Executive Summary / Key Takeaways

• Reliance, Inc. (NYSE:RS) continues to demonstrate robust financial performance and significant market share gains, driven by its diversified business model, extensive value-added processing capabilities, and strong domestic supply chain, even amidst volatile macroeconomic and trade policy environments.
• The company's "smart, profitable growth" strategy, focusing on increasing tons sold while maintaining gross profit margins within the 29% to 31% sustainable range, has enabled it to consistently outperform industry shipment trends.
• Despite short-term gross profit margin headwinds from trade policy uncertainty and excess inventories in specialty markets like aerospace and semiconductors, Reliance's underlying profitability remains strong, with management anticipating stabilization and improvement in the coming quarters.
• Reliance maintains a strong liquidity position and a disciplined capital allocation strategy, balancing significant investments in organic growth and strategic acquisitions with substantial returns to stockholders through dividends and share repurchases.
• The company's technological differentiation through advanced processing equipment, coupled with its superior customer service and broad geographic footprint, forms a durable competitive moat, positioning it favorably against rivals and for long-term growth.

A Resilient Foundation in Metals Solutions

Reliance, Inc., founded in 1939, stands as a cornerstone in the North American metals service center industry, operating primarily across the United States and Canada. The company has steadfastly maintained its core business of metal distribution and processing, a strategic focus that has underpinned its enduring success. This commitment to its foundational expertise, coupled with a decentralized operating model, allows Reliance to adapt swiftly to market dynamics and cultivate deep customer relationships. The company's history, marked by its 1994 IPO and 66 consecutive years of quarterly cash dividends, including 32 increases since going public, reflects a consistent dedication to shareholder value.

Reliance's overarching strategy, termed "smart, profitable growth," is designed to expand volumes while rigorously adhering to its target gross profit margin range of 29% to 31%. This approach is crucial in an industry susceptible to commodity price fluctuations and economic cycles. The company's strategic responses to market dynamics, such as its proactive stance on acquisitions and continuous investment in operational capabilities, are direct extensions of this core philosophy.

Technological Edge: Advanced Processing and Service Excellence

Reliance's competitive advantage is significantly bolstered by its technological differentiation, primarily through its extensive and advanced value-added processing capabilities. This is not about a single, proprietary piece of hardware, but rather a comprehensive system of specialized equipment and operational expertise that transforms raw metal into customer-specific components. Approximately half of Reliance's orders involve first-stage processing, such as precision cutting, which is generally not labor-intensive.

These capabilities offer tangible benefits to customers and quantifiable advantages to Reliance. They enable the company to provide customized solutions, reduce lead times, and support a "just-in-time" delivery model for smaller, more frequent orders. This agility is particularly valuable in uncertain markets where customers are hesitant to hold large inventories. For investors, this translates into a stronger competitive moat, allowing Reliance to command better pricing, maintain robust gross profit margins, and drive market share gains by offering services that many competitors cannot match in scope or efficiency. The continuous investment in advanced processing equipment also enhances operational efficiency and improves the utilization of existing assets, further leveraging the company's selling, general, and administrative (SG&A) expenses.

Competitive Landscape and Market Outperformance

Reliance operates in a highly competitive environment, vying with other metals distributors and processors such as Ryerson Holding Corporation (RYI), Olympic Steel, Inc. (ZEUS), Worthington Industries, Inc. (WOR), and Steel Dynamics, Inc. (STLD). Reliance's market positioning is distinguished by its unparalleled scale, broad product and end-market diversity, and superior customer service. This strategic differentiation has consistently enabled Reliance to outperform industry shipment trends. For instance, in the second quarter of 2025, Reliance's tons sold increased by 4% year-over-year, significantly surpassing the Metals Service Center Institute's (MSCI) reported industry-wide decline of 3.1% by over seven percentage points. This outperformance continued into the third quarter of 2025, with tons sold increasing 6.2% year-over-year, outperforming the industry by approximately nine percentage points and increasing its U.S. market share to 17.1% from 14.5% in 2023.

Against its direct competitors, Reliance's extensive distribution network and broad product portfolio provide greater accessibility and faster delivery, particularly compared to more regionally focused players like Olympic Steel. Its strong relationships with domestic mill suppliers, which account for over 95% of its metal sourcing, offer a distinct competitive advantage in supply chain reliability and cost management, especially in dynamic trade environments. While competitors like Worthington Industries may excel in specialized manufacturing components or Steel Dynamics in raw steel production cost leadership, Reliance's comprehensive service model and ability to handle complex processing services give it an edge in serving diverse customer needs and capturing market share in general manufacturing, aerospace, and non-residential construction. The company's strong brand recognition further fosters customer trust and loyalty, contributing to its resilient financial performance.

Financial Strength and Strategic Capital Allocation

Reliance's financial performance in 2025 reflects both its operational resilience and the impact of a dynamic pricing environment. For the first six months of 2025, net sales decreased by 2% year-over-year to $7,144.50 million, primarily due to a lower average selling price per ton sold. Despite this, tons sold reached record levels, increasing by 6.4% year-over-year, underscoring the success of its market share capture strategy. Operating income for the first six months declined by 21.2% to $586.60 million, mainly due to lower metals pricing and gross profit margin, which partially offset the benefits of increased volumes.

The company's gross profit margin (on a non-GAAP FIFO basis) remained within its sustainable range, registering 30.4% in Q1 2025, 30.6% in Q2 2025, and 29.0% in Q3 2025. Management noted that short-term gross profit margin headwinds in Q2 and Q3 2025 were largely attributable to trade policy uncertainty and excess inventories in high-value specialty products for the aerospace and semiconductor markets. However, the company believes its gross profit margin troughed in Q3 2025 and anticipates stabilization and slight improvement in Q4. The impact of LIFO accounting, which resulted in a $25 million expense in both Q2 and Q3 2025, reflects cost increases from earlier in the year applied on a pro rata annual basis, rather than current price declines. For the full year 2025, Reliance expects a total LIFO expense of $100 million.

Reliance maintains a robust balance sheet and strong liquidity. As of June 30, 2025, cash and cash equivalents stood at $239.50 million, with total debt at $1.43 billion. The net debt-to-EBITDA ratio remains favorable at less than one, providing significant financial flexibility. The company generated $293.50 million in operating cash flow in the first six months of 2025 and approximately $262 million in Q3 2025, which it strategically deploys.

Capital allocation priorities include organic growth initiatives, strategic acquisitions, and returning capital to stockholders. The 2025 capital expenditure budget is $325 million, with over 50% dedicated to growth projects, and total cash outlays are projected between $340 million and $360 million, including carryover spending. In 2024, Reliance acquired four businesses, adding approximately $400 million in annualized net sales and enhancing its diversification. The company also actively returns capital to shareholders, repurchasing $333.10 million of common stock in the first six months of 2025 and $61 million in Q3 2025, and declaring a Q3 2025 cash dividend of $1.20 per share. The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, is expected to provide an incremental $30 million to $40 million reduction in cash taxes paid due to bonus depreciation.

Outlook and Risk Assessment

For the fourth quarter of 2025, Reliance anticipates stable demand across its diversified end markets, projecting tons sold to be up 3.5% to 5.5% year-over-year, but down 5% to 7% sequentially due to typical seasonal patterns. The average selling price per ton sold is expected to remain relatively flat compared to the third quarter, with a flat to slightly improved FIFO gross profit margin. Non-GAAP earnings per diluted share are guided to be in the range of $2.65 to $2.85, inclusive of a $25 million quarterly LIFO expense, reflecting a typical 20% to 25% sequential decline from Q3 to Q4 due to holidays and customer shutdowns.

Looking ahead to 2026, management expects the pressure from excess inventories in the aerospace and semiconductor supply chains to ease, supporting a recovery in these high-value specialty product markets. The 2026 capital expenditure budget is expected to be directionally lower than 2025's budget, with a focus on optimizing the utilization of existing equipment.

While Reliance's outlook is positive, several risks warrant investor attention. Trade policy uncertainty, including potential tariffs and trade barriers, can impact metals pricing and demand. Economic conditions, such as inflation, recession, or slowing growth, could also adversely affect the business. The company's significant goodwill and intangible assets are subject to annual impairment tests, and geopolitical conflicts remain a broader concern. However, Reliance's strong domestic supply chain and diversified customer base help mitigate some of these external pressures.

Conclusion

Reliance, Inc. presents a compelling investment thesis rooted in its consistent outperformance, strategic diversification, and robust operational capabilities. The company's "smart, profitable growth" strategy, underpinned by its advanced value-added processing technology and exceptional customer service, has enabled it to capture significant market share and maintain resilient profitability even in challenging market conditions. While short-term headwinds from trade policy uncertainty and specialty market inventory adjustments have impacted recent margins, management's proactive measures and the inherent strengths of Reliance's business model suggest these pressures are temporary.

With a strong balance sheet, disciplined capital allocation, and a clear focus on leveraging its competitive advantages, Reliance is well-positioned for continued growth and value creation. The anticipated easing of inventory pressures in key end markets and the ongoing benefits of its strategic investments and market share gains provide a solid foundation for future performance. Investors seeking exposure to a well-managed, resilient leader in the metals service center industry, capable of delivering consistent returns through various economic cycles, should find Reliance's story highly attractive.