Reliance, Inc. (NYSE: RS) is a leading diversified metals service center company, providing value-added processing and distribution solutions to a wide range of industries. With a strong focus on operational excellence, strategic acquisitions, and a resilient business model, Reliance has consistently delivered solid financial performance through various market cycles.

Financials

In the fiscal year 2023, Reliance reported impressive financial results, showcasing the strength of its diversified operations. The company generated annual net income of $1,335.9 million and annual revenue of $14,805.9 million. Its annual operating cash flow reached $1,671.3 million, while its annual free cash flow stood at $1,202.5 million, underscoring the company's robust cash generation capabilities.

During the second quarter of 2024, Reliance's performance once again highlighted the attractiveness of its business model. The company's second quarter non-GAAP diluted earnings per share of $4.65 came in slightly below its guided range, as pricing levels retreated further than anticipated, offsetting the sequential improvement in tons sold, which was in line with expectations.

Despite the challenging pricing environment, Reliance successfully outperformed industry shipment levels across nearly all products, benefiting from its significant scale and diversified product offerings. The company's organic and inorganic growth initiatives collectively offset the impact of declining selling prices on its revenues in the second quarter.

Reliance's gross profit margin decreased from 31% in the first quarter to 29.8% in the second quarter, primarily due to pricing headwinds. However, the company's value-added processing capabilities and its LIFO inventory valuation method helped moderate the decline in gross profit margin, as orders with value-added processing experienced significantly less gross profit margin contraction during periods of declining prices.

Outlook

Looking ahead to the third quarter of 2024, Reliance anticipates the operating environment will remain challenging from a pricing perspective, with demand remaining relatively stable, subject to seasonal patterns. The company estimates its tons sold will be down 2.5% to 4.5% in the third quarter compared to the second quarter, but up 4.5% to 6.5% compared to the third quarter of 2023, with approximately 4% of the year-over-year growth coming from its 2023 and 2024 acquisitions.

On the pricing side, Reliance expects its average selling price per ton sold for the third quarter to be down 2% to 4% compared to the second quarter, primarily driven by lower prices for carbon steel products. Accordingly, the company believes its gross profit margin will remain under pressure in the third quarter of 2024.

Based on these expectations, Reliance currently anticipates non-GAAP earnings per diluted share in the range of $3.60 to $3.80 for the third quarter of 2024.

Business Overview

Reliance's diversified product portfolio and end-market exposure have been key drivers of its resilience. The company's sales are well-balanced across various industries, including non-residential construction, general manufacturing, aerospace, and automotive. This diversification has helped Reliance navigate the dynamic demand environment, with strong performance in certain end markets offsetting pressures in others.

Non-residential Construction

In the non-residential construction market, which represents about one-third of Reliance's sales, the company's carbon steel tubing, plate, and structural products saw solid sequential and year-over-year growth in tons sold, outperforming industry shipment levels. Reliance's diversified exposure to non-residential construction markets, including publicly funded infrastructure, data centers, and related energy infrastructure, supported steady demand for its carbon steel structural and tubing products, despite negative pricing trends.

General Manufacturing

Reliance's general manufacturing business, which accounts for roughly one-third of its total sales, is highly diversified across products and includes industrial machinery, consumer products, heavy equipment, and military applications. Demand across the broader general manufacturing sector the company serves was relatively consistent compared to the second quarter of 2023, primarily due to increased activity in industrial machinery and military spending, which offset declines in demand for consumer products and heavy equipment, especially agricultural.

Aerospace

The company's aerospace products, which comprise approximately 9% of its total sales, have also remained resilient. Commercial aerospace demand has remained healthy despite short-term supply chain challenges, while defense-related aerospace and space program demand has remained stable at strong levels.

Toll Processing

Reliance's toll processing operations, which represent 4% of its total revenues, saw improved demand in the second quarter of 2024 compared to the prior-year period due to healthy demand in the automotive market in both the United States and Mexico, as well as the company's ongoing investments to increase capacity.

Semiconductor Industry

The semiconductor industry, which accounts for a portion of Reliance's business, has continued to contract due to excess inventories in the supply chain. However, the company has seen signs of stabilization through the second quarter in certain areas, and its long-term outlook for the semiconductor market remains positive, reinforced by the significant semiconductor fabrication expansion underway in the United States and the CHIPS Act.

Recent Developments

Reliance's strategic acquisitions have also been a key driver of its growth and diversification. In 2024, the company completed three acquisitions, including Cooksey Steel, American Alloy Steel, and Mid-West Materials, which collectively added nearly $500 million in annualized net sales based on 2023 results. These acquisitions have expanded Reliance's product offerings, enhanced its geographic reach, and strengthened its unique processing capabilities.

Liquidity

The company's strong balance sheet and ample liquidity have enabled it to fund these strategic acquisitions, as well as its organic growth initiatives, while also returning significant capital to shareholders. During the second quarter of 2024, Reliance repurchased $519.3 million of its common stock, and in July, it repurchased an additional $165.4 million, resulting in more than a 4% reduction in its total shares outstanding.

Conclusion

Looking ahead, Reliance remains focused on executing its robust and resilient business model, leveraging its diversified product portfolio, strategic acquisitions, and operational excellence to navigate the current challenging pricing environment. The company's talented team, strong balance sheet, and commitment to growth and shareholder returns position it well for long-term success.