Q4 2024 Reliance Inc Earnings Call
Speaker Change: He can't come out of the séance he can at almost any moment, can't get outside the thousand alarms at all. You can take him for an ice ticket, or beat him up,
Speaker Change: And I'm going to give you a little bit of a sneak peek at what's going on in the world of the movie. So, I hope you've enjoyed this little sneak peek. And I'll see you in the next video. Bye-bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.
Speaker Change: Please read the forward looking statements disclosures included in our earnings release issued yesterday 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 our earnings release.
Speaker Change: I will now turn the call over to Karla Lewis President and CEO of reliance.
Karla Lewis: Thanks, Kim good morning, everyone and thank you all for joining us today to discuss our fourth quarter and full year 2024 results.
Karla Lewis: Collectively the reliance business has demonstrated resilience in 'twenty 'twenty four and <unk>.
Karla Lewis: <unk> execution of our model and strategy once again fueled solid financial results in a challenging market.
Karla Lewis: Through our emphasis on smart profitable growth.
Karla Lewis: Grew our same store tons, well above industry shipment levels bolstering our earnings in a falling price environment Importantly, we were able to grow our tons shipped while also delivering a strong full year gross profit margin of 29.7% squarely with.
Karla Lewis: Then our sustainable annual range.
Karla Lewis: Additionally, we successfully acquired and integrated four companies in 2024, adding approximately $400 million of net sales on an annualized basis, and broadening our geographic footprint and processing capabilities in both new and existing markets.
Karla Lewis: Our 2020 four non-GAAP earnings per share of $15.92 reflected the benefit of our targeted growth strategies.
Karla Lewis: End market served strong pricing discipline and expanded value added processing capabilities.
Karla Lewis: Which collectively helped mitigate the impact of declining metal prices.
Karla Lewis: Our profitability and effective working capital management led to the third highest annual cash flow from operations and reliance's history of $1.43 billion I'd like to thank our amazing teams across our entire family of companies.
Didn't incredible job delivering more value to our customers in 'twenty 'twenty four well most importantly, keeping each other safe.
Karla Lewis: We maintained our balanced and disciplined approach to capital deployment in 'twenty 'twenty, four investing $430 million in capital expenditures.
Karla Lewis: $365 million in acquisitions.
Karla Lewis: A record $1.1 billion and share repurchases, resulting in a 6% year over year reduction.
Karla Lewis: Outstanding shares and returning $250 million in dividends to our stockholders.
Karla Lewis: Our capital expenditure budget for the 2025 calendar year is $325 million with an expected total cash outlay of approximately $375 million to $400 million inclusive of carryover projects from prior years.
Karla Lewis: As I mentioned, we acquired four businesses in 'twenty 'twenty, four bringing us to 76 acquisitions completed since our 1994, a P O and our acquisition pipeline remains robust and active.
Karla Lewis: Before I conclude I'd like to highlight a few corporate developments, we announced yesterday.
Karla Lewis: Brenda Miyamoto was promoted to senior Vice President strategic planning and programs.
Karla Lewis: Do you worry 18th 2025.
Karla Lewis: And who has been with reliance for 23 years, having served in various roles of increasing responsibility. Most recently as our vice president of corporate initiatives.
Karla Lewis: In addition, Scott Ramsbottom was appointed Vice President Chief Information Officer of reliance effective November 18, 2020 for Scott is a veteran industrial distributions CIL with more than 25 years' experience and we wish them both.
Karla Lewis: The best in their new roles.
Karla Lewis: As we look ahead to 2025, our priorities are centered on striving to keep our people safe every day.
Karla Lewis: Increasing our volumes through our smart profitable growth strategy.
Karla Lewis: Maintaining an annualized gross profit margin within our estimated sustainable range of 29% to 31% and.
Karla Lewis: Enhancing our value added processing capabilities.
Karla Lewis: Secondly, managing expenses and working capital.
Karla Lewis: Maintaining our balanced and disciplined capital deployment strategy promoting both growth and stockholder returns.
Karla Lewis: And promoting increased collaboration and sharing of best practices throughout our family of companies.
Karla Lewis: While macroeconomic uncertainty persists, we're excited about 2025 and well positioned to continue to grow our business and have both the capacity and the capability to participate in any improvement in end market demand across our broad and diverse snap.
Karla Lewis: Work arising from the many potential opportunities that exist, including infrastructure military datacenter electrical grid general manufacturing and many other markets that we serve.
Speaker Change: Thank you all for your time today I'll now turn the call over to Steve who will review, our demand and pricing trends.
Steve: Thanks, Carla and good morning, everyone I'd like to begin by expressing my gratitude to the entire reliance team for a strong finish to the year and for their ongoing commitment to safety and operational excellence.
Steve: I'll now turn toward demand and pricing trends, our fourth quarter tons sold decreased five 1% compared to the third quarter of 2024, surpassing our outlook of down 6% to 8%. However, fourth quarter tons sold increased six 7% or two 8% on a same store base.
Steve: This compared to the fourth quarter of 2023.
Steve: That's a good lead outperforming the service center industries year over year decrease of three 6% as reported by the MSCI.
Steve: For the full year, our tons sold increased 4% or 1% on a same store basis.
Steve: Surpassing the MSCI industry wide decrease of 2% underlying.
Steve: Underlying demand remained solid in several key end markets, including nonresidential construction.
Steve: Certain manufacturing sectors.
Steve: Space and automotive.
Steve: We are pleased with the market share gains we've made across nearly every product group, while maintaining industry, leading profitability and a challenging year driven by our diversified business model relentless customer service and contributions from our strategic investments in organic growth and acquisitions.
Steve: Our fourth quarter average selling price per ton sold over $2170 declined three 4% compared to the third quarter of 2024 within our expectation in the one 5% to three 5% decline.
Steve: Carbon steel product prices remained under pressure, we saw aluminum and stainless steel prices start to stabilize in the fourth quarter.
Steve: Next I will turn to an overview of notable trends within our key end markets and products beginning with nonresidential construction.
Steve: Yeah.
Steve: Carbon steel tubing plate and structural products, which we mainly sell into the nonresidential construction market represented roughly one third of our sales in Q4 2024.
Steve: All three products had significant year over year shipment growth and substantially outperformed industry shipments compared to the fourth quarter of 2023 and full year of 2023, which mitigated some of the impact on sales of lower average selling prices are.
Steve: Our diversified exposure to the nonresidential construction market, including heightened datacenter construction and related energy infrastructure projects as well as publicly funded infrastructure projects supported solid demand for our products and the contributions from our recent acquisitions.
Steve: Our general manufacturing business, which also represented roughly one third of our total sales in Q4, 'twenty 'twenty four is highly diversified across geographies products and industries.
Steve: Shipments increased compared to the fourth quarter of 2023 and were consistent with the full year of 2023 industrial machinery military shipbuilding and rail remain strong in 2024.
Steve: Consumer products' demand declined year over year, but showed improvement in the fourth quarter.
Speaker Change: Have your equipment, particularly in the agricultural sector experienced weaker demand through 2024.
Speaker Change: Our industry outperformance across key product groups shipping to general manufacturing applications highlights the advantage of our diversified business model anytime dynamic and uncertain demand environment.
Speaker Change: Aerospace products comprise approximately 10% of our Q4 2024 sales demand for commercial aerospace was stable compared to both the fourth quarter and full year of 2023, Despite short term production and supply chain challenges.
Speaker Change: Demand in defense related aerospace and space programs remained stable at strong levels.
Speaker Change: We primarily service the automotive markets, where our toll processing operations, which are not included in our tons sold for tolling business, which represented approximately 5% of our Q4 2024 sales saw process times increased five 8% from the fourth quarter.
Speaker Change: And three 1% from the full year of 2023 due to healthy demand in both the U S and Mexico, and our ongoing investments to increase capacity.
Speaker Change: Semiconductor industry shipments remains restrained in the fourth quarter with excess inventories in the supply chain.
Speaker Change: On the whole demand remains relatively steady with strength in certain key end markets and market share gains counterbalancing pressures in subdued markets.
Speaker Change: We continue to monitor the dynamic trade policy landscape I remain confident that our proven and resilient business model positions reliance on sell through all markets.
Speaker Change: Please refer to our earnings release for additional commentary on our end markets and product diversification.
Speaker Change: We're very proud of our team's extraordinary execution, which enables our continued industry leading performance.
Speaker Change: Alliances unrivaled scale and strong balance sheet makes us a highly attractive partner to our mill suppliers in all market conditions, we continue to win new business from new and existing customers, who have the breadth and depth of our product offerings.
Speaker Change: Value added processing capabilities and recognize the quality and reliability of our service.
Speaker Change: I will now turn the call over to Arthur to review, our financial results and outlook.
Speaker Change: Okay.
Speaker Change: Thanks, Steve and thanks, everyone for joining today's call.
Speaker Change: Our underlying operating performance for the fourth quarter was stronger than anticipated due to better than expected shipment levels and an improved gross profit margin when excluding the impact of nonrecurring items, along with year end LIFO reserve and income tax rate adjustments.
Speaker Change: Overall, our fourth quarter non-GAAP earnings per diluted share of $2.22 included an unfavorable year end LIFO true up impact of 74 cents per share.
Speaker Change: Income tax rate true up compared to the assumptions used in our non-GAAP earnings per diluted share guidance of $2 65 to $2.
Speaker Change: Dollars 85 cents more on that shortly.
Speaker Change: Moving on to fourth quarter sequential decline in our average selling price was in line with our expectations. Our tons sold were better than we anticipated leading us to once again outperform industry shipment levels on a same store basis across nearly all product.
Speaker Change: On a non-GAAP FIFO basis, which is how we measure our day to day operating performance. Our gross profit margin improved sequentially from 27, 9% in the third quarter to 28, 8% in the fourth quarter, reflecting better alignment of replacement costs, our inventory on <unk>.
Speaker Change: Hand.
Karla Lewis: And as Karla mentioned, our full year gross profit margin of 29, 7% was within our sustainable annual range.
Speaker Change: Our strong pricing discipline.
Speaker Change: You added processing capabilities.
Speaker Change: One's a consistent premium irrespective of the underlying price of metal.
Bolstered our gross profit margin and spend the impact of a declining pricing environment on our gross profit margin and bottom line.
Speaker Change: For the full year of 2024, we performed value added processing on a proximately, 50% of our orders we were able to keep this metric relatively consistent year over year as we grew our business on both the processing and distribution side more specifically.
Speaker Change: We grew our same store tons sold with processing by three 6% in 2023 and a further one 3% in 2024.
Speaker Change: Our fourth quarter gross profit margin declined to 28, 3% from 29, 4% in the third quarter largely due to the recognition of $5 $6 million of LIFO expense as compared to our $50 million of LIFO income estimate.
Speaker Change: Yeah.
Speaker Change: This resulted in 'twenty 'twenty four annual LIFO income of $144 $4 million compared to the original $200 million annual income estimate.
Speaker Change: We discussed on our last earnings call.
Speaker Change: Our LIFO adjustment for the fourth quarter Trues up our interim annual LIFO estimate based on year end inventory levels and factors such as inventory cost per ton trend and changes in product mix.
Speaker Change: These impacts were heightened in the fourth quarter by the receipt of certain long lead time high value specialty stainless steel and alloy products, which will ultimately shift LIFO income from 2024 into 2025.
Speaker Change: Accordingly for the full year of 2025, we estimate LIFO income of approximately $60 million. It's important to note that this estimate reflects the carryover and normalization of specialty stainless steel product inventory from 2024, rather than in expectation of declining.
Speaker Change: <unk> metals pricing in 2025.
Speaker Change: As of December 31, 2020 for the lack of reserve on our balance sheet was $435 million, which remains available to benefit future period operating results by recognizing LIFO income and therefore mitigating the impact of potential further declines in metal prices.
Speaker Change: Yeah.
Speaker Change: On the expense side, our fourth quarter same store non-GAAP SG&A expense increased a modest $8 million or one 3% year over year due mainly to general wage inflation offset by lower incentive compensation consistent with lower profitability.
Speaker Change: As a reminder, our model inherently normalized expenses by right sizing incentives as profit trend out sequentially. Our same store non-GAAP SG&A expense was down $3 million or less than 1%.
Speaker Change: We also incurred impairment charges of $11 $7 million in Q4.
Speaker Change: Associated with the consolidation of one of our operations into existing facilities to streamline operating efficiencies.
Speaker Change: I'll now address our balance sheet and cash flow.
Speaker Change: We continue to generate strong cash flow from operations.
Speaker Change: In both the fourth quarter, and full year, and $473.3 million and $1.43 billion respectively.
Speaker Change: Well lower relative to 2023 levels higher working capital release helped offset declines in our profitability.
Speaker Change: There's cash enabled us to put capital to work in the fourth quarter.
Speaker Change: $310 $9 million in capital expenditures.
Speaker Change: $61.2 million and dividends paid to stockholders.
Speaker Change: $142 $4 million in share repurchases.
Speaker Change: Average cost of $271 per share.
Speaker Change: Year to date in 2025, we have repurchased an additional $203 million of our shares at an average cost of $273 per share resulting in cumulative.
Speaker Change: And a half percent reduction in our total shares outstanding.
Speaker Change: Remember 31 2023.
Speaker Change: We have one.
Speaker Change: One $5 billion remaining for additional share repurchases under our existing $1 $5 billion share repurchase plan that we recently refreshed in October 2024.
Speaker Change: Our leverage position also remains favorable with a net debt to EBITDA ratio of less than one providing significant liquidity to continue executing our capital allocation priorities.
Speaker Change: Yeah.
Speaker Change: I'd now like to spend a few moments discussing our outlook for the first quarter of 2025.
Speaker Change: We anticipate the men across the majority of our end markets to improve modestly in the first quarter. Despite continued uncertainty about domestic and international policy.
Speaker Change: We estimate our tons sold will be up 6% to 8% in the first quarter compared to the fourth quarter of 2024, consistent with seasonal trends and up 5% from the first quarter of 2024 with half two 2.5%.
Peter: Peter go to same store growth.
Speaker Change: On the pricing side.
Speaker Change: In fact, our average selling price per tons sold to be relatively flat compared to the fourth quarter.
Speaker Change: We anticipate our FIFO gross profit margin will continue to improve in the first quarter of 2025 is the alignment of replacement costs and inventory.
Speaker Change: <unk> continues to improve improve.
Importantly, this outlook assumes no significant trade policy disruption either positive or negative to carbon steel stainless steel and aluminum products market demand and pricing.
Speaker Change: Based on these expectations, we anticipate non-GAAP earnings per diluted share in the range of $3 30 to $3.50.
Speaker Change: First quarter of 2025.
Speaker Change: This concludes our prepared remarks. Thank you again for your time and participation and we'll now open the call.
Speaker Change: <unk> for your questions operator.
Speaker Change: Thank you will now be conducting a question answer session, if you'd like to be placed in the question queue. Please 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 if you'd like to move your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star one.
Speaker Change: One moment, please while when you poll for questions.
Speaker Change: Our first question is coming from Martin Engler from Seaport Research Partners. Your line is now live.
Martin Engler: Hello, Good morning, everyone I appreciate there's some more money.
Martin Engler: I wanted to dig in a little bit on activity.
Martin Engler: Activity in the U S market for steel metal.
Martin Engler: In recent weeks.
Martin Engler: I'd be curious to hear your thoughts on how much you would attribute the seasonal gains quarter on quarter potential demand pull forward due to tariffs and possibly rising prices.
Martin Engler: This is an organic cyclical recovery.
Martin Engler: Hi, Martin Yeah, we can't really speak to what's happening at other companies, but at reliance.
Martin Engler: Overall, our volumes were pretty steady through 'twenty 'twenty four and most of our major end markets. You know we were.
Martin Engler: Looking for growth our people performed very well as we commented in our remarks, you know we were growing at a higher rate than the industry. In particular, you know non res construction, we saw good activity, there not necessarily growing but maintaining.
Martin Engler: Subject to the seasonal trends and we look for that to continue in Q1 are we think there's you know momentum as we move further into 'twenty 'twenty five for some other markets to pick up a little more but overall I think we've seen pretty a pretty steady demand.
Martin Engler: Yeah. In addition to that Martin coming into 2025, our January activity was pretty strong and that's even in spite of some bad weather pretty much countrywide.
Martin Engler: So as far as pull forward goes with the impending tariffs in March we have seen a little bit of a customer.
Martin Engler: Customer activity trying to make sure that they get their material.
Martin Engler: Before the price increases.
Martin Engler: So we're pretty optimistic about the first quarter.
Speaker Change: Your comment about response about expected momentum potentially developing as you're moving into or through 2025, what specific end markets.
Martin Engler: You'd be anticipating that for.
Speaker Change: Yeah, it's more from an overall standpoint, Martin, but there does continue to be uncertainty as you know you'd asked about and Steve just commented maybe a little extra right now because of the the potential tariffs, but we think once Ah. There's you know final news on that end.
Speaker Change: Everyone understands the playing field that will see.
Speaker Change: People buying on a more regular basis again, we think different parts of the general manufacturing sector.
I will will improve.
Speaker Change: Hopefully infrastructure starts to flow, especially if permitting and and funding is is a more efficient process. We could start to see some of the infrastructure money going certainly you know data center everything related to the electrical grid I'm, there's a lot of them.
Speaker Change: Strength, there and so many different reliance companies touch that type of business in many different ways through many different products. So we're you know pretty positive about.
Speaker Change: About a 2025.
Speaker Change: Okay.
Speaker Change: Appreciate it.
Speaker Change: I'm curious maybe.
Speaker Change: Maybe a couple of parts to this question.
Speaker Change: Moving to policy.
Speaker Change: Maybe you could walk through.
Speaker Change: Some of the positive and negative factors that could evolve for the company and then also I would like to understand what you're seeing out there in today's market I understand your large domestic buyer in Boston, probably at the front of the line.
Speaker Change: When you're buying from upstream metals and steel producers, but what are you seeing in the overall supply side of the environment in the U S. In recent weeks anything changing works.
Speaker Change: Reduced availability.
Speaker Change: Yeah as you mentioned Martin I mean, we have been a very long time domestic buyer, we prefer to support our mills here in the U S. It also helps us manage our inventory well you know turning our inventory, which is what we'd look to do historically.
Speaker Change: Lee when there have been tariffs are different trade policy enacted and it reduces the amount of import material coming into the U S. We generally see prices increase in the U S, which has been positive for us.
Speaker Change: You know, we currently anticipate that would be the impact again, but you know and until we start operating in that environment, we won't know, but we do see potential upside on the pricing front are we do think we're well positioned to receive the inventory we've already seen especially on the <unk>.
Speaker Change: Side, some movement upwards, you've seen some pricing movement upwards on some of the carbon steel products as well, which is all positive from our view.
Speaker Change: Okay I appreciate all the color and congratulations on the strong underlying results exiting the year.
Speaker Change: Great. Thanks, Martin Thank you.
Speaker Change: Thank you. Your next question is coming from Carter, you Yung Chen from BMO capital markets. Your line is now live.
Speaker Change: Hi, Thank you for taking my questions.
Yung Chen: Carla you mentioned initially that one of the things you will be focusing on and 25 is an increasing volume is that going to be more driven by organic growth or does that include also some acquisitions.
Yung Chen: It would be both as you know in 2024, where we saw a lot of growth a little more than half of our bump up in 'twenty 'twenty four was from the four acquisitions, we completed in a year, but we also grew our same store tons and that's we talk about smart profit.
Yung Chen: Gross which is go after more volume while also maintaining your margins don't take every order, but take those that will be accreted add pretax income dollars and we think our people have executed extremely well on the organic side going out and.
Yung Chen: Getting a little more volume, especially you know with a declining price environment that we had in 'twenty 'twenty four cause additional earnings off of the increased volume.
Yung Chen: It was very helpful in adding to our earnings and offsetting some of the higher costs we have.
Speaker Change: And maybe on the value added processing I.
Speaker Change: I think when when we saw what we saw during the call. It is that the interest in Mali and processing increase.
Speaker Change: But the this environment, where you have increasing protectionist policies drive another leg higher on interest in domestic value added processing.
Speaker Change: I mean that potentially could certainly if there is less of that being you know jud offshore that's part of the re shoring that's been happening the last few years, but even before you know a lot of Reis shoring. We've just seen a change with a lot of our customers where they've looked at what they're doing internally.
Speaker Change: Trying to drive cost out be more efficient and they realize that because you know reliance companies are serving many different customers. You know, we're able to often times do the same type of processing for them more cost effectively than that our customers doing it in house. So we had.
Speaker Change: <unk> already seen a trend from our customers and then yes with the re shoring trends.
Speaker Change: That certainly could potentially drive it up more we have seen some of our customers come to us when business has come back from Asia or wherever and it's come back to the U S. So you know that could drive it higher I will say, though you know we we did increase the number of tons of number.
Speaker Change: Orders with your processing going on in 2020 four but we also grew the distribution side of our business, especially with some of our acquisitions and you know we just are are able and ready to continue to invest in whatever our customers need us to do for them on a profitable basis and we do expect.
Speaker Change: To continue to see more of that activity and Patti I would add to that.
Speaker Change: General ourselves into the general manufacturing and market the product that we shipped to those to that end market naturally lend themselves for value added processing them at a much higher rate and you know other products. So as general manufacturing activity picks up we should see a pick up in our value added processing.
Speaker Change: As well.
Speaker Change: Great. Thank you I'll hop back into the queue.
Speaker Change: Thank you. Thank you.
Speaker Change: Thank you next question today is coming from Phil Gibbs from Keybanc capital markets. Your line is that life.
Speaker Change: Hey, good morning.
Speaker Change: Hey, good morning.
Speaker Change: So I'm looking at operating expenses up about 4% year on year, you had a 4% uplift in volumes ex tolling, but you did have a decline in your FIFO gross profit so not not a ton of leverage maybe relative to some historical years, so showing that there's still maybe some.
Speaker Change: Either some excess cost in your supply chain and or inflation.
Speaker Change: Within the business is pretty sticky so many opportunities to lean that out or they just going to be through operations are going to have to grow into.
Speaker Change: Yeah, Hi, Phil. So certainly you know costs are up wage inflation, we continue to pay good fair wages to our employees. So you know we do have some wage inflation some of our incentive comp is down because of the lower FIFO profitability that you talked.
Speaker Change: About we are always looking for ways to take some costs out you know we do have some instances, where we maybe have to carry a few more people to the longer training times in general when we're bringing new employees on now, but you know all of our folks out in the field are looking at ways.
Speaker Change: As to potentially take cost out but also at the same time, we need to retain our good employees who are trained.
Speaker Change: How to work safely in our environments.
Speaker Change: You know we're reacting the best we can but certainly there has been some inflationary increase yeah.
Speaker Change: And so I would add to that at a high level, we've been able to keep our operating costs per ton pretty steady.
Speaker Change: The last three years that you know roughly in the four and that's you know 40 to 50 Bucks a ton in that range, but also you know Carlos spoke to smart profitable growth and as part of that initiative.
Speaker Change: We're really trying to to your point grow into the cost structure. So as we bring additional business, we're trying to get more efficient and not increase our expenses. So that that's part of the smart profitable growth not just kind of from a margin perspective, but from expense perspective, so we've been able to.
Speaker Change: You know you get some really good traction on that front and we're looking to continue with that strategy going forward.
Speaker Change: Okay.
Speaker Change: Thank you and.
Speaker Change: Can you speak to I don't know if you mentioned in the prepared remarks, but maybe maybe talk about cash capex in 2025.
Speaker Change: Yeah, where I'm estimating that our our current your budget for new projects is 325 million, but we still have carryover from you know some projects that roll into this year. So we're estimating mm 375 to 400 million of cash outlay. This year.
Speaker Change: Thanks, Carla and then some as you talked about being being being soft and historically I've thought about you guys as having more sammy's in fraud.
Speaker Change: So there's there's still that build out occurring.
Speaker Change: And seem to be more more sami's production.
Maybe that's some of the aluminum plate.
Speaker Change: Flight business I don't know, but.
Speaker Change: Maybe quantify what you're what you're seeing there and what you expect over the next few years.
Speaker Change: Yeah, I think you know certainly long term, we're still bullish on the semi conductor industry, especially as you're referencing a lot of the build going on here in the U S. I would say on the infrastructure side of that where we participate.
Speaker Change: When they were building new plants, it's Ben.
Speaker Change: Like pretty choppy I think you know different of the semi conductor manufacturing companies.
Speaker Change: You know, whether it's permitting whether its workforce, whether it's other internal issues.
Speaker Change: That they're dealing with you know one project will be pretty busy and then all of a sudden that stops another project heats up a little bit so it hasn't been a smoother as steady other build them, but we are participating.
Speaker Change: And the projects that are active.
Speaker Change: Thank you.
Speaker Change: Uh huh.
Speaker Change: Thank you next question today is coming from Mike Harris from Goldman Sachs. Your line is that a lot.
Speaker Change: Yes. Thank you.
Speaker Change: If I could I wanted to get just a bit more clarification around the first quarter got four tons being sold being up 60%, but pricing roughly flat I guess I was a little surprised we're not more optimistic around pricing are all considered and is that because theres, a maybe an unfavorable mix.
Speaker Change: And that 6% to 8% that could be capped off a pricing or are you just being ultra conservative here until the conservative fastest growing.
Speaker Change: So Mike you know, we're not baking in.
Speaker Change: Anything from the tariffs not a at this point, we think it it could be positive for pricing.
Speaker Change: But yeah. We typically you know take a conservative view there have been some price increase announcements, but sometimes uncertain products, but sometimes it takes a little time for those to really be effective in the market. So.
Speaker Change: You know that's the way, we guided for the quarter and hopefully there will be some upside to that.
Speaker Change: Okay. Okay. That's fair and then just for the first quarter, how should we think about you know working capital and perhaps speak to your expectation for inventory days on hand.
Speaker Change: Yeah.
Speaker Change: You can look at you know typical seasonality in our business. Yeah. I mean go back the last you know two or three years and just look at seasonally going into Q1, what happens you know from Q4 and you know to you know as you have them you know higher shipment levels typically in Q1, you'll end up.
Speaker Change: Building some working capital.
Speaker Change: And then just typical trends or our Q1 and Q2 you might end up building working capital and then Q3 and Q4 you have releases. So that's sort of the typical seasonality and we would expect it to be consistent with those you know historical seasonal patterns.
Speaker Change: Yeah.
Speaker Change: Okay. Thanks for that additional color.
Speaker Change: Yep you got.
Speaker Change: Thank you. Your next question is coming from Alex hacking from Citi. Your line is now live.
Alex Hacking: Yeah, Thanks for the call.
Alex Hacking: Turning back to tariffs again, you mentioned higher pricing is generally good for you, but can you just remind us you know.
Alex Hacking: What's your exposure do you have any exposure to material coming across the border from Canada or Mexico.
Alex Hacking: So we are you know we certainly we have locations in in all three countries in North America of opera. They they typically are our buying domestically our toll processing company in Mexico Duh.
Alex Hacking: Does <unk> have a license to import metal for their customers from the U S. So there could be some impact there you know overall international is a fairly small part of our business, where typically most of our locations are within the U S where typically shipping within about 150 mile radius.
Alex Hacking: And so we don't anticipate a significant impact, but we could see some disruptions in that part of our business that flows across the borders.
Karla Lewis: I agree with Carla will see some disruptions, but since we are 90, 596% domestically sourced.
Karla Lewis: We think that an overall strong U S steel market with higher prices supports relying supports the companies that are investing billions and billions of dollars into our infrastructure.
Karla Lewis: So we will deal with on a case by case basis with some terrorists parapraxis disruptions, but we're overall, we're very positive.
Speaker Change: Okay. Thanks, and just to clarify you said about 95% plus.
Speaker Change: Domestic did I hear that correct.
Speaker Change: Domestically sourced, but yes, okay.
Speaker Change: I guess when I just thought it kind of on the on the accounting side. You know you mentioned that FIFO gross margin.
You shouldn't.
Speaker Change: <unk> move in the right direction and one two I assume that with steel and metals prices generally rising that does create probably a LIFO headwind for the first quarter, that's baked into guidance.
Speaker Change: Hmm.
Speaker Change: Yeah. So I think we guided to a LIFO income and and as we alluded to in our remarks that it's not that we're expecting prices or cost to decrease for the remainder of the year. So some of that was timing related to some specialty stainless and stainless steel and alloy products, but.
Speaker Change: Generally speaking the gross profit margin improvement yeah. It has more to do with cost alignment, meaning costs on hand, getting better alignment with replacement costs.
Speaker Change: And then to the extent that there's any.
Speaker Change: Average selling price uplift you're right that there will be some additional pick up on the margin side from that.
Speaker Change: Alright, Thank you very much.
Speaker Change: You got it.
Speaker Change: Thank you next question is a follow up from Phil Gibbs from Keybanc capital markets. Your line is that what.
Phil Gibbs: Hey, Thank you Arthur maybe you can explain a little bit more of a LIFO.
Phil Gibbs: LIFO credit I know, it's I I think I understand it pretty decently, but.
Speaker Change: Just for just for the benefit of the kind of investment community out there what it.
Speaker Change: What it implies I mean, I think you've targeted the the commentary around a lot of your stainless and alloy inventory.
Speaker Change: But.
Speaker Change: You know mechanically what does that what does that actually imply within the business.
Speaker Change: Right so.
Speaker Change: And LIFO, yeah, it makes and and costs for part time changes you know it does affect the LIFO calculation. So in the specialty stainless product case longer lead times essentially.
Speaker Change: Create a lag between what happens between your selling prices and costs on hand, and that's that was something really atypical that we experience. So.
Speaker Change: Lead times been normal a lot of that inventory would've gotten flushed through the system and but that wasn't the case. So really what we're saying is $60 million of estimated LIFO income for 2025, it's just timing effectively pushed LIFO income from 2024 and 225, so if you remove that.
Speaker Change: That component out of the LIFO guide, we're saying essentially coming out of the gates were saying flat LIFO, so essentially pretty much zero right.
Speaker Change: We we kind of expect prices to be where they are now costs.
Speaker Change: And you know and as we said in our guidance were not necessarily factoring in any tariff impact on either our selling prices on a or on our LIFO guidance at this point for the remainder of the year.
Speaker Change: So related to that longer lead time item material I would imagine.
Speaker Change: You have you have a good bit of that in places like aerospace and maybe to a lesser extent the fence or what's in that pocket of inventory specifically.
Speaker Change: Is the implication that you'll have.
Speaker Change: Most of that material on hand at the end of 'twenty five versus the beginning or is your expectation is that the the.
Speaker Change: The pricing for that falls I mean, what what's more of the embedded expectation there. Thank you.
Speaker Change: Absolutely you nailed it that's correct. So we would expect to have less of that Oh by the end of this year, yeah cause Phil you know for those products are some of the specialty products.
Speaker Change: Those that we acquired that from them they kind of caught up on some of their production lead times started to come in on those items and so they were shipping more to us at the end of the year at the same time, our aerospace as you referenced is a home for a lot of those products and you know as as ever.
Speaker Change: One noticed there were some disruptions here so as build rates increase on on airplanes, we should see that inventory move out of from our inventory into the customers' supply chain.
Speaker Change: Thanks, so much.
Speaker Change: Yep.
Speaker Change: Thank you we reached end of our question and answer session I would like to turn the floor back over to Carla for any further or closing comments.
Speaker Change: Alright, Thanks again to all of you for joining our call today and for your continued support of reliance and before we close out the call I'd like to remind everyone that we'll be presenting at a few upcoming conferences first bmo's global metals mining and critical materials conference in Hollywood, Florida.
Speaker Change: And also J P. Morgan's 2025, Industrials conference in New York City, and we hope to meet with many of you there and once again, we'd like to thank all of our reliance employees for everything they do every day and please keep it to keep each other safe out there. Thank you.
Thank you that does conclude today's teleconference. You may disconnect. Your line at this time and have a wonderful day.
Speaker Change: Thank you for your participation today.
Yeah.