Reliance, Inc. (RS) Q2 2026 Earnings Call Transcript

Greetings, and welcome to the Reliance, Inc. second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. You may be placed in the question queue at any time by pressing star 1 on your telephone keypad. If anyone should require operator assistance, please press star 0. It's now my pleasure to turn the call over to Kim Orlando, Investor Relations. Kim, please go ahead.

Thank you, Operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's second quarter 2026 financial results. I am joined by Carla Lewis, President and Chief Executive Officer, Steve Cook, Executive Vice President and Chief Operating Officer, and Arthur Ojemian, Senior Vice President and Chief Financial Officer. A recording of this call will be posted on the investor section of our website at investor.reliance.com. Please read the forward-looking statement disclosures included in our earnings release issued yesterday, and note that it applies to all statements made during this teleconference. The reconciliations of the adjusted numbers are included in the non-GAAP reconciliation part of our earnings release. I will now turn the call over to Carla Lewis, President and CEO of Reliance.

Good morning, everyone, and thank you for joining us to discuss our second quarter 2026 results. Reliance delivered another excellent quarter, building on the positive momentum of the first quarter and the continued strong execution by our teams. Market conditions remained favorable, supported by improving customer activity, extended mill lead times, and strong pricing across our broad product portfolio. We achieved our second-highest quarterly revenue, as well as record quarterly tons sold, and continued to outperform broader industry shipment trends. These results and our sustained industry outperformance reflect our scale, diversification across end markets, products, and value-add service offerings, and our position as a partner of choice with domestic mills. Non-residential construction and market sales remained strong, and we began to see meaningful improvements in our sales to the general manufacturing, aerospace, and semiconductor markets throughout the second quarter. We also benefited from initial contributions from the U.S. Department of Homeland Security border wall contract that we were awarded earlier this year, generating activity in excess of our guidance and contributing meaningfully to our second quarter earnings. Stephen Arthur will speak about its financial impact later in the call. Elevated pricing levels, along with strong execution by our teams, drove significant growth in our profitability, including a 40% year-over-year increase in non-GAAP pre-tax income and non-GAAP earnings per share of $6.27, our highest EPS result since the second quarter of 2023. Trade policy continues to limit imports and support strong domestic pricing, which is further strengthened by extended lead times. Our longstanding domestic milk partnerships help ensure reliable material availability, allowing us to better serve our customers and capture new opportunities. Our balance sheet and liquidity remain key competitive advantages, supporting strategic growth investments and ongoing returns to stockholders, as well as disciplined capital deployment. For the full year 2026, our capital expenditure outlook remains approximately $300 million, with about half allocated to strategic growth investments to enhance processing capabilities, strengthen customer service, expand our footprint, and grow volumes in attractive markets. As customer optimism builds and activity continues to strengthen across infrastructure, including the border wall project, semiconductor, general manufacturing, and aerospace, Reliance remains exceptionally well positioned to capitalize on the many meaningful opportunities that we expect to continue to materialize throughout the second half of 2026 and into next year. I'll now turn the call over to our COO, Steve Cook.

Thanks, Carla, and good morning, everyone. Our second quarter performance reflects continued strong execution across our operations and our dedication to safety and exceptional customer service. We'll recognize our teams across the Reliance family of companies whose relentless focus and hard work fuel our industry-leading results and reinforce the many competitive advantages to set Reliance apart. Turning to our demand and pricing trends. Record tons sold increased 7% from the prior quarter, and we're up 10.8% compared to the second quarter of 2025, significantly exceeding our expectations of up 1% to 3% sequentially, and up 4.5% to 6.5% year over year. The sequential increase in our second quarter ton sold included a 5.1 percentage point contribution from the U.S. border wall contract. Carbon steel products continued to lead our ton sold growth. Aluminum and stainless steel products also contributed at higher per ton profitability levels. Our second quarter average selling price increased 7.8 percent from the first quarter of 2026, exceeding our expectation of up 1.5% to 3.5%. This includes a 1.6 percentage point offset from the U.S. border wall project as a result of higher shipment volumes of lower priced products. Pricing for carbon steel and aluminum products continued upward amid constrained supply, extended lead times, and strengthening demand. These market dynamics magnify the strategic benefit of our reliable access to metal from our domestic mill partners. Turning to our end markets, non-residential construction represented roughly one-third of our second quarter sales, primarily from carbon steel tubing, plate, and structural products. Second quarter shipments remain strong despite supply constraints driven by sustained strong activity in data center and related energy infrastructure projects alongside solid demand and heavy civil and public infrastructure work. Our participation in the U.S. border wall project further strengthened our presence in the non-residential construction market. General manufacturing also represented about one-third of our second quarter sales. Our participation in this market is highly diversified across products, industries, and geographies. Shipments showed strong year-over-year growth driven by industrial machinery, including data center equipment, as well as shipbuilding, military, consumer products, and construction machinery. Aerospace products accounted for approximately 9% of second quarter sales. We saw early signs of improvement in commercial aerospace supported by improving backlogs as OEM build rates increased, though elevated inventories persist. Defense and space-related at aerospace activity remained strong during the quarter. Automotive, which we primarily serve through our toll processing operations, represented about 4% of second quarter sales. As a reminder, our toll processing volumes are excluded from our tons sold. Demand improved in the second quarter as our flexible toll processing operations quickly adapted to the variable demands of the automotive market. Lastly, demand in the semiconductor market is showing clear improvement. We are seeing momentum accelerate, supported by increasing data center activities. In summary, Reliance continues to be distinguished by our people, our strong domestic-milk relationships, and our focus on delivering unmatched customer service. In addition, the strategic investments we've made across our footprint are generating tangible returns, and our disciplined commercial and operational approach continues to drive the market and performance and profitability that further differentiate us. I will now turn the call over to our CFO, Arthur, to review our financial results and outlook.

Thanks, Steve, and thanks, everyone, for joining today's call. We delivered another strong quarter with sales increasing 27% year-over-year on stronger-than-anticipated shipment and pricing. Our second quarter gross profit of $1.3 billion was up 11% compared to the first quarter of 2026, and up 20 percent compared to the second quarter of 2025. On a FIFO basis, which is how we evaluate our ongoing performance, non-GAAP gross profit margin expanded to 30.5 percent compared to 30.1 in the first quarter of 2026, down modestly from 30.6 percent in the prior quarter. This includes a roughly 40 basis point margin headwind from the u.s border wall project however as we are leveraging existing infrastructure the project the low company average operating cost per ton more than offset its impact on gross profit margin adding approximately 30 basis points to pre-tax income margin higher than anticipated carbon and aluminum product costs caused us to increase our full-year LIFO expense outlook to $300 million from our prior estimate of $150 million. As a result, we recorded second quarter LIFO expense of $112.5 million, significantly above our estimate of $37.5 million. Accordingly, we also expect to record LIFO expense of $75 million in the third quarter of 2026. At the end of the second quarter, the LIFO reserve on our balance sheet was approximately $700 million, which remains available to support future operating results and help mitigate the impact of future metal price declines. Aluminum was a notable driver of the LIFO expense increase, disproportionately affecting our LIFO gross profit margin relative to historical levels. Higher aluminum pricing resulting from section 232 tariffs without a corresponding increase in demand also continue to constrain FIFO gross profit margins. However, we are realizing higher gross profit per ton on aluminum sales and across our entire product portfolio as a result of the current pricing environment. Non-GAAP SG&A expense increased 11% compared to the second quarter of 2025, driven by higher incentive compensation from improved profitability, inflationary impact on compensation and related benefits, freight and fuel cost inflation resulting from the U.S.-Iran conflict, and and higher variable warehousing and delivery costs associated with our increased ton sold. On a per ton basis, non-GAAP SG&A expense was flat due to favorable operating leverage from higher shipment volumes, including contributions from the U.S. Border Wall Project. Continued market share gains, higher shipment volumes, and increased gross profit dollars drove meaningful operating leverage, resulting in a 40% year-over-year increase in non-GAAP pre-tax income to $429 million. Our non-GAAP second quarter earnings for diluted share grew 42% year-over-year to $6.27, with the U.S. Border Wall Project contributing $0.41 cents per share LIFO expensive one dollar and 64 cents per share for the second quarter exceeded the 54 cent estimate included in our guidance and 35 cents in the prior quarter moving on to our balance sheet and cash flow cash flow from operations in the second quarter improved sequentially to approximately 162 million dollars despite a significant working capital build from increased shipments and higher metal pricing. Our inventory turn rate based on tons improved to approximately 5.2 times compared to 4.8 times in 2025. Accounts receivable DSO of approximately 42 days remained healthy and consistent with the prior year. During the quarter, we funded $93 million of capital expenditures and paid $64 million in dividends. We did not repurchase any shares of our issued outstanding common stock during the quarter and have approximately $529 million remaining available under our current share repurchase program. We remain opportunistic in our approach. Our total debt was $1.7 billion at the end of the second quarter. Our leverage position remains very strong, with a net debt to EBITDA ratio of 0.9, providing substantial liquidity and flexibility to execute on all of our capital allocation priorities. Looking ahead to the third quarter, we expect demand and pricing to remain at healthy levels with continued improvement across several of the key products and end markets we serve, subject to ongoing risks from domestic and international trade policy in the U.S.-Iran conflict, as well as subject to normal seasonality. We anticipate third quarter 2026 non-GAAP earnings per diluted share in the range of $6.40 to $6.60, up 76% to 81% year-over-year, including an estimated $75 million of life flow expense, or about $1.10 per diluted share. Please refer to our second quarter earnings release for further details on our Q3 outlook. as well as anticipated contributions from the U.S. Border Wall Project. This concludes our prepared remarks. Thank you again for your time and participation. We'll now open the call for your questions. Operator?

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. Our first question today is coming from Lawson Windor from Bank of America. Your line is now live.

Hi, good morning. This is Satish on for Lawson. My first question is on the border wall contract. So the shipments accounted for like 5.1% of Q2 volumes, and then you expect an additional 2% improvement in Q3. Is there potential for further upside to these volumes, or should we assume volumes to be fairly consistent through the remainder of Phase 1 period? That's true mid-2027.

Yes, Satish, the volumes, as we, you know, mentioned, were stronger than we had anticipated. We just started shipping under the contract in April, and we did see the volumes ramp and per the guidance we're giving that you just spoke about, yes, we expect higher shipments in Q3. we believe that's close to a full shipment, you know, run rate and should be close to that going through the middle of next year. Although, of course, it's all, you know, dependent on metal supply to us and how quickly our customer pulls the inventory from us. But I think You could assume for now that the Q3 guide is, will be sustained through the following quarters.

Okay. And in your opening remarks, you talked about the ability to capitalize on many meaningful opportunities that will continue to emerge in the second half and into 2027. Can you maybe provide a bit more color on what these opportunities are? is there potential to add similar large government or infrastructure contracts in the near term?

I mean, the border wall contract is a very significant contract, so I don't know that there will be more of that size. However, we do want to highlight that we have the capability to do those types of large contracts or large orders. Just with the momentum we see from our customers, You know, whether it's on the data center, the infrastructure side, the power side, military spending, there's just a lot of customer optimism, and I think Reliance is doing a better job of having our companies cooperate with each other to be able to provide a broader package to customers and make it easier for them to come to us as a solution for their multiple product needs. And so we anticipate being able to support our customers when they desire it. And with reshoring, there's just a lot of positive momentum right now.

Okay. Thanks for taking my questions, and congrats on a great quarter.

Thank you.

Thank you. Our next question is coming from Samuel McKinney from KeyBank Capital Market. Your line is now live.

Hey, good morning. Hey, Sam. Despite continued run-ups in carbon and non-ferrous pricing over the course of the second quarter versus the end of the first quarter, I'll say, your quarter-end inventory increased less than $100 million despite the $600 million increase in revenue. Could you talk about the inventory positioning moving forward given that many of your orders are of that just-in-time variety?

Yes, Sam. Our inventory turn rate was a little above five times for the quarter, which is a little faster than typical. Our company-wide goal is 4.7 turns, but we're very comfortable with where our inventory position is. there is some limited supply, some supply constraints at some of the mills, but with our strong relationships, we're very happy with how our, you know, mill partners are treating us and we're able to get the inventory we need for our customers. But, you know, inventory levels are, I think, probably a little lower across the industry right now.

Yeah, and I also would add of that, Carla, that our strategy of buying domestically, although lead times are extended, they're still a lot shorter than imports coming in. So, you know, based on our robust inventories and our access, we feel like we're still in a really good position to capitalize on, you know, the growing demand out in the marketplace.

Okay. Appreciate that. And then SG&A as a percent of sales this quarter is lower than it's been in a couple of years. With all the storage handling you're doing for the border wall contract. I think it'd be helpful for all of us if you could further discuss just the cost of service that contract versus the rest of your business. You know, the storage handling, obviously much cheaper.

Yeah, the, you know, SG&A costs and as a percent of sales, you know, the average sell price being significantly higher drives that down as a percentage. There are, you know, we're still facing inflationary factors on different elements of our SG&A expense. resulting in higher dollars, but the elevated selling prices help to cover that. And on the border wall contract, we are doing some value-add processing, but I would say at a lower rate based on total tonnage that we're providing than the rest of the company. So that keeps the SG&A costs, you know, lower per ton for the volume going into the border wall.

And Sam, I would add that, you know, since we're leveraging our vast existing infrastructure, that's what's truly allowing us to lower the variable costs on this project. Otherwise, you know, for anybody else to be able to take this on, it has to make significant investments in infrastructure, including facilities, equipment, et cetera. So, yeah, absolutely. The variable cost per ton is significantly lower than the company average, and hence the pre-tax margin accretion impact that we mentioned.

Great. Thank you.

Thank you. Our next question today is coming from Tim from Wells Fargo. Your line is now live.

Hey, good morning. I wanted to ask a little bit about the components of the product mix you have so what you're seeing there really tight and prices have inched up further um aluminum at least lme has retreated how does that play out for your products and pricing into the second half and then um i have a follow-up i guess with more flat roll questions yeah hi timna um yes beam and plate prices have seen um strong increases it's a a tight market and there's you know significant customer demand pulling that so um you know we're

we're participating in those markets as we always do just at higher higher pricing levels and i think um you know a stronger pull on those products and there there was the you know aluminum price pullback but from very high levels and i would say you know from that standpoint even though the price has pulled back a bit, it's still elevated pricing levels. We're making very high levels of gross profit dollar margin on the aluminum products we're selling as well as beam and plate.

Yeah, Tim, I would add to Carla's comments. So based on our market position and beams and plate and some of our service centers that have been in this business for a long time And when, you know, demand, when supply gets a little bit tight, we get what we've been getting, you know, in the past years. You know, people don't like to use the word allocation. But when it is really tight, we get what we got in the past. And also, you know, when we need some favors or have, you know, some jobs that come up, we do get preferential treatment. So, I would say that just the long track record really helps us in a market like this.

Okay, that makes sense. On the flat roll side, it does seem like lead times came down, came back up, depending on who you're looking at. Are you seeing evidence that the mills are starting to catch up with their, you know, lead times?

What are you seeing on the flat roll side?

It seems like even if you're not importing, there's quite a bit on the water. So just a little more color, that would be great.

We are not importing flat roll, Timna. I would say that our average flat roll order is about two weeks late. but with some mills they're four to eight weeks late we've not seen a whole lot of signs of our suppliers catching up although they really are trying to deal with the increased demand and some production challenges okay great and before i let you go if i could um don't have as much color on the other components the stainless and alloy what do you see in trend wise there in terms of pricing and activity so for for stainless prices have stayed pretty steady and then some specialty stainless where there's been an inventory glut that seems to be working itself off, and we think that the second half should show some increase in prices.

Thank you.

Our next question today is coming from Nick Cash from Goldman Sachs. Mine is now live.

Hi. Thank you all, and good morning. I just want to go back to the border wall real quick. I mean, you guys shipped about 85,000 tons in 2Q, 2Q, and that's ramping up to call it maybe 120,000 tons in 3Q. In 2Q, it added 30 basis points of pre-tax margin. Should we expect that OPEX light structure to hold as you scale up shipments, or could there be any change there? Thanks.

Hi, Nick. Yeah, we expect to hold at those levels, and the higher volumes make us probably a little more efficient with the tons going through, but those are good assumptions for the border wall contract.

Okay, thank you. And then just one more on carbon tubing, that jumped from 9% to 12% quarter over quarter. Are you seeing the wall crowding out any potential commercial availability for tubing, or how are you counteracting that?

Well, I would say the increase in our product mix for the tubing is pretty directly attributable to the tens we're shipping under the border wall contract, and I think it, you know, from a market standpoint, it is consuming, you know, a good amount of product, but that helps support overall carbon pricing, especially for the tubing products.

Fantastic. Thank you. I'll pass it on.

Thanks.

Thank you. Next question today is coming from Martin Englert from Seaport Research Partners. Your line is now live.

Hello. Good day, everyone. I wanted to come back to a question in the release here. You noted potential supply availability as a headwind in non-residential construction, I believe. I just wanted to see, could you provide some more color? And then kind of what you're hearing from customers in the construction industry regarding potential project delays or cancellations due to supply and or higher metals prices?

Hi, Martin. As we mentioned, you know, our volumes shipped have been strong, but there is, you know, some, as Steve just mentioned on an earlier question, you know, there is allocation, so to speak, on some of those products because demand has been so strong. So that helps, you know, elevate the prices. But, you know, I don't think we've seen any significant project delays.

No, we haven't seen any delays as far as I know. And when we say headwinds, our customers are growing and they want us to grow alongside of them, and that's kind of our goal. But when there's such a demand, we try to make sure that we give them everything that they need, but we just don't have, you know, an unlimited amount. So, you know, I think that we're keeping up with our customer demand.

And then a broader question about the industry. There's been some consolidation. Do you anticipate any increased competition from this, or rather could it result in a situation where in the broader distribution processing industry in the United States is more disciplined when it comes to factors like price and margin?

Yeah, so we're hopeful that it will create a more disciplined environment, you know, with fewer competitors. We hope that it takes one bidder, one competitive bidder out, hopefully, if they focus on more pricing discipline.

Okay. Appreciate the caller, and congratulations on the results and the outlook. Thank you.

Thank you. Thank you. Next question today is coming from Bennett Moore from J.P. Morgan. Your line is now live.

Good morning, Carla. Steve, Arthur. Thank you for taking my questions, and congrats on the strong quarter. Excluding the DHS contract contribution, shipments were guided down 2% to 4% quarter over quarter. I believe this is in line with what you've guided to 3Q on typical seasonality. that the commentary, the market commentary has been, you know, incrementally positive and you continue to gain shares. So I guess I'm just trying to gauge, you know, what level conservatism may be baked into that guide.

Yeah, Bennett, you're correct. That's kind of the typical seasonality. Also, to the extent that there is somewhat limited supply availability is also another factor in that. So that's our you know, best estimate at this time. Okay.

Thanks for that. And then when the LIFO expands came in a bit bigger than expected, I think you alluded that aluminum was proportionally a bigger driver there. But, you know, when you're pushing through price hikes last quarter on the steel side, that seemed to be supportive of margin expansion. So I guess I'm wondering what was the breakout on the LIFO aluminum versus carbon this past quarter? And are you seeing any steel buyers less willing to accept price hikes at these levels? I guess given expectation, pricing may be peaking somewhat soon.

Yeah. Hi, Bennett. So, I mean, LIFO is aluminum's disproportionate impact. When you look at our annual estimate, you know, it's roughly what, let's say, 17% of our sales, and it's contributing to about a third of our annual estimate. So, out of the $300 million, roughly $100, as of now, at least, is aluminum-related. And we've not really had, you know, dynamics like this before. As you know, aluminum pricing, you know, has nearly doubled, you know, like the pre-tariff levels, and the increases are much more significant, and you just don't have the same kind of supply and demand dynamics that you have on the carbon side. Now, you step back and say, you know, what kind of effect is aluminum having on overall profitability? It's actually our gross profit per pound per ton is up significantly from a couple years ago, right? So, even with the significant and outsized amount of LIFO contribution, Now, what it's doing is, you know, creating some distortion at the percentage level, right? And when you look at consolidated margins and compare aluminum impact, you know, on margins to where it is today from two years ago, before LIFO, it's roughly a 50 basis point compression, and you layer this outsized LIFO impact, that's another roughly 50 basis point. So, aluminum alone is basically introducing roughly 100 basis point margin compression noise. Now, you know, on the flip side, though, one would assume that, you know, it's not contributing to the higher profitability, but it's the exact opposite, right? Our gross profit per unit and overall gross profit dollars are up significantly from, you know, a year or two years ago. So that's kind of the additional color on aluminum and impact on LIFO and margins.

Thanks for that, Arthur. I guess just on the last part of the question, though, I know the market's tight for carbon, but are you seeing any evidence of pushback from buyers at these levels, at these price levels?

I mean, as long as our customers can buy the product from us and put their fair markup on it and sell it to their end markets, they're okay right now. What we are seeing is a lot of our competitors with higher interest rates and a higher cost of carrying inventory is there's a lot of holes in inventories and our inventory levels are pretty robust. So I think that there's just great opportunity for us to capture more market share and help those customers who are having trouble getting steel out in the marketplace.

All right. Thank you.

Thank you. Your next question is coming from Katia Jancic from BMO Capital Markets. Your line is now live.

Hi. Thank you for taking my questions. Maybe going back to the border wall, and I apologize if you already talked about this, but I think last quarter you mentioned that the phase one of the projects It has affected to add about $1.4 billion in sales through mid-27. But in the past, or at one point, the discussion was that the total value of the contract could be over $2 billion. So does that mean that the contract actually can extend beyond the mid-27, or how should we think about it?

Yeah, that's correct, Katya. There's the phase one with the $1.4 billion through the middle of 2027. And then there's, you know, another roughly $800 to $900 million that is up to our customer to opt in for that. It's not guaranteed. We believe that they will probably execute that extension for Phase 2, which would extend it beyond the middle of 2027. but also it just depends they can accelerate some shipments as well during the project phase so we're just there to satisfy our customers needs then maybe on just kind of a broader question are there any products within your portfolio that are currently harder to source than others or that you're having issues procuring? I think at an overall level, again, because of our relationships with our domestic suppliers. We, I wouldn't say we're having issues getting metal, but some markets certainly are tighter than others, you know, such as beams is a little tight right now.

Carbon plate, heat-treated aluminum plate with, you know, aerospace and semiconductor rebounding.

Okay, thank you.

Thanks, Glenn.

Thanks, Glenn. Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over to Carla for any further closing comments.

Thanks again to everyone for joining us today and your continued support of Reliance. And a special thanks to all of our employees throughout the Reliance family for staying safe and helping us generate such strong results. Before we conclude, I also want to mention that we'll be in New York in early September presenting at the Jefferies Industrials Conference, and we look forward to connecting with many of you at the event. Thanks, everyone, and goodbye.

Thank you. That does conclude today's webcast. May disconnect your line at this time, and have a wonderful day. We thank you for your participation today.