Earnings Call Transcript - RS Q3 2025

Operator, Operator

Greetings, and welcome to the Reliance Inc. Third Quarter 2025 Earnings Conference Call and Webcast. It's now my pleasure to turn the call over to Kim Orlando with ADDO Investor Relations. Kim, please go ahead.

Kimberly Orlando, Investor Relations

Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's third quarter 2025 financial results. I am joined by Karla Lewis, President and Chief Executive Officer; Steve Koch, Executive Vice President and Chief Operating Officer; and Arthur Ajemyan, Senior Vice President and Chief Financial Officer. A recording of this call will be posted on the Investors 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 Karla Lewis, President and CEO of Reliance.

Karla Lewis, CEO

Good morning, everyone, and thank you all for joining us today to discuss our third quarter 2025 results. We delivered another solid quarter amidst market uncertainty, reflecting the strength and adaptability of our business model and solid execution across the Reliance family of companies. Our third quarter results demonstrate how Reliance's scale, diversification and high-performing management teams combine to deliver strong financial performance and capture market share in a uniquely challenging environment. Our tons sold were a third quarter record and outperformed the industry by approximately 9 percentage points, increasing our U.S. market share to 17.1%, up from 14.5% in 2023 due to our smart, profitable growth strategy. Driven by our high levels of customer service and broad inventory and processing capabilities, we offset declining industry shipment trends by winning new business opportunities that also better leverage our operating expenses and meaningfully contributed to our overall profitability. Trade policy uncertainty and readily available inventory are causing buyers to be hesitant, creating an extremely competitive market. In this environment, it is more difficult to immediately increase selling prices to fully offset mill price increases. These factors have contributed to short-term gross profit margin headwinds in the past 2 quarters. In addition, the aerospace and semiconductor markets that we serve, which have high-value specialty products that typically contribute meaningfully to our profits, continue to underperform due to excess inventories within these supply chains. We are confident, however, that the underlying margin profile of our consolidated business remains solidly intact, and we maintain our long-term annual sustainable gross profit margin range of 29% to 31%. Our scale, product and end market diversity and exceptional customer service, including next-day delivery and extensive value-added processing capabilities, were instrumental in our outperforming our competition and capturing significant market share. Overall, non-GAAP earnings per diluted share of $3.64 were within our expectations and guidance for the quarter. Our capital allocation strategy is designed to drive growth and deliver strong returns to our stockholders. We generated approximately $262 million in operating cash flow in the third quarter, which we strategically redeployed into high-value initiatives, including investments in advanced processing equipment and other projects that strengthen our long-term growth platform. Our 2025 capital expenditure budget remains at $325 million, with more than half directed towards growth initiatives. Including carryover spending, we expect total cash outlays between $340 million and $360 million in 2025. Our strong financial position also affords us the flexibility to pursue M&A opportunities that enhance our geographic reach, expand our value-added capabilities and strengthen our margin profile. At the same time, we remain committed to returning capital to our stockholders. During the quarter, we returned $124 million through dividends and share repurchases. Our year-to-date repurchases total more than 1.4 million shares, reflecting our balanced approach to growth and shareholder value creation. In summary, our teams navigated the quarter exceptionally well, keeping our people safe while managing market dynamics with discipline and focus. Our primarily domestic supply chain and strong relationships with our U.S. mill partners provide Reliance a distinct competitive advantage, while our nimble operating model, solid balance sheet and diversified product mix continue to underpin strong and consistent performance. These same strengths also position us favorably to capitalize quickly as market activity rebounds. Looking ahead, we remain focused on investing for growth and delivering value to our customers and stockholders, supported by our consistently strong cash generation. I'll now turn the call over to our COO, Steve Koch, who will review our demand and pricing trends.

Stephen Koch, COO

Thanks, Karla, and good morning, everyone. I want to begin by recognizing our teams across the organization for their strong execution in the third quarter, delivering outstanding service to our customers and navigating ongoing macro challenges with discipline while maintaining the relentless focus on safety. Looking at our demand and pricing trends. Third quarter tons sold were consistent with the second quarter of 2025, surpassing our expectations of down 1% to 3%. Our tons sold increased 6.2% compared to the third quarter of 2024, significantly outperforming the service center industry which reported a decrease of 2.9% in the same comparative period. Our outperformance of the industry demonstrates our ability to gain share in a demand environment constrained by market uncertainty through our smart, profitable growth strategy and the contributions of our continued investments in growth. Consistent with our outlook, our third quarter average selling price remained steady compared to the second quarter of 2025, even as tariff-related momentum quickly leveled off. Pricing upside from certain aluminum and stainless steel products was offset by pricing pressure on most carbon steel products as well as stainless steel products sold into the aerospace and semiconductor industries. Through industry overbuying in the first quarter of this year in advance of the tariffs as well as readily available inventory at domestic mills and depots, pricing for most products has been declining since April, resulting in a very competitive market, which, when combined with stable to declining end demand, has pressured our gross profit margins. As Arthur will expand upon when reviewing our outlook, we believe pricing for most products has now stabilized entering the fourth quarter. Our teams navigated these market dynamics very well while maintaining discipline in pricing and strong customer service levels. Turning to our key end markets. Nonresidential construction represented roughly 1/3 of our third quarter sales, comprising carbon steel tubing, plate and structural products. Shipments for these products were seasonally strong in the third quarter and increased compared to the third quarter of last year, driven by strong demand in public infrastructure work, including civil projects, schools, hospitals and airports, as well as ongoing data center construction. Our scale and broad geographic footprint enable us to capture growth across these key areas. General manufacturing, also about 1/3 of our third quarter sales, is highly diversified across geographies, products and industries. Shipments in this market also increased year-over-year as military, industrial machinery, consumer products, shipbuilding and rail sector shipments were seasonally strong and showed solid year-over-year growth. Relative weakness in agricultural machinery continued. Our sustained outperformance across key product groups in general manufacturing highlights the versatility and competitive advantage of our diversified business model as well as our ability to grow with both new and existing customers in an uncertain macroeconomic environment. Aerospace products comprised approximately 9% of total sales in the quarter. Demand on the commercial side was down slightly due to pent-up inventory in the supply chain, while demand in defense and space-related aerospace programs remained consistent at strong levels. Automotive, which we primarily service through our toll processing operations and do not include in our tons sold, represented about 4% of our third quarter sales. Our processed tons improved over the third quarter of 2024 supported by our investments in capacity expansion. The semiconductor market remained under pressure from ongoing excess inventory in the supply chain during the third quarter. In summary, I thank our team for their strong, focused and safe execution in uncertain and volatile market conditions. The scale and diversity of our product offerings and value-added processing capabilities, combined with dependable customer service, continue to win Reliance new business and new customers and increase our market share. To reiterate what Karla said, we are well positioned to capitalize and improve on our already strong results as market activity rebounds. I will now turn the call over to our CFO, Arthur Ajemyan, to review our financial results and outlook.

Arthur Ajemyan, CFO

Thanks, Steve, and thanks, everyone, for joining today's call. We were pleased to report third quarter non-GAAP earnings per diluted share of $3.64, consistent with both our expectations and the third quarter of 2024. Of particular note, the third quarter of 2024 benefited from $50 million of LIFO income, compared with $25 million of expense this quarter, which equates to a $1.03 per share unfavorable year-over-year LIFO impact. I'll circle back to LIFO, but first, I'd like to expand on a couple of points that Karla and Steve mentioned: gross profit margin headwinds and market share gains. Trade policy uncertainty has contributed to temporary headwinds to gross profit margins since May of this year for most carbon steel products. Tariffs initially drove rapid price increases for carbon steel products, which slightly elevated carbon steel margins. But without a corresponding increase in demand and plenty of inventory availability in the supply chain, we encountered a very competitive pricing environment, which led to a third quarter margin decline for carbon products from somewhat elevated levels in the first half. In addition, ongoing excess inventories within the aerospace and semiconductor supply chain continue to pressure prices and margins across a range of stainless steel and aluminum products. In sum, gross profit margin associated with less than 10% of our sales has contributed to consolidated margin compression. We expect this pressure to ease as we move through 2026. Finally, the impact of our LIFO accounting method also contributed to margin pressure this quarter. Since LIFO is applied on a pro rata basis, we continue to carry LIFO expense through 2025 that reflects cost increases that occurred earlier this year. This LIFO effect tends to smooth out on an annual basis, though. For the full year 2025, we are still expecting $100 million of LIFO expense. Turning to organic growth. Our teams have done an outstanding job winning new business and growing with existing customers. We tend to outperform industry shipment trends at wider margins during uncertain times. The incremental volume of over 100,000 tons for the third quarter and over 300,000 tons for the year so far in 2025 has allowed us to meaningfully contribute to our overall profitability. On a FIFO basis, our gross profit margin was 29% in the third quarter, up from the third quarter of 2024, and our FIFO pretax income increased 30%. Looking at expenses, our same-store non-GAAP SG&A expenses were up 4.8% for the quarter and 3.6% for the 9-month period compared to the same prior year period, due to inflationary wage adjustments and higher variable warehousing and delivery costs to support our increased tons sold. We also saw higher incentive compensation in the third quarter due to a 30% increase in FIFO profitability. On a per ton basis, our same-store non-GAAP SG&A expenses were slightly lower in both the third quarter and the first 9 months of 2025 compared to the same period in 2024, demonstrating the operating leverage achieved through our smart, profitable growth strategy. I'll now address our balance sheet and cash flow. We generated approximately $262 million in operating cash flow in the 2025 third quarter, which reflected a working capital investment due to seasonally strong net sales. We continue to generate strong cash flow from operations throughout market cycles, which we redeploy to execute our opportunistic capital allocation strategy. We used that cash to fund $81 million in capital expenditures, pay $63 million in dividends and repurchase $61 million of our common shares at an average price of approximately $288 per share. Year-to-date, our repurchases have reduced total shares outstanding by 2%. And we have approximately $964 million available for further repurchases under our $1.5 billion share repurchase plan that we refreshed in October 2024. As previously announced, on August 14, 2025, we borrowed $400 million under a term loan agreement maturing in August 2028, and used the proceeds to retire senior notes due August 15, 2025. As of September 30, our total debt was $1.4 billion, including $238 million in borrowings on our $1.5 billion revolving credit facility. Our leverage position remains favorable with a net debt-to-EBITDA ratio of less than 1, providing significant liquidity to continue executing our capital allocation priorities. Looking ahead, we anticipate overall demand in the fourth quarter will remain stable across our diversified end markets subject to ongoing domestic and international trade policy uncertainty. Accordingly, we estimate our tons sold will be up 3.5% to 5.5% compared to the fourth quarter of 2024. And consistent with seasonal trends, down 5% to 7% compared to the third quarter of 2025. We anticipate our average selling price per ton sold for the fourth quarter of 2025 will stay relatively flat compared to the third quarter. As a result, we anticipate flat to slightly improved FIFO gross profit margin in the fourth quarter. Based on these expectations and consistent with typical sequential seasonality where we experience approximately 20% to 25% decline in earnings per share in the fourth quarter, we anticipate Q4 non-GAAP earnings per diluted share in the range of $2.65 to $2.85, inclusive of quarterly LIFO expense of $25 million or $0.35 per diluted share. This concludes our prepared remarks. Thank you again for your time and participation. We'll now open the call for your questions.

Operator, Operator

Our first question today is coming from Katja Jancic from BMO Capital Markets.

Katja Jancic, Analyst

Maybe starting on the gross margin. So I understand that right now, the environment is such that it's resulting in gross margin compression. But is any of this compression attributable also potentially to your focus on growing volumes?

Karla Lewis, CEO

Katja, from a gross profit perspective, we have provided enough context in our remarks and release to illustrate the uniquely challenging market we've faced over the past couple of quarters. Recently, I spoke with several of our long-standing leaders at some of our typically higher-performing Reliance companies, who have been in the business for 30 to 40 years. They expressed that they have never encountered a market like the one we've experienced in the last two quarters, where pricing strength due to tariffs has not been accompanied by underlying demand. This situation is somewhat unique to the current environment. Our teams have performed exceptionally well in winning business and are receiving price increases from certain mill price hikes on products, though not at the same rate we usually see during periods of demand pull-forward. We believe this situation is temporary. We also highlighted that some of our specialty products, particularly in aerospace and semiconductor markets, have been a drag on margins. We remain optimistic about both markets in the long term, although the current challenges have disproportionately affected our gross profit margin. Regarding our smart, profitable growth strategy, which our teams have successfully executed over the past couple of years, our goal is to grow volumes with profitable business while maintaining a sustainable gross profit margin in the range of 29% to 31%. We acknowledged there may be quarters where we dip below this range, as we did this quarter, partly due to the timing impact explained by Arthur. While we have been increasing our tons in the flat-rolled space, those margins tend to be lower than some of our other products. This could have a slight impact, but overall, we believe the end game is favorable because it contributes positively to our earnings and helps leverage our SG&A expenses. We are pleased with the additional profit these tons are generating for us. While this is not the primary reason for the margin dip, it may play a role along with broader market conditions and the effects on some of our specialty products.

Katja Jancic, Analyst

Okay. Maybe when I look at your inventory level on your balance sheet, it seems like they're moving higher a little bit. I wouldn't expect this to be the case in this environment. Can you maybe talk a little bit about what's going on there?

Karla Lewis, CEO

So part of that is pricing. Because as we mentioned, there have been mill price increases, so that's part of the dollars increasing. But we also have our tons up, and we buy based on what we're shipping. And so I think we might have a slight uptick in tons as well, but it's right for the market. And I think we've seen many of our competitors pulling back a bit from having inventory on hand, and this is allowing us to win some business and better service our customers.

Operator, Operator

Our next question is coming from Timna Tanners from Wells Fargo.

Timna Tanners, Analyst

I wanted to follow up on the inventory situation. You mentioned that ongoing excess inventory was impacting margins. Another mill CEO recently stated that destocking is complete. I'm trying to understand how close we are to moving past this issue. When do you anticipate we will reach appropriate inventory levels? Were you referring to your competitors or your customers?

Karla Lewis, CEO

Yes. So Timna, more at both the mill and the service center level in Q2 and Q3. There was a lot of inventory at the beginning of the year. We think a lot of service center companies were buying heavy to get in front of the tariffs, whether that was coming through import or domestic buys. So we believe service centers have been trying to work down that inventory. We do believe those inventories have come down. We're not going to say if destocking is over. We don't talk about destocking and restocking in our company. We talk about buying what we need based on our shipment levels. But we are starting to see lead times for certain products go out a bit, which is a positive sign. Are we at an inflection point? Potentially. If we're not there, we're probably closer than we were. And when we were talking about the impact on gross profit margin from the competitive environment with a lot of inventory, that was really talking about Q2 and Q3 and the markets we were in every day. So we do see momentum coming out of that. We think like our gross profit margin troughed in Q3 based on the factors we see today. So I would say we probably generally agree with that comment, but probably just wouldn't say it is strongly as others.

Timna Tanners, Analyst

Fair enough. I want to ask on the comment about winning new business. How does Reliance win new business? Is it execution? Is it price? Is it a little of both?

Karla Lewis, CEO

Hopefully, it's execution and not price. That's the strategy. We changed our message a couple of years ago and set specific targets with some of our Reliance companies, where we believed they could grow profitably, and we asked them to execute on that. It involves reaching out to customers, possibly those they hadn't contacted before, or reclaiming business they previously had. We also have significantly enhanced processing capabilities, allowing us to better serve our customers with new investments in equipment. Thus, it's about educating our customers, securing their orders, and demonstrating our value. We believe we offer some of the highest levels of customer service in the industry. Typically, once our companies can establish a relationship with customers and show how well we can service them, we expect to retain most of that business we've gained in the last few quarters. Our model aligns well with the competitive market we're in, where there's been hesitance to purchase excessive inventory due to tariff uncertainties and falling prices for some products. Our ability to manage small orders on a just-in-time basis is advantageous in this market environment. As a result, we've likely gained some business because of changes in customer buying patterns, but we believe we can maintain a significant portion of that business we've secured in recent quarters.

Timna Tanners, Analyst

Okay, appreciate it. And I want to squeeze in one more if I could. I'm going to dare to ask a question about LIFO. But it's kind of bizarre to see continued LIFO expense at the same time as you're talking about prices having drifted lower recently. So I guess just at a high level, when do we clear the decks and start to have like a neutral LIFO environment? It sounds like you're still expecting continuation into Q4. But is it getting to a point where we run through that and start to see LIFO income or at least no LIFO impact?

Arthur Ajemyan, CFO

Yes, Timna, good question. So LIFO is an annual estimate. So I guess, the way you're thinking about it, a lot of the cost increases, if you step back or look at the year, happened in the first half of the year. But because it's an annual estimate, we applied it pro rata. So you're right. And intuitively, when you look at Q3 and you say there's LIFO expense, it's essentially associated with cost increases that are in the rearview mirror. But again, because the accounting method is pro rata, you're effectively spreading that equally throughout the year. So as we head into 2026 and costs are relatively flat, then essentially LIFO expense is in the rearview mirror.

Karla Lewis, CEO

And just as a reminder, Timna, when we're in more normal times with pricing moves based more on the supply-demand dynamics and prices are going up because of demand and that creates LIFO expense, we're happy to incur LIFO expense in that type of environment. But again, it's been a bit of an atypical environment the last couple of quarters.

Operator, Operator

Our next question is coming from Phil Gibbs from KeyBanc Capital Markets.

Philip Gibbs, Analyst

The semis, infrastructure and aerospace pieces specifically certainly been noting excess inventories for most of 2025. And I know Timna made a general question about excess inventory in the supply chain. But those markets specifically, are you anticipating that those begin to turn around or levelize sometime in 2026?

Karla Lewis, CEO

Yes. Phil, we want to clarify that in those markets, we're specifically discussing high-value products. These are the products we've been talking about for the last couple of years, especially since the end of last year. After COVID, we experienced lead times extending to 50 to 80 weeks, which was unprecedented. This trend affected the entire industry. We believe there was some overbuying in both the aerospace and semiconductor sectors due to concerns over availability. The supply chain is gradually working through these products. There are some areas where we’re starting to notice improved demand. While it isn't worsening at the moment, certain products will need more time to improve. Looking ahead to 2026, we anticipate continued advancements in the supply chain for those products.

Stephen Koch, COO

Phil, I would say that if you think about the aerospace inventory, from a Reliance point of view, we're probably in the seventh or eighth inning of kind of getting our inventory under control and in a good position to start restocking in the first quarter of 2026. But the overall industry and our competitors and some of our customers, they're probably more in the fifth and sixth inning. So I think we're in good shape, but we're still going to have to deal with the market dynamics of the reality of there's a lot of inventory.

Philip Gibbs, Analyst

And on the CapEx side, I think you said around $350 million in cash CapEx this year. What should we anticipate for 2026? Because I know you've been kind of on an above trend for the last several years as you've invested in your capabilities and made more acquisitions.

Karla Lewis, CEO

Yes, Phil, that is our current estimate for this year. We're working on our 2026 CapEx budget as we speak. It, we believe, will be probably below what our 2025 number was. We've had some record years the last few years, and it's been good investments for us. But we are pushing our people to really utilize the equipment that we have better, how can we maybe share some of that equipment within the Reliance network, and just really pushing for better utilization of the investments we've already made. But we will continue. We do continue to see growth opportunities and we will have some growth initiatives in our CapEx in 2026. We'll give you that number in February, but probably directionally lower than our budget of $325 million in 2025. And remember, there will be carryover. Some of these projects are multiyear projects. So the cash outlay might be more consistent with this year just because of some of the carryover coming into 2026.

Philip Gibbs, Analyst

And the last question, just on taxes. So I know there's been the Big Beautiful Bill and half a dozen other things that seemingly are changing cash tax rates and effective tax rates for companies. But is your cash tax rate for this year and next year relatively aligned with the effective rate? Or is it somewhat below?

Arthur Ajemyan, CFO

Yes, Phil. Looking at our tax rate, we are primarily a full rate taxpayer. Regarding the new tax bill, particularly the bonus depreciation, it will help reduce our cash taxes. We are currently estimating the impact, which could result in an additional reduction of cash taxes in the range of approximately $30 million to $40 million. That covers the extent of our estimated impact at this point.

Operator, Operator

Our next question is coming from Bennett Moore from JPMorgan.

Bennett Moore, Analyst

If I could circle back real quick on the aero comment, I think from Steve. It sounds like you're expecting maybe restocking could emerge as soon as the first quarter. Is there any difference there between the aluminum and stainless side just given some commentary for some other players this morning and Boeing moving to 42 a month as of Friday?

Karla Lewis, CEO

Yes, Bennett. So from I think Steve's comment, again, he was talking specifically about Reliance's inventory position. And remember, we're talking about these specialty alloy steels, titanium, specialty aluminum products. So it's not impacting all of our aerospace inventory and aerospace business. We've seen relatively steady activity with like the aluminum plate and some of the other products that we consistently sell into aerospace. This is a pocket of our inventory that we were talking about. But I commented earlier we're long-term bullish on aerospace increased build rates, and that could help that supply chain excess inventory get worked through faster. So that's all positive for Reliance and for the industry if we realize increased build rates.

Stephen Koch, COO

Yes. We're in really good shape regarding our heat-treated aluminum with the 2x and the 7x for aerospace. We're a little more challenged with some of the specialty long products that we're working through.

Bennett Moore, Analyst

All right. And then turning to the steady pricing guidance, if I could kind of dig into some of the puts and takes here. I mean it seems like flat steel is looking pretty steady. I think you made some similar comments. But we have seen the tinted plate price hikes over the past few weeks with some success. Structural sounds pretty strong, and Midwest premium reached a record high over this past week. So could you walk us through kind of the puts and takes there?

Stephen Koch, COO

So from the wide flange beam point of view, the lead times have been extended and demand has been strong for most of the year, actually probably the last 12 to 18 months. We do appreciate the plate increase that was announced recently, because there was a continuous sliding of some of those products. So we believe that that stopped some of the bleeding, and we are looking for more of an uptick in the fourth quarter going into 2026. There's a merchant bar increase that we think is going to take hold. And just in general, there's been some halt in some of the tubing mills. Overall, looking for brighter days in some of the carbon products.

Karla Lewis, CEO

And I would comment too, you mentioned aluminum, Bennett, on the common alloy aluminum, and we did get our prices up in Q3 based on those price increases, some pretty high levels on the Midwest spot, which are good for us, and we're passing through. But I think with the trade uncertainty and not knowing when and what some of those final agreements might be, there's overall some hesitancy of stocking up too much on inventory in case there is a trade action related to the aluminum products.

Bennett Moore, Analyst

That's great color. And if I could squeeze one more in maybe just on M&A. We saw some activity from peers this past month. Just hoping to get your latest read on the M&A landscape, valuations, if you're seeing any new opportunities emerge.

Karla Lewis, CEO

Yes, we are observing a steady stream of opportunities. We mentioned that during the fourth quarter of last year and the first quarter of this year, activity slowed somewhat due to the elections. However, the market has rebounded to what we consider normal levels and has maintained that pace. We continue to explore available opportunities and consider potential areas for growth. Overall, we find the current M&A environment to be favorable, with valuations generally appearing reasonable. Each opportunity varies based on the sellers’ expectations, but we are happy with the level of activity we are witnessing.

Operator, Operator

Our next question is coming from Mike Harris from Goldman Sachs.

Michael Harris, Analyst

Quick question. As you work through the gross profit margin headwinds, are there any SG&A leverage you can pull to help protect the operating margin?

Karla Lewis, CEO

Yes. I think that's something we focus on daily and encourage our team to concentrate on. We have been discussing internally and urging our people to actively seek efficiencies in their operations, particularly in warehouse activities. Despite shipping higher volumes over the past few quarters, we have reduced our headcount. This is an ongoing focus for us. We have multiple locations that do not perform uniformly, so we are constantly assessing any underperforming assets and exploring how to implement changes. Occasionally, we consolidate locations or close smaller sites. This is a regular part of our operations. Additionally, with our strategy for smart, profitable growth, we are improving our leverage on the fixed cost component of our expenses. Arthur, do you have anything to add?

Arthur Ajemyan, CFO

Yes. No, great color, Karla. And Mike, yes, we actually peaked headcount in Q2, and we've trended down. And that's part of the efforts that Karla mentioned around rationalizing our operations. I think the service levels in this environment are important, and our market share gains have had a lot to do with our service levels. So it's important to be really thoughtful about maintaining those and not just go in and reduce headcount for the short term, but in the long term really impact our service levels. So we're being very thoughtful, methodical as we're navigating this environment and really growing the business, getting new customers along with existing customers. We've had some really good success with that, and we're looking forward to continue that.

Michael Harris, Analyst

Okay. Great color, guys. And then I guess just on the market share gain that you pointed out, going from 14.5% up to like 17.1%. Just curious as to how much of that would you attribute to organic versus inorganic growth.

Karla Lewis, CEO

Yes. We have made a few acquisitions over the last couple of years, specifically four in 2024, which contribute to our growth. We highlight our same-store and consolidated shipment trends, but the majority of our growth has been organic. This includes investments in new opportunities, expansions, and enhancing our value-added processing. Our sales team has been actively seeking more opportunities and pursuing business that we may not have targeted in recent years. We are very proud of our teams for their proactive approach, focusing on service rather than price to achieve increased business.

Arthur Ajemyan, CFO

Yes. That majority is organic, so.

Michael Harris, Analyst

Okay. Great. And then just last one, if I could. If we look at the third quarter shipments, were there any, I guess, major onetime items in there or perhaps any pull-forward sales that you would call out?

Karla Lewis, CEO

No, there's nothing there we would call out, Mike. I mean when your average order size is $3,000 an order, it's hard to get that one big order that really moves the needle. So I think it was just pretty broad-based.

Operator, Operator

Our next question is coming from Martin Englert from Seaport Research Partners.

Martin Englert, Analyst

For nonresidential construction, it seems reasonably good. I'm curious, how much of this activity do you think is related tied to AI, data centers, semiconductor build-outs, kind of that camp of activity?

Karla Lewis, CEO

Yes, Martin. It's challenging for us to measure this due to the diversity within our companies and the customers we serve. As we mentioned last quarter, nearly all of our Reliance businesses are involved in the data center trend and development, including the electrification needed to support it, with a wide range of products. This goes beyond just constructing the facility; it involves internal systems, racking, enclosures, equipment, cooling systems, and even the grid. We're definitely engaged in this area, and it's been beneficial for the industry, as the data center trend remains strong. However, it's tough for us to quantify that impact. We believe this trend will continue to grow, with numerous announcements of new builds, which is all very encouraging for us, yet difficult to specify. There's nothing that we're aware of that has impacted us directly today. We believe the programs we are involved in are solid and are expected to continue. However, like anyone else, there could be some consequences if this situation persists. But so far, we haven’t received any warnings from our companies regarding any of the programs they are working on.

Operator, Operator

Our next question is coming from Lawson Winder from Bank of America.

Lawson Winder, Analyst

May I ask about capital return, and I guess, really in the context of capital allocation? One might expect that as the shares were a little bit weaker during the quarter, it might present an attractive opportunity, perhaps allocate more of your capital to the share buyback as opposed to less and maybe direct that away from other opportunities. I mean so how do you think about that in terms of return on your dollars in buying back shares versus investing in the rest of the business? And how should we think about that going forward?

Karla Lewis, CEO

Lawson, we think buying Reliance stock is always a good decision, no matter what the price level is. But we do look at that, we do look at what the market value is, and adjust our activity accordingly. We've been active the last few quarters. The exact volumes vary a bit. But we look to be in the market, we look to buy at attractive levels. We've got the balance sheet and the ability. We look at it as a pretty low-risk use of our capital when we're investing in Reliance by repurchasing our shares. And yes, it could be more attractive at different price levels, the same, I think, as for the general market.

Lawson Winder, Analyst

Okay. That's helpful context. Can I also ask you, are you being impacted by, any way, by the aluminum supply disruption in New York State?

Karla Lewis, CEO

Yes. So we do, in our toll processing businesses, directly, we do work with the mill, that I think you're referring to there specifically. And it has created some disruptions in the market that was not expected. And we are working closely with our mill suppliers as well as the end users of the metal, the automakers and others, to try to do whatever we can. We try to be a problem solver for them, whether it's storing metal for them, processing metal for them, actually leveraging the whole Reliance company to see if we can source the metal and fill some holes through some of the other Reliance businesses. So definitely a collaborative effort within Reliance trying to help that particular mill and its customers, as well as the overall industry, because it's having a much broader impact on multiple end-use customers and different mills. So we're just trying to do what we can to help lessen the disruption for those impacted.

Lawson Winder, Analyst

Is it material enough for Reliance that that could show up on your cost item or impact profitability?

Karla Lewis, CEO

No. And the good news with our tolling operations, if they do lose some processing business to this particular mill, they generally have more demand than they can accommodate, that they can process metal for some other customers and end-use applications.

Lawson Winder, Analyst

Okay. Great. And can we maybe talk a bit about seasonality or can you give us some perspective on that? I mean we've talked for a number of quarters about kind of negative impacts of seasonality on the business. In Q1, we saw seasonality benefit Reliance. When you think about the business today, and looking out to Q1, I mean, overall, across the business lines, should we be looking at a recovery in Q1? Or how are you thinking about seasonality going forward from here?

Karla Lewis, CEO

Yes, Lawson. While the last few years have been anything but normal, in our service center business, our activity largely depends on shipping days and the number of days our customers are operational. Typically, Q1 and Q2 are our two strongest shipping quarters, which tend to be fairly consistent, though there can be slight variations. We generally see a 3% to 5% decline in shipping volumes in Q3 compared to Q2, mainly because many large OEMs plan shutdowns during the summer and smaller businesses often close for vacations. It’s encouraging that our Q3 2025 shipments matched those of Q2 2025, indicating that our Reliance businesses are effectively capturing business from competitors. Unlike the broader industry, our shipping levels did not decline. Q4 usually sees a further reduction of about 5% to 7% from Q3 due to holiday shutdowns. Then, in Q1, we typically see a rebound with more shipping days and full staffing. When considering seasonality, it's important to note that shipping levels impact earnings. Traditionally, earnings per share from Q3 to Q4 drop by 20% to 25%, which aligns with our guidance, but this trend wasn't evident in the consensus numbers previously released. We encourage those providing forecasts to consider historical data and adjust their projections accordingly. Well, again, we'd like to thank everyone for joining the call today and your continued support of Reliance. In particular, we'd like to thank all of the Reliance family members for continuing to operate safely and for all that you're doing in these challenging market times and the successes that we've had. We're very proud of what you're accomplishing out there. And also before we close out the call, I'd like to remind everyone that we'll be in Chicago next month presenting at Baird's Global Industrials Conference. And we hope to meet with many of you there. Thank you, and goodbye.

Operator, Operator

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