Q2 2024 Reliance Steel & Aluminum Co Earnings Call
Operator: Greetings and welcome to the Reliance Inc. 2nd Quarter 2024 Earnings Conference Call. At this time, all participants are in the 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. It is now my pleasure to introduce your host, Kim Orlando. Thank you, and you may begin.
Greetings and welcome to the Reliance Inc. Second quarter 2024 earnings Conference call.
At 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.
It is now my pleasure to introduce your host.
Kim Orlando, Thank you and you may begin.
Kimberly Orlando: Thank you, Operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's second quarter 2024 financial results. I am joined by Karla Lewis, President and Chief Executive Officer, Steve Koch, Executive Vice President and Chief Operating Officer, and Arthur Ajemyan, Senior Vice President and Chief Financial Officer. A recording of this call will be posted on the investors section of our website at investors.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 the earnings release. I will now turn the call over to Karla Lewis, President and CEO of Reliance.
Thank you operator, good morning, and thanks to all of you for joining our conference call to discuss Reliance's second quarter 2024 financial results.
I am joined by Karla Lewis, President and Chief Executive Officer, Steve.
Steve Cook Executive Vice President and Chief operating Officer, and Arthur Xiaomi, Senior Vice President and Chief Financial Officer.
A recording of this call will be posted on the investors section of our website at investors that reliance dotcom.
Please read the forward looking statement disclosures included in our earnings release issued this morning and note that it applies to all statements made during this teleconference.
Reconciliations of the adjusted numbers are included in the non-GAAP reconciliation part of the earnings release.
I will now turn the call over to Karla Lewis, President and CEO I've realized.
Karla R. Lewis: Thanks, Kim. Good morning, everyone.
Thanks, Kim good morning, everyone and thank you all for joining us today to discuss our second quarter 2024 results.
Karla R. Lewis: And thank you all for joining us today to discuss our second quarter 2024 results. Our second quarter performance once again highlighted the attractiveness of our business model through various market cycles, delivering solid results in a challenging pricing environment. Reliance's growth and diversification strategies, coupled with our focus on customer service and relationships, increased our shipments ahead of industry levels. Our new acquisitions and focus on smart, profitable growth increased our tons shipped. However, carbon steel pricing during the second quarter declined further than anticipated, offsetting the benefits of our increased tonnage. Declining metal pricing was the primary driver of our gross profit margin decrease and sequential reduction in earnings per diluted share, by $4.67.
Our second quarter performance once again highlights the attractiveness of our business model through various market cycles, delivering solid results in a challenging pricing environment.
Reliance is growth and diversification strategies, coupled with our focus on customer service and relationship increased our shipments ahead of industry levels, our new acquisitions and focus on smart profitable growth increased our tons shipped however, carbon steel pricing during the <unk>.
Second quarter declined further than anticipated offsetting the benefits of our increased tonnage.
Cleaning metal pricing was the primary driver of our gross profit margin decreased and sequential reduction in earnings per diluted share $4.67.
Karla R. Lewis: Despite these challenges, our teams across the company maintain a strong gross profit margin of 29.8%, within our long-term sustainable range of 29 to 31%, driven in part by the significant investments we have made in value-added processing capabilities in recent years. Our cash flow from operations helped fund two acquisitions in the second quarter and three year-to-date, which collectively added nearly $500 million in annualized net sales based on 2023 results. I will comment more on our acquisitions in a moment.
Despite these challenges our teams across the company maintained a strong gross profit margin of 29.8% within our long term sustainable range of 29% to 31% driven in part by the significant investments we have made in value added processing.
Abilities in recent years.
Our cash flow from operations helped to fund two acquisitions in the second quarter and three ear to date, which collectively added nearly $500 million in an annualized net sales based on 2023 results.
I'll comment more on our acquisitions in a moment.
Karla R. Lewis: We also invested $98.2 million in capital expenditures during the second quarter, the majority of which were directed toward growth by improving our value-added processing capabilities and increasing our capacity to support future growth. Our CapEx budget for the calendar year 2024 remains $440 million, with an expected total cash outlay of approximately $425 to $450 million.
We also invested $98 $2 million in capital expenditures during the second quarter. The majority of which were directed toward growth by improving our value added processing capabilities and increasing our capacity to support future growth.
Our capex budget for the calendar year 'twenty 'twenty four remains $440 million with an expected total cash outlay of approximately $425 million to $450 million.
Karla R. Lewis: In regard to stockholder returns, we repurchased $519.3 million of common stock during the second quarter and $165.4 million in July, underscoring the confidence our board and management team have in our future, and we paid $62.6 million in dividends to our valued stockholders. In addition to acquiring Cooksey Steel on February 1st, followed by American Alloy and Midwest Materials on April 1st, on July 15th, we announced the acquisition of certain toll processing assets of the Faro-South Division of Faragon Corporation.
In regard to stockholder returns, we repurchased $519.3 million of common stock during the second quarter and $165 $4 million in July underscoring the confidence our board and management team have in our future and we paid <unk>.
$62.6 million in dividends to our valued stockholders.
In addition to acquiring cooksey steel on February 1st followed by American alloy and Midwest materials on April 1st on July 15th we announced the acquisition of certain toll processing assets.
Ferro South Division a fair got incorporation.
Karla R. Lewis: Subject to customary closing conditions, this will mark our 76th acquisition since our 1994 IPO. We look forward to welcoming FerroSouth as a division of our wholly owned subsidiary Ferroloy Corporation. FerroSouth's tolling operations will expand Ferroloy's toll processing capabilities and provide additional capacity to Ferroloy's existing footprint in the southeastern United States.
Subject to customary closing conditions. This will mark our 76th acquisition since our 1994 IPO, we look forward to welcoming Ferro yourself as a division of our wholly owned subsidiary fairly Corporation Taro sells tolling operations will expand fairways toll processing.
Ladies and provide additional capacity the fair fair Lloyd's existing footprint in the south Eastern United States.
Karla R. Lewis: The completed acquisitions expand our product offerings to our customers and enhance our geographic reach and unique processing capabilities. The M&A pipeline remains robust, and we continue to seek additions to our family of companies that fit our criteria of being immediately accretive to earnings and well positioned for growth with solid management teams in place. In summary, I'd like to thank our team at Reliance for their dedication to working safely, serving our customers, and growing and managing our business as well through uncertain markets.
The completed acquisitions expand our product offerings to our customers and enhance our geographic reach and unique processing capabilities.
M&A pipeline remains robust and we continue to seek additions to our family of companies that fit our criteria of being immediately accretive to earnings and well positioned for growth with solid management teams in place and.
In summary, I'd like to thank our team at reliance for their dedication to working safely servicing our customers and growing and managing our business as well through uncertain markets.
Karla R. Lewis: It is because of our entire Reliance family that we are able to consistently post solid results throughout economic cycles. While we continue to execute through near-term headwinds in demand and pricing affecting certain of our markets, we remain excited about the opportunities that lie ahead and confident in our talented team's ability to successfully continue executing our robust and resilient business model. Thank you all for your time today. I'll now turn the call over to Steve, who will review our second quarter demand and pricing trends.
Because of our entire reliance family that we're able to consistently post solid results throughout economic cycles.
While we continue to execute through near term headwinds in demand and pricing affecting certain of our markets. We remain excited about the opportunities that lie ahead and confident in our talented team's ability to successfully continue executing our robust and resilient business model. Thank you all for your.
Time today I'll now turn the call over to Steve who will review, our second quarter demand and pricing trends.
Stephen P. Koch: Thanks, Karla, and good morning, everyone. I'd also like to start by thanking our dedicated team at Reliance for their commitment to executing our strategy safely each and every day. I'll now turn to our second quarter demand and pricing trend. Our returns sold increased 4% compared to the first quarter of 2024, in line with our expectations of up 2.5% to 4.5% and reflecting the benefit of the three acquisitions we've completed so far in 2024.
Thanks, Carla and good morning, everyone. I'd also like to start by thanking our dedicated team member lines for their commitment to executing our strategy safely each and every day I'll now turn to our second quarter demand and pricing trends our tons sold increased 4% compared to the first quarter of 2024 in line with our expectations of up two points.
Stephen P. Koch: On a same store basis, our tons sold increased 0.9% over the prior quarter. Compared to the prior year, our tons sold were up 4.7% or 0.7% on a same store basis. Significantly outperforming the service center industry decrease of 1.8% as reported by the MSCI. We believe our continued outperformance of our MSCI peers is supported by our diversification strategy, customer service, and organic growth, in addition to strategic acquisition. Our second quarter average selling price per ton thought of $2,348 declined by 3.8% compared to the first quarter of 2024, exceeding our expectations of down 1% to 3%.
5% to four 5% and reflecting the benefit of the three acquisitions, we've completed so far in 2024.
On a same store basis, our tons sold increased 9% over the prior quarter compared to the prior year our tons sold were up four 7% or 7% on a same store basis.
Secondly, outperforming the service center industry decrease of one 8% as reported by the MSCI.
We believe our continued outperformance of our M. S peers supported by our diversification strategy customer service and organic growth in addition to strategic acquisitions.
Our second quarter average selling price per ton sort of 2000 and $348 declined by three 8% compared to the first quarter 2024 exceeding our expectations of down 1% to 3%.
Stephen P. Koch: Carbon steel product prices declined more than anticipated as the quarter progressed; stainless steel and aluminum average selling prices were minimally impacted in the second quarter by additional Russian sanctions announced in April as price increases in both commodities were short-lived. Next, I will turn to an overview of trends we saw within key end markets and products, beginning with non-residential construction. Carbon steel tubing, plate, and structural products, which are predominantly sold into the non residential construction and market, represented about one third of our sales in the second quarter, and that solid sequential and year over year growth in tons sold outperformed industry shipment levels.
Carbon steel product prices declined more than anticipated as the quarter progressed.
And with steel and aluminum average selling prices were minimally impacted second quarter my additional.
Russian sanctions announced in April price increases in both commodities were short lived next.
Next I will turn to an overview of trends, we saw within key end markets and products.
Beginning with nonresidential construction.
Carbon steel tubing plate and structural products, which are predominantly sold into the nonresidential construction end market represented about one third of our sales in the second quarter and had solid sequential and year over year growth in tons sold outperforming industry shipment levels.
Stephen P. Koch: Our diversified exposure to non-residential construction markets, including publicly funded infrastructure, data centers, and related energy infrastructure, supported steady demand for carbon steel structure on tubing products despite negative pricing trends. Our general manufacturing business, which represents roughly one third of our total sales, is highly diversified across products and includes industrial machinery, consumer products, heavy equipment, and military. Demand across the broader general manufacturing sector we serve was relatively consistent on the whole compared to the second quarter 2023, primarily due to the increase in industrial machinery and military spending, which offset declines demand for consumer products and heavy equipment. Specialty Agricultural
Our diversified exposure to nonresidential construction markets, including publicly funded infrastructure data centers and related energy infrastructure support a steady demand for our carbon steel structural and tubing products despite negative pricing trends.
Our general manufacturing business, which represents roughly one third of our total sales is highly diversified across products and includes industrial machinery tumor products heavy equipment and military.
The man across the broader general manufacturing sector sector. We serve was relatively consistent on the whole compared to the second quarter 2023, primarily due to increased activity in the industrial machinery, and military spending which offset declines demand for consumer products that have your equipment.
Especially agricultural.
Stephen P. Koch: Our industry, our performance across key product groups, and shipping to general manufacturing applications highlight the benefit of our diversified business model in a dynamic demand environment. Aerospace products comprise approximately 9% of our total sales. Commercial aerospace demand remains healthy despite short-term supply chain challenges, and our defense-related aerospace and space program demand remains stable at strong levels. We primarily serve the automotive market through our coal processing operations, which are not reflected in our tons sold.
Our industry outperformance across key product groups Chipping to general manufacturing applications highlights the benefit.
Of our diversified business model and a dynamic demand environment.
Aerospace products comprise approximately 9% of our total sales.
Commercial aerospace demand remains healthy despite short term supply chain challenges and our defense related aerospace and space program demand remains stable at strong levels.
Primarily service the automotive market through our toll processing operations, which are not reflected in our consoled, our tolling business, which represents 4% of our total revenues.
Stephen P. Koch: Our tolling business, which represents 4% of our total revenues, saw improved demand in the second quarter of 2024 compared to the prior year period, due to healthy demand in the automotive market in both the United States and Mexico and our ongoing investments to increase capacity. However, semiconductor industry demand continued to contract due to excess inventories in the supply chain, which showed signs of stabilization through the second quarter in certain areas.
Improved demand in the second quarter of 2024 compared to the prior year period.
Healthy demand in the automotive market in both the United States, and Mexico, and our ongoing investments to increase capacity.
Semiconductor industry demand continued to contract due to excess inventories in the supply chain, but showed signs of stabilization through the second quarter in certain areas.
Arthur Ajemyan: Our long-term outlook for the semiconductor market remains positive, reinforced by both the significant semiconductor fabrication expansion underway in the United States and the CHIPS Act, which continues to guide our investment strategy for additional capacity to meet future demands. Overall, we are experiencing relatively steady demand with continued strength in certain key end markets, counterbalancing pressures in other end markets. We are very proud of our team's outstanding effort, which enables our continued industry leading performance.
Our long term outlook for the semiconductor market remains positive reinforced by both the significant semiconductor fabrication expansion underway in the United States and the chips Act, which continues to guide our investment strategy for additional capacity to meet future demand.
Overall, we are experiencing relatively steady demand with continued strength in certain key end markets counterbalancing pressures in other end markets.
We're very proud of our team's outstanding efforts.
Which enable our continued industry leading performance.
Arthur Ajemyan: Reliance's unrivaled scale and strong balance sheet make us a highly attractive partner to our mill suppliers in all market conditions. Reliance continues to win new business from new and existing customers who recognize the quality of our service, breadth of our product offerings, and increased diversity of our value-added services. 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.
Reliance's unrivaled scale and strong balance sheet makes us a highly attractive partner to our mill suppliers in all market conditions.
Reliance continues to win new business from new and existing customers recognize the quality of our service breadth of our product offerings and increased diversity of our value added services.
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.
Arthur Ajemyan: Thanks, Steve. And good morning, everyone.
Thanks, Steve and good morning, everyone.
Arthur Ajemyan: Our second quarter non-GAAP diluted earnings per share of $4.65 came in slightly below our guided range as pricing levels retreated further than anticipated and offset the sequential improvement in tons sold, which was in line with our expectations. Despite the difficult pricing environment, we successfully outperformed industry shipment levels across nearly all products as we benefited from our significant scale and diversified product offering. Our organic and inorganic growth initiatives collectively offset the impact of declining selling prices on our revenues in the second quarter.
Our second quarter non-GAAP diluted earnings per share of $4.65 came in slightly below our guided range, that's pricing levels retreated further than anticipated and offset the sequential improvement in tons sold which was in line with our expectations.
Despite the difficult pricing environment, we successfully outperformed industry shipment levels across nearly all product as we benefited from our significant scale and diversified product offerings.
Our organic and inorganic growth initiatives collectively offset the impact of declining selling prices on our revenues in the second quarter.
Arthur Ajemyan: The decrease in our gross profit margin from 31% in the first quarter to 29.8% in the second quarter is due to pricing headwinds and was the main driver of the 12.3% decrease in our non-GAAP diluted earnings per share. Our value-added processing capabilities moderated the decline in our gross profit margin as orders with value-added processing continue to experience significantly less gross profit margin contraction at times of declining prices than orders without processing.
The decrease in our gross profit margin from 31% in the first quarter 'twenty.
29, 8% in the second quarter.
It's due to pricing headwind and was the main driver.
The 12 point 12, 3% decrease in our non-GAAP diluted earnings per share.
Our value added processing capabilities moderated the decline in our gross profit margin as orders would value added processing continue to experience significantly less gross profit margin contraction at times of declining prices and orders without processing.
Arthur Ajemyan: Our LIFO Inventory Valuation Method provides further stability to our gross profit margin by adjusting our cost of sales to be more in line with current replacement costs. We recorded LIFO income of $50 million in the second quarter, in line with our guidance, as we continue to anticipate LIFO income of $200 million for the full year 2024, including $50 million of LIFO income for the third quarter of 2024. As of June 30, 2024, the LIFO reserve on our balance sheet was $479.3 million, which will generate LIFO income and benefit future period operating results to mitigate the impact of potential further declines in metal prices.
Our LIFO inventory valuation method, whereby its further stability to our gross profit margin by adjusting our cost of sales to be more in line with current replacement costs.
We recorded LIFO income of $50 million in the second quarter.
In line with our guidance as we continue to anticipate LIFO income of $200 million for the full year 'twenty 'twenty four.
<unk> $50 million of LIFO income for the third quarter of 2024.
As of June 30, 'twenty 'twenty for the LIFO reserve on our balance sheet was $479.3 million, which will generate LIFO income and benefit future period operating results to mitigate the impact of potential further declines in metal prices.
Arthur Ajemyan: Moving along to expenses, same store, on-gap SG&A expenses decreased approximately $18 million, or 3% sequentially, and $4 million, or 1%, on a year-over-year basis. These declines were primarily due to lower incentive-based compensation resulting from lower profitability, offset by higher costs associated with increased unsellable inventory, and wage inflation for the year-over-year change. As a reminder, our model inherently normalizes expenses by rightsizing incentives as profits trend down. I'll now move on to discuss our balance sheet and cash flow. Reliance generated $366.3 million in operating cash flow for the second quarter, which helped fund $292.8 million in acquisitions and $98.2 million in capital expenditures.
Moving along to expenses.
Same store.
GAAP SG&A expenses decreased approximately $18 million or 3% sequentially and $4 million or 1% on a year over year basis.
These declines were primarily due to lower incentive based compensation, resulting from lower profitability offset by higher costs associated with increased tons sold and wage inflation for the year over year change.
As a reminder, our model inherently normalizes expenses by right sizing incentives as profit trend down.
I'll now move on to discuss our balance sheet and cash flow.
Well I asked generated $366 $3 million in operating cash flow for the second quarter.
Which helped fund $192.8 million and acquisitions of $98 $2 million in capital expenditures.
Arthur Ajemyan: We also returned $62.6 million to our stockholders in the form of a cash dividend and repurchased $519.3 million of our shares at an average cost of approximately $288 per share. In July, we repurchased an additional $165.4 million of our shares at an average cost of approximately $284 per share, which combined with our second quarter repurchases resulted in more than a 4% reduction in our total shares outstanding. As of July 23, 2024, $755 million remained available under our October 2023 1.5 billion share repurchase authorization, and we have ample liquidity for continued opportunistic repurchases.
We also returned $62 $6 million to our stockholders through cash dividends and repurchased $519.3 million of our shares at an average cost of approximately $288 per share.
In July.
Purchased an additional $165 $4 million of our shares.
At an average cost of approximately $284 per share.
Which combined with our second quarter repurchases resulted in more than a 4% reduction in our total shares outstanding.
As of July 23rd 2024.
And $55 million remained available under our October 2020, 315 billion share repurchase authorization.
We have ample liquidity for continued opportunistic repurchases.
Arthur Ajemyan: Turning now to our third quarter outlook, we anticipate the operating environment will remain challenging in the third quarter from a pricing perspective, with demand remaining relatively stable, subject to seasonal patterns, including declining shipping volumes as a result of planned customer shutdowns and vacation schedules. Accordingly, we estimate our tons sold will be down 2.5% to 4.5% in the third quarter compared to the second quarter, but up 4.5% to 6.5% compared to the third quarter of 2023, with approximately 4% of the year-over-year growth coming from our 2023 and 2024 acquisitions.
Turning now to our third quarter outlook.
We anticipate the operating environment will remain challenging in the third quarter from a pricing perspective with demand remaining relatively stable.
Back to seasonal patterns, including decline in shipping volumes as a result of planned customer shutdowns and vacation schedules.
Accordingly, we estimate our tons sold will be down two and a half before in a half a percent in the third quarter compared to the second quarter, but up four 5% to six and a half per cent compared to the third quarter of 2023 with approximately 4% the year over year growth.
It's coming from our 2023 and 'twenty 'twenty four acquisitions.
Arthur Ajemyan: On the pricing side, we expect their average selling price per ton sold for the third quarter to be down 2 to 4% compared to the second quarter, primarily driven by lower prices for carbon steel products. Accordingly, we believe our gross profit margin will remain under pressure in the third quarter of 2024. Based on these expectations, we currently anticipate non-GAAP earnings per diluted share in the range of $3.60 to $3.80 for the third quarter of 2024.
On the pricing side, we expect our average selling price per ton sold for the third quarter to be down to two 4% compared to the second quarter, primarily driven by lower prices for carbon steel products.
Accordingly, we believe our gross profit margin will remain under pressure in the third quarter of 2024.
Based on these expectations. We currently anticipate non-GAAP earnings per diluted share in the range of $3 and $63.80 for the third quarter of 2024. This concludes our prepared remarks. Thank you. Thank you all for your time and participation well now open the call for questions.
Operator: This concludes our prepared remarks. Thank you all for your time and participation. We will now open the call to questions. Operator?
Operator.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on the telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Thank you.
We will now be conducting a question and answer session.
You'd like to ask a question. Please press star one on the telephone keypad.
Confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue.
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Operator: One moment, please, while we poll for questions. The first question comes from Martin Englert with Seaport Research Partners. Please go ahead.
One moment, please while we poll for questions.
The first question comes from Martin Engler with Seaport Research partners. Please go ahead.
Yeah.
Martin John Englert: Hello. Good morning, everyone.
Martin John Englert: Hello, Good morning, everyone.
Karla R. Lewis: Morning, Martin. Good morning.
Speaker Change: Good morning, Martin Good morning.
Martin John Englert: Looking past the 3Q gross margin weakness due to lower carbon steel pricing, if prices overall are flattish on an ASP basis in 4Q, do you think you're going to be able to work through some of the higher cost inventories so that gross margins will start to converge more towards a normalized level on a FIFO basis?
Looking past the three Q gross margin weakness due to lower carbon steel pricing.
Speaker Change: Prices overall are flattish on an ASP basis and for Q.
Speaker Change: Do you think youre going to be able to work through some of the higher cost inventories. So that gross margins will start to converge more towards a normalized level on a FIFO basis.
Karla R. Lewis: Yeah, Martin. So that's normal cyclicality for us to manage through the different pricing cycles. You know, our people have done this for decades out there.
Martin John Englert: Yeah, Martin So we certainly do I mean, that's normal cyclicality for us managing through the different pricing cycles. You know our people have done this for decades out there in our world prices go up then they go down and we tried to really focus on manage our in.
Martin John Englert: Managing our inventory well you know turning our inventory in line with our shipment levels, which I'm staying ahead of that helps us as we as we go through these cycles are certainly there has been some pressure prices did fall more than we had anticipated. So we had hoped that we.
Karla R. Lewis: In our world, prices go up and they go down. And we try to really focus on managing our inventory well, you know, turning our inventory in line with our shipment levels, which staying ahead of that helps us as we go through these cycles. Certainly, there has, you know, been some pressure.
Martin John Englert: We would have leveled off a bit more on gross profit margin by now but as prices continue to decline our we've got to work through that inventory, but it's typically a two maybe three months lag.
Martin John Englert: Lead times on a lot of our major products right. Now are you know kind of normal to short and so with that are you know we can can work through our inventory a little faster too.
Karla R. Lewis: Prices did fall more than we had anticipated, so we had hoped that we would have leveled off a bit more on the gross profit margin by now. But as prices continue to decline, we've got to work through that inventory. But it's typically a, you know, two, maybe three month lag. Lead times on a lot of our major products right now are, you know, kind of normal to short. And so with that, we can work through our inventory a little faster too.
Martin John Englert: Thank you for that. Coming back to the share repurchases, they were substantial in 2Q. I believe that eclipsed what was done in all 23. There was $755 million remaining on the authorization at the end of the quarter with $350 million of cash. Maybe if you could touch on expectations for 3Q working capital,
Speaker Change: Thank you for that.
Speaker Change: Back to the share repurchases are a substantial <unk>.
Speaker Change: So it was done in all 23.
Speaker Change: $755 million remaining on the authorization ended the quarter with $350 million of cash maybe if you could touch on expectations for <unk> working capital companies availability ability to continue repurchases.
Speaker Change: This level and if there is a minimum cash balance that you'd be targeting.
Arthur Ajemyan: Yeah Martin, so you know Reliance has always been a growth company and also a company to return value to our stockholders, so we try to continuously execute on all of that in an opportunistic manner. We felt the market gave us a great opportunity to be in repurchasing Reliance shares during the second quarter. We heard from everyone that in the first quarter when we were not in the market, there was a lot of surprise, but again, that goes with our opportunistic approach to how we're repurchasing the shares.
Speaker Change: Yeah. Martin So you know reliance has always been a gross company and also a company to return value to our stockholders. So we try to continuously execute on on all of that in an opportunistic manner. We felt the market gave.
Speaker Change: That's a great opportunity to be in repurchasing our reliance shares during the second quarter, we heard from everyone. That's on the first quarter. When we were not in the market and there was a lot of surprise, but again that goes with our opportunistic approach to how we're repurchasing the shares.
Arthur Ajemyan: We have also completed, you know, three acquisitions already this year and announced another small one. We're in a financial position where we're able to execute on all of our different capital allocation and growth strategies, and we expect to be able to continue doing that in the third quarter, fourth quarter, and beyond, so we're still in really good shape to execute, but I'll let Arthur address the working capital part of your question.
Speaker Change: We also completed three acquisitions already this year and announced another small one where in a financial position, where we're able to execute on all of our different capital allocation and growth strategies, and we expect to be able to continue doing that and you know.
Arthur: Third quarter fourth quarter and beyond so we're still in really good shape to execute but I'll, let Arthur address work your working capital part of your question, Yeah, Some art and while we don't necessarily put out a guidance for cash flow you could look at typical seasonality for our business you know typically in the first half there.
Arthur Ajemyan: Yeah so Martin while we don't necessarily put out a guidance for cash flow you could look at typical seasonality for our business you know typically in the first half there's working capital build and the second half is given the seasonality of the business there's working capital release so and then you can take our assumptions for pricing and volume so as prices go down you know you'd have slightly more working capital release than just from purely adjusting you know volume and inventory on hand levels.
Arthur Ajemyan: I hope that answers your question.
Arthur: Working capital build in the second half.
Arthur: Given the seasonality of the business, there's working capital release, So and then you can take our assumptions for pricing and volume. So as prices go down you know you'd have slightly more working capital release and just from purely adjusting them you know volume and inventory on hand levels I hope that answers your question.
Martin John Englert: Yeah, that's helpful. I appreciate it. If I could one more time, could you take a moment and highlight specific areas of your businesses that have higher exposure to grid electrification, grid expansion, and that as an end market?
Speaker Change: Yeah. That's helpful. I appreciate it.
Speaker Change: Could one more could.
Speaker Change: Could you just take a moment and I'll highlight specific areas of your businesses that have higher exposure to great electrification grid expansion.
Speaker Change: As an end market.
Stephen P. Koch: Yeah, hi, Martin. The electrification, the grid, I mean, those are parts of end markets that we service. There is definitely metal used in a lot of different components and ways, a lot of the different metals that we sell will go into those markets. I think Steve can maybe comment a little more specifically on some areas where we participate.
Martin John Englert: Yeah, Hi, Martin.
Martin John Englert: The electrification the grid I mean, those are parts of of end.
Martin John Englert: Markets that we service there is definitely metal used in a lot of different you know.
Steve: Ponant in waves a lot of the different metals that we sell are will go into those markets I think Steve can maybe comment a little more specifically on some areas where we participate.
Stephen P. Koch: So, Martin, we've been in this business for quite some time, servicing that market through our transmission tower manufacturers that we have in Texas and then a couple other places throughout the United States, and also our flat roll companies who provide galvanized steel to electrical enclosure and panel makers and transformer box manufacturers. So we don't, you know, we're not exactly sure if you order where it goes, but the trend when we do our end market conversations is that the end of the business is steady to growing.
Steve: So we've been in this business for quite some time certain servicing that market through our training mission tower manufacturers that we have in Texas and then a couple of other places throughout the United States and also our flat rolled companies, who are right galvanized steel to electrical enclosure and panel makers and transformer.
Speaker Change: So 90 factors, though.
Speaker Change: We don't you know.
Speaker Change: We're not exactly sure of your order, where it goes but the trend when we do our end market conversation because that ended the businesses Hum steady to growing.
Martin John Englert: Okay, I appreciate that. It's nice to see the buybacks.
Speaker Change: I appreciate that nice to see the buybacks. Thanks for your time.
Speaker Change: Yep.
Speaker Change: Sure.
Martin John Englert: Thanks for your time. Yes. Thank you.
Speaker Change: Thank you.
Operator: Thank you, Mark. Thank you.
Operator: The next question is from Phil Gibbs from KeyBank Capital Markets; please go ahead.
Speaker Change: The next question is from Phil Gibbs from Keybanc capital markets. Please go ahead.
Hey, good morning.
Phil: Thanks, Phil.
Philip Ross Gibbs: Can you just help us understand the LIFO dynamic a little bit better? If pricing inherently missed what you were expecting, why didn't this change to a higher income accrual in the quarter?
Philip Ross Gibbs: Can you just help us understand the lifeboat dynamic a little bit better.
Speaker Change: Pricing.
Speaker Change: Inherently Miss what you were expecting.
Speaker Change: Why didn't the change to a higher income accrual in the quarter.
Arthur Ajemyan: Yeah, great question, Philip. So, when we put out quarterly guidance, it's for pricing; that's just pricing for the quarter. LIFO guidance is an annual estimate where basically, what we're doing is forecasting inventory costs on hand at the end of the year. So as we were making our annual LIFO projection at the end of the first quarter, we're certainly looking at pricing expectations, not just through the end of the second quarter but through the balance of the year.
Speaker Change: Yeah, Great question, Phil So.
Speaker Change: When we put out a quarterly guidance and it's what pricing that's just pricing for the quarter LIFO guidance is an annual estimate we're basically what we're doing is forecasting inventory cost on hand at the end of the year.
Speaker Change: Where as we were making our annual LIFO projection at the end of the first quarter.
Speaker Change: We're certainly looking at them you know pricing expectations not just through the end of the second quarter, but through the balance of the year.
Arthur Ajemyan: So, what we experienced, you know, through the second quarter, certainly there was more price contraction, but at a high level, kind of when we looked at our estimates through the end of the year, they did not change materially, so we kept our LIFO estimate unchanged. Now we're going to revisit this, you know, at the end of the third quarter and see where we are, what our assumptions are, and then adjust as needed. And at the end of the year, the numbers are what they are based on actual costs on hand, so then, typically, in the fourth quarter, you have a true-up to the estimate that you're making.
Speaker Change: So what we experienced through the second quarter certainly there were there was more price contraction, but at a high level kind of when we looked at our estimates through the end of the year. They did not change materially. So we kept our LIFO estimate unchanged now we're going to revisit this.
Speaker Change: At the end of the third quarter and see where we are what our assumptions and then adjust them as needed and at the end of the year. The numbers are what they are based on actual costs on hand, so that typically in the fourth quarter you have a true up to that.
Speaker Change: We estimate that you're making.
Arthur Ajemyan: Thanks, Arthur. And clearly, a lot of buyback activity during the second quarter and early in the third. It looks like the share count didn't fall all that much, which tells me you bought a lot back in the latter part of Q2. If we were just to assume that you didn't make any further repurchases in the quarter, where would that check us out for the share count in Q2?
Speaker Change: Thanks, Arthur and clearly a lot of our buyback activity during the second quarter and early in the third.
Speaker Change:
Speaker Change: It looks like the share count didn't fall all that much which tells me you bought a lot back in the latter part of the.
Speaker Change: Part of Q2, if we were just to assume that you didn't make any further.
Speaker Change: Repurchases in the quarter, where would that check us out for share count in Q2.
Arthur Ajemyan: So I think we provided the total shares purchased in the earnings release, Phil, so it's roughly 2.4 million through July. So yeah, I mean, you're right, the weighted average shares that you use for EPS calculations, that's weighted. Q2 buybacks on Q3. I should point out that offsetting some of that benefit is the lower interest income that you get from lower cash on hand, so it's not just purely incremental, so there's some offsetting impact there.
Speaker Change: So I think we provided the total shares purchased in the AR.
Speaker Change: Earnings release feels so it's roughly two 2.4 million through and through July So yeah, you're right. The weighted average shares that you used for EPS calculations that that's weighted so Q3 is going to have the benefit of them all.
Speaker Change: Q2 share repurchases and then anything that was purchased in July that'll be that'll be weighted but you'll get the full benefit of.
Speaker Change: Our Q2 buybacks on Q3.
Speaker Change: I should point to point out that you know offsetting some of that benefit is the lower interest income that you get from lower cash on hand. So so it's not just purely incremental so there's some offsetting impact there.
Philip Ross Gibbs: And then lastly, for me, I know you have a lot of balls in the air with CapEx and new processing, fabrication, and distribution sites. Are there still a few of those that are in relatively, you know, called low rate production or startup mode that you don't have? Unknown Attendee, Lawson Winder, Arthur Ajemyan, Katja Jancic, Karl Blunden, Kimberly Orlando, Reliance Steel & Aluminum Co.
Speaker Change: Understood and then lastly for me I know you have a lot of balls in the air with a capex and a new.
Speaker Change: New sites.
Speaker Change: New.
New processing and fabrication and distribution sites.
Speaker Change: Are there still a few of those that are in relatively.
Speaker Change:
Speaker Change: I'll call it low rate production startup mode that.
Speaker Change: But you don't have.
Speaker Change: Full or near full contribution on I know the mills likes to call them start up costs, but for you. It's just I know, it's just sort of everyday business until they they get to a sort of full adoption, but are there are there's a handful of your facilities or your new team facilities that are still on that level or are they or are they starting to contribute.
Stephen P. Koch: Yeah, Phil, so we have, you know, as you commented when you were asking the question, and as you've known from following us for many years, we don't go build $2 billion projects. So we have a lot of different projects, very meaningful for us in each of our businesses, but certainly not at the scale of our suppliers and people like that.
Speaker Change: Yeah, Phil So we have you know as you're as you commented on.
Phil: When when you were asking the question is ive known from following US for many years. You know are we don't go build 2 billion dollar you know projects. So we have a lot of different projects are very meaningful for us in each of our business, but certainly not at the scale.
Phil: All of our suppliers and people like that but we have had quite a few growth activities. I mean, we've talked over the last few years about our on campus are greenfields in Sydney and in Gallatin and skeletons pretty fully ramped.
Stephen P. Koch: But we have had quite a few growth activities. I mean, we've talked over the last few years about our on-campus greenfields in Sitton and in Gallatin, and Gallatin's pretty fully ramped up. You know, Sitton, we kind of produce at the levels the mills are, so we've seen improvement there, probably a little more to go there. Our tool processing operations here in the U.S., we've added some capacity through some lines and expansions. A couple of those are still pretty early, you know, processing, but still more room to grow on those lines.
Speaker Change: You know sinton, we kind of produce at the levels. The mills are so we've seen improvement there are probably a little more to go there our toll processing operations here in the U S. We've added some capacity through some lines and expansions are a couple of those are.
Speaker Change: Still pretty early you know processing, but still more room to grow on on those lines. We've got another U S toll processing expansion, they probably won't come on until late this year beginning of next year to really contribute down in Mexico of our tolling operations there.
Speaker Change: You know, we've continued to expand and add equipment and all of those locations so they're continuing to contribute.
Speaker Change: Just opened a larger M J facility down in Atlanta, we have and then for metals larger facility in Georgia that is not going to probably be operating until next year. We've got our semi conductor you know expansions in Texas.
Stephen P. Koch: We've got another U.S. tool processing expansion that probably won't come on until late this year or the beginning of next year to really contribute. You know, expansions in Texas. So, a lot of different things are going on. We're kind of at the pace we've been going, and with the length of time it takes to get some of these operations up and running, you know, we have multiple things coming online kind of consistently throughout the year.
Speaker Change: A lot of different things going on we're kind of at the pace, we've been going in with the length of time. It takes to get some of these operations up and running you know we have multiple things coming online kind of consistently throughout the year.
Stephen P. Koch: Thank you. And one more question, just what are you and I know you commented a bit on your prepared remarks, but can you give us a little bit more detail in terms of what you're seeing in aerospace and defense given the volatility and the build rates and maybe your position? As a distributor slash processor versus someone who might be shipping more, kind of more mill direct, how are you managing through the volatility? Thanks. Unknown Speaker Yeah, so
Speaker Change: Thank you and one more if I could just what or what have you and I know you commented a bit on in your prepared remarks, but can you can you can.
Speaker Change: Give us a little bit more detail in terms of what youre seeing in.
Speaker Change: Aerospace and defense given the volatility in the build rates and maybe your position.
Speaker Change: As a you know as a.
Distributor or slash processor versus someone who might be shipping more kind of more mill direct how are you managing through.
Speaker Change: Low volatility thanks.
Stephen P. Koch: Yeah, so certainly, the defense projects, the programs that we participate in, those have been strong, they continue to be strong, whether it's you know kind of aerospace military defense or more general uh... military and defense but unfortunately because of what's going on in the world we see uh... strong demand continuing in those pockets uh... but specifically on the aerospace side that continues to be strong uh... commercial aerospace certainly uh... with some of the manufacturers not uh... you know producing at the the announced build rates that they've been buying too uh... we're anticipating some uh... pressure potentially uh... on just kind of on the activity, on the flow. We haven't, we've still been busy so far. Our shipments have been pretty steady, but we think there could be some pressure coming on the supply chain just because of the dynamics that are out there.
Speaker Change: Yeah. So certainly the the defense Ah projects or programs that we participate in those have been strong they continue to be strong whether it's.
Speaker Change: You know kind of aerospace military defense or more general military and defense.
Speaker Change: Unfortunately, because of what's going on in the world, We see a strong demand continuing in those pockets, but specifically on the aerospace side that continues to be strong.
Speaker Change: Commercial aerospace certainly with some of the manufacturers not and you know producing that the announced build rates that they've been buying too were anticipating.
Speaker Change: Some pressure potentially I'm on.
Speaker Change: But just kind of on the activity on the slow we haven't we've still been busy so far our our shipments have been pretty steady, but we think there could be some pressure coming on the supply chain just because of the dynamics that are out there.
Speaker Change: Thank you.
Speaker Change: I think so.
Operator: Thank you. The next question comes from Timna Tanners with Wolf Research. Please go ahead.
Speaker Change: Thank you. The next question comes from Timna Tanners with Wolfe Research. Please go ahead.
Timna Beth Tanners: Hey, good morning Kim.
Timna Beth Tanners: Hello, I wanted to dig in a little bit more on the pricing outlook, if I could. Does that reflect, like, today's spot price for carbon steel and the retreat in some of the base metals tied products? Or, if I'm missing something, are there any other items that could explain that guidance?
Timna Beth Tanners: And tell me again, what was that.
Timna Beth Tanners: Hello, I wanted to dig in a little bit more on that pricing outlook, if I could.
Timna Beth Tanners: Does that reflect like today's spot price for carbon steel and the retreat in some of that base metals tied product.
Timna Beth Tanners: Or if I'm missing something is there any any other items that could explain that guidance.
Karla R. Lewis: Yeah, Timna. So as we commented, the prices in Q2, primarily for some of the major carbon items that we sell, you know, plate, beam, tubing, we saw those prices fall further, flat roll included, fall further than we had anticipated for the quarter. We, you know, thought we were at a point earlier in the quarter where we had kind of hit the bottom, but then prices went down further from there for our guide for Q3.
Timna Beth Tanners: Yeah Timna. So as we commented the prices in Q2 are primarily for for some of the or the major carbon items that are that that we sell you know plate being tubing.
Timna Beth Tanners: We saw those prices fall further flat rolled included as well fall further than than we had anticipated for the quarter we.
Timna Beth Tanners: Thought we were at a point earlier in the quarter, where we had kind of hit the bottom, but then prices went down further from there for our guide for Q3, yes, a lot of that that the decline we're talking about is for the average for the <unk>.
Karla R. Lewis: Yes, a lot of that the decline we're talking about is for the average for Q3 compared to the average for Q2. So it does, for the most part, reflect where prices are currently. It's not anticipating, you know, significant declines from where we are today.
Timna Beth Tanners: For Q3 compared to the average of Q2. So it does for the most part reflect where prices are currently it's not anticipating you.
Timna Beth Tanners: You know significant declines from where we are today.
Karla R. Lewis: Okay, that's helpful. Thanks. And then maybe the question I would ask is, is there much impact from the, you know, kind of roller coaster right back down from the aluminum and other base metals prices, or is the aluminum segment almost entirely toll processing?
Speaker Change: Okay. That's helpful. Thanks, and then maybe backing up it is very much in part from the you know kind of.
Speaker Change: What kind of share buy back down from that aluminum and other base metals prices or is that aluminum segment almost entirely toll processing.
Karla R. Lewis: And we certainly do a lot of tool processing for automotive aluminum, but we're selling all the different metal products, you know, aerospace, heat-treating plate, mainly that we sell into aerospace, where pricing doesn't follow the LME the way, you know, common alloy does. With the Russian sanctions that were announced in Q2, there was more of a bump than we had anticipated in a positive way for aluminum and stainless, but we've seen those pull back. It was kind of a short-lived increase in pricing.
Speaker Change: Yes, we certainly do a lot of toll processing of automotive aluminum, but we're selling all the different metal products, you know aerospace heat treat plate, namely that we sell into aerospace that pricing doesn't follow.
Speaker Change: The L. N me the way you know common alloy does and you know with the Russian sanctions that were announced in in Q2. There was a more of a bump then than we had anticipated in a positive way to aluminum and stainless but we've seen those pulled back it was kind of a.
Speaker Change: Short lived.
Speaker Change: The increase in the pricing.
Stephen P. Koch: and Aluminum Steel Co. Sorry, Timna, I was just going to say that roughly 16% of our sales, and to Karla's point, when you look at some of the aerospace products included in that 16%, those don't follow the LME pricing. That's where you might get a slightly different pricing trends on that on the aluminum side of things.
Speaker Change: And the lemonade.
Speaker Change: Oh, sorry, I was just going to say that roughly 16% of our sales and and took Carlos point you know when you look at some of the aerospace products included in that 16% those don't follow the LNG.
Speaker Change: Pricing so.
Carlos: That's where you might get a little different pricing trends on that on the aluminum side of the business.
Speaker Change: Okay. Thank you I wanted to also look into that SG&A, a little bit more I know from history and from your prepared remarks, you look to temper that with declining earnings, but if it gets lift year over year, yeah. It hasn't really come down as much as it's a you know your tough you know your overall profit huh.
Timna Beth Tanners: From your Preparity Marks, you look to temper that with declining earnings. But if we just look year over year, it hasn't really come down as much as, you know, your overall profits have. So, and I know you mentioned that there is wage inflation but also less profit sharing. But are there other steps that you can take, given your guidance and where the market is? Are there other steps that you can take to kind of take a deeper hit on some of that overhead to manage it with what's happening in the broader market?
Speaker Change: So and I know you mentioned that wage inflation, but also less profit sharing but are there other stuff that he can pulp I'm, giving you a guidance and where the market is that there are there steps that you can take to kind of take a deeper hit killed some of that overhead can manage it with what's happening in that broader market.
Karla R. Lewis: Timna, on the expense side, we feel that our teams throughout the company are doing a good job managing. I mean, one of the things that we can do is sell more metal profitably. So, you know, that's part of the smart profitable growth we talk about to make up for and cover some of the higher costs. You know, everyone's operating with higher costs now. You know, we're continuously in each of our businesses looking at ways to become more efficient, but a lot of times, it really is company by company.
Speaker Change: Yeah Timna on the expense side, we feel are our teams throughout the company are doing a good job managing I mean, one of the things that we can do is.
Speaker Change: Sell more metal profitably. So you know that's part of our smart profitable growth, we talk about to make up and cover some of the higher cost you know everyone's operating with with higher costs now and you know we're continuously in each of our businesses looking at ways.
Speaker Change: To become more efficient, but a lot of times. It really is company by company a we do have some of our businesses, who recently have you know had to lay off some employees because their business volumes are down and that's one of the ways that we manage our expenses although.
Karla R. Lewis: We do have some of our businesses who recently have, you know, had to lay off some employees because their business volumes are down. And that's one of the ways that we manage our expenses. Although, you know, we do very much value our employees and the skills that they have. So, we try to retain them as long as we can. But sometimes business conditions in certain markets require us to, you know, do some layoffs.
Speaker Change: You know, we do very much value our employees and the skills that they have so you know we try to retain them as long as we can but sometimes business conditions in certain markets require us to you know to do some some layoffs, but I think you know we continue to try to manage expense.
Karla R. Lewis: But I think, you know, we continue to try to manage expenses, and we'll continue to look for ways. But there's not one, you know, magic bullet we have that applies across all of our companies to do that.
Speaker Change: <unk> and we'll continue to look for ways, but there's not one.
Speaker Change: Magic bullet, we have that applies across all of our companies to do that.
Timna Beth Tanners: Okay, thank you. One last question, if you could. I know you mentioned A&D and discussed that, but it seems like in the last couple of days we're seeing growing caution around the auto end market and some disappointment there. Can you just elaborate a little bit more on if you're seeing any of that or if you feel like you might have some offsetting factors that can keep your business more stable?
Okay. Thank you one last one for me if I could on on that you mentioned and being discussed that but that seems like in the last couple of days, we're seeing growing caution around the auto end market and some disappointment. There can you just elaborate a little bit more on if you're seeing any of that or if you feel like you might have some offsetting factor that can't keep your business more stable.
Karla R. Lewis: Yeah, as you know, Timna, most of what we do with the automotive industry is on the toll processing side, and so we're inspecting the metal, we're processing the metal, we're storing the metal, we're doing logistics. We've seen that business, which we have a lot here in the US, also in Mexico, those markets remain stable, and they've grown over the last year. We hear the same comments, maybe a little more cautious, but our businesses are still doing well with the aluminum toll processing that we do.
Speaker Change: <unk>.
Timna Beth Tanners: Yeah as you know Timna you know most of what we do with automotive is on the the toll processing side and you know so we're we're inspecting them that'll we're processing the metal we're storing them that'll we're doing logistics, we've seen that business, which you know we have a lot here in the U S also in Mexico.
Timna Beth Tanners: So we've seen those markets remain stable and grow there.
Timna Beth Tanners: They've grown over last year, we hear the same comments you know maybe a little more cautious, but our businesses are still doing well with the aluminum toll processing that we do that.
Karla R. Lewis: That we believe is still growing. Our carbon side of the business has grown as well, but we think that we may be positioned a little better and on the carbon side, too, the different platforms that we're on, we're concerned. We think the market's still stable for us.
Timna Beth Tanners: That we believe is still growing our carbon side of the business has grown as well, but we think that we may be positioned a little better and on the carbon side to the different platforms that were on them were not.
Timna Beth Tanners: Concerned we think the market's still stable for us there.
Timna Beth Tanners: Okay, thanks for all the color. Thanks, Timna. Thank you. The next question comes from Katja Jancic with BMO Capital Markets. Please go ahead. Hi, thank you for taking my questions.
Speaker Change: Okay. Thanks for all the color.
Speaker Change: Thanks Timna. Thank you.
Operator: Thank you. The next question comes from Katja Jancic with BMO Capital Markets. Please go ahead. Hi Karla, you...
Speaker Change: Thank you. The next question comes from Cat Johnson with BMO capital markets. Please go ahead.
Cat Johnson: Hi, Thank you for taking my questions.
Cat Johnson: I'll, let you you mentioned E D investments into semiconductor.
Cat Johnson: Expansion.
Cat Johnson: Can you talk a bit about what the status of that project is and also especially given the market has slowed down.
Karla R. Lewis: Yeah, Katja. So we have been dealing for, I think, a little over a year now with a weaker market than the record, record levels that the semiconductor industry has been operating at globally. And that's, again, you know, part of what we have to deal with, really a buildup in the supply chain when a lot of factors impacted the semiconductor flow, especially from some products in the U.S. going globally. So our folks have been managing through that.
Speaker Change: Yeah got you and so we have been dealing for I think a little over a year now with a a weaker market from the record record levels that the semi conductor industry had been operating at globally and that's again part.
Speaker Change: What we have to deal with them really a buildup in the supply chain went a lot of factors impacted I'm, the semiconductor flow, especially from some products in the U S are going globally and so our folks have been managing through that we think the supply glut is.
Karla R. Lewis: We think the supply glut is starting to be worked out, and we're seeing a little better activity with some of the equipment manufacturers. As far as the investments we're making, we are still very bullish on the semiconductor industry in the long term. It does take some time to build our facilities. These are probably a little more advanced facilities than some of our other service centers. Our smaller expansion in Texas has been up and running. It's still ramping up a bit, but that one is producing.
Speaker Change: Starting to be worked out and we're seeing a little better activity with them some of the equipment manufacturers as far as the investments we're making we are still very bullish on the semiconductor industry in the long term and it does take some time to to builder.
Speaker Change: Facilities. These are probably a little more advanced facilities and some of our other service centers. So our smaller expansion in Texas has been up and running it's still ramping a bit but.
Speaker Change: That one is producing our larger investment in Texas has been you know continuing through the process I think probably late this year or beginning of next year, we'll be starting to operate in that facility and you know we're comfortable with the timing and.
Karla R. Lewis: Our larger investment in Texas has been continuing through the process. I think probably late this year or early next year, we'll be starting to operate in that facility. We're comfortable with the timing and with the investments that we've made there and excited about what we'll be able to provide in the U.S. semiconductor market. And then, maybe, shifting gears a little bit to the M&A environment, what are you seeing there? How does your pipeline look like right now?
Speaker Change: With the investments that we've made there and excited about them you know what will what will be able to provide in the U S semiconductor market.
Speaker Change: And then maybe shifting gears a little bit to the M&A environment. What are you seeing there how does your pipeline look like right now.
Karla R. Lewis: Yeah, I mean, we're really happy that we've been able to add some really good companies to the Reliance family this year with the acquisitions we've already completed and announced. They're all pretty strategic, helping us with our growth plans and working with some of our existing Reliance companies. And we continue to see opportunities. It's been a pretty good flow for the last year or so. And I would say, especially with what we would talk about the service centers who kind of fit Reliance's model. We've been happy to see a continuous flow there.
Speaker Change: Yeah, I mean, we were really happy you know we've been able to add some really good companies to our to the reliance family. This year with the acquisitions, we've already completed and announced they're all pretty strategic helping us with our growth plans and working with some of our existing reliance comes.
Speaker Change: <unk> and we continue to see opportunity, it's been a pretty good flow for the last year, or so and I would say, especially with what we would.
Speaker Change: Talk about the the service centers, who kind of fit reliance's model, we've been happy to see a continuous flow there.
Speaker Change: Perfect. Thank you.
Speaker Change: Got you. Thank you.
Karla R. Lewis: Thank you. The next question comes from Lawson Winder of Bank of America Securities; please go ahead.
Speaker Change: Thank you. The next question comes from Lawson Winder.
Lawson Winder: With Banc of America Securities. Please go ahead.
Operator: Thank you very much, Operator and the whole team. Thank you for taking the questions.
Lawson Winder: Thank you very much operator, and Hello team. Thank you for taking the question but.
Lawson Winder: So first off, I just wanted to get an idea of whether or not you're seeing any pickup and ordering activity from carbon steel customers. So, I understand there's a bit of seasonality involved, but feedback from the mills indicates that after a pretty weak Q2 activity has potentially started to pick up in recent weeks. Are you seeing that?
Lawson Winder: First off I, just wanted to get an idea of whether or not you're seeing any pickup in ordering activity from our carbon.
Speaker Change: Carbon steel customers. So they can understanding there's a bit of seasonality involved but the feedback from the mills as indicated.
But after a pretty weak Q2 activity potentially starting to pick up and recently excuse me Matt.
Karla R. Lewis: Yeah, hi Lawson. You know, as we've talked about in Q1 and continued in Q2, when there are price decreases happening. You know, sometimes buyers will hold back, but they can only do that for so long, and they need metal. So, I would say we did see...
Matt: Yeah, Hi lesson on you know so as we've talked about and we talked about in Q1 and it continued in Q2 win when there are price decreases happening.
Matt: You know, sometimes buyers will hold back but they can only do that for so long and they need metal. So I would say we did see.
Karla R. Lewis: The second quarter was a little uncertain, I think, you know, some of our companies talked about June. It seemed uncertainty increased a little bit, and there may have been a pullback, but then we saw people coming back in. You know, I've seen comments from the mills about the service center industry. You know, at Reliance, we try to buy based on what we're shipping, and so that's how we manage our business and how we place our orders.
Matt: Second quarter was a little uncertain I think you know some of our companies talked about like June it seen uncertainty increased a little bit and there may have been a pull back but then we saw people coming back in.
Speaker Change: You know I've seen the comments you know from the mills are about the service center industry note reliance we tried to buy based on what we're shipping and so that's how we manage our business and how we place our orders we try to be as consistent as we can subject to our customers' buying patterns.
Karla R. Lewis: We try to be as consistent as we can, subject to our customers' buying patterns. So, you know, and overall, we still see demand pretty stable, subject to the seasonal impact. But I don't know that we can really comment much on what's really happening outside of Reliance. Yeah, I agree, Lawson. Hi, Steve.
Matt: So.
Matt: And overall, we still see demand pretty stable subject to the seasonal impacts, but I don't know that we can't really comment much on what's happening really outside of reliance I agree Steve we'd like to we've understood from the mills over the years that they want it consistent.
Stephen P. Koch: We'd like to, we've understood from the mills over the years that they want a consistent order book. So instead of, we're not a company that goes in and buys 50,000 tons in one quarter that is out of the market the next quarter. So we're buying consistently each and every month, and we haven't heard from the mills that they're having trouble filling our orders or that they're being overextended with big orders. We've not seen any spike in carbon activity.
Speaker Change: Order book, So instead of we're not a company that goes in and buys 50000 tons in one quarter than it was out of the market. The next quarter, so were buying consistently each and every month.
Speaker Change: We've not heard from the mills that are having trouble filling or whatever that they're being overextended with big orders coming from our competitors. So are we.
Speaker Change: We've not seen any spike in AR.
Speaker Change: Carbon activity at the mill level.
Speaker Change: Okay, Thanks, Carla and thank Steve for that color.
Speaker Change: Totally fair, it's all helpful color.
Speaker Change: I wanted to follow up on the the M&A question and just.
Speaker Change: Just ask it a slightly different way, which is how how long are you receiving value I mean, particularly given that I mean this year you'll activity for reliance is really really picked up after a bit of a lull for a number of years.
Speaker Change: Or is are the weekend weaker steel prices, perhaps helping bring those bid ask spreads back to an area. That's a little bit more digestible are comfortable for our reliance and are you seeing opportunities in any particular region or is it is it fairly spread.
Speaker Change: Yeah. So on the M&A side, and you know a valuation at reliance we've had a pretty consistent approach for many years to how we value companies and you know we focus on what we think a normalized you know pre tax income or EBITDA level is for the long term.
Speaker Change: When reliance acquires companies, where we're bringing them into the family you know really more on a permanent basis. So are we really take a long term view and certainly market conditions, our outlooks can impact that a bit but you know we are we've been in the <unk>.
Speaker Change: Business, a long time, so we did not believe that the 2021 2022 record metal prices would hold for the long term, we certainly enjoy that while it was here, but we weren't comfortable valuing companies are at that level, so with our normalized long term approach.
Speaker Change: You know our valuation method.
Speaker Change: Methodologies stayed consistent and so we didn't get some of those deals and some of those deals just didn't get done in the market anyway. Because you know others had the same view on pricing outlooks and so I think overall expectations are more in line now between buyers and.
Speaker Change: Sellers and you know kind of.
Speaker Change: A more a realistic outlook on earnings levels going forward.
Speaker Change: Yeah.
Speaker Change: Okay great.
Speaker Change: Very very helpful. And then if I might try a bit of a trickier question, which is just thinking about the old with the election coming up in November.
Speaker Change: And for your business or are you know, how how might we think about risks and opportunities for our lives.
Stephen P. Koch: There are always risks and opportunities out there in our business. You know that's what we manage through; that's what our people do well every day.
Speaker Change: There are always risks and opportunities out there and are in our business. You know that's that's what we managed through that's what our people do well every day I would say good news for reliance is where in many different products, we've got a diverse product base.
Karla R. Lewis: I would say the good news for Reliance is that we're in many different products. We've got a diverse product base, diverse geographies, diverse end markets, and many, many things, if you look around, require metal. So even if there's a shift in, you know, energy priorities or various other markets, most of those still require metal, and we sell many metals that are used out there. So we'll manage through it just like anything else and don't have a bias or, you know, preference in any direction.
Lawson Winder: Okay, fair. A very diplomatic response. Thank you for your color and helpful responses, Karla and team.
Speaker Change: First geographies diverse end markets.
Speaker Change: And many many things if you look around require metal so even if there's a shift on you know energy priorities or or various other markets. Most of those still require metal and we've so many metals that are used out there. So.
Speaker Change: So well manage through it I'm, just like anything else and don't have.
Speaker Change: This or you know preference and in any direction.
Speaker Change: Okay.
Speaker Change: Very diplomatic response, thank you for your color.
Carlin: The help of responses Carlin team.
Lawson Winder: Great. Thanks Lawson.
Lawson Winder: Thank you there are no further questions at this time I would like to turn the floor back over to Karla Lewis for closing comments.
Karla R. Lewis: Okay. So thanks again for joining our call today and thank you to each of our 15000 reliance employees for all that you do every day to drive our company forward, please be safe and before we close out the call I'd like to remind everyone that next month, we'll be participating in.
Karla R. Lewis: Seaports annual virtual summer conference. Thank.
Unknown Attendee: Thank you again for your continued support of Reliance, and we are more than metal. Thank you.
Karla R. Lewis: Thank you again for your continued support of Reliance. We are more than metal.
Thank you again for your continued support of reliance and we are more than metals.
Speaker Change: Thank you.
Unknown Attendee: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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Unknown Attendee: Thank you for your continued support of Reliance Steel & Aluminum Co.