Reliance Steel & Aluminum Co. Q3 FY2025 earnings call

Karla's Remarks - Delivered solid quarter amidst market uncertainty, tons sold were a third quarter record, U.S. market share increased to 17.1%. Faced short-term gross profit margin headwinds due to trade policy uncertainty, readily available inventory, and underperforming aerospace and semiconductor markets. Capital allocation strategy includes generating operating cash flow, investing in growth initiatives, returning capital to stockholders via dividends and share repurchases. ### Steve's Remarks - Recognized team execution, discussed demand and pricing trends with third quarter tons sold surpassing expectations, average selling price steady, key end markets like nonresidential construction, general manufacturing, aerospace, automotive, semiconductor. ### Arthur's Remarks - Reported non-GAAP earnings per diluted share of $3.64, discussed gross profit margin compression factors including trade policy, excess inventories, LIFO impact. Highlighted organic growth, FIFO gross profit margin, SG&A expenses, balance sheet, cash flow, and outlook for fourth quarter.

In the third quarter, Reliance achieved a record number of tons sold, outperforming the industry by approximately 9 percentage points and increasing U.S. market share to 17.1% from 14.5% in 2023. Nonresidential construction represented roughly 1/3 of third quarter sales, general manufacturing also about 1/3, aerospace products comprised approximately 9% of total sales, automotive represented about 4% of third quarter sales, and the semiconductor market remained under pressure. Tons sold in the third quarter were consistent with the second quarter of 2025, surpassing expectations of a 1%-3% decline, increasing 6.2% compared to the third quarter of 2024.

Fourth Quarter Outlook - Anticipate overall demand to remain stable across diversified end markets subject to trade policy uncertainty. Estimate tons sold will be up 3.5% to 5.5% compared to the fourth quarter of 2024 and down 5% to 7% compared to the third quarter of 2025. Average selling price per ton sold for the fourth quarter is expected to stay relatively flat compared to the third quarter. Anticipate flat to slightly improved FIFO gross profit margin in the fourth quarter. Q4 non-GAAP earnings per diluted share is expected to be in the range of $2.65 to $2.85, inclusive of quarterly LIFO expense of $25 million or $0.35 per diluted share.

Risks - Trade policy uncertainty creating a competitive market and impacting gross profit margins. Excess inventories in aerospace and semiconductor markets pressuring prices and margins. Competitive market making it difficult to immediately increase selling prices. Potential impact of government shutdown on defense spending programs. Aluminum supply disruption in New York State causing market disruptions.

Q: Maybe starting on the gross margin. So I understand that right now, the environment is such that it's resulting in gross margin compression. But is any of this compression attributable also potentially to your focus on growing volumes?

A: Katja, from a gross profit standpoint, we've been in a uniquely challenging market. Our teams have done well winning business, but there's been drag on margins from aerospace and semiconductor high-value specialty products. Our smart, profitable growth strategy is about growing tons with profitable business, which could be a factor but more from market and specialty lines.

Q: Maybe when I look at your inventory level on your balance sheet, it seems like they're moving higher a little bit. I wouldn't expect this to be the case in this environment. Can you maybe talk a little bit about what's going on there?

A: Part of it is pricing with mill price increases and tons up, buying based on shipping, and competitors pulling back allowing us to win business and service customers.

Q: I wanted to follow up, if I could, on the inventory side. I know you said ongoing -- I think the quote I have was ongoing excess inventory was pressuring margins or contributing to the margin pressure. And another mill CEO this week said destocking was over. So I'm just trying to get a sense of, how close are we to putting that in the rearview mirror? When do you think we could switch to seeing appropriate levels of inventory? And did you mean that from your competitors or from your customers, I guess?

A: More at mill and service center level in Q2 and Q3. Service centers bought heavy earlier, we think inventories have come down, starting to see lead times for certain products go out, probably closer to inflection point, momentum coming out of that, gross profit margin troughed in Q3.

Q: The semis, infrastructure and aerospace pieces specifically certainly been noting excess inventories for most of 2025. And I know Timna made a general question about excess inventory in the supply chain. But those markets specifically, are you anticipating that those begin to turn around or levelize sometime in 2026?

A: In those markets, especially high-value products, there was overbuying, supply chain working through products, seeing improved demand, expect continued improvement in 2026.

Q: For nonresidential construction, it seems reasonably good. I'm curious, how much of this activity do you think is related tied to AI, data centers, semiconductor build-outs, kind of that camp of activity?

A: Hard to quantify, but almost every Reliance business is touching data center trend and build, very positive, but difficult to quantify specifically.

Q: May I ask about capital return, and I guess, really in the context of capital allocation? One might expect that as the shares were a little bit weaker during the quarter, it might present an attractive opportunity, perhaps allocate more of your capital to the share buyback as opposed to less and maybe direct that away from other opportunities. I mean so how do you think about that in terms of return on your dollars in buying back shares versus investing in the rest of the business? And how should we think about that going forward?

A: We think buying Reliance stock is always a good decision, look at market value and adjust activity accordingly, been active, look to buy at attractive levels, low-risk use of capital.