NYSE:RS Reliance Q2 2023 Earnings Report $276.97 +1.77 (+0.64%) Closing price 04/17/2025 03:59 PM EasternExtended Trading$277.47 +0.50 (+0.18%) As of 04/17/2025 06:18 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Reliance EPS ResultsActual EPS$6.49Consensus EPS $6.52Beat/MissMissed by -$0.03One Year Ago EPS$9.15Reliance Revenue ResultsActual Revenue$3.88 billionExpected Revenue$3.98 billionBeat/MissMissed by -$98.09 millionYoY Revenue Growth-17.10%Reliance Announcement DetailsQuarterQ2 2023Date7/27/2023TimeBefore Market OpensConference Call DateThursday, July 27, 2023Conference Call Time11:00AM ETUpcoming EarningsReliance's Q1 2025 earnings is scheduled for Wednesday, April 23, 2025, with a conference call scheduled on Thursday, April 24, 2025 at 11:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Reliance Q2 2023 Earnings Call TranscriptProvided by QuartrJuly 27, 2023 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Greetings, and welcome to Reliance Steel and Aluminum Company Second Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Orlando with ADDO Investor Relations. Operator00:00:27Thank you. You may begin. Speaker 100:00:29Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's Q2 2023 Financial Results. I am joined by Carla Lewis, President and Chief Executive Officer Steve Cook, Executive Vice President and Chief Operating Officer and Arthur Gemien, Senior Vice President and Chief Financial Officer. Recording of this call will be posted on the Investors section of our website at investor.rsac.com. Please read the forward looking statement disclosures included in our earnings release issued this morning and note that it applies to all statements made during this teleconference. Speaker 100:01:10The reconciliations of the adjusted numbers are included in the non GAAP reconciliation part of our earnings release. I will now turn the call over to Carla Lewis, President and CEO of Reliance. Speaker 200:01:22Good morning, everyone, and thank you for joining us today to Our Q2 2023 financial results. Reliance's business model is designed provide resilient performance throughout economic cycles, including both pricing and end market demand fluctuations Present in the metals industry, the unique facets of our business model highlighted by diversification, small order sizes, Delivery and increased value added processing combined with strong execution by our full Reliance team Support our ability to deliver consistent profitable results. Overall activity at Reliance has remained healthy As evidenced by solid volume growth year over year, we are excited by the continued on shoring and infrastructure spend activities that are creating new opportunities for us. Turning to our results. Our 2nd quarter net sales Of $3,880,000,000 declined by 2.1% from the Q1 of 2023 With our tons sold down slightly more than anticipated and relatively flat selling prices that remain elevated by historical standards. Speaker 200:02:49Overall, customer activity in most of the end markets we serve remained healthy With solid underlying demand and customer activity levels, driven in part by our investments in organic growth, We continue to focus on growing the business organically and through acquisitions, while maintaining our pricing and margin discipline. As a result, we delivered diluted earnings per share of $6.49 which is within our expected range. Our strong profitability, along with effective working capital management, Produced significant operating cash flow of $295,100,000 in the 2nd quarter. Investing for growth remains our top capital allocation priority with approximately $154,300,000 Invested in both capital expenditures and M and A in the second quarter. We increased our capital expenditure budget For the full year 2023 from $500,000,000 to a record $520,000,000 Approximately 2 thirds of our CapEx budget is focused on growth projects, including investments Advanced value added processing capabilities, facility upgrades to enhance safety and efficiencies And expansion into new markets. Speaker 200:04:21Our expected total cash outlay for capital expenditures in 2023 Approximately $425,000,000 to $475,000,000 We completed the acquisition of Southern Steel Supply LLC on May 1, increasing the total number of businesses we have acquired Since our 1994 IPO, the 72. Southern Steel is a highly regarded 60 plus year old metal service center in Memphis, Tennessee that expands our geographic reach in the Southern U. S. And extends our value added processing services. Our M and A pipeline remains healthy and we continue to evaluate Various perspective opportunities, our strong balance sheet, cash generation positions us well to pursue acquisitions that meet our disciplined criteria for high quality growth. Speaker 200:05:24Our cash flow also continues To fuel our strategy of returning capital to our stockholders, during the second quarter, we returned $132,500,000 to our stockholders through dividends and share repurchases. Since 2018, we have invested nearly $2,200,000,000 in organic growth and acquisitions and returned $2,900,000,000 to our stockholders through dividends and share repurchases. In summary, we are very pleased with the continued strong operating performance of our entire Reliance team To execute Reliance's consistent and resilient strategy on a day to day basis, operating safely and producing profitable results through all operating environments. Importantly, we remain in a position of strength To continue investing in and profitably growing our company, including new opportunities that include spending from the infrastructure bill, the Thank you all for your time today. I'll now turn the call over to Steve, We will review our Q2 demand and pricing trends. Speaker 300:06:47Thanks, Carla, and good morning, everyone. I'd also like to thank the entire Reliance Thank you for their outstanding individual and collective efforts and unwavering commitment to safety. I'll now turn to our Q2 demand and pricing trends. Our tons sold decreased 2.4% compared to the Q1 of 2023, predominantly due to lower carbon flat rolled Following the Q1 demand, pull forward impact from rising prices. Despite the sequential decline in volume, our Q2 tons sold were up 1.9% from the prior year and up 4.5% from 2022 on a year to date basis. Speaker 300:07:27This reflects solid underlying demand in key markets, including non residential construction, aerospace and certain general manufacturing sectors, along with contribution from our organic growth activities, enabling outperformance of broader service center shipment levels across the majority of our products. Our 2nd quarter average selling price per ton sold of $2,626 was relatively flat compared to the Q1 of 2023 and in line with our expected range of flat to up 2%. As anticipated, carbon flat rolled product price increases were offset by a downturn in I'll now turn to a high level overview of the trends we saw within our products and key end markets. Our 3 largest product groups Carbon Seal Tubing, Plate and Structural represented about 1 third of our 2nd quarter sales And all of these products experienced stable or improved shipments compared to the Q1 of 2023 due to strength in our non residential construction market. We continue to believe new public infrastructure projects under the Infrastructure Bill and various other federal and state programs will provide Continued support for non residential construction and infrastructure demand in the medium to long term. Speaker 300:08:44Aluminum and stainless products also represented just over 30% of our total second quarter sales with aluminum and stainless aerospace products comprising approximately 9%. Although common alloy aluminum and stainless shipments and pricing fell in the 2nd quarter, Aerospace product demand and pricing remain robust. We primarily service the automotive market through our toll processing operations, which as a reminder are not reflected in our tons sold. Our tolling business in the Q2 of 2023 improved both year over year Sequentially, on increased processing demand from the automotive market. Within the general manufacturing market, we sell a diverse set of products to a diverse group of sectors. Speaker 300:09:25Shipments fell sequentially partly due to the carbon collateral demand pull forward impact in the Q1 of 2023, but nevertheless were up from the Q2 of 2020 2. While sales for the semiconductor industry declined both sequentially and year over year, our long term outlook for this market remains positive to support this anticipated growth. Please refer to our earnings release for additional commentary on our end markets and product diversification. Overall, we expect that end market demand will remain healthy in the Q3 of 2023. I will now turn the call over to Arthur to review our financial results and outlook. Speaker 400:10:09Thanks, Steve, and good morning, everyone. Our sales of $3,880,000,000 in the 2nd quarter declined by a modest 2.1% from the Q1 on relatively flat pricing. While carbon flat rolled products The vast majority of the quarterly volume declined. Their impact on sales dollars was relatively neutral As higher selling prices for carbon flat wool products offset the impact of volume declines on our revenues, Declines in stainless and common alloy aluminum product sales in the 2nd quarter drove the 2.1% sequential decline in revenues. Our FIFO gross profit margins, which exclude the effect of our LIFO inventory valuation method Remained relatively flat at 30.3% in the 2nd quarter compared to 30.5% in the 1st quarter. Speaker 400:11:07However, the entry point into the Q2 was higher than the exit point due to temporary pressure on margins from declining stainless And aluminum product selling prices. The higher than anticipated declines in non ferrous product prices Contributed to a revision for our annual LIFO estimate from $60,000,000 of income to $120,000,000 of income. As a result, we recorded LIFO income of $45,000,000 in the 2nd quarter to reflect a revised Our Q1 2023 results included LIFO income of $15,000,000 Bringing our 6 month total to $60,000,000 of income or half of our current $120,000,000 annual LIFO income Our reported gross profit margins, which are on a LIFO basis came in at 31.5% for the 2nd quarter, up from 30.9% in the Q1. As of June 30, 2023, the 683,800,000 LIFO reserve on our balance sheet remains available to mitigate the impact of possible further declines in metal prices and benefit future period operating results. Moving on to expenses. Speaker 400:12:34Our 2nd quarter same store non GAAP SG and A expenses modestly declined by $6,700,000 or 1% Compared to the Q1 from lower variable costs associated with lower tons shipped. On a year over year basis, Our expenses were relatively consistent as incremental variable costs associated with higher tons shipped and inflationary wage adjustments We're mostly offset by lower incentive based compensation resulting from lower FIFO profitability. Overall, our 2nd quarter pretax income of $510,900,000 and pretax income margin of 13.2% were consistent with our Q1 results and our diluted earnings per share of The $6.60 per share. Turning to our balance sheet and cash flow. We generated cash flow from operations of $295,100,000 down from $384,600,000 for the Q1, mainly due to timing of estimated income tax payment. Speaker 400:13:56For the 6 month period ended June 30, 2023, our operating cash flow of $679,700,000 It was consistent with the same 6 month period in 2022 as the impact of lower profitability was offset And lower working capital investments in 2023. Our inventory turn rate based on tons improved 4.8 times or 2.5 months on hand in 2023 compared with 4.4 times in the same 6 month period in 2022. Overall, operating cash flow generation remains strong Our working capital management metrics are at healthy levels. Our operating cash flow for the 6 month period in 2023 and cash on hand funded $257,200,000 of growth initiatives In the form of capital expenditures and acquisitions, the return of $233,400,000 to our stockholders in And the repayment of $500,000,000 of senior notes, approximately $568,000,000 remain available on our $1,000,000,000 share repurchase authorization as of June 30, 2023. I'll now turn to our Q3 outlook. Speaker 400:15:32While we anticipate underlying demand will remain healthy in the Q3 of 2023, we expect our tons sold will be down 2% to 4% compared to the percent compared to the Q2 due to normal seasonal patterns, including a decline in shipping volumes resulting from planned customer shutdowns and vacation schedules along with one less shipping day. However, compared to Q3 of 2022, this guidance implies growth in tons sold of 1.5% to 3.5%. In addition, we expect our average selling price The tons sold for the 3rd quarter to be down 2% to 4% compared to the 2nd quarter, primarily driven by declining prices We're flat rolled products across our major commodities along with carbon steel tubing products, which collectively represent about 35% of our We also anticipate temporary downward pressure on our gross profit margin from these declining price trends. Based on these expectations, we anticipate non GAAP earnings per diluted share in the range of 4.90 to $5.10 for the Q3 of 2023. Thank you. Speaker 400:16:52And we'll now open the call up to questions. Operator? Operator00:16:57Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer Our first question comes from the line of Katja Dantzig with BMO Capital Markets. Please proceed with your question. Speaker 500:17:30Hi. Thank you for taking my question. Carla, in your prepared remarks, I think you mentioned that some of your growth CapEx is dedicated to expanding into new markets. Can you elaborate on that, please? Speaker 200:17:45Yes. Hi, Katya. So Reliance, I think we've talked about many times before where we've been very active in Growing our businesses across our whole portfolio of companies. So a lot of times we're adding Processing capabilities or expanding existing locations, part of the growth in new markets that It can be a new geographic market. It can be, like I said, adding processing equipment, etcetera. Speaker 200:18:18A couple of things we have going on in particular and we talked about this Q4 is we're currently experiencing the ramp up Of our flat rolled operations that we have put on campus with some of the mills as they ramp, we're seeing some good growth there. We had acquired some facilities in the Michigan area for 1 of our tool processing companies Few years ago, but now we're in the process of installing some new lines in there. So in addition to their storage services, They'll be generating revenue off of their processing capabilities there like they do in their other locations. Geographically, we've opened up a small facility in Iowa recently, where we've got some Expansion is going on in the Atlanta area, Houston area, we expanded some facilities. There's a little going on everywhere. Speaker 200:19:181 of our bigger CapEx projects currently in the works that we've talked about before is our one company that focuses on the focuses on the semiconductor industry and with all of the build going on to expand capacity in the U. S, We are building a new facility in Texas, so that company can support The many different new chip manufacturing facilities being constructed in the U. S, We've got a very specialty type company participating in that, but we also have some of our more non residential construction type Businesses that are benefiting from the more foundational traditional build of those facilities. So a lot of different activity going on throughout the company. Speaker 500:20:13And can you just remind us when is the semiconductor facility expected to be completed? Speaker 200:20:20So we actually have 2 new facilities going up in Texas. The smaller of the 2 is Operational now and it's early, it's just ramping up. The larger facility Should be operational Q2 of 2024. That's currently in the build phase. Speaker 500:20:44Okay. And maybe just last one. On the M and A, you have very strong balance sheet. Can you talk about what how the pipeline looks Like right now and what size deals you're seeing potentially? Speaker 200:20:58Yes. So we yes, Sure, Kati. We do continue for the last couple of years, it's been a pretty steady stream of opportunities. So we have A lot of different teasers and opportunities to look at. There are and we really focus on what opportunity is in And do we think that meets our criteria and really fits within the Reliance family. Speaker 200:21:26We buy many different sized companies. We still will buy smaller companies, Although certainly we would rather put our efforts behind some larger efforts That would contribute more to the company and there are some large opportunities out there. But we generally Wait for the sellers to be ready. It's friendly acquisitions. It's when they're making a decision to exit the business typically. Speaker 200:21:58We do maintain relationships so that we have an opportunity to see those opportunities. We think we're in a good Position for that. We've seen a lot of smaller more fabrication type opportunities. On the teasers, we've seen some smaller service centers. But over the last year to year and a half, we've seen some More medium sized to larger, more traditional type service center companies. Speaker 200:22:28As we talked about on prior calls, For a period of time, there was a disconnect, people trying to sell off the peak. And so There were some value differences, but we're seeing that start to come more in line. So we're still excited about the opportunities that are out there. And I think at the same time, we haven't been quite as active on completing acquisitions, although we're still evaluating quite a few. We've also stepped up from historical standards our organic growth. Speaker 200:23:02So I think we're kind of hitting it and supplementing growth A little on a little more balanced approach currently. Speaker 500:23:13Perfect. Thank you. Thank you, Katy. Operator00:23:18Our next question comes from the line of Phil Gibbs with KeyBanc. Please proceed with your question. Speaker 600:23:26Hey, good morning. Speaker 400:23:27Good morning, Phil. Hi, Speaker 600:23:30Phil. Just regarding some of the public and federal infrastructure Sure. Projects that are likely to hit the books later this year in 2024, 2025. Do you have any visibility to those projects happening within some of the things that You're working on and when you fabricate certain things for beams and plate, and maybe even tubular, do you know What specific projects it's going into? Just curious if you have that level of visibility, anything that you Speaker 300:24:04could share would be helpful. Speaker 200:24:07Hey, Phil. So I would say at a high level, kind of from a corporate view, we don't Have a significant amount of visibility, but certainly our companies out in field who are servicing their customers on these projects, they have a much better feel. And as we've talked about in the past, Reliance, we're not usually the largest, on the largest projects with the largest Tons, but we're involved in a lot of projects, some as the primary, and then some as kind of Fill in and certain products and processing services. So our folks in the field generally know where the product's going, but it's really hard for us to keep track of it. And part of the beauty when we talk to our people in the field is We're involved in so many different types of projects. Speaker 200:25:09It's really hard to kind of roll it up to something to talk about. But I think Steve can give you a little more visibility on that. Yes. Speaker 300:25:18Just when we did a channel check with a lot of our companies that service the non res And infrastructure throughout the United States, they're seeing a lot of activity in the bridge, space, rail, ports, a lot of airport Projects going on and an ongoing project has been the onshore infrastructure to support the planned offshore Farms that are going up and down the East Coast. Speaker 600:25:49Thank you. And then as it relates to M and A, I know you recently got back into the market in the Q2 with Southern Steel. But if I kind of look ahead in the next, Call it 2, 3, 4 quarters. You could find yourself in a net cash position even with the CapEx that you're spending Pretty aggressively in the back half and maybe into next year or so. Is there any thought to doing more larger scale acquisitions? Speaker 600:26:19Do you feel like your internal pipeline is kind of robust enough to cover some of the high IRR projects you're looking at right now? Speaker 200:26:28Yes. So we're always ready to do larger scale acquisitions if it's the right company And we can make it work. So that hasn't changed. As I mentioned earlier, I mean, we look at opportunities of all sizes. It just depends what's Actionable at the time. Speaker 200:26:48So that appetite has not changed even Before we were in the cash position, had cash on our balance sheet as we do right now. So we are continuing to actively Consider and look at any of those opportunities we see. And certainly, if we find the right company, we would Love to execute on that. At the same time, we've voiced In the Growth Companies, I mentioned earlier, we're a little more aggressive on the organic growth side For the last several years, we also, I think have been a little more active on a more consistent basis On shareholder return activity, so we expect to continue to deploy our capital wisely in all those areas. And At the same time, we don't think it's the worst thing in the world to have a strong balance sheet and Be prepared for whatever may come. Speaker 700:27:57Thank you. Speaker 200:27:58Thanks, Bill. Operator00:28:02Our next question comes from the line of Martin Englert with Seaport Research Partners. Please proceed with your question. Speaker 700:28:11Hello. Good morning, everyone. Speaker 200:28:13Good morning. Good morning. Speaker 700:28:16Looking beyond the construction of facilities related to on shoring. What are the customers discussing with you Regarding their future metals needs once these facilities are ramped in future years here, If you're having any discussions around that just Speaker 100:28:37yet. Yes. Mark, I Speaker 200:28:39don't know that we're Certainly, I think some of our companies who are very focused on Certain of those industries and end markets, if you take semiconductor chips, for instance, our people running our businesses, Selling into those markets are very engaged with their customers there, Talking about both the build, but then future capacity, I think, again, we serve so many different markets. There are discussions. I think for us, the fact that different mills are ramping up domestic mills are ramping up capacity will allow us to better will allow us to better serve the increased volumes that our customers will need In the future and that's our spot in the supply chain. We continue to have customers asking us To do more for them on a value added processing standpoint and really partnering with our customers. So There are many different discussions going on. Speaker 200:29:50But again, our business, while we and our customers do look at the long term, We're really servicing on a day to day basis. And I think we've done a good job of being a leader in investing in Increased capabilities for our customers and that's something that we'll incrementally continue to do to support that future increased Speaker 700:30:20Thank you for that. Appreciate it. And I Believe you called out common alloy sheet as a point of weakness in the press release. Is there any color that you could offer there as to what's happening in the market? Speaker 200:30:37Well, I think from a I think our comments were kind of focused on just some pricing erosion that you've seen. That product Follows the LME a bit and we've just seen a little downward pricing pressure on those products. Speaker 300:30:55And ample supply in the supply chain. Speaker 700:31:02Okay. So really from a price perspective, it's more of a function of the surcharge as opposed to like a Base price erosion or something along those lines, yes? Speaker 400:31:13Yes. Speaker 700:31:15Okay. Excellent. All right. I appreciate your time. Thank you very much. Speaker 200:31:19Thanks, Martin. Operator00:31:23Our next question comes from the line of Alex Hacking with Citi. Please proceed with your question. Speaker 800:31:29Yes. Good morning, caller and team. Thanks for the call. So I guess the first question, I'm not sure if you've disclosed this, but how many tons Are you co locating at the new mill in Texas? Speaker 200:31:43Hi, Alex. We you are correct. We have not disclosed that. So yes, and we both of those operations, We're supporting our customers, but also partnering with the mills In doing both toll processing on some of the volume as they request and then also direct sales of the metal. So we're ramping as the mills ramp and As the mills ramp and it's nothing specific Committed, but we certainly will benefit as the mills continue to ramp and produce more tons. Speaker 200:32:27We certainly expect our volumes there to grow with them. Speaker 800:32:33Okay, thanks. And then just following up on that, are you I mean, are you specifically targeting Mexico as an end market there as the mills are? And I know the mills have commented that Mexico has been very strong recently, right? With AMSA being out, I don't know if that kind of flows into what you're doing or not. Thanks. Speaker 800:32:53Yes. Speaker 200:32:53So, we try to sell metal to people wherever they are if they want metal. So, if there is more Demand for metal in Mexico, we certainly want to service those markets. We acquired a company back in 2,008 that had some Very strong toll processing capabilities, 3 locations in Mexico. We've added Forward and expanded all of those over the years. We're in process of doing further expansions down there because we see Growth in that market. Speaker 200:33:28We also have some of our U. S. Companies, selling more metal down into Mexico. One of our on campus opportunities, I think that mill has directed more metal there. So in support of them, We're pushing some more tons down there and we continue to look at opportunities to meet our customers' needs both existing and Speaker 100:33:50new customers as Speaker 200:33:50we see opportunities grow down there. New customers as we see opportunities grow down there. So certainly look at it as a potential favorable market for growth right now. Speaker 800:34:02Okay, thanks. And then just one final one, if I may. I think you previously have mentioned It's less acute now than it was. Could you maybe discuss, are you being constrained by lack of skilled labor or it's manageable now? Thank you. Speaker 200:34:30Yes. So I think, you're right. It's not as acute at most of our operations now. Alex, I think we've More successful in probably having more people available. I think where we've done a really good job is retaining our existing employees. Speaker 200:34:50We appreciate those employees being with us. Some Have had to work a little harder, a little longer hours than maybe they had historically because of some of those issues. We've also, I think had to and I think with newer employees, most people are seeing higher turnover levels. So More of an investment in training, especially from a safety perspective. So, a little more effort being put there. Speaker 200:35:20But there are still some constraints. I think for us that we've seen more at certain of our customers, which does impact some of the shipment flow and end demand. It's still there, but how fast can you fill that? So I think still a factor, not as much as it was, but that also has been an opportunity for Reliance where As our customers may struggle with being able to get the skilled labor, they're asking us to support them more, which has given us The opportunity to do more value added processing for them and we try to kind of Well done service them well, so that we make it easy for them and they want to continue to retain that business with us. And We've certainly seen success in that area over the past few years. Speaker 800:36:18Okay. Thank you very much. Appreciate the time. Speaker 200:36:21Absolutely. Thanks, Alex. Operator00:36:25There are no further questions in queue. I'd like to hand the call back to management for closing remarks. Speaker 200:36:32Thank you. And thanks again to all of you for your time and attention joining our call today and for your continued support of Reliance. Operator00:36:47Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallReliance Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Reliance Earnings HeadlinesMidWestOne Financial Group (MOFG) Expected to Announce Quarterly Earnings on ThursdayApril 17, 2025 | americanbankingnews.comFinancial Contrast: Citizens (NASDAQ:CIZN) and MidWestOne Financial Group (NASDAQ:MOFG)April 16, 2025 | americanbankingnews.comCrypto’s crashing…but we’re still profitingMost traders are panicking right now. Bitcoin’s dropping. Altcoins are bleeding. The stock market’s a mess. The news is screaming fear. But while most traders watch their portfolios tank…April 21, 2025 | Crypto Swap Profits (Ad)MidWestOne Financial Group, Inc. 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The company distributes a line of approximately 100,000 metal products, including alloy, aluminum, brass, copper, carbon steel, stainless steel, titanium, and specialty steel products; and provides metals processing services to general manufacturing, non-residential construction, transportation, aerospace, energy, electronics and semiconductor fabrication, and heavy industries. It sells its products directly to original equipment manufacturers, which primarily include small machine shops and fabricators. The company was formerly known as Reliance Steel & Aluminum Co. and changed its name to Reliance, Inc. in February 2024. Reliance, Inc. was founded in 1939 and is based in Scottsdale, Arizona.View Reliance ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Archer Aviation Unveils NYC Network Ahead of Key Earnings Report3 Reasons to Like the Look of Amazon Ahead of EarningsTesla Stock Eyes Breakout With Earnings on DeckJohnson & Johnson Earnings Were More Good Than Bad—Time to Buy? 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There are 9 speakers on the call. Operator00:00:00Greetings, and welcome to Reliance Steel and Aluminum Company Second Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Orlando with ADDO Investor Relations. Operator00:00:27Thank you. You may begin. Speaker 100:00:29Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's Q2 2023 Financial Results. I am joined by Carla Lewis, President and Chief Executive Officer Steve Cook, Executive Vice President and Chief Operating Officer and Arthur Gemien, Senior Vice President and Chief Financial Officer. Recording of this call will be posted on the Investors section of our website at investor.rsac.com. Please read the forward looking statement disclosures included in our earnings release issued this morning and note that it applies to all statements made during this teleconference. Speaker 100:01:10The reconciliations of the adjusted numbers are included in the non GAAP reconciliation part of our earnings release. I will now turn the call over to Carla Lewis, President and CEO of Reliance. Speaker 200:01:22Good morning, everyone, and thank you for joining us today to Our Q2 2023 financial results. Reliance's business model is designed provide resilient performance throughout economic cycles, including both pricing and end market demand fluctuations Present in the metals industry, the unique facets of our business model highlighted by diversification, small order sizes, Delivery and increased value added processing combined with strong execution by our full Reliance team Support our ability to deliver consistent profitable results. Overall activity at Reliance has remained healthy As evidenced by solid volume growth year over year, we are excited by the continued on shoring and infrastructure spend activities that are creating new opportunities for us. Turning to our results. Our 2nd quarter net sales Of $3,880,000,000 declined by 2.1% from the Q1 of 2023 With our tons sold down slightly more than anticipated and relatively flat selling prices that remain elevated by historical standards. Speaker 200:02:49Overall, customer activity in most of the end markets we serve remained healthy With solid underlying demand and customer activity levels, driven in part by our investments in organic growth, We continue to focus on growing the business organically and through acquisitions, while maintaining our pricing and margin discipline. As a result, we delivered diluted earnings per share of $6.49 which is within our expected range. Our strong profitability, along with effective working capital management, Produced significant operating cash flow of $295,100,000 in the 2nd quarter. Investing for growth remains our top capital allocation priority with approximately $154,300,000 Invested in both capital expenditures and M and A in the second quarter. We increased our capital expenditure budget For the full year 2023 from $500,000,000 to a record $520,000,000 Approximately 2 thirds of our CapEx budget is focused on growth projects, including investments Advanced value added processing capabilities, facility upgrades to enhance safety and efficiencies And expansion into new markets. Speaker 200:04:21Our expected total cash outlay for capital expenditures in 2023 Approximately $425,000,000 to $475,000,000 We completed the acquisition of Southern Steel Supply LLC on May 1, increasing the total number of businesses we have acquired Since our 1994 IPO, the 72. Southern Steel is a highly regarded 60 plus year old metal service center in Memphis, Tennessee that expands our geographic reach in the Southern U. S. And extends our value added processing services. Our M and A pipeline remains healthy and we continue to evaluate Various perspective opportunities, our strong balance sheet, cash generation positions us well to pursue acquisitions that meet our disciplined criteria for high quality growth. Speaker 200:05:24Our cash flow also continues To fuel our strategy of returning capital to our stockholders, during the second quarter, we returned $132,500,000 to our stockholders through dividends and share repurchases. Since 2018, we have invested nearly $2,200,000,000 in organic growth and acquisitions and returned $2,900,000,000 to our stockholders through dividends and share repurchases. In summary, we are very pleased with the continued strong operating performance of our entire Reliance team To execute Reliance's consistent and resilient strategy on a day to day basis, operating safely and producing profitable results through all operating environments. Importantly, we remain in a position of strength To continue investing in and profitably growing our company, including new opportunities that include spending from the infrastructure bill, the Thank you all for your time today. I'll now turn the call over to Steve, We will review our Q2 demand and pricing trends. Speaker 300:06:47Thanks, Carla, and good morning, everyone. I'd also like to thank the entire Reliance Thank you for their outstanding individual and collective efforts and unwavering commitment to safety. I'll now turn to our Q2 demand and pricing trends. Our tons sold decreased 2.4% compared to the Q1 of 2023, predominantly due to lower carbon flat rolled Following the Q1 demand, pull forward impact from rising prices. Despite the sequential decline in volume, our Q2 tons sold were up 1.9% from the prior year and up 4.5% from 2022 on a year to date basis. Speaker 300:07:27This reflects solid underlying demand in key markets, including non residential construction, aerospace and certain general manufacturing sectors, along with contribution from our organic growth activities, enabling outperformance of broader service center shipment levels across the majority of our products. Our 2nd quarter average selling price per ton sold of $2,626 was relatively flat compared to the Q1 of 2023 and in line with our expected range of flat to up 2%. As anticipated, carbon flat rolled product price increases were offset by a downturn in I'll now turn to a high level overview of the trends we saw within our products and key end markets. Our 3 largest product groups Carbon Seal Tubing, Plate and Structural represented about 1 third of our 2nd quarter sales And all of these products experienced stable or improved shipments compared to the Q1 of 2023 due to strength in our non residential construction market. We continue to believe new public infrastructure projects under the Infrastructure Bill and various other federal and state programs will provide Continued support for non residential construction and infrastructure demand in the medium to long term. Speaker 300:08:44Aluminum and stainless products also represented just over 30% of our total second quarter sales with aluminum and stainless aerospace products comprising approximately 9%. Although common alloy aluminum and stainless shipments and pricing fell in the 2nd quarter, Aerospace product demand and pricing remain robust. We primarily service the automotive market through our toll processing operations, which as a reminder are not reflected in our tons sold. Our tolling business in the Q2 of 2023 improved both year over year Sequentially, on increased processing demand from the automotive market. Within the general manufacturing market, we sell a diverse set of products to a diverse group of sectors. Speaker 300:09:25Shipments fell sequentially partly due to the carbon collateral demand pull forward impact in the Q1 of 2023, but nevertheless were up from the Q2 of 2020 2. While sales for the semiconductor industry declined both sequentially and year over year, our long term outlook for this market remains positive to support this anticipated growth. Please refer to our earnings release for additional commentary on our end markets and product diversification. Overall, we expect that end market demand will remain healthy in the Q3 of 2023. I will now turn the call over to Arthur to review our financial results and outlook. Speaker 400:10:09Thanks, Steve, and good morning, everyone. Our sales of $3,880,000,000 in the 2nd quarter declined by a modest 2.1% from the Q1 on relatively flat pricing. While carbon flat rolled products The vast majority of the quarterly volume declined. Their impact on sales dollars was relatively neutral As higher selling prices for carbon flat wool products offset the impact of volume declines on our revenues, Declines in stainless and common alloy aluminum product sales in the 2nd quarter drove the 2.1% sequential decline in revenues. Our FIFO gross profit margins, which exclude the effect of our LIFO inventory valuation method Remained relatively flat at 30.3% in the 2nd quarter compared to 30.5% in the 1st quarter. Speaker 400:11:07However, the entry point into the Q2 was higher than the exit point due to temporary pressure on margins from declining stainless And aluminum product selling prices. The higher than anticipated declines in non ferrous product prices Contributed to a revision for our annual LIFO estimate from $60,000,000 of income to $120,000,000 of income. As a result, we recorded LIFO income of $45,000,000 in the 2nd quarter to reflect a revised Our Q1 2023 results included LIFO income of $15,000,000 Bringing our 6 month total to $60,000,000 of income or half of our current $120,000,000 annual LIFO income Our reported gross profit margins, which are on a LIFO basis came in at 31.5% for the 2nd quarter, up from 30.9% in the Q1. As of June 30, 2023, the 683,800,000 LIFO reserve on our balance sheet remains available to mitigate the impact of possible further declines in metal prices and benefit future period operating results. Moving on to expenses. Speaker 400:12:34Our 2nd quarter same store non GAAP SG and A expenses modestly declined by $6,700,000 or 1% Compared to the Q1 from lower variable costs associated with lower tons shipped. On a year over year basis, Our expenses were relatively consistent as incremental variable costs associated with higher tons shipped and inflationary wage adjustments We're mostly offset by lower incentive based compensation resulting from lower FIFO profitability. Overall, our 2nd quarter pretax income of $510,900,000 and pretax income margin of 13.2% were consistent with our Q1 results and our diluted earnings per share of The $6.60 per share. Turning to our balance sheet and cash flow. We generated cash flow from operations of $295,100,000 down from $384,600,000 for the Q1, mainly due to timing of estimated income tax payment. Speaker 400:13:56For the 6 month period ended June 30, 2023, our operating cash flow of $679,700,000 It was consistent with the same 6 month period in 2022 as the impact of lower profitability was offset And lower working capital investments in 2023. Our inventory turn rate based on tons improved 4.8 times or 2.5 months on hand in 2023 compared with 4.4 times in the same 6 month period in 2022. Overall, operating cash flow generation remains strong Our working capital management metrics are at healthy levels. Our operating cash flow for the 6 month period in 2023 and cash on hand funded $257,200,000 of growth initiatives In the form of capital expenditures and acquisitions, the return of $233,400,000 to our stockholders in And the repayment of $500,000,000 of senior notes, approximately $568,000,000 remain available on our $1,000,000,000 share repurchase authorization as of June 30, 2023. I'll now turn to our Q3 outlook. Speaker 400:15:32While we anticipate underlying demand will remain healthy in the Q3 of 2023, we expect our tons sold will be down 2% to 4% compared to the percent compared to the Q2 due to normal seasonal patterns, including a decline in shipping volumes resulting from planned customer shutdowns and vacation schedules along with one less shipping day. However, compared to Q3 of 2022, this guidance implies growth in tons sold of 1.5% to 3.5%. In addition, we expect our average selling price The tons sold for the 3rd quarter to be down 2% to 4% compared to the 2nd quarter, primarily driven by declining prices We're flat rolled products across our major commodities along with carbon steel tubing products, which collectively represent about 35% of our We also anticipate temporary downward pressure on our gross profit margin from these declining price trends. Based on these expectations, we anticipate non GAAP earnings per diluted share in the range of 4.90 to $5.10 for the Q3 of 2023. Thank you. Speaker 400:16:52And we'll now open the call up to questions. Operator? Operator00:16:57Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer Our first question comes from the line of Katja Dantzig with BMO Capital Markets. Please proceed with your question. Speaker 500:17:30Hi. Thank you for taking my question. Carla, in your prepared remarks, I think you mentioned that some of your growth CapEx is dedicated to expanding into new markets. Can you elaborate on that, please? Speaker 200:17:45Yes. Hi, Katya. So Reliance, I think we've talked about many times before where we've been very active in Growing our businesses across our whole portfolio of companies. So a lot of times we're adding Processing capabilities or expanding existing locations, part of the growth in new markets that It can be a new geographic market. It can be, like I said, adding processing equipment, etcetera. Speaker 200:18:18A couple of things we have going on in particular and we talked about this Q4 is we're currently experiencing the ramp up Of our flat rolled operations that we have put on campus with some of the mills as they ramp, we're seeing some good growth there. We had acquired some facilities in the Michigan area for 1 of our tool processing companies Few years ago, but now we're in the process of installing some new lines in there. So in addition to their storage services, They'll be generating revenue off of their processing capabilities there like they do in their other locations. Geographically, we've opened up a small facility in Iowa recently, where we've got some Expansion is going on in the Atlanta area, Houston area, we expanded some facilities. There's a little going on everywhere. Speaker 200:19:181 of our bigger CapEx projects currently in the works that we've talked about before is our one company that focuses on the focuses on the semiconductor industry and with all of the build going on to expand capacity in the U. S, We are building a new facility in Texas, so that company can support The many different new chip manufacturing facilities being constructed in the U. S, We've got a very specialty type company participating in that, but we also have some of our more non residential construction type Businesses that are benefiting from the more foundational traditional build of those facilities. So a lot of different activity going on throughout the company. Speaker 500:20:13And can you just remind us when is the semiconductor facility expected to be completed? Speaker 200:20:20So we actually have 2 new facilities going up in Texas. The smaller of the 2 is Operational now and it's early, it's just ramping up. The larger facility Should be operational Q2 of 2024. That's currently in the build phase. Speaker 500:20:44Okay. And maybe just last one. On the M and A, you have very strong balance sheet. Can you talk about what how the pipeline looks Like right now and what size deals you're seeing potentially? Speaker 200:20:58Yes. So we yes, Sure, Kati. We do continue for the last couple of years, it's been a pretty steady stream of opportunities. So we have A lot of different teasers and opportunities to look at. There are and we really focus on what opportunity is in And do we think that meets our criteria and really fits within the Reliance family. Speaker 200:21:26We buy many different sized companies. We still will buy smaller companies, Although certainly we would rather put our efforts behind some larger efforts That would contribute more to the company and there are some large opportunities out there. But we generally Wait for the sellers to be ready. It's friendly acquisitions. It's when they're making a decision to exit the business typically. Speaker 200:21:58We do maintain relationships so that we have an opportunity to see those opportunities. We think we're in a good Position for that. We've seen a lot of smaller more fabrication type opportunities. On the teasers, we've seen some smaller service centers. But over the last year to year and a half, we've seen some More medium sized to larger, more traditional type service center companies. Speaker 200:22:28As we talked about on prior calls, For a period of time, there was a disconnect, people trying to sell off the peak. And so There were some value differences, but we're seeing that start to come more in line. So we're still excited about the opportunities that are out there. And I think at the same time, we haven't been quite as active on completing acquisitions, although we're still evaluating quite a few. We've also stepped up from historical standards our organic growth. Speaker 200:23:02So I think we're kind of hitting it and supplementing growth A little on a little more balanced approach currently. Speaker 500:23:13Perfect. Thank you. Thank you, Katy. Operator00:23:18Our next question comes from the line of Phil Gibbs with KeyBanc. Please proceed with your question. Speaker 600:23:26Hey, good morning. Speaker 400:23:27Good morning, Phil. Hi, Speaker 600:23:30Phil. Just regarding some of the public and federal infrastructure Sure. Projects that are likely to hit the books later this year in 2024, 2025. Do you have any visibility to those projects happening within some of the things that You're working on and when you fabricate certain things for beams and plate, and maybe even tubular, do you know What specific projects it's going into? Just curious if you have that level of visibility, anything that you Speaker 300:24:04could share would be helpful. Speaker 200:24:07Hey, Phil. So I would say at a high level, kind of from a corporate view, we don't Have a significant amount of visibility, but certainly our companies out in field who are servicing their customers on these projects, they have a much better feel. And as we've talked about in the past, Reliance, we're not usually the largest, on the largest projects with the largest Tons, but we're involved in a lot of projects, some as the primary, and then some as kind of Fill in and certain products and processing services. So our folks in the field generally know where the product's going, but it's really hard for us to keep track of it. And part of the beauty when we talk to our people in the field is We're involved in so many different types of projects. Speaker 200:25:09It's really hard to kind of roll it up to something to talk about. But I think Steve can give you a little more visibility on that. Yes. Speaker 300:25:18Just when we did a channel check with a lot of our companies that service the non res And infrastructure throughout the United States, they're seeing a lot of activity in the bridge, space, rail, ports, a lot of airport Projects going on and an ongoing project has been the onshore infrastructure to support the planned offshore Farms that are going up and down the East Coast. Speaker 600:25:49Thank you. And then as it relates to M and A, I know you recently got back into the market in the Q2 with Southern Steel. But if I kind of look ahead in the next, Call it 2, 3, 4 quarters. You could find yourself in a net cash position even with the CapEx that you're spending Pretty aggressively in the back half and maybe into next year or so. Is there any thought to doing more larger scale acquisitions? Speaker 600:26:19Do you feel like your internal pipeline is kind of robust enough to cover some of the high IRR projects you're looking at right now? Speaker 200:26:28Yes. So we're always ready to do larger scale acquisitions if it's the right company And we can make it work. So that hasn't changed. As I mentioned earlier, I mean, we look at opportunities of all sizes. It just depends what's Actionable at the time. Speaker 200:26:48So that appetite has not changed even Before we were in the cash position, had cash on our balance sheet as we do right now. So we are continuing to actively Consider and look at any of those opportunities we see. And certainly, if we find the right company, we would Love to execute on that. At the same time, we've voiced In the Growth Companies, I mentioned earlier, we're a little more aggressive on the organic growth side For the last several years, we also, I think have been a little more active on a more consistent basis On shareholder return activity, so we expect to continue to deploy our capital wisely in all those areas. And At the same time, we don't think it's the worst thing in the world to have a strong balance sheet and Be prepared for whatever may come. Speaker 700:27:57Thank you. Speaker 200:27:58Thanks, Bill. Operator00:28:02Our next question comes from the line of Martin Englert with Seaport Research Partners. Please proceed with your question. Speaker 700:28:11Hello. Good morning, everyone. Speaker 200:28:13Good morning. Good morning. Speaker 700:28:16Looking beyond the construction of facilities related to on shoring. What are the customers discussing with you Regarding their future metals needs once these facilities are ramped in future years here, If you're having any discussions around that just Speaker 100:28:37yet. Yes. Mark, I Speaker 200:28:39don't know that we're Certainly, I think some of our companies who are very focused on Certain of those industries and end markets, if you take semiconductor chips, for instance, our people running our businesses, Selling into those markets are very engaged with their customers there, Talking about both the build, but then future capacity, I think, again, we serve so many different markets. There are discussions. I think for us, the fact that different mills are ramping up domestic mills are ramping up capacity will allow us to better will allow us to better serve the increased volumes that our customers will need In the future and that's our spot in the supply chain. We continue to have customers asking us To do more for them on a value added processing standpoint and really partnering with our customers. So There are many different discussions going on. Speaker 200:29:50But again, our business, while we and our customers do look at the long term, We're really servicing on a day to day basis. And I think we've done a good job of being a leader in investing in Increased capabilities for our customers and that's something that we'll incrementally continue to do to support that future increased Speaker 700:30:20Thank you for that. Appreciate it. And I Believe you called out common alloy sheet as a point of weakness in the press release. Is there any color that you could offer there as to what's happening in the market? Speaker 200:30:37Well, I think from a I think our comments were kind of focused on just some pricing erosion that you've seen. That product Follows the LME a bit and we've just seen a little downward pricing pressure on those products. Speaker 300:30:55And ample supply in the supply chain. Speaker 700:31:02Okay. So really from a price perspective, it's more of a function of the surcharge as opposed to like a Base price erosion or something along those lines, yes? Speaker 400:31:13Yes. Speaker 700:31:15Okay. Excellent. All right. I appreciate your time. Thank you very much. Speaker 200:31:19Thanks, Martin. Operator00:31:23Our next question comes from the line of Alex Hacking with Citi. Please proceed with your question. Speaker 800:31:29Yes. Good morning, caller and team. Thanks for the call. So I guess the first question, I'm not sure if you've disclosed this, but how many tons Are you co locating at the new mill in Texas? Speaker 200:31:43Hi, Alex. We you are correct. We have not disclosed that. So yes, and we both of those operations, We're supporting our customers, but also partnering with the mills In doing both toll processing on some of the volume as they request and then also direct sales of the metal. So we're ramping as the mills ramp and As the mills ramp and it's nothing specific Committed, but we certainly will benefit as the mills continue to ramp and produce more tons. Speaker 200:32:27We certainly expect our volumes there to grow with them. Speaker 800:32:33Okay, thanks. And then just following up on that, are you I mean, are you specifically targeting Mexico as an end market there as the mills are? And I know the mills have commented that Mexico has been very strong recently, right? With AMSA being out, I don't know if that kind of flows into what you're doing or not. Thanks. Speaker 800:32:53Yes. Speaker 200:32:53So, we try to sell metal to people wherever they are if they want metal. So, if there is more Demand for metal in Mexico, we certainly want to service those markets. We acquired a company back in 2,008 that had some Very strong toll processing capabilities, 3 locations in Mexico. We've added Forward and expanded all of those over the years. We're in process of doing further expansions down there because we see Growth in that market. Speaker 200:33:28We also have some of our U. S. Companies, selling more metal down into Mexico. One of our on campus opportunities, I think that mill has directed more metal there. So in support of them, We're pushing some more tons down there and we continue to look at opportunities to meet our customers' needs both existing and Speaker 100:33:50new customers as Speaker 200:33:50we see opportunities grow down there. New customers as we see opportunities grow down there. So certainly look at it as a potential favorable market for growth right now. Speaker 800:34:02Okay, thanks. And then just one final one, if I may. I think you previously have mentioned It's less acute now than it was. Could you maybe discuss, are you being constrained by lack of skilled labor or it's manageable now? Thank you. Speaker 200:34:30Yes. So I think, you're right. It's not as acute at most of our operations now. Alex, I think we've More successful in probably having more people available. I think where we've done a really good job is retaining our existing employees. Speaker 200:34:50We appreciate those employees being with us. Some Have had to work a little harder, a little longer hours than maybe they had historically because of some of those issues. We've also, I think had to and I think with newer employees, most people are seeing higher turnover levels. So More of an investment in training, especially from a safety perspective. So, a little more effort being put there. Speaker 200:35:20But there are still some constraints. I think for us that we've seen more at certain of our customers, which does impact some of the shipment flow and end demand. It's still there, but how fast can you fill that? So I think still a factor, not as much as it was, but that also has been an opportunity for Reliance where As our customers may struggle with being able to get the skilled labor, they're asking us to support them more, which has given us The opportunity to do more value added processing for them and we try to kind of Well done service them well, so that we make it easy for them and they want to continue to retain that business with us. And We've certainly seen success in that area over the past few years. Speaker 800:36:18Okay. Thank you very much. Appreciate the time. Speaker 200:36:21Absolutely. Thanks, Alex. Operator00:36:25There are no further questions in queue. I'd like to hand the call back to management for closing remarks. Speaker 200:36:32Thank you. And thanks again to all of you for your time and attention joining our call today and for your continued support of Reliance. Operator00:36:47Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.Read morePowered by