Jefferies Provides Preview for Metal Service Centers 2Q Earnings

In a report this morning, Jefferies announced “they expect strong earnings reports across the board from the four metal service centers in our coverage universe due to the rising price environment that was prevalent throughout most of the quarter.” A rising price environment that was prevalent throughout most of the second quarter is driving high earnings expectations. Metals USA (MUSA) will be the first to come out with service center earnings on Tuesday, and analysts believe that their $0.26 EPS forecast may be too conservative given the strengthening of steel flat rolled products. With a price trend reversal, analysts have a toned down 3Q outlook compared to 2Q. Expectations for “buy-rated” Rellance (RS) remain at $0.86/share on $1.59B in 2Q sales, which are above the street consensus of $0.81EPS/$1.6B revenue. Analysts at Jefferies & Company have increased 2Q10 estimates for “hold-rated” ZEUS up to $0.40 from $0.34. Zeus provides high exposure to flat rolled steel products, where analysts have seen the greatest strength this quarter. Jefferies also touched on AM Castle (CAS), which is expected to report a loss of $0.01/share and sales of $240 million for the quarter. CAS maintains exposure to aerospace and energy markets, which remain behind in the return to profitability.