Reliance, Inc. (RS) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reflects a mixed sentiment. The company's financial performance shows stable gross margins and a focus on growth initiatives, but margin pressures from tariffs and inventory issues in key sectors like aerospace and semiconductors remain concerns. The Q&A highlights some optimism about future demand and profitability, but uncertainties around M&A and specific margin impacts persist. Overall, the sentiment is balanced between positive growth prospects and existing challenges, leading to a neutral stock price prediction over the next two weeks.

Key Financial Performance

Tons Shipped Increased by 6.2% year-over-year, resulting in record tons sold of 6.4 million. This growth outperformed the industry by over 7 percentage points, with U.S. market share increasing to approximately 17% in 2025 from 15% in 2024. The increase was driven by strong operational execution and market share expansion.

Tolling Tons Increased by 1.2% year-over-year to 7.4 million customer-owned tons processed. Growth was attributed to strong customer relationships and operational efficiency.

FIFO Gross Profit Margin Increased by 90 basis points year-over-year in 2025 due to strong pricing discipline and increased mill prices for carbon products, supported by healthy demand. However, tariff-related aluminum cost increases were more difficult to pass through due to plentiful supply and soft demand in specific markets.

Non-GAAP Gross Profit Margin Reported at 28.8% for 2025, slightly below the estimated sustainable range of 29%-31%. This was primarily due to tariff-driven annual LIFO expense of $114 million.

Non-GAAP FIFO Pretax Income Increased by $80 million year-over-year in 2025, driven by higher volumes and pricing.

Earnings Per Diluted Share Declined by 10.2% year-over-year in 2025. However, excluding significant LIFO adjustments, non-GAAP FIFO earnings per diluted share increased by 13.5% year-over-year.

Operating Cash Flow Generated $831 million in 2025, which was redeployed into high-value initiatives such as investments in advanced processing equipment and other growth projects.

Dividends and Share Repurchases Returned $849 million to stockholders in 2025 through dividends and share repurchases. The dividend was increased by 4% to an annual rate of $5 per share.

Fourth Quarter Tons Sold Declined by 5.4% from the third quarter of 2025 but increased by 5.8% year-over-year compared to the fourth quarter of 2024. Growth was driven by strong performance in carbon volumes, particularly in nonresidential construction and manufacturing subsectors.

Fourth Quarter Average Selling Price Increased by about 1% from the third quarter of 2025, exceeding expectations of flat pricing. Aluminum pricing rose due to tariffs raising the Midwest premium.

Fourth Quarter Non-GAAP Pretax Income Rose by 28% year-over-year, driven by 6% higher volumes and 6% higher selling prices, which offset a modest 30 basis point decline in non-GAAP FIFO gross profit margin.

Fourth Quarter Non-GAAP Earnings Per Diluted Share Reported at $2.40, an 8% increase year-over-year. LIFO expense represented $0.56 per share for the quarter.

Same-Store Non-GAAP SG&A Expenses Increased by 6.7% in the fourth quarter and 4.4% for the full year compared to 2024, driven by inflationary wage adjustments and higher variable costs associated with increased tons sold.

Capital Expenditures Funded $73 million in the fourth quarter of 2025 and $275 million for the full year, focusing on growth initiatives and advanced processing equipment.

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Operating Highlights

Tons shipped: Increased by 6.2% in 2025, resulting in record tons sold of 6.4 million.

Tolling tons: Increased by 1.2% to 7.4 million customer-owned tons processed.

Gross profit margin: Increased by 90 basis points in 2025 compared to 2024, mainly due to increased mill prices for carbon products.

U.S. market share: Increased to approximately 17% in 2025 from 15% in 2024.

Nonresidential construction: Represented roughly 1/3 of fourth quarter sales, driven by demand in heavy civil and public infrastructure work, data centers, and energy infrastructure.

General manufacturing: Accounted for about 1/3 of fourth quarter sales, with growth in military, industrial machinery, consumer products, rail, and shipbuilding.

Operating cash flow: Generated $831 million in 2025, redeployed into advanced processing equipment and growth projects.

Capital expenditure: Announced a 2026 budget of $275 million, with total spending expected to be $300-$325 million, half directed toward growth initiatives.

SG&A expenses: Increased 6.7% in Q4 2025 and 4.4% for the full year, driven by inflationary wage adjustments and higher variable costs.

Acquisitions: Plans to pursue acquisitions of well-run profitable businesses to broaden footprint and strengthen portfolio.

Shareholder returns: Delivered $849 million in 2025 through dividends and share repurchases, with a 4% dividend increase to $5 per share in 2026.

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Risk or Challenges

Tariff-related aluminum cost increases: Significant tariff-related aluminum cost increases were more difficult to pass through due to plentiful supply and soft demand, especially in the commercial aerospace and semiconductor markets. This led to margin compression and challenges in maintaining profitability.

LIFO expense impact: Higher-than-anticipated aluminum costs contributed to increased LIFO expense, which negatively impacted profitability. Full year LIFO expense reached $114 million, above the $100 million estimate, creating financial strain.

Commercial aerospace demand: Demand in the commercial aerospace sector remains subdued due to elevated inventory levels in the supply chain. This is expected to gradually improve in 2026 but currently poses a challenge to growth in this segment.

Semiconductor market conditions: The semiconductor market is under pressure due to ongoing excess inventory in the supply chain, leading to reduced demand and impacting financial performance.

Private nonresidential construction softness: Pockets of softness in private nonresidential construction have been noted, which could impact growth in this segment despite strength in public infrastructure and other areas.

Inflationary pressures on SG&A expenses: Inflationary wage adjustments and higher variable warehousing and delivery costs have increased SG&A expenses, impacting operational efficiency and profitability.

Trade policy uncertainty: Ongoing domestic and international trade policy uncertainty continues to pose risks to demand and pricing dynamics, potentially affecting financial performance in 2026.

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Guidance & Outlook

Gross Profit Margin: Expected to improve in 2026 as the impact of tariffs and trade uncertainty lessens, maintaining an annual range of 29% to 31%.

Capital Expenditure Budget: Announced a 2026 budget of $275 million, with total spending anticipated to be $300 million to $325 million, approximately half directed toward growth initiatives.

Market Opportunities: Positioned to pursue opportunities in 2026, including acquisitions of profitable businesses and additional capital expenditure investments as customer opportunities arise.

Customer Demand and Pricing: Entering 2026 with a healthy demand and strong pricing environment, with increasing optimism from customers and activity around large-scale projects in infrastructure, data centers, energy, and defense.

First Quarter 2026 Projections: Tons sold expected to increase 5% to 7% compared to Q4 2025, with average selling price per ton sold improving 3% to 5%. Anticipates modest improvement in FIFO gross profit margin.

Non-GAAP Earnings Per Share: Anticipates Q1 2026 non-GAAP earnings per diluted share in the range of $4.50 to $4.70, reflecting year-over-year growth of approximately 19% to 25%.

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Shareholder Return Plan

Dividends paid in 2025: $64 million

Increase in dividend rate: 4% increase to an annual dividend rate of $5 per share in the first quarter of 2026

Historical dividend increases: 33rd increase since 1994 IPO

Share repurchases in 2025: $200 million repurchased in the fourth quarter, reducing total shares outstanding by 4% for the year

Average repurchase price: $279 per share

Remaining authorization for share repurchases: $763 million available under the current program

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Key Q&A

Q:How should we think about margin in the rest of the year? Is there an opportunity to further increase it, or is this the new norm where you might be leaning more on the lower end of that range?

A:Karla Lewis explained that while Q1 2026 margins may be near the low end of the range, they expect margins to trend up during the year as long as demand supports price increases. Aluminum tariffs and demand dynamics caused margin pressures in 2025, but improving demand and price increases in carbon products are expected to support better margins in 2026.

Q:How are you thinking about volume growth in the second half of the year, especially with a focus on profitable growth?

A:Karla Lewis stated that they are positive about 2026 based on current quoting activity, especially in the carbon side, which is the majority of their volume. They are seeing good activity, large projects being quoted, and customers buying more heavily due to low inventory levels and extended mill lead times.

Q:Can you provide an update regarding demand for structural products and remind us of the margin profile of these products?

A:Stephen Koch noted strong demand for structural beams due to non-residential markets like public infrastructure, energy infrastructure, and data centers. Prices are at record highs, and lead times are extended. Karla Lewis added that margins for structural products are healthy and comparable to other high-value products like aerospace and energy.

Q:When was the last upcycle in semiconductors, and when might the inventory situation improve?

A:Karla Lewis mentioned that semiconductors were on an uptrend through most of 2023 with record-level shipments. However, customers overbought due to strong market concerns. Some improvement is expected late in 2026 as inventory levels normalize.

Q:What is the current M&A environment, and how are valuations looking?

A:Karla Lewis stated that while they were active in 2025, no deals were closed due to valuation disagreements. They remain interested in acquisitions but also highlighted their significant organic growth, which was more cost-effective than acquiring a $650 million revenue company.

Q:Is the 29%-31% gross margin range a LIFO range, and what was the drag on gross margins in 2025 from aerospace and semiconductors?

A:Karla Lewis confirmed the 29%-31% range is an annual LIFO range. Aluminum tariffs caused a disproportionate impact on LIFO expenses in 2025. Arthur Ajemyan added that aerospace and semiconductors, which make up less than 10%-15% of sales, impacted gross margins by over 50 basis points.

Q:How might the lower expected CapEx spend in 2026 impact share buybacks?

A:Karla Lewis stated that their appetite for share buybacks remains strong, alongside acquisitions, organic growth, and dividends. The 2026 CapEx budget is lower but could increase if profitable opportunities arise.

Q:What is the outlook for SG&A per ton in 2026?

A:Arthur Ajemyan noted that SG&A per ton trended down 1% in 2025 due to leveraging their cost structure. While inflation and incentive compensation may impact comparability, they aim to continue focusing on profitable growth to manage SG&A effectively.

Q:Are you seeing any substitution to or away from aluminum due to price volatility?

A:Karla Lewis stated they have not seen material substitution between aluminum and other materials. Stephen Koch added that there has been some substitution from copper to aluminum in architectural uses due to copper price spikes.

Q:What is driving the strength in plate markets, and is it due to underlying demand or customer restocking?

A:Stephen Koch explained that strength in plate markets is driven by customer restocking, mill price increases, extended lead times, and demand from energy infrastructure, onshore wind, shipbuilding, and defense work. Substitution from sheet to plate also contributed.

Q:What are your intentions regarding headcount and hiring in 2026?

A:Karla Lewis mentioned that headcount was slightly down in 2025 despite a 6% increase in tons shipped. The labor market has improved, but hiring for warehouse and driver positions remains challenging. They focus on efficiency and leveraging advanced equipment to manage headcount effectively.

Q:Review of Unclear Management Responses

A:Management avoided directly answering the question about the specific impact of aerospace and semiconductors on gross margins in 2025, providing only a general estimate of over 50 basis points. Additionally, the response to the M&A environment lacked clarity on specific valuation challenges or potential targets.

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Earnings Word Cloud

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