Business Context and Reporting Period
Company: Reliance, Inc. (NYSE: RS)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: Reliance is the largest metals service center company in North America by revenue, operating approximately 310 locations across 41 U.S. states and 10 foreign countries. The company distributes over 100,000 metal products and provides value-added processing services to more than 125,000 customers across diverse industries including construction, aerospace, energy, and automotive.
Key Financial Metrics
| Metric | 2025 | 2024 | Change |
|---|---|---|---|
| Net Sales | $14,294.3 million | $13,835.0 million | +3.3% |
| Gross Profit | $4,107.5 million | $4,106.6 million | ~0% |
| Gross Margin (LIFO) | 28.7% | 29.7% | -100 bps |
| Gross Margin (FIFO) | 29.5% | 28.7% | +80 bps |
| Operating Income | $1,012.7 million | $1,160.0 million | -12.7% |
| Net Income (Attributable to Reliance) | $739.4 million | $875.2 million | -15.5% |
| Diluted EPS | $13.98 | $15.56 | -10.2% |
| Operating Cash Flow | $831.4 million | $1,429.8 million | -41.8% |
| Total Debt | $1,427.7 million | $1,151.1 million | +24.0% |
| Cash & Equivalents | $216.6 million | $318.1 million | -31.9% |
| Tons Sold | 6,388.1 thousand | 6,013.2 thousand | +6.2% |
Material Changes vs. Prior Period
- Volume Growth vs. Price Decline: Net sales increased 3.3% driven by a record 6.2% increase in tons sold, which offset a 2.6% decline in average selling price per ton. Tons sold growth significantly outperformed the industry-wide decline of 1.0% reported by the Metals Service Center Institute (MSCI).
- LIFO Impact on Margins: Reported LIFO gross margin decreased 100 basis points due to a swing in inventory valuation adjustments from $144.4 million of income in 2024 to $113.7 million of expense in 2025. This was driven by rising metal costs, particularly aluminum. Excluding LIFO effects, FIFO gross margin improved 80 basis points to 29.5%.
- Operating Expenses: SG&A expenses increased 5.3% to $2.81 billion, reflecting inflationary wage adjustments and higher variable warehousing costs associated with increased shipment volumes. However, same-store SG&A expense per ton sold declined 1.0%, demonstrating operating leverage.
- Capital Allocation: Share repurchases decreased to $594.1 million in 2025 from $1.09 billion in 2024. The company increased its quarterly dividend by 4.2% to $1.25 per share in February 2026.
- Debt Structure: Total debt increased due to the issuance of a $400 million Term Loan in August 2025 to repay maturing senior notes and increased borrowings under the revolving credit facility to fund working capital requirements.
Guidance, Outlook, and Risks
Management Commentary: Management attributes the decline in reported operating results primarily to temporary tariff-related pressure on gross profit margins and higher SG&A expenses. They emphasize that underlying profitability (FIFO) improved and that the company successfully expanded market share despite a declining industry trend. The company expects to continue growing through organic initiatives and strategic acquisitions.
Key Risks and Contingencies:
- Metals Pricing Volatility: Profitability is highly sensitive to metal prices. The company does not hedge commodity exposure. Rising costs not driven by demand (e.g., tariffs) can compress margins if not fully passed to customers.
- Trade Policy and Tariffs: Changes in U.S. trade policy, including Section 232 duties on steel and aluminum, create uncertainty. While tariffs have supported domestic prices, their removal or relaxation could lead to increased imports and lower prices.
- Macroeconomic Conditions: Global economic downturns, inflation, and geopolitical conflicts (e.g., Ukraine, Middle East) could reduce demand for products and impact supply chains.
- Cybersecurity: The company faces increasing risks from cyber-attacks, though no material incidents were reported in the past three years.
- Interest Rate Risk: A significant portion of debt bears variable interest rates based on SOFR. A 100-basis point increase in SOFR would result in approximately $6.8 million of additional annual interest expense.
Investor Verification Checklist
- LIFO vs. FIFO Analysis: Verify the impact of the $113.7 million LIFO expense on reported margins versus the underlying 29.5% FIFO margin to assess true operational performance.
- Working Capital Trends: Review the $598.4 million decline in operating cash flow, driven by higher inventory and receivables due to increased volume and metal prices, to ensure liquidity remains sufficient.
- Tariff Exposure: Assess the sensitivity of aluminum and carbon steel margins to potential changes in Section 232 tariffs and the ability to pass costs to customers in soft demand sectors (e.g., aerospace, semiconductors).
- Debt Covenants: Confirm compliance with the maximum total net leverage ratio covenant (currently 17% vs. 60% limit) given the increased debt load.
- Acquisition Pipeline: Evaluate the company's ability to execute its growth strategy through acquisitions in a higher interest rate environment, noting the absence of M&A activity in 2025.