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RS Reliance Steel & Aluminum

Participants
Brenda Miyamoto IR
Jim Hoffman President and CEO
Karla Lewis Senior Executive Vice President and CFO
Bill Sales Executive Vice President of Operations
Martin Englert Jefferies
Hunter Alley Goldman Sachs
Phil Gibbs KeyBanc Capital Markets
Call transcript
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Operator

Greetings and welcome to Reliance Steel and Aluminum Company Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to your host, Brenda Miyamoto. Thank you, you may begin.

Brenda Miyamoto

Thank you, operator. to discuss you financial our thanks conference joining results. and to call second morning all for of our Good quarter XXXX Karla during our Executive I'm and President of Vice Hoffman, Jim also Vice portion and Lewis, be of will and call. available President Sales, joined Executive question-and-answer our Bill our CFO; Operations Senior the by CEO; President this

achievement on our release will of posted on information of this the from December the with for and and section press materially The Report call are be in reports call filed certain to expectations website or Commission. recording contain be investor.rsac.com. A Investors factors on statements. other or limited the at which disclosed of may forward-looking this under the Annual performance by the but the subject a change Factors other to risks, different XX-K on these Risk implied number which forward-looking XXXX those the based of other cause assumptions include, These company which caption or actual involve XX, Exchange unknown Form may that are results, company's not results, the and control, be under and factors company's to ended known not are Securities factors, and year uncertainties statements the the performance may

information today's The press the release and and therein the date speak of disclaims and this company duty as on the update provided information herein. only any to call

President CEO I will call now of Reliance. Jim turn to and the over Hoffman,

Jim Hoffman

today. by quarterly most third produced serve. demand quarter second and gross second of quarter dollars in key very We Reliance's $X.XX which steady you profit the gross profit history. highest We sales joining the billion you I'm XXXX of $XXX.X second margin of to everyone, in XX.X%, we of markets strong million, a generated conditions pleased discuss thank and Brenda. with solid relatively our quarter had a morning, for Good Thanks, characterized results us.

Our the record net of share our income were also and only non-GAAP earnings quarter XXXX. the the quarter quarterly second XXXX in per highest trailing third of and non-GAAP history, first

also for a which remains We employees every commitment like safety to a to their plus to our top working I'd the ongoing day. improving thank environment XX,XXX each maintaining progress continue priority. safe and performance, make

Underlying in demand relatively trends the serve. healthy key second the markets remained across quarter end we

than However, we weaker anticipated. metal was pricing slightly

While multiple carbon of of there the diversification price steel decreases business. on products end helped mill impact and sell, our customers were many our the markets mitigate broad we products, on

buying declining often delaying metal purchases their of order sizes. and customers prices, pattern, changes reducing periods During

our typically which more more believe industry We average. However, versus customers' need declining to as focus involves sizes on volume consistent deliver. a order less than smaller just-in-time the buying price. of that day patterns require generally We contributed our majority next are service they shipment customers this our on basis, the

tons X.X% by in the half same-store industry X.X% the XXXX, declined which of favorably compared of the decline to sold to of period. comparable the Our half XXXX reported for first MSCI compares the first

levels our including processing. maintain on of to disciplined business, Our high continue managers in strategy quality, of the high-margin increasing field focusing value-added

XXXX, declining peers. gross to As maintain XXXX, was the value-added also first such, FIFO significant differentiate despite gross processing XX.X% and capabilities maintained diverse expenses just-in-time This sizes, characteristics customer from delivery us especially our ability as in quarter we base, profit support a smaller compared believe profit of evident order our our meaningfully business and margins throughout of in quarter we prices. of to industry-leading XX.X% margin the These second the industry cycles. models

strong. in processing key as to operations we Mexico the mainly which through toll markets. Demand serve our Turning remained services to our provide for market processing market, we the U.S. end in and conditions automotive

very Our aluminum in toll as vehicles grow. outlook for processing positive continues for remains to content demand

demand. in increasing have meet to investing this processing been facilities proactively value-added and equipment We

completed During building is the in a foot up the nicely. ramping quarter, line XXX,XXX and expansion additional square we Kentucky and production aluminum installation slitting of

process support expanding also are operations processing the our three activity of in automotive that Mexico in increased toll of We region. in to

Aerospace demand order strong backlog. a remained growing with

August titanium fully market sales increase environment, steel by well strong heat-treated Our X% the supported price specialty recently effective market. into plate aerospace as the demand on aluminum aluminum consist products, plate stainless the primarily of and announced as has given in been and heat-treated products,

Demand in our going although, the Demand experienced, pricing construction remained which sheet for steel steady has second industry in previously Demand the relatively common products levels remains steady. also study, aluminum flat heavy quarter. and tight for stainless forward. alloy pressure could availability increased remained from non-residential

in by declining in buying were believe near-term. volumes and have to customer our products. some areas more patterns the generally However, certain patterns for of customers normal to carbon impacted carbon buying resume expect prices bottomed, prices due We steel therefore, steel

in conditions the to of believe tailwinds second construction optimistic non-residential of to in year. in the we were weather are potential half difficult half projects the as due We regards delayed first XXXX, large in

In the U.S. shift addition, activity the more active fabricated to structural steel trade case could

anticipate Demand oil is activity in in rig continued market mainly the steady slowing which declining and energy, term. counts and overall natural been muted for activity. this slowdown has gas with near We in

allocation. to capital Turning

drive investments million Our XXXX customers' of capital strategic includes needs and to budget growth. our organic support $XXX expenditure

expansions, Our innovative investments facility equipment advanced focus primarily on technology. and upgrades new and

opportunities to high to contribute capabilities performing Importantly, value-added margins that operations processing to our and expand significantly identify gross in profit earnings. our we continue

we the are regard acquisitions, with are the In to in of pleased we market. area broad seeing opportunity

to selective earnings. with opportunities our customer are to businesses team accretive management remain service and that our and quality product to immediately offerings in complementary experienced high executing service of and our on strict activities, criteria excellent will diverse and meet our We M&A

to capital shareholders on remains to focus key Reliance. Return our a

and repurchased outlook. Board strategy quarter, long-term reflecting stock, and our the the confidence in of $XX second have team During million our the management we our

stock in continue to be repurchase to will We our approach opportunistic activity.

done marking the dividend, now years. XXth most quarterly have first pay dividend increased consecutive We increase XXXX, We of since by the our for regular in continued XXXX have our IPO. recently XX% quarter our XX quarterly to as we regular

despite are pleased with which concentrating non-GAAP of highest We declines execution again we managers business. third than profit to strategy strong were non-GAAP attributed net earnings the well testament once our per achieved and business results, as model pricing our discipline share in higher we the steeper the dollars history to closing, and which gross field. our margin pricing a our quarter of in on as second In income is our anticipated, largely unique

at our earnings power our time, on increasing maximizing to will the same ahead, value continue service Looking we while focus to our and stockholders. providing to industry-leading customers,

you financial over for the XXXX will Thank and review to your second more quarter now I in call outlook detail. attention quarter third our results Karla Karla? today. turn to

Karla Lewis

Thanks, Jim, everyone. and good morning,

We are very quarter proud of results. our second

quarter from XXXX, in the of first of downward sales due second carbon XXXX quarter net many the decreased pricing to mainly on products. pressure X.X% Our steel

Our second the to do not of quarter tariffs due at to as XXXX our quarter of Section end our up tons with than XXXX, X% however, the sold quarter of believe line to compared first of the was time. XXX expectations enactment the XXXX. the quarter demand more shipments second in to XXXX buying there down first X.X% increased the of Compared X.X%, is the declined X% of XXXX unusual in shipping one second that of in day of reflective tons we decline in activity sold quarter with

the to per flat of price to X% down selling our of multiple price steel X.X% carbon the sell. average to down of XXXX, Our we was expected ton decreases mill range many outside products sold of compared first on quarter due

sold Our average price aluminum, for selling alloy increase stainless per our products. ton and

orders discipline sustainable Our quarter above value-added full managers to of our million quarter, XX%. the Because previous XX% XX.X% well LIFO the our processing to than we continued investments income pricing $XX year resulted estimated of a our range our million. metal gross estimated on by decreased more in the profit second as as higher estimate expected prices field in continued and second from have equipment, in of increased our XXXX slightly margin focus strong margin in in $XX we of

recorded the $XX.X diluted or compared LIFO per per of a million share income $XX.X of earnings or in income of we in quarter LIFO earnings to of XXXX $X.XX XXXX. As $X.XX of share second of result, the million quarter first

LIFO of million in the of income we in record $XX.X XXXX. $XX our annual to estimate LIFO of current XXXX, of expect third Given income million quarter

XXXX of Our slightly second on relatively from first quarter million control. on continued given of expense quarter demand focus steady our expenses SG&A the $XXX.X declined

up from to XXXX, full rate tax XXXX for XX%, income quarter Our full quarter second of XXXX rate of year effective we second in state primarily income the taxes. the XX% due approximately and up the to increased be XX%, from rate XX.X% year of our effective expect tax for tax our was

quarter resulting in history. was XXXX Non-GAAP net third income $XXX $X.XX per earnings attributable highest to Reliance the second of in the million, share Reliance's both diluted of non-GAAP for

dividends of to capital balance the strong million $XX.X second and in cash million flow, million our $XX.X of Turning expenditures operations invested to we sheet $XXX We our quarter from of generated the and cash during regular very quarter cash paid XXXX. stockholders. second in

total common of resulting $XX.XX also and XX.X% a of had $XXX shares debt all allocation revolving net available continue At billion June an us $XX share repurchased debt total in liquidity We credit $X.XX stock was on approximately capital strategy. million executing to of of our for to our at our million billion a we providing $X.X ample XXXX, with our ratio of XXX,XXX capital cost per average outstanding total on facility, areas XX

with of outlook, Turning we third our to the conditions quarter to regard in remain business XXXX. optimistic

included end volumes seasonal steady customer decline shutdowns shipping levels vacation schedules. demand will relatively patterns, which shipment impacted and by We expect with normal to in remain due that

we compared the estimate quarter XXXX. will X% sold of third our of the down to XXXX quarter a As second in result, X% be tons to

metals we with generally current will consistent remain that pricing Additionally, overall anticipate levels.

to to FIFO bottomed many our to in the the pricing compared we gross down Also prices average for in products, quarter of because given current third quarter quarter appear of expect to levels. profit so to prices for to of have steel steel carbon adjust especially consistent certain the selling X.X% will far our in remain potential that achieved price However, margin price XXXX. expect levels mill second second that with increases be XXXX we products declined carbon XXXX, XXXX metal X.X% with throughout

$X.XX expect per range to share As to diluted quarter of $X.XX the be of a result, in currently we earnings for the third non-GAAP XXXX.

in In were our the performance strategy our quarter, environment and with pleased for disciplined very employees softer execution investing in of another earnings of quarter of to Excellent business continue pricing our executing and certain closing, despite the value second our with cash by of to operational excellent yet our us growth returning stockholders. products. our we allocation in capital our financial a coupled enabling resulted strong and flow, on priorities

Thank And our open you up Operator? to attention. we concludes time, remarks. like at this would That to your prepared questions. the for call

from proceed question. Instructions] comes first with [Operator Martin Our Jefferies. with question your Please Englert

Martin Engler

Hi, everyone. good morning,

volume X% you mid-single down of we've So think the seen X% distorting underlying far be can declines sequential touch year-on-year based destocking volumes true where trending? may this guide on And to user demand that did indicate you digit you to but that discuss year-to-date. end that's the continues on earlier, so

Jim Hoffman

our We us I've have They we never listen us really service. the we form going need The buy. and really they We service our tell make we product understood don't way Jim. model is what to customers. the is to change they're term our destocking, sure it. to This model,

don't a the So the our out ones the a I are are in terminology don't. there said, and that our -- just be just issues other, use a in I reflected steady. That's markets why there we we but for an people We of have themselves may think pointed that been with from it we as do. And sell time understand our the see way seasonality the there to react one is into -- get And much like in that, be in there really little intelligence for the business. far markets semiconductor we to or they long we okay hope what as some I slowing lot geopolitical suppliers. way react has themselves It's things. hasn't other other future, we is changed we our waiting but that's comments. energy seems markets we that's than slow think bit, involved the been And there's uptick the that. relatively to and perhaps

Karla Lewis

we expand think -- for reasonable be rates on clear want to demand think, Jim as just that continued continue end that, us. that, will Martin, to And I we it's at said,

on in comments X% we third our In end we from no normal down actually Jim our is were that were really the the -- second markets. XXXX, guide were other the than seasonality. X.X%. specific tons there made It's XXXX, is down outlook for downward change So up our sold quarter slightly. XXXX, X.X% the quarter.

So just customers see guiding point to extended this customers, seasonality can doing small our the due shutdowns we're at that of reflect lot we to also. and impact order activity typical a vacation schedules our

Martin Engler

specifically Okay, the supply within one, I And chain been on demand? play? if grounding. within max has more inventories I thank And you due an earlier, touched increased provide demand heat-treat there maybe product know one aluminum for to the additional within on the changes quick also update caution on touch you and the this but Can for color other there. any Aerospace, other chain could overall supply you

Bill Sales

this Yeah, see is the aerospace market. good still strong demand Martin, We Bill Sales. on aluminum plate steady

We our plans also implement our recertified that date ready on negligible. continue situation. impact we is and is happens the to to clear that business minimal. to business got And the XXX the things will more year, believe monitor if To MAX become on as be action situation. evaluate the if -- impact this plane We've

we bullish are and think we that. outlook So and -- I positive with of hearing have still you're agree on would XXXX the a our most demand mills what really based for and see,

Karla Lewis

about sales overall to we're several aerospace on different of different selling programs. sales are our only XX% customers total and remember dollars, And several

So if happen. for us, limited exposure the pretty is anything would

Martin Engler

gross higher than gross average dollars Understood. those perspective, just margin then And from margin a would I Group the are aerospace, that for imagine right?

Karla Lewis

types aluminum in on plate some aerospace generally we selling. line. Generally of based have the valuable is of those mean, There do one especially the our of product mix, are contractual prices we're are orders, business products that that some we heat-treated sell. on of margins higher products more on I But kind the

Martin Engler

for Okay, excellent. on all Thanks the the and color congratulations results.

Operator

comes next Sachs. question. with Goldman question Please with from Our your Matthew proceed Korn

Hunter Alley

Hunter the on as we provide removal impacting color Any Hi, a tariffs How about you Korn. Section Alley Matthew on this headwind? you should see Mexico a it think of can Reliance? there? for Canada, or all is Do XXX tailwind

Jim Hoffman

what's obviously that going announced, -- we that. with Yes, all that’s when started. When to happen nobody really knows

it actually hit, would that the one that would just done below operate if the our it as money. So opportunity day suits they reaching knew go compare to business them do just we're to back facts They their partners we to basically are have appreciate somewhat. we seems they're filed and our prices it results the and today But deserve like to prices day, month. and based like gave that, that prices that where up, week raise that that's higher everybody on We you month level. to else, if week, did The good. do went the one we domestic pricing thing and

sure So accordingly. it's to from where But here. I'm will say sufficed that go to not react we going

Karla Lewis

operations mile the typically radius Canada. And an Canada customers I think within we're that the us the primarily for generally locations. actual -- markets, them. impact Mexico thing have the resolution Generally, XXX of and the in in servicing on do in but serving because of our tariffs it's removal big We not same those local to of of Mexico,

part and throughout we trade now America. if is more support we is there that anything, certainty us North little behind So that think a free

busier, anticipated Reliance. extent for not overall, positive our a that's us. a impact for customers So material But are to the

Hunter Alley

through Great, on I we Thank lower steel more us impacting thank should albeit, very more helpful. you. cost? the uptick pricing, may to they've one year, That's just Can and the the if prices you have turning about see moved this walk think And just lags all we of material recently. Reliance? should you. from an How, pricing start seen

Jim Hoffman

this stick. product, I flat that alone, Yes, to happens our this week increases have the is price we've be focused a of week they assuming you're referring big if you will. just hope business, three actually not seen roll. increases I'm part -- the that But They in to

our important I it that's of Certainly, X% that. think us, piece less just is it's but business. than of to one

we've all of we through depending demand sell -- the go rest get said, we're do happen. And to as is and the all what's some soon down, into, going we now to seen they're you If good on lag like concerned, are and we'd market material, right and prices the products the demand, up, prices we and when prices like is their are the our we announced, as steady on to prices some to far are out. down, that's based as going as selling those see best

I -- can't with than that fact other on answer support up, when them. definitive the what don't we they we So exactly give go pricing a happens you

Karla Lewis

cost as from Jim prices on that benefits to two to said, usually But usually of times metal lower and side timing but cost for is, cost sell cash there And price standpoint, we an kind decline. out standpoint, and it's expect average have flow receive we're receiving in at from vary a the away our us least the when up. months lead inventory go right get --

cost working standpoint. we will receiving capital which So still in positive a going and us release metal be cash anticipate for quarter, flow some would into lower from third

little would continued the So in quarter. benefit see third a expect we to that of

Operator

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

Phil Gibbs

and case how play that Hey, the issue Hey, And little think a I about you impacted how bit get starting think arena? on reasonably what to more, you in means? better you it's all good talked a given positively be little resolution bit to trade for by new would educate a that fabricated be this us Jim. here a this Can morning. just just trying here? and it's I feel all

Jim Hoffman

I very all, just have we been of issue. back suits. rules China, done some have getting a right that First file of way ship What they to that's countries like which suppliers States countries subsidized laws. they supposed material shipping most they cheated. are Mexico the Canada fabrication into having subsidized here. have basically to And follow, don't not we the metals, complex and happened starting it domestic the it's United -- so government producing the and are They the was into the There's all and been

what's So period but of there over period hit very with of was certain some that short were be a to has countries, happened it, degree. two they -- recently, Canada that -- to time been time they a subsidies Mexico did that. China and doing of to found got small the rule very,

have to hit where didn't they some negative going they're So the -- impact. something register actually

that's come. fines identified that's what be of what's and the November. I So phase more to of that will tariff believe and how there The be for that They've damage been is quotas continue right the the will has that happening there do next been identified much now. is countries There They've has to subsidy. damage. for scheduled

you know can information this, actually in it So it's fabricators reacts. worth not November it to it. is we'll determine there just tell for U.S. around enough the more in how I

States. behavior seen of for been that that earmarked the into would come have some has kind have we United back that So business

are back. to with the fight -- you we the the arm battle right is worldwide. There doing can't making material just They comes domestic your just when I a it make behind material gets good -- one as mills it making thing. think

needed So to think -- they do. done they've did they I what

plays could, think the they'll it be way out stronger. the everything long-term I if

would I think fabricators stronger. the be

some -- will although to service onshore, space. and good certainly a manufacturing good to it looks continue who and are it's Phil, which like we and good thing going think we'll thing be of business in I strategy those now, hope the the very all business return for is But we thing that Reliance for customers our a that for positive, right domestic economy it's a U.S. Reliance.

Karla Lewis

think think is our we largest you're the X% XX% dollars it's market specific that, I usually sell to that aware I about Reliance our is, to as in of construction Phil is of exposure, structurals structurals. end big non-residential part revenue

extent support lot additional the within sell the in is processing to value-added past to in And said, customers the investments activity sourced a fact that about of to Jim also to would as we've the that U.S., businesses equipment. So had of metal non-residential more form there the in our more we our that. talked construction we hope made

done and of to some us. so we more in the support with be So from we customers, up if is they need could would that like U.S., them support stronger would there or fabricating see certainly pick our them whatever we

So We difficult at in as construction to due comment half. half potential weather about look first in on make we that the non-res the tailwind script a did positive. a second in the

We're have the that third not any that industry, for guidance others hearing factored quarter. volume on into we of from our the in

clear be of want that to none we that factored in. -- just there's So

could be second from case see us, for positive activity activity stronger half. the that we the So in if both more and trade a

Jim Hoffman

along more investing suppliers. XXX. importantly, our The with encouraging. the they're positive just their some domestic issues in, other with these capacity are very comment, so one -- And has these and forward partners capabilities It certainly trade looking cases, other the that filled

to You're investment talking good future over believe about, I that's worth in economy $XX see. United in billion the really of and it's our States,

too. fight that happy about as positive far lines very as going looks that's so feel good States with seems and on that there dumped going United who material I'm that be partners your in been they're are forward, it coming States able going to have what's to something to much that So being not for into to United are good as

Phil Gibbs

customers. at hearing Is the I way degree consider So equation. some piece the look you certainly your of right you to to fabricated the it? if that I'm on a right fabricator can then and

Jim Hoffman

I with material. don't a consider customer's or suppliers. of We I customers fabricators. our value-adder would our compete would consider us our

Phil Gibbs

on And was completion look things the have just question drilling though market. is I internationally, then Clearly, energy Understood. is activity strong second down, strong.

the So because you distributor the bag I world and the know kind certainly were also heavy the level you end now the see Thanks. generally at inventories when at do coming that's of here. down at then look we right level, slowing into a positioned year? How user mixed

Jim Hoffman

Yeah, think were. work can for heavy year. were inventories just we We we're speak we've I Reliance, the a get of coming close. into in done lot line, to I our

changed. technology where what's don't in as I I going and need before, and market, XXXX lot, ever the anymore. own pipeline and don't drilling guess It's an is we upwards have interesting tendency with have far a just in As the active mean think I the at that I've they of see putting the States, to good world we in said what have, a end users. mean -- completions use not the United days we're whole versus inventory, don't the to of they this rigs Reliance that. My just their they which

a metal in natural very you, goes ground need you, all With fracking infrastructure what but are that all bring matter and that plants that the way Iran the come and this and into the customers. they wells, of with what LNG that of or and involved for gas that active oil and of the oil, the the heavily and is metal a as can with in geopolitical, need takeaway, that of a -- a gas these completion what in our pipelines out there a things. It's natural and just yesterday many certainly we're lot tanks have there consumes of whether and many plenty different when for that. it's there's far sophisticated lot the of no happened is lot as it we and And a comes then have to to

it's for of value -- added we're a the big it's it's and So good metal. a us, us market for market consumer

of it smaller based still the it I companies and a our than the part are all So we space, we but it's with used space and in not are it's be our drilling huge just completion. like involved to business, said, things the that that that like on that

-- got we've that So we space. like

Operator

time, we've the of and the Ladies answer to closing gentlemen, turn to and question At I'd call Hoffman the for this Jim like session. reached comments. end back

Jim Hoffman

Yes. day. commitment Reliance. Have call your Thank the your today support and to you rest a everyone of for continued sitting great on and

Operator

conference. concludes This today

You you your may for we time. lines this disconnect participation. thank And at your