Reliance Steel 3Q15 Earnings Call Notes

Reliance Steel & Aluminum’s (RS) CEO Gregg Mollins on Q3 2015 Results

Customer demand remained relatively strong

“Overall customer demand remained relatively strong with our tons sold per day increasing sequentially each month of the quarter.”

Pressure on metals prices from concerns about China, but demand is healthy outside of energy industry

“Although we sent some hesitation in the market at this time, mainly due to recent announcements about slower growth in China, resulting in even further downward pressure on metal pricings, we believe customer demand across our business is relatively healthy outside of the energy industry.”

Heavy industry and heavy equipment sales were strong

“heavy industry which includes railcar, truck trailer, ship building, barge manufacturing, tank manufacturing and wind and transmission towers, demand for this quarter remained fairly steady with the prior quarter. Our exposure to heavy equipment also includes sales into the agriculture equipment market which has weakened recently but has not impacted us the same — to the same extent as our OEMs. On a positive note, demand in the construction equipment market is trending up.”

Energy market deteriorated further

“In our opinion, the overall energy market deteriorated further in the third quarter from the second quarter which continued downward pressure on both pricing and activity levels due to low oil prices and the related reduction in drilling activities.”

Aerospace continues to represent one of our strongest end markets

“The aerospace market continues to represent one of our strongest end markets from a demand perspective”

Stainless steel pricing has fallen with nickel

“Pricing for flat rolled stainless steel products has declined more than any other product in 2015 with September pricing down about 40% from the beginning of the year. Pricing for these products is heavily impacted by nickel prices which began the year at $7.37 per pound and is currently down $2.79 per pound to pound to $4.58 per pound for October.”

Active with share repurchases

“Given what we believe to be an undervalued share price, we have been very active repurchasing our shares this year with repurchases of $142.3 million or $2.5 million shares in the third quarter of 2015”

Energy, ag and mining are weak, but other than that demand is pretty good

“We know energy is down and we think that will continue for longer period of time than I would have told you two quarters ago. Ag, mining, the heavy Ag, I mean and mining, it’s just down and there’s a lot of geopolitical things in the future and present that are going to keep it that way. It’s kind of an interesting time actually. The demand other than what I just mentioned, it’s pretty good.”

Outside of energy the problem is pricing, not demand

“there was like 170 of our managers there, was there really wasn’t a lot of sniffling, if you will, about demand, okay, other than the guys in our energy business, they were all at the bar for quite most of the evening. Okay. But demand wasn’t really the issue. The issue was pricing.”

Energy was 10% of sales down 40% y/y

“energy was about 10% of our sales dollars, not pounds, but dollars and their volumes are down over 40% this year compared to last year. So certainly that took away a bit from us. I don’t know if we can quantify what demand would be, ”

But demand is healthy elsewhere. If it weren’t for imports to the US, we think pricing would be higher

“but what I think we can say is that with the demand levels that exist which we still think are generally healthy, if it weren’t for the imports in the U.S., we think that pricing would be higher because we think the demand is strong enough to help support pricing absent the import activity we’ve seen.”

I’m pleased with our overall inventory position

“we still have a little bit more inventory for the energy sector than we would like. We’re continuing to work that down on a daily basis. But really that’s the only area. Our flat roll inventories and all products are turning well. We have long lead times on aerospace key tree plate but that’s okay. You know, we do well from a profitability point-of-view on those products. So if we’re going to be a little heavy, it would be more on the long lead time items which really the only long lead time items we have in the entire company are the heat replate for aerospace. We’re okay on inventory. I’m very, very pleased with our position in inventory as we speak.”