Q4 2023 Reliance Steel & Aluminum Co Earnings Call
Speaker Change: [music].
Operator: Greetings and welcome to Reliance Inc.'s 4th Quarter and Full Year 2023 Earnings Conference. This time, all participants are on a list of, Q&A Q&A Anyone should require operator, Express Star Zero on their telephone. As a reminder, this conference is being broadcast on, It's now my pleasure. Jim Merlindo, Atom Investments. Thank you.
Greetings and welcome to reliance Inc, fourth quarter and full year 2023 earnings conference call.
At this time all participants are in a listen only mode.
A 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.
It's now my pleasure to introduce Kimberly Endo, Idaho Investor Relations. Thank you you may begin.
Operator: Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's fourth quarter and full year 2023 financial results. I am joined by Karla Lewis, President and Chief Executive Officer, Steve Cook, Executive Vice President and Chief Operating Officer, and Arthur Jemien, Senior Vice President and Chief Financial Officer. A recording of this call will be posted on the Investor section of our website at investor.reliance.com. Please read the forward-looking statement disclosures included in our earnings release issued this morning and note that they apply to all statements made during this teleconference. The reconciliations of the adjusted numbers are included in the non-GAAP reconciliation part of our earnings release.
Brenda S. Miyamoto: Thank you operator, good morning, and thanks to all of you for joining our conference call to discuss reliance's fourth quarter and full year 2023 financial results.
Brenda S. Miyamoto: I'm joined by Karla Lewis, President and Chief Executive Officer, Steve Cook, Executive Vice President and Chief operating Officer and.
Brenda S. Miyamoto: Our third Xiaomi in senior Vice President and Chief Financial Officer.
Brenda S. Miyamoto: A recording of this call will be posted on the investors section of our website at investors got reliance dotcom.
Brenda S. Miyamoto: Please read the forward looking statements disclosure included in our earnings release issued this morning and note that it applies to all statements made during this teleconference.
Brenda S. Miyamoto: Reconciliations of the adjusted numbers are included in the non-GAAP reconciliation part of our earnings release.
Karla R. Lewis: I will now turn the call over to Karla Lewis, President and CEO of Reliance. Good morning, everyone, and thank you for joining us today to discuss our fourth quarter and full year 2023 results. Before I dive into our performance, I'd like to begin by highlighting today's exciting announcement of our corporate name change to Reliance, Inc. To coincide with this announcement, please note that our website has also been updated to reflect our new domain name, Reliance.com. Over the years, retaining the words steel and aluminum in our corporate name has limited the perception of our company because Reliance has evolved to be so much more than metal.
Brenda S. Miyamoto: I'll now turn the call over to Karla Lewis President and CEO of her life.
Karla R. Lewis: Good morning, everyone and thank you for joining us today to discuss our fourth quarter and full year 2023 result, before I dive into our performance I'd like to begin by highlighting today's exciting announcement of our corporate name change to reliance.
Speaker Change: To coincide with this announcement. Please note that our website has also been updated to reflect our new domain names reliance dot com.
Speaker Change: Over the years, retaining the words steel and aluminum in our corporate name is limited the perception of our company because reliance has evolved to be so much more than metal.
Karla R. Lewis: We are a family of companies committed to providing diversified metal solutions and increasing levels of value to our customers, opportunities to our employees, and returns to our stockholders. Reliance has made investments in its business far in excess of its peers while consistently generating industry-leading results. We have become stronger and more diversified, collaborative, and focused as we further differentiate Reliance as a best-in-class company. We believe these developments, as well as our longstanding reputation for credibility with all of our stakeholders, have made Reliance a name that stands alone.
Speaker Change: Our family of companies committed to providing diversified metal solutions and increasing levels of value to our customers opportunities to our employees and returns to our stockholders.
Speaker Change: Reliance has made investments in our business are in excess of our peers, while consistently generating industry leading results.
We have become stronger and more diversified collaborative and focus as we further differentiate reliance as a best in class company.
Speaker Change: We believe these developments as well as our long standing reputation for credibility with all of our stakeholders.
Speaker Change: Major alliance a name that stands alone.
Karla R. Lewis: We are proud of our 85-year history and 30 years as a public company and will remain anchored to our core business model and values as we move forward into the future. Turning to our results, Reliance delivered strong operational and financial performance in 2023 in a challenging environment. I'd like to recognize and thank our dedicated team throughout our family of companies for consistently executing our resilient business model and providing increasing levels of value to our customers while maintaining their focus on keeping each other safe. These collective efforts led to annual earnings per share of $22.64, the second highest in our history.
Speaker Change: We're proud of our 85 year history, and 30 years as a public company and will remain anchored to our core business model and values as we look forward into the future.
Speaker Change: Turning to our results reliance delivered strong operational and financial performance in 2023, and a challenging environment.
Speaker Change: I'd like to recognize and thank our dedicated team throughout our family of companies for consistently executing our resilient business model and providing increasing levels of value to our customers, while maintaining their focus on keeping each other safe.
Speaker Change: These collective efforts led to annual earnings per share of $22.64.
Speaker Change: Highest in our history.
Karla R. Lewis: We increased our volumes through continued market share gains while maintaining our full-year gross profit margin of 30.7% near the top end of our estimated sustainable range due to our strong pricing discipline and significant capital reinvestment to increase our capacity and value-added processing capabilities. Reliance generated annual cash flow from operations of $1.67 billion and invested a record $468.8 million back into our business through capital expenditures. Our CAFX budget for calendar year 2024 is $425 million, with approximately two-thirds dedicated to growth projects that will further enhance our value-added capabilities, upgrade and improve our operating facilities, and fund expansion into new markets. We expect our total 2024 CapEx cash outlay will be approximately $500 million, which includes some carryover projects from 2023 and prior years due to extended lead times throughout the supply chain.
Speaker Change: We increased our volumes through continued market share gains so I mean, while maintaining our full year gross profit margin of 37% near the top end of our estimated sustainable range due to our strong pricing discipline and significant capital reinvestment the inquiry.
Speaker Change: Our capacity in value added processing capabilities.
Speaker Change: Reliance generated annual cash flow from operations of $167 billion and invested a record $468.8 million back into our business through capital expenditures, our capex budget for calendar year 'twenty 'twenty four is $425 million.
Speaker Change: With approximately two thirds dedicated to growth projects that will further enhance our value added capabilities upgrade and improve our operating facilities and fund expansion into new markets.
Speaker Change: We expect our total 'twenty 'twenty four capex cash outlay will be approximately $500 million, which includes some carryover projects from 2020 degree than prior years due to extended lead times throughout the supply chain we.
Karla R. Lewis: We also continue to execute on our capital return priorities in 2023, returning $717.6 million to our stockholders through dividends and share repurchases, in addition to our organic growth efforts. We announced two acquisitions in the first quarter of 2024. On February 1st, we welcomed Kuxi Iron & Metal to the Reliance family of companies. Kuxi is a well-known metal service center based in Tifton, Georgia, with a strong reputation for premium customer service and rapid delivery standards, which is in direct alignment with the Reliance model.
Speaker Change: We also continued to execute on our capital return priorities in 2023, returning $717.6 million to our stockholders through dividends and share repurchases. In addition to our organic growth efforts.
We announced two acquisitions in the first quarter of 2024.
Speaker Change: On February 1st we will welcome to Cooksey iron and metal the reliance family of companies Cooksey is a well known metal service center based in Tifton, Georgia with a strong reputation for premium customer service and rapid delivery standards, which is in direct alignment with the reliance model.
Speaker Change: It.
Karla R. Lewis: Cooksey's three locations generated approximately $90 million in net sales in 2023, and their addition to the Reliance family of companies strengthens and expands our position in the fast-growing southeastern market. And on February 14, 2024, we announced that we had entered into a definitive agreement to acquire American Alloy Steel, a leading distributor of specialty carbon and alloy steel plate and round bar, including pressure vessel quality material. American Alloy adds specialty carbon steel plate to its product portfolio, as well as new fabrication capabilities.
Speaker Change: Cook. These three locations generated approximately $90 million of net sales in 2023, and their addition to the reliance family of companies strength strengthens and expands our position in the fast growing southeastern market.
Speaker Change: On February 14th 2024, we announced that we had entered into a definitive agreement to acquire American alloy steel.
Speaker Change: Leading distributor of specialty carbon and alloy steel plate and round bar, including pressure vessel quality material American alloy ads, especially carbon steel plate to our product portfolio as well as new fabrication capabilities American alloy six locations generated.
Karla R. Lewis: American Alloy's six locations generated approximately $310 million in net sales in 2023. The transaction is expected to close within the next 60 days, subject to regulatory approval and customary closing conditions. We continue to see a broad array of M&A opportunities in the pipeline, and we'll pursue those that meet our discipline criteria for well-managed companies that enhance our diversification by product, market, and geography and are immediately accretive to our earnings. In summary, we are very pleased with our 2023 results, which were achieved in a challenging operating environment. Our longstanding and continuously improving business model enables resilient execution throughout economic cycles, including both pricing and end market demand fluctuations present in the metals industry. In addition, the increasing level of collaboration we continue to see across our family of companies creates excitement for our future as we work together to capitalize on the many opportunities in front of us. 2024 is another milestone year for Reliance. We will celebrate our 85th anniversary and our 30th anniversary as a public company. While we are changing our company name and logo, Reliance captures the essence of who we always have been and always will be to our suppliers, customers, investors, and employees. We are more than metal.
Speaker Change: At least $310 million of net sales in 2023.
Speaker Change: The transaction is expected to close within the next 60 days subject to regulatory approval and customary closing conditions.
Speaker Change: We continue to see a broad array of M&A opportunities in the pipeline and we will pursue those that meet our disciplined criteria or well managed companies that enhance our diversification by product end market and geography and are immediately accretive to our earnings.
Speaker Change: In summary, we are very pleased with our 'twenty to 'twenty three results that were achieved in a challenging operating environment.
Speaker Change: Our long standing and continuously improving business model enables resilient execution throughout economic cycles, including both pricing and end market demand fluctuations present in the metals industry.
Speaker Change: In addition, the increasing level of collaboration we continue to see across our family of companies creates excitement for our future as we work together to capitalize on the many opportunities in front of us.
Speaker Change: 'twenty 'twenty four is another milestone year for reliance we will celebrate our 85th anniversary and our 13th anniversary as a public company.
Speaker Change: We are changing our company name and logo reliance captures the essence of who we always have been and always will be to our suppliers customers investors and employees, we are more than metal.
Steve Cook: We are a family of companies. We are industrial strength. Thank you all for your time today. I'll now turn the call over to Steve, who will review our 2023 demand and pricing trends. Thanks, Karla, and good morning everyone.
Speaker Change: Our family of companies.
Speaker Change: We are industrial strength.
Speaker Change: Thank you all for your time today I'll now turn the call over to Steve who will review, our 2023 demand and pricing trends.
Steve Cook: Thanks, Paula and good morning, everyone.
Steve Cook: I would also like to express my gratitude to the entire Reliance family for a strong finish to the year and for prioritizing safety at the forefront of our strategy. Our performance was also made possible by our valued customers who rely on us for quick deliveries of high-quality products, as well as our suppliers who continue to support us through all market cycles and remain instrumental to our growth initiatives. I'll now turn to our Demand and Pricing Trends. Our fourth quarter toms sold were up 4.9% from the prior period, within our expected range of up to 3.5% to 5.5%. For a full year, unsold was up 3.7% compared to 2022, reflecting solid underlying demand in several key markets, including non-residential construction, aerospace, and automotive, as well as contributions from our organic growth activities across carbon plate, structural, and flat roll products.
Steve Cook: Also like to express my gratitude to the entire reliance family very strong finish to the year for prioritizing safety at the forefront of our strategy.
Steve Cook: Our performance was also made possible by our valued customers rely on us for quick deliveries with high quality products as well as our suppliers, who continue to support us through all market cycles and remain instrumental to our growth initiatives.
Steve Cook: I'll now turn to our demand and pricing trends.
Steve Cook: Our fourth quarter tons sold were up four 9% from the prior period within our expected range of up to three 5% to five 5%.
Steve Cook: Full year unsold were up three 7% compared to 2022, reflecting.
Steve Cook: Reflecting solid underlying demand in several key markets, including nonresidential construction.
Steve Cook: Aerospace automotive as well as contributions from our organic growth activities across carbon plate structural and flat rolled products.
Steve Cook: We were particularly pleased with the market share we captured in 2023 by growing our tons sold by 3.7% annually, well in excess of the 1.5% increase reported by the MSCI. Our 4th quarter average selling price per ton sold of $2,466 was down 3.4% from the 3rd quarter, which came in slightly better than our expected range of down 4-6% as carbon steel and aluminum prices stabilized. Next, I'll turn to an overview of the trends we saw within our products and key end markets. Carbon steel tubing, plate, and structurals, our three largest product groups, represented about one-third of our fourth quarter sales.
Steve Cook: We were particularly pleased with the market share we captured in 2023.
Steve Cook: Our tons sold by three 7% annually well in excess of the one 5% increase reported by the MSCI.
Steve Cook: Our fourth quarter average selling price per ton sold another $2466 was down three 4% from the third quarter, which came in slightly better than our expected range of down 4% to 6%, that's carbon steel and aluminum prices stabilized.
Speaker Change: Next I'll turn to an overview of the trends we saw within our products in key end markets.
Speaker Change: Carbon steel tubing plate and structural our three largest product groups represented about one third of our fourth quarter sales.
Steve Cook: All these products experienced strong growth and outperformed industry shipment levels compared to the prior year quarter. For the full year, sales volume growth in carbon plate and structural products fueled by strong non-residential construction activities supported our industry outperformance. We are cautiously optimistic that non-residential construction, including infrastructure, activity will remain at healthy levels in the first quarter of 2024. And in the medium to long term, we believe industrial reshoring efforts and new public infrastructure projects under various federal and state programs will support continued non-residential construction and infrastructure demand. Aluminum and stainless products represented approximately 30% of our total fourth quarter sales, with aluminum and stainless aerospace products comprising about 10%. Stainless steel prices and volumes continue to decline in the fourth quarter of 2023, both sequentially and year-over-year.
Speaker Change: All of these products experienced strong growth and outperformed the industry shipment levels compared to the prior year quarter.
For the full year sales volume growth in carbon plate and structural products fueled by strong non residential construction that could be supportive of our industry outperformance.
Speaker Change: We are cautiously optimistic nonresidential construction, including infrastructure that could be will remain at healthy levels in the first quarter of 2024.
Speaker Change: And in the medium to long term, we believe industrial reassuring efforts of new public infrastructure projects under various federal and state programs will support continued non residential construction and infrastructure demand.
Speaker Change: Aluminum and stainless products, representing approximately 30% of our total fourth quarter sales.
Speaker Change: Aluminum and stainless aerospace products comprising about 10%.
Speaker Change: Stainless steel prices and volumes continued to decline in the fourth quarter of 2023, both sequentially and year over year.
Steve Cook: However, our fourth quarter 2023 shipments of aluminum products increased compared to the prior year as prices stabilized on strengthened aerospace demand. We are optimistic aerospace demand for commercial, military, defense, and space will remain healthy in the first quarter of 2024. We primarily service the automotive market through our toll processing operations, which, as a reminder, are not reflected in our console.
Speaker Change: However, our fourth quarter of 2023 shipments of aluminum products increased compared to the prior year as prices stabilize on strengthen aerospace demand. We are optimistic aerospace demand for commercial military defense and space will remain healthy in the first quarter of 2024.
Speaker Change: We primarily service the automotive market through our toll processing operations, which as a reminder are not reflected in our tons sold.
Steve Cook: Our tolling business processed 7.5% more tons in 2023 compared to last year on increased processing demand from the automotive market and our continued investments to increase capacity. Our fourth quarter shipments improved modestly year over year as demand quickly recovered after the UAW strike concluded in late October. Our first quarter outlook for the automotive market remains positive. We sell a wide range of products to diverse sectors in the general manufacturing market, including industrial machinery, consumer products, and heavy equipment, among others, which collectively represent one-third of sales. Shipments improved modestly year-over-year, driven by strength in heavy equipment. We expect demand in the broader manufacturing sector will remain at healthy levels in the first quarter of 2024. Sales to the semiconductor industry declined year over year but stabilized sequentially in the fourth quarter.
Speaker Change: Our tolling business process, seven 5% more tons in 2023.
Speaker Change: Third to last year on increased processing demand from the automotive market and our continued investments to increase capacity, our fourth quarter shipments improved modestly year over year as demand quickly recovered. After you weighed up after the UAW strike concluded in late October our first quarter outlook for the automotive market remains positive.
Speaker Change: We saw it work a wide range of products to diverse sectors, and a general manufacturing market, including industrial machinery consumer products and heavy equipment, among others, which collectively represent.
Speaker Change: One third of sales.
Speaker Change: Shipments improved modestly year over year, driven by strength in heavy equipment, we expect demand in the broader manufacturing sector will remain at healthy levels in the first quarter of 2024.
Speaker Change: Sales to the semiconductor industry declined year over year, but stabilized sequentially in the fourth quarter. We are excited about the growth prospects, we anticipate rising under the chipset as well as re shoring activity should give us confidence in our long term outlook for this market and further justify the investments we are making.
Arthur Jemien: We are excited about the growth prospects we anticipate arising under the CHIPS Act, as well as reshoring activities that give us confidence in our long-term outlook for this market and further justify the investments we are continuing to make to increase our capacity to support active and anticipated opportunities. Please refer to our earnings release for additional commentary on our end markets and product diversification. I will now turn the call over to Arthur to review our financial results and outlook. Thanks, Steve, and good morning, everyone.
To increase our capacity to sport active and anticipated opportunities.
Speaker Change: Please refer to our earnings release for additional commentary on our end market and product diversification.
Speaker Change: I will now turn the call over to Arthur to review, our financial results and outlook.
Speaker Change: Thanks, Steve and good morning, everyone.
Arthur Jemien: Our fourth-quarter, 2023, non-GAAP diluted earnings per share came in at $4.73, with some benefit from a lower-than-expected tax rate and a higher-than-expected LIFO income. Adjusting for these items, our non-GAAP earnings per share would have been $4.04, for passing our guidance of $3.70 to $3.90. Better-than-anticipated pricing and gross profit margin resilience, along with solid execution on all fronts, including effective inventory management, further contributed to the outperformance. We finished 2023 with $14.8 billion in sales and $22.64 in earnings per share, both representing our second highest historical result. We successfully outperformed industry shipment levels across nearly all products in Grussell's volumes in both the fourth quarter and the full year compared to 2022. We maintained a gross profit margin of 30.6% in the fourth quarter and 30.7% for the full year, near the high end of our sustainable range, mitigating some of the impact of declining prices prevailing in 2023. Our long-term investments in value-added processing capabilities were key to these outcomes, as value-added processing gross profit margins are less susceptible to compression in declining price environments. In 2023, we performed value-added processing on 50.6% of sales orders, up from 50.2% in 2022.
Arthur: Fourth quarter 2023, non-GAAP diluted earnings per share came in at $4.73 with some benefit from a lower than expected tax rate and a higher than expected LIFO income.
Adjusting for these items, our non-GAAP earnings per share would have been $4.04.
Arthur: Surpassing our guidance of $3 70.
Arthur: The $8.90.
Arthur: Better than anticipated pricing and gross profit margin resilience, along with solid execution on all fronts, including effective inventory management further contributed to the outperformance.
Arthur: We finished 2020 to me with $14 $8 billion in sales and $22.64 in earnings per share both.
Arthur: Representing our second highest historical results.
Arthur: We successfully outperformed industry shipment levels across nearly all product and grew sales volumes in both fourth quarter and the full year compared to 2022.
Maintained gross profit margin of 36% in the fourth quarter and 37% for the full year.
Arthur: The high end of our sustainable range mitigating some of the impact of declining prices prevailing in 2023.
Arthur: Our long term investment and value added processing capabilities were key to these outcomes.
Arthur: Now you added processing gross profit margins are less susceptible to compression and declining price environment in 2023.
Arthur: Reformed value added processing on 56% of sales orders up from 52% in 2022 and.
Arthur Jemien: On a FIFO basis, which is how we monitor our day-to-day operating performance and which excludes the effect of our LIFO Inventory Valuation Method, our gross profit margin improved by roughly 30 basis points to 28.8% compared to the third quarter of 2023 due to improved alignment between inventory costs and replacement costs, particularly in carbon and stainless steel products. Our use of the LIFO inventory valuation method benefited both our gross profit margin and earnings in 2023. We recorded LIFO income of $59.5 million in the fourth quarter and $164.5 million for the full year, exceeding our $140 million annual S&P. We ended the year with a LIFO reserve of $579.3 million in our balance sheet, which will be used to generate LIFO income and reduce the volatility of our gross profit margin and earnings if metal prices trend lower in 2024 or future periods. We currently estimate a life-low income of $80 million in 2024.
On a FIFO basis.
Arthur: How we monitor our day to day operating performance, which excludes the effect of our LIFO inventory valuation method gross.
Arthur: Gross profit margin improved by roughly 30 basis points to 28, 8% compared to the third quarter of 2023 due to improved alignment between inventory costs and replacement cost, particularly in carbon and stainless steel products.
Arthur: Are you simply a LIFO inventory valuation method benefited both our gross profit margin and earnings in 'twenty to 'twenty. Three we recorded LIFO income of 59, and a half a million dollars in the fourth quarter, and 164 and a half million dollars for the full year.
Arthur: Seating are $140 million annual estimate.
Arthur: We ended the year with the LIFO reserve of 570 $923 million and our balance sheet, which will be used to generate LIFO income and reduce the volatility by gross profit margin and earnings isn't.
Arthur: As metal prices trend lower in 2024 or future periods.
Arthur: We currently estimate LIFO income of $80 million in 2024.
Arthur Jemien: As always, we will update our expectations quarterly to account for actual inventory costs and metal pricing trends. Moving on to expand Our full year, 2023, non-GAAP same-store SG&A expenses increased by $55.2 million, or 2.2 percent, over last year from incremental variable costs associated with higher tonne shifts, which were partially offset by lower incentive-based compensation resulting from lower profitability. As a reminder, our model normalizes expenses by a right-sizing incentive as profits trend down. This decline in incentives is partially offset by increased headcount to support organic growth in the business.
Speaker Change: As always.
Speaker Change: We will update our expectations quarterly.
Speaker Change: For actual inventory cost and metal pricing trends.
Speaker Change: Moving onto expenses.
Speaker Change: Our full year 2023, non-GAAP same store SG&A expenses increased by $55 $2 million or two 2% over last year, some incremental variable cost associated with higher tons shipped which were partially offset by lower incentive based compensation, resulting from lower.
Profitability.
Speaker Change: As a reminder, our model normalized normalizes expenses by right sizing and salmon as profit trend out there.
Speaker Change: Client incentives, partially offset by increased head count to support organic growth in the business.
Arthur Jemien: On a per ton basis, our expenses decreased slightly compared to last year due to better operating leverage and were relatively stable compared to the same quarter of 2020. I'll now switch gears to our balance sheet and cash flow discussion. Our inventory turn rate based on tons came in at 4.7 times in 2023, meeting our company-wide goal of 4.7 times compared to 4.4 times in 2022. Our healthy inventory turn rate not only helped lessen the impact of declining prices on our gross profit margin but also contributed to strong cash flow generation of $1.67 billion in 2023, the second highest level in our history. For the fourth quarter, operating cash flow of $525.6 million funded $110.2 million in capital expenditures.
Speaker Change: On a per ton basis, our expenses decreased slightly compared with last year due to better operating leverage and were relatively stable compared to the same quarter of 2022.
Speaker Change: I'll now switch gears to our balance sheet and cash flow discussion.
Our inventory turn rate based on tons came in at $4 seven times in 2023 meeting our companywide goal of four seven times compared to four four times in 2022.
Speaker Change: Our healthy inventory turn rate not only helped lessen the impact of declining prices on our gross profit margin, but also contributed to strong cash flow generation of $167 billion in 2023, the second highest level in our history.
Speaker Change: For the fourth quarter operating cash flow of 525 $26 million funded $110 $2 million and capital expenditures.
Arthur Jemien: $58.8 million of cash dividends and $240.3 million of share repurchases, resulting in a 1.6% reduction in common shares outstanding. On February 13, our Board of Directors increased our regular quarterly dividend 10% to an annual rate of $4.40 per share, marking the 31st dividend increase since our 1994 IPO. We have paid regular cash dividends for 64 consecutive years without reduction or suspension, a strong balance sheet.
Speaker Change: $58 $8 million of cash dividends and $243 million of share repurchases.
Speaker Change: So all things in a one 6% reduction in common shares outstanding.
Speaker Change: On February 13, our board of directors increased our regular quarterly dividend, 10% annual rate of $4 40 per share.
Speaker Change: The 31st dividend increase.
Speaker Change: 1994 IPO.
Speaker Change: We have paid regular cash dividends for 64 consecutive years with that reduction or suspension.
Speaker Change: Our strong balance sheet.
Arthur Jemien: Consistent cash flow generation and a recently announced $1.5 billion share repurchase authorization allow us to be opportunistic. We are very proud of the fact that our strong financial position has enabled us to invest back into our business to support growth while concurrently returning approximately 45% of our net income and 58% of free cash flow to our stockholders over the past three years. I'll conclude with our first quarter out.
Speaker Change: Cash flow generation.
Speaker Change: You know $1 $5 billion share repurchase authorization allow us to be opportunistic.
Speaker Change: We are very proud of the fact that our strong financial position.
Speaker Change: It enabled us to invest back into our business to support growth.
Speaker Change: While concurrently returning approximately 45% of our net income and 58% of free cash flow to our stockholders over the past three years.
Speaker Change: I'll conclude with our first quarter outlook.
Arthur Jemien: Overall, we expect underlying end market demand to remain relatively healthy in the first quarter of 2024. We also expect shipping volumes to increase 9-11% sequentially in the first quarter, consistent with typical seasonality. On the pricing side, we expect our average selling price per ton sold for the first quarter will increase slightly, up 1-3% compared to the fourth quarter, based on stabilizing pricing trends for many of our products. Based on these expectations, we anticipate non-GAAP earnings per diluted share in the range of $5.30 to $5.50 for the first quarter of 2024.
Speaker Change: Overall, we expect underlying end market demand will remain relatively healthy in the first quarter of 2024.
Speaker Change: We also expect shipping volumes to increase 9% to 11% decline sequentially in the first quarter consistent with typical seasonality.
Speaker Change: On the pricing side, we expect our average selling price per ton sold for the first quarter will increase slightly up one 3% compared to the fourth quarter based on stabilizing pricing trends in many of our products.
Speaker Change: Based on these expectations, we anticipate non-GAAP earnings per diluted share in the range of $5 30.
Speaker Change: $5 50.
Speaker Change: For the first quarter of 2024.
Operator: To close, I'd like to thank the entire Reliance team for its collaborative efforts to drive industry-leading performance in 2023. This concludes our prepared remarks. Thank you for your participation. And at this time, we'll now open the call to questions. Operator. Ladies and gentlemen, we will now be conducting a Question Line. If you would like to ask a question, you may press Star 1. Indicator Line, Press Star 2.
Speaker Change: To close I'd like to thank the entire reliance team.
Speaker Change: Glad to lead the effort to drive industry, leading performance in 2023.
Speaker Change: This concludes our prepared remarks, thank you for your participation and at this time, we'll now open the call to questions.
Speaker Change: Later.
Speaker Change: Thank you, ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you'd like to ask a question you May press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two.
Speaker Change: I'll move your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Karla R. Lewis: Our first question comes from the line of Ketchett. BMO Cap, Hi, thank you for taking my question. In 4Q, your gross profit margin was at the higher end of your sustainable rate. I would assume that in a declining pricing environment, it would get at least a bit compressed. Is it fair to say that, in general, your sustainable gross profit margin is moving higher? Hi, Katya.
Speaker Change: Our first question comes from the line of catcher Johnson with.
Catcher Johnson: It's BMO capital markets. Please proceed with your question.
Catcher Johnson: Hi, Thank you for taking my question.
Catcher Johnson: And for Q. Your gross profit margin was at the higher end of your sustainable range I.
Catcher Johnson: I would assume that in a declining pricing and volume environment. It would get at least a bit compressed is it fair to say that in general your sustainable gross profit margin is moving higher.
Speaker Change: I Gotcha mm thanks for being on the call. This morning, and so you know it is our intent to continue to drive our gross profit margin higher as you know, we're continuing to invest in in more and more advanced you know processing.
Karla R. Lewis: Thanks for being on the call this morning. So, you know, it is our intent to continue to drive our gross profit margin higher as, you know, we're continuing to invest in more and more advanced processing equipment and doing more for our customers. We're able to drive our gross profit margin higher. You know, we also benefit from the fact that from being on the LIFO inventory costing method and being able to hold our margin more sustainably.
Speaker Change: Equipment doing more for our customers, we're able to drive our gross profit margin higher you know we also benefit.
Speaker Change: From being on the LIFO inventory costing method with being able to hold our margin more sustainable but it certainly is our intent and I think if you look back over the past eight to 10 years, you will see a more sustainable gross profit margin at a steady improvement we continue to see a lot of.
Karla R. Lewis: But it certainly is our intent, and I think if you look back over the past 8 to 10 years, you will see our sustainable gross profit margin at steady improvement. We continue to see a lot of opportunity with our customers to do more with them for them, which is why we're continuing to invest in CAPEX. And so it is our intent to drive that higher, but I know all of you ask us to try to quantify when and how much, but we can't do that. But we do want to continue to move higher. Arthur, do you want to add anything? Yeah, sure, Katya.
Speaker Change: The opportunity with our customers to do more with them for them, which is why we're continuing to invest in in Capex and so it is our intent to drive that higher but I know all of you ask us to try to quantify when and how much but we are we can't do that but we do.
Speaker Change: And they continue to move higher and that Arthur do you want add anything yeah sure cut and a fourth quarter typically has the annual kind of LIFO catch up and when we talk sustainable margins, we really refer to that on an annual basis is on a quarterly basis, you could have certain bumps.
Arthur Jemien: And the fourth quarter typically has the annual kind of LIFO catch-up. And when we talk sustainable margins, we refer to that on an annual basis, as on a quarterly basis you could have certain, you know, bumps that move the margin up or down. So, on an annual basis, we're still, you know, 30 and a half, I beg your pardon, we're above 30 percent, you know, 30. 7.
Arthur: Bumps that move the margin up or down so on an annual basis. We're still you know 30, and a half I beg your pardon.
Arthur: About 30% 30.7, so yeah, your point's well taken and you know a reminder, that LIFO for us effectively resets cost of sales make to replacement costs. So it effectively takes out inventory gains and losses from our results. So it's a better.
Arthur Jemien: So, yeah, your point's well taken. And, you know, a reminder that LIFO for us effectively resets the cost of sales to replacement costs, so it effectively takes out inventory gains and losses from our results. It's a better metric of operating performance, that's been our view, and it actually helps us navigate pricing cycles and takes out the volatility from our options. And maybe just follow up on this, because Arthur, as you said, this year, the gross profit margin was at 30.7%. I think last year it was around the same level, 30.8%. What would you, and this is at the higher end of the range, right?
Arthur: Metric of of operating results at least that's been our view and it's it actually helps us navigate pricing cycles and takes out the volatility from our operating results.
Speaker Change: And maybe just follow up on this because Arthur as you said this year at the gross profit margin was up 37% I think last year. It was around the same level of 38% what would you and this is at the higher end of the range right. What would you have to see.
Karla R. Lewis: What would you have to see to really raise it above the current level? When the time comes, Katya will let you know, www.reliancesteel.com. Okay, one more if I may. Can you remind us what your exposure to aerospace is? It's roughly 10% of sales dollars. Perfect. Thank you so much.
Speaker Change: <unk> to be comfortable to really raise it above current level.
Arthur: When the time comes Katia, we'll let you know.
Arthur: [laughter].
Katia: Okay. One more if I may can you remind us what is your exposure to aerospace.
Katia: It's roughly 10% of sales.
Katia: Correct.
Speaker Change: Yeah perfect. Thank you so much.
Karla R. Lewis: Thanks. Our next question comes from the line of Phil Gibbs with KeyBank Capital. Questions? Hey, good morning. Morning, Phil.
Speaker Change: Thanks for that too.
Speaker Change: Our next question comes from the line of Phil Gibbs with Keybanc capital markets. Please proceed with your question.
Phil Gibbs: Hey, good morning.
Good morning.
Steve Cook: Did you provide any color on what you expected 2024 CapEx to be and also how much you have left on the buyback? Yes, so our current 2024 approved CapEx budget is $425 million. So those are projects we'll initiate this year. Because of lead times, we probably won't have all of that completed.
Phil Gibbs: Did you provide any color on what you expect the 'twenty 'twenty four.
Phil Gibbs: Capex to be and also how much do you have a block on the buyback.
Phil Gibbs: Yeah, so or 'twenty, our current 'twenty 'twenty four approved Capex budget is $425 million mm. So those are projects will initiate this year because of lead times, we probably won't have all of that completed but we do.
Karla R. Lewis: But we do have carryover from prior years. So from a cash spend, we're estimating about $500 million going out the door for prior and current year projects. A lot of that, most of that is growth-related, as it has been the last several years. As I just mentioned with Katya, we continue to find more ways to provide value to our customers, go into new green fields in new geographic areas, and broaden our products and processing capabilities. So we see a lot of opportunity to continue to do that. And then on our share repurchase, we've got $1.4 billion, Arthur? Correct, $1.4 billion. Thank you.
Phil Gibbs: Do have carryover from prior years, so from a cash spend we're estimating about $500 million.
Phil Gibbs:
Phil Gibbs: Going out the door for prior and current year projects.
Phil Gibbs: A lot of that most of that is growth related as it has been the last several years.
Phil Gibbs: I just mentioned with Katia you know, we continue to to find more ways to provide value to our customers go into new you know green.
Phil Gibbs: Greenfields and in new geographic areas broaden our products and processing capabilities. So we see a lot of opportunity to continue to do that and then on our share repurchase we've got 1.4 billion Arthur Great left one 4 billion with yes.
Speaker Change: Thank you.
Speaker Change: And.
Arthur Jemien: And unusually, the OPEX levels, at least in my model, were up sequentially in the fourth quarter, which is not seasonally typical. Did you have some accrual catch up? I think we're just trying to figure out what the right baseline is. Yeah, so good question.
Speaker Change: Unusually the opex levels at least in my model, where we're up sequentially in the fourth quarter, which is which is not seasonally typical did you have some accrual catch up but we're I think we're just trying to figure out what the right baseline is.
Speaker Change: Yeah. So good question normally it's a little bit of a decline but it is.
Arthur Jemien: Normally, it's a little bit of a decline, but as we talked about, we've been growing the business organically. And, you know, fourth quarter volumes shipped. Well, yes, they declined sequentially.
Speaker Change: As we talked about.
Speaker Change: We've been growing the business organically and you know fourth quarter volume shipped well, yes. They declined sequentially. There is as you know over 4% growth year over year. So some of that is just.
Arthur Jemien: All reports, growth year over year. So some of that is just, you know, our organic growth. And I think if you look at it, the sequential increases in terms of absolute dollars are real. So nothing unusual in terms of catching up from the rest of the year. You're just building, probably building a little bit more infrastructure. All right. Okay. I did have one more.
Speaker Change: Our organic growth and I think if you look at it the sequential increases in terms of absolute dollars as a relatively small amount.
So nothing unusual in terms of catching up from the rest of the year, you're just building probably building a little bit more infrastructure.
Speaker Change: Right.
Okay.
Speaker Change: I did have one more in here you did make a couple of deals recently.
Karla R. Lewis: You did make a couple of deals recently. Um, and generally speaking, given the history that a lot of deals don't contribute right away, given mark-to-mark, it's in the first quarter on inventory, but would you expect these to start being accretive in the second quarter? Yeah, well, one of our criteria for acquisitions is that they're immediately accretive. So, you know, Reliance's strategy for acquisitions hasn't changed. We buy good, well-run, profitable businesses. So we expect them to be immediately accretive based on their past results. We have no reason to think that that would not be the case. You know, we're excited about welcoming them to the family. The revenue splice between these two deals is largely in carbon or mixed amongst metals. Yeah, primarily carbon.
Speaker Change: And I know just generally speaking given given history that.
Speaker Change: Lot of a lot of deals don't contribute right away given mark to markets in the first quarter on inventory, but would you expect these to start being accretive in the second quarter.
Speaker Change: Yeah, well so one of our criteria for acquisitions are that they're immediately accretive. So you know reliance's strategy on acquisitions hasn't changed that we buy good well run profitable businesses. So are we.
Speaker Change: Spec them and hopefully they are listening we expect them to be immediately accretive based on their past results. We have no reason to think that that would not be the case.
Speaker Change: We're excited about welcoming well.
Speaker Change: Welcoming them to the family.
Speaker Change: The revenue splits between these two deals is largely and carbon or mixed amongst metals.
Speaker Change: Yeah, primarily carbon and just you know a reminder, cooksey, we did already closed February 1st so they come into our numbers. You know there are they're in our numbers now American alloy has to go through regulatory approval. So that is not yet claw.
Karla R. Lewis: And just, you know, a reminder, Cooksey, we did already close February 1. So they come into our numbers, you know, they are there in our numbers now. American Alloy has to go through regulatory approval, so that is not yet closed. And at the time that we are able to close, we'll make an announcement, and then their numbers would begin rolling in. Okay, perfect. Thanks so much.
Speaker Change: <unk> and at the time that we are able to close that will make an announcement and then their numbers would begin rolling in then.
Speaker Change: Okay perfect. Thanks, so much.
Operator: Thank you. As a reminder, it is star number one to ask a question. Our next question comes from the line of Martin Englert, Research Partners. Thank you for your questions. Hello, good morning, everyone. A. Martin
Speaker Change: Uh huh.
Speaker Change: As a reminder, it is star one to ask a question. Our next question comes from the line of Martin Englert with Seaport Research Partners. Please proceed with your question.
Martin Englert: Hello, Good morning, everyone.
Martin Englert: Hey, Martin.
Martin Englert: Question on sequential volume guidance at the high end of the range. I think that it implied that it would be down marginally year-on-year on volumes. The end market commentary was generally positive in the release and prepared in March. Could you just touch on where that weakness could be year on year, or am I misinterpreting? No, you're asking a very good question, Martin.
Martin Englert: Question on sequential volume guidance.
Martin Englert: End of the range.
Alright.
Martin Englert: Implied that it would be down marginally year on year volume.
Martin Englert: And market commentary was generally positive.
Speaker Change: In prepared remarks could you just touch on where that weakness could be year on year or am I misinterpreting that.
Speaker Change: No you're asking a very good question Martin.
Arthur Jemien: As you may recall, last year, our first quarter increase sequentially from the fourth quarter was unusually strong, and we called it out as we had some demand pull forward in the first quarter from rising carbon flat rule prices. So going from Q4 of 22 to Q1 of 23, our tons increased by almost 18%. And then sequentially, as we navigated the rest of the year, there were declines which were sort of a little atypical from a seasonality perspective.
Speaker Change: As you May recall last year, our first quarter increased sequentially from the fourth quarter was unusually strong and we called it out as we had some demand pull forward into first quarter from rising carbon flat rolled prices. So keep going from Q4 of 'twenty two to Q1 of 'twenty three are.
Speaker Change: Tons increased almost 18% and then sequentially as we navigated the rest of the year there were declines which were a little you know atypical from a seasonality perspective. So when you look at it from Q1 of 24 to Q1 of 'twenty three perspective, you're going to see.
Arthur Jemien: So when you look at it from Q1 of 24 to Q1 of 23, you're going to see a little bit of that decline, which is, again, due to that unusually really strong Q1 of 23. Yes, I would say it was more the buying patterns of some of our customers. And just want to make sure we're not implying weakness.
Speaker Change: Little bit of that decline, which is again due to that you know unusually really strong Q1 of twenty-three yeah. So I would say it was more buying patterns of some of our customers and just want to make sure we're not implying weakness, we still see healthy demand.
Karla R. Lewis: We still see healthy demand. Q1 2020. I guess following on that. Okay, so there was noise in the comparison year on year in one queue, and some atypical seasonal trends after that. But based on what you see today, what would you expect, I guess?
Speaker Change: In Q1 2024.
Speaker Change: I guess following on that.
Speaker Change: Okay. So there was noise in the comparison year on year in Q.
Speaker Change: A typical seasonal trend after that but based on what you see today.
Speaker Change: Would you expect.
Speaker Change: I guess.
Karla R. Lewis: More fundamental underlying demand to be exhibited in the volumes in the remaining quarters, meaning if it was comparing negatively marginally in one cube. And you're rather positive about these end markets, meaning we should expect some growth in volumes here. www.reliancesteel.com I mean, that's certainly our intent and what we're pushing for. You know, we've been making investments to continue to grow organically, and our teams out in the field did a great job in 2023. We outperformed the MSCI shipment levels. That was strategic, it was because of investments we've made, because of our companies going after smart, profitable business that's out there, and they were very successful in doing that. We think underlying demand at this time is positive, we think there are a lot of good tailwinds coming through the infrastructure, the chips, the reshoring, and nearshoring that is all still out there. So, you know, we only give guidance a quarter out, but we are positive about the opportunities that are out there that we expect to see in 2024.
Speaker Change: More fundamental underlying demand.
And the volumes in the remaining quarters, meaning if it was comparing negatively marginally and one in Q.
Speaker Change: You rather positive on these end markets.
Speaker Change: Would expect some growth in volumes year on year.
Speaker Change: I mean, that's certainly our intent and what we're pushing for you know we've been making investments to continue to grow organically and our teams out in the field did a great job in 2023, you know we outperformed the MSCI shipment levels.
Speaker Change: That was strategic it was because of investments we've made because of our our companies going after on smart profitable business. That's out there and they were very successful in doing that we think underlying demand at this time. We are positive. We think there are a lot of good.
Speaker Change: Tailwind coming through the infrastructure the chips, the re shoring and near shoring that is all still out there. So I'm you know, we only give guidance a quarter out but we are positive about the opportunities that are out there.
Speaker Change: That we.
Expect to see in 2020 four but we've also been in this business long enough that we know there are certain things we can't control, but are where we're excited and we're positive at this time.
Karla R. Lewis: But we've also been in this business long enough that we know there are certain things we can't control. But we're excited, and we're positive. Thank you for that. That's very helpful. Can you touch on the corresponding volumes for the sales of the two acquisitions, and I understand one of them is pending, but what you saw in 2023? Yeah, we I mean, we've disclosed their sales numbers, Martin, but nothing beyond that. Nothing on volumes at this time.
Speaker Change: Thank you for that.
Speaker Change: Very helpful.
Speaker Change: Can you touch on.
Speaker Change: For the corresponding volumes to the sales of the two acquisitions.
Speaker Change: One of them is pending.
What you saw in 2023.
Speaker Change: Yeah, we I mean, we've disclosed their sales numbers Martin, but nothing beyond that nothing on volumes at this time and it won't be.
Karla R. Lewis: And it won't be, you know, overall, we're, they're important businesses, important additions to the family, and we're excited about that, but it's not going to materially move our ton.
Speaker Change: Overall, where they're important businesses important additions to the family and we're excited about that but it's not going to materially move or tons.
Karla R. Lewis: Are you able to qualitatively comment on the gross margin profile relative to Reliance? Yeah, I mean, we don't typically talk about individual companies unless it's, you know, a very material transaction. But we, I will say that they're good performing profitable businesses, but we do see, we're excited that they are, we do see some opportunities to help expand their gross profit margins from where they are currently. You know, some of the expertise we have throughout the Reliance family in value-added processing, we think we can bring to the companies and really help them work on that and pricing disciplines. So we think there's upside to their already, you know, solid profitability levels, but we're not going to give specific numbers. Okay, that's helpful.
Speaker Change: Are you able to qualitatively comment on the gross margin profile relative to <unk>.
Speaker Change: Yeah, I mean, we don't.
Speaker Change: We do not tips.
Martin Englert: Typically talk about individual companies unless it's you know a V.
Martin Englert: Very material transaction, but I will say that there are good performing profitable businesses, but we do see we're excited that there we do see some opportunities to help expand their gross profit margins from where they are currently you know some of the expertise we have throughout the reliance family.
Martin Englert: And value added processing are we think we can bring them to the companies and really help them work on that and pricing discipline. So we think there's upside.
Two there already solid profitability levels, but we're not going to give specific numbers.
Speaker Change: Okay. That's helpful.
Karla R. Lewis: If I could one last one on the repurchases, the average repurchase price was lower quarter on quarter, and for Q, the volume of repurchases increased to 0.9 million versus half a million. And I think earlier in your paragraph. You did highlight that you typically opportunistically repurchase, but how are you thinking about repurchases looking ahead, both in the near term and one clue with, you know, more than share price? Yeah, so, Martin, we look at share repurchases like all of our capital allocation buckets where we try to opportunistically be active in each of those buckets, and we don't have anyone holding back another You know, the fact that we have announced a couple of acquisitions doesn't change that.
Speaker Change: If I could one last one on the repurchases.
Speaker Change: The average repurchase price was lower quarter on quarter in for Q.
Speaker Change: The volume repurchase in Q2.
Speaker Change: $9 million versus half a million.
Speaker Change: I think earlier.
Speaker Change: Their remarks.
Speaker Change: You did highlight you typically opportunistically.
Speaker Change: Purchase, but how are you thinking about repurchases looking ahead.
Speaker Change: Both on the near term and one Q1.
Speaker Change: More of the share prices today.
Speaker Change: Yeah. So you know Martin we look at our share repurchases. So there's like all of our up all of our capital allocation buckets, where we you know tried to opportunistically be active in each of those buckets and we don't have any one holding back another one.
Speaker Change: You know the fact that we have announced a couple of acquisitions doesn't change we've got the we're in a financial position where that doesn't impact our ability to repurchase shares or how we view that so we expect to continue to be active when we think it's.
Karla R. Lewis: We've got the, we're in a financial position where that doesn't impact our ability to repurchase shares or how we view that. So, we expect to continue to be active when we think it's the right time in the market, which is consistent with Q3, Q4. A lot, you know, depends on how the stock trades during that period. And Martin, just a quick reminder, we refreshed our authorization back in October. $1.5 billion, and we have $1.4 billion remaining in that auction. So, in our prepared remarks, we provided. 3-year historical, http://reliancesteel.com, Cash Flows, over the last three years.
Speaker Change: The right timing.
Speaker Change: In the market, which is consistent with Q3 Q4, a lot depends on how the stock trades during that period.
Speaker Change: And Martin.
Speaker Change: A quick reminder, we are refreshed.
Speaker Change: Refreshed our authorization back in October.
Speaker Change: Two $1 5 billion and we have one point for our remaining on that authorization. So in our in our prepared remarks, we provided some three year historical.
Speaker Change: The figures on total returns, which was roughly 58% of free cash flows.
Speaker Change: Over the last three years does that mean, that's the number that we're guiding to going forward now as <unk>.
Arthur Jemien: That's the number that we're guiding to going forward now, as Karla said. We kind of look at that largely opportunistically, and we have the authorization and the balance sheet and the cash flows to be able to... I'll act on that when the opportunity is presented. Is there any, well, that might not necessarily be the target where the last three years have trended, is there? Some lower bound that, I guess, applies to the framework as a minimum that you would like to return through dividends and repurchases, or not necessarily.
Yeah.
Speaker Change: And to look at that largely Opportunistically and and we have the authorization in the balance sheet and the cash flows to be able to.
Speaker Change: You know act on that when the opportunities present themselves.
Speaker Change: Uh huh.
Speaker Change: That might not necessarily be the target for the last three years has trended there.
Speaker Change: Yeah.
Speaker Change: I guess, a lower bound to the framework is the minimum that you would like to return.
Speaker Change: We're not necessarily.
Karla R. Lewis: It's really based on the best opportunity. Yeah, Martin, because as I just mentioned, we try to be opportunistic in all of our capital allocation buckets, whether it's acquisitions, organic growth, dividends, share repurchases, you know, we don't set formal policies because we are selling into cyclical markets. So we want to have the flexibility to allow us to do what we think is the best use of capital at the time. So we don't have any formal, you know, policies established for that other than, you know, trying to be a good capital allocator and reward our stockholders and grow our business. Thank you for all the detail and congratulations on the results and all the progress.
Speaker Change: It's really based on the best opportunities.
Speaker Change: Yeah, Martin because as I just mentioned you know, we we try to be opportunistic in all of our capital allocation buckets, whether its acquisitions organic growth dividends share repurchases.
Martin Englert: You know, we don't set formal policies because we are selling into cyclical markets. So we want to have the flexibility to allow us to do what we think is the best use of capital at the time. So we don't have any formal policies.
Martin Englert: Policies established for that.
Martin Englert: Other than you know trying to be a good capital allocator and reward our stockholders and grow our company.
Speaker Change: Okay. Thank you for all the details and congratulations on the results and all the progress.
Speaker Change: Okay. Thanks, Thank you.
Karla R. Lewis: Thanks, Mark. Our next question is a follow-up question from the line of Phil Gibbs. Thank you. Thank you. Thank you. Hey, thank you.
Speaker Change: Yeah.
Speaker Change: Our next question is a follow up question from the line of Phil Gibbs. Please proceed with your question.
Phil Gibbs: Okay. Thank you.
Phil Gibbs: Just broadly speaking, what are you seeing in the automotive market right now? Because I know there was a lot of volatility in the headlines in the back half of last year from the auto sector. Yeah. Hi Phil.
Phil Gibbs: Hum.
Phil Gibbs: Broadly speaking what are you seeing in the automotive market right now because I know there was a lot of volatility in the headlines in the back half of last year from the auto strike.
Speaker Change: Yeah. So on so you know we service the automotive market predominantly through toll processing, where we do not take ownership of the metal, which we'd like servicing that market that way taking out any metal price risk.
Karla R. Lewis: So, you know, we service the automotive market predominantly through toll processing, where we do not take ownership of the metal, which we like servicing that market that way, taking out any metal price risk for us. And, you know, we're processing, inspecting, delivering, and storing the metal. Typically, our customers in that business are the mills selling to the automakers. And, you know, our companies that do that are very good at what they do. They've done a great job servicing the markets, also shifting to be able to process aluminum. As there is more and more aluminum content, we've been continuing to invest in those companies. And, you know, last year, our processing volumes in our toll processing businesses, which are about 65% automotive-related, were up 7.5%.
Speaker Change: For us and you know we're processing inspecting delivering storing the metal typically our customers in that business are the mills selling to the automakers and you know are companies that do that are very good at what they do they've done a great job servicing the markets also shifting.
Speaker Change: To be able to process aluminum as there's more and more aluminum content, we've been continuing to invest in those companies and you know last year, our processing volumes in our toll processing businesses, which are about 65% automotive related were up 7.5%.
Karla R. Lewis: So it was a good year for us again, partly because of our investments in growth, but also because even though there were, you know, a few stoppages and it was a little erratic for certain periods during the strikes, it didn't hit us on a broad basis. It was typically, you know, one customer, one platform that would be down. So it wasn't too broad-based for us. A lot of our customers were anticipating the strike coming, and so we worked with them to try to build up a little more inventory for them prior to that. And it came back pretty quickly when the strike ended.
Speaker Change: So it was a good year for us again, partly because of our investments for growth, but also because even though they're there were you know a few stoppages and it was a little erotic for certain periods. During the strikes it didn't hit us on a broad basis. It was typically you know one.
Speaker Change: Customer one platform that would be down so it wasn't too broad base for us and a lot of our customers were anticipating the strike coming and so we worked with them to try to build up a little more inventory for them.
Speaker Change: Fire to that and it came back pretty quickly when the strike ended so.
Arthur Jemien: So, you know, we didn't see a big impact from that. And, you know, we continue to be busy. We're continuing to invest to increase capacity there, and we're positive on automotive going forward. Thank you. And then just a question for modeling clarity. The other income was pretty robust in Q4. Does that largely capture the interest income on your cash balance?
Speaker Change: No we didn't see a big impact from that and you know we continue to be busy we're continuing to invest to increase capacity there and we're positive on automotive going forward.
Speaker Change: Thank you and then just a question for modeling clarity. The other income was pretty robust in Q4 does that capture largely the interest income on your cash balance.
Arthur Jemien: That's correct, and there's some life in here. The vast majority of that is perfect. And then I could sneak in one more just on SEMI's infrastructure.
Speaker Change: That's correct Phil.
Speaker Change: And there's some life insurance.
Speaker Change: But.
Phil Gibbs: The vast majority of that is interest income on our cash.
Perfect.
Speaker Change: If I could sneak in one more just on somebody's infrastructure I know you've made some good in Boston is there the last couple of years.
Karla R. Lewis: I know you've made some good investments there in the last couple years. Are you starting to see some of that spending come back, or is that not a market that you're looking for growth in 24? Thanks.
Speaker Change: Are you starting to see some of that spending come back or is that not a market that you are looking for growth in 'twenty four.
Speaker Change: Yeah, So I think for the year 'twenty 'twenty four we would look for some growth you know our smaller investment in a new facility in Texas.
Karla R. Lewis: Yeah, so I think for the year 2024, we would look for some growth, you know, our smaller investment in a new facility in Texas. They're ramping up now they're, you know, in production mode, but with where the industry is right now, they're starting a little slower. You know, the equipment side of the business is more negatively impacted than the construction project side of the semiconductor business. Our larger facility capacity expansion in Texas is not yet live, so they're still in build mode. So we haven't seen anything out of that new investment yet, but we did see in Q4, the semiconductor industry really, they're still busy, but there was a bit of an inventory buildup, so they've been working through that, and, you know, we're positive going into 2024 that we'll start to see some improvement. A lot of it, though, on the construction side, is dependent upon You know, the pace that our customers are building because there have been some stops and starts on some of the projects.
Speaker Change: They're ramping up now there you know in production mode, but with where the industry is right now, they're starting a little slower than the equipment side of the business is is more negatively impacted than kind of a construction project side of the semi conductor business our larger.
Speaker Change: Facility capacity expansion in Texas is not yet live so they're still in build mode. So we haven't seen anything out of them out of that new investment yet, but we did see in Q4, you know that the semiconductor industry really there.
Speaker Change: [noise] busy, but there was a bit of an inventory buildup. So they've been working through that and you know we're positive going into 2020 for that.
Speaker Change: We will start to see some improvement in a lot of it though you know on the construction side is dependent upon.
Speaker Change: The pace that our customers build because there had been some stops and starts on some of the projects.
Karla R. Lewis: Thanks very much. I think that concludes our question and answer session. I'd like to hand it back to Karla Lewis for closing remarks. Thanks again, everyone, for joining our call today, and before we close out the call, I'd like to remind everyone that we will be in Florida later this month presenting at the BMO 33rd Annual Global Metals Mining and Critical Materials Conference, and we hope to see many of you there. Thank you again to all of you for your continued support of Reliance. Ladies and gentlemen Connect your lines, and have a wonderful day!
Thanks very much.
Speaker Change: I think so.
Speaker Change: That concludes our question and answer session I'd like to hand, it back to Karla Lewis for closing remarks.
Karla R. Lewis: Thanks again, everyone for joining our call today and before we close out the call I'd like to remind everyone that we will be in Florida. Later this month presenting at the BMO, 13th third annual global metals mining and critical materials conference and we hope to see many of you. There. Thank you again to all of you.
Karla R. Lewis: And for your continued support of reliance.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.