Reliance Delivers Strong Q1 2025 Performance DespitePricing Headwinds
Reliance, Inc. (NYSE: RS), a leading metals service centercompany, has reported its financial results for the first quarter ended March31, 2025, showcasing the resilience of its business model despite challengingmarket conditions. The company achieved record shipment volumes and maintainedstrong profit margins, though year-over-year comparisons reflect the impact oflower selling prices compared to the elevated levels seen in early 2024.
The results highlight Reliance's ability to drive volumegrowth and operational efficiency in a complex market environment characterizedby pricing pressures and trade policy uncertainty. Management attributed thestronger-than-expected performance to the company's strategic focus onprofitable growth and its ability to leverage strong supplier relationships toensure product availability.
Financial Performance Highlights
Revenue and Volume Metrics
Reliance reported net sales of $3.48 billion for the firstquarter of 2025, representing a 4.4% decrease compared to the $3.64 billionreported in the same period last year. This year-over-year revenue declineoccurred despite record shipment volumes, illustrating the significant impactof lower selling prices across the company's product portfolio.
The company shipped a record 1.63 million tons in Q1 2025,a 9.0% increase from the 1.49 million tons shipped in Q1 2024. On a same-storebasis, excluding the impact of acquisitions, tons sold increased by 5.6%year-over-year, significantly outperforming the broader industry, whichexperienced a 0.5% decline according to the Metals Service Center Institute.
The average selling price per ton sold was $2,143 in Q12025, down 12.2% from $2,442 in Q1 2024, reflecting the lower pricingenvironment across most metal products. On a sequential basis, the averageselling price decreased slightly by 1.2% from $2,170 in Q4 2024, primarily dueto product mix shifts with increased carbon steel shipments.
Profitability Metrics
Despite the pricing headwinds, Reliance maintained strongprofitability metrics:
- Gross profit was $1.03 billion, down 8.4% from $1.13billion in Q1 2024
- Gross profit margin was 29.7%, compared to 31.0% in Q12024
- Pretax income was $262.4 million, down 33.8% from $396.2million in Q1 2024
- Net income attributable to Reliance was $199.7 million,down 34.1% from $302.9 million in Q1 2024
- Diluted earnings per share (EPS) was $3.74, down 28.5%from $5.23 in Q1 2024
- Non-GAAP diluted EPS was $3.77, down 28.9% from $5.30 inQ1 2024
The sequential comparison was more favorable, with grossprofit margin expanding from 28.3% in Q4 2024 to 29.7% in Q1 2025, reflectingimproved alignment between selling prices and inventory costs, particularly inMarch 2025.
Inventory and LIFO Impact
Reliance reported LIFO (Last-In, First-Out) expense of$25.0 million in Q1 2025, compared to LIFO income of $50.0 million in Q1 2024.This swing in LIFO impact reflects the changing cost environment, with risingcosts for carbon steel products in the current quarter compared to decliningcosts in the prior-year period.
The LIFO expense reduced the company's reported EPS byapproximately $0.35 per diluted share, net of tax effects. Management notedthat the actual LIFO expense was significantly different from their initialestimate of $15.0 million in LIFO income for the quarter, resulting in a netunfavorable impact of $0.57 per share compared to the assumptions used in theirearnings guidance.
Balance Sheet and Cash Flow
Reliance maintained a strong financial position whilecontinuing to return value to shareholders:
- Cash provided by operations was $64.5 million, down from$126.3 million in Q1 2024
- Free cash flow was negative $22.4 million, compared topositive $17.6 million in Q1 2024
- Net debt-to-total capital ratio was 14.4%, up from 2.6%in Q1 2024 but still reflecting low leverage
- Net debt-to-EBITDA ratio was 0.9x, compared to 0.1x in Q12024
- The company repurchased $253.2 million of common stockduring the quarter
- Dividend payments totaled $65.2 million, consistent withQ1 2024
The increase in leverage metrics compared to the prior yearreflects the company's active capital allocation strategy, includingsignificant share repurchases and continued capital expenditures to supportgrowth initiatives.
Operational Performance and Market Conditions
End Market Commentary
Reliance serves a diverse range of end markets, withvarying performance across segments in Q1 2025:
Non-residential construction (Reliance's largest end marketby volume):
- Improved demand compared to Q1 2024
- Continued strength across diverse sectors including datacenters, energy infrastructure, manufacturing, and public infrastructure
- Expected to remain at healthy levels in Q2 2025
Broader manufacturing sectors:
- Increased demand compared to Q1 2024
- Strength in industrial machinery, military, shipbuilding,rail, and heavy construction equipment
- Consumer products and heavy agricultural equipment showedmarginal improvement but were comparatively weaker
- Some demand pull-forward occurred in anticipation ofprice increases and potential tariff actions
- Expected to remain relatively stable in Q2 2025, subjectto trade policy developments
Aerospace:
- Stable demand compared to Q1 2024
- Anticipating mildly weaker commercial aerospace demand inQ2 2025 due to excess inventory in the supply chain
- Military and space-related portions expected to remainstrong in Q2 2025
Automotive (toll processing services):
- Slightly lower demand compared to Q1 2024
- Expected to remain stable in Q2 2025, subject to NorthAmerican trade policy uncertainty
- Company noted flexibility to adapt to market changes
Semiconductor:
- Remained depressed compared to Q1 2024
- Expected to remain under pressure in Q2 2025 due tocontinued excess inventory in the supply chain
Pricing Environment
The pricing environment in Q1 2025 was characterized by:
- A slight sequential decline in average selling prices,primarily due to product mix shifts
- Improving pricing trends in March that continued intoApril
- Better alignment between replacement costs and inventorycosts, supporting gross margin expansion
- Anticipated price increases for carbon steel and aluminumproducts, which influenced customer buying patterns
Management noted that a dynamic trade environment supportedpricing improvements late in the quarter, suggesting potential stabilization orimprovement in the pricing environment moving forward.
Management Commentary and Outlook
Karla Lewis, President and Chief Executive Officer ofReliance, emphasized the company's strategic focus on "smart, profitablegrowth" and the resilience of its business model in a backdrop ofsignificant market uncertainty. She highlighted the company's ability to shiprecord tons while increasing gross profit margins as evidence of successfulexecution.
Looking ahead, management expressed cautious optimism aboutmarket conditions:
- Positive pricing momentum continuing from March intoApril
- Stable demand conditions, particularly in non-residentialconstruction
- Ongoing uncertainty in both domestic and internationaleconomic policy
- Confidence in the company's business model of buying andselling metal primarily in the U.S. market
The company did not provide specific financial guidance forQ2 2025 in the excerpted portion of the release, but the commentary suggestsexpectations for relatively stable demand with potential support from improvingpricing trends.
Strategic Initiatives and Capital Allocation
Growth Investments
While the release did not detail specific growthinitiatives, the company's capital expenditures of $86.9 million in Q1 2025indicate continued investment in its operational capabilities. This representsa moderate decrease from the $108.7 million spent in Q1 2024 but still reflectssubstantial ongoing investment in the business.
The company did not complete any acquisitions during Q12025, compared to $53.7 million spent on acquisitions in Q1 2024. However, theresults show contributions from 2024 acquisitions supporting the year-over-yeargrowth in tons sold.
Shareholder Returns
Reliance maintained its commitment to returning value toshareholders:
- Share repurchases of $253.2 million in Q1 2025, asignificant increase from no repurchases in Q1 2024
- Dividend payments of $65.2 million, consistent with theprior year
- Combined shareholder returns of $318.4 million in Q1 2025
The substantial share repurchase activity reflectsmanagement's confidence in the company's long-term prospects and theirassessment of the stock's value relative to the company's future potential.
Competitive Positioning and Market Differentiation
Several elements of Reliance's performance highlight itscompetitive differentiation in the metals service center industry:
Volume Outperformance
Reliance's 5.6% same-store volume growth significantlyoutpaced the industry-wide decline of 0.5% reported by the Metals ServiceCenter Institute. This outperformance suggests market share gains and effectivecommercial strategies that resonated with customers despite challenging marketconditions.
Supply Chain Advantages
Management specifically highlighted the company's"ability to access metal due to our strong domestic millrelationships" as a factor contributing to the strong shipment levels.This supply chain advantage appears particularly valuable in a marketcharacterized by anticipation of price increases and potential trade policychanges.
Margin Resilience
Despite pricing pressures, Reliance maintained a robustgross profit margin of 29.7%, reflecting the company's value-added processingcapabilities and service-oriented business model. The sequential marginimprovement from Q4 2024 demonstrates the company's pricing discipline andinventory management capabilities.
Business Model Flexibility
The company's commentary emphasized the flexibility of itsoperations, particularly in areas like automotive toll processing, enablingquick adaptation to market changes. This operational agility represents a keystrength in navigating uncertain market conditions.
Challenges and Risk Factors
While Reliance delivered strong operational results,several challenges and risk factors are evident:
Pricing Pressure
The 12.2% year-over-year decline in average selling pricessignificantly impacted revenue and earnings despite record shipment volumes.This pricing pressure remains a key challenge, though recent trends appear morefavorable.
Trade Policy Uncertainty
Management repeatedly referenced uncertainty in tradepolicy as a factor affecting market conditions. This uncertainty could impactboth demand patterns and pricing dynamics across Reliance's product portfolio.
Inventory Management Complexity
The significant LIFO expense and its deviation frommanagement's expectations highlight the challenges of inventory management in avolatile cost environment. The company's ability to navigate these challengeswill remain important to its financial performance.
End Market Variability
The mixed performance across end markets, with particularweakness in semiconductors and potential headwinds in commercial aerospace,illustrates the importance of Reliance's diversified market exposure but alsothe challenges of managing through sector-specific cycles.
Conclusion: Strong Execution Amid Market Challenges
Reliance's Q1 2025 results demonstrate the company'sability to execute effectively despite significant market challenges. Therecord shipment volumes and strong gross profit margins highlight theresilience of its business model and the effectiveness of its commercialstrategies.
While year-over-year comparisons reflect the impact oflower selling prices compared to early 2024, the sequential improvements inboth volumes and margins suggest positive momentum heading into the secondquarter. Management's commentary indicates cautious optimism about near-termmarket conditions, particularly in the company's largest end market ofnon-residential construction.
The company's financial strength, evidenced by itscontinued share repurchases and dividend payments despite increased capitalexpenditures, provides flexibility to pursue both organic andacquisition-driven growth opportunities while returning value to shareholders.This balanced capital allocation approach positions Reliance to navigate marketuncertainties while investing in long-term competitive advantages.
As the company moves forward in 2025, its ability tomaintain volume outperformance while capitalizing on potential pricingimprovements will be key factors in determining its financial performance. Theongoing evolution of trade policies and their impact on both demand patternsand pricing dynamics will represent important external variables for thecompany to navigate.
Key Takeaways:
* Reliance reported Q1 2025 net sales of $3.48 billion,down 4.4% year-over-year despite record shipment volumes
* Record tons sold of 1.63 million represented a 9.0%increase from Q1 2024 (5.6% on a same-store basis)
* Average selling price per ton sold decreased 12.2%year-over-year to $2,143
* Gross profit margin was 29.7%, down from 31.0% in Q1 2024but up from 28.3% in Q4 2024
* Diluted EPS was $3.74, down 28.5% from $5.23 in Q1 2024but up 93.8% from $1.93 in Q4 2024
* The company repurchased $253.2 million of common stockduring the quarter
* LIFO expense of $25.0 million compared to LIFO income of$50.0 million in Q1 2024
* Non-residential construction demand improved compared toQ1 2024 and is expected to remain at healthy levels
* Manufacturing demand increased year-over-year, withstrength in industrial machinery, military, shipbuilding, rail, and heavyconstruction equipment
* Aerospace demand was stable compared to Q1 2024, withanticipated weakness in commercial aerospace in Q2 2025
* Automotive toll processing demand was slightly lower thanQ1 2024 and expected to remain stable in Q2 2025
* Semiconductor demand remained depressed and is expectedto stay under pressure in Q2 2025
* Pricing improvements in March have continued into April,suggesting potential stabilization
* Management attributed outperformance to strong supplierrelationships and strategic focus on profitable growth
* The company maintained a strong financial position with anet debt-to-EBITDA ratio of 0.9x
