Russel Metals Inc.

Good morning, ladies and gentlemen, and welcome to the 2026 Second Quarter Results for Russell Metals. Today's call will be hosted by Mr. Martin Juravsky, Executive Vice President and Chief Financial Officer, and Mr. John Reid, President and Chief Executive Officer of Russell Metals Inc. Today's presentation will be followed by a question and answer period. At that time, if you have a question, please press star 1 on your telephone keypad. I will now turn the meeting over to Mr. Martin Juravsky. Please go ahead, Mr. Juravsky. Thank you.

Great. Thank you, operator. Good morning, everyone. I plan on providing an overview of the Q2 2026 results. If you want to follow along, I'll be using the slides that are on our website. You can just go to the investor relations section, and it's located in the conference call submenu, or you can click on the link that is in the investor conference call paragraph in our press release from yesterday. If you go to page three, You can read our cautionary statement on forward-looking information. To begin, I think that Q2 provides an indication of how the portfolio changes over the last few years has resulted in a meaningfully reconfigured business with a superior earnings generation profile. Since 2024, we deployed almost $700 million for acquisition and CapEx and sold 90 million dollars of non-core assets. These changes were aimed at growing the business, enhancing our return on capital, and improving our earnings profile over the cycle. The Q2 results illustrate a new frame of reference for our earnings power when our business portfolio was combined with a favorable market environment. If we look specifically at Q2, the market conditions were strong and broad based. We had record shipment volumes in combination with pricing and margins that are levels that haven't been seen for a few years. The improvement in marking conditions began to be quite noticeable towards the end of Q1 and they continued that improving trend on a month-over-month basis through Q2. The margins and activity levels that we experienced at the end of Q2 have continued into the early part of Q3 notwithstanding that there is typically a seasonal pullback in volumes in and around the July-August holidays in both Canada and the U.S. So let's go to page five for a little bit of a snapshot of the quarter. In Q2, we set another record for consolidated revenues and shipments from our steel service center segment. This was the result of three things. One, progress on the Klockner acquisition, a seasonal pickup in volume, and three, strength in most of the markets we serve. On the last point related to market conditions, we saw 130 basis point improvement in our overall gross margin for Q2 as compared to Q1. The Klockner business generated about $16 million of EBITDA in Q1, which was double what it generated in Q1. Excuse me, 16 in Q2, which was double what it generated in Q1. I think this illustrates how much upside there can be from that operation when good market conditions are combined with changes to operating practices. We entered into an agreement to sell our color steels division in Ontario. This business generated about $70 million worth of revenue in 2025 and had a book value of around $35 million. And we should recognize a small gain on the sale when it closes in the second half of 2026. We also sold 4 million of real estate in Q2 on top of the Delta property that we sold in Q1. These are further refinements to our portfolio as we are focused on where we can optimize our capital deployment. In the case of Color Steels, it was a standalone niche business unit for us in Ontario that had a focus on residential construction, which is not a priority for Russell. On the middle row of the diagram, our Q2 2026 CapEx was $18 million, which was similar to Q1. We have recently approved a couple of modernization projects, so expect that the capex to pick up in late 2026 and into 2027 as more of these types of projects are advanced. Capital deployment is around $1.9 billion. Our capital grew from 1.3 at the end of 2023 to 1.6 billion at the end of 2024, and as I said, is now standing around $1.9 billion. Generate strong return on invested capital. Our return on invested capital was 24% annualized in the quarter and 23% annualized if we look year-to-date 2026. Once again, our returns are industry leading when compared to publicly traded comparables. We grew our U.S. business. Our U.S. business currently represents about 54% of revenues and 61% of operating profits for Q2. The market conditions in the U.S. are currently stronger than in Canada, which has resulted in the higher relative profitability for our US versus our Canadian operations. That being said, our Canadian business is making up some ground and we see a positive outlook on both sides of the border. On the last row of the diagram, returning capital to shareholders. We have always had a flexible approach on this sub-piece. In Q2, we returned $24 million via dividends, but did not undertake share buybacks. However, since the NCIB was put in place back in 2022, We've acquired a total of 8.7 million shares at $38.13 for a total of $333 million. Comparing our average buy-in price of $38.13 to the prevailing market price, the cumulative NCIB activity to date was done at an attractive discount to the prevailing market price. In the bottom right box of the page, maintaining strong capital structure is critical as we do operate in a cyclical industry. As a result, our liquidity is strong. We have a lot of flexibility. Our bank covenants, no financial covenants in our term debt, and our maturities are 20-30 for both our term debt as well as our bank debt. If we go to market conditions on page six, in summary, market conditions remain pretty strong right now. We saw carbon sheet and plate prices exhibit steady increases over the last nine or so months. Hot rolled coil and plate prices in the U.S. were up in Q2 versus Q1 and are currently prevailing higher than the Q2 averages. Overall demand is good and supply chain inventory is limited, as shown on the two right-hand charts. Mill operating rates are tracking near 80%, which is a pretty healthy level. This suggests continued optimism. The bottom chart shows the recent pullback in aluminum prices. and that market has come off a bit from its record highs but prices remain at near record levels. If we stand back and look at the prevailing environment and compare it to periods of the past when metal prices were robust such as 2021, this environment seems to be driven by other and perhaps more fundamental factors. In 2021, the market was driven by global supply chain disruptions, temporary government stimulus and a near zero interest rate environment. It was by definition short-lived. The recent movement in metal prices and margins seem to be underpinned by healthy and broad-based demand in combination with managed supply. On page 7, you see a summary of our trend EBITDA. We've talked a lot in the past about changing our EBITDA profile to raise the cycle floor, raise the cycle ceiling, and as a result, raise the cycle average. In addition, we have focused on reducing the volatility through the cycle. These charts present those elements and it shows EBITDA on a trailing 12-month basis at the various points in time. The takeaways are the chart on the right, the 2023-2026 period, looks a lot better versus the left chart, which is the 2017-2019 period. Our average EBITDA is prevailing higher and the peaks to trough are less volatile. Also on the right chart, our trailing 12-month trends continue to improve. Our LTM EBITDA is over $400 million and the improvement in LTM results should continue into Q3 as Q3 2026 should be better than Q3 2025. On page 8, we have a view of our working capital trends on the bottom chart in comparison to EBITDA trends on the top. If I can focus you on the far right side of the bottom chart, in Q2, we used cash for working capital purposes due to pickup in business activity. That being said, the $48 million for working capital was not very large when compared to up cycles in previous times. Our business changes have translated into less volatility, not just in earnings, but also in working capital needs. On page nine, we have a snapshot of historical results. And if we look across the various charts, starting with the top left, revenues were a quarterly record at $1.7 billion. EBITDA was up due to favorable conditions that I previously mentioned. We've also shown adjusted EBITDA in the far right chart. This chart excludes the mark to market on stock-based compensation and the Q1 gain on the Delta sale. This adjusted EBITDA chart makes it easier to do an apples to apples comparison when looking at short-term trends. The adjusted EBITDA of $154 million for Q2 is a big lift from the $93 million in Q1 as well as other recent quarters. The bottom left chart EPS was $1.43 in Q2 which was higher than Q1 even though Q1 benefited from the gain on the Delta sale. The middle table shows the adjusted EPS for that apples to apples comparison and on an adjusted EPS basis the Q2 earnings per share was $1.63 per share which was about double the Q1 level. The bottom right chart shows our return on invested capital. This uses the results as they are without any adjustments. And our return on invested capital for 2026 has been strong above our cycle target and industry leading. On page 10, we show the reconciliation of the unadjusted to the adjusted results. And as I said earlier, the adjustments are to put the quarterly results on a comparative basis that is more equivalent and easier to see the operational trends. And there's only two adjustments that we are making for purposes of comparability. One is the mark-to-market on stock-based comp, which in Q2 was $15 million pre-tax, $11 million after-tax, which equated to $0.20 per share, and two, the Q1 gain on the Delta sale, as it was a material item that is nice to have it, but it is non-recurring. On this page, the equivalent comparisons are in the gray area and that highlights and illustrates the large step up in our Q2 results from an adjusted EBITDA, adjusted net earnings and an adjusted EPS perspective. Going to more detailed financials on page 11, from an income statement perspective, some of the items I've already discussed but starting at the top, revenues were up 17% in Q1 and up 37% versus Q1 and up 37% versus Q2 of last year. and I'll talk more about volumes later but it was another record shipping quarter on top of the record shipment levels that were achieved in Q1. Our gross margin percent was up versus Q2. The margin profile of the former Klockner branches still lags that of our comparable operations but had a strong bottom line contribution. If we look at the cumulative contribution for the first six months relative to the $128 million purchase price, it has equated to an over 30% annualized return on invested capital so far. Timing's been very good. The marked market on stock-based comp was a $15 million expense, as I mentioned earlier, in Q2 versus a $5 million expense in Q1. And we've pulled those out of the adjusted results for purposes of easier comparison. Cash flow, I mentioned earlier in Q2, we used $48 million of cash for working capital due to the increase in business activity. Share buybacks, cumulative share buybacks since August 2022, but 14% of our shares outstanding was picked up for $333 million at an average cost of $38.13. There wasn't any meaningful activity in Q2. Our quarterly dividend was raised in June to $0.44 per share for the quarter, and we've just declared the same quarterly dividend of $0.44 per share that will be paid in September. Our cap acts of $18 million in Q2 was similar to Q1. Balance sheet perspective, we remain in a strong position with only $144 million of net debt, so we have a fair amount of flexibility and dry powder. The FX rate did move by about $0.03 in the quarter, which had a positive impact on our OCI account. And our book value continues to grow and is up $1.47 from March 31st and is up about 10% from this time last year. On page 12, we show our adjusted EBITDA and the variance analysis between Q1 and Q2. In looking at the service centers, the volumes were up 6% versus Q1. As I said earlier, to set another record, this translated to a $13 million EBITDA pickup. The margins picked up by around 130 basis points or $70 per ton, which equates to $37 million. Costs were up by $12 million due to higher delivery costs and incentive compensation that is tied to financial performance. Energy Field Stores were up $5 million, which is a continuation of their favorable recent trend. Steel distributors were up $10 million as they benefited from the favorable market conditions. And in the other bucket, corporate expenses were flat to down a little bit, and there was a seasonal pickup in our Thunder Bay terminal operations. On page 13, we have our segmented P&L information for service centers. I'll go through this in more detail on the next page. It was a very big improvement over Q1. Energy Field Stores, the revenues were up. Gross margin percentages were down a little bit due to Prodimix, but were still very good. The operating profit in Q2 26 was the highest quarterly level in around three years. Distributors, revenues, gross margins, EBIT were all up in Q2 versus Q1. On page 14, have a deeper dive into the metrics for the service center business. The top right graph is tons shipped. Q2 was a record quarter and was the first time that we have broken through the 500,000 tons per quarter level. The results were up 6% over Q1, and even if we exclude the Klockner contributions, same store tonnage was up 6% versus Q2 of 2025, which reflects the strong and favorable demand environment where we're operating. Price realizations per ton were up 9% versus Q1, and that translated into a nice margin pickup that is shown in the bottom right graph. Our gross margin per ton was $529 per ton, which was a $71 per ton pickup versus Q1, and was the highest level since 2023. This is in spite of the lower margin profile from the former clocked branches. That being said, we are seeing the early stage of relative margin pickup from the Klockner branches with more relative upside on the come. On page 15, we've illustrated our inventory terms. Overall, our inventory terms improved to 4.4 in Q2 versus 4.2 in Q1. Inventories are tight as business activity is strong. Page 16, we've illustrated our inventory dollars. Total inventory was up about $100 million since March 31st, which was driven by higher cost per ton for the service centers, while total tonnage was relatively flat. Page 17, update on our capital structure. Our liquidity is pretty good, very strong, and gives us significant flexibility. We're investment grade rated by both S&P and DBRS. And since last quarter, our net debt was reduced by about $26 million, and our liquidity is over $500 million. which gives us plenty of dry powder when we find capital deployment opportunities that make sense. We recently completed a normal course extension of our bank lines and have pushed them from 2029 to 2030. Page 18 has our capital allocation priorities. Left part of the page, our investment approach, seek average returns of greater than 15% over the cycle and that's been consistently achieved. On the facility modernization front, we have two new projects that were recently approved. One is in Western Canada and one is in the US South at a former Klockner branch. They are each for around $10 million each and have solid return profiles. These are both examples of opportunities that emerged either directly or indirectly from recent acquisitions. On the acquisition front, We have been active for the last few years, and we continue to look at opportunities that could complement our existing businesses. On the right part of the page, we have shown our approach to returning capital to shareholders. Here we have that flexible approach that I mentioned earlier, and I have more details on the next page. Page 19, deeper dive on returning capital to shareholders, left chart. We have our longer term dividend profile, and with the recent dividend increase to 44 cents back in June, and the 44 cents per share that has just been declared that will be paid out in September. The dividend increase that was done in June represents the fourth increase in fourth year, four years and in total represented a 16% cumulative increase since the early 2023 dividend level. Bottom left chart, we show our NCIB activity since we put in place in 2022 and we view it as opportunistic. As I said earlier, our cumulative NCIB since 2022 has been a 14% reduction in our share count. Average cost was $38.13 per share for a total of $333 million. On the top right chart, the aggregation of dividends versus NCIP over the last few years show the cumulative impacts and is again worth noting on that chart that even though our dividend per share has increased by meaningful amounts, our total dividend outlay has remained at around $24 million per quarter as a result of the reduction in the share count which is shown on the bottom right hand chart. So on closing and on behalf of John and other members of the management team, I would again like to really express our thanks to everyone within the Russell Group for their contributions. This has really been a nice start to 2026 and we look forward to more opportunities on the come. Operator, that concludes my intro remarks and you can now open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you do have a question, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by two. And if you're on a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from James McGarrigle, with RBC Capital Markets. Please go ahead.

Hey, good morning and congrats on the strong quarter there.

Great. Thanks, James.

Yeah, so just on the margin guide, the margins seem to be holding up early in the quarter, potentially some upside to your guidance. So can you just let us know what you're assuming in terms of pricing and volumes that are underlying the implied decline in margin versus what you're seeing early in Q3?

Well, a couple things. So when I was talking about some of the margin upside related to Klockner, some of that will take time to unfold. And I think I need to separate that from just broader market conditions and how they are. So think of the Klockner pieces. We're making some gains, and that's really beneficial given the market we're in. But some of the gains we're going to see in terms of margin improvement on a relative basis, that's going to take a little while to fully unfold. And some of it relates to the CapEx, for example, that we just approved. for one facility that relates to the Klockner business. So I separate that from the broader market conditions. The simple version is that kind of the margins that we are seeing for July are very similar to the margins that we are seeing in June, and the June margins were better than our Q2 average.

Okay, I appreciate that caller. And then on volumes, it seems like all the read-throughs we're hearing from the freight transports point to sequential uptake in Q3. I know your U.S. business is a bigger piece of the pie now. So how should we be thinking about those two positive drivers versus the typical slowdown in seasonality when we think about modeling volumes for Q3? Yeah, James.

Interestingly enough, and Marty alluded to it in his opening comments, the typical summer slowdown you see with people being out for school, the holidays in July and August, we just really haven't seen. There's obviously the construction holiday that goes on in Quebec that was there in late July, but we just did not see much of a slowdown in demand at all. Steel mills are running at 81% capacity right now, keeping in mind that 85% is basically full capacity due to the cannibalistic nature of a steel mill. So we think demand will be very solid and robust through Q3. And into Q4, we're seeing extended lead times from the mill manufacturers that are out there. And across every segment that we have, we've seen an uptick.

And just a quick follow-up before I turn the line over. On that 6% same-store volume growth in Q2, what percentage of that was share gain versus what percentage was just the overall strength in the service center market? And I'll turn the line over after that. Thank you.

You know, it's a good question, James, that it's hard to break down that precisely, but it's a little bit of both for sure. There is momentum that we are seeing within our within our areas. And in strong markets, we can do a variety of things, pick up volume because demand is greater, and also be targeted in picking up market share because we do have product. And one of the things that I think it's fair to characterize in the market we're in right now, because inventory supply chains are relatively light, those with product do pretty well from a customer perspective, and we have good access to supply given our scale. And so I think that has helped us both with the broader market as well as penetration on the market share.

Thank you. Great. Thanks, James.

Next question comes from Frederick Bastine with Raymond James. Please go ahead.

Good morning. I just wanted to build on that last question answer. Historically, guys, you've spoken about having relatively limited visibility into future market conditions. Now, listening to your commentary this morning, it sounds as though that visibility has improved. Is that a fair characterization? And if so, what's driving that increased confidence?

Fred, great point. It is a fair characterization. and so when we're talking with our customers we're seeing extended lead times that are going out now further than they typically have historically. So we're now, historically we were 30 to 45 days, we're now seeing that 90 to 120. We're also seeing mill lead times extend further than they have historically, some going out well into next year. And so it's creating an environment of project planning where customers are coming to us to make sure they have product. As Marty said earlier, product supply can be tight right now in the industry. We do have access to product compared to some others and so that's helping us so people are securing their needs and making commitments with open-ended pricing right now.

Okay that's super helpful. Now how does that translate into the competitive landscape? Obviously it's probably evolved a lot from a year ago when prices weren't as healthy as they are today. Are you seeing any meaningful changes in the behavior around Bidding, appetite for volume, or the one that probably most people are interested in is acquisition activity.

Yeah, so I think from a bidding perspective, I think the market's being extremely responsible on pricing right now due to the availability of product. There are some holes that we're seeing in competitors' inventories that are out there, so it's giving us natural advantages just to do the fact we have the product. And I think there will be some M&A activity probably in the back half of the year, early next year, but we'll continue looking at opportunities and just stay disciplined in our approach.

Okay, thanks.

I'll turn it over. Great call. Thanks, Fred.

Next question comes from Michael Tubholm with TD Cowan. Please go ahead.

Thank you. Good morning. Hey, Mike. Morning. So it sounds like the demand environment is very robust really across most areas, but wanted to kind of get your take if you can sort of dig into that a little bit. I mean, you did mention that the U.S., you're seeing a little bit, you have been seeing a little bit stronger market conditions in the U.S. and Canada, but then mentioned that Canada has kind of been picking up lately. So maybe you could expand on that and then just in terms of where that pickup in Canada has been coming from and from an end market perspective. Again, not sure if this is just really strong across all end markets or if there are certain ones that are really driving this strength, but I'd be curious for any thoughts on that.

Thanks, Mike. Early on in the year, you're exactly right, the U.S. was extremely busy. Canada was languishing a little bit and started picking up steam. But really starting in May and going forward into June, July, and now into August, we've seen Canada start to really pick up. The drivers that we're seeing on that is predominantly across all in markets in the U.S. And we've mentioned ag before as being a laggard. It is starting to pick up. It's starting from well in both countries. Obviously seeing the projects that are going on in the U.S. and in Canada, whether it's LNG, whether it has to do with data centers that are being built. Western Canada is extremely busy right now for us on multiple projects that are either being pushed by the government or private industry. And so we're really starting to see all tides rise right now, which is a nice place for us to be in. When you look at demand, even the rig counts in both countries are up year over year. So again, it's very good for our energy business. It's very good for our service center business right now.

That's helpful. Thank you, John. Just to follow on that, the comment there about data centers, not surprising to hear that that's one of the areas of strength. But are you able to provide a little bit of color on What that represents as a percentage or proportion of demand right now for Russell relative to where that would have been even six months ago? Just to provide some context, trying to understand sort of how material this is for you guys right now.

Yeah, and it's a little difficult to quantify because we sell it through so many different avenues. And what I mean by that, we're doing racking that goes into data centers in some areas. Some areas we're doing the structural components, the steel components. Some we're providing into the electrical power grids or the LNG power grids that are going in. So it touches a lot of different areas with a lot of tentacles that go out. But I would say it's probably around 8% to 10% of an impact overall right now throughout our service centers and our energy fill stores.

OK. That's helpful. Thank you. Just in terms of the gross margin, so it sort of sounded like in the Outlook commentary that you were looking for Q3 margins to actually moderate a little bit in service centers, but then on the conference call, I'm not sure that that's sort of exactly what I heard. So, I mean, the demand environment is strong, obviously, as you just talked about. I mean, prices have, you know, we've not seen any indication that prices are rolling over. So, is the right way to think about service centers margins? Thank you very much.

have gone up, and at some point there is a catch-up on the costs that come into the system as well. So as long as prices keep moving up, that's favorable for us in terms of the margin side of it. But at some point, if prices start to go sideways and maintain even at a high level, there is a little bit of catch-up related to the cost side of it because of the lag effect of inventory coming in, and then inventory how it finds its way into our costs of goods sold. So the visibility I have right now kind of goes back to what we said in the narrative, which is margins should be somewhere in the zone of what we saw for Q3, of what we saw for the first half of this year, but we've started Q3 in pretty good shape. Okay, that makes sense.

And then if I look at the improvement in service center gross margins Q2 versus Q1, Obviously, there's the market dynamics that you've just talked about. Was there some improvement there that came from Klockner, and can we actually quantify that? If I look at 20.9% in the first quarter going to 22.2%, is there a portion of that that's Klockner that you can call out?

Yeah. I mean, the way to characterize it is, because market conditions improved, Obviously, that was the biggest driver in Q2 versus Q1. But embedded within that, Klockner had a very meaningful difference in margins versus the rest of our U.S. service center business in January and February and March. But as we got into April and May and June, some of that relative margin differential started to shrink. There is still a noticeable margin difference between it and we're at the early stage of some of those improvements. But I would say overall, though, that we're at the very early stage of having that margin improvement within the Klockner branches on a relative basis translate to the overall margin improvement that you see. Or said a shorter way, Mike, if you look at Q2 versus Q1, most of that improvement was the improvement in the broader market environment A little bit of it was from the relative improvement in the margin profile at Klockner. It benefited from improving market conditions and benefited a little bit from relative margin improvement.

All right. That makes sense. I will leave it there and get back to you. Thank you.

Thanks, Mike.

Your next question comes from Arianne Aurora with BMO Capital Markets. Please go ahead.

Hey, good morning. You guys touched on M&A earlier. Can you provide an update on the pipeline? Have seller expectations started to move higher given the positive sector fundamentals as of late?

Well, it's hard to talk about the market on the M&A side of it too broadly because we deal with one-offs. And we know the one-offs we deal with. And if we look back at the history of the last number of acquisitions that we've done, each one looked very very different. So it's hard to really characterize vendor expectations broadly. All I know is we kind of stick to our knitting and stick to our criteria and sometimes that lines up with vendors and sometimes it doesn't. So we don't really get too hung up on thinking through what market conditions are broadly and what vendor expectations are because it's hard to quantify. We just look at the one-offs that we look at and if we can see alignment terrific and if we can't for whatever reason, sometimes it's vendor expectations and sometimes it's other reasons in due diligence. That being said, and I kind of go back to when we look at our acquisition history and if you look at 2022 and 2023 where activity was really robust, earnings were really robust, we didn't really do any acquisitions in those two years and we looked at a lot of acquisitions, we just didn't find anything that lined up with our criteria. Valuation or otherwise, whereas we were more active in 2024 and 2025. It's hard to handicap what 2026 and 2027 is going to look like from a vendor expectation perspective.

Yeah, that makes sense. And there's like kind of diving deeper into capital allocation, you know, given the balance sheet flexibility and limited kind of buyback activity we've seen in Q2. Should we interpret the current capital allocation bias leaning more towards reinvestment, maybe M&A versus repurchases at today's valuation?

Look at those buckets independently because it's not a case of we have a allocation and we have to figure out how to split it. among different pieces of the pie. We've got a lot of capital structure flexibility. So if there's a variety of things that make sense, we can pursue a variety of things. If fewer things make sense, we can pursue fewer things and maintain that capital structure flexibility and optionality. So we kind of look at those each independently, whether it's dividends, whether it's share buybacks, whether it's acquisitions, whether it's internal investments. because we have a lot of flexibility to do whatever out of those things in the menu makes sense.

Perfect. Thanks so much, Marty. Great. Thank you.

Next question comes from Ian Gillies with Stiefel. Please go ahead.

I just wanted to comment.

First margins in the Metals Service Center from a bit of a different angle. If you look historically, it's kind of bounced between 20% and 22%. You've rolled a bunch of acquisitions in over the last number of years. You're working on a number of value additives at the facilities. Is there any reason to think that band is going to be higher moving forward through the cycle than it has been previously?

The short answer is yes, it should be. And it's interesting back to a question that was asked earlier about Klockner. Klockner is very additive from a bottom line perspective, but as we said from day one, it was margin dilutive. That provides upside. And so there's no reason to think that when we look at Q2, for example, with a 22.2% gross margin out of the service centers, that would have been higher in percentage terms if not for the Klockner business. So as initiatives are done over time to compress the differential between their margins and our other equivalent operations on an apples to apples basis that 22.2% should be higher. That will take some time and that will be that is part of the focus that our people are dealing with right now but it is where we're very targeted with Our investments, our internal initiatives is moving up the value chain that should achieve some relative margin improvement over the course of time. So the long answer is yes, the short answer is yes, there should be some margin improvement.

I suspect I know what the answer is. Would you be willing to provide what you think a new band may be moving forward?

Why don't you give us the answer then, Ian, if you know what the answer is. Yeah, no. But other than, let me put you this way. And I'll just use going back to the Klockner branches as an example. So the Klockner branches in totality represented, you know, depending upon point in time, 15 to 20% incremental revenues for us. So it was a meaningful portion of revenues. but it came at probably a 30 to 400 basis point differential in gross margins. So you kind of do that math just on the Klockner piece alone, let alone what we're doing in other parts of the business in adding value-added equipment. There's no reason to think that on a consolidated margin basis there shouldn't be one, 200 basis points improvement on a consolidated basis over time once those initiatives are completed.

Understood. And are you able to provide any updates on where you think you're at in terms of value-added sales as a percentage of total in MSC and where you want to get to? Because that metric has been moving around just because of acquisitions.

Yeah, and again, it moves around. Obviously, Marty touched on it with Klockner, very modest value-add, if any, on that side of the business. Excluding Klockner, we've crossed the 30% barrier now. We do not include coal processing in that. We don't buy a coal to sell it. We buy it as a processed product, so we don't include it. Some others do. When you look at the value-add, it's north of 30% now. We feel like we can get that to 50% in the next five years. That's helpful.

And then last one for me. On energy products, there was obviously a very nice step up in revenue. Oil has been volatile. Can you maybe talk a little bit about the repeatability of that performance and how you're thinking about that business, I guess, moving ahead?

Yeah, and again, thank you. It was a nice performance by the teams, both in the U.S. and Canada. I think it is very repeatable. I think those markets are busy. Again, Big demand on natural gas right now due to data centers and the energy supply that's out there. And so obviously you read the same publications on what's going on in Canada with the LNG projects, everything that's going on in Western Canada there. The U.S. is also extremely busy in that area with what's going on in the instability, I guess, in the Middle East that is pushing even more demand in the U.S. to bring stuff at home from abroad. So we think there's a lot of legs left to run.

That's helpful. Thanks very much. I'll turn it back over. Thanks, Ian.

Next question comes from Maxim Sevchuk with National Bank of Canada. Please go ahead.

Good morning, gentlemen, and an impressive quarter. The first question I had of Hamid, so the West right now is 64% of revenue, 61% of second operating profit. And I guess on a perspective basis, do you think that sort of gap will persist or how should we think about it in terms of like, is it how US are performing or is it kind of lagging? How should we think about that?

Thank you. It's both. So let's start with from a revenue perspective. Part of this is just the migration. of our business over the course of time and the incremental acquisitions with Klockner being the most notable one push us through the 50% threshold. So I don't see a scenario where Canada can, our Canadian business would be greater than 50%. So the north of 50% that the U.S. currently represents is probably only going to migrate up, but it's not because we're shrinking Canada, it's just because the U.S. part of it is growing both organically and inorganically. In terms of relative profitability, yeah, there was more coming from the U.S. than from Canada. And it was a case of the U.S. being super, super strong and Canada lagging. But that's part of the broader economy that we saw in Canada versus the U.S. too with Canadian GDP lagging the U.S. But as John said earlier, we're starting to see some of that improvement. So I would suspect that over the course of time, I couldn't put a timeline on it, but over the course of time, there should be better symmetry between revenue contributions and profitability contributions from our operations on either side of the border.

Okay, no, that's great to hear. And then to your point around organic growth and volumes, kind of 6%, I mean, correct me if I'm wrong, this seems to be a significant acceleration versus what we would have seen kind of historically. And How should we think about it on a perspective basis? Can we build that level of organic growth in the back half and keep it there? If you don't mind helping us, that would be great.

Yeah, the 6% organic growth Q2 of this year versus Q2 of last year, it was, I think, very reflective of the economy is doing well. And as I sort of said earlier, we are picking up market share here. because of our profile that we have. And in a tight market, there are some interesting opportunities to do that. So I'd hate to put a percentage attached to it, but we've been talking for some time about gaining market share in combination with an improving market. So there should be some of that relative improvement Q3, Q3 of this year, Q3 of last year, Q4 of this year versus Q4 of last year as well. on both the market conditions in combination with the market share improvement plus our market share gains. I'd hate to put a percentage attached to it, though, because we don't really drive the business that way. It really is about being opportunistic. And for us, the headline on revenue is good. What we really, really care about is the bottom line, the margin profile, the return profile. and we couldn't be happier with how our folks have performed, not just gaining market share, not just gaining top line, but how that's translated all the way through. That is really where our focus is and our gains that we're seeing on the margin side of it are more compelling to us than when we think about just shipment volumes alone.

Matt, just to add on to that, if you think about the value add component and you think about the modernizations, both are designed to allow us to take on new market share. Again, it's a stepped approach. As Marty was saying, I'd hate to put a percentage on it, but both of those are allowing us to capture share. And then in conjunction, the markets have gotten busier.

Yeah, it makes sense. Thank you so much. And then, sorry, Martin, one thing that you mentioned, I think it was in relation to aluminum products, pricing weakening a little bit there. Do you mind providing a bit of cover in terms of what's happening there?

Yeah, so the LME pricing has rolled over. Aluminum pricing is coming down really close to an all-time high. And so it's come down at a modest rate. Not a big concern for us. It's less than 4% of our overall business. And so something we were growing in, we watch it closely. We turn our inventory faster than the industry. So we're able to unwind that quickly on that position. but that's the only category that we've stocked that we've actually seen inventory pricing plateau and start to roll over.

Okay. Okay, that's great, Collin. Thank you so much as always.

Thanks, Max.

Ladies and gentlemen, as a reminder, if you do have a question, please press star followed by one. Your next question is a follow-up from Michael Tepholm with TD Cowan. Please go ahead.

Thanks. Maybe just picking up on that last line of questioning there. Aluminum, the 4%, John, that's as a percentage of service centers, just to be clear, right?

That's correct. That's correct.

And then in terms of pricing, in terms of steel pricing, I mean, everything you said earlier would suggest that the market continues to be tight and demand is strong. How do you think about pricing for hot roll coil and plate from here? And at some point, do you think there's a risk of increased imports notwithstanding existing tariffs?

Yeah, so to give you a little bit of background or color of what's going on in the market now on hot roll coil specifically, for 10 consecutive weeks now, Canada has had an increase, which is a nice change. Early in the year, they were lagging. We talked about the separation where it became disjointed from the U.S. pricing where it was typically U.S. pricing currency adjusted. It is approaching the U.S. equivalent now. So it has been playing catch up really May, June, and July. So it's moving quickly, which is a function of demand. The mills are relatively full. They're extending their lead times. The U.S. mills are relatively full. Your other commentary around plate talking about demand. Lead times are long on that compared to historical lead times, and you have three plate mills that are taking planned maintenance shutdowns during the months of August and September, so that'll further restrict supply. So we think there's room on pricing as the mills are full going through the third quarter and into the fourth quarter. Where that impacts the imports is a little different on a country-by-country basis. Canada has now put up some quotas, and so that's limiting the imports. The U.S. obviously has a much stricter tariff. It's greatly limiting imports. So we think there will be imports to fill the void on lead times, but I don't think it'll have a material impact on the overall market because the mills are currently full. It's just a matter of trying to pull lead times back down.

Yeah, that's all very helpful. Thank you. and then just one last one here. You mentioned that you've approved two modernization projects for $10 million each, one in Canada, one in the U.S. What is the right way to think about CapEx for the year? I guess back half and where does that put you for the year? And then also 2027, how should we think about CapEx for the year?

It's a good question. The exact timing is a little bit tricky. Thank you so much for having me. and $25 million-ish per quarter. Some quarters are going to be a little higher. Some quarters are going to be a little bit lower. And for Q1 and Q2, we were a little bit lower as some of those projects hadn't really kicked in yet. I suspect it'll move up a little bit in the back half of this year and then into the front half of 2027. So we should still be averaging that $100 million per year if we look at it on a multi-year basis. But by definition, we've been less than that for the first half of this year. But we should start seeing some of that pick up later this year, early next year.

Okay. Thanks for that. Thanks, Mike.

There are no further questions at this time. I would now turn the call back to Mr. Juravsky for any closing remarks.

Great. Thank you, operator. And thanks, everybody, for joining the call and all the questions. And if you have any follow-up questions, please feel free to reach out. Otherwise, we look forward to staying in touch during the balance of the quarter.

Ladies and gentlemen, this does conclude your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day everyone.