Reliance Steel & Aluminum Co

Greetings and welcome to the Reliance, Inc. First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kim Orlando with Addo Investor Relations. Please go ahead.

Thank you, Operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's first quarter 2025 financial results. I am joined by Carla Lewis, President and Chief Executive Officer, Steve Cook, Executive Vice President and Chief Operating Officer, and Arthur Ojemian, 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.

Good morning, everyone, and thank you all for joining us today to discuss our first quarter 2025 performance. We delivered stronger than expected results, once again demonstrating the resilience of our proven business model and ability of our teams to provide solutions to our customers in a backdrop of broad market uncertainty. By maintaining our commitment to growth and profitability, we shipped record tons of while industry shipments declined and increased our gross profit margin by 140 basis points quarter over quarter, which drove non-GAAP earnings per share of $3.77, well ahead of our expectations. We generated cash flow from operations during the first quarter, despite a working capital investment to support our successful growth efforts. Our 2025 capital expenditure budget remains $325 million with an expected total cash outlay of approximately $375 to $400 million, which includes carryover projects from prior years that will be completed this year. Our first quarter results also benefited from our four 2024 acquisitions and we remain in a position of financial strength to execute additional acquisitions that align with our disciplined and strategic criteria. While we continue to see new opportunities in the pipeline, the pace has slowed recently due to overall macroeconomic uncertainty. And we also funded stockholder return activities of $318 million. In summary, Despite ongoing uncertainty in both domestic and international economic policy, we are encouraged by positive pricing momentum and continued solid demand conditions, most notably in the non-residential construction market. We applaud our team for their ability to execute on our strategic profitable growth efforts in a disruptive market. We believe our long-standing model of both buying and selling metal, primarily in the U.S. market, is positive for Reliance, as well as our employees, customers, and suppliers. We remain confident in our ability to maximize earnings power while maintaining our consistent focus on increasing value for our stockholders. Thank you for your time today, and 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 open by commending our dedicated team for upholding the highest standards of safety and driving operational success across the board. I'll now turn to our demand and pricing trends. Our first quarter times sold were a record and increased 12.8% compared to the fourth quarter of 2024, surpassing our outlook of up 6% to 8%. Our tons sold increased 9% or 5.6% on a same-store basis compared to the first quarter of 2024, significantly outperforming the service center industry's year-over-year decline of one-half of 1%, as reported by the MSCI. Our record shipments reflect market share gains across nearly every product group attributable to solid organic growth and contributions from our 2024 acquisitions. We believe shipments during the first quarter may have also benefited somewhat from certain customers' acceleration of metal purchases in anticipation of carbon steel and aluminum product price increases. Our first quarter average selling price per ton sold declined 1.2% compared to the fourth quarter of 2024, which was consistent with our expected range of down 1% to up 1%. Despite rising metal prices, our modest average selling price decrease was mainly due to product mix. with strong tons growth and lower-priced carbon steel products. Next, I will review 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 Q1 2025 sales. All three products had significant year-over-year and sequential quarter shipment growth substantially outperformed year-over-year industry shipments as measured by the MSCI. Our diversified exposure to the non-residential construction market, including heightened data, center construction, and related energy infrastructure, as well as publicly funded infrastructure projects, supported solid underlying demand for our products, as did contributions from our recent acquisitions. This healthy demand and a dynamic trade environment supported pricing improvements in March that have continued into April. Our general manufacturing business, which also represented roughly one-third of our total sales in Q1 2025, is highly diversified across geographies, products, and industries. Shipments increased both year over year and sequentially compared to the fourth quarter of 2024. Industrial machinery, military, shipbuilding, and heavy construction equipment demand remained strong in the first quarter. Demanding consumer products and heavy agricultural equipment was up also year over year, but was comparably weaker than in the other manufacturing sectors. We believe a component of realized demand was attributable to demand pull forward ahead of anticipated price increases and trade actions. Our industry outperformance across key product group shipping to general manufacturing applications highlights the strength and advantage of our diversified business model in a dynamic and uncertain demand environment. Aerospace products comprise approximately 10% of our Q1 2025 sales. Demand for commercial aerospace increased sequentially from the fourth quarter and was stable compared to the first quarter of 2024, despite continued supply chain challenges. Demand for defense-related aerospace and space programs remained consistent 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 4% of our Q1 2025 sales, saw processed tons stay relatively consistent with the first quarter of 2024. Semiconductor industry shipments remained under pressure in the first quarter with excess inventories in the supply chain. We're very proud of our team's extraordinary execution which delivered another quarter of industry-leading financial performance. Reliance's unrivaled scale and strong balance sheet make us a highly attractive partner to our mill suppliers in all market conditions, and we continue to win new business from new and existing customers. We value the breadth and depth of our product offerings and 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 first quarter was stronger than anticipated due to better-than-expected shipment levels and improved gross profit margin. Our first quarter non-GAAP earnings per diluted share of $3.77 was above our guidance range despite higher-than-anticipated increases in carbon, steel, and aluminum product costs that resulted in LIFO expense of $25 million, or 35 cents per share, compared to the $15 million of LIFO income, or 21 cents per share credit, included in our guidance. As Steve mentioned, our tons sold were higher than we anticipated, driven by improvements in shipments in the latter part of the first quarter. We experienced a slight sequential decline in our average selling price, in the first quarter mainly as a result of strong carbon steel product shipments, which are generally priced lower than our non-Ferris products. Pricing for most carbon steel products increased in March and entered the second quarter at a higher level. On a non-GAAP FIFO basis, which is how we measure our day-to-day operating performance, our gross profit margin improved sequentially from 28.8% in the fourth quarter of 2024 to 30.4% in the first quarter of 2025. Continued alignment of replacement costs with our inventory costs on hand, coupled with a rising selling price environment, contributed to the improvement in our gross profit margin. For the full year 2025, we revised our LIFO estimate to reflect LIFO expense of $100 million from our prior estimate of $460 million of income due to higher than anticipated carbon steel and aluminum product costs. As of the end of the first quarter, the LIFO reserve on our balance sheet was approximately $460 million, which remains available to benefit future period operating results and mitigate the impact of potential decline in metal prices. Turning to expenses. Our first quarter same-store non-GAAP SG&A expense was down slightly from the first quarter of 2024, despite a 5.6% increase in same-store ton ship, which contributed to a meaningful improvement in our operating leverage, with same-store non-GAAP SG&A expense per ton declining approximately 5%. We will continue to maintain our focus on smart, profitable growth throughout 2025. I'll now address our balance sheet and cash flow. We generated $64.5 million of cash flow from operations in the first quarter of 2025. Seasonally, the first quarter typically requires the largest working capital investment, and increasing metal costs and selling prices further contributed to our working capital investment in the first quarter. We put our capital to work in the first quarter utilizing cash flow from operations, borrowing on our revolving credit facility, and cash on hand to finance approximately $87 million in capital expenditures, $65 million in dividends paid to our stockholders, and $253 million in share purchases at an average cost of approximately $274 per share. As a reminder, we were pleased to increase our quarterly dividend by 9.1% in February 2025 to $1.20 per share of common stock, marking our 32nd dividend increase in the 30 years since our 1994 IPO. We have also repurchased approximately $80 million worth of our shares since April 1st at an average cost of approximately $265 per share. Year-to-date in 2025, share repurchases have resulted in a cumulative 2.3% reduction in our total shares outstanding since December 31st, 2024. We have $1 billion remaining for additional share repurchases under existing $1.5 billion share repurchase plan that we refreshed in October 2024. At March 31st, 2025, our total debt outstanding was approximately $1.5 billion, an increase of $330 million from December 31st due to borrowings on our revolving credit facility. Our leverage position remains favorable with a net debt to EBITDA ratio of less than one, providing significant liquidity to continue executing our capital allocation priorities. Moving on to outlook for the second quarter of 2025. We anticipate demand across our diversified end markets to remain stable in the second quarter, despite ongoing uncertainty regarding domestic and international economic policy. Accordingly, we estimate our tons sold will be down 1% to up 1%, compared to the first quarter of 2025, consistent with seasonal trends supported by healthy demand in the non-residential construction market and continued targeted efforts to regain market share, and up 3% to 5% compared to the second quarter of 2024. On the pricing side, we anticipate pricing will stay relatively consistent with current levels throughout the second quarter which will result in our average selling price per ton sold to be up 1 to 3% compared to the first quarter. We anticipate our FIFO gross profit margin will expand in the second quarter of 2025, following pricing improvements in March for certain products that have continued into April. Based on these expectations, we anticipate non-GAAP earnings per diluted share in the range of $4.50 to $4.70 for the second quarter of 2025, which is inclusive of LIFO expense of $25 million or 35 cents per share. This concludes our prepared remarks. Thank you again for your time and participation, and we'll open the call for your questions.

Operator? Thank you. We'll now be conducting a question and answer session.

If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is on the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please, while we poll for questions. Thank you. Our first question is from Martin Engler with Seaport Research Partners. Hello. Good morning, everyone. Good morning, Martin.

I wanted to ask about if you can maybe discuss your exposure within COGS as well as CapEx to imports that might be impacted by tariffs. I know you buy the vast majority of your products domestically, but I just want to understand if maybe you can size it up with some goalposts on percentages for both COGS and CapEx maybe for the budget this year.

Hi, Martin. From the cost of sales standpoint, as you mentioned in your question, you know, we do buy the majority of our metal from companies. The U.S. domestic producers, which we've done for many, many years, we think that's a good strategy and certainly benefits us in times like we're in currently where metal's a little tight in many areas, but we have those long-time relationships to continue to be able to source the product. Over 95% of what we buy is from domestic producers. So, you know, very limited exposure to direct imports of metal into our cost of sales. From a CapEx perspective, again, most of what we source does come from companies based in the United States. However, we do have some pieces of equipment that are on order from foreign companies where they've got certain expertise in in certain types of equipment. I don't know the percentage, but it's a small percentage that would be coming in. And we are actively in conversations with those suppliers to figure out how to best mitigate any impact of tariffs.

I guess thinking longer term, I have the tariffs and proposed tariffs influence your thoughts around longer term CapEx? You know, looking out beyond this year, I'd just be curious to hear how you're thinking about it, both positives and negatives.

You know, I certainly, you know, tariffs can be a factor, but given predominantly most of what we buy is in the U.S., You know, we would continue to source consistently if there was equivalent equipment and one was produced in the U.S. and one had a high tariff on it. You know, that may sway our decision. But, you know, we're going to continue to invest in CapEx in a manner to support our customers and provide them the services that they want from us. So no big major shift in how we're going to think about that.

What's the conversation been like with your customers and reshoring activity or, you know, improved opportunities that, you know, since some of the tariffs have been rolled out?

So, you know, we've had examples of some of our customers picking up business over the last couple of years from reshoring activity. You've seen in the non-residential construction data a lot of build of manufacturing space in the U.S. for companies to be able to come here. So when we talk to our reliance companies, we hear them talking about certain customers who are already experiencing increased volume, a lot of the machine shops and people we sell to, but larger customers and customers in general. There are a lot of conversations going on right now where they're talking about bringing more business, bringing their supply chains back closer to their operations here. But I think there's still a lot more of that to come that we haven't seen actually, you know, in production mode yet in the U.S.

Okay. Appreciate that. I guess... Conversely, have you noticed any red flags or cautious signs within the markets you serve, either across demand, pricing, or within supply chains?

Certainly, there's always questions. There's a lot of uncertainty on all the areas you just mentioned. There's probably a little more uncertainty in the market now than is typical in a more normal environment. I think we had really strong shipments in Q1. I think part of that is because our customers are confident in Reliance's ability to be able to source the metal that they need and provide the services that they also need. So I think, you know, we're in a favorable position and that we do see some customers coming to us because they know that we're, you know, have strong relationships with the U.S. producers and that we'll be able to service them.

Okay.

I appreciate all the color and congratulations on results in the guide. Thanks, Martin. Our next question is from Phil Gibbs with QBank Capital Markets.

Hey, good morning.

Good morning.

So the The LIFO calculation was changed to a quarterly expense from some modest income. I think you did a good job explaining that a lot of that clearly was due to higher costs starting to flow through the system, notably in carbon products. But I wanted to get back actually to the baseline initial assumption that you were going to have some LIFO income flow through the aerospace-specific silo. Has that assumption changed at all? Are you more or less optimistic about that piece of it, or is that baseline assumption unchanged?

Relatively unchanged. We're still... and come mid-February, we wanted to see what was going to happen with Paris in March. And as, you know, price increases took hold, certainly that requires a reassessment of our estimates. And we'll continue to look at the payroll base as a business to see, you know,

And just as a reminder, you know, it's actually positive that we have LIFO expense because it means prices are going up, which is a good environment for us.

Yes, absolutely. Going back off of Martin's question on you know, the reshoring or customers, you know, coming to you to make more first stage investments for them. I guess my sense from your answer was that since the kind of initiation of the tariff environment, I don't see anything incremental, I guess, or more meaningful to that discussion and that whole discussion with or without tariffs, I guess, has continued to evolve for you to do more for your customers. And so on the tariff piece specifically, it's kind of more of a wait and see. Is that fair?

Yeah, I think for the most part, Phil.

But even prior to the tariff announcements, we had been seeing customers, you know, it was more, I guess, North America than just U.S. focused. We had been seeing customers looking to bring supply chains closer to their, you know, U.S. operations. And I think that has, those discussions, I think, have accelerated a bit. And again, customers talking more specifically U.S. instead of, you know, North America a little more broadly.

Thank you. And then lastly, I missed your question. comments earlier in the call about cash-related capital spending for this year, but can you just reiterate that or provide us an update on that?

Yeah, it's stayed consistent. We think probably $375 to $400 million cash spend in 2025 for CapEx.

Thank you. Thanks, Phil. Thanks, Phil. Our next question is from Katya Jancik with BMO Capital Markets.

Hi, thank you for taking my questions. Maybe starting on the onshoring theme, is there an opportunity for you to potentially do more than just first stage value added processing? In other words, would you be willing to do some more fabricated type of processing? Is there an opportunity there?

Hi, Katya. There could be. We will look at those opportunities selectively. We do have a few smaller fabrication operations currently. They will go a little further downstream, but we're very selective in where we choose to do that because we don't want to compete with our existing customer base. A lot of times existing customers might ask us to do overflow for them. That's where we get a lot of the increased value out of assessing what we're doing. We will continue to look at those opportunities. Our customers are asking us to do more for them. With our financial strengths and with the capabilities we have in our people and their knowledge from our companies to support our customers.

As our customers ask us to do that, we will be open to opportunities for that business.

Okay, and maybe can you also talk a little bit about the current M&A environment? Are there any opportunities? What are the kind of sides of the potential deals and how you're thinking about it?

Yeah, so as far as kind of the acquisition pipeline, a lot of that comes to us when we owners of businesses are thinking about selling, whether it comes through bankers or comes directly to us. That activity has been a little slower, Q4, Q1 of this year, which is normal of what we typically see when there's uncertainty in the market. A lot of the owners hold off until they feel a little more confident, think buyers would feel a little more confident in the outlook. And so we did see a little, we have seen a little slowness over the last two quarters. We're starting to see, you know, a little more activity, generally smaller to mid-sized companies, consistent with what we've seen the last few years.

Perfect. Thank you so much.

Thank you. Our next question is from Mike Harris with Goldman Sachs. Good morning. Thanks for taking my question. Good morning.

Hey, on the same store sales, I mean, it's like the Q1 times sold, you know, outpaced the industry by roughly the percentage points, I think, as you pointed out earlier. I guess of that record amount, how much would you attribute to market share gains versus contributions from the 2024 acquisitions?

So of our consolidated tons increase, so we were up 9% in total. About 3.5% of that was due to the four acquisitions we completed last year. And then the other 5.5% roughly was was same store. So, you know, Michael, we saw strength in certain of our end markets, most notably construction, non-residential construction related. There's a lot of activity out there. We think in general manufacturing, there may have been a little demand pull forward by certain customers, but we really can't quantify that. And, you know, the strength that we had you know, part of that we think is taking some share back from the market where, you know, our people are motivated to grow their tons profitably. And so, you know, we were really excited with how our teams performed to drive that above industry growth while maintaining our gross profit margin in our 29 to 31%, you know, gross profit margin range.

Okay. That's helpful. And it kind of sounds like the market share game could be sticky versus, you know, more of an opportunistic sale.

Yeah, we believe so.

Okay. And the follow-up, just on current inventory levels, can you speak to kind of where they are versus Target and maybe share any thoughts on the need to restock?

So, you know, we manage and monitor our inventory levels at Reliance based on inventory terms. We try to buy, you know, based upon our shipment levels and maintain a consistent turn ratio. We don't try to go into the, you know, restocking, destocking that a lot of people like to talk about. That's not our strategy. But with the strong shipments, our inventory turns are actually slightly above our inventory turn goal. But with our strong relationships with the domestic mills, we have access to the inventory, which is a real positive in markets where there's a little tightness as we were experiencing in Q1. But we're very happy with where our inventory levels are.

Okay, perfect. Thanks for the insight. Thank you. Thanks. Our next question is from John Tomazos with John Tomazos Very Independent.

Thank you very much, and congratulations on your great results in the context of the steel market. If I may, I'd like to ask just some general questions about the steel market. Domestic output is down 1.3% year to date. Imports are up 7.8 million tons, are 7.8 million tons up year to date. Apparent demand had fallen five out of the last six years, only rising in 21. In the AISI annual statistical report published in the middle of last year for 23, AISI shipments to distributors at 20.2 million tons were the lowest in 32 years, even though your company, Ryerson, et cetera, say they're doing better, and I'm sure you're doing better. Please understand, please explain how the total steel market is so lethargic when the government reports positive GDP, et cetera.

Well, that's a good question, John. You know, certainly a lot of macro statistics and factors there. And, you know, yes, there are shipments overall, you know, consumption in the U.S., shipments through service centers. We have seen that trend, you know, decline from a macro level. But at Reliance, you know, we really focus on our business. And, you know, obviously we're aware of those trends. But we just look at how we can continue to grow reliance, how we can do more to service our customers, gain new customers. And I think, you know, it makes the performance of our teams even that much, you know, more positive, the fact that they've been able to do that in a backdrop that you talked about.

Do you think the small onesie twosie customers important to your company are getting hurt by imported goods? Even if we don't take things from China by substitution, they drive European, Latin American, other Asian companies to export more to the US because China hits them in their home markets. Or are the auto companies outsourcing more of the components? or other U.S. manufacturers outsourcing more of the components to account for the lower reported shipments to distributors in the ISI data.

Yeah, I mean, John, again, we can really only comment to Reliance and, you know, specific to our company. But, you know, certainly if, you know, any – incremental U S manufacturing of metals is positive potentially for us and for our customers. So to the extent reshoring is happening, there's more manufacturing being done in the U S or in North America. That is positive for us. You know, as far as your question on auto and is that part of the reason, um, mills aren't sending as much through distribution. As you may recall, we don't generally sell metal direct to the automotive industry. We do process quite a bit of metal for the automakers, and our customers in that space are generally the mills, carbon and aluminum. And we've continued to invest in those businesses, and we've picked up more and more processing with our increased capacity. So we're continuing to see the mills rely on us to support them in their shipments to automotive the way that we always have.

Just to share with you, Carla, I think inflation has been 3% more than reported for the last generation every year. And the U.S. GDP hasn't grown in 20 years. And the government data is just a bunch of lies. And witness housing starts last year were 32% below peak and auto sales about 10% below all-time peaks. So I'm just sharing my perspective. And you guys are doing great in the context of tough markets. And if markets were good, just think how much better you'd do. Thank you.

Yep, absolutely. Thanks, John. Thank you. There are no further questions at this time.

I would like to hand the floor back over to Carla Lewis for any closing comments.

All right. Thanks again to all of you for joining our call today and for your continued support of Reliance and to all of our teams making up the Reliance family for safe and strong performance through uncertain market conditions. We're excited by the energy of our people to continuously improve as we service our customers and partner with our metal suppliers. Before we close out the call, I'd like to remind everyone that later next month, we'll be presenting at the KeyBank Industrials and Basic Materials Conference in Boston, and we hope to meet with many of you there.

Thank you. Thank you. This concludes today's conference. Thank you again for your participation. You may now disconnect your lines.