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reliance steel & aluminum (rs) q1 2018 results - earnings call transcript

by:AAG     2020-11-05
Reliance Steel & Aluminum Co. , Ltd. (NYSE:RS)
Q1 2018 profit call at 11: 00 a. m. on April 26, 2018. Miyamoto -
Reliance Steel & Aluminum Co. , Ltd. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd. James D. Hoffman -
Reliance Steel & Aluminum Co. , Ltd. William K. Sales, Jr. -
Reliance Steel & Aluminum Co. , Ltd. Karla R. Lewis -
Reliance Steel & Aluminum Co. , Ltd.
Terry-Analysis
Deutsche Bank Securities Co. , Ltd. Seth Rosenfeld
Jeffery International Limited
Timina Beth.
Merrill Lynch, Pierce, Finner and SmithNuvera Soli-Cowen & Co. LLCChris D. Olin -
Longbow Research Co. , Ltd. Gibbs -
Capanke capital market CO. , Ltd.
OperatorGreetings and the welcome dependence, steel and aluminum company\'s revenue requirement for 2018 in the first quarter.
At this time, all the participants were listening. only mode. A question-and-
An answer session will be held after the official speech.
As a reminder, the meeting is being recorded.
I would now like to hand over the meeting to your host, Miss Brenda Miyamoto, the investor relationship between Reliance Steel and aluminium. Thank you. You may begin. Brenda S. Miyamoto -
Reliance Steel & Aluminum Co. , Ltd.
Thank you, operator.
Good morning, thank you all for attending our conference call to discuss our financial performance of 2018 for the first quarter.
Greg Mullins, our President and CEO, joined me as well;
Karla Lewis, our senior executive vice president and chief financial officer;
Jim Hoffman, our executive vice president and chief operating officer;
Bill Sales, our executive vice president of operations.
The recording of this call will be released in the investor section of the investor website. rsac. com.
Press releases and information on this call may contain certain forwarding-
Forward-looking statements, based on some assumptions that may change, involve known and unknown risks, uncertainties, or other factors that may not be subject to control of the affected company, this may lead to significant differences in the Company\'s actual results, performance or achievements from the results, performance or other expectations implied by these forward-looking --
Look at the report.
These factors include, but are not limited to, these factors disclosed by the company in the Annual Report on Form 10
K. For the year ended December 31, 2017, the title is \"risk factors\" and other reports submitted to the Securities and Exchange Commission.
The press release and the information on this phone are only released today and the company does not assume any responsibility for updating the information provided in it and this phone.
I now transfer the call to Greg Mollins, President and CEO of Reliance. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
Thank you, Brenda.
Good morning everyone, thank you all for discussing our financial results with us today.
We performed well in the first quarter, and the positive pricing and demand fundamentals experienced in 2017 continued until 2018, and the pricing momentum was increasing throughout the quarter.
That led to record quarterly sales of $2.
76 billion sales of higher selling prices and record sales of 1.
Sold 6 million tons.
Our strong gross profit margin is 29.
7% together with our record sales created the highest quarterly gross profit of $819 in our company\'s history. 9 million.
With the support of a positive business environment, our managers in the field continue to execute vigorously, creating the second highest quarterly revenue in our company\'s history for $2.
30 per share after dilution, exceeding our expectations.
If not to benefit from the tax reform in 2017, our diluted earnings per share would be $2.
The first quarter of 2018 will be the highest we have ever recorded.
The metal pricing environment was still very strong throughout the quarter, resulting in 5.
Our average selling price rose 6% compared to 2017, close to the high end of our expected range, up 10.
Compared with 2017, it increased by 3%.
Strong demand and the expected 232nd-quarter action drove up the metal prices of almost every product we sell.
The 232nd event accelerated in early April, creating the most important price trend of the quarter, especially carbon steel products.
In addition, recent sanctions against certain Russian entities have led to a sharp rise in aluminum prices.
Overall, these factors led to a very positive pricing environment at the beginning of our second quarter.
Demand environment is still good in the first quarter.
We went through what we thought was a limited amount of pre-
Due to the rapid rise in prices and concerns about the supply of metal, certain of our customers have made purchase activities.
We believe this.
Purchases, coupled with improved demand and normal seasonal growth in shipments in the first quarter, our 2017 sales of tons increased by 10% to exceed the high
We expect the end of the scope.
In this month, our first-in-first-out Gross profit margin has increased significantly from the already strong level in February, as we have the ability to increase our average selling price before receiving higher-cost metals into our inventory.
As I mentioned, the most significant price increase in the third quarter was carbon steel products, which accounted for a little more than 50% of our sales.
We are excited about the current environment.
We usually use cash in the first quarter to build our current capital, as activity levels generally rise from seasonal levels in the fourth quarter, however, due to our strong earnings, we are able to generate positive cash flow from $13 operations.
$3 in the first quarter.
Through continuous and effective inventory management, our inventory churn rate is maintained at 4.
5 times, in tons, consistent with 2017.
We are satisfied with our inventory status, which enables us to achieve industry-leading Gross profit margin and often provide timely delivery to our customers in 24 hours or less.
When it comes to capital allocation, our 2018 capital expenditure budget is $0. 225 billion, and we continue to make strategic investments in equipment and facilities to drive organic growth.
As mentioned earlier, most of these investments are related to growth and focus on expanding our value --
Provide customers with high quality products and services with fast turnover, and support our ability to increase gross profit margin.
In order to further develop the company, we continue to focus on acquisitions.
Operate a business that is complementary to our product, service and geographic diversity and/or increase our value --
Increased processing capacity.
The channels for acquisition opportunities are still strong, and we continue to see an increase in the number of potential targets entering the market.
In March 1, 2018, we acquired all outstanding inventory of DuBose National Energy Services and its affiliates in Cleveland, Ohio, for DuBose national energy fasteners and mechanical parts in Clinton, North Carolina.
Net sales were $36.
3 million for the fiscal year ended June 30, 2017, DuBose Energy and DuBose fasteners specialize in the global manufacture, supply and distribution of metal and metal products for the nuclear industry, including utilities, component manufacturers and contractors.
DuBose\'s acquisition is beneficial to our first quarter revenue and aligned with our growth strategy for acquiring niche businesses that offer high-value specialty products --
Attractive returns increase processing.
DuBose has been developing their manufacturing capabilities for the past few years and we look forward to continuing this trend.
The return of capital to our shareholders remains a key focus of confidence.
We bought back $50 million in stock at an average cost of $84 this quarter.
£ 38 per share highlights the confidence of our board and management team in our strategy and prospects.
Our regular quarterly cash dividend has increased by 11 since 2018. 1% to $0.
Annual dividend of $50 per share or $2 per share.
We have paid quarterly dividends on a regular basis for 59 consecutive years and have increased dividends by 25 times since our 1994 IPO.
All in all, the first quarter marks a very strong start to the year, and we are very proud of the performance of our managers in the field.
Their strong execution through pricing discipline, inventory management and expense control led to significant milestones and achievements for the company for another quarter.
We created record quarterly sales, record quarterly gross profit dollars and a third-highest quarter before
Tax revenue of $225.
2 million, only our pre-
The level of tax revenue in 2008.
We are still encouraged by the continued positive pricing momentum and improved demand environment in the second quarter.
While there is still some uncertainty in the market, we believe that we have the ability to maximize opportunities in the current environment, with a focus on further increasing the value of shareholders.
I will now hand this call to Jim to comment further on our operations and market conditions. Jim? James D. Hoffman -
Reliance Steel & Aluminum Co. , Ltd.
Thank you, Greg. Good morning, everyone.
First of all, I would like to thank our staff in the field who contributed to the many records we achieved in the first quarter.
Thank you for doing well.
Now, I will discuss the demand and price of our carbon steel and alloy products and our outlook for certain key end markets.
Bill will then address our aluminum and stainless steel products and their related end markets.
For the demand for cars, we mainly provide services through the charge processing business in the United States. S.
Mexico continues to maintain strong momentum.
Our sales growth in this market is mainly due to the increase in aluminum content in cars.
We remain focused on supporting this important end market by investing in facilities and equipment and continue to expand our carbon and aluminum processing volumes.
Heavy industry needs, including railcars, truck trailers, shipbuilding, barge manufacturing, tank manufacturing, and wind and power transmission towers, continue to improve compared to 2017 and are significantly higher than the low levels we experienced in 2017.
In particular, expenditure on construction and agricultural equipment has improved.
We believe that tax reform is supporting an increase in spending on heavy equipment as our customers\' demand for customers who have increased their capital investment this year is increasing.
Therefore, we will continue to be more optimistic about the demand for heavy industry. Demand in non-
The residential construction market, including infrastructure, grew at a steady pace throughout the first quarter, but remained well below its peak in 2006.
We believe that tax reform has contributed to the increase in the activities we see in this market, and we remain optimistic that domestic infrastructure spending will continue to improve and that there is a potential increase in federal infrastructure spending. We are well-
As this terminal market continues to recover, we are able to support an increase in our existing footprint.
Demand for the products we sell to the energy market (mainly oil and gas) has been gradually increasing.
With the extension of the mill lead time, the number of rigs and drilling activities continued to grow.
The intensity of the activities is also increasing. We\'re well-
As the market continues to improve, it will support the growth of demand.
Now, let\'s talk about pricing.
In the first quarter of 2018, due to the acceleration of section 232nd activities, the factory pricing of carbon steel products was very strong, which was combined with a strong demand environment because the advance time was extended to summer.
Most of the carbon steel products we sell have announced many price increases, and the price of steel mills in April has increased by US $200/ton compared to carbon steel plates and pipes in December 2017, which is our highest-selling product.
So before receiving higher-cost metals into our inventory, we were able to pass on the partially announced price increases to our customers in the first quarter.
Looking forward, we believe that, given the strong fundamentals, the pricing of carbon steel products will remain at the current level, and some products may continue to rise in 2018.
However, we do not expect growth in the second quarter to be as strong as in the first quarter.
It is also important to note that as we receive higher cost metals in our inventory, our advanced first-out gross margin is expected to be compressed from the current level.
Finally, the price of alloy products increased in the first quarter.
We believe that a further increase in the level of energy market activity will help support higher pricing in the future.
All in all, we are very satisfied with the momentum we have experienced in this quarter in terms of demand and pricing trends, we continue to maintain a positive outlook in the second quarter and are subject to any potential impact from the client\'s previous period
There may be buying activities in the first quarter.
Thank you for your attention today.
I\'m going to give this call to bill right now. Black market. Bill? William K. Sales, Jr. -
Reliance Steel & Aluminum Co. , Ltd. Thank you, Jim.
Good Morning, everyone.
First of all, I would also like to thank our staff in the field for their excellent performance in the first quarter. Excellent job.
I will now review the prices and needs of our aluminum and stainless steel products, including the key industries in the major markets in which we sell these products.
Aerospace demand is again very strong in the first quarter, and the lead time for aluminum aerospace boards has been extended compared to 2017.
The demand for aerospace has been supported by commercial aircraft. The most significant thing is that single-
Added aisle planes and activities to many of our defense customers.
The backlog of orders remains strong and construction prices have continued to rise since the beginning of the year.
We are optimistic about the aerospace market and think we are good --
As the overall demand continues to increase, we can increase our market share and expand our global presence in this area.
The global semiconductor market is growing rapidly.
So we are expanding our existing capabilities in the United States. S.
South Korea and China support strong customer demand.
Based on strong demand trends and encouraging prospects for our customers, we maintained a positive outlook for the semiconductor market in 2018.
In terms of pricing, most of our sales in the aerospace market include heat treated aluminum products, especially plates, as well as special stainless steel and titanium products.
Demand for Heat
The aluminum plate after treatment continues to improve.
The price of aluminum heat rises-
The processed products, which came into effect on April, were fully supported by the factory.
We believe that the recent price increase announced to take effect at the end of this month will also be supported by the market.
Looking forward to 2018, we will continue to be optimistic about the pricing of these products.
Most of our common alloy aluminum alloy products are sold to sheet metal manufacturers that support various end markets.
In the first quarter, the demand for ordinary alloy aluminum plates increased, the delivery time was extended, and distribution began now.
The rise in conversion prices and the sharp rise in spot prices in the central and western regions have been fully supported in the market.
We expect prices for these products to continue to rise in the second quarter.
Please note that about half of our aluminum sales are in the aerospace market, one of the businesses we have been involved in for a long time
Regular contract for big selling price-big selling price.
Therefore, in general, our average selling price for aluminum will not follow the market price as many other products we sell.
Finally, in the first quarter, our demand for stainless steel flat panel products mainly sold in the kitchen equipment, electrical appliances and construction end markets increased significantly.
The average selling price of our stainless steel products has also increased, mainly due to the increase in investment costs and the development of section 232nd, steel mills continue to announce price increases.
So far, all price increases, including the recently announced price increases, have been supported by the market, and demand for stainless steel is still strong.
Thank you for your time and attention today.
With this, I will now transfer the call to Karla to review our financial performance of 2018 for the first quarter. Karla? Karla R. Lewis -
Reliance Steel & Aluminum Co. , Ltd.
Thank you, Bill. Good morning, everyone.
Our net sales hit a record $2 in the first quarter of 2018.
76 billion, an increase of 14% over 2017, our tons sold 3 tons.
At 6%, our average price per ton has risen by 10. 3%.
Our net sales increased by 16% compared to 2017, tons of sales increased by 10%, and the average selling price per ton increased by 5. 6%.
Our gross profit margin for 2018 is 29.
7%, above the high end of our estimate of 27% to 29%, drove a record quarterly gross profit of $819. 9 million.
On the basis of advanced first-out, our gross profit margin is 30. 6%, up from 30.
The first quarter of 2017 and 28 was 2% per cent.
The fourth quarter of 2017 was 7%.
As we explained earlier, when we are able to pass higher prices to our customers, we may exceed our range during the period when factory prices have risen, before receiving a higher cost metal into our inventory.
Due to the metal price increase in the quarter, we recorded the net blessing inventory valuation cost or cost of $25 million in 2018, compared with $10 million in 2017 and $4.
The fourth quarter of 2017 was 5 million.
We have increased the projected cost for the full year of 2018 from the previous $100 million to $80 million as a significant price increase has been announceddate.
We expect prices to fall from current levels in the second half of this year, but we will continue to expect prices for this year --
The final inventory cost at hand will be higher than the end of 2017.
We will update our expectations quarterly based on inventory costs and metal price trends.
As a percentage of sales, our SG & a fee for the first quarter was 18.
8%, from 19.
The first quarter of 2017 was 7%, below 20.
The fourth quarter of 2017 was 2%.
The percentage decline in sales was mainly due to the increase in sales prices in the first quarter, which increased our net sales.
SG & A charges for our same store went up by $38.
From 1 million or 8% in 2017, mainly due to our 3.
The same-store tons sold increased by 5%. Since January 1, the salary increase related to the annual salary increase and the higher incentives due to the increase in our income level and the significant increase in freight costs.
Our actual income tax rate for the first quarter was 24.
0%, from 32.
As tax reform has a positive contribution to our income and cash flow, it was 7% in first quarter of 2017.
Net income attributable to reliance in the first quarter of 2018 was $0. 169 billion, or $2.
Diluted 30 shares per share, is the second highest stock in our company\'s history. Non-
The diluted GAAP earnings per share are also $2. 30, up 51. 3% from $1.
The data for the first quarter of 2017 was 88. 5% from a $1.
The fourth quarter of 2017 22.
When it comes to our balance sheet and cash flow, we created $13 due to our high average selling price and shipment level, plus our strong gross profit margin and effective working capital management.
Operating cash for the first quarter of 2018 was 3 million.
We invested $41.
Capital expenditures were $8 million and $39.
6 million acquisition, bought back our $50 million common stock and paid $38.
Give our shareholders 5 million dividends.
As of March 31, 2018, our total outstanding debt was $2.
6 billion, the proportion of net liabilities to total capital was 28. 6%.
Our net debt to EBITDA multiple is 2.
0 times, in line with our target financial situation.
At the end of the first quarter, we had $757.
We have £ 1 million for $1.
5 billion circular credit.
Speaking of our prospects, we are optimistic about the level of business activity in 2018 and expect the final market in which we operate to continue to improve, although it is expected that the shipment level will be pre-empted
Purchase activity in the first quarter.
Therefore, we estimate that our ton sales will decline by 1% in 2018 compared with 2018, an increase of 1%.
We also believe that the fundamentals of pricing will remain strong.
As a result, we expect the average selling price in 2018 to rise by 5% to 8% compared to 2018.
Therefore, we currently expect earnings per share after dilution to be within the range of $2. 60 to $2.
The second quarter of 2018 was 70.
Finally, we achieved outstanding financial results in the first quarter;
Thanks to our manager for excellent execution and good environment in the field.
Given our current prospects, we are excited about our position in the market and remain confident about our ability to continue to execute successfully in this favourable market, and continue our growth and shareholder return activities in light of our strong financial position.
This concludes our prepared remarks.
Thank you for your attention.
At this time, we want to discuss the issue. Operator? Question-and-
Thank you.
Our first question came from Chris Terry of Deutsche Bank.
Please continue with your question. Chris Terry -
Deutsche Bank Securities Co. , Ltd.
Hi team, thank you for answering my question.
The first is guided by the volume change of negative 1% to 1% in 2Q.
As the deadline for the temporary exemption of Section 232 of May 1 approaches, and the potential reduction in imports thereafter, have you taken this into account, or in the import sense, what is this guidance? Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd. Really not.
This is based on the needs and historical patterns we have experienced in the past.
We think there are some hedging purchases in the first quarter, well, we think it will have a slight impact on us, but it will still have an impact on us in the second quarter.
That is why it is not affected by imports at all.
Our guidance is based on demand. Chris Terry -
Deutsche Bank Securities Co. , Ltd. Okay, okay. Thank you.
Then just wondering if you could talk more about the issue of aerospace access to India and what is going on? William K. Sales, Jr. -
Reliance Steel & Aluminum Co. , Ltd. Yes, it\'s Bill. Yeah.
It\'s a bit behind schedule and just got some licenses on site, but we \'ve got the equipment ready to go into the building and we\'re just waiting for the final permission to move the equipment there and get it up and running. Chris Terry -
Deutsche Bank Securities Co. , Ltd. Okay. Thank you.
Then the last in terms of capital management.
I think, given the stock price changes, what do you think about the repurchase and the recent increase in forward dividends? Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
We will consider buying back as we did in the past.
We bought back $50 billion worth of stock in the first quarter.
If we feel that it is advantageous to go back to the market to buy stocks, we will certainly do so. Chris Terry -
Deutsche Bank Securities Co. , Ltd. Okay. Thank you.
This is all I have. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd. Thanks.
Thank you.
Our next question comes from the lines of Seth Rosenfeld and Jeffries.
Please continue with your question. Seth Rosenfeld
Jeffery International LimitedGood morning.
Thank you for answering my question today.
The first question about pricing, then the second question about M & A.
Regarding the pricing outlook, thank you for your previous comments on sustainability, perhaps incremental growth in the second quarter.
Can you say a little more about any differences you see, especially in the carbon steel market between flat and long products or flat products, whether in terms of activation of pricing, but it doesn\'t matter if you have seen any of the pre-
Buy from customers who are exaggerated in any particular product category?
On the second question of M & A, can you talk about your views on the valuation of the industry? You did comment that there are more assets to sell, but are you still satisfied with the valuation of these levels, there have been some recent discussions about ThysenKrupp\'s quest to dispose of their material services business.
Can you tell us how much you are interested in assets of this size? Thank you. James D. Hoffman -
Reliance Steel & Aluminum Co. , Ltd. Yeah, hi, Seth.
This is Jim Hoffman.
I will be with Mr.
Greg wants to speak at the M & A Conference.
As far as pricing is concerned, we don\'t know what will happen, and all we know is that we don\'t think there will be a big drop.
As for the price between Changping, both products continue to rise, we activated rapid growth before the quarter, they continue to climb.
As Greg said before, we think it\'s demand-based.
Like there-there are some hedging purchases, maybe we don\'t-there\'s no way we can tell you, but we like the environment, the environment, as we always say, the price is higher, this is a good thing for Reliance.
I personally don\'t think the prices are above expectations and I think they have actually climbed to the level they should have been.
As a result, we do not expect a significant decline in the second quarter, but this figure may continue to rise as demand grows. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
In terms of M & A, we see-you know, it\'s very powerful, we\'re looking at it carefully, you know, we expect-you know, we\'re the acquirer and that\'s what we do.
So you know we\'re already looking for potential deals and you know there are some good deals in front of us.
But you never know.
So what I can say is that it\'s just evolving and we don\'t -- you know, we didn\'t say, as a company, as a management team, we want to complete X acquisitions within one year.
We\'re just looking at opportunities.
We value it when we think it\'s the right thing to do, and then you know to let the chips fall.
So, the good news is that this is a good environment, and I would say that no matter what environment we are in, our valuation process is always the same.
We have been successful in evaluating the company and since our initial public offering in 1994 we have acquired more than 60 companies.
Our assessment process will not change, regardless of the circumstances in which we are located, and we believe that this is very beneficial to our shareholders. Seth Rosenfeld
Jeffery International LimitedThanks.
Only one follow upup then on M&A.
Obviously, your focus today is not in the United States. S. business.
I know there are some strategic investments overseas.
When you consider a massive M & A or an interest in the diversity of the European market, or you think that for some products that focus on more merchant-grade products, or that the focus will remain in the USS. ? Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
You know we are open to you and basically any opportunity exists based on profitability, management team, etc.
So, we don\'t tend to, you know, we prefer profitability in North America.
But very honestly, we will keep an eye on it no matter where there is a chance geographically. Seth Rosenfeld
Jeffery International LimitedThat\'s great.
Thank you very much. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd. Thank you.
Thank you.
Our next question comes from the Timna taners series at Merrill Lynch.
Please continue with your question.
Timina Beth.
Merrill Lynch, Pierce, Finner and SmithHey.
Good Morning, everyone. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd. Good morning.
Timina Beth.
Merrill Lynch, Pierce, Finner and Smith
I would like to ask about the guidance of LIFO.
I know-I appreciate the details there, and I know it\'s tricky, but when you talk about the H2 price drop, Kara, it\'s just for conservatism, also to explain how you choose the LIFO number, or do you have any specific beliefs about what is driving this? Karla R. Lewis -
Reliance Steel & Aluminum Co. , Ltd.
Yes Timna, we\'re usually a bit conservative here, you know trying to figure out what\'s going to happen with pricing next week is hard at this point.
Therefore, we believe that prices will remain unchanged in the second quarter, only considering that there may be a decline in the second half of the year.
You know, based on where we are on pricing, we will update our guidance by the end of the next quarter and we do that every month.
We do the calculations that go in and out.
So according to the actual situation in the first quarter of this year, we think $100 million is the correct number for this year, which assumes that the price is higher than our price in the first quarter, remember, what has been announced is more than just the price increase, and in order to reach $100 million we still have to receive some higher-cost inventory in our books.
But yes, we just expect some downward pressure in the second half, but there is no indication of this at this point.
Timina Beth.
Merrill Lynch, Pierce, Finner and Smith
Okay, that makes sense, totally understand, you \'ve been in the past-the recent past has talked about selling products to your competitors, and I \'ve always heard that there are credit-constrained services on the smaller end
Is this sustainable for dependency? Is this likely to increase shipments by selling to smaller service centers, or do you think this higher credit constraint situation could lead to more M & A opportunities, too small, or is it possible? Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
Good morning, Tim.
We will-I really didn\'t see the needle moving very honestly at all, okay.
We sell to smaller customers, but we are also very aware that we have to control our inventory for our customers who are loyal to us.
So we are very cautious, you know we don\'t really have a limit on the supply of metals, but we also realize that there are some small companies, especially on the west coast, they bought quite a bit of metal from the offshore market and we couldn\'t do that and we couldn\'t find us and we were very careful about how to control our inventory.
So the credit crunch and all the other things-like the impact it has on them-I mean, it\'s not coming into my mind, this may also be thought of by our credit manager.
But it has no effect on our business model.
Timina Beth.
Merrill Lynch, Pierce, Finner and SmithOkay.
Last one, I owe you a hard time.
Do you have any insight into the government\'s interest in pursuing transshipment?
I ask you because you are a large dealer and of course the beams and transfers are big there.
Do you have any insight into how far the government might go in the value chain? Thanks. James D. Hoffman -
Reliance Steel & Aluminum Co. , Ltd.
Hi, this is Jim.
We don\'t know anything about what is going to happen.
When we talk to a lot of people, the answer is the same and they don\'t know.
So we don\'t -- we don\'t guess about those types of plans.
Timina Beth.
Merrill Lynch, Pierce, Finner and SmithFair enough. Thank you. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
Timna, I\'ll let you know, call us and let us know the answer when you understand this.
Timina Beth.
Merrill Lynch, Pierce, Finner and Smith
I\'ll get back to you right away. Fair enough. Thanks a lot.
Thank you.
Our next questions come from lines Novid Rassouli and Cohen and the company.
Please continue with your question. Nuvera Soli-Cowen & Co.
Guys, LLCHey.
Thank you for answering my question.
Starting at gross margin.
I was wondering if you guys are energising how much of the first quarter profit margin increase is due to inventory purchased at a lower price and are you able to push for better pricing right away? Karla R. Lewis -
Reliance Steel & Aluminum Co. , Ltd. Yeah.
We can\'t quantify it.
But I think the trend for this quarter is what we usually expect, you know we do push the price of the factory to our customers, most of our customers before receiving higher-cost inventory;
We will still be in this environment at the beginning of the second quarter, but to quantify our gross margin as a percentage of gross margin, we can\'t really do that. Nuvera Soli-Cowen & Co. LLCThat\'s fair.
Then, did I hear you guys correctly saying that it is expected that the first-in-first-out gross margin will be compressed in 2Q order? Karla R. Lewis -
Reliance Steel & Aluminum Co. , Ltd.
Yes, because in the first quarter, most of our products have increased prices many times.
Our system has not yet received higher cost inventory, so based on our normal trend, we expect that if prices continue to rise at factory levels in the second quarter, we will continue to raise margins slightly in the second quarter until the drop in factory levels leads to higher prices and our inventory costs catch up. Nuvera Soli-Cowen & Co. LLCGot it.
This makes sense.
Then SG & A significantly smaller percentage-as a percentage of sales due to these price increases.
How should we look at the SG & A trend for the rest of the year?
Considering the huge fluctuations in pricing that we see, consider it most as if it were the nominal digital base, not the percentage? Karla R. Lewis -
Reliance Steel & Aluminum Co. , Ltd. Yeah.
I think you see it as a fixed dollar amount, so we were about $0. 519 billion in the first quarter.
Our acquisition has only been going on for one month, so we expect our SG & A to rise, including the next three months, and the extent to which we continue to maintain our revenue levels, we pay commissions to sales people, etc, but we expect our $0. 519 billion to be fairly stable in the future. Nuvera Soli-Cowen & Co. LLCGot it.
The last issue is that it was mentioned earlier that the May 1 deadline a few days later, the 232 exemptions will expire and there is not much color for what is going to happen.
Just want to know what you see in terms of the need to discuss with the customer.
I think this is pre-
As you mentioned, buying is a concern.
This seems likely to intensify at this point.
Just want to get any comments on this? Thank you. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
I\'m not sure how many of our customers are-you have to understand that our average order is $1,700, OK, so most of the customers we serve are not sophisticated buyers of metal.
So Caterpillar, Deeres, Boeing and so on, that\'s the exception to our customer base.
For these people, they may know May 1, but not many of our customers know what will come in May 1.
We don\'t want a lot of buybacks from our customers.
We think this is a little bit done in phase 3, okay.
But looking forward to the future, we do not expect much.
The price was quite high at the time, and we simply didn\'t think it was something that our customers really focused on, at the May 1 deadline. Nuvera Soli-Cowen & Co. LLCGot it.
Thank you for answering my question. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
Thank you for calling.
Thank you.
Our next question comes from Chris Olin from Longbow Research.
Please continue with your question. Chris D. Olin -
Good morning, Lambert research. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd. Good morning. James D. Hoffman -
Reliance Steel & Aluminum Co. , Ltd. Good morning. Chris D. Olin -
Longbow Research LLCI wants to ask another question about M & A, I think where I\'m curious about, and if you feel your asset footprint today is strong enough to capture a lot of this much
What you\'re talking about is the annual growth in aerospace and aircraft manufacturing rates.
I\'m also curious, would you consider adding exposure to some special material like nickel alloy or titanium, or would you consider entering a product like a composite or fastener? Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
Chris, the answer to this question is, are we basically open to everything?
We have no objection to the composite.
We are now using titanium, high nickel alloy. . . James D. Hoffman -
Reliance Steel & Aluminum Co. , Ltd. Right. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd. . . . which we\'re in.
So this is actually something that appeals to us.
So any and all opportunities, when it comes from the M & A side, will improve our profitability. We\'re all in. Karla R. Lewis -
Reliance Steel & Aluminum Co. , Ltd.
When we think about mergers and acquisitions, we try to be careful not to compete directly with our customers, but these are certainly opportunities we can see. William K. Sales, Jr. -
Reliance Steel & Aluminum Co. , Ltd.
Chris, speaking of footprint, from an aerospace perspective, we have a very strong and solid footprint that is always open to see where we might be expanding more, but we are happy with our footprints. Chris D. Olin -
Today, Longbo Research Co. , Ltd. still accounts for about 10% of your sales? Karla R. Lewis -
Reliance Steel & Aluminum Co. , Ltd.
Yes, about 10% to 12%. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
Yes, 10% to 12%. Chris D. Olin -
Another question I would like to ask is that you are considering the building requirements, and if you see any difference in terms of infrastructure orders, do you have sufficient risks in this regard? James D. Hoffman -
Reliance Steel & Aluminum Co. , Ltd.
This is Jim, this is a strong quarter.
I mean, it\'s not rare that it continues to burn slowly.
It\'s just a good quarter and we expect to rise.
A lot of forwards-
The data looks strong.
We have a few very good ones.
We are proud of them and they continue to do well.
So we don\'t see any change, but the first quarter is not an accident,
Residential construction. Chris D. Olin -
Dragon Bow research
Thank you for your time. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd. Thank you.
Thank you.
Our next question comes from Phil Gibbs of the capanke capital market.
Please continue with your question. Philip N. Gibbs -
Capanke capital market CO. , Ltd.
Hi, good morning. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd. Good morning. James D. Hoffman -
Reliance Steel & Aluminum Co. , Ltd. Hi, Phil. Philip N. Gibbs -
Capanke capital market CO. , Ltd.
Hey Bill, you mentioned, I\'m sure there\'s some fixed selling price for aerospace heat. treat market.
Should we guess that the factory also gives you a fixed selling price?
Just trying to understand this dynamic? William K. Sales, Jr. -
Reliance Steel & Aluminum Co. , Ltd. Yes.
These agreements are usually that we lock in the fixed sales price of the customer, then we lock in the fixed cost of the factory and hedge the material. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
So basically the margin is locked. William K. Sales, Jr. -
Reliance Steel & Aluminum Co. , Ltd. Yeah. Philip N. Gibbs -
Capanke capital market CO. , Ltd. Okay.
So you asked you to comment, just to say, look, aluminum has gone up, but don\'t expect our aerospace profitability to drop.
I think this is a qualifying statement you made? William K. Sales, Jr. -
Reliance Steel & Aluminum Co. , Ltd. That\'s correct. James D. Hoffman -
Reliance Steel & Aluminum Co. , Ltd. Yeah. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
About 50% of the aerospace business we do is contracted with the fixed price of the purchase and sale, so our profit is guaranteed, and then the other 50% is in stock.
Therefore, we hope that our profits will increase. James D. Hoffman -
Reliance Steel & Aluminum Co. , Ltd. Right. Philip N. Gibbs -
Capanke capital market CO. , Ltd.
So all you said was hot.
Treat other products you sell, not just the entire aerospace product you call? Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
We\'re talking about the aerospace era. William K. Sales, Jr. -
Reliance Steel & Aluminum Co. , Ltd. Yeah. Karla R. Lewis -
Reliance Steel & Aluminum Co. , Ltd.
But most of them are hot.
Aerospace. Philip N. Gibbs -
Capanke capital market CO. , Ltd. Okay, perfect.
Greg obviously you have some guidance on demand or shipments for the second quarter, especially in April, what does April look like compared to the current average daily trend of 1Q? Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
You know, from a volume perspective, we were fairly stable in the first quarter.
So, you know, but we have some price increases to help us in this regard.
So, I think the guidance we give on Volume 1 plus 1, minus 1;
This scope is what we see today.
This is a good guide and we will see what will happen in terms of price.
As you know, Phil, okay, well, our revenue, profitability, and growth in profit margins, everything is driven more by price than by quantity.
Phil, we\'re really excited about the second quarter, okay, the first quarter was great, okay.
So we sat here giggling with a big smile on our faces because we knocked the ball off in the first quarter and we would do better in the second quarterPhilip N. Gibbs -
Capanke capital market CO. , Ltd. Nice. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd.
Carla kicked me by the way. She kicked me. Philip N. Gibbs -
Capanke capital market CO. , Ltd.
I\'m excited too. We can get excited together.
Kara, my last question is 8%. store year-over-
Annual SG & A growth
You mean some drivers.
How much of this increase, or the percentage of this increase, is driven by wages and possible compensation, components and how much of it is related to shipping costs.
I just want to isolate something. Karla R. Lewis -
Reliance Steel & Aluminum Co. , Ltd.
Yes, so most of them are related to compensation.
We raise our wages every year.
So, in general, these are usually about 3% of the company-wide.
So this is the main part of it.
But you know our level of profitability is improving and Greg is very excited.
As a result, we pay higher commissions and rewards because our employees create a higher level of income for us.
But, of course, the freight has increased, but as we said before, most of our orders are delivered in our own truck.
Fuel costs have risen.
So our freight has gone up in the third we use
Party carrier, we can control our shipping costs, but most of SG & a is related to compensation, base rate of pay you know is mostly probably-
Some of them were in the fourth quarter of January 1. Philip N. Gibbs -
Capanke capital market CO. , Ltd. Okay.
Well, Greg, you have one-you have a very good poker face.
So, things must be good if you\'re excited. Thanks. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd. Thanks, Phil.
Yes, things are good.
We enjoyed it from a business perspective. Thank you.
Thank you. Mr.
Mullins, there is no further problem at this time.
If there is any final comment, I will speak back to you. Gregg J. Mollins -
Reliance Steel & Aluminum Co. , Ltd. Okay.
Thank you again for your support and participation in today\'s conference call.
We would like to remind you that we will be in Boston for the basic materials meeting at KeyBanc in May.
We hope to see many of you there and wish you a wonderful day.
Thank you.
This is the end of today\'s conference call.
At this point, you may disconnect the line.
Thank you for your participation.
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