Reliance Steel & Aluminum Co

Greetings and welcome to the Reliance Inc. fourth quarter and full year 2024 earnings call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may press star one at any time to be placed into the question queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kim Orlando with Addo Invest Relations.

Kim, please go ahead. Thank you, Operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's fourth quarter and full year 2024 financial results. I am joined by Carla Lewis, President and Chief Executive Officer, Steve Cook, Executive Vice President and Chief Operating Officer, and Arthur Gemmian, Senior Vice President and Chief Financial Officer. A recording of this call will be posted on the investor section of our website at investor.reliance.com. Please read the forward-looking statement disclosures included in our earnings release issued yesterday and note that it applies to all statements made during this teleconference. The reconciliations of the adjusted numbers are included in the non-GAAP reconciliation part of our earnings release. I will now turn the call over to Carla Lewis, President and CEO of Reliance.

Thanks, Kim. Good morning, everyone, and thank you all for joining us today to discuss our fourth quarter and full year 2024 results. Collectively, the Reliance businesses demonstrated resilience in 2024 as strong execution of our model and strategy once again fueled solid financial results in a challenging market. Through our emphasis on smart, profitable growth, we grew our same store tons well above industry shipment levels, bolstering our earnings in a falling price environment. Importantly, we were able to grow our tons shipped while also delivering a strong full-year gross profit margin of 29.7% squarely within our sustainable annual range. Additionally, We successfully acquired and integrated four companies in 2024, adding approximately $400 million of net sales on an annualized basis and broadening our geographic footprint and processing capabilities in both new and existing markets. Our 2024 non-GAAP earnings per share of $15.92 reflected the benefit of our targeted growth strategies, diverse end markets served, strong pricing discipline, and expanded value-added processing capabilities, which collectively helped mitigate the impact of declining metal prices. Our profitability and effective working capital management led to the third highest annual cash flow from operations in Reliance's history of $1.43 billion. I'd like to thank our amazing teams across our entire family of companies who did an incredible job delivering more value to our customers in 2024 while, most importantly, keeping each other safe. We maintained our balanced and disciplined approach to capital deployment in 2024, investing $430 million in capital expenditures, $365 million in acquisitions, a record $1.1 billion in share repurchases, resulting in a 6% year-over-year reduction of outstanding shares and returning $250 million in dividends to our stockholders. Our capital expenditure budget for the 2025 calendar year is $325 million with an expected total cash outlay of approximately $375 to $400 million inclusive of carryover projects from prior years. As I mentioned, we acquired four businesses in 2024, bringing us to 76 acquisitions completed since our 1994 IPO and our acquisition pipeline remains robust and active. Before I conclude, I'd like to highlight a few corporate developments we announced yesterday. Brenda Miyamoto was promoted to Senior Vice President, Strategic Planning and Programs on February 18th, 2025. Brenda has been with Reliance for 23 years having served in various roles of increasing responsibility, most recently as our Vice President of Corporate Initiatives. In addition, Scott Ramsbottom was appointed Vice President, Chief Information Officer of Reliance, effective November 18, 2024. Scott is a veteran industrial distribution CIO with more than 25 years' experience. and we wish them both the best in their new roles. As we look ahead to 2025, our priorities are centered on striving to keep our people safe every day, increasing our volumes through our smart, profitable growth strategy, maintaining an annualized gross profit margin within our estimated sustainable range of 29% to 31%, enhancing our value-added processing capabilities, effectively managing expenses and working capital, maintaining our balanced and disciplined capital deployment strategy, promoting both growth and stockholder returns, and promoting increased collaboration and sharing of best practices throughout our family of companies. While macroeconomic uncertainty persists, We're excited about 2025 and well-positioned to continue to grow our business and have both the capacity and the capability to participate in any improvement in end market demand across our broad and diverse network arising from the many potential opportunities that exist, including infrastructure, military, data center, electrical grid, general manufacturing, and many other markets that we serve. Thank you all for your time today. I'll now turn the call over to Steve, who will review our demand and pricing trends.

Thanks, Carla, and good morning, everyone. I'd like to begin by expressing my gratitude to the entire Reliance team for a strong finish to the year and for their ongoing commitments to safety and operational excellence. I'll now turn to our demand and pricing trends. Our fourth quarter tons sold decreased 5.1% compared to the third quarter of 2024, surpassing our outlook of down 6% to 8%. However, fourth quarter tons sold increased 6.7% or 2.8% on a same-store basis compared to the fourth quarter of 2023, significantly outperforming the service center industry's year-over-year decrease of 3.6%, as reported by the MSCI. For the full year, our tons sold increased 4% or 1% on a same-store basis, surpassing the MSCI industry-wide decrease of 2%. Underlying demand remains solid in several key end markets, including non-residential construction, certain manufacturing sectors, aerospace, and automotive. We are pleased with the market share gains we made across nearly every product group while maintaining industry-leading profitability in a challenging year driven by our diversified business model, relentless customer service, and contributions from our strategic investments in organic growth and acquisitions. Our fourth quarter average selling price per ton sold at $2,170 declined 3.4% compared to the third quarter of 2024 within our expectation of a 1.5% to 3.5% decline. Carbon steel product prices remained under pressure but we saw aluminum and stainless steel prices start to stabilize in the fourth quarter. Next, I will turn to an overview of notable trends within our key end markets and products beginning with non-residential construction. Carbon steel tubing, plate, and structural products, which we mainly sell into the non-residential construction market, represented roughly one-third of our sales in Q4 2024. All three products had significant year-over-year shipment growth and substantially outperformed industry shipments compared to both fourth quarter of 2023 and full year of 2023, which mitigated some of the impact on sales of lower average selling prices. Our diversified exposure to the non-residential construction market, including heightened data center construction and related energy infrastructure projects, as well as publicly funded infrastructure projects, supported solid demand for our products and did contributions from our recent acquisitions. Our general manufacturing business, which also represented roughly one-third of our total sales in Q4 2024, is highly diversified across geographies, products, and industries. Shipments increased compared to the fourth quarter of 2023 and were consistent with the full year of 2023. Industrial machinery, military, shipbuilding, and rail remained strong in 2024. Consumer products demand declined year over year, which showed improvement in the fourth quarter. Heavy equipment, particularly in the agricultural sector, experienced weaker demand through 2024. Our industry outperformance across key product groups, shipping to general manufacturing applications, highlights the advantage of our diversified business model in a dynamic and uncertain demand environment. Aerospace products comprise approximately 10% of our Q4 2024 sales. Demand for commercial aerospace was stable compared to both the fourth quarter and full year of 2023. despite short-term production and supply chain challenges. Demand in defense-related aerospace and space programs remain stable at strong levels. We primarily service the automotive market through our toll processing operations, which are not included in our tons sold. Our tolling business, which represented approximately 5% of our Q4 2024 sales, saw process tons increase 5.8% from the fourth quarter, and 3.1% from the full year of 2023 due to healthy demand in both the U.S. and Mexico and our ongoing investments to increase capacity. Semiconductor industry shipments remained restrained in the fourth quarter with excess inventories in the supply chain. On the whole, demand remained relatively steady with strength in certain key end markets and market share gains, counterbalancing pressures in subdued markets. We continue to monitor demand the dynamic trade policy landscape and remain confident that our proven and resilient business model positions Reliance to excel through all markets. Please refer to our earnings release for additional commentary on our end markets and product diversification. We are very proud of our team's extraordinary execution, which enables our continued industry-leading performance. Reliance's unrivaled scale and strong balance sheet makes us a highly attractive partner to our mill suppliers in all market conditions. We continue to win new business from new and existing customers who value the breadth and depth of our product offerings, value added processing capabilities, and recognize the quality and reliability of our service. I will now turn the call over to Arthur to review our financial results and outlook.

Thanks, Steve, and thanks, everyone, for joining today's call. Our underlying operating performance for the fourth quarter was stronger than anticipated, due to better-than-expected shipment levels and an improved gross profit margin when excluding the impact of non-recurring items, along with year-end LIFO reserve and income tax rate adjustments. Overall, our fourth quarter non-GAAP earnings prediluted share of $2.22 included an unfavorable year-end LIFO true-up impact of 74 cents per share net of an income tax rate true-up compared to the assumptions used in our non-GAAP earnings for diluted share guidance of $2.65 to $2.85. More on that shortly. While on the fourth quarter sequential decline in our average selling price was in line with our expectations, our tons sold were better than we anticipated, leading us to once again outperform industry shipment levels on the same store basis across nearly all products. On a non-GAAP FIFO basis, which is how we measure our day-to-day operating performance, our gross profit margin improved sequentially from 27.9% in the third quarter to 28.8% in the fourth quarter, reflecting better alignment of replacement costs our inventory on hand. As Carla mentioned, our full-year gross profit margin of 29.7% was within our sustainable annual range. Our strong pricing discipline and value-added processing capabilities, which warrant a consistent premium irrespective of the underlying price of metal, bolstered our gross profit margin and stemmed the impact of a declining pricing environment on our gross profit margin and bottom line. For the full year of 2024, we performed value-added processing on approximately 50% of our orders. We were able to keep this metric relatively consistent year over year as we grew our business on both the processing and distribution side. More specifically, we grew our same store tons sold with processing by 3.6% in 2023 and a further 1.3% in 2024. Our fourth quarter, gross profit margin declined to 28.3% from 29.4% in the third quarter, largely due to the recognition of $5.6 million of LIFO expense as compared to our $50 million of LIFO income estimates. This resulted in 2024 annual LIFO income of $144.4 million compared to the original $200 million annual income estimate. As discussed in our last earnings call, our LIFO adjustment for the fourth quarter trues up our interim annual LIFO estimate based on year-end inventory levels and factors such as inventory cost per ton trend and changes in product mix. These impacts were heightened in the fourth quarter by the receipt of certain long lead time, high value specialty stainless steel and alloy products, which will ultimately shift LIFO income from 2024 into 2025. Accordingly, for the full year of 2025, we estimate LIFO income of approximately $60 million. It's important to note that this estimate reflects the carryover and normalization of specialty stainless steel product inventory from 2024 rather than an expectation of declining metals pricing in 2025. As of December 31, 2024, the LIFO reserve on our balance sheet was $435 million, which remains available to benefit future period operating results by recognizing LIFO income and therefore mitigating the impact of potential further declines in metal prices. On the expense side, our fourth quarter same store non-GAAP SG&A expense increased a modest $8 million or 1.3% year over year due mainly to general wage inflation offset by lower incentive compensation consistent with lower profitability. As a reminder, our model inherently normalizes expenses by right-sizing incentives as profits trend down. Sequentially, our same-store non-GAAP SG&A expense was down $3 million, or less than 1%. We also incurred impairment charges of $11.7 million in Q4 associated with the consolidation of one of our operations into existing facilities to streamline operating efficiencies. I'll now address our balance sheet and cash flow. We continue to generate strong cash flow from operations in both the fourth quarter and full year at $473.3 million and $1.43 billion, respectively. While lower relative to 2023 levels, higher working capital release helped offset declines in our profitability. This cash enabled us to put capital to work in the fourth quarter through $110.9 million in capital expenditures, $61.2 million in dividends paid to stockholders, and $142.4 million in share repurchases at an average cost of $271 per share. Year to date, in 2025, we have repurchased an additional $203 million of our shares at an average cost of $273 per share, resulting in cumulative 7.5% reduction in our total shares outstanding since December 31, 2023. We have $1.15 billion remaining for additional share repurchases under our existing $1.5 billion share repurchase plan that we recently refreshed in October 2024. our leverage position also remains favorable with a net debt to EBITDA ratio of less than one, providing significant liquidity to continue executing our capital allocation priorities. I'd now like to spend a few moments discussing our outlook for the first quarter of 2025. We anticipate demand across the majority of our end markets to improve modestly in the first quarters despite continued uncertainty about domestic and international policy. We estimate our tons sold will be up 6% to 8% in the first quarter compared to the fourth quarter of 2024, consistent with seasonal trends, and up 3% to 5% from the first quarter of 2024, with half to 2.5% attributable to same-store growth. On the pricing side, we expect our average selling price per ton sold to be relatively flat compared to the fourth quarter. We anticipate our FIFO gross profit margin will continue to improve in the first quarter of 2025 as the alignment of replacement costs and inventory costs on hand continues to improve. Importantly, this outlook assumes no significant trade policy disruption either positive or negative, to carbon steel, stainless steel, and aluminum product market demand and pricing. Based on these expectations, we anticipate non-GAAP earnings for diluted share in the range of $3.30 to $3.50 for the first quarter of 2025. This concludes our prepared remarks. Thank you again for your time and participation. I will now open. to call for your questions, operator.

Thank you. When I'll be conducting a question and answer session, if you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question is coming from Martin Engler from Seaport Research Partners. Your line is now live.

Hello. Good morning, everyone. I appreciate the time. Good morning. I wanted to dig in a little bit on demand activity, and it seems like activity in the U.S. market for steel and metals is picking up in recent weeks. I would... I'd be curious to hear your thoughts on how much you would attribute to seasonal gains quarter on quarter, potential demand pull forward due to tariffs and possibly rising prices versus an organic cyclical recovery in U.S. steel and metals.

Hi, Martin. You know, we can't really speak to what's happening at other companies, but at Reliance, you know, overall, our volumes were pretty steady through 2024. in most of our major end markets. You know, we were looking for growth. Our people performed very well, as we commented in our remarks. You know, we were growing at a higher rate than the industry. In particular, you know, non-res construction, we saw good activity there. Not necessarily growing, but maintaining, subject to the seasonal trends. And we look for that to continue in Q1. We think there's, you know, momentum as we move further into 2025 for some other markets to pick up a little more. But overall, I think we've seen pretty steady demand.

Yeah, in addition to that, Martin, coming into 2025, our January activity was pretty strong. And that's even in spite of some bad weather pretty much countrywide. So as far as pull forward goes with the impending tariffs in March, we have seen a little bit of customer activity trying to make sure that they get their material before the price increases. So we're pretty optimistic about the first quarter.

Your comment in that response about the expected momentum potentially developing as you're moving into or through 2025, What specific end markets may you be anticipating that for?

It's more from an overall standpoint, Martin, but there does continue to be uncertainty as, you know, you had asked about and Steve just commented, maybe a little extra right now because of the potential tariffs. But we think once there's, you know, final news on that and everyone understands the playing field, that we'll see people buying on a more regular basis again. We think different parts of the general manufacturing sector will improve. Hopefully infrastructure starts to flow, especially if permitting and funding is a more efficient process. We could start to see some of the infrastructure money going Certainly, you know, data center, everything related to the electrical grid, there's a lot of strength there. And so many different reliance companies touch that type of business in many different ways through many different products. So we're, you know, pretty positive about 2025. Okay.

Appreciate that. I'm curious, you know, Maybe there's a couple parts of this question, and you had alluded to policy and tariffs, if maybe you could walk through some of the positive and negative factors that could evolve for the company. And then also, I would like to understand what you're seeing out there in today's market. I understand you're a large domestic buyer and often probably at the front of the line when you're buying from upstream metals and steel producers. But what are you seeing in the overall supply side of the environment in the U.S. in recent weeks, and anything changing or extending with lead times or reduced availability?

Yeah, as you mentioned, Martin, I mean, we have been a very long-time domestic buyer. We prefer to support our mills here in the U.S. It also helps us manage our inventory well. turning our inventory, which is what we look to do. Historically, when there have been tariffs or different trade policy enacted, and it reduces the amount of import material coming into the U.S., we generally see prices increase in the U.S., which has been positive for us. We currently anticipate that would be the impact again, but Until we start operating in that environment, we won't know, but we do see potential upside on the pricing front. We do think we're well positioned to receive inventory. We've already seen, especially on the aluminum side, some movement upwards. You've seen some pricing movement upwards on some of the carbon steel products as well, which is all positive from our view.

Okay. Appreciate all the color and congratulations on the strong underlying results exiting the year.

Great. Thanks, Martin. Thank you.

Thank you. Next question is coming from Katia Janczyk from BMO Capital Markets. Your line is now live.

Hi. Thank you for taking my question. Carla, you mentioned initially that one of the things you will be focusing on in 25 is on increasing volume. Is that going to be more driven by organic growth, or does that include also some acquisitions?

It would be both. As you know, in 2024, where we saw a lot of growth, a little more than half of our bump up in 2024 was from the four acquisitions we completed in the year. But we also grew our same store tons, and we talk about smart, profitable growth, which is go after more volume while also maintaining your margins. Don't take every order, but take those that will be accretive, add pre-tax income dollars. And we think our people have executed extremely well on the organic side, going out and getting a little more volume, especially with a declining price environment that we had in 2024. Those additional earnings off of the increased volume was very helpful in adding to our earnings and offsetting some of the higher costs we have.

And maybe on the value-added processing, I think what we saw during the COVID is that the interest in value-added processing increased. Could this environment where you have increasing protectionist policies drive another higher on interest in domestic value-added processing?

I mean, it potentially could, certainly, if there's less of that being, you know, done offshore. That's part of the reshoring that's been happening the last few years. But even before, you know, a lot of reshoring, we've just seen a change with a lot of our customers where they've looked at what they're doing internally, trying to drive costs out, be more efficient. And they realized that because Reliance companies are serving many different customers, we're able to oftentimes do the same type of processing for them more cost-effectively than our customers doing it in-house. So we had already seen a trend from our customers. And then, yes, with the reshoring trends, that certainly could potentially drive it up more. We have seen some of our customers come to us when business has come back from, you know, Asia or wherever, and it's come back to the U.S. So, you know, that could drive it higher. I will say, though, you know, we did increase the number of tons, the number of orders we did processing on in 2024, but we also grew the distribution side of our business, especially with some of our acquisitions. And You know, we just are able and ready to continue to invest in whatever our customers need us to do for them on a profitable basis, and we do expect to continue to see more of that activity.

And Katya, I would add to that, our sales into the general manufacturing end market, the products that we ship to that end market naturally lend themselves for value-added processing at a much higher rate than other products. as general manufacturing activity picks up, we should see a pickup in our value-added processing sales as well.

Great. Thank you. I'll call back into the queue.

Thank you. Thank you.

Thank you. Next question today is coming from Phil Gibbs from KeyBank Capital Markets. Your line is now live.

Hey, good morning. Hey, morning. Hi, Phil. So I'm looking at operating expenses up about 4% year on year. You had a 4% uplift in volumes X tolling, but you did have a decline in your FIFO gross profit. So not a ton of leverage maybe relative to some historical years. So showing that there's still maybe some, either some excess cost in your supply chain and or inflation within the business is pretty sticky. Any opportunities to lean that out or are they just going to be through operations you're going to have to grow into?

Hi, Phil. So certainly, you know, costs are up, wage inflation. We continue to want to pay good, fair wages to our employees. So, you know, we do have some wage inflation. Some of our incentive comp is down because of the lower FIFO profitability that you talked about. We are always looking for ways to take some costs out. You know, we do have some instances where We maybe have to carry a few more people. It's a longer training time in general when we're bringing new employees on now. But all of our folks out in the field are looking at ways to potentially take costs out, but also at the same time, we need to retain our good employees who are trained, who know how to work safely in our environments, So, you know, we're reacting the best we can, but certainly there has been some inflationary increase.

Yeah. And so I would add to that at a high level, we've been able to keep our operating costs per ton pretty steady the last three years at, you know, roughly in the form of, you know, 40 to 50 bucks a ton in that range. But also, you know, Carla spoke to smart profitable growth. And as part of that initiative, We're really trying to, to your point, grow into the cost structure. So as we bring additional business, we're trying to get more efficient and not increase our expenses. So that's part of the smart, profitable growth, not just kind of from a margin perspective, but from expense perspective. So we've been able to get some really good traction on that front, and we're looking to continue with that strategy going forward.

Thank you. And can you speak to, and I don't know if you mentioned in the prepared remarks, but maybe talk about cash capex in 2025?

Yeah, we're estimating that our current year budget for new projects is $325 million, but we still have carryover from, you know, some projects that roll into this year. So we're estimating $375 to $400 million of cash outlay this year.

Thanks, Carla. And then semis, you talked about being soft. And historically, I've thought about you guys as having more semis infra. So there's still that build-out occurring. Your comments seem to be more of semis production. Maybe that's through some of the aluminum plate business. I don't know. But maybe qualify what you're seeing there and what you expect over the next few years.

Yeah, I think, you know, certainly long-term we're still bullish on the semiconductor industry, especially as you're referencing a lot of the build going on here in the U.S. I would say on the infrastructure side of that where we participate when they're building new plants, it's been like pretty choppy. I think, you know, different of the semiconductor manufacturing companies, you know, whether it's permitting, whether it's workforce, whether it's other internal issues that they're dealing with. You know, one project will be pretty busy, and then all of a sudden that stops. Another project heats up a little bit. So it hasn't been as smooth or as steady of a build, but we are participating in the projects that are active.

Thank you. Thank you.

Next question today is coming from Mike Harris from Goldman Sachs. Your line is now live.

Yes, thank you. If I could, I wanted to get just a bit more clarification around the first quarter guide for, you know, time sold being up 68%, but pricing roughly flat. I guess I was a little surprised you were not more optimistic around pricing all considered. And is that because there's maybe an unfavorable mix in that 6% to 8% that could be capping pricing, or are you just being ultra-conservative here to the conservative side at this point?

So, Mike, you know, we're not baking in – Anything from the tariffs, not at this point. We think it could be positive for pricing. But, yeah, we typically, you know, take a conservative view. There have been some price increase announcements, but sometimes uncertain products, but sometimes it takes a little time for those to really be effective in the market. So, you know... That's the way we guided for the quarter, and hopefully there will be some upside to that.

Okay. Okay. That's fair. And then just for the first quarter, how should we think about, you know, working capital and perhaps speak to your expectations for inventory days on hand?

Yeah. Mike, you can look at, you know, typical seasonality in our business, you know, go back the last, you know, two or three years and just look at seasonally going into Q1, what happens, you know, from Q4 and, you know, as you have, you know, higher shipment levels, typically in Q1, you know, end up, you know, building some working capital, you know, and then the typical trends are Q1 and Q2, you might end up building working capital and then Q3 and Q4 you have releases. So that's sort of the typical seasonality and we would expect it to be consistent with those historical seasonal patterns.

Okay, thanks for that additional call.

Yep, you got it.

Thank you. Next question is coming from Alex Hacking from City Airlines. Is that live?

Yeah, thanks for the call. Just turning back to tariffs again. You mentioned higher pricing is generally good for you, but can you just remind us, do you have any exposure to material coming across the border from Canada or Mexico? Thanks.

We certainly have locations in all three countries in North America. They typically are buying domestically. Our toll processing company in Mexico does have a license to import metal for their customers from the U.S., so there could be some impact there. Overall, international is a fairly small part of our business. Most of our locations are within the U.S. We're typically shipping within about a 150-mile radius, and so we don't anticipate a significant impact there. But we could see some disruptions in that part of our business that flows across the borders.

Yeah, and I agree with Carla. We'll see some disruptions. But since we are 95% to 96% domestically sourced, we think that an overall strong U.S. steel market with higher prices supports, reliance supports the companies that are investing billions and billions of dollars into our infrastructure. So we will deal on a case-by-case basis. with some tariff disruptions.

But overall, we're very positive. Okay, thanks. Just to clarify, you said about 95% plus of your business is domestic. Did I hear that correct? Domestically sourced, yes. Okay. I guess, and then just kind of on the accounting side, you mentioned that FIFO gross margin should move in the right direction in 1Q. I assume that was still... and metals prices generally rising, that does create probably a LIFO headwind for the first quarter. That speaks into guidance?

Yeah, so I think we guided to LIFO income, and as we alluded to in our remarks, that it's not that we're expecting prices or costs to decrease for the remainder of the year. So some of that was timing related to some specialty stainless steel and alloy products. But generally speaking, the gross profit margin improvement has more to do with cost alignment, meaning costs on hand, getting better alignment with replacement costs. And then to the extent that there's any average selling price uplift, you're right that there will be some additional pickup on the margin side from that.

Okay. Thank you very much. You got it.

Thank you. Next question is a follow-up from Phil Gibbs from KeyBank Capital Marketers. Your line is now live.

Hey, thank you. Arthur, maybe you can explain a little bit more the LIFO credit. I think I understand it pretty decently, but just for the benefit of the investment community out there, what it implies. I mean, I think you targeted the commentary around a lot of your stainless and alloy inventory But, you know, mechanically, what does that actually imply within the business? Right.

So, you know, LIFO makes and costs per time changes, you know, it does affect the LIFO calculation. So, in the specialty stainless product case, longer lead times, essentially, create a lag between what happens between your selling prices and costs on hand. And that was something really atypical that we experienced. So had lead times been normal, a lot of that inventory would have gotten flushed through the system. But that wasn't the case. So really what we're saying is $60 million of estimated LIFO income for 2025 is just timing. Effectively, it pushed LIFO income from 2024 into 2025. So if you remove that component out of the LIFO guide, we're saying essentially coming out of the gates, we're saying flat LIFO. So essentially pretty much zero, right? We're saying we kind of expect prices to be where they are now, costs. And as we said in our guidance, we're not necessarily factoring in any tariff impact on either our selling prices or on our LIFO guidance at this point for the remainder of the year.

So related to that longer lead time item material, I would imagine you have a good bit of that in places like aerospace and maybe to a lesser extent defense. Within that pocket of inventory specifically, is the implication that you'll have less of that material on hand at the end of 25 versus the beginning, or is the expectation is that the pricing for that falls? I mean, what's more of the embedded expectation there? Thank you.

Absolutely. You nailed it. That's correct. So we would expect to have less of that by the end of this year.

Yeah, because, Phil, you know, for those products, some of those specialty products, the mills that we acquire that from, they kind of caught up on some of their production. Lead time started to come in on those items. And so they were shipping more to us at the end of the year. At the same time, aerospace, as you referenced, is a home for a lot of those products. And as everyone knows, there were some disruptions here. So as build rates increase on airplanes, we should see that inventory move out of from our inventory into the customer supply chain.

Thanks so much.

Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over to Carla for any further closing comments.

Thanks again to all of you for joining our call today and for your continued support of Reliance. And before we close out the call, I'd like to remind everyone that we'll be presenting at a few upcoming conferences. First, BMO's Global Metals Mining and Critical Materials Conference in Hollywood, Florida, and also JP Morgan's 2025 Industrials Conference in New York City. And we hope to meet with many of you there. And once again, we'd like to thank all of our Reliance employees. for everything they do every day, and please keep each other safe out there. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.