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RS Reliance Steel & Aluminum

Participants
Brenda S. Miyamoto Reliance Steel & Aluminum Co.
Gregg J. Mollins Reliance Steel & Aluminum Co.
James D. Hoffman Reliance Steel & Aluminum Co.
William K. Sales, Jr. Reliance Steel & Aluminum Co.
Karla R. Lewis Reliance Steel & Aluminum Co.
Seth Rosenfeld Jefferies International Ltd.
Philip N. Gibbs KeyBanc Capital Markets, Inc.
Call transcript
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Operator

Greetings and welcome to Reliance Steel & Aluminum Co.'s Second Quarter 2018 Earnings Conference 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. I would now like to turn the conference over to your host, Brenda Miyamoto.

Brenda S. Miyamoto

operator. you, Thank thanks conference and financial of for you Good to to discuss our call XXXX our joining morning, all second results. quarter Karla Executive Vice by President President Hoffman, and joined Mollins, Bill Lewis, of Vice CEO; our Sales, Operations. and our I'm our Executive Senior President and President Gregg Executive COO; CFO; Vice Jim and our posted A recording at section investor.rsac.com. of Investors of this on call our the will be website results, based the and and forward-looking information on a may that call assumptions which certain may are implied by unknown or forward-looking the involve of cause or other risks, change release statements. not may this these statements, uncertainties factors, achievement contain are which or be the under press on the and company control, to materially performance of which number results, be other The subject performance known company's expectations actual to the from different limited company's ended Form factors but other These those disclosed the to reports include XXXX, filed XX, December for the in Risk XX-K Exchange the with under are Factors factors Commission. and caption and on Report the not Securities Annual year release company the press any and as date of to and the speak on and the today's call The this update herein. therein information only provided duty disclaims information I Reliance. the President will Mollins, call of now turn and CEO over Gregg to

Gregg J. Mollins

gross second proud. the We and net the everyone, we are morning, throughout which outstanding an had record second of We profit results. resulting to quarter. second and dollars to consecutive milestone generated quarterly quarter. another financial build quarter Good thank momentum of our you today for in us extremely for sales discuss achievements Pricing continued yet joining quarter

by of of million million. supported business gross the billion, our second continued pre-tax strong field, income XX.X%, record $XXX.X strong ever environment, in environment by at and of gross quarterly Reliance's earnings by $XXX.X benefit quarter than was quarter of in history of coupled the as pricing our quarterly strength The across second XXXX, the prices in the of progressed company's from sales managers gaining month only included the significant drove highest The profit $X.XX increasing record with $X.XX quarterly dollars diluted which in anticipated, profit produced all execution our Our history tax highest with metal the generated reform. margin significantly stronger positive quarter share, the had we major fourth exceeded each our per commodities. a

drove increases Solid almost demand, coupled activity, with every XXX Section on metal price we sell. ongoing product

into achieved the our of slight exception remained increases carbon demand supported exceeding X.X% per This selling quarter second to to The range of average the a and the compared price increase. Compared flat-rolled of exceeding first XXXX, of XXXX, second increased quarter. to sold the our As of throughout second gross result, solid the plate. quarter second expectations. ton to third expected price X% X% our we environment selling generally expect remains highest cost FIFO month prior profit quarter price for through margin increased we prices pass as metal XXXX favorable allowed receiving to FIFO stable has The anticipated consistently which in average XXXX, of XX.X%. the margins, with continue in metal higher gross inventory. generate the to our both have in our higher July quarter of Prices profit XX.X% environment higher through the us pricing

down X%. from sold up X% first were tons range of quarter within Our down the to expected our XXXX of X.X%

customary the growth X.X with subject us rate to tons. our well and the XX XXXX our turn quarter, strong to in management, continue trends We carbon of based inventory our metal schedules. which price steel times in margin industry-leading shut have often pressure processing enables comfortable we associated Demand response rapid volume in quarter strategic anticipated value-added as to and for just our regard effective vacation position due capabilities. quarter remain increases equipment also hours concerns drive certain expenditure in by activity we to and volume decline continued in the to in on the of focus first capital budget second or pre-buying inventory in due on of achieve availability, facilities profit thus allocation, customers, gross investments provide to our million less. Through customers time to an about shipping We delivery our especially capital far achieved into In $XXX third to products. to as XXXX the normal inventory organic an remained expand downs with flat customer seasonality and of

services, continue Our turnaround our and delivery increase market. further supports complement products, gross customers geographies value-added number to high services of businesses value opportunities processing of as well for increase the our The and we and in in and as our seeing that quality well-run are of to increase margin opportunities products ability diversification look an we all for our strong times, our capabilities. quick earnings. support our and To acquisition pipeline and/or growth, which remains profit the

its of Ohio and previously in North & Fasteners Clinton, the Services DuBose National X As Carolina Cleveland, of Energy acquired Energy the DuBose we stock March announced, affiliate, all XXXX. Parts National on Machined outstanding in

a products fabrication, component contractors. As companies industry, the reminder, utilities, and of nuclear supply specialize including and to metal the manufacturers metal DuBose and global distribution in

for XXXX, a our marking regular accretive first XXth the in DuBose stockholders the of quarter since and top expectations. dividend our XXXX the performance our our have increase priority far, to dividend our So cash by acquisitions XX.X% increased quarterly to capital We exceeded has earnings been Reliance. IPO. their remains Returning

dividends years. We have regular quarterly paid for consecutive XX

second in an not of million stock of first $XX.XX we While during common of we per share. did any average quarter repurchase quarter, XXXX did repurchase the our shares the $XX at cost

and second the significant in to our our company are pleased milestones have without approach opportunistic strong record This achieved. stock gross share. who accomplished quarterly second been and dollars, discipline, managers income expense quarter our buybacks. per executed our highest profit quarterly management generated to pre-tax with inventory by and in we pricing summary, earnings quarterly record continue record We be could not sales, quarterly We the field results In earnings the will control. our fantastic extremely performance

to the conditions. ahead, the Jim? conditions. regarding in further comment on Looking to and value the to over our environment further and our now trade our by the operations current continuing market to our confident uncertainty pricing in with will continued We I increasing power solid we hand some call Jim despite focus momentum are encouraged ability actions, earnings demand positive stockholders. on maximize remain

James D. Hoffman

good Gregg, and everyone. Thanks, morning,

in Following quarter, we for the excellent work. the once who a the like new thank records our fields again to first in record-setting folks contributed you achieved the second to I quarter. all would Thank

strong. end Mexico, products. mainly aluminum our the of our key continues Bill demand their Demand as our address through pricing products and very will which automotive, on operations toll we Now, then our for outlook as I'll and to markets. related certain be stainless in and and steel processing service our discuss for U.S. and markets trends steel well alloy carbon end

to continue for heavy processing result as which manufacturing, increased to in capitalize to in the this market, capabilities grow a railcar, shipbuilding, trailer, continues of manufacturers processing of aluminum processed invest on tank industry, this also to mainly and Demand and demand carbon our opportunity. content both automobiles. We includes metal support and transmission truck strengthen. to wind value-added in towers, barge the continuing aluminum for volume We're

our construction both on capital spending and reform demand as spending Specifically increased, for supported agriculture been we heightened which believe respond budgets. who their increased clients customers has to by have tax equipment their

continues construction and tax will that activity reform Demand levels. are the market, Similar gas, to activity well-positioned industry footprint Demand and below the the construction. contributed mainly including in in in the natural improve, to into we volume in has outlook infrastructure, non-residential existing As continue. increased increased we for remains products seeing construction in we non-residential energy to market is times which well to that to we uptick though continue it a our our activity industry, remain optimistic result, to oil gain improve. Completion will heavy maintain we sell for the lead continues We peak are strength. positive non-residential still with in steadily extending. demand continues heavy support market, continue to grow to the this mill and into counts Rig market. also sell drilling activity end products recover slowly believe

to we improve, confident energy remain ability our increased in overall market demand. service continues the As to

times most was carbon Now to for quarter take pricing were price demand turning increases of steel result higher those portion carbon metal receiving for a ongoing extremely as remain XXXX. advantage announced also multiple of cost customers active a during pricing. to extended the environment the inventory. and steel able sell We into second activity. to we Mill by on strong products the of before the passing XXX Lead of products Section increases again the our of

Looking steel stabilize products the to will in third for ahead, begin XXXX. of we pricing believe carbon quarter

additional of However, the third carbon there flat-rolled an price quarter. increase is some carbon and steel speculation in on plate

factors for to the alloy support I Bill? you like alloy non-ferrous the during throughout pricing momentum comment quarter. going over year. our demand the half second energy activity underlying Thank up. now we improved demand In aside, with environment expect wrap to attention very solid on will of the the overall quarter. We remarks, trends pricing strong summary, believe market stronger throughout my higher hand leveling We're we I up pleased products Seasonal highlight remainder of should today. the also first the Bill during the strong prices pricing call with continue Before remain forward. will I'd markets. your in to and remains XXXX to for the experienced second

William K. Sales, Jr.

orders Good execution we throughout of the continued commercial and plate pricing times the second single-aisle morning, for supported done. start sell the also the folks would Well our trajectory field products also everyone. the for and these I'll saw backlog aluminum review lead what their XXXX. industry planes the since on now to we with from aerospace for quarter and the demand trends the both remains our We have for markets side rates customers. stainless first with upward phenomenal robust remains continued aluminum quarter. you, steel our the primary Thank of key beyond their increased aerospace for defense by into. second in in and Jim. primarily saw recognize like Build including year. defense extended I strength quarter. in The products, Demand throughout demand strong activity

market semiconductor capitalize to given aerospace and better our remains we China Given in of its our To the increased the semiconductor of this look environment, demand. on Korea, working existing the international been global our Even remains forward to expansion activities. capacity aerospace positive our continuing market to The defense the U.S., a on We to on occur, year. favorable market scale. balance outlook growth, positive. share to positioned exposure our continued a market have for outlook market demand the pattern growth rapid and pullback be if slight grow increased in the should for the handle South the our grow to

continuing our majority quarter third quarter metal our pricing, common common heat-treated aerospace while aluminum expect with Moving products, encouraged markets. stainless during heat-treated second the to steel to positive second are we products. the support prices of pricing market momentum, as into for increased in And sheet the of of quarter. alloy aluminum the lead a end of on variety well the strengthened consist aluminum on to throughout as of sold times and plate XXXX. sheet alloy especially the products titanium for Demand we specialty by sales off aluminum fabricators Demand Most plate, allocation. and are extending level to

the Midwest premium come the spot price While some, down strong. has remains

for pricing to half recently $X.XX products second per these of in increase pound. increase based announced the on expect We the conversion

to We be in the expect the supported increase market.

fixed aerospace to one in As selling our area which prices. with is long-term a business our of reminder, where the of half participate aluminum the market sales we are about contracts

aluminum closely many the as selling market will average products as other As follow pricing a prices result, our not generally we of sell.

construction for Finally, remain primarily which steel flat the through the stainless demand and sold products, are markets, appliance second equipment, into robust end kitchen quarter.

discount of last a selling mills our saw price the to related products average price also for mainly increases conference X% July including input increased, reductions steel ongoing and as market. rising costs. by has XXX call, announcements Section result which price Our in been the or We two announced supported recently the increase the increase, stainless since

by impacted that second will nickel prices, pricing now strengthen nickel for note the is attention in year. results. products quarter. to call steel remainder we XXXX today. like quarter the I'd increase Lastly, for Karla and stainless over Karla? pricing which our heavily And continue the expect your to time financial the throughout I'll to second Thank you review of modestly to turn

Karla R. Lewis

good and everyone. morning, Bill, Thanks,

up gross Our record high the in On FIFO average of profit our second X.X%. our $X.XX margin strong of ton of second sales sold was XXXX, of the price up at estimated dollars X.X%, points second record XXXX, end XXX to points tons tons gross were the of XX.X% XXXX, up from a XX.X% XXX sold basis, our our of profit quarterly and in selling sold sales XXXX the a million. Compared price our $XXX.X achieved We with quarter net X.X% quarter from first in driving gross down and selling from and the of to basis X.X% exceeding XXXX, XX.X%. quarter basis first XXXX. billion, the up range of were XX.X% average a with margin XX% net up in up our quarter of the per and profit up XX.X%, of quarter XX.X% our second XX%, quarter

margin we've third metal prices higher increased fairly through have now significantly our in of As gross quarter, of may from increased $XXX increases, price Because through metal our inventory. higher million explained quarter LIFO expense to the cost advance more we customers of profit receiving prices our full mill our remain range estimated expected will we year we we our second prices the in as estimated in to $XXX pass into periods stable than previous the and previously, estimate exceed believe million.

XXXX the or second million per quarter As result, EPS recorded earnings a of quarter million XXXX. to or $X.XX $XX.X $X.XX of of the and XXXX inventory or for valuation of of first $XX of or $X.XX second share we in million compared a expense the LIFO diluted $XX charge quarter in of EPS

we of the first that expense requires $XX.X the year. of our method million half LIFO record estimate of Our XX% or annual in

we per third practice, $X.XX on to diluted expectations our quarters to Given inventory the earnings quarterly million book in our current annual And metal pricing update estimate, with fourth $XX.XX we our of share based costs of our or and continue consistent expect XXXX. both will and trends.

from net sales, SG&A a quarter increased as As second quarter prices expenses to reductions were sales. in of a second selling our XX.X% XX.X% down due percentage down the sales XXXX of quarter second of the percentage XXXX. quarter first were XX.X%, from our during primarily and The of which net in higher the

resulting million the were the profitability quarter Our to the of quarter second cost. income freight XXXX. first of $XXX.X up our from million in same-store million, expenses our $XX million the was income SG&A XX.X%. the second of of in primarily margin in $XXX.X was incentives double increased quarter quarter first continued second of higher XXXX in XXXX X.X% levels And and up pre-tax or due XXXX, XX.X% our $XXX.X quarter increases and from a pre-tax Pre-tax of more income record from in than XXXX

highest from of quarter cash $X.XX in second record XXX.X% were $X.XX our flow. to and Our the up second effective attributable diluted the tax the due Net in first a our $XXX.X quarter from second company's per $X.XX, rate for share, up $X.XX was history. XXXX second quarter earnings the of from primarily for XXXX earnings positively XX.X% Non-GAAP earnings diluted to XXXX, down quarter million was income or XXXX. contributing of per to Reliance reform the second in share and in tax XX.X% XX.X%, income the quarter of

working operating total We was of shipment to net our our and second cash our XXXX, million result Turning margin significantly requirements. At to in the effective activities expenditures from capital capital our our in higher million and outstanding stockholders. of we along invested balance $XX.X XX, profit as debt in higher debt sheet million despite capital billion management, cash and total resulting working and to paid $X.XX average during $XX.X dividends a flow, prices strong a with generated June ratio quarter XXXX, selling gross $XX.X of levels, capital in XX.X%.

to Our times. was EBITDA X.X net multiple debt

the of million As of had end quarter, revolving the $XXX.X billion $X.X second credit our we facility. available on

third end anticipate to in quarter in of that gradually conditions our optimistic to business continue Turning and in outlook, the the we markets we which to improve. operate will are XXXX regard

be to by in vacation anticipate that the impacted decline due third levels shipping which However, in shutdowns schedules. a we volumes seasonal include normal and patterns will shipment customer quarter

addition, the day quarter is XXXX. compared third quarter second there in to one In less the XXXX shipping of of

current X% the fundamentals As XXXX a X% tons XXXX. estimate third of result, trade sold expect in steady second per quarter remain the of X% Accordingly, pricing our We will quarter the of will to be of down ton that sold to third in will we selling we to X% the our XXXX price based believe average levels the actions. second to compared up and quarter XXXX. on demand ongoing quarter compared be

some we cost pricing downward receive previously, our metals gross mentioned inventory. we into margin as as higher metal pressure on steady, As remains profit anticipate our

be in quarter extremely quarter are financial closing, but environment, and exceptional third pricing also As expect the a included managers by execution the records of $X.XX second to from per favorable which from multiple for our share earnings results, result, with a we resulted we not field. In currently XXXX. range diluted the pleased to $X.XX the our only of in

investing executing time, this your you return strategy attention. activities. call our to of continue our Operator? the to us concludes growth of our remarks. at And like capital That business the we Our stockholder for would strong prepared to open Thank financial questions. up on position in and enables allocation

Operator

time, we At conducting session. question-and-answer will be this a

Rosenfeld the with from question. Jefferies. comes question Seth Please of proceed your first Our from line

Seth Rosenfeld

surpass out Morning. that aluminum, that and just allow gross perhaps construction, growth I longer-term. When you tolling prices Thank could add? Two your to us both Can about And Reliance what mean, currently outperforming second could of benefit you to talk XX%. for did recent you in about elements year sort about you structural talk on then secondly, guidance taking To cyclical today. recovery talk a this from is obviously half a enjoying impact outlook the the over in and range questions my what for margins how You times could of XX%, start had rising number forward? of better quarters going through prices. weakening you've margins? much understand questions your of might perhaps in that margin range you obviously in your you think QX enjoyed have strongly

hot-rolled you that year-end price spot, is environment secure forward the Thank $XXX downside some margin think still below XX%, coil of pointing a could there? that you. curve risk or With XX% Reliance to that do there in

Karla R. Lewis

Yeah. Good morning, Seth.

profit the current way margins. our to on is company – on XX% gross profit based our the XX% our that margin So, LIFO based range is gross structured is today

came the So at in quarter. that XX.X% for

quarter in had anticipate rising happened increases have at periods that what pretty when significant of should We that could during be that said is that range of the in top prices the which or We the end second price XXXX. it we we exceed quarter. we're of

to those customers to metal higher in. on try So pass talked increases we before about our receive as the we we've cost typically

we bump our So that get margin. in temporary

to low would it's range for be whether think second occurred We In reasons expect pricing, we range. due of in the long-term range markets, demand, what closer us. the to XX% the weaker right that's still potentially to that So end for whatever to XX% the are, the is quarter. weaker

add have question XX% because the been XX% has structural a XX% equipment of more historical a from lot because investments were do range XX%, processing did You could was up if to in think processing more value particular XXXX, beginning our in. a that range to that the for a to you our I made that from bump in operating lot we've And which we standpoint, customers. we how change of of it to recall

So go we still for time make to right which for down, could think see we upside on the the But we to inventory the but some we do in focus to down, to do is XX% investments, where in as on range gross profit where at on future we going on if change extent negative somewhat prices margin some currently generally – tightening do, the continue It's because see prices point metal the goes turnover, – we we us. the that that's XX% can minimize our margin that. some we that. of periods impact And just price to can expect environment we are think if impact range. from

Gregg J. Mollins

Yeah. our – FIFO gross Seth, comment, than XX.X%, could if could this higher I very is hi, we anticipated. I If Gregg. was margin honestly, of profit

don't on third some expect pressure But We quarter. to it's think in prices given out I dramatic. flattening that be that are going the

guidance $X.XX booked, quarter – to And realistic. $X.XX our prices go we third to of think already they is down, if So when trend is okay. basically start to

down, will quarter. see as what to down, in to on before I third we the as pass going fourth we when going We'll are quarter. down the that we inventory in when any going decreases think much So our the But best process we when okay, increases affect happens don't it price up, they go anything possibly prices are there get be prices are same can. try into the the as slow

a and on So in the gross okay, declining impact does fact. margins decline. profit But a just a market. our mean minimizes, it I that's it reality

question. we hope answered I So, your

Seth Rosenfeld

one Yes. just And Thank you. follow-up.

side? seeing terms mean Can for without your of that could existing about what that support to And talk volume cost. Thank construction you. fixed upside cost you additional achieved the side. leverage, we're scale non-resi be earlier please? recovery just what's commented that believe volumes in of little more, the increased the capacity I a in you You bit could noted

James D. Hoffman

We just estimate. up Seth. is at Jim. years very throughput. good value-added body This the in the have plants our or but the It's for processing. were Yeah. add with investments Hi, could over are handle volume another XX% two, may made a folks construction to non-residential additional Yeah. We and our set we've an field in

be So fine with we'd that.

Seth Rosenfeld

Thank you great. very That's much.

Operator

next question your Phil the line proceed Our with comes from from Gibbs of KeyBanc. question. Please

Philip N. Gibbs

morning. Hi. Good

James D. Hoffman

Good morning.

Gregg J. Mollins

Good morning.

Philip N. Gibbs

Gregg, how so right that. in now demand is almost second daily pretty so should July view average think to just levels? comparing you good a over, on far have I quarter given the month is curious

Gregg J. Mollins

sales basically in line average daily the quarter. with in saw what Our second are we

daily off the progressed So little July because okay. is it. Xth month which as it slow a average the But started with of progressed, our of typical, holidays sales

So – thing. to similar we have we we second going of and that with our closures to type are vacations, the very I our place understanding out, be one in have in the factoring demand think third And shipping plant the that what in less Karla as quarter, that does volumes, quarter saw take pointed seasonality day.

have compared shipping in as We quarter. to XX the days second XX

as well. that of very, in But to think, be to the to I considered be very and So is quarter, has demand itself going as second compared similar.

Philip N. Gibbs

that as energy stronger, mentioned little and had you you demand about alloy Jim, well. and prices perhaps And, talked solid were Okay. a getting bit

to comment you I that on some You made to there those were was fronts? alluding wondering what effect.

James D. Hoffman

are lead times the Well, standpoint, just can lead out. how going from see a time you

They're and that with the all get the is a their it And they're more orders. size that two on-time into to it's just when bottleneck all They size of deal whether seems than confident the heat-treated Our that's automotive – products a domestic there as so. especially there. is is be kidding, smaller struggling the They're The be goes demand get inundated that improving product busy. concerned, very to auto as of is continues difficult to it things. got it's for type extremely and – those better, products, bit make. are performance. But And, But they're lighter energy. far and into a we with larger or for friends the better busy. capable you to to seems little weekly, energy

Philip N. Gibbs

Okay.

James D. Hoffman

in You to SPQ means always bars The special. remember. have S

hard really it's So, to measure.

Philip N. Gibbs

appreciate is last I question that Bill. and for here

I how surprised. the Curious is increase, third? how much had a think, big number. quarter of common And sounded I It the like into I would much second pretty $X.XX on was mentioned been about of within that think, have Bill, just you shifting alloy. that and

So anything you provide be on would could that Thanks. helpful.

William K. Sales, Jr.

Yeah, the It increase But lead in where see be a justified ever that late the of domestic that based is September, going see think Phil. results seen seems demand getting are, biggest start and actually And I've probably number, on times I – to to big alloy. common on career it's into my full support. to we'll you're October.

So, much we're not going to see of that QX. in

Philip N. Gibbs

Thank you.

Operator

to like the to Gregg reached back end would session. call question-and-answer and I remarks. for we the turn And have the gentlemen, closing Ladies of

Gregg J. Mollins

again in to also employees, for and commitment all support and great I'd customers, Thanks Thank suppliers Reliance for stockholders participating a thank day. continued like their and have you call. our to again today's of Steel.

Operator

today's concludes conference. This

your participation. your time. for you disconnect at may this Thank You lines