Q1 2022 Reliance Steel & Aluminum Co Earnings Call
[music].
Greetings and welcome to the reliance steel and aluminum company first quarter 2022 earnings call.
This time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now my pleasure to introduce your host Kim Orlando with <unk> Investor Relations. Thank you Kim you may begin.
Thank you operator.
And thanks to all of you for joining our conference call to discuss the Alliance's first quarter 2022 financial results I'm joined by Jim Hoffman, CEO , Karla Lewis President and Arthur a gem in senior Vice President and CFO .
A recording of this call will be posted on the investors section of our website at Investor <unk> R. S AC dot com.
The press release and the information on this call may contain certain forward looking statements, which are based on a number of assumptions that are subject to change and involve known and unknown risks uncertainties or other factors, including the impacts of geopolitics and the COVID-19, pandemic and related economic conditions on our future operations.
Which 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 31, 2021 under the caption risk factors.
Disclosure in our press release, this morning, or other documents reliance files or furnishes 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 inherent.
I will now turn the call over to Jim Hoffman CEO of reliance.
Good morning, everyone. Thank you for joining us today to discuss our first quarter 2022 financial results.
I'll begin with an overview of our performance and capital allocation activities.
<unk> will then speak to our operating results and demand trends by end market and Arthur will conclude with a review of our financial results.
Standing operational execution throughout our family of companies produce first quarter results, representing a continuation of the record performance, we achieved in 2021 and once again, demonstrating the durability and effectiveness of our business model.
Notwithstanding ongoing macroeconomic challenges our performance was supported by positive underlying trends, including continued strong demand with improving shipment levels in each month of the quarter.
With ongoing strength in metals pricing.
Results also benefited from our strategic diversification of products and <unk>.
Markets and geographies as well as strong ongoing support from our domestic suppliers and valued relationships with our loyal customers.
Surely a wide geographic footprint with our 315 locations.
Close proximity to our customers our proprietary fleet of trucks allows us to provide a quick order turnaround.
Ultimately, 40% of the orders are delivered within 24 hours of our customers, placing that order.
These factors collectively help generate another record for quarterly net sales totaling $4.49 billion.
The strength of our top line, coupled with a resilient gross profit margin of 39% led to record quarterly gross profits of $1.39 billion.
In an environment characterized by improving volatile metals pricing trends and limited product availability, our managers worked hard to preserve our margins by implementing price increases at the time of mill announcement and appropriately pricing the value we provide our customers.
Our customers continue to look to us to provide increased value through industry, leading processing capabilities.
More than $1 billion over the last five years to meet increased processing demand.
Though we experienced some gross profit margin compression compared to the fourth quarter of 2021 due to inventory costs approaching replacement costs for certain of our products are key elements of our model such as small order size.
Turnaround.
Rod range of value added capabilities and careful expense management enabled us to improve bottom line profitability and led to a record quarterly earnings per share of $8 33.
For the first quarter of 2022 as well.
Record first quarter cash flow from operations of $404 million.
Our significant cash generation continues to fuel our capital allocation strategy, which remains focused on both growth.
Stockholder returns and we continue to see new and exciting growth opportunities for reliance.
We recently increased our 2022 capital expenditure budget to $455 million from $350 million with the majority of this increase directed towards a brand new state of the art facility in Texas to expand our existing capacity and support.
<unk>, new semiconductor fabrication facilities being built in the U S.
We're well positioned to support elevated levels of growth in the semiconductor and other end markets as additional re shoring opportunities present themselves.
With that said considering extended lead times throughout the supply chain, we believe our cash outlays for capital expenditures in 2022 will be in the $260 million to $290 million range.
In regard to M&A the integration of the four acquisitions, we completed in the fourth quarter of 2021 is progressing as planned.
<unk> brought the total number of acquisitions since our 1994 IPO to 71.
The M&A pipeline remains robust and we continue to see a high volume of potential opportunities.
In addition to growth stockholder returns remain a top priority we have paid regular quarterly cash dividends for 63 consecutive years without reduction or suspension and have increased the quarterly dividend 29 times since our 1994 IPO.
In summary, reliance continues to benefit from our ongoing focus on operational execution and continuous improvement throughout our business as.
As evident by our record first quarter financial performance.
Core tenants of our unique and sustainable model, including our diversification scale customer service focus long term supplier relationships and our buy domestic philosophy continue to power profitable operations throughout industry cycles importantly, we've been able to.
System is secure the metal we need to support our customers request, despite broader macroeconomic challenges, including the COVID-19 pandemic and subsequent supply chain disruptions and more recently supply chain disruptions are attributed to the war in Ukraine.
No matter the environment.
<unk> remains well positioned to help America rebuilt thank.
Thank you for your time and attention today and now I'll turn the call over to Carlos who will review, our operating results and demand drafts Carla.
Thanks, Jim and good morning, everyone I'd like to begin by congratulating and thanking all of my colleagues and the reliance family for their contributions that produced another record setting quarter amid a challenging environment your perseverance and dedication to operational excellence and safety.
Our highest value at reliance continue to drive our best in class performance.
I'll now turn to our first quarter operational performance.
Our first quarter tons sold were up 10, 7% from the fourth quarter, surpassing our guidance range of 5% to 7%.
Alliance, our suppliers and our customers experience labor and supply chain disruptions from the on the crime surge in January and to a lesser extent February .
In addition, uncertainty around metal prices impacted the buying patterns of certain of our customers in the first few months of the year.
As these headwinds subsided, our shipment levels improved and spiked in March we believe our improving shipment levels better reflect the strength, we've been seeing in underlying demand across the vast majority of the products. We sell and then the key end markets we serve.
Strengthened demand along with increased metal costs for many of our products resulted in a one 5% increase in our average selling price per ton sold over the previous quarter compared to our guidance of down 2% to 4%.
Prices for certain carbon steel products declined sharply in the first 10 months of 2022, then reversed rapidly in early March at the onset of the Ukraine crisis.
Significant price increases for our aluminum and stainless steel products as well.
A reminder, given the diversity of our product mix, we have limited exposure to hot rolled sheet and coil products, which represent only 10% of our total sales dollars.
Looking ahead general market conditions, including longer lead times for many of the products. We sell remains supportive the elevated pricing continuing into the second quarter of 2022.
As Jim noted, our first quarter gross profit margin compressed somewhat relative to the prior quarter hundreds of LIFO and FIFO basis as inventory costs began to catch up with our average selling price for certain products.
On a FIFO basis, which is how we measure our day to day operating performance.
Cheap and non-GAAP FIFO gross profit margin of 31, 9% down 320 basis points from the prior quarter.
However, the trend of declining gross profit margins reversed in March due mainly to increases in aluminum and stainless steel prices.
I'll now turn to a high level overview of our key end market trends.
Demand for nonresidential construction, which includes infrastructure and it's the largest end market we serve improved over the fourth quarter with notable strength in March.
Demand for the toll processing services reliance provides to the automotive market remained at healthy levels. During the first quarter, despite ongoing supply chain challenges, including the continuing impact of the <unk>.
Global Microchip shortage on production levels.
Underlying demand in heavy industry for both agricultural and construction equipment continues to improve from strong levels.
<unk> increase in our shipment levels compared to the prior quarter.
Early demand across the broader manufacturing sectors, we serve including industrial machinery and consumer product continues to improve.
Semiconductor demand remained robust during the first quarter and continues to be one of our strongest end markets. This is an area. We're continuing to invest in to service the significant semiconductor manufacturing expansion underway in the United States.
Commercial aerospace demand continued to improve with our first quarter increased year over year shipment.
The onset of the pandemic as a reminder, roughly half of our exposure to aerospace is commercial.
And the military defense and space portions of our aerospace business remains solid with strong backlogs.
Finally demand in the energy sector, which we define as mainly oil and natural gas continues to improve with our first quarter shipments higher than both the prior and year over year quarters.
We remain cautiously optimistic demand trends will continue to improve in most of the end markets. We serve throughout the remainder of the year.
Further we anticipate metals pricing will remain elevated in the near term with prices on nearly every product we sell at historical highs.
Favorable environment for reliance, especially giving our model that focuses on providing the best service to our customers.
<unk> are key domestic suppliers and the wellbeing of all of our reliance family members.
I will turn the call over to Arthur to review our financial results.
Thanks, Karla good morning, everyone and thank you for joining us.
Carla highlighted.
Ongoing strength in demand led to incremental improvements in our daily shipment levels throughout the first quarter.
Solid demand trends, coupled with higher selling prices.
Gross profit margins and operating expense leverage.
Drive the highest quarterly non-GAAP earnings per share and reliance's history of $8.42.
Surpassing our guidance of $7 five.
$7 15 per share.
Our record performance.
The result of our model specifically, the key elements of product and market and geographic diversification in.
Industry, leading value added processing capabilities pricing discipline, and a shorter supply chain due to our buy domestic philosophy, all of which collectively supported higher shipment levels.
Elevated selling prices during the first quarter.
As a result, we generated record quarterly sales of $4 $49 billion.
Our non-GAAP gross profit margin of 31, 1% for the first quarter remained strong and near the high end of our sustainable range. Despite LIFO expense of $37 $5 million.
As you may recall that our guidance for Q1 included LIFO income of $25 million based on our $100 million annual income estimate for 2022.
Ever.
As a result of higher than anticipated costs for certain nonferrous and carbon products in the first quarter of 2022.
We have revised our 2022 annual estimate from $100 million of LIFO income to $150 million of LIFO expense.
Consistent with our accounting policy.
Our annual estimate on a pro rata basis each quarter.
Accordingly.
Alright projection for LIFO expense in the second quarter of 2022.
37, and a half million dollars.
Had we recorded our original LIFO income estimate.
Our first quarter 2022 earnings per diluted share would have been higher by 75%.
As in prior years, we will revise our expectations each quarter based on our inventory cost and metal pricing trends.
As of March 31, 2022, the LIFO reserve on our balance sheet was $857 $9 million.
Which will be available to benefit future period operating results and mitigate the impact of potential declines in metal prices on our gross profit and pre tax income.
Moving onto expenses.
Our first quarter same store SG&A expenses decreased 11, $4 million or one 9% compared to the fourth quarter of 2021.
Higher sales level.
Lower incentive pay.
Clothing holiday bonuses.
More than offset the impact of higher variable costs associated with incremental volumes in the first quarter.
On a year over year basis.
Our same store SG&A expenses increased $71 million.
13, 5%.
The majority of that increase was attributable to inflationary increases for wages fuel freight and packaging costs.
As well as higher incentive based compensation due to substantially higher levels of gross profit and pre tax income.
As a reminder, the majority of our expense structure is variable with approximately 65% of our total SG&A cost being people related.
To recap the combination of a healthy demand environment.
Our ability to sustain an elevated gross profit margin despite record high selling price levels and.
And leverage on SG&A expenses, despite inflationary headwinds.
Contributed to record earnings for the quarter.
We also converted our record earnings to cash that generated quarterly cash flow from operations of $404 million.
Which is the highest first quarter amount in our history.
We achieved this despite a more than $200 million increase in working capital.
Which is typical of the first quarter given seasonally higher sales volumes.
We invested $66 $7 million into the company through capital expenditures and returned $73 $8 million to our stockholders through the payment of $56 $7 million in dividends and.
And $17 $1 million in share repurchases at an average cost of $150.97 per share.
Approximately $696 million remained available under our $1 billion share repurchase authorization.
Selecting our confidence.
And our long term strategy and outlook.
I'll now turn to our second quarter outlook.
We continue to remain optimistic about business conditions in the current environment with solid underlying demand trends expected to continue in the vast majority of the markets we serve.
As such we estimate our tons sold will be flat to up 2% in the second quarter of 2022 compared to the first quarter of 2022 further we estimate our average selling price per ton sold in the second quarter of 2022, but also be flat to up 2% compared to the first quarter.
Fueled by our diverse product mix and continued strength in the pricing for the majority of our product and the end market into which we sell.
Based on these expectations. We currently anticipate non-GAAP earnings per diluted share in the range of $9 to $9.10.
For the second quarter of 2022.
In closing.
We would like to once again, thank all of my reliance colleagues for their contributions to these exceptional results.
That concludes our prepared remarks, thank you for your attention.
And at this time, we'd like to open the call up to questions.
Operator.
Okay.
We will now be conducting a question and answer session.
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Yes, sorry.
Question from the queue.
Participants using speaker equipment that may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Okay.
Yeah.
Yeah.
Hum.
Thank you. Our first question is from Seth Rosenfeld with BNP Paribas. Please proceed with your question.
Yeah.
Hi, good afternoon. Thank you for taking my questions today.
If I can pick off first the question on Capex just to come back to the question on inventory management and margins.
On Capex do you think there's a bit more detail on the new Texas semiconductor related facility you mentioned in the prepared remarks. It sounds like that's probably the bulk majority of the Capex like you tell us a bit more about the capacity or location of that.
That'd be great. Thank you sure Hi, how are you today.
Yeah, that's a that's an exciting opportunity for us within in that business for a long period of time.
And.
Obviously, there's a lot of reassure and going on the truth, Robert wrote about and heard about in the.
Billions and billions of dollars located everywhere from.
Places in Texas, or Arizona up and to Ohio and <unk>.
I'm sure I'll, Miss and some of them. It just seems like a little bit was there a lot of those type of business going back to the U S, which is great I think people got a.
The little chart that a long supply chain. So we're finally doing something about it so that our operation which sought to put it in Texas.
Just makes more sense. So we can reach all of those different states as I mentioned.
Our business that we do with those folks really hasn't changed on remember, we don't where we're not making chips. Okay. We're making the plumbing that goes into the clean rooms, and also a vacuum chambers.
What have you. So it's just a great opportunity for us because of our relationships with those.
Producers.
They've asked us to to kind of step up our game along with them and we're more than happy to do that because it's good business for us and it has legs for a long period of job Karl or move more.
Yeah, Hey, Seth.
So a little more about the business the operations there so one of them.
The subsidiary companies that we've done since prior to going public <unk> Corp. They do a lot of the electropop polished stainless steel tubing and settings.
That go into the construction and ongoing repair and maintenance of the semiconductor chip manufacturing plant. So as Jim said with the specific re shoring that's happening here, we see some great opportunity.
Had our location and in California, which was the initial with Alex location since that time, they've expanded globally. They have another operation in South Korea, one in China, that's where we've seen a lot of the growth you know over the last decade or two but it's really exciting for us to see that coming back.
To the U S now with a lot of growth here and we think that our company is very well positioned so that is the biggest chunk of our increased spend there. So we're looking forward to.
Two you know building a new facility to serve that expanding market and are really excited about putting it in Texas. It was closer to some of our customers here.
Okay.
Thank you and just to clarify I think you pretty much hit the the cash outlay.
Close to 60 to 90.
Yeah. So as has happened in the last two years since the pandemic hit we were seeing a lot of opportunity to continue to grow our customers keep asking us to do more we think some of the.
Issues that people have been dealing with whether it's labor shortages, you know a higher cost of capital trying to streamline their operations, we're seeing more and more a continued opportunity for us to do more for our customers, but with the supply chain disruptions and the labor shortages we've seen.
Standard lead times to be able to bring in a lot of the equipment that we're that we're including in our Capex budget. So our cash outlays used to more closely match, our annual budgets, but with these extended lead times, there's a little more of a disconnect now so that's why we put in the additional comments.
Is that the cash spend we anticipate will be lighter than what our budget is with some of this trailing into 2023.
Okay. Thank you and one separate question, please with regards to inventory management and margins.
Earlier commented on gross profit margin compression, especially earlier in the quarter it sounds like inventory costs against that.
Because houston more color on how that will go into Q2 I.
Thank you commented earlier the strength in stainless and alloy vignettes began to aid margins late in the quarter and now with the spring work on carbon steel products without also aid margins sequentially, how should we think about the development. Please.
Hey, Seth Yeah. So.
During the quarter there was pressure on prices for certain carbon steel products in January February .
With the.
The crisis in Ukraine, we saw that reverse pretty quickly for those products.
In the beginning of March.
That was where we were seeing more of the inventory cost catch up but aluminum and stainless continued to increase.
Pretty substantially during the quarter, a little pressure on some aluminum prices now, but theyre still at very high levels.
So you know it'll vary a little bit depending on what's happening with that pricing that we were because we continued to see.
The increases during the quarter and then they picked up again on some of the carbon products that spread goes up again or if there are any things yeah sure set than just to point out.
Our FIFO margins our reported margins are still near the high end of the sustainable range. So really this is just.
A factor of just cost catching up with replacement costs and essentially.
Maintaining that a sustainable margin range in terms of looking ahead, yet certainly there is some momentum.
Non ferrous products, so they're not.
<unk> implies somewhat consistent to slightly up gross profit margins for the second quarter.
Great. Thank you very much.
Sure.
Thank you. Our next question comes from Emily Chang with Goldman Sachs. Please proceed with your question.
Good morning, Jim color off the Mark.
My last question just continues on the trend of cost inflation that you're seeing.
It sounds like there's been a couple of headwinds.
Particularly relating to maybe diesel power labor with some others, including packaging. My question would be you know how how concerned are you here or do you have a pretty good ability to pass on these pressures.
At a pretty quick clip through higher pricing to your customers.
Okay.
Yeah, where we're going at it.
Part of doing business.
It was easy antibody could do it right, but we're.
Looking at it a long time when these things are issues come up we because of our model and our diverse certification and geography and product and customers and all those types of things, where we're able to.
Function just thought its just it takes a little more effort to do so and where you anticipate.
To continue.
Oh, we also due to our model we sell the majority of our customers.
They're not looking for the lowest price.
They come to relaunch for surface that come to relaunch for a value added capabilities they come to reliance because they want us to be part of their long ongoing.
The business business. So we are we are we've modeled or the way we run our company around that so.
You know when you when youre dealing with the right kind of coasters. They are they get it when the price goes up and we we performed just the way they want us to so we are we price we price the products, we make and the service that we provide.
Right the right way, so we're and we're not we're not we're not bashful when it comes to the charge and four theres nothing wrong with making making money were not a nonprofit organization and neither are the folks that we get to do business with our colleagues over there.
Yeah, and I think Jim Jim hit it just you know the model we've been successful so far based on the results and passing this through and we have you know over the years and we have to adjust our pricing.
Based on our input costs, our expense levels and you know what our customers.
Well, we'll accept that we feel pretty confident right now continuing forward with increasing cost and the only thing I would add and delete the transactional nature of the business and the smaller order sizes help lift this situation. So yeah. Just one other thing I know you didn't ask but theirs.
It's difficult.
People and what have you and our company has done really well and retaining.
Really fine talent so in problem I'm really proud of the folks out in the field and.
The folks at corporate.
And I think I believe it's because.
They they worked for a really good color.
We are.
If we go to go out of our way to pay attention to things like safety and.
And being competitive and things like that so we're able to retain talent attracting new talent.
We have a whole lot of new.
It's to do that and they're paying off okay.
We've got a lot of work to do we have to continue to do that.
Not just us it's sorry, it's <unk>.
<unk> and our customers our customers are having a hard time getting people and when they have hard time getting people that makes reliance look even better because we are because of our investment in capital expenditure.
Equipment or what have you we can do a lot of work in our plants.
And they don't have to do it and therefore it. So that's that's something we're real proud of them something what the world will continue to focus on.
Great that's really helpful color.
My follow up is just around capital returns your free cash flow generation is still very robust even.
Even during the quarter, but did notice that the pace of buybacks has decreased from the run rate we'd seen in the second half of the year last year, how should we be thinking about the pace of our repurchases throughout 'twenty, two and or has your announcement around increased growth been taken away some of the priority from a capital returns.
Ya.
Good question Emily so.
Yeah.
Certainly we have the capacity.
To be able to do it all and weak when it comes to capital allocation, we don't necessarily look at it on a quarterly basis or even an annual quarter over a year isn't necessarily going to tell the story for us it's more of a longer term.
Periods for that and you've heard us say when you look at a five year.
Period for reliance.
Our shareholder returns.
It made up a little.
Over 50% of our net income.
And then overall capital allocation.
It is somewhat balanced you've heard us say that in the floor.
With growth accounting for about half in returns for the other half just to kind of put some numbers to it over a five year period, we've returned.
Close to $2 billion to our stockholders via.
Dividends and stock repurchases and.
On the growth side invested close to $1 8 billion and capital expenditures and acquisitions. So that's how we think about it so we don't necessarily guide to.
Buyback activity over a cornea over the next for the next quarter of the year, but you know.
Practice, it's more long term opportunistic and.
It's about being patient and you know really capitalizing on the write off.
Great understood. Thanks.
Okay.
Thank you. Our next question is from Timna Tanners with Wolfe Research. Please proceed with your question.
Yeah, Hey, good morning, guys.
Thank you Arnaud.
So wanted to start out asking for some help on how to think about modeling that the stainless and aluminum because I'm just not as close to that and stainless on it on a per ton basis, we havent falling pretty sharply quarter over quarter, sorry, stainless went up sharply and aluminum came down sharply even though aluminum alloy prices were up.
But just thinking about the trajectory going forward do we think about like these pricing moving with the commodity or should we think about them being a bit more sustainable at recent levels because of your contracts just any guidance there on how to think about that the revenue per ton would be helpful.
Yeah, and you know that's a little tough for us to help you with the tender because we don't really model that way internally.
But I think one thing to remember on the aluminum side.
About a large portion of the aluminum we're selling is heat treat aerospace plate, which doesn't always necessarily follow the LMA aluminum pricing and there are some announced increases coming for those.
And as you heard us comment on and I think I've heard from others, we have seen improved activity levels there.
We expect a lot of those products to be tight.
Throughout the year, so which is supportive of pricing so even though theres been some pressure on the LNG prices recently, and we think that aluminum prices will remain.
It remained steady to up for a good portion of our aluminum exposure.
The stainless side that one [laughter] stainless is always a little more volatile than other products. Historically, if you look back decades.
And the recent the recent few months its been even more volatile than we've ever seen it. We think you know there's still.
Some settling out to occur on the L. M me for nickel Oh, we're not trading on that we don't follow that you now are.
Our stainless producers, we feel have done a good job of managing through.
This volatility during the quarter and and trying to keep the cost at a reasonable level for us, but that product has been tight for a while and we see that continuing with the strong demand that's out there. So although we're at you know currently very high prices.
We do see that being sustainable in the near term given the strong underlying demand.
Okay. That's helpful. Thanks, and then I wanted to ask about your pretty nice containment of SG&A or warehouse delivery general administrative.
Quarter over quarter, it actually fell in the past its gone up and with all the cost inflation commentary, it's pretty pretty impressive to see that sustain I guess the question is how how possible is it to keep a lid on those costs as we look toward the rest of the year.
Yeah. Good question Timna.
We saw the the rate of inflation, so slowdown sequentially for field.
Steel packaging et cetera, you know wages certainly that's that's a different story right first quarter Thats when you start.
The annual cycle for you know a vast majority of our folks in the company.
Now I think the one important story here it to pickup to recognizes that our incentives. When you look at 2021 vast majority of our incentives are tied to FIFO profit yet at the end of the day, we will report results on a LIFO basis and effectively.
<unk>.
About.
Yes, if you think about LIFO expense in 2021, it was $700 million and so really our incentives in 2021 were based on $700 million more of pre tax income and gross profit. So as we are.
We headed into 2022.
That's an important factor.
<unk> factor to consider when thinking about.
SG&A and that's somewhat playing into the.
The sequential decline, but it's kind of hard from Q4 to Q1, because it really.
See that story, that's why I'm pointing to kind of the overall year so but.
Yeah year over year inflation is playing a factor.
<unk> 2008, when you look at Q1 of this year versus last year.
Inflation and delivery costs packaging.
Subplot, classifieds et cetera wages as well, that's what's primarily driving the year over year increase.
Okay helpful. So it sounds like you have some cost inflation from a labor potentially but other factors. It seems like you're you're working to contain or could we see some creep through from an energy or other factors.
Yeah, I think that's fair you know wages I think Q2, probably will see more.
Full year full quarters worth of an impact from wage inflation in Q2, but like I said sequentially. We saw somewhat of a decline at the rate of inflation I'm not saying you know what you did.
Have any of them the same the rate at which our.
Cost.
Predominantly fuels and our packaging et cetera, we're increasing that that slowed down sequentially.
Gotcha, Okay. Thanks, very much sure.
Okay.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Our next question is from Phil Gibbs with Keybanc capital markets. Please proceed with your question.
Hey, good morning.
Alright, Thanks Bill.
Yes.
The the new investment in Texas on the semi side is that.
Basically did you say that was a quarter over $1 billion.
Wanted to confirm that.
We did not say that.
No it's a.
Significantly less than that Phil, but we said it was a.
A majority of the there was a big chunk of the incremental.
Wondered million dollar increase in the overall capex budget.
Okay, I thought I heard $260 million I didn't know what that was related to Oh, sorry, the 260 million fill that was cash outlay, we estimate it so our budget for this year for 2022 are approved Capex budget is now $455 million, but we.
Because of the extended lead times, we tried to quantify what we think the cash spend in 2022 will be which will be spending some cash for projects that were approved in last year's budget as well as in our 2022 budget. So we estimate of $260 million to $290 million of cash.
Spend in 2022 for our Capex and then they'll be some of that pushed into 'twenty. Two 'twenty three for cash spend just because of that the long delays in getting equipment and other things these days.
Okay.
And then that facility in Texas, just to stay there for a minute.
How does that compare to the size of.
The facilities that you have in California, and then and then overseas or is it similar size or is this a is this a more meaningful investment in terms of footprint.
No I wouldn't.
I wouldn't really look at the size you're talking about the size of the building massage with builder Newsom that bigger deal to be honest with you real bigger ones, but that's.
The way we're doing it.
Technology today is really advance and really expensive, but I put it.
That's going to help us in the long run it's more of a very good start.
Our state of the art.
A lot of people to run a lot of kind of a robot.
Type activity that'll be going on on it so.
We're gonna be real proud of the sport so it's gonna be.
It's going to go well with the Sars.
It's not it's not so much the size of the building, it's a wholly equipment and things that go into the building.
We've built bigger more elaborate facilities through all our.
Family of companies as well because this is a good one and it's it will have increased capacity compared to our current U S location.
And pretty similar we've expanded actually both are South Korea, and China operations for this company over the past few years, and so it'll be pretty comparable.
To those as an individual facility, but especially during this ramp with a significant announced build that's happening here.
I'll be continuing in the U S to be able to operate in both California, and Texas for a period of time as long as we see the demand strength there to support that.
Okay. So it sounds it sounds like it's at least a 25% capacity add for you guys in this business.
Yes.
Okay.
Whatever number you want to throw on that.
Yes.
Global workplace that one in the box for now.
The commercial aerospace ramp I think you said, there was a pretty big increase sequentially and year over year.
Any way to frame that.
In terms of.
In terms of the size of the increase because I think it was something that stood out in your release.
Well I think.
We didn't actually quantify that part of it fell but you know if you remember on our fourth quarter activity fourth quarter of 'twenty. One we had said that you know we saw some improved activity.
At that time, you know we've been seeing are our customers come in like sporadically with holes in their inventory and starting in Q4 and continuing into Q1, you know there's increased build rates.
Happening so that's affecting the whole chain.
Seeing our customers in that market by more regularly now those here in the U S and in our European and other global operations. So that's the trend. We've seen backlogs are also increasing so we think that we're not going to be back to pre pandemic levels this year, but.
That we're going to continue to see a progression.
With steady improvement.
Thanks very much.
Thanks, Joe.
Thank you. Our next question is from John Tumazos with very easily.
Please proceed with your question.
Well, thank you very much.
Hello.
Okay.
Early in the quarter.
The Midwest Hot rolled sheet futures, so almost $900.
And then of course rebounded wander play after the sanctions.
Your business.
Didn't seem to suffer.
Price decline.
And just you know rolled along better than ever in the first quarter.
Uh huh.
Switch pricing should we watch to understand you.
Your steel realizations.
C are you or something other than the Midwest futures.
So John I think.
That's a question we've been asked for quite some time and you know really the diversity of our product mix is part of our model that really helps us.
You know not be as impacted by by a lot of that and we did with those price declines that we're growing it on in carbon you know, we certainly did see an impact that hot rolled coil is a as we said only about 10% of our shipment dollars mm.
But you know we saw some of our other products. We actually had you know shipments in Q1 for like plate in carbon steel plate and structural tubing down we think some some of our customers are trying to wait out the price declines they saw they thought that they might continue to fall.
So when prices reversed we saw a really strong bookings in March.
So that's just a little color around it that for that part of our business. You know, we did see an impact from that the carbon pricing expectations.
But I think because the rest of our business with our stainless and aluminum pricing I mean, you've been following that with us for years, we prefer that people, we asked people not to.
Model us based on the HRC price because we don't think that's reflective I think probably looking at our average selling prices from quarter to quarter and using that as a base to bake in your assumptions is probably better than any individual index that you might follow out there.
No John Douglas those indexes that you referred to there those are basically spot indexes.
The.
The trail.
Actual price so I'm not like Carla So we literally don't pay attention to it at all.
We pay attention to what we can do for our customers and what they're willing to pay for.
As far as what kind of value, we can do for them.
Got it.
Our business very well.
I'm just gonna about truckloads deployed Hershey is probably not going to buy it from us they want.
If they want it delivered on time and in the form they want that's.
But they're going to do with us so the price will be.
Whatever whatever whatever they're willing to pay at the top dose those indexes or not.
I'm not sure who use those with or maybe maybe contract book. So I don't know, we don't we don't pay much attention to them.
Thank you.
Youre welcome.
Thank you. Our next question is from Phil Gibbs with Keybanc capital markets. Please proceed with your question.
Thanks that was fast.
The question I had was just on the new new toll processing facilities that you have in Kentucky.
Texas, and whether or not those are those are starting to crank up or or contribute.
And what's your what Youre, assuming not you know not assuming exactly in terms of Oh, the financial impact, but the whether or not it's contributing to the guidance in the second quarter.
They're well.
No.
So they're not they're difficult to build built no. Okay. So there are they are they on.
Track to.
If you go yes.
But there Doug there there are a little bit behind as I believe those two guys that are.
<unk> built those mills them I'm sure, they're they're they're little disappointed on how quickly they can bring those mills up but you.
We'll be we're I'm not sure if we factor in the second quarter or not we're hoping they can continue to ramp up its a kind of a day to day week to week type thing, but we don't we.
We don't have a lot of control over what they're going to do but when we when we signed onto to partner with them probably those those types of partners and friends. We are where we would go for the long run so we're gonna.
When they're ready and ramped up or will ramp up with them I think we're I know we're ahead of them so whenever there whenever they're ready to roll.
We're doing our thing and then in Kentucky, I mean that one.
Started earlier, so that has been positively contributing not at the levels that that we expect it to when when the mill and our location are fully ramped.
It has been positive so far but it is those are not big factors and in our Q2 guidance are you now with the size of the company in so many individual operations. While those are both very important to us and meaningful it's not a big factor in our guidance for the second quarter.
Okay, and then just a follow up on toll processing them.
Youre, obviously, a major supplier to the automotive.
<unk> steel.
Aluminum excuse me automotive itself has been very choppy and tough to read a lot of mixed signals a lot of ups and downs a lot of volatility like everything else.
But what are what are you seeing and what are your expectations as the year plays out for automotive.
Yes, I would say the biggest thing we hear from our folks in in those businesses, it's they're they've probably been operating with the least visibility that that they've had in quite some time and.
They are just reacting to support their customers, we think a lot of times a lot of it's week to week of what the impact is from chips or or other.
In our supply chain issues, but we think our operations have done well in managing through that theyre able to move their business around with their multiple locations to support whichever platforms, we need to they've also seen a lot of opportunity to pick.
Pick up other non automotive business with their lines, but certainly theres been a bit of an impact there where you know we.
We listen to other folks it seems to be getting a little better and and we would expect that to continue continue to improve with what we're hearing from others, but there's still a lot of uncertainty out there on that Phil.
Okay.
Thanks, Steve I appreciate it.
Okay, well thank you.
There are no further questions at this time I'd like to turn the floor back over to Jim Hoffman for any closing remarks.
Yeah. Thank you very much for your time and attention today before we close out the call I'd like to extend my gratitude to all of my colleagues throughout the reliance family of companies for your contributions to yet another record quarter I remain inspired by our commitments to our operational excellence.
This improvement and most importantly, our highest core value.
Safety.
We will be participating in the Goldman Sachs industrial.
The journals conference in New York and mode. We will also be participating in the Keybanc basic metals conference in Boston in early June we hope to see a lot of you there.
Thank you all very much for your continued support and commitment to reliance.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.
Okay.
Okay.
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