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Reliance Profitable Despite Declining Sales

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April 26, 2016 Reliance Profitable Despite Declining Sales Reliance Steel & Aluminum, Los Angeles, reported net income of $92.2 million in the company’s first quarter. Net income declined 9.0 percent compared with the same quarter last year, but increased 34.4 percent compared with the prior quarter. Reliance first-quarter net sales totaled $2.16 billion, a decline of 17.3 percent from the same quarter last year, but up 6.7 percent from the prior quarter. Tons sold by the company declined 2.7 percent in the quarter, but increased 8.9 percent from fourth-quarter 2015. The average selling price per ton sold was down 15.6 percent compared with first-quarter 2015, and off 2.4 percent from the prior quarter. "We were pleased to see that our positive momentum demonstrated throughout 2015 continued into the first quarter of 2016," President and CEO Gregg Mollins told investors and analysts during the company’s first-quarter conference call. "Once again, strong operational execution by our managers in the field contributed to an improved FIFO gross profit margin of 29.4 percent, marking our fifth consecutive quarter of margin expansion. We are very proud of this achievement, particularly considering the challenging metals pricing environment over the past year, coupled with uncertain macroeconomic conditions that have constrained general economic growth." For the first time in more than a year, the metals supply chain has been in a rising price environment for both carbon flat-rolled and stainless products. The company expects to begin feeling the results of better pricing in the second quarter, Mollins said. “We believe this pricing improvement, which accelerated toward the end of the first quarter, is mainly a result of both the recent trade case filings by U.S. steel producers and increasing scrap costs, which contributed to our expanded gross profit margins in the first quarter. We expect a more meaningful impact on our average selling price per ton sold in the second quarter as the more recent price increases work their way through the market." During the first quarter, Reliance experienced an increase in demand due to both the normal seasonal increase in shipping volumes and additional volume from the company's Jan. 1 acquisition of Tubular Steel, Inc. The company expects underlying demand to increase slightly in the second quarter. Automotive demand, supported mainly by the company's toll processing operations in the U.S. and Mexico, remains strong and is expected to continue at current production rates. Reliance has invested in its toll processing business to handle the increased use of aluminum by automotive customers, executives said. Reliance expects demand from aerospace customers to remain strong throughout 2016 given the industry’s backlog of aircraft orders. The service center company expects to grow its share of the aerospace market as a result of its various investments and key acquisitions. Heavy equipment demand remained consistent, but at low levels. Reliance executives expect demand in heavy machinery, specifically in road equipment, to increase throughout the year as a result of the five-year infrastructure bill that was passed in December. Nonresidential construction demand continues to gradually improve, but remains well below peak levels in 2006 and 2007. Energy market demand for the products Reliance sells declined further in the first quarter as a result of continued low oil prices and the related reduction in drilling activity. Company executives anticipate that oil prices and drilling will remain under pressure for the foreseeable future.