Reliance Steel & Aluminum Co. (RS) Q4 2022 Earnings Call Transcript

Reliance Steel & Aluminum Co. (NYSE:RS) Q4 2022 Earnings Conference Call February 16, 2023 11:00 AM ET

Company Participants

Kim Orlando - ADDO Investor Relations

Karla Lewis - President and CEO

Steve Koch - Executive Vice President and COO

Arthur Ajemyan - Senior Vice President and CFO

Conference Call Participants

Emily Chieng - Goldman Sachs

Phil Gibbs - KeyBanc Capital Markets

Katja Jancic - BMO Capital Markets

Lawson Winder - Bank of America Securities

John Tumazos - John Tumazos Very Independent Research

Operator

Greetings. And invited to nan Reliance Steel & Aluminum Company’s Fourth Quarter 2022 Earnings Conference Call. At this time, each participants are successful a listen-only mode. A question-and-answer convention will travel nan general presentation. [Operator Instructions]

As a reminder, this convention is being recorded. I would now for illustration to move nan convention complete to your host, Kim Orlando, pinch ADDO Investor Relations.

Kim Orlando

Thank you, Operator. Good morning. And acknowledgment to each of you for joining our convention telephone to talk Reliance’s 4th fourth and afloat twelvemonth 2022 financial results. I americium joined by Karla Lewis, President and Chief Executive Officer; Steve Koch, Executive Vice President and Chief Operating Officer; and Arthur Ajemyan, Senior Vice President and Chief Financial Officer. A signaling of this telephone will beryllium posted connected nan Investors conception of our website astatine investor.rsac.com.

The property merchandise and nan accusation connected this telephone whitethorn incorporate definite forward-looking statements which are based connected a number of assumptions that are taxable to alteration and impact known and chartless risks, uncertainties aliases different factors, including nan impacts of inflation, geopolitics and nan COVID-19 pandemic and related economical conditions connected our early operations, which whitethorn not beryllium nether nan company’s power and whitethorn origin nan existent results, capacity aliases accomplishment of nan institution to beryllium materially different from nan results, capacity aliases other expectations implied by these forward-looking statements.

These factors include, but are not constricted to, those factors disclosed successful nan company’s yearly study connected Form 10-K for nan twelvemonth ended December 31, 2021 and updated connected Form 10-Q for nan 4th ended September 30, 2022, nether nan caption Risk Factors, disclosure successful our property merchandise this greeting and different documents Reliance files aliases furnishes pinch nan Securities and Exchange Commission. The property merchandise and nan accusation connected this telephone speak only arsenic of today’s day and nan institution disclaims immoderate work to update nan accusation provided therein inherent.

I will now move nan telephone complete to Karla Lewis, President and CEO of Reliance.

Karla Lewis

Thanks, Kim. Good morning, everyone. And convey you each for joining america coming to talk our 4th fourth and afloat twelvemonth 2022 financial results. Before I begin, I’d for illustration to opportunity that I americium honored to person nan privilege to service arsenic CEO of this awesome family of companies. I look guardant to continuing our longstanding way grounds of manufacture starring financial operational and information performance, increasing our institution and expanding stockholder worth successful nan years ahead.

I would besides for illustration to admit Jim Hoffman for his important contributions to Reliance, some during his tenure arsenic CEO and passim his galore years of work to nan company. On behalf of nan guidance squad present astatine Reliance, we wish him each nan champion successful his upcoming status astatine nan extremity of nan year.

I will statesman coming pinch an overview of our 2022 capacity and superior allocation strategy. Steve will past speak to our operating results and request trends by extremity market. And Arthur will reason pinch a reappraisal of our 4th fourth 2022 financial results, arsenic good arsenic our outlook for nan first 4th of 2023.

Turning to our results. We are very pleased to person achieved grounds financial capacity successful 2022 crossed astir each metric during a play of continued metallic value volatility and broader economical uncertainty.

Our unsocial business exemplary is designed to position Reliance arsenic nan customer and supplier of prime passim manufacture cycles. We are differentiated by nan diverseness of our operations, superior customer work and expertise to make important rate to substance our longstanding committedness to some maturation and stockholder returns.

Our afloat twelvemonth 2022 nett income were a grounds $17 billion, driven by coagulated request successful nan mostly of our extremity markets, on pinch favorable metals pricing. In 2022, much than half of our orders included value-added processing, which erstwhile mixed pinch our merchandise and extremity marketplace diversification and attraction connected mini orders pinch speedy turnaround drove our beardown gross profit separator of 30.8% for nan year, which was astatine nan precocious extremity of our estimated sustainable yearly scope contempt declining prices for astir products successful nan 2nd half of nan year.

Effective disbursal management, coupled pinch our beardown gross profit separator supported grounds yearly non-GAAP pre-tax income of $2.44 cardinal and grounds non-GAAP diluted net per stock of $30.03. And fto maine opportunity that again, grounds non-GAAP diluted net per stock of $30.03.

We generated grounds yearly rate travel from operations of $2.12 cardinal successful 2022, acold surpassing our anterior grounds of $1.3 cardinal successful 2019, made imaginable by our grounds profitability and moving superior management. I applaud and convey our squad connected achieving these outstanding results and for doing truthful safely pinch 2022 marking an all-time debased for our full recordable incident rate.

Our beardown rate procreation and liquidity enables america to proceed executing our disciplined superior allocation strategy pinch peculiar accent connected some maturation and stockholder returns. We invested astir $342 cardinal successful superior expenditures successful 2022, mounting a caller yearly grounds pinch nan mostly of backing maturation opportunities.

Our afloat twelvemonth 2023 superior expenditure fund is different caller grounds astatine $500 million, pinch an expected full rate outlay of astir $400 cardinal to $450 cardinal successful 2023, which includes immoderate carryover from 2022 and anterior twelvemonth projects owed to ongoing extended lead times passim nan proviso chain.

We expect astir two-thirds of our fund will beryllium focused connected maturation initiatives successful areas specified arsenic installation upgrades and description s into caller markets, caller instrumentality to expand, automate and amended nan ratio of our value-added processing capabilities on pinch creating safer and improved moving environments for our weighted employees.

Although we did not complete immoderate acquisitions successful 2022, nan pipeline remains patient and we proceed to measure galore opportunities pinch nan extremity of pursuing those that meet our disciplined criteria.

We returned complete $847 cardinal to our stockholders successful 2022 done dividends and stock repurchases. Furthermore, arsenic announced successful our net merchandise this morning, we were pleased to summation our quarterly rate dividend by 14.3% to $1 per stock aliases $4 connected an annualized basis, underscoring our assurance successful our semipermanent strategy and outlook.

Over nan past 5 years, we person allocated astir $2 cardinal of superior towards integrated maturation and acquisitions, and astir $2.7 cardinal towards stockholder returns successful nan shape of dividends and stock repurchases. Looking ahead, we judge our beardown equilibrium expanse and liquidity will alteration america to proceed executing our superior allocation priorities, nary matter nan operating environment.

In closing, I americium highly pleased pinch our grounds mounting 2022 performance. These results were achieved successful a highly challenging situation pinch ongoing inflationary headwinds, recessionary concerns, proviso concatenation disruptions, labour shortages and wide declining metallic prices successful nan 2nd half of nan year.

Our managers successful nan section person done a tremendous occupation navigating these challenges, supporting our assurance and our expertise to present beardown capacity successful nan twelvemonth ahead. As we move into 2023, we are optimistic nan Infrastructure Bill, nan CHIPS Act and nan Inflation Reduction Act should service arsenic tailwinds for maturation successful an situation of sustained higher metallic pricing compared to humanities levels. I would for illustration to convey everyone astatine Reliance for their continuing and patient committedness to operational excellence and safety.

Thank you each for your clip today. I will now move nan telephone complete to Steve who will reappraisal our 4th fourth operating results and request trends. Steve?

Steve Koch

Thanks, Karla, and bully morning, everyone. First, I’d for illustration to congratulate Karla connected assuming nan domiciled of CEO astatine Reliance. Karla and I person worked together since 2005 erstwhile Chapel Steel was acquired by Reliance and joined nan family of companies. Karla is highly good respected wrong our statement and passim nan manufacture and I look guardant to moving much intimately pinch her going forward.

I’d besides for illustration to widen a sincere convey you to each personnel of our squad of complete 15,000 labor for showing up each time and moving diligently and safely to guarantee we transcend our customer’s expectations.

Our grounds mounting capacity successful 2022 is besides made imaginable by our customers who count connected america for speedy deliveries of precocious value products astatine competitory prices, arsenic good arsenic our suppliers person continued to support america done challenging times and proviso concatenation disruptions.

Now I will move to our 4th fourth pricing and request trends. Our 4th fourth tons sold declined 8.2% compared to nan 3rd 4th of 2022 owed to anticipated seasonal declines successful statement pinch our expectations of down 6.5% to 8.5% and improved 0.8% from nan anterior twelvemonth quarter.

Our capacity was chiefly driven by beardown request successful broader manufacturing and non-residential construction, arsenic good arsenic robust aerospace and semiconductor shipments. Similar to nan past respective quarters, we judge our 4th fourth shipments could person been moreover stronger had not been for a persistent proviso concatenation related disruptions, including labour shortages astatine our customer’s facilities.

Our 4th fourth mean trading value per ton sold of $2,799 declined 7.9% compared to nan 3rd 4th of 2022, accordant pinch our anticipation of down 6% to 8%, that remained elevated by humanities standards.

Prices for nan immense mostly of nan c alloy products sold, on pinch nan stainless and aluminum products continued to diminution passim nan 4th quarter. However, continued beardown request for higher worth products, some astatine nan aerospace, semiconductor and power markets helped offset immoderate of nan downward pricing unit connected our mean trading price.

We person been seeing signs of stabilization connected definite products to day successful 2023 arsenic our mean trading value per ton wide remained comparatively level successful January compared to December. Arthur will screen our first 4th 2023 outlook successful much detail.

On a non-GAAP FIFO basis, which is really we show our day-to-day operating performance, our gross profit separator remained accordant pinch nan anterior 4th astatine 28.6%. Although nan quarter-over-quarter inclination was flat, it’s important to statement that our monthly FIFO gross profit margins improved passim nan 4th fourth successful opposition to decreasing monthly FIFO gross profit margins successful nan 3rd 4th of 2022.

We are pleased to spot continued FIFO gross profit separator betterment truthful acold successful 2023. The metal’s value volatility of 2022 tested our exemplary pinch our income and gross profit margins, erstwhile again improving nan resiliency.

I will now move to a higher level overview of nan trends we saw wrong our cardinal extremity markets. Demand for non-residential construction, which includes infrastructure and is nan largest end-market we service was astatine patient levels and trended somewhat supra nan 4th fourth of 2021. We are continuing to acquisition a patient backlog of caller projects, including renewable power and stay optimistic that we will spot improved activity successful Q1 2023.

Although not included successful our tons sold, request for nan toll processing services we supply to nan automotive marketplace improved from some nan 3rd 4th of 2022 successful nan anterior twelvemonth 4th owed to accrued accumulation rates by definite automotive manufacturers contempt lingering proviso concatenation challenges. Demand crossed nan broader manufacturing sectors we serve, including our business machinery, user products and dense instrumentality was accordant pinch past year’s levels successful nan aggregate.

Semiconductor request trended good supra nan 4th fourth of 2021, contempt immoderate short-term headwinds coming into 2023, request remains elevated. Our semipermanent outlook for this marketplace remains beardown and we are continuing to put successful accrued capacity to work nan important description of semiconductor fabrication successful nan United States.

Aerospace request remained coagulated pinch our vulnerability divided astir 50-50 betwixt commercialized and defense. Commercial aerospace made a beardown betterment successful 2022, pinch each of our quarterly shipments expanding year-over-year. Demand successful military, defense and abstraction besides remained healthy.

Finally, request successful nan power assemblage remained comparatively unchangeable compared to nan 4th fourth of 2021. Overall, we are optimistic underlying request will stay patient crossed nan mostly of nan extremity markets we service passim nan first 4th of 2023.

I will now move nan telephone complete to Arthur to reappraisal our financial results and outlook.

Arthur Ajemyan

Thanks, Steve. Good morning, everyone, and convey you for joining america today. My remarks this greeting will chiefly attraction connected nan factors that drove our 4th fourth performance. Despite important declines successful metallic pricing continuing from nan 3rd 4th of 2022, we knowledgeable coagulated wide request trends accordant pinch emblematic seasonal patterns.

We achieved 4th fourth net per diluted stock of $5.88, which erstwhile mixed pinch effective moving superior guidance resulted successful grounds quarterly rate travel from operations of $808.7 million.

While metallic pricing continued to diminution done nan extremity of nan year, nan 3rd 4th of 2022 represented nan trough for our gross profit margin, and arsenic Karla highlighted, value-added processing proceed to supply stableness to our gross profit margin.

In addition, our usage of nan LIFO inventory valuation method benefited our gross profit separator and net successful nan quarter. We recorded LIFO income of $99.1 cardinal successful nan 4th quarter, compared to $27.5 cardinal of income successful nan 3rd 4th of 2022, which drove a 210-basis-point betterment successful our gross profit separator for nan anterior quarter.

We ended 2022 pinch a LIFO reserve of $744 cardinal arsenic our inventory costs connected manus proceed to drawback up pinch little replacement costs aliases should metallic prices inclination little successful fiscal 2023, this reserve will make LIFO income and proceed to support our gross profit margins and trim nan volatility of our earnings. Our existent estimate of LIFO income for 2023 is $60 million. As always, we will update our expectations quarterly to relationship for existent inventory costs and metallic pricing trends.

Moving connected to expenses. Our 4th fourth non-GAAP SG&A expenses decreased $17 cardinal aliases 2.7% compared to nan 3rd 4th of 2022, chiefly owed to moderation successful inflationary pressures, little inducement based compensation resulting from little profitability and little adaptable warehousing and transportation expenses associated pinch little tons shipped.

On a year-over-year basis, our 4th fourth same-store non-GAAP SG&A expenses decreased $9 cardinal aliases 1.5% arsenic little inducement based compensation from little FIFO pre-tax profits offset moderating inflationary factors, including higher wages, freight, alloy and works proviso costs.

Our 4th fourth 2022 diluted net per stock of $5.88 benefited from nan operation of a LIFO income effect of $1.25 per share, compared to anticipated LIFO disbursal of $0.09 per stock and little than anticipated taxation complaint of $0.24 per share.

Excluding nan benefits of some higher than expected LIFO income and little than expected taxation rate, our diluted net per stock would person been $4.30 successful statement pinch our guidance of $4.30 per stock to $4.50 per share.

Turning to rate flow. Our beardown profitability and moving superior merchandise generated grounds quarterly rate travel from operations of $808.7 cardinal successful Q4. Our 2022 grounds yearly operating rate travel of $2.12 cardinal funded a grounds $341.8 cardinal successful superior expenditures and nan return of $847.4 cardinal to our stockholders comprised of $217 cardinal of rate dividends and $630 cardinal of stock repurchases, resulting successful astir 6% simplification successful communal shares outstanding.

We are very proud that our beardown financial position enabled america to reinvest a grounds magnitude backmost into our business to support continuing integrated maturation and to return astir 46% of our afloat twelvemonth nett income to our stockholders. As antecedently announced, connected January 15th, we redeemed our $500 million, 4.5% elder notes owed April 15, 2023.

I will now move to our first 4th outlook. We expect patient request trends to proceed successful nan first 4th of 2023, which includes nan normal seasonal summation successful shipping measurement compared to nan 4th quarter. We estimate our tons sold will beryllium up 11% to 13% successful nan first 4th of 2023 compared to nan 4th fourth of 2022, which is amended than a emblematic seasonal recovery.

To-date, pricing for galore of our products has started to stabilize compared to December, which was nan debased constituent successful nan 4th quarter, and arsenic a result, we estimate our mean trading value per ton sold successful nan first 4th of 2023 will beryllium down 3% to 5% compared to nan 4th fourth of 2022. Based connected these expectations, we expect non-GAAP net per diluted stock successful nan scope of $5.40 to $5.60 for nan first 4th of 2023.

In closing, I’d besides for illustration to admit and convey everyone astatine Reliance for their contributions to our phenomenal capacity successful 2022.

This concludes our prepared remarks. Thank you for your attention. At this time, we would for illustration to unfastened nan telephone up to questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first mobility comes from nan statement of Emily Chieng pinch Goldman Sachs. Please proceed.

Emily Chieng

Good morning, Karla, Steve and Arthur. Congratulations connected a beardown quarter. My first mobility is conscionable astir nan M&A front. You mentioned that you hadn’t done thing location successful 2022, but funny what you were seeing location successful nan marketplace that led to that benignant of barren spell, was it nan bid-ask dispersed being excessively precocious astatine that constituent successful clip aliases conscionable nan options disposable not arsenic absorbing to you astatine that point?

Karla Lewis

Hi, Emily. Thank you very overmuch for joining nan telephone today. So successful 2022 we did proceed to spot a batch of opportunities successful nan market. We effort to beryllium selective connected which companies we look to acquire. We don’t want to compete pinch our customers, truthful that pushes retired a batch of imaginable opportunities, but we did spot immoderate bully absorbing opportunities successful 2022.

We did do activity connected immoderate companies and location were some, successful our opinion, elevated bid-ask prices. I deliberation we are seeing immoderate of those opportunities travel backmost astir astatine what are much reasonable levels to us.

And we deliberation nan marketplace is going to beryllium beautiful charismatic this twelvemonth for continued imaginable opportunities for america to look astatine and we did -- we didn’t not do acquisitions for immoderate logic different than we didn’t scope agreement, but we want to proceed to turn nan institution some organically and done acquisitions and we look to 2023 to perchance beryllium a reasonably progressive year.

Emily Chieng

Understood. Thanks, Karla. And possibly arsenic a follow-up connected that gait related to maturation and tin you punctual america really overmuch walk related to nan semiconductor works that you are constructing is still possibly to travel into nan 2024 play and are location immoderate different projects of this group that you would see executing fixed nan request outlook ahead?

Karla Lewis

Yeah. So we are ever looking astatine opportunities. Our group moving retired successful nan section do a awesome occupation of staying adjacent to their customers and identifying opportunities for america to do more. We do person a mates of greenfields that we are moving connected presently astatine immoderate of our companies.

One of those is our institution Valex that is really dialed into providing benignant of nan plumbing of nan semiconductor fabrication companies and truthful we are expanding successful Texas. They person their first shape of their description into Texas that will beryllium coming online anytime, but that’s nan smaller portion of it and past their larger description pinch accrued capacity will travel online, we are anticipating successful nan first 4th of 2024.

Emily Chieng

Great. Thank you.

Operator

Our adjacent mobility comes from nan statement of Phil Gibbs pinch KeyBanc Capital Markets. Please proceed.

Phil Gibbs

Hey. Good morning.

Karla Lewis

Hey, Phil.

Steve Koch

Good morning.

Arthur Ajemyan

Good morning, Phil.

Phil Gibbs

So you person a beautiful hearty rate CapEx fund this year. I deliberation you said astir 4.25% astatine nan midpoint. Relative to possibly what you each were reasoning six months ago, 12 months ago, what whitethorn person been added to that arsenic you person seen nan needs internally alteration successful position of your ain capabilities and/or what your clients aliases customers alternatively asking of you?

Karla Lewis

Yeah. I think, Phil, truthful we do an yearly CapEx budget. Last twelvemonth we were astatine a grounds fund of $455 million. We only spent $342 cardinal past year, chiefly conscionable because of proviso concatenation constraints.

But we person to -- we person really agelong lead times connected immoderate of nan opportunities we spot now. This twelvemonth our fund is $500 million. We deliberation nan existent rate spend, which will see immoderate carryover from anterior years is astir apt only going to beryllium for illustration $400 cardinal to $450 cardinal this year.

But we -- for illustration I said, our folks enactment adjacent to their customers, they spell retired successful their warehouses, they look for opportunities for america to do much for our customers pinch nan labour shortages, a batch of our customers person struggled pinch that and if they person to put money successful caller machines, which person go much expensive, possibly they determine not to do that and they inquire Reliance to do that for them.

So we person a mates of 100 different types of processing instrumentality successful nan fund for this year, aforesaid arsenic past year. So we person sewage complete 300 locations and we are trying to turn each of them and springiness them much resources to beryllium capable to service our customers better.

Phil Gibbs

So, Karla, I -- this is simply a unsmooth math, truthful there’s -- it seems for illustration there’s complete $300 cardinal of maturation CapEx successful your rate guidance this twelvemonth of astir 4.25%. Do you spot returns connected those instantly aliases is location a gestation play successful position of erstwhile you would recognize a return, because I cognize you each are bully astatine adding capabilities and value-add and they extremity up being very accretive to your business and margins, but really agelong does that typically return for those to carnivore out?

Karla Lewis

Well, for each nan Reliance group listening, we expect it instantly and we do person a beautiful short runway pinch nan instrumentality we put in. We person bully good trained group retired there. We are capable to leverage group done our family [Technical Difficulty] it’s not a agelong -- truthful it’s not a agelong lead time. We are putting a batch of CapEx items successful spot each nan clip and it’s a beautiful short lead time, but it is difficult to measurement precisely what nan return is connected each individual portion of equipment.

Steve Koch

Yeah. And Phil, it’s Steve. I’d conscionable for illustration to adhd regarding CapEx. The CapEx fund that we are spending for 2023 is simply a bully sign, because nan past spendings successful 2021 and 2022, our customers person asked america for much capabilities and we -- whether it’s plate, burning machines aliases caller saws [ph] aliases caller trim nan magnitude lines. They are filling up beautiful quickly almost arsenic soon arsenic we instal them. So lead times are extended, truthful we are conscionable trying to get retired successful beforehand and effort to make judge we proceed to transcend our customer’s expectations.

Phil Gibbs

Understood connected that. And past you mentioned connected automotive betterment year-on-year and sequentially and I cognize nan extremity marketplace itself has been very choppy since nan pandemic recovery. So what are you seeing now looking ahead? Are you expecting business levels to amended aliases pinch this a small spot of betterment you saw successful nan backmost portion of this year, you fundamentally conscionable expect those levels to sustain? Thanks.

Steve Koch

We person to springiness our companies that do nan toll processing for automotive, a batch of in installments for moving done nan automakers proviso concatenation issues astir apt nan last, astatine slightest 2 years. Whenever we deliberation that things are benignant of smooth, there’s a measurement backward. But we deliberation going into 2023, they are overmuch amended style from their constituent component of view, their labour constituent of position and we are looking for a patient 2023 from an car toll constituent of view.

Operator

Our adjacent mobility comes from nan statement of Katja Jancic pinch BMO Capital Markets. Please proceed.

Katja Jancic

Hey. Thank you for taking my question. Just possibly going connected nan first Q guide. Can you talk a spot much astir what is driving nan supra seasonal pickup successful volumes, possibly what markets aliases really are you looking astatine it, please?

Karla Lewis

Hi, Katja. We person been pleased to spot nan measurement that we person rebounded successful Q1. We are utilized to nan normal seasonal downturn successful Q4, and certainly, Q4 shipments we are astatine nan debased extremity of our guidance and truthful we are seeing a small spot amended than emblematic bounce backmost successful Q1.

We person our -- we deliberation we person our group excited to prime up immoderate marketplace stock and to beryllium retired location selling. We are conscionable retired location to work our customers good and wide all, location are a mates of markets down perchance down a small bit, but overall, our customers are busy.

We person been telling you guys this for a while and our customers genuinely do still person backlogs. They conscionable request group and each their components and underlying request remains beautiful healthy. So we are seeing mostly crossed astir of nan markets we service pinch our mini customers, speedy turnaround. We spot continued beardown request coming from them.

Katja Jancic

Okay. And possibly conscionable connected nan tolling business. Can you punctual america really overmuch is auto, I think, location is besides different business successful that extracurricular of auto?

Karla Lewis

Yeah. So our tolling businesses, we person a institution successful nan U.S. pinch astir 13 locations. They are very bully astatine what they do and past we person different institution down successful Mexico pinch 4 locations.

We person expanded their operations, proceed to grow them for some of our companies. They spot a batch of opportunity retired there, because they are really bully astatine what they do and their customers support asking them to do more, astir 65% of our tolling business is automotive related.

And retrieve connected tolling, we don’t ain nan metal, truthful we person nary value consequence connected there. We don’t person to woody pinch nan volatility from metallic prices. We complaint a interest for processing, delivery, storage, which has been successful precocious request successful nan past mates of years done each nan proviso concatenation disruptions.

And past nan adjacent biggest marketplace successful our tolling business down automotive is appliance and we person seen immoderate weakness connected immoderate of nan residential appliance recently. But we are capable to make that up pinch accrued business pinch automotive and besides immoderate beverage tin and different applications.

Katja Jancic

Okay. Thank you very much.

Karla Lewis

Thanks, Katja.

Operator

Our adjacent mobility comes from nan statement of Lawson Winder pinch Bank of America Securities. Please proceed.

Lawson Winder

Thank you, Operator. Good morning, Karla, Stephen and Arthur. Nice to perceive from you all. I wanted to inquire astir nan superior deployment successful different way. So nett indebtedness is very low, which you person referred to respective times connected this call. How should we deliberation astir superior deployment successful position of nan buyback versus nan now higher dividend and nan CapEx that you person discussed?

Arthur Ajemyan

Yeah. Good morning, Lawson. So arsenic we person said before, we are very alert of wherever we are from a equilibrium expanse perspective, and past arsenic Karla alluded to earlier, we person been beautiful progressive connected nan M&A front, looking for imaginable deals and conscionable because we didn’t adjacent any, it doesn’t mean we are not progressive connected that front.

So our superior allocation is mostly opportunistic connected some fronts, right, whether that’s maturation aliases returns. And we inquire that we benignant of measurement superior allocation for america pinch a five-year look backmost and there’s going to beryllium immoderate periods wherever there’s a debased and that doesn’t mean we are not deploying capital. We are conscionable being very diligent and disciplined pinch our deployment.

And we are benignant of very proud of wherever we are pinch our equilibrium expanse and we are -- really we navigated nan past mates of years and positioned nan institution coming successful an situation wherever there’s going to beryllium immoderate opportunities, some connected nan maturation broadside and connected nan shareholder return side.

And we person been beautiful accordant pinch our returns aliases balanced superior allocation. When you do a five-year look back, it’s beautiful balanced, Lawson, pinch astir 50% of superior being dedicated towards maturation and nan different 50% towards returns.

Lawson Winder

Okay. That’s adjuvant context. Thanks very much. And past tin I besides inquire astir nan year-over-year stainless volumes being down 10% and c was up 2%, alloy was disconnected a bit. Any colour connected nan weakness successful those volumes successful Q4?

Karla Lewis

Steve tin capable successful possibly a small much specifically, but we don’t deliberation it was weak. We had a really beardown 2021 connected nan stainless front. It’s been a bully beardown marketplace for america complete nan years and I deliberation nan change you spot is astir apt based connected dollars, truthful obviously, pricing impacts that. But our stainless business demand, location continues to stay beautiful strong. Steve, thing to add?

Steve Koch

Yeah. I would conscionable opportunity that arsenic acold arsenic nan stainless prices dropped a small bit, but our group successful nan section did a awesome occupation of cycling done their inventory. There were immoderate import that came into nan marketplace towards nan 2nd half of nan year, which we did not participate in. So we sewage a small spot of -- conscionable a small spot of a correction successful nan market, but we are going into 2023 pinch bully inventories astatine bully costs and fresh for business.

Lawson Winder

And okay, possibly conscionable to drill down a small spot connected that past point, erstwhile you opportunity fresh for business, could you possibly elaborate connected benignant of nan outlet look for afloat twelvemonth successful position of benignant of volumes directionally, possibly moreover immoderate benignant of scope of growth?

Steve Koch

Yeah. I wouldn’t opportunity we would springiness nonstop it for nan remainder of nan year, but I would opportunity that, we deliberation that a batch of nan import has worked its measurement done nan strategy and that nan marketplace is normalizing a small spot more.

Karla Lewis

And Lawson, conscionable arsenic a reminder, Reliance is really benignant of a spot business and our customers telephone america and we vessel them what they need. So we are beautiful limited connected our customer’s needs and we are fresh to do that for them continuing passim 2023 and we spot our customers continuing to beryllium busy.

In nan stainless market, pinch pricing they oftentimes person a small much visibility of wherever prices are heading. So you spot a small much change successful our customer buying patterns than successful immoderate of nan different products we sell, but we are bullish arsenic our customers connected request successful 2023.

Lawson Winder

Okay. No. That’s great. Thank you. Nice activity successful nan quarter.

Karla Lewis

Thanks.

Steve Koch

Thank you.

Operator

Our adjacent mobility is simply a follow-up from nan statement of Phil Gibbs pinch KeyBanc Capital Markets. Please proceed.

Phil Gibbs

Hi, there. I was funny connected nett moving superior arsenic you look retired to 2023 versus possibly 2022. I deliberation we are looking for it to beryllium a beautiful decent source, but you did bleed down a batch of nett moving superior successful nan 4th quarter. So I americium conscionable looking for immoderate thoughts there.

Arthur Ajemyan

Sure. And I will speak to nan first 4th guide, Phil. So based connected our pricing and measurement assumptions, nan billed moving superior billed successful nan first 4th should beryllium seasonal and benignant of an absolute number, it should travel successful beneath nan levels of nan merchandise that we had successful nan 4th quarter.

Phil Gibbs

Okay. That’s helpful. And I deliberation nan remainder of nan twelvemonth evidently will dangle on, for nan astir part, connected pricing arsenic things progress. And then, Karla, conscionable connected nan Infrastructure Bill, are you seeing thing successful position of asks aliases requirements for immoderate of nan worldly aliases is it mostly still successful bidding and design?

Karla Lewis

Yeah. So, Phil, nan majority, we deliberation is still successful bidding and design. With our customer base, which is truthful diversified and we are going to get immoderate of those projects. We are not really going to hit nan main supplier of those, but we get a batch of bully activity, infrastructure projects.

We haven’t seen them really commencement to travel done nan books yet. We are proceeding much connected nan bidding and creation shape correct now. So we deliberation that’s astir apt a small later successful 2023 erstwhile we and others really commencement to spot nan use of those times.

Phil Gibbs

And past I admit that. And past lastly, tin you conscionable punctual america wherever you each are connected nan buyback and if you were to summation nan magnitude nether authorization, erstwhile would you typically do that? Thanks.

Arthur Ajemyan

Yeah. So we conscionable did that a fewer months ago, reset nan authorization of $1 cardinal and we person $680 cardinal aliases truthful remaining nether our program. So I mean that authorization, nan $1 cardinal that we had was astir about 10%. So and we person been progressive since then.

So, and arsenic you know, we don’t needfully supply forward-looking guidance, but successful 2022, we were beautiful progressive connected that front. So successful nan past 12 months, we reduced our stock count by astir 6%.

Karla Lewis

Yeah. And we arsenic guidance and our Board, Bank Reliance is simply a beautiful bully bargain and truthful our Board is very supportive. If we do it opportunistically summation our activity nether that we will surely look to refresh arsenic needed.

Phil Gibbs

Thanks, everyone.

Karla Lewis

Yeah.

Steve Koch

Thanks, Phil.

Operator

Our adjacent mobility comes from nan statement of John Tumazos pinch John Tumazos Very Independent Research. Please proceed.

John Tumazos

Congratulations connected everything, Karla.

Karla Lewis

Thanks, John.

John Tumazos

I americium trying to understand nan tremendous capacity were adjusted for LIFO, nan margins were nan aforesaid successful a falling alloy value situation wherever mean distributors person holding losses, which you managed to avoid. Did your inventory turnovers emergence materially successful nan 3rd aliases 4th quarters first, and for nan 8% of your income that were hot-rolled aliases 15% full flat-rolled steel, are those differentiated flat-rolled tons successful peculiar ways?

Karla Lewis

So, hi, John. Reliance, I think, 1 of nan things we effort to do is beryllium beautiful accordant pinch our expectations of really we execute retired successful nan section and we effort to springiness our activity teams retired there, accordant guidance. So we ever push for beardown inventory turns.

We do person different expectations based upon nan merchandise operation of each of our companies. For our flat-rolled companies, we do expect them to move their inventories faster conscionable because of nan lead times pinch nan mills and them servicing their customers. So we do person higher expectations for them.

Steve and his squad really worked pinch our FOCs. When prices are down, we will spot immoderate of our customers somewhat set their buying patterns. But, overall, I think, we are trying to beryllium beautiful accordant and person been pinch nan measurement we negociate our inventories.

Our companies are moving amended together now. We telephone it SOC [ph] collaboration and they are capable to offload inventory to each different if 1 of them is simply a small heavier than others. So we besides person nan use of our ample web of companies wherever they tin measurement in, thief each different out. Steve, thing to add?

Steve Koch

Yeah, I would conscionable adhd to being a home purchaser for nan astir part. Our home mills person done a awesome occupation and we understand that they are moving done proviso concatenation issues and they person been really bully partners, making judge that we person capable steel, not excessively overmuch steel, very elastic pinch nan bid books, and I deliberation that overall, our business exemplary has worked by buying adjacent to our locations.

Arthur Ajemyan

And John, nan only point I would adhd is, our value-added processing capabilities, nan separator volatility connected that portion of nan business is overmuch little than nan banal excavation business. So that’s different magnitude to nan story.

The smaller bid sizes, speedy turnaround, transactional quality of nan business. That besides contributes to nan comparatively unchangeable separator profile. So it’s not 1 thing, it’s a operation of aggregate factors that lend to that comparatively unchangeable separator profile.

John Tumazos

Thank you and congratulations. I americium successful awe of nan awesome results.

Karla Lewis

Thanks, John.

Steve Koch

Thank you, John.

Operator

There are nary further questions astatine this time. I’d for illustration to move nan telephone backmost to Karla Lewis for immoderate closing remarks.

Karla Lewis

Thank you, Operator. Thanks again to each of you for your clip and attraction today. Before we adjacent retired nan call, I’d for illustration to punctual everyone that we will beryllium successful Hollywood, Florida, successful early March presenting astatine nan BMO Global Metals, Mining & Critical Minerals Conference and we dream to spot galore of you there.

And to our Reliance family, convey you again to everyone passim nan Reliance family of companies for your grounds mounting 2022 capacity and convey you each for your continued support of and committedness to Reliance. Thank you.

Operator

This concludes today’s conference. You whitethorn disconnect your lines astatine this time. Thank you for your participation.