Q1 2025 Russel Metals Inc Earnings Call
Speaker Change: Good morning, ladies and gentlemen, and welcome to our 2025 First Quarter Results for Russel Metals. Today's call will be hosted by Mr. Marty Juravsky, Executive Vice President and Chief Financial Officer, and Mr. John Reid, President and Chief Executive Officer of Russel Metals Inc.
Speaker Change: Today's presentation will be followed by a question and answer period. At that time, if you have a question, please press star 1 on your telephone keypad. I will now like to turn the meeting over to Marty Juravsky. Please go ahead, Mr. Juravsky. Thank you.
Speaker Change: Great. Thank you, operator. Good morning to everyone. I plan on providing an overview of the Q1 2025 results, and if you want to follow along, I'll be using the PowerPoint slides that are on our website and just go into the Investor Relations section, and it's located in the Comforts call submenu.
Speaker Change: If you go to page three, you can read our cautionary statement on forward-looking information. Let me start with a little perspective on the quarter, which I've outlined on page five.
Speaker Change: So, in Q1 we generated strong bounce back results following a down period in the back half of 2024.
Speaker Change: After our Q4 2024 results were released, I characterized it as a bit of a cycle trough, and now that we have posted the Q1 results, it demonstrates that our Q4 trough was pretty solid for what was a down quarter, but it also shows how quickly results bounce back as they did in Q1.
Speaker Change: This ties into one of the themes that we've been talking about for some time related to the expected impact of our portfolio changes.
Speaker Change: with expected impacts being one to lower earnings volatility, two to raise the cycle floor, and three to raise the cycle ceiling. And the steel price volatility over the past several quarters has been quite high, and it provided a great test of how we've performed in both up and down markets.
Speaker Change: So looking deeper into our Q1 results, our key metrics, such as revenue, tonnage prices, margins were better at the end of Q1 than at the beginning of Q1, and these good metrics have continued into the early part of Q2, so the momentum suggests that Q2 should be pretty solid quarter as well.
Speaker Change: So, if we go a little bit deeper into some of the items on page 5, in Q1 we had record shipments, and our 86 million of EBITDA was the highest quarterly level in over a year.
Speaker Change: If we go to the second row of the diagram, it summarizes some of our growth initiatives. We increase capital investments. We are active on the investing front in early 2025 as we had 29 million in CAPEX, which was a record level of quarterly CAPEX due to a range of discretionary projects.
Speaker Change: Also, we had a series of operating initiatives related to last year's acquisitions of the Samuel businesses in Tampa Bay.
Speaker Change: We've started to convert the Samuel branches onto Russel's IT platform, which should allow us to focus on the integration benefits and realize improvements in performance.
Speaker Change: In addition, we are pleased with the results posted for Tampa Bay in the approximate four months since we completed the acquisition. And while that business continues to operate in a very similar manner to the period prior to acquisition, we're starting to see some benefits related to Russell's Metals procurement programs.
Speaker Change: Second bucket, Capital Deployment Group. As a result of our investments, our capital grew from 1.3 billion at the end of 2023, to 1.6 at the end of 2024, and just over 1.7 billion as of March 31st. [inaudible]
Third bucket. We generate solid return on invested capital.
Speaker Change: Our return on invested capital has averaged over 20% per year over the past several years, but Q4 was a downquartered at only 10%, while Q1 was a nice bounce back at 15%.
Speaker Change: As we benchmarked our Q1 results, against the Q1 results for publicly traded peers, we have once again shown the highest return on investment capital in this past quarter.
Speaker Change: We grew in strategic ways, the fourth box on that second row. We grew our US platform which was 44% of revenues in Q1, as compared to 39% in 2024, and 30% a number of years ago back in
Speaker Change: We also grew our specialty metals such as stainless and aluminum. Non-ferrous was 7% a year ago in Q1 2024, 9% for full-year 2024, and has now grown to 11% in Q1 of 2025.
Speaker Change: Looking at the last row of diorama. Returning capital to shareholders, we had a pretty balanced approach in Q1. In Q1, we returned 25 million by a share of buybacks and 24 million by dividends for total of $49 million of capital return to shareholders.
Speaker Change: and extend and fine to our bank facility. As a result, our liquidity is strong. We have flexible bank covenants. We have no financial covenants in our term debt and our maturities are now extended to 2029 for the bank debt and 2030 for our term debt.
Speaker Change: So let's now turn to Market Conditions, which is on page 6.
Speaker Change: We've seen the carbon sheet and play prices exhibit strong upswing over the past several months because of the terror of dynamic. [inaudible]
Speaker Change: Prices have been stabilized over the past little bit, and the outlook will be driven by the evolving tariff dynamic. That being said, carbon prices are currently at favourable levels, and we do benefit in this environment as we are a cost-pass-through business.
Speaker Change: The other thing that has been interesting is that the shipment levels have remained strong regardless of the increase in prices, and that's a very similar dynamic to what we saw during the price run-up.
Speaker Change: in 2018, and 2021-2022 as volumes remain strong through those higher price periods.
Speaker Change: So, to talk about tariffs for a moment, we do not have any material direct impact from tariffs as we are a cost-pass to business and we generally sell our products to local customers.
Speaker Change: The key thing from a rustle perspective is that we have a very flexible business model, with an ability to adjust to whatever circumstances may unfold.
Speaker Change: On the bottom chart of that page, we've shown both aluminum and stainless prices. As they sit earlier, those are more meaningful part of our product mix at a little over 11% of our Q1 revenues.
Speaker Change: And as shown on those charts, those products don't as exhibit as much volatility as carbon plate and sheep prices do as they have very different supply and demand dynamics.
Speaker Change: The charts on the right supply chain inventories most can in the US have come down over the past few months as the industry has destocked a bit strong shipment levels. I believe this dynamic has supported the prevailing price environment that is quite favorable right now.
Speaker Change: On page 7, we have a snapshot of our historical results.
Speaker Change: And if we look across the various charts from top left...
Speaker Change: Revenues were up 13% versus Q4 due to the favor of business conditions and a full quarter of Tampa Bay. Revenues of almost $1.2 billion was the highest level in over two years.
Speaker Change: Epidav 86 million was the highest level achieved since early 2023. Margin's increased, 113 basis points for gross margins, and 140 basis points for Epidav margins.
Speaker Change: Earnings per share, 75 cents per share, which was the highest level that we've achieved since early 2024.
Speaker Change: Our Q1 annualized return on invested capital came in at 15%, which is I said earlier is a nice bounce back from the trough in Q4. And as I also mentioned earlier related to our capital structure, we're in pretty good shape. Our net debt to invested capital is only 4%. So it gives us a lot of flexibility. And that's what we're going to do today.
If we go into our more detailed financial results,
Speaker Change: on page 8. Starting at the top of the page from an income statement perspective...
Speaker Change: I've already covered several of the high-level items earlier, but a few of the items to note.
Speaker Change: As I said earlier, revenues were up 13% from Q4, which is supported by a very nice seasonal recovery, and I'll talk more about volumes later, but it was a strong shipping quarter, plus we did have a full quarter contribution from the Tampa Bay acquisition that closed in December .
Speaker Change: Gross margins and EBITDA margins were up on a quarter basis and looking at the line items below EBITDA, there was an increase in DNA as well as interest expense because of the two acquisitions that were completed in the latter part of 2024.
Speaker Change: Our Q1 results were impacted by the market-to-market on stock-based comp that was a $3 million recovery in Q1 versus a $3 million expense in Q4.
Speaker Change: Moving down to the middle of the page from a cash flow perspective, in Q1 we used about $100 million for working capital due to the pit cup in business activity. [inaudible]
Speaker Change: Share buybacks, I mentioned earlier, $25 million for the quarter before tax, and cumulatively, the share buybacks since August of 2022 are little over 11% of our share's outstanding for $266 million or $37.27 per share.
Speaker Change: Our quarterly dividend was 42 cents per share in March and we've just declared a 2.4 percent increase, the 43 cents per share, payable in June . Our pack, capex of $29 million was a record quarterly level, and I'll talk about that a little bit more in a few minutes.
Speaker Change: In the bottom part of the page from a balance sheet perspective, we remain in a very strong position with only $68 million of net debt. And lastly, our book value per share grew again and remains at just over $29 per share.
Speaker Change: On page 9, we show our EBITDA variants analysis between Q4 2024 and Q1 2025.
Speaker Change: And if we start on the left-hand side of the page, looking at service centers, the volumes were up compared to Q4, as were our margins, and those were both meaningful contributors to the increase in Epidav for the service center business.
Speaker Change: There was a $20 million increase in cash operating costs, and about a third of that was due to the full quarter contribution of operating costs from Tampa Bay, and there was an amount related to our variable compensation increase which moved up with much higher profitability for the service centers.
Speaker Change: In total, Service Center EBITDA was up $25 million for the quarter.
Speaker Change: Energy field stores were down $3 million as it was a slow start to 2025, but activity did pick up towards the end of the quarter.
Speaker Change: And in the other bucket, there was a favorable impact from the market on the stock-based compensation, but that was more than offset by the seasonal decline at our Thunder Bay Terminal operation and the higher variable compensation that related to higher operating results.
Speaker Change: On page 10, we have our segmented P&L information for service centers, virtually all metrics were up in Q1 versus Q4 and go through some of those in more detail on the next page.
Speaker Change: In energy field stores, we are continuing to see solid performance, but earlier it was a slow start to 2025 and it impacted margins and offering profit which were down for the quarter. Distributor revenues were flat, but margins were up with the price environment. [inaudible]
Speaker Change: One of the takeaways from this page is that our diversified portfolio has been very helpful in reducing our cycle volatility.
Speaker Change: For example, in the right-hand graph, we show that our energy field stores in the red line with steady and an important contributor to operating profit in the back half of 2024, at the same time when our metal service center segment, as shown in the green line, and steel distributors, as shown in the yellow line, face some challenges.
in the back half of 2024.
Speaker Change: In Q1, the reverse occurred, and that energy field stores had a slower start, but metal service centers and steel distributors had strong quarters.
Speaker Change: The net results that the portfolio composition has some counterbalancing dynamics that has and should continue to reduce are through the cycle volatility.
Speaker Change: Page 11. We've a deeper dive on the metrics for a metal service center business. The top right graph is time shipped.
Speaker Change: On the bottom left graph, we have revenues in cost of goods sold per ton. On revenue per ton, our price realizations were up, our cost of goods sold are down a little bit, resulting in a gross margin per ton of $4 and $30, which was up $60 per ton from Q4.
Speaker Change: Overall, our inventory turns improved from 3.6 to 3.7, which is consistent with what typically happens at this time of year.
Speaker Change: and by sector service centers remains strong at 4.1, which was up slightly from Q4.
Speaker Change: which was up from Q4 and lastly, our steel distributors decreased from 3.1 to 2.3 due to the timing of some inbound inventory.
Speaker Change: On page 13 we have the impact of inventory turns on inventory dollars. Total inventory was up 74 million dollars at March 31st compared to December 31st and this was mostly related to the increased market activity particularly in our middle service center business.
Speaker Change: On a return basis, our three-year average return on invested capital was 24%, and if we look back over the past several years, we continue to achieve industry-leading returns and at levels that are greater than our cycle average target of 15%.
Page 15, a bit of an update on our capital structure.
Speaker Change: In Q1, we issued $300 million of investment grade term debts into the Canadian market. The interest rate is 4.4 to 3% and the notes mature in 2030.
Speaker Change: We also amended and extended our bank credit facilities in April , and the net result of these changes is that our liquidity is strong, our uncertainties have been extended, and the cost of our term debt is the lowest it's ever been.
Speaker Change: Lastly, our equity base continues to grow despite share buybacks and dividends over the past quarter. We've grown our book value per share and it's $1.27 higher than at this time last year.
Speaker Change: Page 16, we have an update on our capital allocation priorities going forward and we continue to have this multi-pronged approach.
Speaker Change: As they sit earlier, for investment purposes, we seek average returns over the cycle greater than 15% and we've delivered well above that target. The ongoing opportunities remain threefold, continuing to pursue the value added projects and equipment.
Speaker Change: Two facility modernizations, and we completed most of the five modernizations that were underway, and we've more projects on the drawing board. Three in terms of acquisitions we are continuing to explore new and interesting potential opportunities.
Speaker Change: For returning capital to shareholders, we have adopted a fairly flexible approach in over the past 12 months. We have returned $141 million to shareholders via the NCIB. The current annual run rate for dividends is around $97 million.
Speaker Change: Page 17. I want to provide a little bit of a context or re-investment program.
Speaker Change: In 2024, we invested 90 million of CAP-X, which is a level higher than in the past, and in Q1 we've extended that and have invested 29 million dollars as we are continuing to implement more discretionary projects.
Speaker Change: On this page, I've included a couple of photos on the right-hand side that show our latest flat laser project. And we currently have several of these 30k lasers being installed in both Canada and the U.S.
Speaker Change: And these are the most up-to-date technology that is replacing smaller legacy lasers. And it highlights not only are we installing value-added equipment in new locations, but we are also funding opportunities to upgrade existing equipment in order to stay ahead of the curve.
Speaker Change: On page 18, we show a deeper dive on returning capital to shareholders. Starting with the top left graph, we have our long-term dividend profile.
and with the just announced 43 cents per share per quarter.
Speaker Change: We'll continue to regularly revisit the appropriate dividend level in the context of our capital structure, earnings profile and other capital deployment alternatives, as it was done when we listed the dividend in May 2023, May 2024, and now in May of 2025. [inaudible]
Speaker Change: And over the past three years, we've increased the dividend by a cumulative amount of 13%.
Speaker Change: On the bottom left chart, we show our NCIB activities since it was put in place in August of 2022. And, again, it further illustrates that we don't have a fixed approach to the program, but view it as an opportunity to buy back shares. And we have been more aggressive at certain price points than others.
Speaker Change: On the bottom right chart, the impact of the NCIB has been a gradual reduction of our share count over the past two plus years and resulted in greater than 11% reduction in our share's outstanding.
Speaker Change: And on the top right chart is the aggregation of the dividends versus the NCIB over the past couple years and shows fairly balanced approach that has recently been more weighted to the
Speaker Change: So, in closing, on behalf of John and other members of the management team, I'd like to express our appreciation to everyone within the Russel family for their contributions. We are really pleased with the start to 2025 and look forward to realizing on a series of interesting opportunities that are on the horizon.
Speaker Change: So operator, that concludes my introductory remarks and please open the line up now for any questions.
Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: If you wish to climb from the polling process, please press star followed by the two. And if you are using a speaker phone, please let the handset before pressing any keys.
And the first question comes from James McGarragle at RBC Capital Markets. Please go ahead.
Speaker Change: Hey, thanks for having me on and congrats on the really solid quarter there.
So thanks. Thanks.
Speaker Change: Hey, where did that scone me at the commentary and the outlook?
Speaker Change: You flagged, you know, some uncertainties surrounding freight policy, you know, that Q1 was potentially helped out by some pull forward. You know, so on one hand, we might see a bit of an air pocket, you know, into Q2, but, you know, if we look at some of the commentary from your US peers.
Speaker Change: They were kind of flagging, they're expecting volumes to hold up pretty well in the Q2, which, you know, it's pretty impressive to get given how good Q1 was. You know, within that context, can you just give us an update on how you're thinking about volume trends into Q2?
Speaker Change: James, that's a fair observation, including looking at what some of the publicly traded comparable have already talked about, and I don't think our view would be any different from that, which is there was probably some element of pull-forward demand, but the ultimate test is how things have evolved.
since the tariffs came into place.
Speaker Change: and Ship of Levels remain at a relatively solid level, so we haven't seen any of that big variance.
Speaker Change: that could have been in place. And so the commentary that some of our competitors have come up within their Q1 commentary, we probably echo some of those same views.
Speaker Change: Can you provide a little bit more detail on what you're seeing in the US versus in the Canadian business and any change in those trends potentially since tariffs were implemented a few months back.
Speaker Change: Yeah, I'd say overall what we're seeing in the US versus Canada is more of the same, both pre-terrorist and post-terrorist.
Speaker Change: which is fairly straightforward that the US has had a more robust economy over the past couple years than Canada has.
Speaker Change: Performance in our U.S. business is probably a notch higher than it has been.
Speaker Change: In the Canadian business, and it characterizes that as that both a little bit pre tariffs as well as post tariffs. So it's more of the same, but there is a distinction between the performance of the Canadian economy overall and versus the US economy over the past year at a time. [inaudible]
Speaker Change: Yeah, I appreciate the caller and I'll turn the line over. Thank you.
Great. Thanks, James.
Thank you. The next question comes from Devon Dodge at BMO Capital Markets. Please go ahead.
Yes, thanks. Good morning.
How you doing?
Speaker Change: Look, it's going to ask about the energy field stores. Look, we saw that one of your US competitors recently sold its Canadian operations, which I mean, I guess would bring maybe a greater focus on some of those assets.
Speaker Change: Under the new ownership, just wondering if you have seen or do you expect to see a more competitive environment in Canada?
Oh, good.
Speaker Change: Yeah, I don't think it changes the landscape. It just changes the names on the door and so there's still a number of competitors that had shrank quite a bit over the last two years since they were exiting Canada quietly.
Speaker Change: And so it's allowed us to gain some market share there. So I don't see really any landscape change outside of what it's been for the last four to six months. Really more interested in where Canada's going as a whole because I think it's going to really benefit us from the energy.
Speaker Change: A perspective out there. Mr. Coney comments, I think yesterday he wanted to reestablish Canada's energy superpower which is obviously going to benefit up any of our energy business as well as our service centers.
Speaker Change: Okay, got it. Thanks for that. And just one clarification. If I look on a year-over-year basis, revenue per ton in service centers was down 80% or around 80%. That's both on a reported basis.
Speaker Change: As well as the same store. I would have expected the mixtape towards non-ferrous would have had a more positive benefit. Are you able to write any color or kind of help explain that?
Speaker Change: The non-ferrous, when you look at it in totality, keep in mind, or non-ferrous, a lot of that growth has come from our US out of the service center, some of those numbers, Marty Reference, and we did grow some.
Speaker Change: The adding of samples was completely a much bigger mix in carbon, 100% in the U.S., and again, all the two locations in Canada were carbon. So it did displace some of that a little bit. That should continue to grow. You should see a change in that in the future. [inaudible]
Speaker Change: And the thing I'd supplement to Devon is when we look at our publicly traded US
Competitors.
Speaker Change: and looking at what their Q-124 versus Q-125 price realizations were on a same store basis.
Speaker Change: We actually were better on a relative basis than they were when we used those same comparisons. So everybody collectively is down compared Q4, Q1 of this year versus Q1 of last year. But the relative change, our relative change in price realizations is better than theirs were. [inaudible]
Analyst: Okay, got it. And then just one last one, likely for you Marty, but obviously the balance sheets in great shape here, we've seen this recognized by the rating agencies, which is great to see. Just in order to maintain that investment grade credit rating, what do you feel is the range or a left-riginical form basis?
Analyst: Yeah, it's a good question, Devon, and let me answer it in an indirect way first and then I'll get to your very specific question.
Analyst: It starts with more of a philosophy of being committed to investment-grade type approach, and we think there's a tremendous benefit with [inaudible]
Analyst: The ability to execute in the Canadian investment-grade market at a track of levels, so there's a commitment to doing it. And the commitment goes beyond just what is a single metric that makes sense. This has been a multi-year migration to get to this point, and I don't want to go backwards.
Analyst: That being said, you know, when you look at the rating ages in some of their commentary, they'll use guides, for example, less than two times, debt to EBITDA as a frame of reference. And that's...
Analyst: Plenty fine for us, given our capital structure and liquidity and types of use of capital that we might have.
from a net debt to invest in capital perspective.
Analyst: 30% or so at the high end, but again, I don't even see anything on the horizon that gets us from where we are today, which is in low single digits to that level. So being able to achieve and maintain that investment-grade status is quite important as it relates to maintaining a low cost capital.
Okay, good colors. I'll turn it over. Thank you.
Thanks, Deb.
Thank you. The next question comes from Frederic Bastien at Raymond James. Please go ahead.
Hey guys, good morning.
Analyst: We've been hearing about some project owners taking away and see approach to new projects, which obviously makes sense, given the a tariff on certainty. But I'm wondering how this uncertainty might be impacting or shaping your potential. And so,
Analyst: Buyers, potential sellers of steel distribution business, i.e. your target. Are you having different discussion? Nowadays with these moment pop operators or just curious how the MNA landscape is looking right now.
Analyst: Thanks, Fred. The M&A landscape is very active right now. People are looking at things through a little bit of a different lens. We just came to a very robust period with 21 and 22. I think the expectations have been reset now, obviously there. Very volatile, political. Technical.
Analyst: Landscape out there that continues to evolve on a daily basis. And so I think people are looking at this very differently. So we think there will be a fair amount of opportunities to look at. We'll see if there's anything to come to fruition. So I think we'll see if there's anything to come to fruition.
Thanks.
Marty, anything you need that, or just- [inaudible]
Analyst: No, you know what, it's a fair observation, and I think the other interesting thing for me is when we do a look back
Analyst: Over the last number of years in how the M&A landscape is unfolded, there's been years when we've been active and there's been years where we've been very active but we haven't find the right, found the right opportunities.
Analyst: that meet our criteria. So we kind of stick to our criteria of what works, what doesn't work, and sometimes those things line up and it just so happened that there was two M&A transactions.
Analyst: that we were able to push across the finish line last year. But there were also years like 2022 and 2023 where for a variety of reasons, including in some cases vendor value expectations, we didn't find the right opportunities. [inaudible]
Analyst: So, we don't chase for the sake of chasing, we stick to our criteria, and if we get the right opportunities at the right valuations that fit our operating criteria and all cultural criteria
Analyst: We're more than capable of moving across the finish line and we remain very active but it's yet to be seen whether we find those things that line up with our criteria or not. And if they do terrific and if they don't, we buy our time and we're patient capital.
Analyst: And then you did a good job over the last, I guess, several quarters.
Speaker Change: Telling us that there'd be a lot of heavy lifting behind the Samuel acquisition. I'm wondering how that integration is proceeding right now and are you ahead of the plan? I don't know.
Analyst: Anything that is not going to, according to expectations, to get an update here will be appreciated. Thank you.
further integrate the notorious.
Analyst: Look at operating cost, and so that was done this past weekend in Canada. It'll be done in the first week in June . In the US, everything's once moved there, so that allows us to move forward with step two. And then step three will continue to look at the real estate rationalization opportunities that are out there. [inaudible]
Analyst: And so we feel still pretty comfortable. This is all going to be done within this calendar year.
Speaker Change: Thanks. I'll squeeze the last one. You cited a number of factors behind the volume gains. I was just wondering if you could split those between. [inaudible]
What, the easiest?
Speaker Change: On the M&A front, the only real change between Q4 and Q1 was a full quarter of Tampa.
Speaker Change: and from an earnings perspective, but it isn't a big volume operation, so it's relatively small volume impact from Tampa Bay being in there.
for a full quarter.
Speaker Change: So, if you look on a same store basis versus a consolidate basis, it was a little bit of volume but it really didn't have much of an impact. So by and large, when you look at Q4 versus Q1, most of that was really about the macro, the seasonal factor as well as just general market conditions which were favorable on Q1.
Thank you.
Thanks for it.
Speaker Change: Thank you. The next question comes from Michael Tupholme at TD Cowan. Please go ahead.
Thank you. Good morning.
Hey, Mike.
You saw in Service Center is a nice...
Speaker Change: Quarter-quarter improvement in gross margins in Q1. With steel prices still up, but leveling off lately, wondering if you can help us think about service center gross margin.
Performance in Q2 2025 versus the 20.9%, you just delivered in the first quarter.
Yeah.
Speaker Change: It's a really good question, Mike, because there were a lot of moving pieces into one, frankly, into the early part of Q2 as well. And so we benefited.
Speaker Change: by a little bit higher prices in Q1 as a whole, but it obviously picked up steam at the back end of the quarter.
Speaker Change: At the same time on the cost goods sold side, we still actually had some lower cost inventory which actually helps us out from a margin perspective. So when you look at Q1, we benefited from a little bit better top line and the cost goods sold didn't really move by a whole heck of a lot. So we actually the margin increase.
as compared to Q1.
Speaker Change: That's definitely helpful. Would the same whole true, the same sort of higher level commentary will true for steel distributors is that the dynamics they're similar. Similar might, yeah.
Okay.
Speaker Change: And then back over on service centers and again sticking with Gross Margin.
Speaker Change: I'm sort of trying to look through some of the noise, I guess, that can result from changing metals prices. With all of the value-added investments that have been made over time and recently.
Speaker Change: And I guess also some of the acquisitions. Like, how should we think about normalized steady state gross margins within service centers at this time?
Woodhead.
We've got a number of-
A new piece of equipment that we're installing in real time.
Speaker Change: So the goalpost keeps moving for us. That being said, we directionally view the multi-year migration.
Speaker Change: In margins to be probably a couple hundred basis points on an apples to apples basis. That being said, it's hard to do an apples to apples when the cycle keeps moving all the time. But if we did things on a steady state basis.
Speaker Change: and we look at the stuff that has been done in 2024, the stuff that is in the pipeline for 2025, it should add a couple hundred basis points over the course of a couple years.
Speaker Change: And we're still at the end of seeing some of those benefits. And again, I keep referring back to that one slide where I talked about the new lasers that are going in in a variety of locations. Those are impactful, but they're just happening right now. And we're still at the end of seeing some of those benefits that are going in in a variety of locations.
Okay, that makes sense.
Speaker Change: Can you talk about the top line outlook for that segment in 2025? I guess what I'm wondering is should we be assuming some year-to-year revenue growth as you move through the year or is what we saw in the first quarter when we saw sort of...
Speaker Change: Similar revenues on a year-over-year basis. It is that more what we should be expecting here is just sort of a more consistent performance on a year-over-year base. I realize there's seasonality, but I'm thinking about year-over-yearing. [inaudible]
Speaker Change: Let me answer that in a really indirect way if I can, and in some ways it's a look back.
Speaker Change: That business for us has been fairly steady. I mean, it does move around and there's some seasonality attached to it, but it's been relatively steady if we look back over the past period of time.
Speaker Change: So all of the things being equal, it's a pretty, it has been and we would expect it to be a pretty steady contributor.
That being said, with John's comment that he made earlier…
Speaker Change: There is public policy that is evolving in real-time.
Speaker Change: You know, what quarter that impacts let alone what year that might actually show up but directly those things are all good. [inaudible]
Speaker Change: for our business on both sides of the border, frankly, not just on the Canadian side of it. But if we kind of strip that stuff aside, it's been a pretty steady business for us over a period of time, and it will ebb and flow a little bit, and even just as I look at Q1 as an example.
Um...
Speaker Change: But it was really more March related than January and February related. But over the course of several quarters, it has been a very, very consistent portfolio for us and we expect that to continue public policy aside and what's potentially positive. [inaudible]
for the industry as a whole.
Yeah, that's definitely helpful. Thank you.
Speaker Change: for all that, and then just in terms of energy field stores in terms of the margins.
Speaker Change: Again, quite consistent and stable in the last several years and obviously much improved from what they used to be in that segment after all the changes you made.
Speaker Change: A little bit of a tick down in the first quarter. Is that mixed-related? Is there anything going on there to explain that?
Speaker Change: Should we expect them to kind of go back up to the levels we've seen in the last few years, or is this more of a current run?
Great that the gross margin. [inaudible]
Speaker Change: It was a little bit mixed-related, but I think part of the frame of references, there is a bandwidth that it operates in from a gross margin perspective, and even though Q1 was down from a gross margin perspective, it was within the normal bandwidth. And if we look also at how the gross margins are relative to our other business segments, it continues to remain our highest gross margin.
Speaker Change: So, yeah, it was a down quarter from a margin perspective and that related to mix, but it was within the range probably towards the low end of the range.
Okay, you got it. And then just lastly, just-
Speaker Change: 5 on a full year basis, or how do we think about that? And maybe if you can just also comment the fact that you've finished up.
Speaker Change: We're contemplating what you expect there, but how do we think about that? Is that something that could begin in the fairly near term? Or is that more in the next few years?
Speaker Change: It's probably a two-year frame of reference of where some of those facility modernizations become potential realities.
and to deal with your first question first.
In the last year, we spent about 90 million on CapEx.
Speaker Change: Q1 was 29 million, so a little bit ahead on a run rate basis, but if you use the frame of reference of a hundred million dollars for 2025, it's rough words of magnitude, that being said, we tend not to look at it.
Speaker Change: on a necessarily an annual basis, even though that is a structured period of time, as what we have is an evergreen list of projects that runs for several years, things are coming on, things are coming off all the time, and that pipeline of projects.
Speaker Change: Is probably about $200 million today? Again, some of them are very, very preliminary and some are fairly advanced.
Speaker Change: but it's a multi-year-ever green list. So that's why we can't-
Speaker Change: We look at the pipeline directionally and say, there's still a fair amount of discretionary projects that are not just what was done in 2024, but on the come for 2025 and probably also on the come for 2026.
Perfect. I will leave it there. Thank you.
Great. Thanks, Mike.
Your next question comes from Ian Gillies with Stiefold, please go ahead.
Good morning, everyone.
Ian.
As it retains to steel distributors,
Speaker Change: With everything going on in the global steel market, do the opportunities, does the opportunity set there feel like this is a bit more like 2023 is a whole rather than 2024 and acknowledging everything could change in two months time? [inaudible]
Uh-oh.
Speaker Change: I was going to say, yeah, if you're looking at directional pricing for the moment for steel versus are you looking for tariffs on the next 60 days, so it can push your pull either way. I feel like we're in a much better place than we were in the 2023.
Speaker Change: On most sides of the border, again, the businesses operate very differently, being the Canada of the operates.
Speaker Change: much more contractually back-to-back sales versus much more transaction on the U.S., but we're seeing opportunities on both sides.
Speaker Change: We think there's probably some killer hands going to prevail in the near future, and this will revert back to it.
Speaker Change: More normalized setting, but we are seeing opportunities within both countries, even from domestic mills or trading partners that have quotas or opportunities to come into the country. So right now we think it's going to be a pretty solid year for them.
Speaker Change: Understood. Going back to the Greenfield Project Scope of 200 million.
Speaker Change: Marty, can you remind us how you think about those projects, either whether it be from an IRR basis or from an EBITDA payback basis, just to think about the potential growth opportunities? [inaudible]
Marty Juravsky: Yeah, so just one item of clarification, Ian. It's not $200 million worth of grain fields, it's $200 million dollars of catbacks.
Marty Juravsky: Some of which are from modernization, some of which for equipment, upgrades, some of which is for, you know, just normal course, capex.
So, that $200 million is not...
Just for modernizations. That being said, when we use-
Some of them that might relate to...
Marty Juravsky: Frankly, more safety and good housekeeping. They don't have great paybacks, but they're things that we do as a matter of course. There's some projects like equipment and some of these value out of pieces that might have a 2-2-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-1-
Marty Juravsky: So it's a whole waterfront in terms of projects, and we look at them quite holistically. Some of them are not discretionary, which we have to do as a matter of course. It may not have a payback attached to them. So from a portfolio perspective, the 15% is really the frame of reference. And that goes to both CAPEX.
Marty Juravsky: and M&A Summer Better, Summer Lower Than Target, but we're trying to achieve that 50% across all the capital deployment scenarios, recognizing that they're not all equal. They have different priorities depending upon circumstances.
Speaker Change: Understood. One last one for me on the M&A side, when Tampa Metals was purchased, it was viewed as a launching point into the Florida market.
Speaker Change: Obviously, it's still early days there, but how would you define, I guess, your entrance into that market so far, and what are you learning about the market and potential other, I guess, targets to grow that business over the next number of years?
Speaker Change: So, again, I like your play on the works there with Longchain and Albion and the Florida market on their NASA, but it's we have had a really good move there. It's only been four months. It's a real plug and play. There's a great team in place.
Speaker Change: They have all the value-edic process and in place a very good mix of non-ferrous and so it's allowing us to reach out further into markets that are probably outside of their coverage zone right now.
Speaker Change: It wouldn't be long-term sustainable to develop a marketplace to either go Greenfield or look at acquisition.
Speaker Change: So, again, we felt like this would be literally and figuratively a B.J. for us, being in Central Florida, so we could look at going both north and south. So we see that as something that could develop quickly over the next two to three years.
Perfect. Thanks very much. I'll turn the call back over.
Thanks, Ian.
Speaker Change: Your next question comes from Maxim Sytchev with National Bank Financial. Please go ahead.
I think we'll German.
Hey, Max.
Speaker Change: John , maybe that's the first question for you, Femme, in terms of...
Speaker Change: Looking at the broader trends, I mean, like on the one hand, you read, you know, a quarter-resie kind of like on the pressure general manufacturing people are sort of pushing decision making to the right. Like what we're maybe the key industry drivers behind the volume improvements. [inaudible]
Speaker Change: You know, year and kind of like also the positive commentary from where it seems for Q2, just maybe if you can put it in buckets, it's possible. Thanks.
Speaker Change: Yeah, and I think it's broader than industry buckets that are out there. This part of this is our transactional nature in the way we've structured the business to be successful. When you look at a cyclical industry and if we're cyclical throughout periods of time, the only thing that's constant is the price is always going to change.
Speaker Change: But what we're able to do in this transactional in times of extreme volatility caused by whatever's out there right now, is the tariffs being the big point.
Speaker Change: We're able to work with buyers of our product because they're trying to buy hand them out. They don't know if the price is still going up, they don't know if it's going down, they're very nervous, so they're really not taking long positions on inventory.
Speaker Change: As Marty said, it's very difficult to quantify, but we don't think there was a lot of pull ahead. I just think that our transactions from nature to our business really benefits people.
Speaker Change: They know they can get served the next day, get it quickly, they can move into the value app or we can help them so they don't have to take long-term positions and put themselves in volatile spots.
Speaker Change: I think that's where we, typically in times of that transition, be it up or down, we typically gain markets here because it lets people protect their position.
Speaker Change: And so I think we saw that in the late first quarter, I was saying it in the early second quarter. And so it's more of our business model fits volatility, which is an industry we live in.
Speaker Change: And against that, does that comment apply to the non-ferrous business, like for example with time please doing this one?
Speaker Change: We are, again, in non-fairs. We're still taking the same template that says we're not going into the long term contractual business. We have some longer term commitments on that, but it's not, again, we're not going into the contract type of business. So we are trying to make it remain hyper transactional on that. [inaudible]
Speaker Change: And so we're easing our way into that growing that market share. We're doing it very targeted at being transaction
Speaker Change: Okay. Okay. Well, that's great. Then one last question around energy stores. I mean, the fact that oil pricing has contracted somewhat, and I think in the past you mentioned that it's more relevant from an all-packs perspective. Okay.
Speaker Change: So we should not be extrapolating the lower oil price into corresponding volume declines. How would you qualify to quantify this relationship?
Keep in mind again for Apex, for Elite, for our field stores.
Speaker Change: A big portion of their business is based on the maintenance and the life of oils.
Speaker Change: So those welds that are already existing, so they're a little bit immune to all pricing because they've got to maintain them for the life of that will.
Speaker Change: And that's why, again, we started off slow in Q1, but you saw that steady state because they were in that maintenance mode.
Speaker Change: When things pick up in the energy patch, we saw some projects get released in March. Some of those things, then they will push us back up over the top. But again, our steady state business is going to be on that maintenance of the life of the well that's out there. So anytime all this improving, we really jump up quickly.
Speaker Change: Yeah, yeah. Okay. No, that's great. That's it for me. Thanks so much, Sheldon.
Speaker Change: J.P. Wittenberg J.P. Wittenberg I. M. C. D. L. U. M. C. D. L. U. M. C. D. L. U. M. C. D. L. U. M. C. D. L.
Thanks Max.
Speaker Change: Ladies and gentlemen, as a reminder, if you do have any questions, please press star followed by one. Your next question comes from Devendodge with BMO Capital Markets. Please go ahead.
Devin Dodge: Yeah, thanks. Just had a couple of quick follow-up questions on pricing. So, if I look at U.S. prices for a plate and sheet in Q1, I think there were up high single digit or low double digits versus Q4.
Speaker Change: Russell, I think it was a 1% sequential improvement on the same store basis, more like 2% on revenue per ton with that M&A in there.
Speaker Change: Just wondering if that reflects different pricing trends in Canada versus the US? Or is there something else that helps explain that sequential pricing gap versus market? Yeah, I think that's a good idea.
Speaker Change: David, just one element first is as a comparison point in this, and in some ways goes to the earlier discussion about relative to our competitors. What we did in on a same store basis in Q1 versus Q4s are price realizations, we're up 1%.
Speaker Change: As I look at a couple of our competitors who report similar type of data points, they were either down 1% or up 1%. So we were within the norm of the industry and the industry by and large is more U.S. weighted than anything else.
Speaker Change: Sir, and that being said, John ? Yeah, no, and yeah, Martin's exactly right. And there also is a timing lag. So, from the minute you see the news do a price into its purchase to its ship. So, there'll be a timing lag. And so, we saw some of that in third quarters. We saw Martin's really ramp up in Q3, but that was the effect of...
Speaker Change: I'm sorry, in the third month of the quarter in March, but there was that lag in January and February that were out there. So those will carry forward. But again, based on our inventory turns, it takes two to three months to cycle through. [inaudible]
Speaker Change: Okay, got it. I got it. I guess maybe he's extending our last answer. Just if you look at the service center business, how did average revenue per ton in April compared to the Q1 average?
Speaker Change: Well, let's put it this way. It would have been comparable to March, but March was...
Okay, got it. Thank you.
Speaker Change: There are no further questions at this time. Please proceed with any closing remarks.
Speaker Change: Great. Thank you, Operator and thanks very much everyone for joining our call. If you have any questions, please feel free to reach out anytime. Otherwise, we look forward to staying in touch during the balance of the quarter. Take everyone.