Executive Summary / Key Takeaways

• Reliance, Inc. demonstrated the strength of its diversified model by achieving record tons sold in Q1 2025, significantly outpacing industry declines, despite facing lower year-over-year metal pricing.
• The company's value-added processing capabilities and extensive distribution network serve as key differentiators, supporting strong gross profit margins within the target 29%-31% range and enabling market share gains.
• Strong cash flow generation, though lower year-over-year in Q1 2025 due to working capital investment and lower net income, continues to fund a balanced capital allocation strategy including strategic acquisitions, capital expenditures for growth, consistent dividends, and opportunistic share repurchases.
• Management anticipates stable demand and modest sequential pricing improvement in Q2 2025, guiding for non-GAAP EPS of $4.50-$4.70, while acknowledging ongoing macroeconomic and trade policy uncertainty.
• Reliance's favorable leverage position and investment-grade credit ratings provide significant financial flexibility to pursue growth initiatives and return capital to stockholders.

A Foundation Built on Diversification and Service

Reliance, Inc. stands as a prominent diversified metal solutions provider and the largest metals service center company in North America. Founded in 1939, the company has evolved significantly, particularly since its 1994 IPO, through a consistent strategy of growth, both organically and via strategic acquisitions. This history has shaped Reliance into a network of over 320 locations, primarily in the United States, offering a broad line of metal products including carbon steel, aluminum, stainless steel, and alloys, coupled with extensive processing services. The core of Reliance's business model lies in serving a highly diversified customer base, often with small orders requiring quick turnaround and value-added processing, across a wide array of end markets such as non-residential construction, general manufacturing, aerospace, and automotive. This diversification is a foundational strength, mitigating exposure to downturns in any single sector.

The competitive landscape for Reliance includes large integrated steel producers like Nucor (NUE), Steel Dynamics (STLD), and global players like ArcelorMittal (MT), as well as other metals distributors such as Ryerson (RYI). While producers focus on scale and cost-efficient primary metal manufacturing, Reliance differentiates itself through its extensive distribution network and value-added processing capabilities. Reliance's network of locations enables faster delivery and closer customer relationships compared to producers. Against other distributors like Ryerson, Reliance's larger scale provides greater operational efficiency and broader geographic reach. The company's long-standing relationships with domestic mill suppliers, who provide over 95% of its metal, are a critical competitive advantage, ensuring product availability even in tight markets.

Reliance's processing capabilities are a key technological differentiator. While the company notes that basic first-stage processing like cutting to size is not highly labor-intensive, investments in more advanced processing technologies enhance efficiency and service offerings. These capabilities allow Reliance to provide customized solutions, reducing waste by an estimated 20% and offering faster turnaround times, which are crucial for customers requiring specific dimensions or pre-fabricated components. This value-added service not only strengthens customer loyalty but also supports higher gross profit margins, particularly in environments where underlying metal prices are volatile. The company continues to invest in these capabilities, including expansions in toll processing and specialized facilities for markets like semiconductors.

Performance Amidst Price Headwinds

Reliance's financial performance in the first quarter of 2025 reflected the dynamic market conditions, marked by strong volume growth offset by lower metal prices compared to the prior year. Net sales for the quarter were $3,484.7 million, a decrease of 4.4% from $3,644.8 million in Q1 2024. This decline was primarily driven by a 12.2% decrease in the average selling price per ton sold, as lower prices for major commodity products, particularly carbon steel (-14.5% year-over-year), outweighed a significant increase in volume.

Despite the pricing pressure, Reliance achieved a record 1.63 million tons sold in Q1 2025, an increase of 9.0% year-over-year. On a same-store basis, tons sold increased 5.6%, notably outperforming the Metals Service Center Institute (MSCI) industry-wide decline of 0.5%. This volume growth underscores the effectiveness of Reliance's strategy to gain market share through organic initiatives and contributions from its four acquisitions completed in 2024, which added $99.4 million in net sales in Q1 2025.

Profitability metrics reflected the impact of lower prices. Gross profit margin (excluding D&A) was 29.7% in Q1 2025, down from 31.0% in Q1 2024, but still within the company's sustainable annual range of 29% to 31%. On a non-GAAP FIFO basis, the gross profit margin improved sequentially to 30.4% in Q1 2025 from 28.8% in Q4 2024, benefiting from better alignment of inventory costs with rising selling prices observed later in the quarter. The LIFO inventory valuation method resulted in a $25.0 million expense in Q1 2025, a headwind compared to the $50.0 million LIFO income recorded in Q1 2024.

Operating income decreased by 30.2% to $274.4 million in Q1 2025, down from $393.1 million in the prior-year quarter. This decline was mainly due to the lower gross profit resulting from pricing dynamics, despite the positive impact of higher volumes and improved operational leverage. Same-store SG&A expense decreased slightly year-over-year, and SG&A expense per ton sold declined nearly 6%, demonstrating cost management efforts offsetting wage inflation and growth-related headcount increases. Net income attributable to Reliance was $199.7 million ($3.74 per diluted share) in Q1 2025, compared to $302.9 million ($5.23 per diluted share) in Q1 2024.

Financial Strength and Capital Deployment

Reliance maintains a strong financial position, providing flexibility for strategic initiatives and stockholder returns. Cash flow from operations was $64.5 million in Q1 2025, a decrease from $126.3 million in Q1 2024. This was primarily due to lower net income, partially offset by a decrease in working capital investment, although Q1 is seasonally the largest quarter for working capital use.

The company's balance sheet remains robust. As of March 31, 2025, total assets were $10.37 billion, with total liabilities of $3.25 billion and total equity of $7.11 billion. The net debt-to-total capital ratio was 14.4%, up from 10.2% at the end of 2024, reflecting increased borrowings on the revolving credit facility to fund operations and investments. The net debt to EBITDA ratio remains favorable at less than one, well within the financial maintenance covenants of its credit agreement.

Capital deployment remains a key focus. In Q1 2025, Reliance invested $86.9 million in capital expenditures, primarily for growth activities, and used $53.7 million for acquisitions (net of cash acquired). The company returned $318.4 million to stockholders, including $253.2 million in share repurchases and $65.2 million in cash dividends. Reliance has a strong track record of returning capital, having paid quarterly cash dividends for 66 consecutive years and increasing the dividend 32 times since its IPO, including a 9.1% increase effective in Q1 2025. The share repurchase program, replenished to $1.5 billion in October 2024, had $1.02 billion remaining as of April 25, 2025.

Outlook and Risks

Looking ahead to the second quarter of 2025, Reliance management anticipates demand across its diversified end markets to remain stable, consistent with seasonal trends. They estimate tons sold will be down 1% to up 1% sequentially, but up 3% to 5% compared to Q2 2024, reflecting continued market share gains. Average selling price per ton sold is expected to increase by 1% to 3% sequentially, as pricing is anticipated to stay relatively consistent with levels seen in March and April.

Management expects FIFO gross profit margin to expand in Q2 2025, benefiting from the recent pricing improvements. Based on these expectations, non-GAAP earnings per diluted share for Q2 2025 are guided in the range of $4.50 to $4.70, which includes an estimated $25 million ($0.35 per share) of LIFO expense. For the full year 2025, the LIFO estimate has been revised to $100 million expense, reflecting higher than anticipated carbon steel and aluminum product costs and timing related to specialty products with long lead times.

Key assumptions underlying the outlook include stable demand conditions in core markets like non-residential construction and general manufacturing. However, management acknowledges ongoing uncertainty regarding domestic and international economic policy as a potential factor influencing the market. Risks to the outlook include further volatility in metal prices, potential disruptions from changes in trade policy, labor constraints, supply chain issues, and the broader impact of macroeconomic conditions or geopolitical conflicts. The pace of M&A activity has also slowed recently due to this uncertainty. Despite these risks, Reliance's diversified model, strong customer and supplier relationships, and financial flexibility position it to adapt to changing conditions.

Conclusion

Reliance, Inc.'s Q1 2025 results underscore the effectiveness of its long-standing strategy to outperform the industry through diversification, value-added processing, and strategic growth, even in a challenging pricing environment. Achieving record tons sold while maintaining strong gross profit margins demonstrates the resilience of its business model and the operational execution of its teams. The company's robust financial health, characterized by favorable leverage and strong cash flow generation, provides a solid foundation for continued investment in organic initiatives, accretive acquisitions, and consistent returns to stockholders. While macroeconomic and political uncertainty persist, Reliance's competitive advantages in its extensive network, processing capabilities, and deep customer relationships position it favorably to capture market share and navigate potential headwinds. The outlook for sequential improvement in pricing and margins in Q2 2025 suggests a positive trajectory, supported by healthy demand in key end markets. For investors, Reliance represents a well-managed leader in the metals service center industry, capable of delivering profitable growth and stockholder value across various market cycles.