Russel Metals Inc.

like Virago at RBC Capital Market. Please go ahead.

Hey, thanks for having me on, and congrats on the really solid quarter there. So, one of the, one of the things I want you to do as a commuter on the outlook, you flagged some uncertainties for any grade policy, that Q1 potentially helped out by some pull forward. So on one hand, we might see a bit of an air pocket in Q2, but if you look at some of the commuters from your US peers, they were kind of flagging, they're expecting volumes that hold up pretty well in the Q2, which is pretty positive, given how good Q1 was. Within that context, can you just give us an update on how you're thinking about volume trends into Q2?

Yes, you can get the fair observation, including looking at what some of the publicly traded comprobals have already talked about. And I don't think our view would be any different from that, which is there's probably some elements of pull forward demand, but the ultimate task is how things have evolved since the tariffs came into place. And shipment levels remain at a pretty reasonable clip and steady clip, so it's not like there was a bubble that was out there, it was probably at the margin a little bit that was brought forward. It's hard to quantify, but overall, we're now sitting here in May, and the tariffs were put in place almost two months ago, and shipment levels remain at a relatively small level. So we haven't seen any of that big variance that could have been in place. And so the commentary that some of our competitors have come up with in their Q1 commentary, we've probably echoed some of those same views.

And then can you provide a little bit more detail what you're seeing in the US versus in the Canadian business and any change in those trends potentially since tariffs were implemented a few months back?

Yeah, I'd say overall, what we're seeing in the US versus Canada is more of the same, both pre-tariffs and post-tariffs, which is, it's fairly strict, both of the US has had a more robust economy over the past couple years than Canada has. Our Canadian business is well positioned and does well, but the level of performance in our US business is probably a notch higher than it has been in the Canadian business, and it characterizes that as both a little bit pre-tariffs as well as post-tariffs. So it's more of the same, but there is a distinction between the performance of the Canadian economy overall and versus the US economy over the past year at a time.

Yeah, I appreciate the call, and I'll turn the line over, thank you. Great, thank you. Thank you, the next question comes from Devon Dard at the Emocast Market, please go ahead. Yeah, thanks, good morning. Hey, Dan. Look, I

was gonna ask about the energy field stores. Look, we saw that one of your US competitors recently sold its Canadian operations, which I'm gonna guess would bring maybe a greater focus on some of those assets under the new ownership. Just wondering if you have seen or do you expect it to be a more competitive environment in Canada?

Yeah, I don't think it changes the landscape, it just changes the names on the door, and so there's still a number of competitors that have shrank quite a bit over the last two years since they were actually in Canada quietly, and so it's allowed us to gain some market share there. So I don't see really any landscape change outside of what it's been for the last four to six months. Really more interested in where Canada's going as a whole, because I think it's gonna really benefit us from the energy perspective out there. Mr. Carney commented, I think yesterday, where he wanted to reestablish Canada's energy superpower, which is obviously gonna benefit any of our energy business as well as our service centers.

Okay, got it, thanks for that. And just one clarification,

if I look on a -over-year basis, revenue per ton in service centers was down 80%, or around 80%, that's both on a reported basis as well as a state store. I would have expected the mix-shift towards non-ferrous would have had a more positive benefit. Are you able to provide any color or kind of help explain that?

The non-ferrous, when you look at it in totality, keep in mind our non-ferrous, a lot of that growth has come from our U.S. out of service centers, some of those numbers, Marty referenced, and we did grow some, but the adding the ferrimials was a completely, you know, a much bigger mix in carbon. 100% of the U.S., and again, all the two locations in Canada were carbon. So it did displace some of that a little bit. That should continue to grow, and you should see a change in that in the future.

And the thing I'd supplement to, Devin, is when we look at our publicly traded U.S. competitors and looking at what their Q1 2024 versus Q1 2025 price realizations were on the same store basis, we actually were better on a relative basis than they were when we used those in comparison. So everybody collectively is down compared to Q1 of this year versus Q1 of last year, but the relative change, our relative change in price realizations

is better than their sort. Okay, got it. And then just one last one, much to your free,

Marty, but obviously the balance sheets are in great shape here. We're seeing this recognized by our A agencies versus RACESD. Just in order to maintain that investment grade credit rating, what do you feel is the range for leverage on a go-forward basis?

Yeah, it's a good question, Devin. And let me answer it in an indirect way first, and then I'll get to your very specific question. It's part of the moral philosophy of being committed to investment grade type approach. And we think there's a tremendous benefit with the ability to execute in the Canadian investment grade market at attractive level. So there's a commitment to doing it. And the commitment goes beyond just what is a single metric that makes sense. This has been a multi-year migration to get to this point, and I don't wanna go backwards. That being said, when you look at the rating agents in some of their commentaries, they'll use guides, for example, less than two times, debt to EBITDA as a frame of reference. And that's plenty fine for us, given our capital structure and liquidity and types of use of capital that we might have. From a net debt to invested capital perspective, 30% or so at the high end. But again, I don't even see anything on the horizon that gets us from where we are today, which is in low single digits to that level. So being able to achieve and maintain that investment grade status is quite important as it relates to maintaining the low cost capital.

Okay, good call. I'll turn it over, thank you. Thanks, Doug. Thank you. The next question comes from Frederick Baster at Raymond James. Please go ahead. Hey guys, good morning. We've been hearing

about some project owners taking a wait and see approach to new projects, which obviously makes sense given the tariff uncertainty. But I'm wondering how this uncertainty might be impacting or shaping your potential buyers, sort of potential sellers of field distribution business, i.e. your targets. Are you having different discussions nowadays with the G-Small and Pop operators, or just curious how the M&A landscape is looking right now?

Thanks Fred. The M&A landscape is very active right now. People are looking at things through a little bit of a different lens. We just came through a very robust period with 21 and 22. I think the expectations have been reset now. Obviously there is a very volatile political landscape that really continues to evolve on a daily basis. And so I think people are looking at this very differently. So we think there'll be a fair amount of opportunities to look at. We'll see if there's anything that comes

to fruition. Thanks. Marty, anything to add or?

No, you know what? It's a fair observation. And I think there are other interesting things for me is when we do a look back over the last number of years and how the M&A landscape has unfolded, there's been years where we've been active and there's been years where we've been very active, but we haven't found the right opportunities that meet our criteria. So we kind of stick to our criteria of what works, what doesn't work, and sometimes those things line up and it just so happened that there were two M&A transactions that we were able to push across the finish line last year. But there were also years like 2022 and 2023 where for a variety of reasons, including in some cases, vendor value expectations, we didn't find the right opportunities. So we don't chase for the sake of chasing. We stick to our criteria. And if we get the right opportunities at the right valuations that fit our operating criteria and our cultural criteria, we're more than capable of moving across the finish line and remain very active, but it's yet to be seen whether we find those things that line up with our criteria or not. And if they do, terrific, and if they don't, we bide our time and we're patient capital.

Okay, and then you did a good job over the last, I guess, several quarters, telling us there'd be a lot of heavy lifting behind the San Miguel acquisition. I'm wondering how that integration is proceeding right now and are you ahead of the plan or anything that is going to, according to your expectations, just get an update here would be appreciated. Thank you.

You know, we're tracking the plan for phase one time. We've got about three distinct phases, phase twos now. We have limited with some conversions from the hangar system to our system so we can further integrate the inventory and look at operating costs. And so that was done this past weekend in Canada. It'll be done the first week in June in the U.S. Everything's went smooth there, so that allowed us to move fully forward with step two. And then step three, we'll continue to look at the real estate rationalization opportunities that are out there. And so we feel pretty comfortable with this is all going to be done within this calendar year.

Thanks, I'll clear the last one. You cited a number of factors behind the volume gains. I was just wondering if you could split those between M&A, I guess, release from acquisitions, just market share gains and just straight good old industry demand.

Well, on the M&A front, the only real change between Q4 and Q1 was a full quarter of Tampa. And Tampa was a nice contribution from a margin and from an earnings perspective, but it isn't a big volume operation. So it was relatively small volume impacts from Tampa, Beijing in there for a full quarter. So if you look on the same store basis versus a consolidated basis, it was a little bit of volume, but it really didn't have much of an impact. So by and large, when you look at Q4 versus Q1, most of that was really about the macro, the seasonal factor, as well as just general market conditions, which we'll say in volume Q1.

Thank you. Thanks, Rick. Thank you, the next question comes from Michael T. Cone at PD Town. Please go ahead. Thank you, good morning. Good morning.

You saw in service centers a nice quarter over quarter improvement in gross margins in Q1. With steel prices still up, but leveling off lately, wondering if you can help us think about service center gross margin performance in Q2 2025 versus the .9% you just delivered in the first quarter.

Yeah, it's a really good question, because there were a lot of moving pieces in Q1, and frankly, into the early part of Q2 as well. And so you've benefited by a little bit higher prices in Q1 of the whole, but it obviously picked up steam at the back end of the quarter. At the same time, the cost of the sold price, we still actually had some lower cost inventory, which actually helps us from a margin perspective. So when we look at Q1, we've benefited from a little bit better top line, and the cost of the sold didn't really move by a whole heck of a lot. So we actually, the margin increase, some of that was just a function of the lag effect that worked in our benefits in Q1. That continued into April and probably early May. That'll probably normalize down a little bit, all of those things being equal as we get into June and July, I suspect. But what it probably means is we'll still have a very good margin profile in Q2 as compared to Q1.

Okay, that's definitely helpful. Would the same old true, the same sort of higher level commentary hold true for steel distributors? Is the dynamics there similar?

Yeah, it's just from my mind,

yeah. Okay. And then back over on service centers, and again, sticking with gross margins, sort of trying to look through some of the noise, I guess, that can result from changing metals prices. With all of the value added investments that have been made over time and recently, and I guess also, you know, some of the acquisitions, how should we think about normalized steady-state gross margins within service centers at this time?

It's a bit of a moving target in some respects. So I'm gonna answer it without answering it too directly because as an example, you know, one of the things on that CapEx page that I talked about is we've got a number of new pieces of equipment that we're installing in real time. And so those haven't taken effect yet. So the goalpost keeps moving for us. That being said, you know, we directionally view the multi-year migration in margins to be probably a couple hundred basis points on an -to-apple basis. That being said, it's hard to do an -to-apple when the cycle keeps moving all the time. But if we did things on a steady-state basis and we look at the stuff that has been done in 2024, the stuff that is in the pipeline for 2025, it should add a couple hundred basis points over the course of a couple years. And we're still at the front end of seeing some of those benefits. And again, I keep referring back to that one slide where I talked about the new lasers that are going into a variety of locations. Those are impactful, but they're just happening right now.

Okay, that makes sense.

Thanks for that. Over on field stores, energy field stores, can you talk about the top line outlook for that segment in 2025? I guess what I'm wondering is should we be assuming some -over-year revenue growth as you move through the year? Or is what we saw in the first quarter when we saw similar

revenues

on a -over-year basis, is that more what we should be expecting here is a more consistent performance on a -over-year basis? I realize there's seasonality, but I'm thinking about -over-year.

Let me answer that in a really indirect way if I can. And in some ways, it's a look back. That business for us has been fairly steady. I mean, it does move around and there's some seasonality attached to it, but it's been relatively steady if we look back over the past period of time. So all of the things being equal, it's a pretty, it has been, and we would expect it to be a pretty steady contributor. That being said, with John's comment that he made earlier, there is public policy that is evolving in real time. We think we should be a net beneficiary of how some of that is evolving. We don't know what the timing of that is gonna be, and I would hate to be too prescriptive of what quarter that impacts, let alone what year that might actually show up. But directionally, those things are all good for our business on both sides of the board, frankly, not just on the Canadian side of it. But if we kind of strip that stuff aside, it's been a pretty steady business for us over a period of time, and it will ebb and flow a little bit. And even just as I look at Q1 as an example, it was a slow start to the year, but it picked up in March. When we look at Q1 as a whole, it was an okay quarter, but it was really more March related than January and February related. But over the course of several quarters, it has been a very, very consistent performer for us, and we expect that to continue, public policy aside, and what's potentially positive for the industry as a whole.

Yeah, that's definitely helpful, thank you for all that. And then just in terms of energy field stores, in terms of the margins, again, quite consistent and stable in the last several years, and obviously much improved from what they used to be in that segment, after all the changes you made. A little bit of a tick down in the first quarter, like is that mix related, is there anything going on there to explain that, and should we expect them to kind of go back up to the levels we've seen in the last few years, or is this more of a current run-rate that the gross margin?

It was a little bit mix related, but I think part of the frame of reference is, there is a bandwidth that it operates in from a gross margin perspective, and even though Q1 was down from a gross margin perspective, it was within the normal bandwidth. And if we look also at how the gross margins are relative to our other business segments, it continues to remain our highest gross margin business. So yeah, it was a down quarter from a margin perspective and that related to mix, but it was within the range, probably towards the low end of the range.

Okay, got it. And then lastly, just in terms of cutbacks, I apologize if I missed this, is the expectation that it's similar in 2025 on a full year basis, or how do you think about that? And maybe you can just also comment, the fact that you finished up a lot of the facility modernization work, I think you said you're contemplating what you expect there, but how do we think about that? Is that something that could be in the fairly near term, or is that more in

the next few years? It's probably a two year frame of reference of where some of those facility modernizations become potential realities. And to deal with your first question first, lastly you spent about 90 million on CapEx, Q1 was 29 million, so a little bit ahead on a run rate basis, but if you use the frame of reference of $100 million for 2025, rough words, magnitude, that being said, we tend not to look at it on a necessarily an annual basis, even though that is the structured period of time, as what we have is an evergreen list of projects that runs for several years. Things are coming on, things are coming off all the time, and that pipeline of projects is probably about $200 million today. Yes, some of them are very, very preliminary, and some are fairly advanced, but it's a multi-year evergreen list. So that's why we kind of, we look at the pipeline directionally and say there's still a fair amount of discretionary projects that are not just what was done in 2024, but on the come for 2025, and probably also on the come for 2026.

Perfect, I will do it better, thank you. Great, thanks Mike. Okay, next question comes from Angelus with Steele. Please go ahead. Morning everyone. Hey,

as it pertains to steel distributors, with everything going on in the global steel market, would you, do the opportunities, does the opportunities out there feel like there's a bit more like 2023 as a whole rather than 2024? Yeah, I'm acknowledging everything could change in too much time.

Ha ha ha. Ready?

The last comment's probably spot on. Yeah,

I was gonna say, you're looking at directional pricing for the moment for steel, versus are you looking to tear up in the next 60 days? So it can push or pull either way. I feel like we're in a much better place than we were in the 2023. Almost after the border, again, the business is operating very differently. Again, Canada operates much more contractually, back to back sale versus much more transaction in the US, but we're seeing opportunities on both sides. We think there's probably some cooler influence prevailing in the near future, and this will revert back to a more normalized setting, but we are seeing opportunities within both countries, either from domestic mills or trading partners that have quotas or opportunities to come into the country. So right now we think it's gonna be a pretty solid year for them. Understood.

Going back to the Greenfield project scope of 200 million, Marty, can you remind us how you think about those projects, either whether it be from an IRR basis and or from a even non-KBAC basis, just to think about the potential growth opportunities?

Yeah, so just one item of clarification, Ian. It's not $200 million worth of Greenfield, it's $200 million of CAF-X, some of which was for modernization, some of which were for equipment upgrades, some of which is for just normal course CAF-X. So that's $200 million is not just for modernization. That being said, when we look at projects, they have quite a vast range of paybacks. Some of them that might relate to, frankly, more safety and good housekeeping, they don't have great paybacks, but they're things that we do as a matter of course. There's some projects like equipment and some of these value added pieces that might have a two, two and a half year payback. So it's a whole waterfront in terms of projects and we look at them quite holistically. Some of them are not discretionary, which we have to do as a matter of course, and may not have a payback attached to them. So from a portfolio perspective, the 15% is really the frame of reference and that goes to both CAF-X and M&A. Some are better, some are lower than target, but we're trying to achieve that 15% across all the capital deployment scenarios, recognizing that they're not all equal. They have different priorities depending upon circumstances.

Understood. One last one for me on the M&A side. When Tampa Metals was purchased, it was viewed as a launching point of the Florida market. Obviously it's still early days there, but how would you define, I guess, your entrance into that market so far and what are you learning about the market and potential other, I guess, targets to grow that business over the next number of years?

So, you know, like you're playing on words there with launching and all being in the Florida market, it's only NASA, but it's, we have had a really good move there. It's only been four months. It's a real plug and play. There's a great team in place. They have all the right data processing in place, a very good mix of non-ferrous. And so it's allowing us to reach out further into markets that are probably outside of their coverage zone right now. It wouldn't be long-term sustainable to develop a marketplace, either go Greenfield or look at acquisition. So again, we felt like this would be literally and figuratively a B-share for us, being in central Florida, so we can look at going both north and south. So we see that as something that could develop quickly over the next two to three years.

Perfect, thanks very much. I'll turn the call back over. Thanks, Ian. Your next question comes from Austin Pytrack with the National Bank Financial. Please go ahead. Hi, good morning, Chairman. Hey, Max. Just maybe the

first question for you, Harne. In terms of looking at the broader trends, I mean, on the one hand, you read the, you know, like auto-resi, kind of like under pressure, general manufacturing, people are sort of pushing decision-making to the right. Like what were maybe the key industry drivers behind the volume improvements, you know, -on-year, and kind of also the force of commentary from what it seems for Q2. Just maybe you can, you know, put it in buckets for possible success.

Yeah, I think it's broader than industry buckets that are out there, Max. Part of this is our transactional nature and the way we've structured the business to be successful. When you look at a cyclical industry, and of course cyclical throughout periods of time, the only thing that's constant is the price is always gonna change. But what we're able to do in this transactional in times of extreme volatility, cause by whatever's out there right now, through the tariffs being the big point, we're able to work with buyers of our product because they're trying to buy in and out. They don't know if the price is still going up, they don't know if it's going down. They're very nervous, so they're really not taking long positions on inventory. So as Marty said, it's very difficult to quantify, but we don't think there was a lot of pull ahead. I just think that our transactional nature for our business really benefits people. That they know they can get first the next day, get it quickly, they can move into the value adder, we can help them so they don't have to take long term positions and put themselves in volatile spots. I think that's where we typically in terms of that transition is up or down, we typically gain market share because it lets people protect their position. And so I think we saw that in the late first quarter, we seen it in the early second quarter. And so it's more of our business model fits volatility, which is an industry we live in.

And does that comment apply to the non-ferrous business, like for example with Canterbury as well?

We are again, non-ferrous, we're still taking the same template that says we're not going into the long term contractual business. We have some longer term commitments on that, but it's not, again, we're not going into the contract type business. So we are trying to make it remain hyper transactional on that. And so as we're easing our way into that and growing that market share, we're doing it very targeted at being transactional.

Okay, okay, that's great. One last question around energy source. I mean, the fact that oil pricing has contracted somewhat, and I think in the past you mentioned that it's more relevant from an oil price perspective. So we should not be extrapolating the lower oil price into in sort of corresponding volume declines. How would you, I guess, qualify quantifiers relationship?

Yeah, keep in mind again, for Apex, for Leap, for our field source, a big portion of their business is based on the maintenance and the life of wells. So those wells that are already existing, so they're a little bit immune to oil pricing because they've got to maintain them for the life of that well. That's why, again, we started off slow in Q1, but you saw that steady state because they were in the main flow. When things pick up in the energy back, we saw some profits get released in March. Some of those things, and they would push us back up over the top. But again, our steady state business is going to be on that maintenance and the life of the well that's out there. So any time oil is improving, we really jump up quickly.

Yeah, okay, another space that's open. Thanks for the show. Thanks, Matt.

Ladies and gentlemen, as a reminder, if you do have any questions, please press star followed by one. Your next question comes from Devon Dodge with CMO Papo Market. Please go ahead.

Yeah, thanks. Just had a couple of quick follow-up questions on pricing. If I look at US prices for plate and sheet in Q1, I think they were up high single digit or low double digit in Q4. I look at Russell, I think it was a 1% sequential improvement on the -the-art basis, more like 2% on revenue per ton with that M&A in there. Just wondering if that reflects different pricing trends in Canada versus the US, or is there something else that helps explain that sequential pricing gap versus market?

Devon, just one element. First, this is a comparison point, and this in some ways goes to the earlier discussion both relative to our competitors. What we did on a same-store basis in Q1 versus Q4 is our price realizations were up 1%. As I look at a couple of our competitors who report similar type of data points, they were either down 1% or up 1%. So we were within the norm of the industry, and the industry by and large is more US-weighted than anything else. Sir, is that what you said, John?

Yeah, no, and Marty was exactly right. And there also is a timing lag. So from the minute you see the new sale pricing to purchase for the shift, so there'll be a timing lag. And so we saw from that in third quarters, we saw markets really ramp up in Q3 because there was the effect of, I'm sorry, in the third month of the quarter, in March. And there was that lag in January and February when we were out there. So those were carried forward. But again, based on the remittance return, it takes two to three months to cycle through.

Okay,

got it, I got it. I guess, maybe you're just sending our last answer. If you look at the service center business, how did average revenue per ton in April compare to the Q1 average?

Well, let's put it this way. It would have been comparable to March, but March was higher than the Q1 average because if we look through Q1, February was higher than January, March was a lot higher than February, and April continued at a level similar to March. So that's why April would have been higher than the Q1 average, but

March was also higher than the Q1 average. Okay, got it, thank you. Okay, thanks, everyone. There are no further questions at

this time. Please proceed with any closing remarks.

Great, thank you, Operator, and thanks very much, everyone, for joining our call. If you have any questions, please feel free to reach out any time. Otherwise, we look forward to staying in touch during the balance of the quarter. Take care, everyone.

Ladies and gentlemen, this concludes your conference call for today. We do thank you for participating and I'd also like you to please disconnect your lines. Have a great day.