Reliance(RS) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Non-GAAP earnings per diluted share for Q3 2025 were reported at $3.64, consistent with expectations and the same quarter in 2024 [6][14] - Operating cash flow generated in Q3 was approximately $262 million, with capital expenditures for the year remaining at $325 million [6][18] - The company returned $124 million to shareholders through dividends and share repurchases during the quarter [7] Business Line Data and Key Metrics Changes - Tonnes sold in Q3 reached a record high, increasing by 6.2% compared to Q3 2024, outperforming the service center industry which reported a decrease of 2.9% [3][8] - Non-residential construction accounted for roughly one-third of Q3 sales, driven by strong demand in public infrastructure projects [10] - Aerospace products represented about 9% of total sales, with demand in defense and space-related programs remaining strong despite slight declines in commercial demand [12] Market Data and Key Metrics Changes - U.S. market share increased to 17.1% in Q3 2025, up from 14.5% in 2023, attributed to a profitable growth strategy [3] - The competitive market environment has led to pricing pressures, particularly in carbon steel products, affecting gross profit margins [4][9] - The semiconductor market continued to face pressure from excess inventory, impacting pricing and margins across various products [15] Company Strategy and Development Direction - The company aims to maintain a long-term sustainable gross profit margin range of 29% to 31% despite short-term headwinds [4] - Focus on capital allocation strategies to drive growth and enhance shareholder returns, including investments in advanced processing equipment [6][19] - The company is committed to pursuing M&A opportunities to enhance geographic reach and expand value-added capabilities [6][63] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying margin profile of the business, despite current market challenges [4] - Anticipated stable overall demand in Q4 2025, with an estimated increase in tonnes sold compared to Q4 2024 [20] - Management expects pricing for most products to stabilize entering Q4, with flat to slightly improved gross profit margins anticipated [20] Other Important Information - The company generated strong cash flow from operations, allowing for strategic investments and shareholder returns [18] - The net debt to EBITDA ratio remains favorable at less than 1, providing significant liquidity for capital allocation priorities [20] Q&A Session Summary Question: Is any of the gross profit margin compression attributable to the focus on growing volumes? - Management acknowledged the unique market conditions affecting margins, emphasizing that while volume growth is important, current pricing pressures are primarily due to market dynamics [23][24] Question: Can you discuss the inventory levels on the balance sheet? - Management indicated that inventory levels have increased due to mill price increases and a slight uptick in tonnes sold, allowing the company to better service customers [27] Question: How does Reliance win new business? - The company focuses on execution and customer service rather than price, leveraging expanded processing capabilities and strong relationships to win new business [35][36] Question: When do you expect to see a neutral LIFO environment? - Management explained that LIFO expenses are based on annual estimates and will likely continue into Q4, with expectations for improvement in 2026 [37][39] Question: What is the outlook for the aerospace and semiconductor markets? - Management anticipates continued improvement in these markets as supply chains work through excess inventory, with a positive long-term outlook [45][46] Question: How do you view the M&A landscape? - The company sees a steady flow of M&A opportunities and believes it is a reasonable environment for acquisitions, with valuations generally considered reasonable [63] Question: Are there any SG&A levers to protect operating margins? - Management is focused on operational efficiencies and has reduced headcount while maintaining service levels to protect margins [68][69]