Reliance Steel & Aluminum Co.

And that's a little bit frustrating to David Hannah, who has guided the Los Angeles company to staggering growth since he was named its chief executive 14 years ago.

"It seems in Southern California if you aren't in media or entertainment, you don't get noticed," he said.

Reliance's business model isn't exactly sexy.

The metal service center company buys bulk metal from steel mills, processes it and sells it to machine shops and other businesses.

It has some big-name customers, including Boeing Co., Airbus, Caterpillar Inc., Deere & Co., American Honda Motor Co.. But the bulk of its sales are to small businesses. Its average order brings is about $1,600.

Reliance makes lots of those little sales. It had $8.4 billion in revenue last year, placing it No. 313 on the list of Fortune 500 companies. It operates more than 290 locations in 11 countries, putting it close to its more than 125,000 customers, many of which expect next-day delivery on their orders.

Founded in Vernon in 1939, the company went public in 1994.

Although its administrative offices are in downtown Los Angeles, the company has facilities scattered throughout North America. About 95% of its sales are in the United States, with the rest in Canada, Mexico, Asia, Australia, Dubai and Europe.

The latest

This year, Reliance made the biggest acquisition in its history, snapping up Metals USA Holdings Corp. for about $1.2 billion. Metals USA was the second-largest company in the business with $2 billion in revenue in 2012.

"What it's done is it's brought us some additional products and it brought us exposure to more customers in areas where we didn't have penetration that we'd like to have," Hannah said. "We can make each other better."


Sales at Reliance are expected to be about $10 billion this year, nearly 23 times the $447 million in its first year as a public company 19 years ago.

Most of the growth has come through acquisitions. The company regularly snaps up smaller competitors — 56 of them since it went public.

"Reliance is the acquirer of choice in our industry," Hannah said. "Usually, when people want to sell their company, they're picking up the phone and calling us. We're very fortunate to be in that position."

The acquisitions have helped make Reliance the largest name in its business. Today the company employs about 14,000 people worldwide, Hannah said.

"The growth is something to be proud of," Hannah said.

As sales and profits soared, so did the company's stock price. It has gained an average of 18% annually for the last 19 years.


Reliance's business is closely to tied to the economy and to the health of the industries and companies it serves, both of which are out of its control.

"When it slows, it's difficult," Hannah said.

In 2009, as the nation grappled with the Great Recession, lending stalled and customers curtailed their orders significantly. Reliance's revenue fell 39% to $5.3 billion that year from $8.7 billion the previous year.

"That was the worst thing I've ever seen in my career, and I've been here more than 30 years," Hannah said. "Demand was down 38% and prices dropped 50%. Since then, we've recovered some but not completely."

A downturn can be especially problematic if it slows commercial real estate construction. About 30% of the company's business is in nonresidential construction, so when building slows, Reliance's sales suffer.

Another challenge is that pricing of steel fluctuates and Reliance has no control over that.

Analyst views

Four analysts recommended buying Reliance's stock, nine suggested holding onto it and one said investors should sell.

On average, they estimated the stock will be trading at $75.67 a year from now. Shares gained 54 cents, or 0.8%, to $72.34 on Friday.

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