Reliance, Inc. — Q1 2024 Form 10-Q
Business context and period: The filing covers the three months ended March 31, 2024. Reliance distributes and processes metals through service centers. In February 2024, the company changed its name from Reliance Steel & Aluminum Co. to Reliance, Inc. Results are unaudited; interim performance is not necessarily indicative of full-year results.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $3,644.8 million | $3,965.3 million | -8.1% |
| Gross profit / margin | $1,128.2 million / 31.0% | $1,226.0 million / 30.9% | Profit -8.0%; margin +0.1 percentage point |
| Operating income / margin | $393.1 million / 10.8% | $513.6 million / 13.0% | -23.5% |
| Net income attributable to Reliance | $302.9 million | $383.1 million | -20.9% |
| Diluted EPS | $5.23 | $6.43 | -18.7% |
| Cash from operations | $126.3 million | $384.6 million | Down $258.3 million |
Gross profit and gross margin are company-presented non-GAAP measures that exclude depreciation and amortization associated with sales. Effective tax rate was 23.3%, versus 24.4% a year earlier. Interest expense was $9.7 million, and other income, net, was $12.8 million.
Financial position, cash flow, and capital allocation
- At March 31, 2024, cash and cash equivalents were $934.9 million, down from $1,080.2 million at year-end 2023. Current assets were $4,923.4 million and current liabilities were $857.4 million.
- Total debt was approximately $1,151.4 million, including $1,142.6 million classified as long-term debt. No borrowings were outstanding under the $1.5 billion revolving credit facility; the company reported compliance with its financial covenants. Net debt-to-total capital was 2.6%, versus 0.8% at December 31, 2023.
- Investing cash outflow was $177.4 million, including $108.7 million of capital expenditures and $53.7 million for the Cooksey Steel acquisition. Financing cash outflow was $90.3 million, including $65.3 million of dividends; no shares were repurchased during the quarter.
- The quarterly dividend increased 10% to $1.10 per share. The board declared another $1.10-per-share dividend, payable June 7, 2024. The company had $1.44 billion remaining under its share repurchase authorization.
Material changes and management commentary
- Management said demand remained relatively healthy in most end markets, but results declined primarily because of lower metals prices and fewer tons sold, partly reflecting one fewer shipping day. Same-store sales fell 8.8%, with average selling price per ton down 6.5% and tons sold down 2.9%.
- Demand improved in non-residential construction and automotive tolling, was stable in aerospace, and was modestly lower in semiconductors and broader manufacturing. Gross margin remained broadly stable, which management attributed to product diversity, value-added processing, and operational execution. Lower sales reduced operating leverage, while SG&A increased 3.1%.
- Operating cash flow fell mainly because of lower profitability and increased working-capital use. Receivables used $211.6 million of cash and inventories used $114.6 million. Inventory turnover was 4.6 times, versus 4.9 times in Q1 2023.
- Reliance acquired Cooksey Steel on February 1; it contributed $16.1 million of Q1 sales. It acquired American Alloy Steel and Mid-West Materials on April 1, after quarter-end, so neither contributed Q1 sales. The three 2024 acquisitions had combined 2023 annual sales of nearly $500 million.
Outlook, risks, and contingencies
- No specific earnings or revenue guidance is provided in the filing. Management expects cash, operating cash generation, and available credit to be sufficient for operating needs, debt repayment, capital spending, acquisitions, dividends, and potential repurchases. The company reported $400.3 million of debt obligations coming due before the revolving facility matures on September 3, 2025.
- Risks discussed include weaker demand from inflation, elevated interest rates, slowing growth or recession; commodity-price changes; labor constraints and supply-chain disruptions; and geopolitical events. Management cautioned that actual results may differ materially from forward-looking statements.
- An environmental remediation matter relates to former operations of a subsidiary; insurance has covered costs to date and is expected to cover most related costs. The company does not expect a material adverse impact. Other pending legal matters are described as routine and not expected to have a material adverse impact.
- The company recognized an estimated $4.6 million in withdrawal liabilities related to anticipated withdrawal from two multiemployer plans. No material changes to previously disclosed risk factors or market-risk exposures were reported.
Important facts for investors to verify
- Whether sales volumes and metals prices stabilize, and whether the reported gross margin can be sustained as pricing and product mix change.
- Working-capital trends, especially receivables and inventory, and their effect on operating cash flow.
- Integration and financing impacts of the 2024 acquisitions, particularly the two completed after quarter-end.
- The timing and funding of the $400.3 million of debt obligations due before the revolving facility matures, alongside planned capital spending and shareholder returns.
- Developments in environmental remediation, multiemployer-plan liabilities, and demand across the company’s end markets.