Reliance (RS) Q4 2025 Earnings Call Transcript

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Date

Feb. 19, 2026 at 11 a.m. ET

Call participants

• President and Chief Executive Officer — Karla R. Lewis
• Chief Operating Officer — Stephen P. Koch
• Senior Vice President, Chief Financial Officer — Arthur Ajemyan

Takeaways

• Tons shipped -- Increased 6.2% to 6,400,000, with U.S. market share rising to approximately 17% from 15%.
• Tolling tons -- Grew 1.2% to 7,400,000 customer-owned tons processed.
• Fiscal 2025 non-GAAP gross profit margin -- Reached 28.8%, just outside the company’s estimated sustainable range of 29%-31%, primarily due to a $114,000,000 annual LIFO expense driven by tariffs. (Fiscal year ended Dec. 31, 2025.)
• Full year non-GAAP FIFO pretax income -- Increased by $80,000,000, while non-GAAP FIFO earnings per diluted share rose 13.5% after adjusting for LIFO impact.
• Reported non-GAAP EPS -- Declined 10.2% from 2024, but was up 8% in the fourth quarter to $2.40 per diluted share including $0.56 per share of LIFO expense.
• Operating cash flow -- Generated $831,000,000 for fiscal 2025, with $276,000,000 from the fourth quarter.
• Shareholder returns -- Delivered $849,000,000 in fiscal 2025 through dividends and share buybacks; quarterly dividend increased 4.2% to $5 per share annualized for 2026.
• Share repurchase reduction -- Reduced total shares outstanding by 4% during fiscal 2025, with $763,000,000 still authorized under the buyback program.
• 2026 capital expenditure guidance -- Set at $275,000,000, with total CapEx expected between $300,000,000 and $325,000,000 including carryover; about half slated for growth initiatives.
• Debt position -- Total debt at year-end was $1,400,000,000, with net debt to EBITDA ratio below 1.
• Fourth quarter tons sold -- Declined 5.4% sequentially, but increased 5.8% year over year, outperforming the service center industry by 7 percentage points.
• Product segment performance -- Carbon steel drove shipment and margin increases; aluminum segment had margin pressure due to tariff-driven costs and soft demand in commercial aerospace and semiconductor markets.
• LIFO expense -- Fourth quarter LIFO expense was $39,000,000, above the $25,000,000 estimate, with full-year LIFO expense at $114,000,000 versus a $100,000,000 estimate.
• SG&A expenses -- Same-store non-GAAP SG&A rose 6.7% in the quarter and 4.4% for the year, but was down roughly 1% per ton sold for fiscal 2025 due to operating leverage.
• End market breakdown -- Nonresidential construction and general manufacturing each represented about one third of fourth quarter sales; aerospace 10%; automotive 4%; semiconductor segment remained weak.
• 2026 guidance -- Management projects tons sold up 5%-7%, average selling price per ton up 3%-5%, and anticipated first quarter non-GAAP EPS in the $4.50-$4.70 range, reflecting approximately 19%-25% expected growth.

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Risks

• Management cited "significant tariff-related aluminum cost increases were more difficult to pass through due to plentiful supply and soft demand especially in our commercial aerospace and semiconductor markets," leading to margin compression.
• Fourth quarter LIFO expense of $39,000,000 exceeded the $25,000,000 estimate, negatively impacting quarterly margin and earnings.
• Commercial aerospace and semiconductor end markets continued to experience subdued demand and excess inventory, with management stating, "Semiconductor market remained under pressure, to ongoing excess inventory in the supply chain during the fourth quarter."
• Full year earnings per diluted share declined by 10.2%, affected in part by elevated LIFO expense and market headwinds.

Summary

Reliance (NYSE:RS) delivered record tons shipped and increased U.S. market share, supported by operational execution and growth-focused investment. The company navigated tariff-driven cost pressures that primarily impacted the aluminum segment, resulting in a substantial LIFO expense and a year-over-year EPS decline, despite higher FIFO profitability and robust operating cash flow. Management communicated 2026 guidance calling for continued shipment and pricing growth, a capital allocation plan balanced between shareholder returns and growth initiatives, and margin improvement contingent on moderating tariff impacts and demand normalization in weaker end markets.

• President and CEO Lewis stated, "Our 2025 non-GAAP gross profit margin of 28.8% is just outside of our estimated sustainable range which we attribute primarily to tariff-driven annual LIFO expense of $114,000,000."
• Operating leverage was demonstrated through higher volume and stable SG&A per ton, even with incentive compensation increases linked to profitability.
• Management expects first quarter 2026 non-GAAP EPS growth of approximately 19%-25%, signaling confidence in improved demand and pricing as supply chain headwinds abate.
• Investment priorities in 2026 will split capital between organic growth and potential acquisitions, with flexibility to increase CapEx if customer demand warrants it.
• Ongoing softness in commercial aerospace and semiconductor sectors continues to pressure margins, but backlog conversion and expected inventory drawdowns could provide upside later in the year.

Industry glossary

• LIFO (Last-In, First-Out): An inventory accounting method where the most recently acquired inventory is expensed first, often impacting reported profitability during periods of cost inflation in metals distribution.
• FIFO (First-In, First-Out): An inventory accounting method that expenses the oldest inventory first, providing a different view of gross profitability relevant to management's operational performance assessment.
• Tolling tons: Customer-owned material processed by Reliance for a fee, often excluding those tons from standard shipment metrics.
• Midwest premium: A surcharge applied to the price of aluminum in North America, reflecting local supply and demand conditions, specifically highlighted as tariff-sensitive in the call.

Full Conference Call Transcript

Karla R. Lewis, President and CEO of Reliance Steel & Aluminum Co. Good morning, everyone, and thank you for joining us to discuss our fourth quarter and full year 2025 results. In 2025, we demonstrated strong operational execution and continued to expand our market share underscoring the strength of our business model amid a complex macroeconomic backdrop and competitive operating environment. Our commitment to smart profitable growth once again fueled strong results. In 2025, we increased our tons shipped by 6.2% resulting in record tons sold of 6,400,000 outperforming the industry by over seven percentage points with our U.S. market share increasing to approximately 17% in 2025 from 15% in 2024.

In addition, we increased our tolling tons by 1.2% to 7,400,000 customer-owned tons processed through our tolling operations. Our shipment growth was in carbon long and flat rolled products where we also increased our gross profit margin year over year. By continuing to focus on exceptional customer service and maintaining our strong relationships with key domestic suppliers, we were successful winning new business and were able to better leverage our operating expenses over higher volumes leading to increased FIFO profits that further strengthen our long-term industry leading position. We increased our FIFO gross profit margin by 90 basis points in 2025 compared to 2024 through strong pricing discipline mainly on increased mill prices for carbon products supported by healthy demand.

However, significant tariff-related aluminum cost increases were more difficult to pass through due to plentiful supply and soft demand especially in our commercial aerospace and semiconductor markets. Our 2025 non-GAAP gross profit margin of 28.8% is just outside of our estimated sustainable range which we attribute primarily to tariff-driven annual LIFO expense of $114,000,000. We expect our gross profit margin to improve in 2026 as the impact of tariffs and trade uncertainty lessens maintaining our annual range of 29% to 31%. We increased 2025 non-GAAP FIFO pretax income by $80,000,000. However, full year 2025 earnings per diluted share declined 10.2% from 2024.

Excluding the impact of significant LIFO in both periods, 2025 non-GAAP FIFO earnings per diluted share increased 13.5% year over year thanks to the talented teams we have throughout the Reliance family. Our strong cash flow generation continues to fuel profitable growth and deliver meaningful returns to our stockholders. In 2025, we generated $831,000,000 in operating cash flow which we redeployed into high value initiatives including investments in advanced processing equipment and other projects that support our long-term growth objectives. For 2026, announcing a capital expenditure budget of $275,000,000 as we focus on maximizing returns on the significant capital deployed in recent years.

Including carryover spending we anticipate 2026 total CapEx spending of $300,000,000 to $325,000,000 with approximately half directed toward growth initiatives. Our scale, financial strength, and operational capabilities position us to pursue compelling opportunities that may emerge in 2026 including acquisitions of well-run profitable businesses that broaden our footprint and strengthen our portfolio of metal solutions and through additional capital expenditure investments as attractive customer opportunities arise. We also remain committed to returning capital to our stockholders delivering $849,000,000 in 2025 through dividends and share repurchases. We increased our dividend by 4% to an annual dividend rate of $5 per share in the 2026 first quarter.

In summary, Reliance Steel & Aluminum Co.'s diversified business model and unrivaled scale help to offset market-specific weaknesses and support stable performance through economic cycles. Our expansive capabilities and financial strength enable us to invest when others retreat positioning us to capture market share and accelerate growth as markets stabilize and improve. As we enter 2026, a healthy demand and strong pricing environment, we are seeing increasing optimism from our customers and increasing activity around large-scale projects across several key end markets including infrastructure, data centers, energy, and defense.

Reliance Steel & Aluminum Co. has the capabilities talent, and capital to continue to grow both our core small order quick turn business while also winning new business from these larger projects. We are excited to continue delivering disciplined profitable growth in the year ahead. I will now turn the call over to our COO, Stephen P. Koch, who will review our demand and pricing trends. Thanks, Karla, and good morning, everyone. I'd like to begin by recognizing our teams for their solid operating performance and continued commitment to safety. Our 2025 total recordable incident rate improved in 2025. Reflecting the discipline and care they bring to serving our customers each and every day.

I also want to acknowledge our mill suppliers. When tariffs were imposed, our supply chain remained uninterrupted which we attribute to our long-standing relationships with our mill partners and our disciplined supply chain strategy. Finally, we appreciate our customers and we look forward to continuing to be their valued reliable metal solutions provider and supporting their growth and success in 2026 and beyond. Turning to our demand and pricing trends. Fourth quarter tons sold declined 5.4% from the 2025. And increased 5.8% from the 2024. Significantly outperforming the service center industry which reported a decline of 1.2% over the same period last year. And exceeding our expectations of up 3.5% to 5.5%.

Delivering this level of outperformance in a market shaped by cautious buying and intense competition reflects the strength of our smart, profitable growth strategy and the benefits of our continued investments. Carbon values remain the primary driver of growth particularly in the nonresidential construction and certain subsectors of manufacturing. Our fourth quarter average selling price increased about 1% from the 2025 exceeding our expectation of relatively flat pricing. Aluminum pricing continued its upward trend responsive tariffs raising the Midwest premium. As Arthur will discuss in our outlook, we believe pricing for most products will improve in the 2026. Turning to our end markets.

Nonresidential construction represented roughly one third of our fourth quarter sales, primarily from carbon steel tubing, plate and structural products. Shipments remained strong in the fourth quarter, supported by overall demand in heavy civil and public infrastructure work. Along with record levels of data center-related energy infrastructure builds. These areas of strength outweigh pockets of soft in private nonresidential construction. Our broad participation and scale across a wide geographic footprint continued to support market share gains in this space. General manufacturing, also about one third of fourth quarter sales remained highly diversified across products industries and geographies. Shipments increased year over year drove my strength in military, industrial machinery, including data center equipment, consumer products, rail, and shipbuilding.

We are also seeing higher nuclear-related demand tied to emerging small modular reactor activity and data center energy needs. Our performance across key product groups and our ability to move quickly into emerging markets continue to differentiate Reliance Steel & Aluminum Co. in the important general manufacturing market segment. Aerospace products accounted for approximately 10% of fourth quarter sales. Commercial aerospace demand remained subdued due to continuing elevated inventory levels in the supply chain. Which we anticipate will gradually improve in 2026 as record OEM backlogs convert to increased build rates. Defense and space-related aerospace programs remain consistent at strong levels throughout the fourth quarter.

Automotive, which we primarily serve through our toll processing operations, and therefore are not included in tons sold, represented about 4% of fourth quarter sales. Underlying demand has remained solid supported by our recent capacity investments. Semiconductor market remained under pressure, to ongoing excess inventory in the supply chain during the fourth quarter. Overall, our people, our strong mill relationships and our commitment to customer service continue differentiate Reliance Steel & Aluminum Co. and support solid performance. The capital investments we have made over the past several years are meaningfully contributing to our growth and our commercial and operational discipline drive our industry-leading profitability.

I will now turn the call over to our CFO, Arthur Ajemyan to review our financial results and outlook. Thanks, Steve, and thanks, everyone, for joining today's call. We delivered a strong fourth quarter with record shipment levels driving continued market share gains improved profitability, and solid cash flow. As Steve mentioned, volumes were strong, and pricing improved 90 basis points sequentially, mainly due to tariff-driven increases in aluminum product price. Although we are able to pass through most of the tariffs-driven aluminum cost during the quarter. Ample supply limited the incremental margin benefit resulting in modest near-term margin compression.

Higher than anticipated aluminum costs contributed to fourth quarter LIFO expense of $39,000,000 above our $25,000,000 estimate and increased full year LIFO expense to a $114,000,000 compared to a $100,000,000 annual estimate. On a FIFO basis, is how we measure our day-to-day performance, fourth quarter non-GAAP pretax income rose 28% year over year. This reflects the combined benefit of roughly 6% higher volumes and 6% higher selling prices which more than offset the modest 30 basis point decline in our non-GAAP FIFO gross profit margin. Non-GAAP fourth quarter earnings per diluted share were $2.40 an 8% increase year over year. LIFO expense represented $0.56 per share for the quarter. Compared to the $0.35 per share assumption embedded in our guidance.

Including the year-end LIFO and income tax true-ups, our results reflected a net unfavorable impact of $0.25 per share. Adjusting for these items, non-GAAP EPS would have been within management's guidance at $2.65. For the full year 2026, we currently estimate LIFO expense of a $100,000,000 mainly from higher carbon and aluminum product costs. Accordingly, we expect $25,000,000 of LIFO expense for the 2026. Turning to expenses. Same store non-GAAP SG&A expenses increased 6.7% in the fourth quarter and 4.4% for the full year, compared to 2024. Driven by inflationary wage adjustments and higher variable warehousing and delivery costs associated with our increased tons sold. We also incurred higher incentive compensation in both periods from improved FIFO profitability.

On a per ton basis, same store non-GAAP SG&A expenses were down nearly 1% for the full year. Highlighting the operating leverage generated by our growth strategy. I will now address our balance sheet and cash flow. We generated strong cash flow from operations in the fourth quarter of $276,000,000. Our ability to consistently produce strong operating cash flow across market cycles support supports our disciplined and opportunistic capital allocation strategy. During the quarter, we funded $73,000,000 of capital expenditures, paid $64,000,000 in dividend, and repurchased $200,000,000 of our common stock at an average price of roughly $279 per share. During 2025, repurchases reduced our total shares outstanding by 4%.

And we have about $763,000,000 available for additional share repurchases under our current share repurchase program. In addition, we increased our quarterly cash dividend rate by 4.2%. This marks our thirty-third increase since our 1994 IPO to a current annual rate of $5 per common share. At the end of the year, our total debt was $1,400,000,000. Our leverage position remains favorable with net debt to EBITDA ratio of less than one. Providing significant liquidity to support continued execution of our capital allocation priorities. Looking ahead, we expect healthy overall demand in the 2026 in several key end markets. Subject to ongoing domestic and international trade policy uncertainty.

For the 2026, we estimate our tons sold will be up five to 7% compared to the 2025. Which is consistent with seasonal trends and relatively flat compared to the 2025 mainly due to tariff-related demand pull forward in Q1 2025. We expect our average selling price per ton sold for the 2026 will improve three to 5% compared to the 2025 due to healthy demand and higher mill pricing. As a result, we anticipate these dynamics will contribute to a modest improvement in FIFO gross profit margin in the first quarter. Based on these expectations, we anticipate first quarter 2026 non-GAAP earnings per diluted share in the range of $4.50 to $4.70.

Reflecting year over year growth of approximately 19% to 25%. And inclusive of quarterly LIFO expense of $25,000,000 or $0.36 per diluted share. In summary, we are pleased with our strong organic growth, continued market share gains, and disciplined pricing execution in 2025. While we experienced some temporary margin headwinds, from tariff-driven cost increases, and excess inventory in the supply chain for certain pockets of the commercial aerospace, semiconductor end markets. Tariffs have had an overall positive impact on our business. With higher selling prices supporting a meaningful year over year increase in FIFO profitability as 2025 progress and as we head into 2026. This concludes our prepared remarks. Thank you again your time and participation.

We will now open for questions. Operator? Thank you. We will now be conducting a question and answer session. The first question is from Katja Jancic from BMO Capital Markets. Please go ahead. Hi. Thank you for taking my questions. Maybe starting on the on the gross profit side, so you expect the margin to improve modestly in first Q. Which I think based on your guide implies, you will be getting kinda closer to the lower end of your sustainable range. How should we think about margin in the rest the year?

In other words, is there opportunity to further increase it or is this the new norm where you might be leaning more on the lower end of that range? Hey, Katja. So from a gross profit margin standpoint, while we did have, you know, some headwinds during 2025, most specifically on the aluminum side. With the tariffs driving up the price of the Midwest premium significantly, And, you know, typically, we can get ahead of those price increases and it was more difficult given the reason for the price increase being tariff driven There was plentiful supply of inventory, aluminum inventory of available. And demand, you know, was soft to okay.

So, typically, when you have price increases, they are driven by healthy increasing demand, and that was not the backdrop for the aluminum price increases. Also with stainless. So we had a little margin pressure there, But what we were really proud of were our teams on the carbon side who were both growing their tons sold significantly and getting a ahead of the price increases because those increases, there was demand to support that. And as we go into 2026 and, you know, towards the 2025, you saw continued price increases in certain of the carbon products that are strong. And we are seeing really good activity and increasing demand as we go into 2026 for those products.

So that those are really good markets for us. On the, you know, margin pressure on the aluminum. Remember, costs continue to increase during Q4 for aluminum products, and our teams have, you know, basically caught up, and they are able to pass through the increased cost from the tariff. But the given the, you know, demand outlook, which is improving a bit, you know, we are still seeing some pressure on getting a premium on those, tariff costs. But we think that is going to improve as demand improves. For those products as we move through 2026.

So Q1 2026, we may be near the low end of the range, As we see continued price increases, we would expect margins to trend up from that during the year as long as there is demand supporting the price increases. And then, you mentioned that the outlook on the demand side, at least right now, it seems still pretty healthy. But there are some potential tailwinds from lower interest rates and manufacturing activity seems to be picking up. How are you thinking about the kind of volume growth in the second half of the year, especially with you focusing on profitable growth. Yeah. So, you know, Katja, we do hard for us to look out a full year.

It depends A lot of there are a lot of factors in the market that can change, but we are very positive at this point on 2026 based upon the quoting activity we are seeing right now. We are seeing, especially on the carbon side, which is the majority of our volume, we are seeing, like I mentioned earlier, good activity are a lot of large projects out there in different areas. They are being quoted. There are purchase orders in place. On some of that. We are seeing some of our customers on the carbon side buy a little heavier than they had historically.

We think part of that is because they are coming off of low customer inventory levels, but also, you know, mill lead times are going out, which is always a positive sign. And, you know, people are looking to be able to secure the metal. Think, you know, with Reliance Steel & Aluminum Co., we really appreciate our strong relationships with our domestic mill partners who are there to help support us to be able to get the metal to increase our shipments and support our customers. Okay. Thank you. Thanks. The next question is from Martin John Englert from C. Research Partners. Please go ahead. Hello. Good day, everyone. Hey, Martin. How is it going?

Wanted to touch on structural products. It was a larger portion of the mix in fourth quarter. Just can you provide an update regarding what you are seeing with demand and also remind us of the margin profile of these products? And how your demand typically compares to what is happening upstream at the mill level? Good morning, Martin. So for structural beams, we just experienced another price increase last week. The base price is the highest it has ever been, you know, been recorded. That is due to demand through l, the nonres, you know, markets. Lead times are being pushed out. That is one of our larger products that we do stock.

So we are seeing demand in public infrastructure, energy in infrastructure, and data centers. So our outlook for life plans, beads, and you know, structural tubing is very bullish. And can you remind us generally if there is any timing difference between when you see activity and the mills see activity and just overall how the margin profile compares to you know, the average margin for the group? Yeah. From your question on the lag from the mills, I mean, general, on kind of the nonresidential infrastructure side, typically, we have seen about a six to nine month lag on large projects in particular.

But we are you know, we have we seem to be participating a little more in those larger projects. We are not the prime on the large projects in most cases, but we are, getting more meaningful share in some of those large projects So could the lag be a little less now? Possibly, but that is kind of been the trend historically. And from a margin side, we have healthy margins on our structural book of business. You know, years ago, people who followed us for a long time, you know, we used to talk about higher return businesses in and energy and semiconductor They have higher value products.

But, you know, for the last few years with, I think, the pricing improvements we have seen generally in the market on the carbon side. As well as our companies doing more value added processing with the investments we have made to expand their capabilities. The carbon margins for most of our products are right up there, and we do not see the big difference. So, very good margin, profile on our structural book of business. Appreciate that color. Semiconductors, inventory overhang for here in the end market. When was the last time that there was an upcycle here, if you can remind me?

And any signs or visibility as to when the inventory situation may abate, and kind of how the cycle might down cycle might compare to other ones historically. Yeah. Well, Martin, if you will recall, I mean, semiconductor had been on an uptrend for quite some time. And I would say through most of 2023, you know, industry wise, it was, you know, record level shipments in semiconductor. We were participating in that. We had really good years at record levels. We believe a lot of customers were very concerned about being able to secure the metal they needed with how strong the market was, and so they bought ahead quite a bit.

And, you know, quite honestly, for us, some of our book of business, in The U.S. somewhat dependent on which customers you are with. Because some are participating in the AI wing more than others. So I would say, you know, just being honest, we are a little behind on that side with certain parts of our customer base, but we have seen some slight improvement, in some of the equipment makers, But you know, we are hope we are expecting late this year. We might see that inventory being worked through and start to see a bit of an improvement there. Okay. Appreciate the color. Thank you. The next question is from Philip Gibbs from KeyBanc Capital Markets.

Please go ahead. Hey, good morning. Hey. Good morning. Karla and team, maybe just talk about the M&A environment. I know you were not very active in 2025, but certainly a big part of your longer term growth trajectory. So just curious in terms of what may be out there, you know, how is the valuations How are the valuations looking for some of the things that might be appealing to you all? Hey, Phil. Yeah. On the M&A front, I guess, I would say I felt like we were active in 2025. Excuse me. We were looking. We were there was deals out there. We just did not close any in 2025. So there are opportunities out there.

There is some that are attractive to us. But to your, you know, question on valuations, we have to be able to agree upon that. And in some instances, we are. Others, there are some other companies who know, might be willing to pay more than we are. Maybe there is a strategic reason for them that is different from our view. And, you know, with the we are still very interested in acquiring the right companies, and we are continuing to look at those and will. Complete, you know, where we think it is appropriate. And we can agree on the valuation.

But you know, I would also point out that know, 2025, our 6% tons growth over 2024 that was over 300,000 tons. Of incremental volumes we were shipping. And if you compare that to, you know, a dollar value if we acquired a company, that would be like acquiring $650,000,000 revenue plus company. And, you know, it was a significantly lower cost for us to make some investments in, you know, facilities and processing equipment to be able to increase our volumes like that as opposed to paying a premium to buy a $650,000,000 company out there through an acquisition. And that does not mean that there are not $650,000,000 companies out there that we would want to acquire.

But I just, you know, want to highlight the efforts that our team's made and the significance of being able to grow organically. And then on the gross margin piece, the 29% to 31%, just wanted to qualify that. That is a LIFO range that you all are talking about as being sort of your long-term sustainable range. And then also to that, any way to size up the drag on gross margins maybe in 2025 from the aerospace and you know, semis headwinds, which does not sound like that it is all going to completely normalize this year, but maybe by maybe by 2027. Thank you. Yeah, Phil.

So on the gross profit margin, you know, the 29% to 31%, that is an annual LIFO range. LIFO makes it less volatile than on FIFO on a FIFO basis. And as we mentioned, we did increase our FIFO gross profit margin in 2025 over 2024, Again, a lot on the carbon side with great execution, you know, by our teams in the market. You know, kind of I guess, somewhat unique, we would say, in 2025. You know, aluminum is typically around 15 ish percent of our sales. But it made up over half of our LIFO because those increased tariff costs also impact our LIFO adjustment. So we had kind of an outsized impact because of those tariffs.

And as we said, if prices start to stabilize a little more on the aluminum side, you know, we can catch up with our margins and maybe start to see some improvement there. But, you know, again, we feel strong with how our people are executing, but LIFO did have a big impact on 2025 from aluminum or is there anything you would add? Yeah. I think, you know, Phil, on the same thing kinda headed into 2026 to the LIFO estimate. You have a fair amount of aluminum you know, carryover. Right? So the cost increases that happen in Q4, you are going to be receiving that material throughout '26.

So, again, going to have disproportionate contribution know, from aluminum to LIFO expense. So it is somewhat unique. Like, this is not kinda typical dynamic that we have experienced before. This type of a mismatch, you know, from LIFO to the FIFO margin side. But know, then nonetheless, you know, we are executing really well. I think the one nuance that perhaps kinda gets lost is you know, aluminum prices have been going up, you know, while there has been, you know, some slight margin compression we are still realizing higher gross profit per pound So from that perspective, overall profitability is improving from higher selling prices.

It is just your you know, mathematically experiencing some margin compression because, to Karla’s point, on the cost increases, while they are being passed through, we may not be able to get you know, the full margin on that as we would on other cost increases that are supported by solid demand. And then anything you all could discuss on aerospace and semis in terms of maybe how much that is impacting the gross margins right now from a you know, basis point perspective? Good question, Phil.

So I think with there be a little bit of an overlap with aluminum, but, you know, if you look at aerospace and semi semiconductor, let us say, less than, you know, 10% or 15% of overall sales and consolidated margin impact, you know, 50 basis points plus. Thank you. That is helpful. Appreciate it. Yeah. The next question is from Bennett Moore from JPMorgan. Please go ahead. Good morning, Karla, Steve and Arthur. Thank you for taking my questions. Good morning. In the context of the lower expected CapEx spend this year and notwithstanding the recent dividend hike, how might this trick directionally impact your appetite for share buybacks? 26? Hi, Bennett.

I do not know that it is significantly changes because we have consistently had an appetite, strong appetite for acquisitions, for organic growth, for share buybacks, and you know, consistently increasing our dividend. So we continue to look for opportunities in all of those areas and not changed from the last few years. We have got the, you know, resource and the financial strength to execute in all of those areas. You know, our capital expenditure budget for 2026 is a little lower than the last few years, but we have had kind of budgets the last couple years. We have had some good greenfield projects in there. We have had a lot of investment in value added processing equipment.

Which we are continuing to do, but we are really challenging our teams to look at the investments we have already made and make sure that we are know, maximizing the capabilities and you know, the equipment that we buy now is much more technologically advanced. It can do things faster. It is increasing you know, some of our productivity. So we are really pushing our teams to maximize and look at what they have. Before we go out and spend more on, you know, additional capital. But that being said, the $275,000,000 for this year, it is a good budget. It is rightsized.

But as we have mentioned, there is a lot of activity as we from our customers as we go into 2026. And we are very open to increase our CapEx budget to support those customers and those opportunities if we see, you know, good profitable opportunities come in front of us so that budget could increase, as we go through the year. Given solid opportunities in front of us. Thanks for that. And then coming to SG&A per ton, think it was up around 1.2% in the fourth quarter despite record shipments. So wondering if anything to flag here, maybe it was the incentive comp.

And then do you expect that this year over year growth trend could reverse in the first quarter? And what is your confidence that, I guess, for the balance of the year, we can see this metric trend lower? Yeah. Question. So yep. At a high level, that is what we have been focused on, right, leveraging our cost structure with our smart profitable growth strategy. I mean, on a full year basis, our SG&A per ton, I think, trended down roughly a percent. Yeah. So that is that is us basically being able to leverage. Our cost structure and drive incremental profit from know, the organic growth.

Think, you know, quarter on quarter, Q4 to Q4, important you know, highlight, you know, from a FIFO perspective. Profits were up nearly 28%. So, yes, absolutely, there is going to be year over year some incentive comp that is associated with that is going to affect the comparability. But overall, yeah, it is an area of focus and, you know, every year, there is inflation, obviously, and that is that is that is something that, you know, we have to give we give our people wage increases.

That is But, you know, to the extent that know, that we are leveraging our cost structure and focusing on growth and you know, driving profitable growth that should you know, work out the way we intend it to be. Understood. You very much, and best of luck. Yes. Thank you. The next question is from Michael Dwayne Harris from Wells Fargo. Please go ahead. Yes. Hey, everyone. Thanks for getting me in. Good morning. Just curious, are you all seeing any substitution to or away from aluminum You know, we are just kinda wondering what the boots on the ground are seeing with all the price volatility and you guys playing to both the aluminum and the steel markets.

Yeah. Hi, Michael. That is we have not seen that, at least not in a material way. You know, coming through. We know there is buzz about that out there, but, we have not seen any real impact in any of our markets from that. And, you know, as you commented on, we are in all markets, and so we are happy to support our customers. And whatever products are the best use, for their needs. In some architectural usage, there has been substitutions from copper to aluminum or other products. Which is not a huge part of our business, but the copper spike has been substantial.

So our customers are looking for more economical you know, ways, you know, alternatives. Okay. That is helpful. Yeah. We have we have heard of from copper to aluminum. Just shifting over on the plate markets, we seem to be gaining a lot of momentum there. Can you all provide any color on what is driving the relative strength versus other products? And whether or not you think it is underlying demand, or is it more customer restocking right now? So we are seeing customer restocking, we are seeing mill price increases. We are seeing no lead times extend for the first time in quite some time. There is a lot of energy infrastructure onshore wind, shipbuilding, defense work.

It is you know, driving up the price and demand. There is also recently with the hot rolled coil market being pretty tight. There has been substitution from sheet to plate, which is usually like the sheet because it is more economic. So think they will only see something like that. We think that there is real demand you know, behind it. Alright. I will leave it there. Thanks for the color. Thank you. The next question is from Philip Gibbs from KeyBanc Capital Markets. Please go ahead. Thanks. Just regarding headcount and hiring Karla, can you describe the environment there? I mean, I know you guys grew your tonnage pretty solidly last year.

And seemingly have a reasonably positive outlook for your markets in 2026 as well. So just, curious in terms of where you all stand on you know, headcount or hiring and what your intentions may be. Thanks. Yep. I think at the 2025, our actual headcount was down a bit from the beginning of the year, up slightly during the year, which again, I mentioned earlier, the advancements in some of the equipment we use, and our company is focusing on being more efficient. You know, we shipped 6% more tons, but had a pretty modest increase in headcount.

As far as, you know, being able to fill positions and hiring, the I would say the labor market is a little better than it had been certainly, you know, better than just after post COVID. But you know, a lot of our jobs in the warehouses for drivers, those still take more time to fill. You know, to get qualified people in, we have to do more training, than we did, you know, ten or fifteen years ago. As we are bringing people into the workforce. So, it is not easy.

It is still you know, it maybe you get end up with one good qualified person who stays out of five to seven, that you that you try out. But, you know, we are able and I think it Reliance Steel & Aluminum Co., you know, people like to work for a company that is growing and doing well. We try to treat our people well and, you know, pay them fairly, provide good benefits, and, you know, do things to help give us an advantage in the market. Thank you. This concludes the question and answer session. Would like to turn the floor back over to Karla R. Lewis for closing comments. Thanks again for joining our call today.

And for your continued support of Reliance Steel & Aluminum Co. Before we close out today’s call, I would like to remind everyone that we will be in Florida next week presenting at BMO’s 2026 Global Metals, Mining and Critical Minerals Conference where we hope to meet with many of you there. But I would also like to once again thank our team throughout Reliance Steel & Aluminum Co. for all of your efforts that, that you do every day. And for keeping our employees safe. And, also, I would like to remind everyone that even though there were some headwinds in 2025, We are really proud of what, what Reliance Steel & Aluminum Co. and our team accomplished then.

And we are really excited moving into 2026. You know, a healthy demand environment, a lot of good large projects that we are seeing out there that we have got the capabilities to participate in. And, you know, strong pricing environment. So we are looking forward to 2026. Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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