Q1 2025 Reliance Inc Earnings Call
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Speaker Change: Greetings and welcome to the Reliance Inc. 1st quarter 2025 earnings call. At this time, all participants are to listen only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kim Orlando with ATO Investor Relations.
Please go ahead.
Kim Orlando: Thank you operator, good morning and thanks to all of you for joining our conference call to discuss Reliance's First Quarter 2025 Financial Results.
Speaker Change: 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.
Speaker Change: The recording of this call will be posted on the Investor section of our website at investor.belliance.com
Speaker Change: Please read the forward-looking statement as closures included in our earnings release issued yesterday and note that it applies to all statements made during this teleconference.
Speaker Change: The 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.
John Tumazos, John Tumazos, John Tumazos, John Tumazos
Speaker Change: Good morning everyone and thank you all for joining us today to discuss our first quarter 2025 performance.
Speaker Change: We delivered stronger than expected results, once again demonstrating the resilience of our proven business model and ability of our teams to provide solutions to our customers in a backdrop of broad market uncertainty.
Speaker Change: By maintaining our commitment to growth and profitability, we shipped record tons while industry shipments declined.
Speaker Change: and increased our gross profit margin by 140 basis points ¼ over ¼, which drove non-GAAP earnings per share of $3.77, well ahead of our expectations.
Speaker Change: We generated cash flow from operations during the first quarter despite a working capital investment to support our successful growth efforts.
Speaker Change: Our 2025 Capital Expenditure Budget remains $325 million with an expected total cash outlay of approximately $375 million.
Speaker Change: to $400 million, which includes carry-over projects from prior years that will be completed this year.
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Speaker Change: Our first quarter results also benefited from our four 2024 acquisitions and we remain in a position of financial strength to execute additional acquisitions that align with our discipline and strategic criteria.
Speaker Change: While we continue to see new opportunities in the pipeline, the pace has slowed recently due to overall macroeconomic uncertainty. And we also funded stockholder return activities of $318 million.
Speaker Change: In summary, despite ongoing uncertainty in both domestic and international economic policy, we are encouraged by positive pricing momentum and can continue solid demand conditions.
Speaker Change: Most notably in the non-residential construction market, we applaud our team for their ability to execute on our strategic profitable growth efforts in the disruptive market.
Speaker Change: We remain confident in our ability to maximize earnings power while maintaining our consistent focus on increasing value for our stockholders. Thank you for your time today. Now, now turn the call over to Steve, who will review our demand and pricing trends.
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Steve Koch: Thanks, Karla, and good morning, everyone. I'd like to let them by commending our dedicated team for upholding the highest standards of safety and driving operational success across the board. I'll now turn to our demand and pricing trends.
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Steve Koch: Our first quarter times sold were record and increased 12.8% compared to the fourth quarter of 2024, so we're passing our outlook of up 6% to 8%
Steve Koch: Our tonsold increased 9%, or 5.6% on a same-store basis, compared to the first quarter of 2024, significantly outperforming the service center industry's year-rear decline of one-half of 1% as reported by the MSCI.
Steve Koch: Our record shipments reflect market share gains across nearly every product group attributable to solid organic growth and contributions from our 2024 acquisitions.
Steve Koch: We believe shipments during the first quarter may have also benefited somewhat from certain customers' acceleration of metal purchases in anticipation of carbon steel and aluminum product price increases.
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Steve Koch: Our first quarter average selling price per tonne sold declined 1.2% compared to the fourth quarter of 2024 which was consistent with our expected range of down 1% to up 1%
Steve Koch: Despite rising metal prices, our modest average selling price decreases mainly due to product mix, the strong tons growth in lower price carbon steel products.
Thank you.
Steve Koch: Next, I will review notable trends within our key and market and products, beginning with non-residential construction.
Steve Koch: carbon steel tubing, plate and structural products, which we mainly sell into the non-residential construction market, represented roughly one-third of our Q1 2025 sales.
Steve Koch: All three products had significant year-over-year and sequential quarter shipment growth and substantially outperforming year-over-year industry shipments as measured by the MSCI.
Steve Koch: Our diversified exposure to the non-residential construction market, including heightened data, center construction, and related energy infrastructure, as well as publicly funded infrastructure projects, supported solid underlying demand for our products, as did contributions from our recent acquisitions.
Steve Koch: This healthy demand and a dynamic trade environment supported pricing improvements in March that have continued into April . Our general manufacturing business, which also represented roughly one-third of our total sales in Q-1 2025, is highly diversified across geographies, products, and industries.
Steve Koch: Shipments increased both year-over-year and sequentially compared to the fourth quarter of 2024, industrial machinery, military, shipbuilding, and heavy construction equipment demand remained strong in the first quarter. [inaudible]
Steve Koch: Demanding Consumer Products & Heavy Agricultural Equipment was also year-over-year, but was comparably weaker than in the other manufacturing sectors.
Our industry, our performance across key product group shipping
Steve Koch: To General Manufacturing Applications, highlights the strength and advantage of our diversified business model and an dynamic and uncertain demand of the environment.
Aerospace products comprise approximately 10% of our Q1 2025 sales.
Steve Koch: Demand for commercial aerospace increased sequentially from the four quarter and was stable compared to the first quarter of 2024 despite continued supply chain challenges.
Steve Koch: Demand for defense-related aerospace and space programs remained consistent at strong levels.
and many more. Thank you. Thank you.
Steve Koch: We primarily service the automotive market to our co-processing operations, which are not included in our tons sold.
Steve Koch: Our tolling business, which represented approximately 4% of our Q1 2025 sales, saw process tons stay relatively consistent with the first quarter of 2024.
Steve Koch: semiconductor industry shipments remained under pressure in the first quarter with excess inventories in supply chain.
Steve Koch: We're very proud of our team's extraordinary execution which delivered another quarter of industry leading financial performance.
Reliance of Unrivaled Scale & Strong Balance Sheet
Steve Koch: Make us a highly attractive partner to our male suppliers in all market conditions.
Steve Koch: and we continue to win new business from new and existing customers who value the breadth and depth of product offerings and value at a processing capabilities and recognize the quality and reliability of our service.
Steve Koch: I will now turn the call over to Arthur, review our financial results and outlook.
Thanks Steve and nice everyone for joining today's course.
Steve Koch: Our underlying operating performance for the first quarter was stronger than anticipated due to better than expected shipment levels and improved gross profit margin.
Steve Koch: was above our guidance range despite higher than anticipated increases in carbon steel and aluminum and product costs.
Steve Koch: that resulted in LIFO expense of $25 million or $0.35 per share compared to the $15 million of LIFO income or $21 per share credit included in our guidance.
Steve Koch: As Steve mentioned, our tons sold were higher than we anticipated driven by improvement in shipments in the latter part of the first quarter.
Steve Koch: We experience a slight sequential decline in our average selling price in the first quarter mainly as a result of strong carbon steel product shipments which are generally priced lower in our non-fares product.
Steve Koch: Pricing for most carbon steel products increased in March and entered the second quarter at higher levels.
Steve Koch: on a non-GAAP five-fold basis, which is how we measure our day-to-day operating performance.
Steve Koch: Our gross profit margin improves sequentially from 28.8% in the fourth quarter of 2024 to 30.4% in the first quarter of 2025.
Steve Koch: continue to alignment of replacement costs with our inventory costs on hand, coupled with the rising selling price environment, contributed to the improvement in our gross profit margin.
Thank you very much.
Steve Koch: For the full year 2025, we revised our LIFO estimate to reflect LIFO expense of $100 million from our prior estimate of $60 million of income due to higher than anticipated carbon steel and aluminum product costs.
Steve Koch: as of the end of the first quarter. The LIFO Reserve on our balance sheet was approximately $460 million which remains available to benefit future period operating results and mitigate the impact of potential decline in metal prices.
Dr. Martin Englert, Dr. Martin Englert,
Turning to Expenses
Steve Koch: Our first quarter, same-store non-gabashine expense, was down slightly from the first quarter of 2024, this 5A 5.6% increase in same-store-tonship.
Steve Koch: which contributed to a meaningful improvement in our operating leverage with the same store non-GAAP SGNA expense for ton declining approximately 5%. We will continue to maintain our focus on smart profitable growth throughout 2025.
I'll now address her balance sheet and cash flow.
Steve Koch: We generated $64.5 million of cash flow from operations in the first quarter of 2025.
Steve Koch: seasonally, the first quarter typically requires the largest working capital investment and increasing metal costs and selling prices further contributed to our working capital investment in the first quarter.
Steve Koch: Approximately $87 million in capital expenditures, $65 million in dividends paid to our stockholders, and $253 million in share repurchases at an average cost of approximately $274 for share.
As a reminder,
Steve Koch: We were pleased to increase our quarterly dividend by 9.1% in February 2025 to a dollar and 20 per share of common stock marking our 30 second dividend increase in the 30 years since our 1994 IPO.
Steve Koch: We have also repurchased approximately $80 million worth of our shares since April 1st at an average cost of approximately $265 per share.
Steve Koch: Year-to-date in 2025, sheriff purchases have resulted in a cumulative 2.3% reduction in our total shares outstanding since December 31, 2024.
Steve Koch: We have $1 billion remaining for additional share repurchases under existing $1.5 billion share repurchase plan that we refreshed in October 2024.
Steve Koch: at March 31st, 2025. Our total debt outstanding was approximately $1.5 billion.
Steve Koch: and an increase of $330 million from December 31st due to borrowings on our Revolving Credit
Steve Koch: Our leverage position remains favorable with a net debt to EBITDA ratio of less than one, providing significant liquidity to continue executing our capital allocation priority.
moving out to Outlook for the second quarter of 2025.
Steve Koch: We anticipate demand across our diversified end markets to remain stable in the second quarter despite ongoing uncertainty regarding domestic and international economic policy
Steve Koch: Accordingly, we estimate our tons sold will be down 1% to up 1% compared to the first quarter of 2025.
Steve Koch: Consistent with seasonal trends supported by healthy demand in the non-residential construction market and continued targeted efforts to regain market share and up 3-5% compared to the quarter of 2024.
Steve Koch: On the pricing side, we anticipate pricing will stay relatively consistent with current levels throughout the second quarter, which will result in our average selling price per ton sold to be up 1 to 3% compared to the first quarter.
Steve Koch: We anticipate our five-phobos profit margin will expand in the second quarter of 2025 following pricing improvements in March for certain products that have continued into April .
Steve Koch: based on these expectations. We anticipate non-GAAP earnings per deluded share in the range of $4.50 to $4.70 for the second quarter of 2025.
Steve Koch: which is inclusive of life or expense of $25 million or $35 cents per share. This concludes or prepared remarks. Thank you again for your time and for participation and we'll open the call for your questions, Operator.
Steve Koch: Thank you. We'll now be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is on the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hand step before pressing the star 2s.
Speaker Change: Thank you. Our first question is from Martin Englert with C-Port Research Partners.
Hello. Good morning, everyone.
Morning, everyone!
Speaker Change: I wanted to ask about if you can maybe discuss your exposure within COGS as well as CAP-X.
Speaker Change: to imports that might be impacted by tariffs. I know you buy the vast majority of your products domestically, but I just want to understand.
Speaker Change: It's maybe you can size it up with some goal posts on percentages for both COGS and CAPX maybe for the budget this year.
Speaker Change: I'm Martin from the cost of sales standpoint as you mentioned in your question.
Speaker Change: You know, we do buy the majority of our metal from...
Speaker Change: The U.S. are domestic producers, which we've done for many, many years. We think that's a good strategy and...
Speaker Change: You know, certainly benefits us in times like we're in currently.
Speaker Change: where, you know, metals a little tight in many areas, but...
Speaker Change: You know, we have those long time relationships to continue to be able to source the product.
Speaker Change: Over 95% of what we buy is from domestic producers. So, you know, very limited exposure to direct imports of metal into our cost of sales.
Speaker Change: from the CapEx perspective, again, most of what we source does come from.
Speaker Change: Companies based in the United States. However, we do have some pieces of equipment that are on order from foreign companies where they've got certain expertise in certain types of equipment.
Speaker Change: I don't know the percentage, but it's a small percentage that would be coming in and we are actively in conversations with those suppliers to figure out how to best mitigate any impact of tariffs.
Thanks for watching!
Speaker Change: I guess thinking longer term have the tariffs and proposed tariffs influence your thoughts.
Speaker Change: We're on longer-term cat-backs. Looking out beyond this year, I'd just be curious to hear how you're thinking about it, both positives and negatives.
Speaker Change: You know, I certainly, you know, tariffs can be a factor, but-
given up...
predominantly most of what we buy is in the U.S.
Speaker Change: You know, we would continue to source consistently if there was equivalent equipment and one was produced in the U.S. and one had a high tariff on it. You know, that may sway our decision. But...
Speaker Change: You know, we're going to continue to invest in CapEx in a manner to support our customers and provide them the services that they want from us. So, no big major shift in how we're going to think about that.
Speaker Change: What's the conversation been like with your customers and reshoring activity or, you know, improved opportunities that, you know, since some of those tariffs have been rolled out.
So we've had examples of…
Speaker Change: Some of our customers picking up business over the last couple of years from reshoring activity, you've seen in the non-residential construction data, a lot of build of manufacturing space in the US for companies to be able to come here.
Speaker Change: So, when we talk to our Reliance companies, we hear them talking about certain customers who are already experienced.
Speaker Change: But larger customers and customers in general, there are a lot of conversations going on right now where they're talking about bringing more
Speaker Change: Business bringing their supply chains back closer to their operations here, but I think there's still a lot more of that to come that we haven't seen actually, you know, in production mode yet in the US.
Okay, appreciate that, um, I guess...
Speaker Change: Conversely, have you noticed any red flags or cautious signs within the market to serve either across demand, pricing, or within supply chains?
Speaker Change: Certainly, there's always questions, there's a lot of uncertainty on all the areas you just mentioned. There's probably a little more uncertainty in the market now.
that is typical in a more normal environment.
Speaker Change: I think we're, you know, we had really strong shipments in Q1. I think part of that is because our customers are confident in Reliance's ability to be able to source the metal that they need and provide the services that they also need. So, I think, you know, we're in a favorable position.
Speaker Change: and that we do see some customers coming to us because they know that we have strong relationships with the US producers and that we'll be able to service them.
Thanks for watching!
Speaker Change: Okay, I appreciate all the color and congratulations on results in the guide.
Phil Gibbs: Our next question is from Phil Gibbs with Keybank Capital Markets.
Take a morning.
Good morning.
Phil Gibbs: So the the life of calculation was was changed to a quarterly expense from some modest income. I think you did a good job explaining that a lot of that clearly was due to
Phil Gibbs: Higher cost, starting to flow through the system notably in carbon products but
Phil Gibbs: I wanted to get back actually to the baseline initial assumption that you were going to have some
Phil Gibbs: You know, life-o-income flow through the aerospace-specific silo. Has that assumption changed at all? Are you more or less optimistic about that piece of it, or is that based on assumption unchanged? [inaudible]
We're still, um...
Phil Gibbs: Income, Mid-February, one of the few who's not out on the fairs in March and then...
Phil Gibbs: and many more. Thank you for watching. I hope you enjoyed this video. If you did, please like and subscribe. I'll see you in the next video.
you know
Phil Gibbs: The incident remains valid and solid. There are some children for the remainder of the year.
Phil Gibbs: And this is a reminder that it's actually positive that we have layoffs and as it introduces, our ongoing knowledge is a good environment for us.
Yeah, that's absolutely. Going going back off of Martin's question on...
You know, the reshore or customers.
Phil Gibbs: You're coming to you to make more first stage investments for them. I guess my sense from your answer was that since the kind of initiation of a tariff environment.
not on the screen at all
The thing . . .
Phil Gibbs: Incramental, I guess, are more meaningful to that discussion and that whole discussion with or without tariffs, I guess, has continued to evolve for you to do more for your customers and so the tariff piece specifically, it's kind of more of a wait and see.
Glad, Glad Fair.
Thank you for watching!
Yeah, I think for the most part, Phil, [inaudible]
but even
Speaker Change: and prior to the terrific analysis, we had been seeing customers, you know, it was more like [inaudible]
say a summary.
Looking to bring supply chains closer Sir
Speaker Change: to their U.S. operations. And I think that has, those discussions I think have accelerated it a bit. And again,
Speaker Change: Customers talking more specifically US instead of North America a little more broadly.
Speaker Change: Thank you, and then, lastly, I missed your comments earlier in the call about
Speaker Change: Cash, cash-related capital spending for this year, but when you just reiterate that or provide us an update on that
Speaker Change: Yeah, it's state consistent. We think probably $375 to $400 million cash spend for in 2025 for CapEx.
Thank you.
Thanks for all.
Speaker Change: Our next question is from Katja Jancic with BMO Capital Markets
Hi, thank you for taking more questions.
Speaker Change: Maybe starting on the on-shoring theme, is there an opportunity for you to potentially do more than just first stage value at a processing? In other words, would you be willing to do some more fabricated type of processing? Is there an opportunity there? No.
Hi Katja.
Katja: There could be. We will look at those opportunities selectively. We do have a few smaller fabrication operations.
Speaker Change: Currently, they will go a little further downstream, but we're very selective in where we choose to do that because we don't want to compete.
Speaker Change: The very existing customer base. A lot of times, the existing customers might have asked us to overflow for that. It is not where we get a lot of the increased value of the accessibility of our feelings. Thank you.
Speaker Change: If we look at the strategies, we are customers asking us to do more for them.
Speaker Change: You know, with our financial strengths and with the capabilities we have in our people and in all those companies to support our customers, so as our customers have access to that, we will be open to the case with our businesses.
Speaker Change: Okay, and maybe can you also talk a little bit about the current M&A environment? Are there any opportunities? What are the kind of the size of the potential deal than how you're thinking about it?
Speaker Change: Yeah, so as far as the acquisition pipeline, a lot of that comes...
Speaker Change: to us when owners of businesses are thinking about selling, whether it comes through bankers, or it comes directly to us.
Speaker Change: That activity has been a little slower Q4, Q1 of this year.
Speaker Change: which is normal of what we typically see when there's uncertainty in the market. A lot of the owners hold off until they feel a little more confident, think
Speaker Change: Buyers would feel a little more confident in the outlook and so we did see a little we have seen a little slowness. [inaudible]
Speaker Change: over the last two quarters. We're starting to see a little more activity generally smaller to mid-sized companies consistent with what we've seen in the last few years.
Perfect. Thank you so much.
Thank you.
Our next question is from Mike Harris with Goldman Sachs [inaudible]
Good morning. Thanks for taking my question.
Morning.
Speaker Change: Hey, only on the same store sales. I mean, it's like the Q1 times.
Speaker Change: So, you know, I'll paste the industry by roughly a percentage points I think is pointed out earlier. I guess of that a record amount. How much would you attribute to market share games versus contributions from the
2024 Acquisitions
So, um, of our consolidated-
So we were up 9%
in total
Speaker Change: and then, you know, the other five and a half percent roughly was same-store. So, you know, Michael, we we saw strength in certain of our end mark. It's most notably construction, non-residential construction related. There's a lot of activity out there. We think in general manufacturing, there may have been a little demand pull forward by certain customers, but we really can't quantify that. [inaudible]
Speaker Change: and the strength we had, part of that we think is taking some share back from the market where
You know, our people are motivated to grow their tongues profitably.
Speaker Change: And so, you know, we were really excited with our teams performed.
Speaker Change: to drive that above industry growth while maintaining our growth profit margin in our 29-31% and, you know, growth profit margin range.
Speaker Change: Okay, that's helpful. And it kind of sounds like the market share game could be sticky versus more of an opportunistic sale.
Yeah, we will list them.
Speaker Change: Okay, and the follow-up, just on current inventory levels, can you speak to count on where they are versus a target and maybe share any thoughts on the need to restock?
Thanks for watching!
So, you know, we manage and monitor our-
Speaker Change: You know, based upon our shipment levels and maintain a consistent term ratio, we don't try to go into the, you know, restocking, destocking that a lot of people like to talk about. That's not our strategy.
Speaker Change: The With the Strong Shipments are inventory turns are actually slightly above. [inaudible]
Our Immatory Turn Goal
Speaker Change: But with our strong relationships with the domestic mills, we have access to the inventory which is a real positive in markets where there's a little tightness as we were experiencing in Q1 but we're very happy with where our inventory levels are. We're very happy with where our inventory levels are, we're very happy with where our inventory levels are.
Okay, perfect. Thanks for the insight.
Thanks for watching!
Thank you. Thanks.
Speaker Change: Our next question is from John Tomazos with John Tomazos very independent.
Thanks for watching!
Speaker Change: Thank you very much and congratulations on your great results in the context of the steel market.
Speaker Change: If I may, I'd like to ask just some general questions about the steel market
Domestic Output is down 1.3% year-to-date 2.3% year-to-date
Imports you're up 7.8 million tons [inaudible]
Our 7.8 million tons up here today.
Speaker Change: In the AISI Annual Statistical Report published in the middle of last year for 23
Speaker Change: Even though you're a company, Ryerson, etc. say they're doing better and I'm sure you're doing better.
Speaker Change: Please understand, please explain how the total steel market is so lethargic when the government reports positive GDP etc.
Well, that's a good question, John .
Speaker Change: You know, certainly a lot of macro statistics and factors there and, you know, yes, there have shipments overall, you know, consumption in the U.S. shipments through service centers. We have seen that trend, you know, decline.
Speaker Change: from a macro level, but it reliance. You know, we really focus on our business and...
Speaker Change: You don't, you know, obviously we're aware of those trends.
Speaker Change: But we just look at how we can continue to grow reliance, how we can do more to service our customers, gain new customers, and I think, you know,
Speaker Change: It makes the performance of our teams even that much more positive the fact that they've been able to do that in a backdrop that you talked about.
Speaker Change: Do you think the small ones you choose a customer is important to your company?
are getting hurt by imported goods.
Speaker Change: Even if we don't take things from China by substitution, they drive European Latin America and other Asian companies to export more to the US because China hits them in their home markets, or are the auto companies outsourcing more of the components?
Speaker Change: or other US manufacturers outsourcing more of the components to account.
Speaker Change: for the lower reported shipments to distributors in the ISI data.
Speaker Change: Yeah, I mean, John again, we can really only comment to Reliance and, you know, specific to our company, but, you know, certainly if
You know, any incremental U.S.
Speaker Change: Manufacturing of Metals is positive, potentially for us and for our customers.
So to the extent reassuring is happening...
There's more manufacturing being done in the U.S. .
Speaker Change: Or in North America, that is positive for us, you know, as far as your question on auto and is that part of the reason?
Speaker Change: You know, mills aren't sending as much food distribution, you may recall, we don't generally sell metal direct to the automotive industry, we do process.
Speaker Change: quite a bit of metal for the automakers and our customers in that space are generally the mills, carbon and aluminum and we've continued to invest in those businesses and we've picked up more and more processing with our increased capacity so we're continuing to see the mills rely on us to support them in their shipments to automotive the way that we always have.
Just to share with you, Karla.
Speaker Change: I think inflation has been 3% more than reported for the last generation every year, and the US GDP has grown in 20 years, and the government data is just a bunch of lies.
Speaker Change: In witness housing starts last year, we're 32% below peak and auto sales about 10% below all time peaks so I'm just sharing my perspective and you guys are doing great in the context of tough markets.
Speaker Change: and if markets were good, just think how much better you'd do. Thank you.
Yep, absolutely thanks, Charles.
Speaker Change: Thank you. There are no further questions with this time. I would like to hand the floor back over to Karla Lewis for any closing comments.
Karla Lewis: Alright, thanks again to all of you for joining our call today and for your continued support of Reliance