Earnings call transcript Q1 2023

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Operator

Greetings, and welcome to the Reliance Steel & Aluminum Company First Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kim Orlando with ADDO Investor Relations. Please go ahead.

Kim Orlando

Thank you, operator. to discuss you financial Reliance's thanks conference joining results. and to call first morning, all for of our Good quarter XXXX Officer; Arthur Ajemyan, I and Vice President President Karla by Financial Senior Chief Steve Officer. Chief Executive and and am Vice Koch, Officer; Lewis, Operating and Executive joined Chief President call posted at of on A investor.rsac.com. section Investors this recording the will be website of our

our assumptions the certain on or release impacts and unknown the information are of results, performance forward-looking a and the materially and which actual press cause these call may operations. and the contain the Which inflation, under company different on performance of change The from expectations and other pandemic may forward-looking on other to based statements, not achievement are number or to known the and that subject statements. may economic this results, related be of future by geopolitics COVID-XX factors, implied involve including the conditions uncertainties or be company's risks, control

include, but are annual caption factors company's Factors, files the information update release the today's XX-K XXXX, furnishes our factors on date in to release the this and Exchange and documents, and XX, call duty other and Reliance only to, therein press press or the and limited disclosure Form of as December with disclaims herein. the The in this the Commission. report Securities the speak disclosed for Risk those information under on provided company morning year not ended These any

and Lewis, CEO call the turn I will now Karla to President of Reliance. over

Karla Lewis

a second our outlook an us operating of trends XXXX. financial of will and market, begin Arthur to thank discuss by you to XXXX first of conclude quarter Steve will and capital for performance demand and Good the morning, end and review with our results with our financial our strategy. speak then today results allocation results. and for quarter all joining I'll overview everyone,

strong as to results Beginning performance. with our diversified continued quarter in first highly favorable business our the year an environment. uncertain business off model We started yield

sales $X.XX from the of XX% quarter fourth billion of increased first Our net XXXX. quarter approximately

in Our This the our with in the fourth XXXX sequential sold was which quarter highest markets, last majority solid our end tons demand the from of we've up from sales decade. seen vast the tons average were lower by fourth quarter sold offset the price. selling benefited XX.X% in increase from of a our partially

organic a margin $X.XX, Our of strong of income helped volumes in growth, earnings diluted disciplined investments our expectations. profit ahead of well robust X.X% million gross expense which control of share and benefited per our from pretax $XXX.X and drive

effective capital of cash Our management million. strong quarter profitability working along $XXX.X to enabled first flow operating significant generate with us

allocation. capital to Turning

of in Our consistent cash our fuel generation strategy activities growth continues and to investing returning capital to stockholders. our

expenditure spend $XXX full million outlay the quarter capital million, year a million an cash XXXX for remains million $XXX budget of first the this year. of Our $XXX.X and total approximately $XXX in to expected record with

will continue budget new projects roughly as be in historically invested XX% to this up We of we into markets. in upgrades, expect facility approximately X/X expansion and various growth efficiencies invest from

our our cutting-edge market further provide processing to to our employees. new safer as profile capabilities equipment to as include expand working investments investments Our and value-added bolster well position for margin environments

first remains acquisitions the quarter, While healthy. not pipeline complete during we the did any

first Concurrent and for returns a in high-quality allocated to remain our share growth. prospective repurchases. $X.X evaluate wide in and variety repurchases. of with disciplined growth criteria those towards initiatives, of positioned opportunities pursue our over to of we returned billion and continue Since stockholders growth we XXXX, nearly million combination share billion our a acquisitions that We dividends $XXX.X through meet organic and $X to of quarter stockholder capital well have dividends and the towards form the

quarter and our are we with both performance, summary, operationally pleased financially. very In first

inflationary in increasing CHIPS We concerns, recessionary to levels and positioned chain the execute metal continue shortages. supply with our on an levels Bill, and disruptions an do of Reliance belief our customers. historical higher Act metal to pricing relatively our to labor in Reduction of Nevertheless, strategy job very versus our and Infrastructure ongoing levels. our resulting value We the pricing dynamic well managers environment the a headwinds, the remains superior opportunities upholding capitalize field that from Inflation maintain in with to continued providing Act excellent service volatility, environment

Thank team to Thank successfully commitments our time executing you all and safely your working to extraordinary for model. your you at today. for Reliance our

now I'll Steve, trends. first results to will quarter demand our over who review and the turn operating call

Steve Koch

turn pricing Thanks, and gratitude for everyone. safety. Reliance outstanding at to quarter our first Karla, and also good I'd morning, their to execution express like trends. now team dedicated my and demand ongoing our to to commitment I'll operational

course our the and growth end in along years, Our tons of invested up reported were fourth the the the quarter our X.X% value-added performance of over and market Compared vastly the tons higher to center X.X% turnaround processing up several seasonal by by XXXX, broad activities was than to and MSCI. surpassing The typical expectations increase compared our diversification, as of to sold orders. XX.X% service of exceeding quick recovery. past capabilities prior the sold our ability increased the XX% period, to organic service product industry XX% with supported year we've

Continued strong in in end construction, quarter. contributed nonresidential strength general our levels manufacturing aerospace and the the markets further shipment to

which metal increased the strengthened sell the carbon products. flat-rolled of ahead customers rising steel increases, market reenter led other cost Shipments year-over-year. demand price further to Additionally, products steel and for our both to we for sequentially incentivized carbon many trends also

shifts largely to product average Our quarter fourth to price to in of compared quarter per exceeding decrease X.X% due $X,XXX of sold expected declined X% first our selling of XXXX, mix. ton the X%,

realized a price than in a to product sold. which fourth sales the stainless mix, Relative per ton have lower average aluminum product selling and steel price in shift a increase contributed quarter, to the resulting shipments, products lower carbon steel in our

While our overall sold also more XXXX outlook carbon increases stabilized It's products ton our Arthur to price only come quarter. quarter. we second realized for that during to detail. most price steel per important flat-rolled first partially average quarterly first in announced in with were during decreased, the note second will cover sell the more selling quarter, quarter the pricing

compared is to on due monitor which basis, to with FIFO cost the increased hand inventory the prior performance, gross non-GAAP operating XXX XX.X% alignment costs. a profit of by replacement we our day-to-day to our how basis to quarter points due better -- margin On

I'll in operations, energy. within now end with both the markets. every our a aerospace Notably, trends in and quarter-over-quarter high-level turn strength of continued to non-res improved our market general end and year-over-year nearly overview construction, tolling manufacturing, we through shipments saw auto key

sequentially United and While levels semiconductor underway capacity market industry States. to declined and at significant sales the will we our make to of semiconductor semiconductor expansion outlook remained quarter for support investments compared remains the the this first fabrication space the the in of to to And Reliance's in continue to positive elevated long-term XXXX. increase

our activity we additional remain remain commentary in release markets. XXXX. the will clean markets end the support Separately, make to energy will these of underlying Overall, our investments higher into healthy our of areas. we we on end to in continue for serve quarter that confident refer infrastructure businesses anticipated to also the demand sell across Please and earnings in majority second

results I'll outlook. our now review turn financial the call and over to Arthur to

Arthur Ajemyan

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

of QX As the prior share and exceeded Karla highlighted, average quarterly and shift to accounted strong average per being the the to ton for outperformance, guidance guidance The overall entry well per in $X.XX our stronger-than-anticipated quarter to sold mix. also demand of tons the ahead per point XX.X% per our earnings non-GAAP of majority ongoing earnings $X.XX our lower previous the $X.XX, contributed than product sequential a price due share. our selling increase of share quarter declined in our from while into

throughout Our prices the quarter. first remained relatively selling stable

the the turn XXXX majority inventory for hand accelerated the lower align costs continued rate of gross the on better flat to fourth environment our that's our FIFO products from without of or of adjustments of an with we vast transactional profit and impact margins we sell, In replacement relatively as improved quarter pricing LIFO costs.

Additionally, tons quarter. first shipped, operating incremental we factors the contributed collectively we leverage the to the significant on of realized a amount these results for better-than-expected

income We recorded first million the XXXX million LIFO quarter first in of fourth quarter expense of the the and income in to $XX.X of of XXXX XXXX. LIFO compared LIFO and of in quarter $XX $XX.X million

fiscal current outlook. estimate XXXX of of unchanged income LIFO $XX remains previous our from for Our million

income record $XX result, a second expect As to quarter XXXX. million in LIFO the we of of currently

trends. expectations our update and will we for practice, inventory pricing to historical cost metal actual with Consistent quarterly account

reserve and benefit prices. million, As about mitigate on income our of in sheet future operating declines results potential which LIFO March to impact XX, of period metal was balance XXXX, LIFO will the the generate $XXX

Moving expenses. on to

increased which non-GAAP year-over-year SG&A XXXX. higher higher resulting by tons tons incentive-based costs delivery to with shipped of as lower to compensation profitability. profitability with compensation variable shipped. were non-GAAP incremental inflationary offset FIFO and X.X% Due wage million quarter with associated expenses partially primarily a incentive due expenses associated first $XX.X quarter well increased adjustments, SG&A $XX.X or Our to basis, fourth and million or higher On higher X% lower the expenses primarily variable associated compared higher as from warehousing

by to capital of million, operations in supported cash quarter, investment flow the our of $XXX Despite first working flow. Turning earnings. strong from cash generated million about $XXX.X we

first or X.Xx exceeding turn for X.X XXXX tons of improved Our months hand, on of all on hand in months on quarter inventory the X.Xx to from up based company-wide turn our of goal rate and XXXX X.X X.Xx. or

of Our approximately our XX XX in with range historical line days days. to XX days was sales outstanding

capital return $XXX.X $XX.X Our stockholders form the million of and funded of million of our record dividends in cash expenditures operating $XXX.X cash quarterly to and $XX million repurchases. the of flow share million of

$X repurchase available March of XX, billion XXXX, authorization. our million As $XXX.X share remained approximately on

our second quarter outlook. to turn now I'll

of quarter expect carbon Accordingly, anticipate remain quarter XXXX. we quarter will of to the $X.XX upside price second selling to be non-GAAP of one from increases. the the Based of forward second first XXXX. stable 'XX earnings fairly of down pull of sold quarter X% We quarter will these of in and to tons range in X% to the demand first diluted expect anticipate the sold ton compared price underlying average the the of the shipping with the absence first per XXXX the XXXX day our share recently flat we in second XXXX, experienced in slight the due pricing second per to on our be flat announced estimate overall While steel second to will of less of quarter XXXX. to demand in compared remain in expectations, quarter healthy quarter for up we $X.XX XXXX we

are we this time, concludes questions. like start earnings our macroeconomic flow Thank levels, closing, Operator? your with open very And uncertainty. call year remarks. prepared shipment solid at the to strong despite In up pleased to attention. for This and the you continued with cash we'd to our

Operator

Thank you.

We Sachs. with Goldman first will now conducting session. Instructions] from be question [Operator Our Chieng question-and-answer comes a Emily

Emily Chieng

I levels ask XQ. shipment XQ in the then wanted outlook and the to around for

you no if are demand the as if you And pushed So there's have this that as what there a pull Perhaps a the any shipments demand pull sense getting forward, of forward been? being that pull the could perhaps you to look sense wasn't some you there's then us demand indications mentioned a give macro first there, into given I know forward out -- was would uncertainty? there's quarter. quarter, in there sign second

Karla Lewis

the today. Hi Emily, joining call thanks for

first So demand of the very with during surprised of to we higher seasonality on shipments pull side, we quarter, back. some bounce forward. was -- demand activities. that Part our strength our or typical than organic of that, growth the a it the mentioned our bit And related pleasantly were the sorry, of

we ramp-ups, more a are contributed. on couple our of locations some benefited that So our shipments that with partners. of plants And mill with we good also campus those their from of out newer had

without of to slightly forward seasonal for stronger-than-normal pull strength bounce that which extends even still customers busy the to But businesses continue and continued we they're had they struggling need, back the some and to guided really the in be a our labor shipments. their find because

the little So we see. quarter. bit guide. the we've the QX, in X generally day looking QX less X the majority dynamics steel really, to pricing and in we day that and historically, flat-rolled that's our strong shipments pull demand with in guidance, -- We're pretty QX QX. we we're of what with And are something flat QX pleased we're had had got the of good, minus similar carbon shipping for on and typically a the forward

Emily Chieng

second signs you're end any inflow by question project there? good been some around Great. seeing been there That's has of to A impacted of weakness been that that delays Has tightening the And cancellations? just have credit anything there seeing? curious the or very clear. markets been infrastructure that side, then. from see It's anything the there's little if but a some we're

Karla Lewis

Yes.

So seeing understand that. there's we have and that speculation people we're certainly concerns that

are saying We see customers But haven't some into QX, later We're seen and going strong not that we in our continuing. of not the might it yet. backlogs have projects it year.

Operator

from question Wolfe Timna comes Tanners with Next Research.

Timna Tanners

they're heard higher of struggling that we've from ask smaller wanted centers I question, Emily's to service rates. some with the interest to follow-up

gaining be an if And doesn't sound some you share it harder of are time your for you. capital. competitors like that's could perhaps accessing a because So having issue

So that just wondering dynamic. about competitive

Karla Lewis

Timna. Yes,

So we of not aware are that.

some heard the have by struggling. people We be that centers comments may some service of

For order their for credit able environment smaller seem still customers healthy sizes it is we're as more trying smaller of tightly, favorable a an where manage for us us, frequent if service basis. and on our But limits is typically they're that's our to -- where to favorable well. usually us because that

we So in market for us, create some it a pick environment sometimes types does up of favorable environments. and those share do

Timna Tanners

missing big There's that on anything some plate seen know be I parts of carbon you long But the that side. terms with helpful. for That's I'm on of the decent the retreating higher bit some increases. a also prices. mentioned Okay. we've been products side, to flat here, pricing temper mix, could to of plate. an X% your moving I you're seems flip side, there in on number offset. is mean, up enthusiasm the sheet the scrap in flat-rolled because Alongside

components So would great. any the on guidance other be that pricing of color

Steve Koch

Timna, there's really it's report not Steve. there. say I'd to have to much

business product demand a been we've have been seen or and has Demand strong, pullback Prices long Our in has steady. been steady. not pricing.

Karla Lewis

too, little our a we're rolled weakness those like including mix other And plate. that. a carbon impact right our also Timna, And products, pretty Semiconductor, compared on lot to seeing there flat products or can pricing the high Yes. is now. of

well. of product bit And mix so a the can make a difference as

Timna Tanners

rolled would that the second over some what increases So of sharp quarter offsetting quarter is in saying? first flat be you're

Karla Lewis

Yes. of and Well, second expect the continue we saw yes. some quarter it would that quarter, in the first in to

Timna Tanners

question, for And annual in surprised $XX my guidance. take I'll of the I with was here. of a Okay. kind million LIFO the change then final and stab lack at

I that why through -- converted any of us laid that because could to change Can have Given prices? If a late. you've I would the talk stronger the dynamics just price year-over-year? And could function positive through that environment, you out? walk of didn't that more is mean, expense. at us have -- really LIFO a some year-over-year least lower on despite reflect you inventory Does thoughts of expected

Arthur Ajemyan

Timna, Sure, is Yes. this Arthur.

as there's perspective, product at our rolled from just look as but the carbon in rolled, side, to prices have combined less And carbon Karla mean, So flat our you have the well. I non-ferrous a that you that have percentage come and on on some than to earlier, sales the of XX%. alluded flat mix plate up, side. first some certainly quarter, headwinds

and FIFO all, LIFO you number. cost small look And that's you of $X on an sort worth story so a at it's back nearly annual step a anything $XX speak, forecast perspective. changing, relatively So there basis, billion inventories million also all in of when to wasn't from and

the we're on to of of pricing, cost So year essentially, the flat hand what least kind beginning from right, is relatively saying for At the the year. the year. for end of

Operator

[Operator Phil Instructions] KeyBanc from Capital question next comes Our Gibbs, Markets.

Phil Gibbs

hear guys you me Can okay?

Karla Lewis

Yes.

Phil Gibbs

All right. Perfect.

some release. because strong. all balance give what of the color thinking the QX Maybe the in pretty comments Some on for the very us terms of in aerospace rebound in are sounded strong year you

Karla Lewis

coming throughout our been and the aerospace have business Phil, continued first year. so Commercial build then improving. XXXX aerospace been of quarter rates this in seeing improvement we've into

about we've jet, benefited then our probably levels. space, commercial -- so is have strong And aerospace probably defense from half and continued at That's private that. exposure of

we've really and So to with busy overall, we've the that be year. expect our what been seen pleased continue customers to and continue we throughout

Phil Gibbs

And script, year for a the then a CapEx your expectations I it the missed miss of may because portion I on basis. cash did have but

I think year but full expectation the a the QX, you $XXX little million, there? for did what's over

Karla Lewis

Phil. Yes,

year spend just So lot and or the have of X our and over equipment times last extended catch-up buildings of a we constructing from and the do still some manufacturers things. because lead new

that first did as we spend we'll of spend So you in estimate XXXX. quarter. $XXX We $XXX to million have million $XXX mentioned, cash million, about the in

We to are little start times lead seeing some of a come bit. those in

anticipating area we're improvement some as the in year. So we progress through that

Phil Gibbs

lastly, then share Timna And know question I asked gains. the just on

that quarter intimate bit there talk did more. you first little if your meaningful think that a of about in that were And it's something Maybe some your I could that it there hundred that sense in could to you be that? release. a you points? year than less more all Is is hey, would Is this provide that? helpful. couple be Anything the that, it than it in basis

Karla Lewis

Yes.

So that organic facilities, new a our we ramping. we of mentioned -- do we some that been have growth of have couple

based on that we're so activity. And higher seeing some shipments

average. were MSCI shipped higher tons industry Our the than

some taking a imply like throughout may our metal. a So are they sell And people who have organization little we We we're great don't we there taking specific -- share. hungry out be plan. and to that that are got would share. We've

it. we to tons anything, quantified we've capability if reasonable profits the ship more get haven't on but We got

Operator

Englert, Next question from Seaport Research. Martin comes

Martin Englert

the you their of looking half of thoughts -- to get the to how customer expectations I and year have from But on prior maybe commentary you or looking budgets? thoughts Any here. on the some about underlying color, the your or spoke into wanted base year. in any that, XQ past maybe demand expectations do compares that their back

Karla Lewis

we a customers, that we to calls from of customers our getting XX% They're not continue labor, our ship customer Martin, busy. workforces The if are tomorrow. their orders, I down today, far that are be our look they sentiment that bit. don't know the much as out,

that they're have they orders So to still working fulfill.

QX, We and we out a combination lot our There the in though, mentioned we're you've of there. do are reshoring sure. of manufacturing think, of Beyond uncertainties business. not comments, got some

the trail Bill, which lot sounds got You've activity to we starting a of typically the bit. some from like Infrastructure see mills a mills the are that

So for has capacity positive think meet Reduction be just expanding we that's Act. activity indicator Inflation demand commented, to we the with of been some as a the along We're and aerospace on our able strong. CHIPS us, that Act to

automotive processing toll Our been for business the strong. has

half, So we no for second the outlook about good but feel quantified XXXX.

Martin Englert

among think buying base trends that or different across touch kind you pull Okay. XQ up here. any same divergent along color there the But activity of metals, stepped carbon you sort about think versus And in maybe products I guess some that lines sidelines transpired on how today XQ? on as buyers And are forward how did of you was in the and any metals? other when there it the other activity, when versus customer is differences

Karla Lewis

Yes.

increases. pricing a quite for QX So Martin, They're few there pretty rolled dynamic There price increases. flat with significant. carbon the were the was during

As been some have increases. mentioned, there plate

customers we ahead may bit. bought some think a So have

like patterns and buying But a commented in kind the that a now, are normal quarter. on expect as second seems in bit we QX. So we prices it stabilizing factor of

Martin Englert

kind in prebuying supply guess, this a the maybe that -- more Or some would right? some read is pivot to you're the Is so, restock that it's was you're rather, that chain? destock I what of yes, across stabilized. explaining indication but necessarily restocking, from what my Any now on saying just not there and

Karla Lewis

to a as is Martin, customers on mean, few lot our don't business destock. to I or a don't delivery. restock And I Yes. business our business -- mentioned run of needs. we we next-day our run We our ago, minutes really type focus

inventories So are in think we good our pretty very and shape. shape. in And good inventories the are throughout industry

for don't changes we next anticipate big patterns quarter or buying us in move as any So the competitors. our customers for into or we

Martin Englert

more. there? mix one shift could, I the additional weakness, If Any on color semiconductor

Karla Lewis

Yes.

bit think glut. The higher we're bit of strong still a was levels. record We pullback. industry a little Shipments there maybe a of and been had at seeing I than still levels, been are there's we're bit. at little levels, think a year-ago a

that Some really had needed into than been the feeding selling semiconductor inventory equipment seen. into And manufacturers us slowdown that's maybe has industry. for the the they more related for to customers metal

business of all U.S. speak, other our part kind to stronger. a that the From spending steady see announced continuing in that's is semiconductor infrastructure, which We with so been business to be the the semiconductor of to

a just it's we in So for and long-term very long temporary think U.S. going situation strong expansion of from be just is to a we the basis. the capabilities making think chip on chips, the the term, both demand

Operator

no are over for the turn I further back would comments. there like Karla to to Since floor closing Lewis questions,

Karla Lewis

attention you. thanks your to you all of again and time today. Thank And for

thank KeyBanc Conference. Conference. in we And many you so Industrials the in mid-June, to your And for out presenting you. And commitment Before again hope to support and everyone Thank you in to Reliance May, for all Materials that and the in team our Boston at Reliance. Wells of like thank to you be the attending Industrials Chicago see far Fargo Basic of I'd performance remind late XXXX. strong at you We we'll there. close of to continued call, continued your in

Operator

teleconference. concludes This today's

for a your day. and you may great time. You at participation, your lines this disconnect Thank have

Reliance Steel & Aluminum (RS) 27 Apr 232023 Q1 Earnings call transcript