Reliance, Inc. (Reliance Steel & Aluminum Co.) — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the supplied filing text does not provide a clear standalone fourth-quarter results summary.
Business context
Reliance is a diversified metals service center and processing provider, operating approximately 315 locations in 40 U.S. states and 12 foreign countries. It distributes more than 100,000 metal products and serves a broad range of industries. The company reports one operating and reportable segment.
Financial results and liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $17.03 billion | $14.09 billion | +20.8% |
| Gross profit / margin | $5.25 billion / 30.8% | $4.49 billion / 31.9% | Profit +16.9%; margin down 1.1 percentage points |
| Operating income / margin | $2.51 billion / 14.7% | $1.95 billion / 13.8% | Income +28.6% |
| Net income attributable to Reliance | $1.84 billion | $1.41 billion | +30.2% |
| Diluted earnings per share | $29.92 | $21.97 | +36.2% |
| Cash from operating activities | $2.12 billion | $799.4 million | Up from prior year |
Record sales reflected an 18.5% increase in average selling price per ton and 1.8% growth in tons sold. Same-store tons sold declined 0.6%. Operating cash flow benefited from higher earnings and reduced working-capital needs as metals prices and sales volumes eased in the second half.
At year-end, cash and cash equivalents were $1.17 billion, total debt was approximately $1.66 billion, and the $1.5 billion revolving credit facility had no borrowings. Net debt-to-total capital was 6.3%, down from 18.1% in 2021. The company redeemed $500 million of notes in January 2023 using cash on hand. It reported compliance with debt covenants and substantial revolver availability. Capital expenditures were $341.8 million; the 2023 budget is a record $500 million.
Material changes versus 2021
- Sales, operating income, net income, diluted EPS, and operating cash flow reached records, according to management.
- Gross margin eased to 30.8% from 31.9% as metal prices peaked in the second quarter and declined thereafter; operating margin nevertheless rose as operating expenses declined as a share of sales.
- The LIFO inventory valuation adjustment was a $76.6 million credit to gross profit in 2022, versus a $704.8 million charge in 2021—an unusually large year-over-year comparison.
- Share repurchases rose to $630.3 million from $323.5 million. Dividends and dividend equivalents were $217.1 million, compared with $177.0 million.
- 2022 included $863.0 million of sales from four businesses acquired in late 2021; no acquisition spending was reported in 2022.
Outlook, commentary, and risks
Management described demand as healthy across most end markets, while customer supply-chain disruptions continued to constrain activity. Metals prices declined during the second half of 2022. The filing gives a $500 million 2023 capital expenditure budget but no specific revenue or earnings guidance. Management expects liquidity to support operations, investment, acquisitions, dividends, and potential share repurchases.
Key risks include metals-price volatility and inventory valuation effects; cyclical demand and possible recession; inflation, labor and freight costs, and supply-chain disruption; tariffs and import competition; supplier availability; interest-rate and debt-service exposure; and execution and integration risks from acquisitions. The filing also identifies cybersecurity, environmental and regulatory matters, foreign currency and geopolitical exposure, and possible labor disruptions. COVID-19 impacts and the Russia-Ukraine conflict remained sources of uncertainty.
Unusual or notable items: the company reported no 2022 goodwill or long-lived asset impairment, and $1.4 million of restructuring charges. It disclosed an environmental remediation matter related to a former subsidiary operation, with insurance expected to cover most costs; management did not expect a material adverse financial impact. Routine litigation was not expected to have a material impact. KPMG issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Whether margins and earnings remain resilient as metals prices normalize, particularly given the large LIFO adjustment comparison.
- How the $500 million 2023 capital expenditure plan affects free cash flow and returns to shareholders.
- Debt and cash levels after the January 2023 $500 million note redemption, including the timing of remaining maturities.
- Whether demand, same-store tonnage, and customer supply-chain conditions improve or weaken.
- Progress and potential costs related to environmental remediation, labor agreements expiring in 2023, and other disclosed contingencies.