Reliance Steel & Aluminum (RS) 27 Oct 222022 Q3 Earnings call transcript

Greetings and welcome to the Reliance Steel & Aluminum Company Third Quarter 2022 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Ms. Kim Orlando.

Thank you, operator. Good morning and thanks to all of you for joining our conference call to discuss Reliance’s third quarter 2022 financial results. Jim Ajemyan, Executive Chief Senior by President; Karla Executive joined Arthur and Vice am Hoffman, Officer; Chief Lewis, Officer. I President and will the Executive be call. Koch, Vice and Operating Steve President available portion question-and-answer Officer, during of today’s Chief also call of posted be our this section on at investor.rsac.com. A Investors of will recording the website company and assumptions forward-looking are based known on press pandemic the on risks, information under be and which the from The unknown subject this call our performance the change and future materially the these or number COVID-XX other on statements the and results, of be other control that the or release and may not are cause may to contain geopolitics factors, statements. may certain or of impacts to uncertainties a related company’s and performance involve conditions actual including forward-looking different operations the implied economic by expectations inflation, results, which of achievement not or XX, These December the press morning Securities XX-K documents, ended factors year in include but Factors, caption for Exchange the disclosure the files on and limited to, annual Risk this report company’s Reliance our factors under Form furnishes the in XXXX, with release disclosed those and other are Commission. and duty update the to call The speak therein and any disclaims herein. only the this release information on date information press company as of the today’s and provided to turn Jim Officer over Chief the Reliance. now call I will Hoffman, of Executive

and quarter financial us to third today Good XXXX Thank joining everyone discuss morning, thank you you, for all Kim. results. our

will be with years and is and leader for know will her customers, good very our colleagues the I many helm. at hands grateful she extremely lead stockholders and extremely confident is right in that am Karla I'm I'm and many executive suppliers, several Reliance conclude fourth proven third very in and for we've years achieved operating last to our going the of and begin wonderful of allocation a this capital family the markets activities of trends results Arthur and of great with overview performance will demand and privilege opportunity end our quarter. I with and Karla CEO an our proud the I at person After Reliance time as Senior weeks this to to Reliance by Karla which speak is leadership year. to now a mention of I the very and of issued me Board. fortune I to very plan in X, of developed will that XX to responsibilities announcement like Executive good on transition seat of to XXXX. transition role Karla Reliance executive XXXX, privilege Board we Chief Officer as And also much strategic begin, will at This January culmination I to plan. of in succeed I the the on pleased December am step on Reliance CEO to will and my my down retirement personal our regarding decided deliberation, my X of Before I Advisor a of have succession until retain the long-term ago announcement conjunction I'd with facilitate the over that review outlook. forward. accomplishments December our will I've have financial our great companies. deliberate Directors. Karla results had work a the with closely then succession of quarter the been the

markets drove Demand financial operational with we of coupled and than majority business to customer proven billion. sales best-in-class which quarter results. of of strong we our had to was serve in produced another net the $X.XX solid operations our performance. quarter Reliance's model, execution outstanding anticipated better somewhat third diverse the Turning service including quarterly commitment end

moderate margin to achieved results but a price share in metal the results during strong our In anticipated, quarter environments. for earnings of diversification provided margins our history of gross $X.XX prices. tons to diluted margin sold quarter metal led highest and were our profit aerospace, industry-leading strategy processing we profit benefited which of our of believe and our resilience despite approximately quarter, declines compression all and third performance volatile demand third the the nonetheless certain semiconductor enabled to third stability our the strong gross as strong and quarter. gross We of the our As on temporary third profile consistent, energy quarter declining our per price, execution value-added of our gross our highlight profit performance which selling areas average our recovery orders unique in a as such colleagues operational in during helped by and the XX% along contributed pricing declines business margin profit with model

is Another key Reliance attribute flow of generation. strong the model our cash

we profitability combined third generated ongoing helps million, management stockholder which working quarter, quarterly solid operations in growth and record strength our both the fuel effective with long-standing During from of driven by our of returns. cash history capital flow $XXX.X

and focus growth remains balanced between opportunities. Our acquisition on organic

year at outlay to depending on million million budget times $XXX with chain. the $XXX supply extended throughout ongoing million, remains $XXX an capital full of Our expenditure lead cash expected total

they also to shortly. are field quarter, the the closing, We're the increased remains performance. Arthur confident stockholders will pipeline in stockholder million $XXX pricing managers While our during In we superior past our uncertainties, have to as return headwinds in any and a did on despite pressures healthy. quarterly deliver inflationary in and repurchases. successfully activity combination nearly third navigate costs we will elaborate of on operating through opportunities complete not quarter acquisitions pleased common the stock of our return dividends third to the potential

quarter United flow to record continue trends businesses operating the increased in bill third attention our results cash our infrastructure I today. call your Karla? and over operations to and now us will demand you well Thank for who we Karla, trends. and States. the the review will from to very in time grow turn from opportunities positions and invest Our anticipate as reshoring

everyone. good Thanks, and Jim morning,

next Before record-setting financial his service and throughout Jim's I through outstanding many that as you safety as wish that both experienced grateful economic his his history stockholder operational significant me. our retirement. us like in I and people the and you performance all to I'm of company. acknowledge friendship to of during together Reliance, Reliance, the varying Jim extend pandemic. am placed sequential operational Reliance for begin, CEO leadership I am contributions incredibly upcoming years environments best I Reliance's and would for your all tenure helped our working results, and to continue have strong our the Thank and industry-leading done for in and to results value. execution to the talented and as achieve serve excited confidence you trust honored with global has all delivering CEO I throughout of improved inspired board Jim. for as leadership well to increasing your

to I'll Now, our turn third quarter performance. operational

solid concerns, thank other the high ongoing various while challenges, First for our the I'd labor their in supply folks during execution and navigating quarter shortages inflation, foremost, to disruptions. historically field recessionary and chain like macroeconomic including

and to once commitment steady focus us to outperform. allowed service again Our on customer leadership, safety

range down the second Our expected down quarter X%. our to at end X% X.X% were from tons of the of low sold

stronger last semiconductor which the aerospace were quarters, planned several better-than-expected of shortages manufacturing extent, vacation our facilities. volumes lesser shipments. it decline had believe construction customer for driven Similar sector due labor impacted to healthy seasonal shipment demand includes shipments been strong our robust supply broader been reliance The and in chain-related at in even a nonresidential serves normal performance schedules. the to and and the since and, primarily patterns in conditions third other not Our levels and quarter shutdowns to disruptions XXXX have the by a shipping time we by for customers' persistence could ongoing was first demand

$X,XXX, their in second have or Prices and products declined average price of line quarter compared declining which with X%. of of seem per to expectation most X.X% to sold near ton carbon down record to Our X% XXXX been in at trough. for be pricing the flat-rolled selling through was XXXX our of

products beginning That for continued the through continued higher-priced in offset said, quarter, into quarter. some aluminum the semiconductor, pressure products most and price. second our sold on other the stainless the of However, extended sell downward demand with carbon products pricing third and markets aerospace pressure the which the we also to helped strong selling steel pricing downward of along energy average

most it's sell may of we highlight see some believe we the continued we for pricing to While current declines products moderate historic more that highs. at at remains pricing important levels,

the of utilizing turn network are of now declining benefit profit believe FIFO XX.X%. overview by is our through centers. we temporary led have levels to higher more XX.X% margin our Reliance's service from seeing XX.X% On third emphasize construction broad largest which quarter year's nonresidential of to we and in remained XXXX pricing second infrastructure end last we declined the fairly quarter. Demand is in non-GAAP the stable margin and experienced margin with our monitor to be The move high-level cost size gross our prior levels. compression metal profit like markets. we quickly how we within our our as As the gross basis profit our of XXXX is higher to end includes temporary ahead which our market of inventory. gross cycles, the I'd during a I'll key ability compression that for sell we to performance, operating will day-to-day quarter in of a serve, trends prior cost this to

the semiconductor the aerospace remained to with our compared market tons prior end supply of Commercial healthy provide manufacturing States. make to automotive recover not consumer broader improving year-over-year quarter declines significant we during continues robust said, underlying third in and Demand products demand shipments across to sector toll the seasonal United manufacturing pandemic. expansion broader sectors machinery, improved the third the for of consecutive Although strongest the also improvement challenges. the processing remaining since the important our manufacturing industrial continuing onset services sold, compared demand to despite notable the over that investments the demand support We're with to of the expected quarter continued the at one equipment and of second included serve, our levels. in to in quarter for quarter heavy to the demand fabrication the markets. be quarter. ongoing Semiconductor second third we third quarter and experienced quarter market chain compared a XXXX including And showed our to this in

half our commercial. business the portions roughly space healthy is aerospace reminder, our of aerospace and a exposure remains military, As backlog. defense to of Demand with strong in

compared energy quarter XXXX. of experienced in demand the to second seasonality Finally, the normal sector

carrying customers We in serve of our markets with remain healthy across into are will pent-up the optimistic fourth XXXX. quarter that trends end underlying we demand continued most demand the at

in made other are managers headwinds obstacles We they solid by navigate details in more to on operating the XX,XXX demand every have as to Reliance's each in contributions done of appreciate and pricing coming of I will results remainder financial for the our now will confident call times provide turn outlook our successfully the review the the performance over quarters. the the continue We pricing our past to many field many, and Arthur our and day. year. colleagues

morning, Good for everyone us today. you Karla. and Thanks, joining thank

third model. our with quarter which the share quarter record. when demonstrated of the well-earned management, again financial First, third center earnings remains like legends third start and resilience a We Jim I'll our sales industry. translated quarter both work of X congratulate per service my highest to of alongside cost which achieved combined performance was $X.XX Karla $X.XX of to great these and also which effective career I'd privilege transition. our their on with billion It to metal strength

As profitability Jim demand products most supported healthy and during Karla the quarter. mentioned, services of strong our third for underlying and

coil rolled our the continues flat-rolled carbon exposure Total last third results experienced tons most the tend shipments. over to rolled including sales of to HRC pricing our sold cold hot-rolled Service XX% carbon Our the product in limited volatility and XX% Institute, diversity operating quarter galvanized with flat to Metals XX has months. to benefit which dollars our and represented sales industry quarter. of of follow XX% According shipments Center during represented the of XXXX the total pricing, which

margins. Moving to profit gross on

to of declined environment, To of for products. million metal $XX income a $XX margin a basis LIFO annual inventory estimate million from of LIFO from flat-rolled higher $XXX through stainless second our expense million price of as costs, estimate result, quarter and as recorded LIFO expense. our And XXXX. the on profit revised $XX.X in we third lower-than-anticipated million. metal the we for gross in non-GAAP cost Our points reduced particularly Based year full account declining we XXX carbon work quarter

Consistent as LIFO on on is for a allocate at $X.X calculation to the fourth quarter current actual basis our our our annual costs period. on-hand pro LIFO to end expense accounting XXXX of our we rata million true-up of will we LIFO each with the Our of expectation estimate reporting year. the policy, based inventory

XX, future mitigate of September will the and in period our reserve $XXX.X profit sheet gross our earnings. benefit million XXXX, of on As decline was impact on which prices to the metal be any available results balance further operating LIFO and

Moving to on expenses.

inflationary X.X% on pressures X.X% to were Our our quarter contributions able flat fuel a expenses to reduced of and shipments of $X.X of income were quarter We pretax only from including to margin prices lower on those for profit or million of decline quarter XXX a X.X% year-over-year via compared SG&A point third On XXXX third despite acquisitions. the wages, quarter profit expenses or lower the non-GAAP and to compensation selling same-store compensation quarter margin. in profit in the an XXXX, declined plant Pretax costs our only and $XX.X costs. our with incentive-based XXXX moderation quarter gross lower of X.X% along decline totaled from million, increase basis compared freight, the expenses of some second gross lower included incentive-based which offset inflationary FIFO sold $XXX SG&A by which and higher factors, tons due fourth profitability. higher with and year-over-year supply decreased million higher freight from X.X% bulk relatively offset resulting the fuel basis, our non-GAAP lower third as slight

repurchases. earnings pretax reduction due XXXX XXXX of levels share flat $XXX.X We $XX.X and at $XX.X million million diluted for of quarter we income XX to the were nearly million per $XXX.X operations average and our Our relatively dividends the share. a share of the returned X% during record of through to our from about of up third our quarter, million generated and stockholders $X.XX, from from cash months quarter outstanding X% approximately the repurchases quarter about per a third despite shares record of quarterly an past in net expenditures common flow $XXX.XX cash and during million in capital third cost $XXX of a invested stock

our on our July under reminder, fourth repurchases our turn $XXX XXXX. repurchase at for billion Board our reaffirming confidence XX, quarter strategy XXXX, As authorization $X Directors a billion authorization million to replenished XX, now our remained collective Approximately share of long-term to I'll repurchase in available $X our outlook. and September outlook.

quarter the customers disruptions expect days inflation, uncertainty, the will by continue matters. compared down macroeconomic our quarter fourth chain compared and patterns, XXXX into impacted healthy be to factors expect holiday to schedules. fourth X.X% do, fourth be shipping flat vacation demand including ongoing supply along quarter fourth XXXX. the despite estimate compared extended other to normal levels with quarter fewer tons We the XXXX third or to in the trends prevailing X% such as quarter third of in of and seasonal to shutdowns the up external sold however, geopolitical quarter We Accordingly, and shipment to we approximately to X.X% of our

per sold. regard which overall the and notably for average ton continued by pricing, products sold aluminum to mitigate end for to products stable semiconductor with decline declines our to alluded rolled offset in Karla and of selling higher-value to pricing flat our continue aerospace, the price many be certain products, As markets energy for we stainless into relatively expect carbon

As ton X% of a quarter estimate price our quarter sold fourth of selling third we in X% the per XXXX will the be average to down result, to compared XXXX.

diluted challenging very metal into for our on are our We to also a we result Based fourth price the quarter inventory range anticipate to closing, we this in gross Thank to these Operator? per we'd expect we quarter all up with cost prepared to our on like business your of that declining pressure expect pleased share for market investments generation enabled and us be questions. the cash I'd colleagues of as earnings the at to our margin of remarks. of making attention. environment. Thank to quarter you $X.XX of profit performance returns higher in concludes XXXX. the growth third which significant selling temporary while Nevertheless, expectations, you $X.XX continued backdrop This reiterate to to And our non-GAAP these In a fourth concurrently against profitability Reliance the open dynamics. to your continue contributions like stockholders. in strong of results. our uncertain the providing our time, for call

[Operator Instructions] today from Our coming of first KeyBanc. is Phil Gibbs question

friends of for congratulate Karla, both and and first Karla. the to, creation. for Jim Congratulations wanted obviously, my I service and and all, Ohio Jim your to value your of promotion you.

what First working is the you third in net fourth in capital what the better? we is, quarter release be little you're size and Should the on equal of here a be that realized Could think quarter? could anticipating. just it question

And for guidance. said our follows question, Yes. capital pricing Good volume Phil. and as working we’ve

as So about lot are well. decline a more changes good Receivables to inventories, responsive way pricing than that could it. the a think inventory be to seasonal

levels I come a So fourth and capital pricing our the an adjustments good fourth and working to a should for the you for answer they up quarter. short those for think apply and capital take to framework look volume is, quarter give we’re estimate at with guidance, working

bringing bit our a of FOCs. a And quarter, to levels a did in significant. that, focus add would just Nothing Phil, third at of have on internally down I inventory we Yes. couple the

at a heavy. we shape have were places, little been a inventories but in few Our pretty good

little a QX focus. that cash probably generation flow extra was there because in So of

in appetite now then, the M&A year. what several quarters? And I be your solid of right latter Okay. next of did you know for increasingly flurry a given to quite last the acquisitions flow What’s for visibility cash part looks

question. good Yes,

as for of of our lot. that There's a them. matter sale are -- we're we as finding fit talking crazy for and and Our are It's fishing, it's want appetite they anybody is think right ever if looking we're still simply strong know Phil, companies see to that for family looking just been. will few in that the sale company They're companies at out enough a I'm there, to what you spend if what kind is just of a about. finding

good few those but out news So we'll you there's there. a them changed it And our deal, at far we'll appetite, and comes as there's as a good is more our up all. But of of can we if And we promise strike I the it. do fine really at can keep looking plenty companies haven't hasn't a important, one lowered and bar. we'll

our still major strategy. that's of part a So growth

your And on, believe, semis question investments, I have then internal last Texas. is in coming plant just on the you

about in us remind what and spend left of terms there maybe of terms demand some to color when seeing also ramps in some that you Just silo. it in have what you’re

Yes.

try that hit I'll to So you. for

expansion plant operational expect of lot we XXXX. be There of sell first operational kind to we the at the in part of stainless doing we the first that of of a steel expansion, we we of a electropolishing expect have of distribution be beginning the smaller tubing where plant. some our the of kind systems So The the bulk investment, of That manufacturing be customers. XXXX. quarter kind significant expect cleaning for of Texas. going welding gas to actually quarter more and And we'll -- construction that's smaller into then become on X-step chip we'll well,

$X near spend so -- we'll So the we the majority plant maybe our This in good, outlay -- the were because of most larger could gave million even move to starting a our it outlook the year-to-date million this CapEx one the years there is expected $XXX,XXX $XXX We in future. little of million. actually underway into cash be is part million to is projects a and to because at for be the larger. total end plant of September. $XXX smaller that to on X Big CapEx But small of the $XXX -- at construction us year the of $X for million. are be will in

factored kind production. folks related know cutting expectation be cash we that's into But with first year. half into year by our semiconductor selling products they're particular going of So the the and that and rest into least and of they're some layoffs there announcements forward. the at strong going next for feel the of semiconductor, have some is and manufacturers the But to all of been the chip businesses selling who going

thing know one near thing it’s just shoring, and support add to about and chip And This big we’ll one picture it’s pumped has that’s been project to to framed real right in reshoring, Phil this It’s computer this as it. and up there. a -- and that’s this week calling part is wheelhouse I we’ve our undertaken, forward more. reshoring going of there’s they’re look But we’re whatever fit but bigger it. this, legit. this to lot you just know And a whole There’s a spend.

of Instructions] next Englert Martin coming Research. [Operator from question The Seaport is

order Can nonresidential activity fabricators Maybe in next any what are some saying, moving books thoughts and particular, of on are you construction looking? anticipating, talk and maybe a your how customers through infrastructure to their little year? your intermediate bit exposure

Yes.

and So on high that we're I well. we still X-story infrastructure And we're participating remember and remember of to positive put building -- level, at in And that would primarily a kind below. the very as X- construction. say in Martin, non-res

our going we XXXX. healthy backlogs into got they've tell to continue continue us So customers --

and... what us So we're on based positive overall, they're telling

It's this seeing the politicians bridge fixed, we infrastructure worse. this to We've the it. nothing years that's gotten but about going bill. tired of been it. walk start it's and one get done interesting. press And on Well, I'm across just having for saying, talking on the time something I'm of about bit end a dilapidated to thing as soon as doing a conferences little

to going it's soon, Reliance need to So one rebuild. at to that's point, America stand of Reliance way that years is is of go for to made work for we politics to going come. payments we'll out think. been and true for get to the kind we've real And and And over and ready to -- I come American. our going look saying to years forward tax we've It's the

and it infrastructure extremely comes, So is important when we're ready.

Okay. If I verticals could you seeing side? where are end one you other else back of What talked activity I markets? the on about the it? reshoring, coming some other, we’ve or state activity but semiconductor guess, seeing Are

is spending or all way. that's of computer be I one. our are remember, signs may telltale to one going don't that. the and expanding. it's that's of and Certainly, of us difficult There’s obvious can necessarily types look money most like appliance, years and the all, are markets, construction And another buildings Well, sell price. those But that expanded. in spend these going. it coming we’ll to Mexico hear reshoring for kind things and That's tell And they automotive, and sign several lends us to you the heard, all feels what think, some because it's We’ve things. expanding increase the see it's we But on many it what the have is been so pretty so we've capabilities. and you so -- at. chips being -- work that looks mills There’s back. that’s in where buying coming many Those different rebuilt continue and last transactions different over near-shoring. like manufacturing nonresidential it of companies many getting itself There’s to this

it’s where can but orders these know -- nothing it’s literally all nail to So are really hard happening. us going for we down

Yes. lot a hear big operations. headlines Martin. or of it and certain them U.S. we're not public or They're I doing the to definitely customers different areas. saying, closer was when back field, from doing doing in-house as them lot -- There different our they're in do mean their but is Jim components of a in this real, we are processes bringing are that

we for think that's good So for American the and us economy. good

there, see the to could same And then I dynamics, next last push that would that’s lines, moving that’s had forward still COVID out there you through allow supporting of layer one built of that If whether of one COVID, past sustaining there demand how along any looking, the activity labor easing moving out was maybe kind more backlogs on and if there? activity some of year?

That's question. a great

paying it's talent -- we've I done a from to retaining it. whole keep talent you good attracting can we're attention I watching tell we a is think standpoint, not that. job I just think of We've Reliance easy and fine which level to done is which really a job of a do. different of activity

that's see. and are tough customers to having go hard Our a

we to kind they we our they the we people it because and and have. need to right spend, can’t do and can’t they spend find itself of money lends growth can we and if However, the will

love love just bring industry is having and don’t in we a our have know folks. would folks So I’m not to recruiting of a to this people the have good it’s month right customers career that And know what thing. is more -- convincing a I to really next people but I matter going and more

anything to have to you do add Karla, that? So

we seen mean I in few in than it's to little I Yes. successful, over think, I more last months the Martin, had recruiting the a prior would that. workforce more people been we've say,

some potentially our are looking is how various we're to out that operations. and comments. support we We're improvement an we've but going industry our from in some certainly year there. is positions but So it's to that's help in all I more a see facing others the issue more I automate Jim's customers' at we're looking technology industry. And are seen you of more too, facing. and our be alleviate this there the a thing, invest looking now other we to And of change some pressure of can't fill it in to the tell difficult workforce to huge the can where

results. on solid Congratulations the

The Jancic from question is BMO. Katja next of coming

you in bit you early some is some for the know I CapEx directionally. preliminary the a XXXX issues talk XXXX. it’s could outlook Could just little but being chain of and about I because CapEx provide supply outlook of out know for pushed

are of built together the XXXX early in parts expenditure up. our process the of putting process capital of ground It's we the budget. So from

us Our expanding lot opportunities a by continue in more customers. customers. identify of but value-added lot see do we with field folks greenfield to both for out by to But for their facilities, facilities working opportunity of to our also equipment grow a continue the processing to

going catch a slightly of have a So next healthy. even the a cash on to February spend be with -- have will issues February. this information standpoint, it's improve And I a have But we'll We'll don't cash anticipate more supply some you can and maybe you. year. from number hopefully, higher spend especially that year. give that probably chain yet. bit we consistent But in we We up little in think to for

how changes in you going do be processing. savings? that maybe about to orders include And cost right might now especially And your one you see a this talk Can on significant when forward? Do of you downturn, possibility value-added there’s on see just any more that, Okay. value-added the processing? customers focusing how a much

just kind your a second part with Well, little historical that, what the But that answers point. question. of said. you I I like of agree

you guess orders of can number over north, about exactly sold. Where now. I'm up it burden we go CEO of there, be but our For the what XX% a because We're a my next from with to we will said. going north not that were while, at XX%

are agree ways money and going spending a Karla are and That's where we're Reliance customers well. our as I the work that right to for our the spending we need our those future, in think customers money. in things will that lines along I mean and just about the good for good more the automation. certainly And to thing will think be with

I'd Hoffman turn the or any to Mr. back today. At this closing like time, to for over comments floor additional

time your today. Yes. and Thank attention you for all

Mining my everyone like the Sachs to we’ll and presenting the support companies remind colleagues New quarter that call, and Global for be the your thank Conference. your all their you. out Goldman York at close in And in thank Reliance. we of and family Metals in the to like City Before to field late I’d I’d performance Thank and in for throughout strong the commitment third out contribution Reliance you November,

in and Ladies interest you your and Reliance. gentlemen, participation for thank

your enjoy day. disconnect the your may this of off at lines the You and time and rest webcast log