Q2 2025 Reliance Inc Earnings Call
Karla Lewis: 2nd Quarter 2025 Earnings Call.
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Greetings and welcome to the Reliance. A second quarter, 2025 earnings call.
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Kimberly Orlando: As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Kim Orlando, with Atom Investor Relations.
You may be placed into question Queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded.
Karla Lewis: Kim, please go ahead. Thank you, Operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's second quarter 2025 financial results.
Speaker Change: Yes, I'm a pleasure to turn the call over to your host. Kim Orlando with auto investor relations Kim. Please go ahead.
Karla Lewis: I am joined by Karla Lewis, President and Chief Executive Officer, Steve Koch, Executive Vice President and Chief Operating Officer, and Arthur Ajemyan, Senior Vice President and Chief Financial Officer. A recording of this call will be posted on the Investor section of our website at investor.reliance.com. Please read the forward-looking statement disclosures included in our earnings release issued yesterday and note that it applies to all statements made during this teleconference. The reconciliations of the adjusted numbers are included in the non-GAAP reconciliation part of our earnings release.
Kim Orlando: Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss reliance's second quarter, 2025 Financial results.
Speaker Change: I am joined by Carla Lewis president and Chief Executive Officer, Steve Cook, Executive, Vice President and Chief Operating Officer and Arthur jemian, senior, vice president and Chief Financial Officer.
Speaker Change: A recording of This call will be posted on the investor section of our website at investor reliance.com.
Speaker Change: Please read the forward-looking statement disclosures included in our earnings release issued yesterday and note that it applies to all statements made during this teleconference.
Karla Lewis: I will now turn the call over to Karla Lewis, President and CEO of Reliance. Good morning, everyone, and thank you all for joining us today to discuss our second quarter 2025 performance. Our solid financial results once again demonstrated the resilience of our proven business model in a volatile environment. Our operating teams continue to excel in providing value to our customers and increasing our market share while effectively managing their businesses through ongoing market uncertainty. Our record second-quarter tons sold compared to last year once again significantly outperformed the industry average volume by seven percentage points, which we attribute to our unparalleled scale, access to domestic metal, and breadth of processing capability.
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 Carla Lewis, president and CEO of reliance.
Speaker Change: Good morning everyone and thank you all for joining us today to discuss our second quarter 2025 performance, our solid Financial results. Once again, demonstrated the resilience of our proven business model in a volatile environment.
Speaker Change: Our operating teams continue to excel in providing value to our customers and increasing our market share while effectively managing their businesses through ongoing market and certainty.
Karla Lewis: Importantly, we maintained a gross profit margin within our sustainable range of 29 to 31 percent in line with our Smart Profitable Growth Initiative. are strong performance, generated sequential increases in non-GAAP pre-tax income in excess of 15%, and non-GAAP earnings per share of $4.43, an increase of more than 17% compared to the prior quarter.
Speaker Change: Our records second quarter ton sold compared to last year. Once again, significantly outperformed the industry average volume by 7 percentage points, which we attribute to our unparalleled scale access to domestic medal and breadth of processing capabilities.
Speaker Change: Importantly, we maintained a gross profit margin within our sustainable range of 29 to 31% in line with our smart profitable growth initiative.
Karla Lewis: Our capital allocation framework remains unchanged, and our long-term focus continues to guide both our growth and stockholder return strategies. Reliance generated $229 million of cash flow from operations in the second quarter. Our strong cash flow continues to support investments in advanced value-added processing equipment, organic growth, and accretive acquisitions that position Reliance for growth in all market environments. Our 2025 capital expenditure budget remains at $325 million, with over 50% dedicated to growth projects. Our expected total cash outlay for 2025 is expected to be in the $360 to $380 million range, reflecting carryover projects from prior years that will be completed this year.
Speaker Change: Our strong performance generated sequential increases in non-gaap pre-tax income in excess of 15% and non-gaap earnings per share of $4.43 and increase of more than 17% compared to the prior quarter.
Speaker Change: Our Capital allocation framework remains unchanged. And our long-term Focus continues to guide. Both our growth and stockholder return strategies.
Speaker Change: Reliance generated 229 million of cash flow from operations in the second quarter.
Speaker Change: Our strong cash flow continues to support Investments and advanced value added processing equipment, organic growth and the creative Acquisitions that position Reliance for growth in all Market environments.
Speaker Change: Our 2025 capital expenditure budget remains at 325 million with over 50% dedicated to growth projects.
Speaker Change: Our expected total cash. Outlay, for 2025, is expected to be in the 360% prior years. That will be completed this year.
Karla Lewis: Our second quarter results include benefits from our 2024 acquisitions, and we remain in a position of financial strength to execute on M&A opportunities that align with our discipline criteria. We continue to see new acquisition opportunities despite continuing macroeconomic uncertainty, and we will maintain our focus on pursuing opportunities that expand our geographic footprint and the value-added metal processing solutions we offer our customers, align with our emphasis on smart, profitable growth, and complement our strong gross profit margin profile.
Speaker Change: Our second quarter results include benefits from our 2024 Acquisitions and we remain in a position of financial strength to execute on m&a opportunities, that align with our discipline criteria.
Speaker Change: Acquisition opportunities despite continuing macroeconomic uncertainty and we will maintain our focus on pursuing opportunities that expand our Geographic footprint and the value added metal processing Solutions. We offer our customers
Karla Lewis: We also remain committed to returning capital to our stockholders. We returned $143 million to our stockholders in the second quarter in dividends and share repurchases, and we have repurchased over 1.2 million shares year-to-date at favorable prices. In summary, I'm pleased with our strong operational execution in the second quarter, particularly given the rapidly changing trade environment. Our resilience reflects both the strength of our business model and the unwavering dedication of our team, whose commitment to safely delivering industry-leading solutions continues to expand and deepen our customer relationship. While we anticipate some weakness in the third quarter, we remain confident in our ability to grow amid ongoing market uncertainty and take advantage of improved demand and pricing environments as we emerge from these highly uncertain times.
Speaker Change: aligned with our emphasis on Smart profitable growth and complement. Our strong gross profit margin profile. We also remain committed to returning Capital to our stockholders.
Speaker Change: We return 143 million to our stockholders. In the second quarter in dividends and share repurchases and we have repurchased over 1.2 million shares year to date at favorable prices.
Speaker Change: In summary, I'm pleased with our strong, operational execution, and the second quarter particularly given the rapidly changing trade environment.
Speaker Change: Our resilience reflects both the business model and the unwavering dedication of our team whose commitment to safely delivering industry-leading Solutions, continues to expand and deepen, our customer relationships.
Karla Lewis: And encouraging trends in our key end markets, including signs of reshoring activity are creating additional tailwinds as we look ahead. Moreover, our longstanding practice of primarily sourcing our metal from domestic mills and operating in the United States provides a strong competitive advantage in the current trade environment. Our focus remains firmly on long-term success with a disciplined approach to value creation for all Reliance stakeholders.
Speaker Change: Well, we anticipate some weakness in the third quarter, we remain confident in our ability to grow amid ongoing Market uncertainty and take advantage of improved demand and pricing environments as we emerge from these highly uncertain times.
Speaker Change: And encouraging Trends in our key and markets, including signs of reassuring activity are creating additional Tailwind. As we look ahead,
Steve Koch: I'll now turn the call over to our COO, Steve Koch, who will review our demand and pricing trends. Thanks, Karla. And good morning, everyone. I'd like to start by thanking our dedicated team for driving operational success across the board, upholding the highest safety standards. I'll now turn toward demand and pricing trends. Our second quarter ton sold decreased 0.9% compared to the first quarter of 2025, in line with our outlook of down 1% to up 1%, even when considering the effect of demand pulled forward into Q1 due to tariff activity. Compared to the second quarter of 2024, our ton salt increased 4%, significantly outperforming the service center industry's year-over-year decline of 3.1%, as reported by the MSCI.
Speaker Change: Moreover, our long-standing practice of primarily sourcing. Our metal from domestic Mills and operating in the United States provides a strong competitive advantage in the current trade environment. Our Focus remains firmly on long-term success with a disciplined approach to Value. Creation for all Reliance stakeholders.
Speaker Change: I'll now turn the call over to our coo Steve Cook. Who will review our demand and pricing trends.
Steve Cook: Thanks Carla, and good morning. Everyone like to start by thanking. Our dedicated team for driving operational success across the board. I'll upholding the highest safety standards.
Steve Cook: I'll now turn to our demand and pricing trends.
Steve Cook: Our second quarter, ton Soul decreased 0.9%. Compared to the first quarter of 2025 in line with our Outlook of down, 1% to up 1%
Steve Cook: even when considering the effect of demand, pull forward into q1 due to tariff activity,
Steve Cook: compared to the second quarter of 2024, our returns sold increased 4%,
Steve Koch: Our increased shipments are attributable to market share gains as a result of our smart, profitable growth strategy and continued investments in organic growth. Our second quarter average selling price per ton sold increased 6.1% compared to the first quarter of 2025, doubling the high end of our expected range of up 1% to 3%, reflecting the strong tariff-driven momentum for both demand and pricing near the end of the first quarter. Pricing for many carbon and aluminum products peaked in April, but then declined for the remainder of the second quarter. Stainless pricing declined modestly in the quarter as these products were less sensitive to trade policy in the short term.
Steve Cook: significantly outperforming the service center Industries year-over-year decline of 3.1% as reported by the msci.
Steve Cook: Our increase shipments are attributable to market share jeans as a result of our smart profitable growth strategy and continued investments in organic growth.
Steve Cook: Our second quarter average selling price per ton, sold increased 6.1%, compared to the first quarter of 2025 doubling in the high end of our expected range of up, 1% to 3%, reflecting the strong tariff driven momentum, for both demand, and pricing near the end of the first quarter.
Steve Cook: Pricing for many carbon and aluminum products, peaked in April. But then declined, for the remainder of the second quarter,
Steve Cook: Stainless pricing declined modestly in the quarter.
Steve Koch: As Arthur will expand upon shortly in reviewing our outlook for Q3, pricing for most products has remained steady entering the third quarter.
Steve Cook: As these products were less, sensitive to trade policy in the short term.
Steve Koch: Next, I will review notable trends within our key end markets and products, beginning with non-residential construction. Carbon steel tubing, plate, and structural products, which we predominantly sell to the non-residential construction market, represented roughly one-third of our Q2 2025 sales. Compared to last year, shipments for all three products were up in the second quarter. Improved demand for Reliance's products was driven by Reliance's scale and geographic diversity that allowed the company to benefit from heightened data center construction and related infrastructure, as well as publicly funded infrastructure projects such as schools, hospitals, and airports. Our general manufacturing business, which also represented roughly one-third of our total sales in Q2 2025, is highly diversified across geographies, products, and industries.
As Arthur will expand upon shortly in in reviewing our outlook for Q3 pricing for most products has remained steady entering the third quarter.
Steve Cook: Next, I will review notable Trends within our Ken markets and products beginning with non-residential construction.
Carbon steel, tubing plate, and structural products, which we predominantly sell to the non-residential construction Market represented roughly 1/3 of our Q2 2025 sales.
Compared to last year. s*** and for all 3 products for up in the second quarter,
Steve Cook: Improved demand for reliance's products was driven by Reliance of scale. And Geographic Geographic, diversity that allow the company to benefit from heightened data center construction and related infrastructure as well as publicly funded infrastructure projects such as schools, hospitals and airports.
Steve Koch: Shipments increased year-over-year, and shipments related to rail and ship-related transportation projects and heavy construction equipment were particularly strong in the second quarter, demonstrating Reliance's ability to capture share even in challenged manufacturing markets. While shipments to consumer products and industrial sharing markets also improved year over year, demand in those markets remains comparably softer than other manufacturing sectors. Our continued ability to outperform the industry across key product groups, shipping to general manufacturing applications highlights the versatility and competitive advantage of our diversified business model in a fluid, macroeconomic, and policy environment, and our ability to grow with new and existing customers.
Steve Cook: Our general manufacturing business, which also represent at roughly 1. Third of our total sales in Q2, 2025 is highly Diversified across geographies products and industries
Steve Cook: Shipments increased year-over-year and shipment is related to rail and ship related Transportation projects.
Steve Cook: And had a construction equipment, were particularly strong in the second quarter demonstrating, reliance's ability to capture share. Even in challenged manufacturing markets.
Steve Cook: Products and Industrial sharing markets, also improved year-over-year demand in those markets remains comparably softer than other manufacturing sectors.
Our continued ability to outperform the industry across key product groups, shipping to General manufacturing applications highlights, the versatility and competitive advantage of our Diversified business model, and a fluid macroeconomic and policy environment, and our ability to grow with new and existing customers.
Steve Koch: Aerospace products comprise approximately 10% of our Q2 2025 sales. Demand for commercial aerospace was stable compared to the first quarter of 2025 and the second quarter of 2024. Demand for defense-related aerospace and space programs remained consistent at strong levels. We primarily service the automotive market through our toll processing operations, which are not included in our tons sold. Our tolling business, which represented approximately 4% of our Q2 2025 sales, saw process time stay relatively consistent with both the first quarter of 2025 and the second quarter of 2024, supported by our capacity expansion. The semiconductor industry remained under pressure in the second quarter due to ongoing excess inventory from the supply chain.
Aerospace products comprise the approximately 10% of our Q2 2025 sales.
Steve Cook: Demand for commercial Aerospace. The stable compared to the first quarter of 2025 in the second quarter of 2024.
Steve Cook: The demand for defense related Aerospace and space programs, remained consistent at strong levels.
we primarily service the automotive Market through our toll processing operations which are not included in our tongue sold
Our tolling business which represented approximately 4% of our Q2, 2025 sales saw process, tons. Stay relatively consistent with both the first quarter of 2025 and the second quarter of 2024 supported by our capacity. Expansions.
Steve Cook: Semiconductor industry remained under pressure in the second quarter due to ongoing excess inventory from the supply chain.
Steve Koch: In summary, I thank our team for executing effectively and safely through dynamic operating conditions. The breadth and depth of our value-added processing capabilities, high-quality products, and reliable customer service continue to win Reliance new customers and increase our market share. Reliance's long-term dedication to domestic metal sourcing, along with our industry-leading scale and strong balance sheet, makes us a highly attractive partner to our mill suppliers in all market conditions.
Steve Cook: In summary, I thank our team for executing effectively and safely through Dynamic operating conditions.
The breadth and depth of our value, added process and capabilities, high quality products, and reliable customer service, continued to win. Reliance new customers and increase, our market share,
Arthur Ajemyan: I will now turn the call over to our CFO, Arthur Ajemyan, to review our financial results and outlook. Thanks, Steve, and thanks, everyone, for joining us today. Our second quarter operating performance was strong, with shipment levels in line with our guidance, despite some demand pulled forward into Q1, and higher than anticipated average selling prices. Our second quarter non-GAAP earnings for diluted share of $4.43 demonstrated strong growth of 17.5% compared to the first quarter of 2025 in a mixed pricing environment that reflected the following dynamics. Pricing for many carbon steel products peaked in April and retreated through the balance of the quarter, resulting in the cost of our inventory on hand exceeding replacement costs.
Steve Cook: Reliance has long-term dedication to domestic metal sourcing along with our industry-leading, scale and strong balance sheet, makes us a highly attractive partner to our mill suppliers and all market conditions.
Steve Cook: I will now turn the call over to our CFO Arthur jamion to review our financial results and Outlook.
Speaker Change: For joining us today.
What are operating performance was strong?
Speaker Change: With shipment levels in line with our guidance, despite some demand, pull forward into q1.
Speaker Change: Higher than anticipated, average selling prices.
Speaker Change: Our second quarter non-gaap earnings for diluted share of 4.43.
Speaker Change: Demonstrated strong growth of the 17 and 1.5% compared to the first quarter of 2025.
Speaker Change: In a mixed pricing environment that reflected the following Dynamics.
Speaker Change: pricing for many carbon steel, products peaked in April,
Arthur Ajemyan: At the same time, shorter product lead times, starting in March and continuing through May, accelerated our receipt of higher cost materials. These factors contributed to non-GAAP FIFO gross profit margin realization that was slightly lower than expected. increasing moderately from 30.4% in Q1 of 2025 to 30.6% in Q2 of 2025. LIFO non-gap gross profit margin also rose by 20 basis points to 29.9% in Q2 with both quarters including $25 million of LIFO expense. For the full year 2025, we are maintaining our LIFO estimate of $100 million of expense.
Speaker Change: And retreated through the balance of the quarter resulting in the cost of our inventory on hand exceeding replacement cost.
At the same time.
Speaker Change: Shorter product lead times. Starting in March, and continuing through May.
Accelerated, our receipt of higher cost material.
These factors contributed to non-gaap 5o. Gross profit. Margin realization that was slightly lower than expected.
Increasing moderately from 30.4% in q1 of 2025 to 30.6% in Q2 of 2025.
Lifo, non-gaap gross profit. Margin also Rose by 20 basis points. The 29.9% in Q2 with both quarters, including 25 million of bio for expense.
Arthur Ajemyan: as of June 30, 2025. The LIFO reserve on our balance sheet was $485 million, which remains available to benefit future period operating results and mitigate the impact of potential declines in metal prices.
Speaker Change: For the full year. 2025 we are maintaining our lifo. Estimate of 100 million dollars of expense.
Speaker Change: As of June 30th 2025.
Arthur Ajemyan: Turning to expense. Our second quarter and six-month period, same store, non-GAAP SG&A expenses were up 6.2% and 3.1% respectively. compared to the same periods in 2024, reflecting the impact of inflationary wage adjustment. Increased variable warehousing and delivery expenses associated with increases in our tons sold. and Higher Incentive Compensation related to increased FIFO profitability. on a per-ton basis. Our same store non-GAAP SG&A expenses increased only 2% compared to the second quarter of last year, and actually declined 1.7%. for the first half of 2025 versus the same period in 2024, demonstrating the operating leverage achieved through our organic growth strategy.
Speaker Change: The lifo reserve on our balance sheet was 485 million which remains available the benefit future period, operating results and mitigate the impact of potential declines in metal prices.
Speaker Change: Turning to expenses.
Our second quarter and 6-month period, same store non-gaap sgna expenses for up 6.2 and 3.1% respectively, compared to the same periods in 2024.
Reflecting the impact of inflationary wages adjustments.
Speaker Change: Increased variable warehousing and delivery expenses associated with increases in our tons sold.
Speaker Change: And higher incentive compensation related to increased 5-fold profitability.
Speaker Change: On a per ton basis.
Speaker Change: Our same store non-gaap sgna expenses, increased only 2% compared to the second quarter of last year and actually declined, 1.7% over the first half of 2025 versus the same period in 2024. Demonstrating the operating leverage achieved through our organic growth strategy.
Arthur Ajemyan: I'll now address our balance sheet and cash flow. We generated $229 million in operating cash flow in Q2 despite over $100 million investment in working capital, mainly due to higher metal costs. We use that cash to fund $88 million in capital expenditures. a $63 million in dividends. and repurchase $80 million in our shares at an average price of $265 per share. Year-to-date, our repurchases have reduced our total shares outstanding by 2%.
Our address or balance sheet and cash flow.
We generated 229 million in operating cash flow in Q2.
Speaker Change: Despite over a hundred million dollar investment in working capital mainly due to higher metal cost.
We use that cash to fund 88 million in capital expenditures.
Arthur Ajemyan: We still have approximately $1 billion available under our $1.5 billion share repurchase plan that we refreshed in October 2020. As of June 30, our total debt was $1.43 billion. including a $48 million reduction in borrowings in our revolving credit facility during Q2. Our leverage position remains favorable, with a net debt to EBITDA ratio of less than 1, providing significant liquidity to continue executing our capital allocation priorities.
Speaker Change: 8 or repurchases have reduced our total shares outstanding by 2%.
Speaker Change: We still have approximately 1 billion dollars available.
Speaker Change: Under our 1.5 billion, share repurchase plan.
Speaker Change: That we refreshed in October 2024.
Speaker Change: As of June 30th was 1.43 billion.
Speaker Change: Including a 48 million reduction in borrowing on our revolving credit facility during Q2.
Our leverage position remains favorable with the net debt to ebit. Our ratio of less than 1 providing significant liquidity to continue executing our Capital allocation priority,
Arthur Ajemyan: Moving on to Outlook for the third quarter. Looking ahead, we anticipate demand across our diversified end markets to remain stable in the third quarter. subject to normal seasonal patterns, which reduce our shipping volumes due to planned customer shutdowns and vacation schedules, as well as ongoing domestic, international trade and economic policy uncertainties. Accordingly, we estimate our tons sold will be down 1-3%. compared to the second quarter of 2025, but more importantly, up three to 5% compared to the third quarter of 2024. We do, however, anticipate pricing will stay relatively consistent with current levels throughout the third quarter, which will result in our average selling price per ton sold to be down 1% to up 1% compared to the second quarter, largely driven by lower prices for carbon steel products, partially offset by higher prices for certain aluminum stainless products.
Speaker Change: Moving on to Outlook for the third quarter.
Speaker Change: Looking ahead. We anticipate the man to cross our Diversified end markets to remain stable in the third quarter.
Speaker Change: Subject to normal seasonal patterns.
Speaker Change: Which reduce our shipping volumes due to planned customer shutdowns and vacation schedules as well as ongoing domestic international trade, and economic policy uncertainty.
Accordingly, we estimate our time, sold.
Speaker Change: Will be down 1 2, 3%.
Speaker Change: Compared to the second quarter of 2025.
Speaker Change: But more importantly, Up 3 to 5% compared to the third quarter of 2024.
We do however, anticipate pricing will stay relatively consistent with current levels throughout the third quarter.
Speaker Change: Which will result in our average selling price per ton sold will be down 1 to up 1% compared to the second quarter.
Speaker Change: Largely driven by lower prices, for carbon steel products. Partially offset by higher prices for certain aluminum stainless products.
Arthur Ajemyan: As a result, we anticipate our FIFO gross profit margin will remain under some pressure in Q3. Based on these expectations, we anticipate non-GAAP earnings per diluted share in the range of $3.60 to $3.80 for Q3, inclusive of quarterly LIFO expense of $25 million dollars. for $0.36 per diluted share.
Speaker Change: as a result, we anticipate our 5 overs profit margin will remain under some pressure in Q3
Speaker Change: Based on these expectations, we anticipate non-gaap earnings per diluted share in the range of $3.60 to $3.80 for Q3 inclusive.
Speaker Change: quarterly lifo, expensive, 25 million
Karla Lewis: This concludes our prepared remarks. Thank you again for your time and participation.
Speaker Change: For 36 cents per diluted share.
Operator: We'll now open the call for your questions.
Operator: Operator? Thank you.
Speaker Change: This concludes our prepared remarks. Thank you again for your time participation will now open the call for your questions, operator.
Operator: We'll now be conducting a question and answer session. If you'd like to be placed into question Q, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question Q. You may press star 2 if you'd like to remove your question from the queue. One moment please while we poll for questions.
Speaker Change: Thank you. And I will be conducting your question and answer session. If you'd like, to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2. If you'd like to move your question from meq.
Martin Englert: Our first question is coming from Martin Englert from Seaport Research Partners, Reliance Outline. Hello. Good morning, everyone. Good morning, Martin. Good morning. Question on the guidance within the guide, you know, the playful gross margins expected to remain pressured. Is that meant to imply sequential weakness or rather a continuation of all those comparable?
Speaker Change: 1 moment please. I'll be pulled for questions.
Our first question is coming from Martin England, from cport research Partners. Your line is now live.
Martin England: Hello, good morning, everyone.
Speaker Change: Good morning, Martin. Good morning.
Speaker Change: Question on the guidance within the guide, you noted that playful gross. Margins expected to remain pressured. Is that meant to imply sequential weakness? Or rather, a continuation of levels comparable to 22.
Karla Lewis: Hey, Martin. So Q3, if you recall, for Reliance and in our industry, typically there is some demand weakness just due to normal seasonal patterns. You know, during July and different summer months, not only do a lot of the big OEM-type customers shut down for scheduled events, and we also see in some of our smaller customers, which make up a big portion of our customer base, they will oftentimes shut their locations down here and there during the summer for their employees to take vacations. So nothing, in our view, out of the ordinary. We probably guided, I think, from a demand standpoint, a little stronger in Q3 than we do typically from the seasonal slowdown.
Speaker Change: Hey, Martin. Um, so
3, if you
Speaker Change: Call, um, for Reliance. And in our industry typically, there is, um, some demand, uh, weakness, just due to normal seasonal patterns, you know, during July and different summer months, not only do a lot of the, the big OEM, um, type customers. Shut down for scheduled maintenance, uh, that flows down, you know, to more of our customer base through their sub.
Karla Lewis: And also, it's still year-over-year stronger, and we've been trending, our demand has been stronger in our year-over-year quarters, you know, all year so far. And so we feel good about it. On the pricing side, we, you know, we can talk a little more, but in Q2, there were, we would say it was a little atypical from our normal cycle. If you recall at the end of Q1, we talked about some potential demand pull forward into Q1, and there were price increases. Prices had good momentum when we spoke to everyone in April and gave our Q2 guide, but prices kind of peaked out, especially on a lot of the carbon products in April.
Karla Lewis: And then we saw prices decline, and so we had some margin, gross profit margin compression in Q2. Typically, in a rising price environment, we would expect that to expand, which was in our guidance. So we might be a little more hesitant going into our Q3 guide now, although on the pricing side, you know, there's weakness in a couple. Most products, we think, are fairly steady, and we see upside aluminum prices did increase in Q2 and hold because of some of the tariff-related impact on their input costs. So we, and we expect that to continue to flow through in Q3, as well as a base price increase on stainless near the end of Q2.
Speaker Change: The end of q1. Uh, we talked about some potential demand, pull forward into q1 and there were price increases prices had good momentum when we spoke to everyone in April and gave our Q2 guide. Uh, but price is kind of peeked out, especially on a lot of the carbon products in April, and then we saw prices decline. And so we had some margin gross profit margin compression in Q2 typically, um, in a rising price environment, we would expect that to expand which was in our guidance,
Karla Lewis: So there's a little lag to work that in. But overall, we did imply, you know, some continued pressure on gross profit margin in Q3. Primarily, it's just very uncertain out there. The tariff uncertainty does, we believe, has been holding back some of the buying by many customers throughout the space. We think once that gets unlocked, we feel very good about where we in the industry will go for the rest of, you know, the year, or at whatever point tariffs get resolved.
So we might be a little more hesitant going into our Q3 guide. Now, although on the pricing side, you know, there's weakness in a couple most, um, products we think are, are fairly steady and we see upside. Um, aluminum prices did increase in Q2 and hold because of some of the the Tariff related impact on on their input costs. So we and we expect that to continue to flow through in Q3 as well as uh a base price increase on stainless near the end of Q2. So there's a little lag to work that in but overall we did imply you know some continued pressure on gross profit margin in Q3 primarily. It's just very uncertain.
Speaker Change: Out there. The the Tariff uncertainty does, We Believe has been holding back some of the buying by many customers throughout the space. We think once that gets unlocked, we feel very good about uh, where we and the industry will go for the rest of, you know, the year or whatever Point tariffs, get resolved.
Karla Lewis: Okay. So... More generally, just a more conservative tone given or more conservative guidance overall. https://www.larryweaver.com That is fair, and we can only guide to what we see and what we believe is happening in our business. We unfortunately can't control what consensus or other expectations look like out there for us, and whether or not they're in line with what we see happening in the market.
Speaker Change: Um,
Speaker Change: so,
Speaker Change: More generally just some more conservative tone uh given or more conservative guidance overall based off of how second quarter transpired and given some of the uncertainty out in the market. Um is that a fair characterization?
Speaker Change: That is fair. And um, you know, we can only guide to what um to what we see and what we believe is happening in our business. Um, we unfortunately can't control what consensus or other expectations look like out there for us and whether or not they're in line with what we see happening in the market.
Karla Lewis: Um, you did touch on this, but I want to see if there's any more that you'd like to highlight what customers have been saying about the tariff environment, the impact on their business. anything else that you've been seeing or observing about Yeah, I think, you know, we just, I would say what's a real positive for us, Martin, is we continue, especially in our kind of non-res construction business, we continue to see new activity, you know, the types of projects we do, some of the smaller projects, that space for us remains active. We're not saying it's growing, but it is not declining, and, you know, our management teams selling into that space are very confident and upbeat about what's going on in those markets.
Okay, um you did touch on this but I want to see if he is. There's any more that you'd like to highlight, what customers have been saying about the Tariff environment, the impact on their business. Um anything else that you've been seeing for our observing about them?
Karla Lewis: Certainly, data center is a strong pull there, and at Reliance with, you know, the breadth of the different products we sell, we're not just selling into the kind of foundational construction of the data center buildings. We have a lot of different products that also go internally into the data centers and the electrification of that, so, you know, that's a real bright spot out there, but overall, you know, schools, hospitals, airports, we continue to see a lot of activity in that space.
Yeah, I think, you know, we just uh I would say what's a real positive for us. Martin is we can continue especially in our kind of non-res construction business. We continue to see new activity, you know, the types of projects, we do some of the smaller projects that um, that space for us remains, um, active, we're not saying it's growing but it is not declining and, um, you know, our our, our, our management teams, uh, selling into that space are very confident and, and upbeat about what's going on in those markets, certainly data center is a strong poll there. And that Reliance with, you know, the breadth of the different products we sell, we're not just, um, selling into the kind of foundational construction of the Data Center buildings. We have a lot of different products that also go.
So internally into the data centers and the electrification of that. So you know that's a bright a real bright spot out there but overall you know, schools hospitals, airports. Um we continue to to see a lot of activity in that space.
Karla Lewis: Within the commercial aero supply chain, I believe you noted an inventory over... Is there more detail that you can share there or expected duration? Yeah, I mean, I wish we had a perfect answer to that, Martin. You know, we have to watch what happens in the space, but we are seeing, you know, some products where it appears the supply chain has worked through, and there's some activity, buying activity from our customers buying from us, but at a, you know, fairly moderate level at this point. I do believe Boeing's build rates did increase recently, so once that starts to flow through the supply chain, we do anticipate seeing more activity levels, but our guide for Q3 was pretty flat with what we saw in Q4.
Speaker Change: um,
Within the arrows. Commercial arrows, supply chain. I believe you noted in inventory overhang
Is there more detail that you can share their or expected duration, or on the issue?
Speaker Change: Uh, from our customers buying from us. But at a, you know, fairly moderate level at this point. Uh, I do believe Boeing's, build rates did, um, increase recently. So, once, um, that starts to flow through the supply chain, um, we do anticipate seeing more activity levels, but our guide for Q3 was, um, pretty flat with what we saw in Q2.
Martin Englert: Thank you.
Katja Jancic: Our next question today is coming from Katja Jancic from BMO Capital Markets. Your line is now live. Hi, thank you for taking my question.
Speaker Change: Thank you. Our next question, today is coming from Kia Agents from BMO Capital markets. Your line is now live.
Katja Jancic: Maybe starting on the market share gains, can you talk a bit about what gives you the ability to really gain market share and how are you thinking about, you know, over the next a few quarters, is this expected to continue? Hi Katja. So we if you go back, you know, a few quarters, you know, even through most of the last years, we have been picking up market share. The important thing for us, we talk about smart, profitable growth means we're picking up market share, but also maintaining our gross profit margin. So you know, we're not just chasing business out there, we're going after good business.
Hi. Thank you for taking my questions.
Speaker Change: Maybe starting on the market. Share gains can, can you talk a bit about what gives you the ability to really gain market share, and how are you thinking about, you know, over the next few quarters is, is this expected to continue?
Karla Lewis: And we think there is room to continue to do that. I think the Reliance teams win that new business because of the superior customer service that our people provide to our customers, especially in uncertain markets where customers want to buy more frequently, our next day delivery model, the level of processing that we can provide to our customers, the quality of our products. I think that high-touch customer service model is, and the way that we're structured, decentralized so our people can react quickly to opportunities that they see in the market and really focus on those customer relationships with our broad footprint.
Speaker Change: Hi Katya. Um, so we if you go back, you know, a few quarters, you know, even through most of last year, we have been picking up, um, market share, uh, the important thing for us, we talk about smart profitable. Growth means we're picking up market share, but also maintaining our gross profit margin. Um, so, you know, we're not just chasing business out there, we're going after good business and we think there is room to continue to do that. I think the, the Reliance teams um,
Karla Lewis: I think those are all positives that allow us to gain that market share.
Speaker Change: When that new business because of the superior customer service that our people provide to our customers, especially in uncertain markets, um, you know, where customers want to buy more frequently, you know, our next day, delivery model, um, the the level of processing that we can provide to our customers, the quality of our products. I I think that high-touch um customer service model is and the way that we're structured decentralized, so our people can um, react quickly to opportunities that they see in the market and really focus on those customer relationships with our broad footprint. I think those are all positive. Um, that allow us to to gain that market share.
Karla Lewis: There's a lot of uncertainty still right now in the market. Does this increase the potential acquisition opportunities? Is there more potential deals that are coming to the market? And how does the valuation look? We have seen an increase in Q2 over Q1. We had talked, I think, starting last year, going into the presidential election, that we had seen some pullback in acquisition activity, which we attributed to uncertainty around that. And then with all the trade uncertainty, that had continued. But in Q2, we did see an uptick in number of deals in the market. So we're pleased to see that.
Speaker Change: Then there's a lot of uncertainty. Still right now, in the market, does this increase the potential acquisition opportunities is there, more potential deals that are coming to the market and how do the valuation looks look.
Speaker Change: We have seen an increase in in Q2 over q1. We had talked, I think starting last year going into the presidential election that we had seen some pullback in acquisition activity, which we attributed to uncertainty around that and then with all the trade uncertainty that had had continued
Karla Lewis: Oftentimes, if there's uncertainty in owners of companies, they don't think they'll get the valuation they would like to, so they pull back. But I think... For whatever reason, we're seeing more of them come to market at this time. Sometimes people don't get tired of the uncertainty, and if they're near retirement age, they may choose to exit. So we're pleased to see that increased activity from a valuation standpoint. For the most part, we believe that seller expectations more closely align at least with the way we at Reliance look at some of the opportunities. But there are still some deals out there where valuation expectations are still higher than our view going forward.
Speaker Change: But in Q2, we did see, uh, an uptick in number of deals in the market. So we're, you know, we're pleased to see that oftentimes if there's uncertainty and owners of companies, they don't think they'll get, um, the valuation. They would like to so they pull back. But I think, um, for whatever reason, um, we're seeing more of them come to Market at this time, sometimes people don't get tired of the uncertainty and, uh, if they're near retirement age, they they may choose to exit. Uh, so, uh, so we're pleased to see that increased activity from evaluation standpoint. Uh, for the most part we believe that, um, seller, expectations, more closely aligned at least with, you know, the way we at Reliance look at some of the opportunities but there are still some deals out there where, um, valuable
Karla Lewis: But we're pleased to see more opportunities for us to look at. We continue to actively look at those opportunities, and if and when we find good companies that are the right fit, we believe for Reliance at the right value, we're excited to execute on those opportunities.
Speaker Change: Information, expectations are still higher than, than our view going forward. But but we're, you know, we're pleased to see more, um, you know, more opportunities for us to look at. We continue to actively look at those opportunities. And if and when we find, uh, the company good companies that are the right fit, uh, we believe for Reliance at the right value. We're excited to execute on those opportunities.
Speaker Change: Thank you.
Katja Jancic: Thank you.
Mike Harris: Next question is coming from Mike Harris from Goldman Sachs. Your line is now live. Yeah, thanks. Good morning, guys, for taking the question here. Just, Karla, just a follow-up on the earlier question around the gross margin of pressure in the third quarter. It sounded like, and I want to just make sure that I understood what you said, that you guys were being conservative kind of based on the second quarter results. And so I'm just curious. Based on your current visibility, and I'm, you know, not asking for a, you know, guy beyond the third quarter, but if you, if you had to...
Thank you, thank you. Next question, is coming from Mike Harris from Goldman, Sachs reminders now live
Mike Harris: God, do you have the visibility that you would have confidence to speak to, you know, Marginal?
Speaker Change: Conservative kind of based on the second quarter results and so I'm just curious, I mean, based on your current visibility and you know, not asking for a, you know, a guy beyond the uh, third quarter. But if you if you had to, you know,
Karla Lewis: I'm trying to get a sense for whether or not, you know, this pressure is limited to perhaps the third quarter, or could it extend beyond? Yeah, hi, Mike. It's hard to answer. We hope we're being conservative, but with our model, we won't know until we get there. But again, we do think the environment was a bit unique in Q2 and with the trade uncertainty continues to potentially be a bit unique in Q3. The tariff and the unknown around the tariffs gave our suppliers an opportunity to increase prices on some products. But on the other side, our customers also were facing that uncertainty, and so we're holding back on buying.
I do you have the visibility that you would have confidence to uh, speak to to, you know, margin. I'm trying to get a sense for whether or not you know, this pressure is limited to perhaps the third quarter or could it extend beyond that.
Mike: Yeah, hi Mike. Um,
It's hard to answer. Um, we hope we're being conservative, but, um, you know, with our, with our model, we won't know, um, until we until we get there. But, you know, again, we do think the environment was a bit unique in Q2 and with the trade uncertainty continues to potentially be a bit unique in Q3, you know, the, the tariffs,
Speaker Change: And the unknown around the tariffs, gave uh, our suppliers, an opportunity to increase prices on some products.
Karla Lewis: So our, you know, more normal pattern of being able to pass through those price increases at time of announcement. was not as successful as it has been in some prior periods. I think, you know, our customers. again, are still uncertain, and if they can hold back on buying, they were. So it was a little more difficult that even though the mills made some price announcements to get the market to accept those, and that's why we think once there is more certainty and we get the tariff, the trade unknowns behind us, our people in the field feel very confident about their ability to get in the market, the strength of their customers.
Speaker Change: But on the other side, our customers also were facing that uncertainty. And so we're holding back on buying so our, you know, more normal pattern of being able to P to pass through those price increases at time of announcement was not as successful as it has been in some prior periods. I think, you know, our customers.
Speaker Change: Again are still uncertain and if they can hold back on buying they were so it was a little, um, more difficult that even though the Mills made some price announcements to get the market to accept those. And that's why we think once there is more certainty and we get the the tear up, the trade unknowns behind us.
Karla Lewis: So we believe it's temporary, and we want to get back to our more normal pattern. And I think also in Q2, again, March, April, mill price increases, costs going up. Then we saw the pressure and prices started to come down May and June, but also supplier lead times shortened, so we were getting the higher cost metal more quickly. So we're working through that in Q2 and Q3. And again, as I mentioned earlier, we are positive on the price increases on aluminum and stainless flowing through and holding. It just takes a little time to get those in, which we expect to happen through Q3.
Speaker Change: And the our, our people, in the field feel feel very confident about their ability to, to get in the market, the strength of their customers. Um, so we, we believe it's temporary and, uh, we want to get back to our more normal pattern. But and I think also in Q2, um, you know, again March April, uh, meal price, increases costs going up and
Then they we saw the pressure and prices started to come down May and June, but also, uh, supplier lead time shortened. So we were getting the higher cost metal more quickly. So we're working through that in Q2 and Q3. Uh, and again, as I I mentioned earlier, we are positive on the price increases on Aluminum and Stainless flowing through and holding. It just takes a little time, um, to to get those in which we expect to happen through Q3.
Karla Lewis: Okay, thanks. That was very helpful. And then I guess just one more here. It looks like you guys have, you know, continued to gain, you know, meaningful market share versus the field. And I was just wondering if perhaps you could share your thoughts on, you know, as we look forward, you know, what does that pace look like and maybe speak to the sustainability of the gains going forward. Yeah, I mean, we think that they are sustainable, Mike. Again, as I mentioned in the prior comments, you know, Reliance has always prided ourselves. We don't pride ourselves here at corporate.
Speaker Change: Okay, thanks. That was uh that was very helpful and then I guess just uh, 1 more here. Uh, it looks like you guys have, you know, continued to gain, uh, you know, meaningful market share versus the, uh field. And it was just wondering if perhaps you could share your thoughts on, uh, you know, as we look forward, you know, what does that pace look like? And uh, maybe speak to the sustainability of uh the gains going forward?
Karla Lewis: It's prides based on what our people out in the field are able to do every day in servicing our customers. And we think that model allows them to win the new business, that it will continue to allow them to grow that business. And, you know, we refer to our smart, profitable growth initiative. So we are, from a corporate level, over the last couple of years, we have been setting targets with our teams, incentivizing them to grow their volume. There were, you know, there was a period of years where our volumes were actually declining at Reliance.
Again, as I mentioned in the prior comments, um, you know, Reliance has always prided ourselves. Um, we don't pride ourselves here at corporate, it's Pride space on what our people out in the field are able to do every day in servicing our customers. And we think that model allows them to win the new business that it will continue to allow them to to grow that business.
Karla Lewis: And, you know, we're pushing our teams to grow their volumes. You know, we've invested a lot in value-added processing equipment and facilities. And we want to, you know, get better utilization out of all of those investments.
Mike Harris: So it is a push from us, but it's a balanced push that they also have to maintain our sustainable gross profit margin range of 29 to 31 percent, and hopefully grow that as we move into the future, but also, you know, grow their tons, which is helping us, you know, from an operating leverage standpoint as well, as we push more tons through our investments. Okay, thanks a lot. I'll get back. Thank you.
profit margin range of 29 to 31% and hopefully grow that as we move into the future but also you know grow their tons which is helping us um you know from an operating leverage standpoint as well as as we push more tons through our investments
Okay, thanks a lot. I'll get back in queue.
Alexander Hacking: Next question today is coming from Alex Hacking from Citi, your line is now live. Yeah, thanks, morning. I just had one question, which was on the aluminum business. Domestic U.S. aluminum prices are up 30-40% this year, I think, with the Midwest premium at $0.70. Your shipments still seem pretty robust, but how are you seeing acceptance of these significantly higher prices with your customers? Thanks. Thanks, Alex.
Thank you. Next question, today, is coming from Alex hacking from City. Your line is now live,
Alex Hacking: Yeah, thanks morning. I I just have 1 question, which was on the aluminum business.
Alex Hacking: Um, you know, domestic us aluminum prices are up.
Alex Hacking: 30 40% this year. I think with the Midwest premium at 70 cents your shipment still seem pretty robust. But how are you seeing acceptance of these significantly higher prices with your customers? Thanks.
Steve Koch: Steve, do you want to address? Yeah, Alex, the aluminum prices have gone up fast and furious, and they've leveled off a little bit in the second quarter. We are passing along the increases to our customers, and we're, you know, being aware of their businesses. They are accepting the increases, but the level, whether it's stainless or aluminum, they've been rather outsized from our mill suppliers, and we think that it's a matter of timing, and as the year goes on, they'll be, you know, pushing to the market more and more. Yeah, and Alex, I would just add, you know, at Reliance, whether it's, you know, in different periods, you know, there's been maybe more of a highlight on nickel surcharges, or it's the aluminum, the Midwest premium, you know, we really look at our cost as an all-in cost.
Steve, do you want to address that?
Alex Hacking: The, uh, the aluminum, uh prices have gone up fast and furious. And there's a level it off a little bit in the second quarter. Um, we are passing along the increases to our customers, um, and we're, you know, being aware of their businesses, they, um, are accepting the increases, but the, the level, whether it's stainless or aluminum, they've been rather outsized from the, our mil suppliers. And uh, we think that it's a matter of timing. And as
Alex Hacking: the year goes on, uh, they'll be uh, you know, pushed into the market, um, more and more
Karla Lewis: And that's how we go to market and base our average, our sell prices on the all-in cost. So we're treating the, you know, the Midwest premium.
Steve Koch: I guess, just to follow up, I mean... Are you seeing customers at all sitting back saying, I want to wait for a trade deal with Canada to see where the Section 232 ends up before I pay, you know, a 70 cent Midwest premium or does their business requirements effectively just compel them to keep buying even at these prices? I mean, Alex, our customers who are purchasing aluminum from manufacturer or whatever the end use is, they're going to be paying a higher price. They may just buy a little bit less and a little more frequently, which is what benefits our model of next day delivery for the most part and having breadth of inventory all over the country.
Speaker Change: No, in different uh periods. You know, there's been maybe more of a highlight on nickel s charges or it's the aluminum, the Midwest premium. You know, we really look at our cost at on a as an all-in cost and that's how we go to market and, uh, base, our average, our sell prices on the all-in cost. So, um, we're treating the, you know, the Midwest premium the same. I, I guess just to follow up, I mean,
Are you seeing customers at all? Sitting back saying, I want to wait for a trade deal with Canada.
Speaker Change: to see where the section 232 ends up before I pay, you know, a 70 Cent Midwest, premium or
Does their business requirements? Effectively just compel them to keep buying even at these prices.
Alexander Hacking: So, it is a little bit, you know, shocking in some cases for them. But I think that, you know, this uncertainty with tariffs and higher prices will affect, will benefit Reliance. Okay, thanks so much. Thank you.
I mean, Alex, our customers who are purchasing aluminum for manufacturing are up, you know, whatever the end uses, they're going to be paying a higher price. They may just buy a little bit less and a little more frequently, which is what benefits our model of next day, delivery, for the most part and having, uh, breadth of inventory all over the country, so it is a little bit, um, you know, shocking in some cases,
Speaker Change: For them. But I think that, you know, this uncertainty with tariffs and higher prices will affect will benefit reliance
Okay, thanks so much.
Karla Lewis: We've reached the end of our question and answer session.
Karla Lewis: I'd like to turn the floor back over for any further closing comments. All right, thank you, Operator. And thanks again to all of you for joining our call today and for your continued support of Reliance. We'd also like to thank the entire Reliance team for staying safe, operating safely every day, and continuing to service our customers at the highest level. And as we mentioned in our comments, we are confident in Reliance's continued ability to perform well in all markets. We'll get through this temporary uncertainty here and come out of that very strong.
Speaker Change: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for needs further. Closing comments.
Karla Lewis: Before we end the call, I'd like to update everyone that in August, we'll be participating in Seaport Research Partners' annual Summer Investor Conference. And in early September, we'll be participating in the Jeffries Industrials Conference in New York City, and we hope to meet with many of you there.
Speaker Change: All right. Thank you, operator. And thanks again to all of you for joining our call today and for your continued support of Reliance. We'd also like to to thank the entire Reliance team for staying safe, operating safely every day and continuing to, uh, service our customers at the highest level. And as we mentioned in our comments, we are confident in reliance's continue to ability to to perform well in all markets. Uh we'll get through this temporary uncertainty here and uh come out of that very strong.
Operator: Thank you and goodbye. Thank you. That does conclude today's teleconference.
Before we end the call, I'd like to update everyone that in August will be participating in Seaport research Partners, annual summer, investor conference. And in early September, we'll be participating in the Jeffrey's Industrials conference in New York City and we hope to meet with many of you there. Thank you. And goodbye.
Operator: You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Speaker Change: Thank you that does conclude today's seller conference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation.