Service Centers

Reliance Tops $1 Billion in Record Third-Quarter Profits

Written by Tim Triplett

This year’s third quarter was the best quarter on record for Reliance Steel & Aluminum Co., the nation’s largest service center organization. Reliance reported gross profit of $1.21 billion on sales of $3.85 billion in Q3.

“Our resilient business model, favorable metal pricing trends and excellent execution combined to produce another quarter of record-setting financial results,” said Reliance CEO Jim Hoffman during the company’s earnings call today. “The favorable pricing environment along with fundamentally strong underlying demand in many of the key end markets we serve drove record quarterly net sales. In addition, strict pricing discipline by our managers in the field helped us generate a strong gross profit margin of 31.5%.”

Reliance completed its acquisition of Merfish United, a leading master distributor of tubular building products, on Oct. 1, and expects its new division to help position Reliance in the broader industrial distribution space. “Merfish is a really cool company – a little different, but still distribution. It’s an adjacent business [in copper and plastics]. Merfish will add to our mojo,” Hoffman told analysts and investors on the call.

“Where they operate is a very fragmented industry. We see further opportunities for growth through acquisition in that space,” Reliance President Karla Lewis added.

Reliance services diverse end markets and provides a wide range of products and processing services, generally in small quantities on a when-needed basis. During the third quarter, the company’s tons sold decreased 4.6% compared to the prior quarter due to various factors hindering economic activity, including limited metal availability, supply disruptions and labor shortages. “We believe underlying demand was stronger than our Q3 shipment levels reflect. We believe Reliance is well positioned to service this pent-up demand in future periods,” Lewis said.

Commenting on various business sectors, the Reliance executives said demand in nonresidential construction (including infrastructure), the service center’s largest end market, remains solid after reaching pre-pandemic levels during the second quarter. Reliance is optimistic that demand for nonresidential construction activity will continue to improve through the remainder of 2021 and into 2022 based on healthy backlogs and solid quoting activity.

Demand for Reliance’s toll processing services in the automotive market fell slightly from the prior quarter. However, the company believes underlying demand is stronger than its third-quarter trends reflect due to the continued impact of the global microchip shortage on production levels. The chip shortage has had a minimal effect on Reliance’s toll processing business so far, Lewis said. “In the U.S., the impact has been less than what we have seen in Mexico, where our toll customers serve more of the small sedans. But they seem to be working through it fairly well. Our tolling operations see a lot of opportunity in other end markets where there is strong demand, and they have been able to fill some of the lost production from automotive. We think the outlook is improving, and we will see fewer shutdowns going forward.”

Demand in heavy industry for both agricultural and construction equipment remains strong. Reliance shipments declined in the third quarter due to higher than anticipated seasonal shutdowns at many customers, along with broad customer supply-chain disruptions and labor constraints. Nevertheless, the company’s third-quarter shipments exceeded pre-pandemic levels. Reliance expects the strong underlying demand in the heavy equipment and manufacturing industries to be delayed, not lost, in the quarters to come.

Demand in commercial aerospace was impacted by normal seasonal factors. Reliance is cautiously optimistic that demand in commercial aerospace will slowly improve through 2022 as build rates increase and excess inventory in the supply chain declines. Demand in the military, defense and space portions of Reliance’s aerospace business also remains solid with strong backlogs.

Demand in the energy (oil and natural gas) market continued its slow improvement in the third quarter due to increased activity driven by higher oil and natural gas prices. Reliance anticipates energy demand will continue to improve at modest levels into 2022.

Reliance continues to focus on value-added processing. “Our capex budget this year was $310 million. We were not able to spend it all due to interruptions in the supply chain for equipment. But it all evolves around our customers asking us to do more. We will be there for them,” Hoffman said.

Overall, Reliance remains optimistic about business conditions. But the company expects metal supply constraints, labor shortages and supply-chain disruptions to persist in the fourth quarter. In addition, Reliance anticipates demand will be affected by normal seasonal factors including customer holiday-related shutdowns and fewer shipping days. Accordingly, the company estimates its tons sold will decline by 5-8% in the fourth quarter. Reliance expects pricing for certain stainless and aluminum products to increase in the fourth quarter, offsetting the impact of declining pricing trends for certain carbon products.

In other news, Reliance will relocate its corporate headquarters from Los Angeles to Scottsdale, Ariz., in the first half 2022, though it will maintain a presence in the Los Angeles area.

By Tim Triplett,


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