Q2 2021 Reliance Steel & Aluminum Co Earnings Call
Greetings and welcome to the reliance steel and aluminum company second quarter 'twenty 'twenty 1 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation for.
For anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Kim Orlando with add on Investor Relations you may begin.
Thank you operator, good morning, and thanks for all of you put the money on a conference call to discuss reliance for second quarter 2021 financial results.
I am joined by Jim Hoffman, CEO, Karla Lewis President on Arthur Jimmy and Vice President and CFO.
Bill sales special adviser and former executive Vice President of operations will also be available during the question and answer portion at this call.
Recording of this call will be posted on the investors section of our website at investors day, our S AC dotcom.
The press release from the information on this call may contain certain forward looking statements, which are based on a number on the assumptions that are subject to change and involve known and unknown risks uncertainties or other factors.
Including the impacts of the COVID-19, pandemic and related economic conditions on our future operations.
It may not be under the company's control and may cause the actual results performance or achievements of the company to be materially different from the results performance or other expectations implied by these forward looking statements.
These factors include but are not limited to those factors disclosed in the company's annual report on form 10-K for the year ended December 30 for 2020 under the caption risk factors disclosure in our press release. This morning, and other documents reliance filed or furnished with the securities and Exchange Commission.
The press release and the information on this call speak only as of today's date and the company disclaims any duty to update the information provided therein and hearing.
I will now turn the call over to Jim Hoffman CEO of her life.
Thank you Kim good morning, everyone and thank you all for joining us today to discuss our second quarter 2021 financial results I will begin with a high level overview of our second quarter performance and capital allocation priorities Karla will then speak to our offer.
Greater results and demand trends by end market and Arthur will conclude with a review of our second quarter 2021 financials.
Our resilient business model, coupled with favorable market conditions drove a second consecutive quarter of record financial performance.
I'm inspired by the ongoing operational excellence and performance demonstrated by all of my colleagues within the reliance family of companies.
Despite lingering disruption associated with the global pandemic, including limited mental availability and various other supply chain constraints, our managers in the field exhibited tremendous execution and most importantly maintained a relentless focus on safety.
During the second quarter, we continued to experience considerable strength in metals pricing led by multiple mill price increases for carbon and stainless steel products in particular.
The favorable pricing environment, along with continued strong underlying demand in the majority of the end markets we serve drove.
Record quarterly net sales of 3 point for $2 billion.
Our business model, which is strategically highly diversified in terms of our products and markets and geographies and focused on small order sizes with quick turnaround is particularly effective during periods of tight supply and volatile price.
In addition, despite metal supply constraints are strong long standing relationships with the domestic mills and our unique ability to cross sell inventory among the family of companies allowed us to source for metal we needed to satisfy our valued customers through continued price does.
To put on by our managers in the field, we generated a strong gross profit margin of $31.
7%, which when combined with our record sales resulted in a record quarterly gross profit of $1.08 billion in the second quarter of 2021.
Both are on a record quarterly gross profit and our continued focus on expense control contributor too.
Our second consecutive quarter of record quarterly pretax income for $444.1 million.
Our quarterly earnings per diluted share for $5.08 per boat another record.
Substantially in excess of our guidance as well as up 23, 3% from our prior quarter.
Our resilient and continuously improving the business model has enabled us to maintain industry, leading gross profit margin throughout various metals pricing and demand cycles.
Most recently increased our long term sustainable gross profit margin range of 28% to 30% during the first quarter of 2020.
And we have remained above this range for al the uncertain COVID-19 pandemic environment.
We believe our sustainable outperformance resulted from our managers' disciplined approach to pricing and increased value added processing that led to a greater focus on higher higher quality high margin business.
Today, we are very pleased to announce that we are once again, increasing our estimated sustainable gross profit margin range to 29% for 31%. We are confident in our ability to maintain this higher range on our annual on an annual basis as a result of our.
Sustainable impacts the investments we have made in our business are having on our gross profit margins.
Let me touch on this a little bit more in detail.
Over the past 5 years, we are investing nearly $1 billion into our company through capital expenditures approximately half of which was directly that was directed towards stated the our value added processing equipment across our family of companies. These investments not only introduce new processing capabilities.
And helped us increase the percentage of orders with processing from our historic levels of about 40% for our current level of about 50%, but also enhanced and upgraded our existing value added processing equipment to improve the quality of our service offerings to our.
Commercially our investments within our family of companies enables our managers in the field to provide additional VAT.
Value to our customers and an appropriate price, which further supports our increased sustainable gross profit margin range.
Looking ahead, we will continue to prioritize investing on our company's growth is a key element of our capital allocation strategy.
We maintain a flexible capital allocation strategy that is focused on both reinvesting in our company's growth and stockholder returns.
Beyond the significant investments we are continuing to make in value added processing equivalent or 2021 capital expenditures will also be focused on both.
New facilities and projects to expand upgrade and maintain many of our existing operations.
As such we are increasing our 2021 on capital expenditure budget from $245 million to a new record of $310 million due to various key projects, including a significant expansion of our operation in South Korea.
Services for semiconductor and biochem and pharma markets.
New expansion, new expanded toll processing capacity and increased investments in renewable energy at many of our existing facilities.
During the second quarter of 2021, we invested $81 million net capital expenditure.
Turning to our other avenue of growth acquisitions, we have a healthy pipeline of prospective opportunities, including both traditional metal service center businesses and adjacent businesses as always we will adhere to our strict transaction criteria when evaluating prospective targets.
To ensure a strong fit within our family of companies.
In regard to stockholder returns, we returned $67.8 million to our stockholders during the second quarter of 2021 through the payment of $43.8 million in dividends and the repurchase of $24 million of reliance common stock.
As announced earlier today in our earnings release, our board of Directors approved an amendment of our share repurchase plan that was set to expire at the end of this year, increasing our repurchase authorization to $1 billion.
Since 2018, we have repurchased approximately $900 million of our common stock at a weighted average cost of $85.52 per share.
We expect to remain a prudent allocator of capital by maintaining our flexible approach focused on both growth, which remains a top priority as well as stockholder return activities.
Finally, I would like to briefly comment on our recently announced executive officer succession matters.
<unk> January 2022, Bill sales will retire from reliance following 24 years of service.
With our company.
As of July 1st Bill transition from his role as executive Vice President of operations for special adviser, where he will provide support on special projects and facilitate the transition of his responsibilities bill's deep industry experience and relationships have contributed significantly.
To reliance and our success over the years.
I'd like to sincerely. Thank you Bill for all your hard work and dedication to the company and on behalf of all of US have reliance wish you the very best in your retirement.
Relatedly as a part of our deliberate succession planning process I would also like to congratulate both Shawn Mullins, who has been promoted to senior Vice President operations, and Brian Yamaguchi, who has been promoted to vice President supplier development, both Sean and Bryan have a law.
Long standing history with reliance as well as the significant industry experience and a passion for our business I applaud both of you for your well deserved new roles.
In summary.
I am beyond inspired by the outstanding operational execution demonstrated by the entire reliance team and their unwavering focus on the core elements of our resilient business model, which drove our second consecutive quarter of record financial performance and then the environment.
Characterized by extremely high levels pricing strong demand from our customers and limited mental availability, we believe remind reliance.
<unk> remains well positioned to continue supporting the growth and needs of our customers and our suppliers, while generating strong earnings and returning value to our stockholders. We remain confident that America is going to lead reliance to rebuild and we will continue to support our colleagues customers.
Suppliers and community and our collective efforts to do so.
Thank you very much for your time and attention to that I will now I'll turn the call over call over to Karla to review our operating results.
On demand trends karla.
Thanks, Jim and good morning, everyone.
I would like to begin by thanking all of my colleagues within the reliance family of companies for their record setting performance during the second quarter I would also like to recognize and thank bill for his many contributions to reliance during his successful career I was fortunate to work with Bill.
For all of the 24 years. He has spent at reliance and wish him all the best in his upcoming retirement.
Additionally, I'd like to extend my appreciation to our customers for their ongoing trust and reliance and our mill partners for their continued support.
Turning now to our second quarter operational performance.
<unk> had strong underlying demand in the majority of our end markets resulted in our tons sold increasing 1% compared to the first quarter, which was within our guidance range of flat to up 2%. We continue to believe however that underlying demand.
It's stronger than our second quarter 2021 shipment levels reflect due to factors hindering economic activity such as metal supply constraints labor shortages and other supply chain disruptions, we are experiencing in our business as well as the impact on our customers and so.
Pliers, and we look forward to fulfilling this pent up demand in future periods.
These disruptive supply chain factors, however, do support increased metal pricing, resulting in ongoing metal price escalation for many of the products, we sell during the second quarter, most notably for carbon and stainless steel products.
Our average selling price in the second quarter reached a new all time high and increased 19, 7% compared to the first quarter of 2021 and exceeded our guidance of up 5% to 7% by a significant amount.
As Jim noted the robust demand and favorable pricing conditions contributed to record quarterly gross profit dollars of $1.08 billion in the second quarter of 2021, and a strong gross profit margin of 31.7 per cent.
On a FIFO basis, which we believe better reflects our current operating performance. We achieved a record gross profit margin of 37, 5% our second consecutive record FIFO gross profit margin quarter to our managers in the field.
We greatly appreciate your superb performance and continued focus on high quality high margin business.
We also applaud the level of co.
Operations users' exhibited across our family of companies to provide creative solutions to our customers.
And then <unk>.
We are experiencing even more business opportunities from new and existing customers our size and scale combined with strong collaboration among our family of companies and support from our key partners have collectively helped and share that we're able to me.
Meet our valued customers needs.
I'll now turn to a high level overview of our key end market trends on a sequential quarter basis.
Demand for non residential construction, which includes infrastructure and is the largest end market. We serve continued to gain strength, our second quarter tons sold surpassed first quarter shipments and reached pre pandemic levels.
We continue to experience solid quoting activity for projects in the areas of.
Distribution and fulfillment centers data processing and manufacturing facilities big box retail and the like.
Due to supply constraints and increased pricing. We are also experiencing an uptick in smaller projects that can be completed quickly.
Given our healthy backlog and solid quoting activity positive customer sentiment and favorable key industry indicators. We are optimistic demand will continue to strengthen through the remainder of 2021.
Demand for the toll processing services reliance provides to the automotive market softened slightly from first quarter levels. Nevertheless, we believe underlying demand is stronger than our second quarter trends reflect due to the impact of global micro chip shortages on.
<unk> levels in certain automotive markets.
We are continuing to provide solutions to support our automotive customers increased transportation and storage challenges through recent investments which include purchasing a new facility in Michigan and opening a new tolling facility in Indiana. This increased capacity will allow us to serve.
This many new opportunities for our tolling business. Looking ahead, we are cautiously optimistic that our tolling volumes to the auto market growth strengthen in the back half of the year as we ramp up our expanded capacity and if auto production increases.
Importantly, we remain confident about the long term strength of our toll processing business as evidenced by our ongoing investments in growth and innovation in this area as a reminder, our Greenfield, Kentucky tolling operation commenced production in November 2020, and has been steadily ramping.
Ever since.
Construction also continues on our Greenfield tolling facility in Texas, which we expect will commence operations in the fourth quarter of 2021 and ramp throughout 2022.
We're very excited about these opportunities to expand our tolling presence.
Demand in heavy industry for both agricultural and construction equipment improved significantly during the second quarter with our shipments exceeding pre pandemic levels.
Demand for machinery used in manufacturing processes was also very strong in the second quarter of 2021, and we expect demand in the heavy equipment and manufacturing industries to continue at solid levels through the rest of the year.
Semi conductor demand during the second quarter continued to improve from solid first quarter levels. The semiconductor space remains 1 of our strongest end markets and we expect this trend to continue well into 2022.
With regard to aerospace demand in commercial aerospace, which is roughly half of our aerospace exposure softened in the second quarter compared to our first quarter shipment levels due to increased COVID-19 related shutdowns in Europe.
We believe we are slowly exiting the trough of the demand cycle and expect limited gradual improvement throughout the remainder of 2021.
Demand in the military defense and space portions of our aerospace business, while also down from the first quarter due to COVID-19 related shutdowns in Europe remains solid with strong backlog and exceeded our pre pandemic shipment levels.
We anticipate strong demand in the non commercial aerospace market will continue for the balance of the year.
Finally demand in the energy sector, which we define as mainly oil and natural gas and for slightly in the second quarter as a result of increasing oil prices and rig counts along with customer inventory replenishment, we expect demand in the energy sector to continue to improve at modest.
Levels in the second half of the year.
In summary, the first half of 2021 with distinguished by back to back quarters of record financial performance today early in the third quarter of 2021 positive momentum in both demand and pricing continue which when combined with our proven.
And resilient business model positions us to optimize our performance and deliver strong results once again.
We think our reliance colleagues for their dedication to health safety and operational excellence and we also sincerely thank our customers and suppliers for their ongoing support as we all manage through these extraordinary times.
I will now turn the call over to Arthur who will review our financial results. Thank you.
Thanks, Karla and good morning, everyone.
I'll start with a recap of our quarterly results once again.
<unk> pricing levels healthy demand and strong gross profit margins contributed to record gross profit dollars.
In turn drove record pre tax income and record earnings per share.
The significant increase in metal pricing and ongoing strength in demand resulted in record quarterly sales of 3 for $2 billion up 24% from the first quarter of 2021 and up 69, 3% from the second quarter of 2020.
Strong pricing momentum for most carbon and stainless steel products contributed to the 19, 7% increase in our average selling price per ton over the first quarter of 2021.
As Jim and Karla mentioned, the continued pricing discipline and focus on higher margin orders by our managers in the field along with our ongoing investments in value added processing capabilities.
<unk> resulted in record quarterly gross profit of $1.8 billion and our strong gross profit margin of 31, 7% in the second quarter of 2021.
Our non-GAAP FIFO gross profit margin of 37, 5% in the second quarter of 2021 was a record and exceeded the prior quarter by 40 basis points in the prior year period by 730 basis points. Please.
Please refer to our earnings release, we provide a reconciliation of LIFO to non-GAAP FIFO gross profit margin for each reported period.
We incurred LIFO expense of $200 million or $2.31 per share in the second quarter of 2021 compared to LIFO expense of $100 million or $1.16 per share in the first quarter of 2021.
As a result of higher than anticipated cost for certain carbon and stainless steel products.
We revised our annual LIFO expense estimate to 600 million from $400 million for 2021.
Consistent with our accounting policy.
Allocate our annual estimate on a pro rata basis in each quarter and had to true up to our new annual estimate in the second quarter of 2021 by incurring $200 million of LIFO expense, bringing our 6 month 2021, LIFO expense the $300 million.
Our current projected LIFO expense for the third quarter of 2021 and $250 million based on this revised annual LIFO expense estimate as in prior years, we will update our expectations each quarter based upon our inventory cost and add on pricing trends.
At the end of the second quarter of 2021, our LIFO reserve on our balance sheet was $415.6 million and is projected to be $715.6 million at December 31, 2021 based on our current $600 million annual LIFO expense estimate.
This reserve can benefit earnings in future periods that include declining metal prices now.
Now turning to our expenses.
Our second quarter, SG&A expense increased $44.8 million or 8.6% compared to the first quarter of 2021.
The bulk of the quarter over quarter increase was the result of higher incentive based compensation.
Given our record gross profit and pre tax income levels.
Additionally, inflation contributed to increased variable expenses.
Most notably for fuel on freight as well as packaging cost and.
In comparison to the prior year period.
SG&A expense was up $124.8 million or 28, 5%.
Primarily as a result of higher incentive based compensation.
Variable plant in delivery expenses associated with the 17, 5% increase in shipments and to a lesser extent inflationary increases.
Overall, our head count was relatively flat compared to both the first quarter of 2021, and the second quarter of 2020.
Our non-GAAP pre tax income of $442.8 million in the second quarter of 2021 was the highest in our company's history.
Our non-GAAP pre tax income margin of 13% was also a record.
Our effective income tax rate for the second quarter of 2021 was 25, 6%.
Up from 29% in the second quarter of 2020, mainly due to higher profitability.
We currently anticipate a full year 2021 effective income tax rate of 25, 5%.
We generated record quarterly earnings per share of $5.8 in the second quarter of 2021, compared with $4.12 in the first quarter of 2021 and $1.24 in the second quarter 2020.
Now turning to our balance sheet and cash flow.
Our operations continue to generate cash despite significantly higher working capital needs.
<unk> been able to rising metal costs in the second quarter, we again generated strong cash flow from operations of 100 on $1.6 million.
Despite over $300 million in.
<unk> working capital requirements.
In addition, our second quarter of 2021 cash flow from operations was impacted by approximately $174 million of income tax payments compared to $7 million in the first quarter of 2021.
As of June 32021, our total debt outstanding was.
166 billion, resulting in a net debt to EBITDA multiple of 7 times.
We had no borrowings outstanding on our $1.5 billion revolving credit facility, providing us with ample liquidity to continue executing on all areas of our capital allocation strategy, while maintaining our investment grade credit ratings on.
Now turn to our outlook.
We remain optimistic about business conditions in the current environment with strong underlying demand in the majority of the end markets we serve.
However, we expect factors impacting shipment levels in the second quarter of 2021, such as metal supply constrained labor shortages and other supply chain disruptions will continue to persist in the third quarter of 2021.
As such we estimate tons sold will be down 1% to up 1% in the third quarter of 2021 competitor for the second quarter of 2021.
We expect metal pricing trends to remain strong in the third quarter as metal prices at the beginning of the third quarter of 2021 are higher than the average for the second quarter of 2021, we estimate our average selling price per ton sold for the third quarter of 2021 will be up.
7% to 9%.
Based on these expectations.
We currently anticipate non-GAAP earnings per diluted share in the range of $5.55.
To $5.75 for the third quarter of 2021.
In closing, we are thrilled with our operational and financial performance in the second quarter supported by strong pricing and demand trends as well as outstanding execution by all of our colleagues in the field, who continue supporting our customers' needs. These factors coupled with a resilient business.
It'll resulted in yet another quarter of record financial performance and solid cash flow, enabling us to continue executing on our capital allocation priorities of investing in the growth of our business and returning value to our stockholders.
That concludes our prepared remarks. Thank you for your attention net this time, we'd like to open the call up for questions operator.
And at this time, we will be conducting a question and answer session.
I would actually ask a question. Please press star 1 on your telephone keypad.
Confirmation tone will indicate your line is on the question in queue.
You May press star 2 if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
1 moment, please while we poll for questions.
And our first question.
Is from.
Patrick cash.
Nathan.
Deutsche Bank.
We'll see what's your question.
Yeah, Hi, Thank you good morning, Jim color on.
Thanks for taking my questions.
Do you expect the volume stood at over to previous levels.
Yeah, Hi, <unk> how are you today.
I'll hit that good so.
We did point out a couple of end markets, where we did see and when we're comparing to pre pandemic.
In our comments here, we compare the second quarter of 2021 to the second quarter of 2019.
And so there are obviously different levels of strength and as some of those end markets in the second quarter of 2019, but we called out those areas, where our Q2 'twenty 1 shipment levels were higher to.
For the best that we can towers I think youre familiar.
We don't have perfect end market visibility, but based on our best estimates and the products that we sell into those end markets non res construction and heavy equipment.
On with our defense military and space markets, We did call out were above pre pandemic levels.
That means that the other end markets, we sell into are not yet above pre pandemic levels.
And as you know.
You are aware at least called out commercial aerospace certainly was hit the hardest.
Our end markets by the.
By the pandemic is still recovering although we are seeing some improvement there same with the energy market.
And we expect to see some continued improvement in both of those markets.
I will say generally all of our other end markets. We feel are at good healthy levels strong in some cases.
We expect that that underlying demand to continue to be strong and to get back to pre pandemic levels in a lot of those other markets.
Commercial aerospace lagging the others, but good.
Really good.
Demand seen by our customers, especially with the way we service these markets the.
Other customers that we sell to are seeing really strong demand.
Okay. Thank you that's helpful color.
Our next question is a clarification on Capex.
Other mentioned.
On the previous Capex of 245 million.
There was also some carryover cash from that needs to be paid which would imply that the overall cash on capex for <unk>.
So about 300 million, how does it compare to the new guidance of $310 million.
Yes, so <unk> with those numbers that you referred to that was what we approved.
For spending beginning in 2021, so earlier this year, we announced our 2021 capex budget of $245 million.
Did just announce that that $245 million is now $310 million. So that's what we have approved as new projects to begin in 2021, we will not spend all of that money because of long lead times on equipment building et cetera.
That has been approved some of that cash will be spent in 2022 and at the same time with Arthur mentioned is that those same long lead times, we have some carryover from our.
Capex projects that were approved in 2020, where we're extending cash in 2021 and Arthur did you give an estimate.
Yeah.
It's a good point and we said, we're estimating cash spend for the year to be perhaps $300 million, but as the year progresses, we continue to run into lead times and it's just difficult to spend the money.
So.
But we'll keep on are revising that estimate at the moment I think the $300 million cash spend is probably as good an estimate as it were.
Last quarter and simple.
Well update you next quarter.
For the full year 2012 on Capex budget and $310 million 21 includes a lot of growth projects, we see a lot of opportunity and we will spend notes balance it just may lag into future here.
Okay. Thank you congrats on a great quarter. Thank you.
Thank you. Thank you.
And our next question is from Emily Chang with Goldman Sachs. Please proceed with your question.
Good morning, Jim Collaros on thanks for the update today on my.
My first question is just around what Youre seeing in terms of demand clearly demand is very strong on that but when you speak to your customers are there any signs of double booking or pushback against current price levels.
And are there any end markets, where you could see some early signs of demand destruction of project deferrals on 1.1 that comes to mind would be sort of renewable energy for seeing some headlines out but curious as to what youre seeing from your customer base.
Sure Hi, Omar this is Jim.
No.
It.
Feels good.
Most of the markets for selling them or non quite well.
For us double booking on.
I'm not sure if we would ever know that.
I don't think we have.
Metal so hard to get right now my guess is.
Our customers are busy and they're glad to get it.
They're glad to pay us for us and they are really happy to ask us to do more and more value on it so.
I don't think Thats 1 of the this is 1 of those markets where people are just double booking thinking that the price is going to continue to go higher and higher and higher I think I think people are come to the realization that this is what we need to deal with right now.
And.
So there maybe on.
On the relying on reliance to do more Carl you may have some additional insight what you're saying on Sir Yes, Hi, Emily.
I would say that our customers as I just mentioned.
Our very busy.
But people out there are looking for metal there is limited.
Supply.
And we are hearing from us from customers that maybe you don't normally buy from US who are looking for the metal but.
With our strong domestic supplier relationships, we've been able to meet the needs of our key customers that we've worked with for a long time.
And get them on the metals that they need.
Have seen I would say in non residential construction I mentioned that the types of <unk>.
Business the customers. We work with there are continued to be extremely busy we have heard of some potential project delays for larger projects, but with a lot of the fabricators, we worked with their servicing some of the smaller projects, which is normal for us.
And in other.
Because there it's a shorter time period for them to complete the projects they have more certainty on pricing, but in general.
Our customers are busy they're looking for metal and.
We're able to get it for them.
You might ask that question to the producing mills.
They could probably give you an idea of double bucket, but my guess would be that theyre not seeing it.
Run on their mills and.
In the 90% capacity range right now so they're making what they can make in and.
Taking care of us and taking care of the.
Supply chain.
<unk>, Canada.
Very good question as well.
Great that's that's.
Really helpful and exciting place to be maybe 1 follow up is just around.
Various capital allocation buckets that you've got out there is clearly outlines from growth spend today.
You've recently upped the buyback authorization program and I think you still think about M&A as 1 of the prongs that.
Are you keeping some balance sheet capacity for <unk>.
Acquisitive growth so.
How should we think about you know reliance.
Repurchasing shares in the case transactions are not executed is there some kind of cadence we should expect through the course of the year or is it Pat for more opportunistic in nature.
We share because we have really good problem because we can we have a lot of cash we generate a lot of cash. So we can pretty much do anything we want in any 1 of those buckets. So to some amount on our remaining flexible and making the right decision at the right time Arthur share a good question Emily.
I think consistent on our practice without necessarily comment about the timing for.
The amount of share buybacks that we anticipate.
But as you may have noticed we do.
Disclosed that since 2018, we purchased over $900 million of our stock back.
So it's something we'll continue to monitor.
Be flexible with our capital allocation and with our balance sheet today, we have the ability to execute on all prongs of our capital allocation strategy and we could do the M&A. We can do the record capex levels and along with that provide healthy levels of stockholder returns.
Saying all of that we think the reliance.
Volume rely on starts roller good investment seems to be a good stock price.
Yes.
Great that that's true.
Very helpful. Thank you very much for the update today guys.
Sure. Thanks, Alan Thanks Emily.
Yes.
And our next question is from Phil Gibbs with Keybanc capital markets. Please proceed with your question.
Hey, good morning.
Okay.
Good morning.
What's the outlook for net working capital for the rest of the year.
Yes, Phil.
Are there I think.
I would say majority of it is behind us.
I mean, we said that in Q2, and then prices increased much much.
Much higher than we had anticipated, but I think at this point.
Q2, probably was the highest quarter in terms of working capital build.
Q3 should be below those levels and it depends on.
What happens with pricing, but we.
We had some tax payments that we caught up with for the 6 month period. So we shouldnt have that impacting Q3.
We had about 174 million net estimated tax payments.
Q3 should have about half of that and.
Price based on our guidance.
The prices going up 7% and 9%.
On the working capital build should be less than what we had in Q2 hope that answers your question and Phil I'd also add onto that and I should have commented on this earlier on some of the demand for questions.
Also in our guidance as you know typically at reliance we're building working capital in the first 2 quarters of the year. The first half of the year and then we release some working capital on the back half, mainly because of demand trends and number of shipping days because of the normal seasonal decline in our demand are.
Tonnage sold guidance for Q3 of down 1% to up 1%. We just wanted to call out that we think that is a very positive guidance signal because typically the seasonal trend is for Q3 to be down I think industry wide, it's usually down about 5% to 7 <unk>.
<unk> Q3 versus Q2 for us with our product mix, it's usually a little less than that but in a quote normal demand environment, we would've probably guided down.
Anywhere from 3% to 5% and so we just wanted to highlight that.
We hope you guys recognize thats a positive staying pretty much flat Q3 with Q2, we think is a very positive indicator for demand strength.
Thank you so so they're not working capital build for the third quarter, So you're still anticipating a bill but just less so than Q2 is up.
Arthur.
That's correct steel okay.
Okay.
And then you gave some color on your you're on.
Gross margin range in terms of what you all think is sustainable 29% to 31%.
And I know that sometimes we can get mixed up with LIFO and FIFO as that is.
Is that a number for for reported gross margins that you're citing there.
Maybe for Ed.
That would be on LIFO basis, and net that's an annual range.
Okay.
And tax rate over the balance of the year did you say about 25%.
25.5.
Okay. This is bill on the call.
Or do you feel.
They're making more making workflow.
Congrats bill on.
On all of your achievements with the company and just wanted to thank you for all your wisdom over the years and wish you a wish you all the best.
Thanks, a lot bill appreciate that greatly.
Okay.
And as a reminder, if you have any questions you May press star 1 on your telephone keypad doing so will ensure yourself into the question queue.
And our next question is from John Tumazos very independent research. Please proceed with your other question.
Congratulations on all the great results.
Thanks, John for the here for me again, its been a while.
8% mid point of the price per ton guidance for the third quarter.
Which is slowing a little bit from the 19% gain sequentially in June.
The publish quotations look like.
Sheets in place should be up a good bit should we infer from the 8% guide.
Tubes in long products stainless and aluminum are going to be pretty flat.
For any products go on down.
Hey, John.
On Carlyle all given initial response and then any of my colleagues here can join in if they'd like but on.
For our guidance.
And what we tried to 2 point charge is that during the second quarter, obviously with a 20% increase.
<unk>, we're increasing consistently for many of the products throughout the second quarter. So we ended Q3 with a higher rate than our Q2 average so our guide of 7% to 9% is really getting us up to the pricing levels, where we ended the quarter basically to.
Current pricing levels, including a couple of announcements we've seen recently on certain products. So.
We.
It's an overall price.
<unk> guidance, we do see strength continuing in stainless common alloy pretty much most of the products that we sell we're not saying at the same rate that we saw price increases on some of those products earlier in 2021.
See prices holding not any individual items that.
We're thinking we're going to see certainly on a material decline in prices and John.
Zero.
As you in flat rolled and plate is going to go up and who is going to fall.
And then when you see the mills run on at 90% capacity that you can pretty much anticipate some kind of maintenance shutdown.
And if we get the chip situations squared away youre going for the automotive growth current Becker. So all those things in my mind.
I don't see a price decrease.
The thing I just mentioned there.
Will there be additional price increases.
Probably.
Hi can I ask 1 more thank you.
Thinking about how tough it is to get steel.
Do you think you could see reliance being a little more.
Outside the box.
Maybe buying a swap from.
A mill that has a little extra mill.
Taking it to another mill to get tool world.
That might have a little extra rolling trying to squeeze a little more supply out of the system..1 everything is stretched out like this.
Yes.
I don't think we would do that.
In 1 day on some of them I think that's a good idea but.
The way Im on some in the way we've done this John as you all know for decades, we have this model.
We're very proud of the fact that we've been a domestic supportive for so many years and the relationships we have.
And they pay off all the time and certainly in times like this on payoffs. So we don't.
I can't tell you, we're getting everything we want we're getting what we need.
There's really no reason for us to muscle up on try to force people to do things that.
That might not be good for their business, because we care we care about for domestic.
For notices we want them to do well, we want them to reinvest in their companies, which they are doing and.
I don't I, just don't see a need for us to go out and do anything other.
Our box.
With the sanctioning of an imported slam I was thinking.
Domestic swab availability out there for.
Maybe you don't have a good rolling on as Big a rolling mill as they wished.
Yes.
It was really good at that kind of stuff, we're not we're going to prune a third from what we're good at and we'll let them do that that goes on stuff that I see where you're going and I would say that reliance.
We do on things like that.
Thank you.
When we have reached the end of our question and answer session.
At this point.
I will return and hand, it over to Jim Hoffman, President and CEO for closing remarks.
Okay. Thank you all for taking the time and give us your attention today on our record financial results would not have been possible without the strong operational execution demonstrated by the entire reliance team, including the hard work on resilience commitment to health safety and wellbeing of our colleagues in the field.
We thank you and we are inspired on your.
For performance every day lastly, we will participate virtually.
Raymond James diversified Industrial conference on August 20, <unk>, we hope to see for a lot.
All of you there bill we're going to measure value.
Thank you very much.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
Okay.
Okay.
Yes.
Yeah.
Okay.
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