Reliance Steel & Aluminum Co. (RS) Earnings

Management highlights

- Reliance off to strong start in 2026, first quarter volumes, pricing, and earnings exceeding expectations. - Significantly outperformed broader industry shipments for 13th consecutive quarter. - Secured two significant government contracts in first quarter, collectively representing up to ~$3 billion in revenue. - Disciplined capital deployment and strong cash profile. - Increased dividend rate by 4% to annualized $5 per share and repurchased $234 million of shares. - Record tons sold, average selling price per ton sold rose. - Strong execution led to 15% sales increase, over 30% year-over-year growth in non-GAAP pre-tax income and nearly 37% year-over-year growth in non-GAAP earnings per share. - Strong performance across operations, commitment to safety and customer service. - Demand and pricing trends: record tons sold, average selling price increased. - End markets: non-residential construction, general manufacturing, aerospace, automotive, semiconductor showing improvement. - Strategic investments generating tangible returns, disciplined commercial and operational approach driving profitability.

Guidance

- Expect demand and pricing to remain healthy in second quarter of 2026, generally in line with Q1. - Anticipate second quarter 2026 non-GAAP earnings for diluted share in range of $5.15 to $5.35, up 16% to 21% year-over-year, including estimated $37.5 million of LIFO expense. - Full year LIFO outlook raised to $150 million from prior $100 million annual estimate. - Expect LIFO expense of $37.5 million in second quarter of 2026. - Border wall project volume activity to increase as program gets up and running, with higher activity anticipated in Q3 than Q2.

Segment performance

Tons sold were a record, up sequentially and year over year. Average selling price per ton sold rose. Carbon volumes were the primary growth driver. Aluminum and stainless product volumes contributed to year-over-year volume growth at higher per ton profitability levels. Non-residential construction represented roughly one-third of first quarter sales. General manufacturing also represented about one-third of first quarter sales. Aerospace products accounted for approximately 10% of first quarter sales. Automotive represented 4% of first quarter sales. Sales up 15% year over year. Gross profit $1.2 billion, up 23% from prior quarter. Non-GAAP pre-tax income up 33% year-over-year. Non-GAAP earnings per share up nearly 37% to $5.16. LIFO expense $37.5 million in first quarter, full year LIFO outlook raised to $150 million from $100 million. Aluminum gross profit dollars up about 18% compared to first quarter 2025. Non-GAAP SG&A expense up 6% compared to first quarter 2025.

Risks & headwinds

- Higher than anticipated material costs resulting in LIFO expense above estimates. - Incremental Section 232 tariffs having impact on aluminum gross profit margin. - Domestic and international trade policy risks. - Conflict in the Middle East risks. - LIFO expense variation and its impact on margins. - Transitory nature of certain market dynamics affecting margins.

Analyst Q&A

• Q: Some questions on the guidance here and just looking at the current quarter FIFO gross profit margins improved to about 30% from the 28.5% last quarter. Even accounting for the new DHS contract in the mix for 2Q, given the improving broader price backdrop as well as volumes, do you think you're being conservative with the implicit 2Q FIFO gross margins in guidance, or are there other factors to be considering here, like a lagging catch-up in margins and the inflationary price factors with aluminum here?

  A: On the guide for Q2 around gross profit margin, which we don't explicitly provide guidance on, Q1 was a good, strong pricing environment with a lot of products having price increases, which gives us an opportunity to drive our margins up a bit for a temporary period. We expect some continued price improvement in Q2, but not to the level of Q1. So we will start to see the higher cost metal hit the inventory. and kind of normalize a bit, we believe, towards the end of the quarter. So probably not stronger. We have less upside than in Q1 from a price increase dynamic. And then on the border wall, the margins, the gross profit margins, will bring our consolidated number down a bit just based on the product mix of what we're selling and the services we're providing. But as we mentioned, extremely low operating costs on the volume there, which will help us leverage our expense line and give us very strong earnings from the border wall project.

• Q: I guess looking another step ahead here and coming back to your comment on maybe by the end of the quarter. So not as much of a price increase or momentum quarter on quarter, but maybe things begin to normalize relative to the inventory costs coming through. So looking further ahead, then does that offer some opportunity for some partial normalization in FIFO gross margins? understanding that you'll have this contract in the mix and that'll be something that's dilutive but not additive to the bottom line.

  A: I think that's right, Martin. You know, that's the way the dynamics typically work. You know, pricing drives a lot of the margin upside and then to the extent it normalizes or comes down, but you also need the underlying demand there as well to support that, which We, at this time, feel really good about 2026 across, you know, demand across most of the products and markets we're selling into, which provides a good backdrop from a pricing standpoint. So, you know, with good, strong price increases in Q1, we expect prices to remain at good levels, just, again, you know, maybe not increasing at the same pace.

• Q: if i could one more i was just curious on your thoughts for It seems like areas of the defense are strong, semiconductor improving, which I think it's been a while since we've seen any positive news on that front. And I think I've also heard like within oil and gas, maybe if you could just touch on the margin profile of these product lines that serve these end markets and potential mix implications as we're moving through 2026.

  A: We don't really talk about how they affect gross profit margin by product, Martin, and it does vary, but it also depends how much value-add processing we're doing. So you're right, defense continues to remain strong across a lot of the different products we sell. Semi, it's a small part of the business, but it has been lagging. Not at a gross profit margin line, but we have talked about some of our niche semiconductor business being, you know, very high value types of products. And that has been down, but we're happy to see, you know, some improvement beginning. But as far as, you know, at a consolidated level, nothing really to comment on as far as change in product mix or, you know, financial guidance. And Martin, I would add that from an end market perspective, we saw the ISM manufacturing index for three consecutive months stay about 50, and we saw that translate into some increased activity in the first quarter. And we noted that in our release, that manufacturing end market, we saw increased year-over-year tons. We're looking at that as a good tailwind, and we have a lot of different products with value-added processing that go into that end market, which, as we all know, hasn't been doing really all that great for the past three years. So there's some potential tailwinds there.

• Q: Good morning, Carla, Steve, Arthur. Thank you for taking my questions, and congrats on the strong quarter. I guess I wanted to get a better idea of how we should think about the cadence of these DHS volumes ramping throughout the year, and is the pricing structured such that if broader market pricing were to fall, that these could actually offer downtime protection to gross margins in such a scenario.

  A: As far as the cadence on the border wall project, as we mentioned, we began shipping this month in April, and so we're still in a bit of startup ramp-up phase. So we included in our Q2 guide our current estimate of volume activity in the quarter. We do expect that to increase as we move into Q3 and beyond as the program really gets up and running, but there's not a committed shipment schedule, so it could vary from quarter to quarter, but we do anticipate higher activity as we move into Q3 than what we projected for Q2. And as far as the pricing, we can't get into the specifics on the pricing, but we do have the contract volume up to certain dollar amounts over the period through 2027.

• Q: Coming to aluminum, I mean, we've certainly seen another spike in pricing. I guess I'm just wondering if you're still able to cover your costs at this stage. Is 50 BIP still the right way to think about the margin impact? And if possible, could you share what share of aluminum was in relation to the LIFO expenses past quarter?

  A: Yeah, so, Bennett, you're correct. I think, you know, the dynamics in aluminum in particular continue where We, unlike this time last year, our companies now have been able to push through the 50% tariff to our customers, but we're not necessarily getting a full margin on that 50% tariff cost, which puts a little pressure on the overall gross profit margin from our aluminum products compared to Periods where we did not have a 50% tariff that we had to cover and try to push to our customers And then you're right. It also gives us kind of a double hit on LIFO because you know LIFO in our view was not intended You know for periods with 50% tariffs and so we have to take a LIFO charge on top of the tariff cost that we need to push through and So that does, right now, while these 50% tariffs are in place and with the market where it is, it is a bit of a drag. We think that's transitory while we have these tariffs in place. However, the aluminum prices are significantly higher. So even though we're not getting the percentage margin on that, we are getting significantly higher gross profit dollars on our sales of aluminum that, you know, we then have to help cover our SG&A and other costs and contribute at a higher level to earnings dollars. Yeah, I was just going to say that we're, you know, on aluminum despite the margin distortion that, you know, Carla mentioned. Gross profit dollars are up year over year to the tune of almost 17%, 18%. So it shows that profitability has improved significantly on those sales issues to Carla's point. When you introduce a 50% tariff, that creates some noise. And the LIFO noise is also substantial from aluminum. Last year, nearly half of our LIFO expense was related to aluminum. This year, it's tracking at a little less than half, maybe over a third. So, I mean, let's just say prices level off and stay where they are. Come next year, you're not going to have that headwind from LIFO on aluminum that's, you know, contributing to this, you know, temporary margin compression dynamic. So, net-net, you know, these tariffs have contributed to higher profitability across our product portfolio, including aluminum. And on the LIFO side, just as a reminder, when we book expense, it increases our LIFO reserve that is then available to come back into income in future periods, you know, when prices come down.

• Q: Hey, good morning. I know we've talked about the rapid rise in aluminum pricing being a drag on gross margins, just given it's been tough to get ahead of that. And I know tariffs are still impacting that market. But am I wrong in my thinking that the first quarter sequential gross margin expansion does seem to reflect a better job of navigating that market versus the back half of last year?

  A: I think that's fair. And again, you know, we want to be clear. It's a drag on the gross profit margin percent, but not on the gross profit dollars. But yeah, you're thinking about that correctly that I think, you know, incrementally each quarter, coming out of Q2 last year when the tariffs hit, we've made progress against that. As we talked about, overall demand improving a bit too, including for some of the aluminum products. So that helps us on passing through costs if demand is stronger. So yeah, so we would agree with the way you're thinking about that, Sam.

• Q: Okay, and then on the border wall contract, They're expecting it to be a solid earnings contributor despite the relatively lower selling price versus the rest of your business. When you talk about the operating network, if you could just discuss with us some of the operating levers you think you can pull as these tons grow over the course of this year and probably into next.

  A: Yeah, so prices lower on those products, but with the services that we're providing, which a lot of that on these – On the tons for the border wall, it's a lot of storage handling. We are doing some value-added processing, but our operating costs are pretty low based on the volume that the kind of SG&A percent is lower than it is in the rest of our business. So at these volumes, low-cost structure, it's a good driver to earnings, plus the You know, one of the reasons we believe that Reliance was awarded this contract, and by the way, back in 2008, our AMI business secured a smaller than this, but a pretty decent size border wall, they called it the fence then, contract, and they performed very well under that. This is much larger in scale with the tonnage and and a short time period to be able to provide these services. And we need multiple locations to store and provide the logistics under the contract to really meet their requirements. And with the Reliance network of companies, our AMI company is working with other Reliance companies utilizing some of their property, which also keeps our costs lower. We didn't have to go out and secure you know, some of the new equipment or property to be able to service the project. Yeah, and I'd like to add to that. The majority of the products being shipped are hollow structural sections, but there's also a lot of sheet that we're utilizing. One of our processing plants in Texas is fur alloy. So, like Carla mentioned, we have plants set up all along the border. So, we're going to be shipping products out of Texas and out of California. We really appreciate all of the support we've received from our domestic mill suppliers because, as everybody knows, the supply is a little bit tight right now. Hot-rolled coil is on limited availability, and we're able to get as much as we need to meet our customers' demands.

• Q: Hi, thank you so much for taking my question. Just a quick one on the current inorganic growth pipeline. Again, you know, been, you know, a little bit since you guys have done, you know, any pretty much, you know, meaningful acquisitions. Just wondering how the pipeline currently looks and how you're thinking of capital allocation between organic and inorganic growth going forward?

  A: Yeah, hi, Nick. From an acquisition pipeline, I'd say it remains pretty consistent with what we've talked about the last few quarters. There are opportunities out there, and we see a steady stream, as we have for the last year or so. Some companies we like, so we're always looking at what's out there. and evaluating how they might fit into Reliance. Then, of course, we have to see if we can agree upon valuation with the sellers. And we've had a consistent appetite to acquire good companies. We just somewhat depended on who's ready to sell their companies because a lot of the companies in our space are privately owned family companies. companies, and so we wait for them to be ready to sell. Like I said, then there's valuation. So we've, you know, no change in our appetite for that, but we've also been in a strong financial position for the last few years where we haven't had to choose between our capital allocation priorities. We've been able to execute on on the acquisitions we'd like while at the same time continuing to grow organically and providing strong returns to our shareholders through our consistently increasing dividend as well as, I think, a reasonable level of activity on our share repurchases. And then there's no change to that.

• Q: And if I could, just one more. You called out data center and energy infrastructure. Just real quick, what percentage of non-resi tonnage is data center related, and how has that mix shifted year over year? And then within energy infrastructure, how much solar exposure do you guys have?

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