10-Q: Reliance Reports Q3 2025: Sales Up, Profit Down

Reliance, Inc. reported increased net sales for the third quarter and nine months ended September 30, 2025, but experienced a decline in net income and operating income compared to the prior year.

Summary

• Net sales for the third quarter of 2025 increased by 6.8% to $3,651.2 million, up from $3,420.3 million in the third quarter of 2024.
• Net sales for the nine months ended September 30, 2025, increased by 0.8% to $10,795.7 million, up from $10,708.4 million in the same period of 2024.
• Net income attributable to Reliance for the third quarter of 2025 decreased to $189.5 million ($3.59 diluted EPS) from $199.2 million ($3.61 diluted EPS) in the prior year's third quarter.
• Net income attributable to Reliance for the nine months ended September 30, 2025, decreased to $622.9 million ($11.74 diluted EPS) from $769.9 million ($13.55 diluted EPS) in the same period of 2024.
• Operating income for the third quarter of 2025 decreased to $259.8 million from $273.4 million in the prior year's third quarter.
• Operating income for the nine months ended September 30, 2025, decreased to $846.4 million from $1,018.2 million in the same period of 2024.
• Tons sold increased by 6.2% in the third quarter of 2025 and by 6.4% for the nine months, outperforming the industry-wide decline of 2.9% reported by the Metals Service Center Institute (MSCI) for the third quarter.
• Gross profit margin declined to 28.3% in the third quarter of 2025 (from 29.4% in Q3 2024) and to 29.2% for the nine months (from 30.1% in 2024).
• Cash flow from operations decreased significantly to $555.3 million for the nine months ended September 30, 2025, from $956.5 million in the same period of 2024, primarily due to increased working capital investment in a rising metals pricing environment.
• The company repurchased $394.0 million of common stock in the nine months ended September 30, 2025, compared to $951.3 million in the same period of 2024.
• The quarterly dividend was increased by 9.1% to $1.20 per share, declared for the fourth quarter of 2025.
• Reliance entered into a $400.0 million unsecured Term Loan Agreement on August 14, 2025, to repay $400.0 million in senior unsecured notes maturing on August 15, 2025.

Sentiment

Score: 4

Explanation: While Reliance achieved strong market share gains and increased sales volume, the significant declines in net income, operating income, and gross profit margin, coupled with a substantial decrease in cash flow from operations due to increased working capital, indicate underlying profitability pressures and increased capital intensity. The dividend increase is positive for shareholders, but overall financial performance shows headwinds.

Positives

• Net sales increased by 6.8% in Q3 2025 and 0.8% for the nine months ended September 30, 2025, compared to the prior year periods.
• Tons sold reached a third-quarter record and maintained a year-to-date record level, increasing by 6.2% in Q3 2025 and 6.4% for the nine months.
• Outperformed the industry-wide decline in tons sold, surpassing the Metals Service Center Institute (MSCI) reported decline of 2.9% by approximately nine percentage points in Q3 2025.
• Increased the quarterly dividend by 9.1% to $1.20 per share, marking 66 consecutive years of cash dividends and 32 increases since its 1994 IPO.
• Maintained strong liquidity with $261.2 million in cash and cash equivalents and $1.26 billion available under its revolving credit facility as of September 30, 2025.
• No acquisitions were completed in 2025, indicating a focus on organic growth and integration of prior year acquisitions.
• Same-store SG&A expense on a per ton basis declined by 0.5% for Q3 2025 and 1.8% for the nine months ended September 30, 2025, compared to the prior year periods.

Negatives

• Net income attributable to Reliance decreased by 4.9% in Q3 2025 and 19.1% for the nine months ended September 30, 2025, compared to the prior year periods.
• Diluted earnings per share decreased to $3.59 in Q3 2025 from $3.61 in Q3 2024, and to $11.74 for the nine months from $13.55 in 2024.
• Operating income decreased by 5.0% in Q3 2025 and 16.9% for the nine months ended September 30, 2025, compared to the prior year periods.
• Gross profit margin declined to 28.3% in Q3 2025 from 29.4% in Q3 2024, and to 29.2% for the nine months from 30.1% in 2024, attributed to non-demand driven price increases and short-lived tariff impacts.
• Cash flow from operations decreased by $401.2 million to $555.3 million for the nine months ended September 30, 2025, primarily due to a substantial increase in working capital investment.
• Same-store SG&A expense increased by 5.1% in Q3 2025 and 3.2% for the nine months, driven by inflationary wage adjustments and increased variable warehousing and delivery expenses.
• LIFO expense increased significantly to $75.0 million for the nine months ended September 30, 2025, compared to LIFO income of $(150.0) million in the same period of 2024, reflecting a rising metals pricing environment.
• Interest expense increased to $14.4 million in Q3 2025 from $10.9 million in Q3 2024, and to $40.2 million for the nine months from $30.3 million in 2024.

Risks

• Changes in domestic and worldwide political and economic conditions, including inflation, U.S. and foreign trade policies, slowing economic growth, or other macroeconomic factors, could materially impact the company, its customers, suppliers, metals pricing, and demand for products and services.
• U.S. and foreign trade policies specifically affecting metals product markets and pricing pose a risk.
• The possibility that the expected benefits of acquisitions and capital expenditures may not materialize as expected.
• Impacts of labor constraints and supply chain disruptions could adversely affect operations.
• Deteriorations in economic conditions due to tariffs, trade barriers, economic policies, inflation, recession, outbreaks of infectious disease, or geopolitical conflicts could lead to a decline in demand and negatively impact financial markets and corporate credit markets, affecting access to financing.
• Goodwill and other indefinite-lived intangible assets are subject to annual impairment tests, and their recoverability is a critical accounting estimate.
• Fluctuations in product prices, particularly carbon steel, which represents a majority of gross sales, can significantly impact average selling price per ton sold and profitability.

Future Outlook

The company believes its primary sources of liquidity, including funds generated from operations, cash and cash equivalents, and its $1.5 billion revolving credit facility, will be sufficient to satisfy cash requirements and stockholder return activities over the next 12 months and beyond. The recently enacted One Big Beautiful Bill Act, including 100% bonus depreciation, is anticipated to impact deferred income taxes and decrease income tax payments in the short term, though not significantly impacting the effective tax rate.

Management Comments

• Our scale, product and end market diversity, and exceptional customer service, including next day delivery and extensive value-added processing capabilities, were instrumental in outperforming our competition and capturing significant market share during these uncertain times.
• Uncertainty in the market has led our customers to purchase more frequently and in smaller quantities which are core tenets of our differentiated operational strategy.
• We believe our primary sources of liquidity, including funds generated from operations, cash and cash equivalents and our $1.5 billion revolving credit facility, will be sufficient to satisfy our cash requirements and stockholder return activities over the next 12 months and beyond.
• We believe our investment grade credit ratings enhance our ability to effectively raise capital.

Industry Context

Reliance's performance in the third quarter of 2025 significantly outpaced the broader metals service center industry. While the Metals Service Center Institute (MSCI) reported an industry-wide decline of 2.9% in tons sold, Reliance achieved a 6.2% increase in tons sold, indicating substantial market share gains. This outperformance is attributed to the company's diversified product offerings, extensive value-added processing capabilities, and customer service, which are particularly effective in a market characterized by customer uncertainty leading to more frequent, smaller purchases. The rising metals pricing environment in 2025, contrasting with declining prices in 2024, impacted LIFO accounting and increased working capital requirements across the industry, affecting cash flows.

Comparison to Industry Standards

• Reliance's 6.2% increase in tons sold for the third quarter of 2025 significantly outperformed the industry-wide decline of 2.9% reported by the Metals Service Center Institute (MSCI), demonstrating strong market share gains and operational resilience compared to its peers.
• The company's consistent record of 66 consecutive years of paying regular quarterly cash dividends and 32 dividend increases since its 1994 IPO sets a high benchmark for shareholder returns and financial stability within the industrial distribution sector.

Corporate Governance

Legal Proceedings

• Involved in an environmental remediation project related to former manufacturing operations of Earle M. Jorgensen Company (EMJ), a wholly owned subsidiary. EMJ maintained insurance policies expected to cover the majority of related costs, and no material adverse impact on consolidated financial position, results of operations, or cash flows is expected.
• Routinely named as a defendant in legal actions arising in the ordinary course of business. No current pending legal proceedings other than routine litigation incidental to the business, and no material adverse impact on consolidated financial position, results of operations, or cash flows is expected.

Stakeholder Impact

• Shareholders: Experienced a 9.1% increase in the quarterly dividend rate and continued share repurchase activity, but faced lower net income and diluted EPS.
• Employees: Benefited from inflationary wage adjustments and higher incentive-based compensation in Q3 2025, contributing to increased SG&A expenses.
• Customers: Benefited from the company's ability to gain market share and increase tons sold, reflecting strong customer service and diversified offerings in an uncertain market.
• Creditors: The company remained in compliance with financial maintenance covenants under its Credit Agreement and Term Loan, and maintained investment-grade credit ratings, indicating continued financial stability and ability to meet debt obligations.

Next Steps

• Continue to manage working capital effectively in a rising metals pricing environment.
• Monitor the impact of the One Big Beautiful Bill Act's 100% bonus depreciation on deferred income taxes and short-term income tax payments.
• Proceed with the remaining $963.6 million authorization under the share repurchase program.
• Pay the declared Q4 2025 cash dividend of $1.20 per share on December 5, 2025.
• Prepare for the implementation of new FASB disclosure requirements for income taxes (effective 2025 fiscal year) and income statement expenses (effective 2027 fiscal year).

Key Dates

Recommendation

While Reliance demonstrated strong operational execution by increasing tons sold and gaining market share in a challenging environment, the significant decline in net income, operating income, and gross profit margins raises concerns about profitability. The substantial increase in working capital impacting cash flow from operations also warrants caution. The dividend increase and share repurchases are positive for shareholders, but the overall financial performance indicates headwinds. A 'Hold' recommendation reflects the mixed results, acknowledging operational strengths while highlighting profitability pressures and increased capital intensity. Investors should monitor future trends in metals pricing and gross margins.

Keywords

Metals service center, Steel, Aluminum, Stainless steel, Alloy, Copper, Brass, Toll processing, Metal distribution, Metal processing, SEC filing, 10-Q, Financial results, Earnings, Revenue, Profit, Cash flow, Dividends, Share repurchase, Debt, Acquisitions, Trade policy, Inflation, Working capital, Gross margin