Russel Metals Inc.

Nick Garago at RBC Capital Markets. Please go ahead.

Hey, thanks for having me on, and congrats on the really solid quarter there. Thanks. Thanks. One of the thoughts on the other commentary on the outlook, you flagged, you know, some uncertainty for any great policy. You know, that Q1 was potentially helped out by some pull forward. You know, so on one hand, we might see a bit of an air pocket, you know, in Q2. But, you know, if you look at some of the commentary from your U.S. peers, they were kind of flagging, they're expecting volumes to hold up pretty well into Q2, which, you know, is pretty impressive given how good Q1 was. You know, within that context, can you just give us an update on how you're thinking about volume trends into Q2?

Yeah. Just a fair observation, including looking at what some of the publicly traded compables 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 test 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 solid 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 probably echo some of those same views.

And can you provide a little bit more detail, you know, what you're seeing in the U.S. versus in the Canadian business? And, you know, any change in those trends, you know, potentially since tariffs were implemented a few months back?

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

Yeah, I appreciate the call, everyone. I'll turn the line over. Thank you. Great. Thanks, James. Thank you. The next question comes from Devin Doug at BMO Capital Markets. Please go ahead. Yeah, thanks. Good morning. Hayden.

Look, I'm going to echo the energy field source. Look, we saw that one of your U.S. competitors recently sold its Canadian operations, which I 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?

Go ahead. 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 as they were exiting 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. I'm really more interested in where Canada is going as a whole because I think it's going to really benefit us from the energy perspective out there, as Mr. Carney said. as an energy superpower, which is obviously going to 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 year-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 same score. I would have expected the midship towards non-ferrous would have had a more positive benefit Are you able to provide any color or kind of help explain that?

Yeah, the non-ferrous, when you look at it in total, you keep in mind they're non-ferrous. A lot of that growth has come from our U.S. out of the service center. Some of those numbers Marty referenced, and we did grow some. But the adding the framules was completely, you know, a much bigger mix in carbon. 100% in the U.S. and, again, all the two locations in Canada were 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 same comparisons. 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 those were.

Okay. Got it.

And then just one last one, likely for you, Marty, but obviously the balance sheet's in great shape here. We've seen this recognized by our rating agencies, which is great to see. Just in order to maintain that, I've got some great 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 starts with more of a philosophy of being committed to an 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 levels. 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 want to go backwards. That being said, you know, when you look at the rating agencies and 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 the 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, Ed. Thank you. The next question comes from Frederick Baskin 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, sorry, potential sellers of skilled distribution business, i.e. your target. Are you having a different discussion? Nowadays with these mom-and-pop operators, I'm 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 out there that 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 do with that?

No, you know what? It's a fair observation, and I think there are other interesting things for me. 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 we 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 Samuel acquisition. I'm wondering how that integration is proceeding right now, and are you ahead of time or anything that is going to, according to your expectations, just to get an update here would be appreciated, thank you.

You know, we're tracking the plan for phase one. We've got about three distinct phases. Phase two is now being implemented with some conversions from the hangout system to our system so we can further integrate the inventories and look at operating costs. And so that was done this past weekend in Canada. It will 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 that this is all going to be done within this calendar year.

Thanks. I'll squeeze 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, and these 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 a relatively small volume impact from Tampa, Beijing, for a full quarter. So if you look on a 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 were favorable in Q1.

Thank you. Thanks, Greg. Thank you. The next question comes from Michael Chiholm at TD Talent. Please go ahead. Thank you. Good morning. Hey, Mike.

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 20.9% you just delivered in the first quarter.

Yeah. It's a really good question, Mike, because there were a lot of moving pieces into the early part of Q2 as well. And so you benefited by a little bit higher prices in Q1 as a whole, but it obviously picked up steam at the back end of the quarter. At the same time, on the cost of goods sold side, we still actually had some lower cost inventory, which actually helped us out from a margin perspective. So when we look at Q1, we benefited from a little bit better top lines And the cost was sold and really moved by a whole heck of a lot. So actually the margin increase, some of that was just a function of the lag effect that worked in our benefit in Q1. It continued into April and probably early May. That will probably normalize down a little bit, all other 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 hold true, the same sort of higher level commentary hold true for steel distributors? Is the dynamics there similar?

Yeah, similar, Mike, yeah.

Okay. And then back over on service centers and, again, sticking with gross margin, 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 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 going to answer it without answering it too directly, because as an example, 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, we directionally view the multi-year migration in March to be probably a couple hundred basis points on an apples-to-apples basis. That being said, it's hard to do an apples-to-apples 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 in a variety of locations. Those are impactful, but they're just happening right now.

Okay. That makes sense. Um, thanks for that. Over on, um, field stores, energy field stores. Um, 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 year over year revenue growth as you move through the year or is, is what we saw in the first quarter when we saw sort of similar revenues on a year over year basis, um, Is that more what we should be expecting here is just sort of a more consistent performance on a year-over-year basis? I realize there's seasonality, but I'm thinking about year-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, you know, 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 going to be, and I would hate to be too prescriptive of, you know, 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 border, 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.

That's definitely helpful. Thank you for all that. And just in terms of energy-filled stores, in terms of the margin, 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, 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, you know, 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 the last thing, just... In terms of CapEx, I apologize if I missed this, is the expectation that it's similar in 2025 on a full-year basis, or how do we 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 next there, but how do we think about that? Is that something that could begin 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, last year 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, it's rough words, magnitude. That being said, we tend not to look at it on necessarily an annual basis, even though that is the structured period of time, is 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 to come for 2025 and probably also on to come for 2026.

Perfect. I will leave it there. Thank you. Great. Thanks, Mike. Our next question comes from Ian Gillis with Spiegel. Please go ahead. Morning, everyone. Hey, Ian.

As it pertains to steel distributors, with everything going on in the global steel market, do the opportunities set there feel like this is a bit more like 2023 as a whole rather than 2024 and acknowledging everything could change in two months' time?

Yeah.

I was going to say, you're looking at directional pricing for the moment for seal versus are you looking for tariffs 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 2023. On both sides of the border, again, the businesses operate very differently. Canada operates much more contractually, back-to-back sales versus much more transaction on the U.S., but we're seeing opportunities on both sides. We think there's probably some cooler heads going to prevail 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 going to be a pretty solid year for them.

Understood. Going back to the Greenfield Project's goal of $200 million, Marty, can you remind us how you think about those projects, whether it be from an IRR basis and or from an EBITDA payback basis, just to think about the potential growth opportunities?

Yeah, so just one item of clarification, Ian. It's not $200 million worth of greenfields. It's $200 million of CapEx, some of which are for modernization, some of which for equipment upgrades, some of which is for just normal course CapEx. So that $200 million is not just for modernizations. That being said, when we use, 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 equipments, 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. They 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 CapEx 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 in 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, again, like you're playing worse there with launching and all being in the Florida market than in NASA, but 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 regulated processing in place, a very good mix of non-fares. 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 to either go greenfield or look at acquisition. So, again, we felt like this would be literally and figuratively a B-share for us, not being in central Florida, so we could look at pulling 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 try to call back over. Thanks, Ian. Your next question comes from Aston Pytrek with the National Bank Financial. Please go ahead. Hi, good morning, Chairman. Hey, Matt.

John, maybe the first question for you, in terms of looking at the product trends, I mean, like on the one hand, you read, you know, like order 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, year on year, and kind of also the part of the commentary from one of the teams for Q2? Just maybe if you can, you know, put it in buckets as possible.

Yeah, I think it's broader than industry buckets that are out there, Matt. 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 if we're cyclical throughout periods of time, the only thing that's constant is the price is always going to change. But what we're able to do in this transactional end times of extreme volatility caused 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 of our business really benefits people. If they know they can get through it the next day, get it quickly, they can move into the value add, or 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 times of that transition, get up or down. We typically gain market share because it lets people protect their positions. And so I think we saw that in the late first quarter and we've 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 kind of comment apply to the non-ferrous templates, like, for example, what Tampa is doing as well?

We are, again, non-ferrous. We're still taking the same template. 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 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 mean transactions.

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

Keep in mind, again, for Apex, 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 that maintenance mode. 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 of the life of the well that's out there. So anytime all is improving, we really jump up quickly.

Yeah. Okay, now that's great. Thanks for the show. Thanks, Max. Ladies and gentlemen, as a reminder, if you do have any questions, please press star followed by one. Your next question comes from Devin Dodge with BMO Capital Markets. Please go ahead.

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

Devin, just one element first, just as a comparison point, and this in some ways goes to the earlier discussion about 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 U.S.-weighted than anything else. Sir, is that what you said, John?

Yeah, Marty was exactly right. And there also is a timing lag. So from the minute you see the new sale pricing to purchase to the shift, so there will be a timing lag. And so we saw some of that in third quarters. We saw margins really ramp up in Q3, but there was the effect of, I'm sorry, in the third month of the quarter in March. But there was that lag in January and February where we're out there. So those will carry forward. But again, based on the inventory terms, it takes two to three months to cycle through.

Okay, got it. I got it. I guess maybe you're 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, Evan. 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 ask that you please disconnect your lines. Have a great day.