Reliance Steel & Aluminum (RS): Weaker Margins, Aggressive Buybacks

Key Takeaways#

Reliance Steel & Aluminum Co. ([RS]) closed FY2024 with revenue of $13.84B, down -6.56% YoY, and net income of $875.2MM, down -34.75% YoY, a sharp deterioration that contrasts with aggressive capital returns: $1.09B of share repurchases and $249.7MM in dividends in 2024. That combination — falling profitability amid heavy buybacks — is the single most consequential development for stakeholders because it reshapes balance‑sheet risk and the signal management is sending about capital allocation priorities.

The margin squeeze is broad‑based. Gross margin compressed by -1.32 percentage points to 27.74%, operating margin fell by -3.23 percentage points to 8.52%, and EBITDA declined from $2.03B (FY2023) to $1.45B (FY2024), a -28.57% drop. Free cash flow remained positive at $999.2MM, producing a FCF conversion above 100% for FY2024, but that cash generation was returned to shareholders and used in acquisitions, leaving year‑end cash down to $318.1MM and net debt rising to $1.10B.

Put simply: Reliance’s operational results tightened materially in FY2024, yet management accelerated shareholder returns. For investors this creates a tradeoff between immediate EPS support from buybacks and higher near‑term leverage and liquidity sensitivity if industrial demand remains weak.

FY2024 Earnings Recap — The Numbers That Matter#

Reliance’s FY2024 top line of $13.84B represents a -6.56% decline from FY2023 ($14.81B). The company reported gross profit of $3.84B and operating income of $1.18B, translating to an operating margin of ~8.52%. Net income of $875.2MM equates to a net margin of ~6.33% — a sizable retreat from the mid‑single‑digit to high single‑digit margins seen in prior years. These moves are consistent with a cyclical trough in industrial demand and a compression in pricing power across some end markets.

EBITDA fell to $1.45B in FY2024 from $2.03B in FY2023, a -28.57% contraction. The decline in EBITDA outpaced the revenue decline because of margin compression — operating cost leverage gave back much of the top‑line benefit. At the same time, Reliance generated $1.43B of operating cash flow and $999.2MM of free cash flow, showing meaningful cash conversion even as GAAP net income declined.

Earnings season headlines also highlighted volatility in quarterly EPS results: several recent beats and misses show execution variability across quarters (for example, an actual result of $4.43 vs est. $4.72 on 2025-07-23 and a beat on 2025‑04‑23 with $3.77 vs est. $3.64), underlining that short‑term results remain sensitive to end‑market swings and timing of pass‑through pricing.

All figures are company‑reported fiscal year numbers (FY2024 filing dated 2025‑02‑27).

The table above shows the stepdown across profitability layers. Revenue softened, but margins contracted faster than the top line — the classic cyclical pattern when fixed costs and product‑mix pressure collide with weaker pricing.

Margin Trajectory and Decomposition#

The margin story is the critical signal in Reliance’s FY2024 results. Gross margin moved from 29.06% (FY2023) to 27.74% (FY2024), a -1.32 percentage point decline. Operating margin experienced a larger move: from 11.75% to 8.52%, a -3.23 percentage point shift. The operating margin decline reflects weaker volume and mix in higher‑margin fabricated and value‑added businesses while SG&A (reported at $2.66B) declined only modestly versus the revenue drop, limiting operating leverage.

Two forces explain the deterioration: input‑price and mix headwinds that reduced gross margin, and incompressible fixed costs (facilities, logistics, and SG&A) that prevented operating margin from keeping pace. The data show gross profit falling by -10.70% while revenue fell -6.56%, indicating mix or cost escalation effects beyond pure volume. EBITDA contraction of -28.57% further underscores that cost structure and pricing dynamics hit the company below the EBITDA line.

Assessing sustainability, the question is whether mix improvement or pricing actions can restore margins. Historically, Reliance has offset cyclical troughs with selective price increases and by growing fabrication and value‑added services; however, those improvements are quarter‑to‑quarter and depend on industrial end‑market recovery. The FY2024 margin setback appears cyclical rather than structural, but the magnitude means recovery will depend on both end‑market stabilization and disciplined cost control.

Cash Flow, Capital Allocation and Shareholder Returns#

Reliance generated $1.43B of operating cash flow (FY2024) and $999.2MM of free cash flow, representing a FCF/net‑income conversion ratio of ~113.78% (using free cash flow $999.2MM and net income $878MM in cash‑flow statement). That conversion metric improved from FY2023, but the improvement is partly mechanical: net income declined while cash generation remained resilient due to working capital moves and non‑cash items.

Management returned $1.09B via repurchases and paid $249.7MM in dividends, a total shareholder distribution of $1.3397B for FY2024. That total equals ~152.56% of FY2024 net income — in other words, capital returned to shareholders materially exceeded GAAP net income in the year. Financing those distributions and acquisitions (acquisitions net of -$364.6MM) played a meaningful role in cash and leverage dynamics.

Net cash at year‑end fell to $318.1MM from $1.08B in FY2023, a drop of -$762.1MM, while net debt moved from $297.1MM (FY2023) to $1.10B (FY2024). The net‑debt/EBITDA ratio on a FY2024 basis is approximately 0.76x (1.10 / 1.45), comfortably below levels that would indicate leverage stress, but materially higher than FY2023. That shift reflects active capital deployment even as profitability cooled.

The table highlights an active capital allocation stance: buybacks more than doubled versus the prior year and were the dominant use of capital. The net result is a stronger near‑term EPS dynamic but noticeably higher liquidity and leverage sensitivity.

Balance Sheet Strength and Liquidity Context#

Even after the FY2024 cash draw and higher net debt, Reliance’s balance sheet remains substantial on absolute measures: total assets of $10.02B and total stockholders’ equity of $7.22B, yielding a debt/equity of roughly 0.20x (total debt $1.42B divided by equity $7.22B) as of year‑end. The current ratio is robust: ~3.22x (current assets $3.9B / current liabilities $1.21B), providing immediate liquidity cushion for working‑capital needs in a cyclical downturn.

However, the cash cushion is thinner than the headline ratios suggest. Year‑end cash of $318.1MM is low relative to near‑term liabilities and the company’s history of deploying cash to buybacks and acquisitions. Working capital can be volatile in distribution businesses; any unexpected customer slowdowns, inventory revaluations or tariff shocks could require more liquidity or push Reliance to tap markets when conditions are less favorable.

On leverage covenants and flexibility, FY2024 net‑debt/EBITDA (~0.76x) remains conservative versus typical covenant thresholds. That gives management room to operate, but the acceleration of repurchases at the top of this cycle materially reduced headroom versus a more conservative posture. Investors should watch leverage trends and the cadence of buybacks in FY2025 as key forward indicators.

Strategic & Competitive Positioning#

Reliance is the largest metals distributor in North America with deep branch network scale and an entrenched relationship base across energy, infrastructure, automotive, aerospace and general manufacturing. That footprint provides structural advantages in inventory placement, same‑day service and fabrication capabilities — all competitive levers when industrial customers value speed and local availability.

Strategically, management has focused on expanding value‑added fabrication and selective acquisitions to broaden product mix and margin profile. FY2024 included $364.6MM of acquisitions (net) which indicates continued M&A as a component of growth strategy. The combination of organic reach and M&A allows Reliance to pursue higher‑margin, recurring revenue streams — a point echoed in industry playbooks that favor recurring contract revenue for distributors.

The competitive risk set is cyclical demand and pricing pressure from commodity swings and tariff/regulatory changes. Reliance’s scale and broad end‑market exposure help mitigate single‑industry shocks, but margin recovery ultimately requires an improvement in fabrication mix, successful integration of acquisitions and the ability to pass through input cost increases without losing volume.

Risks and What Could Go Wrong#

Two immediate risks stand out. First, end‑market cyclicality: continued weakness in manufacturing, energy or construction activity would prolong margin pressure and reduce the effectiveness of buybacks as an EPS lever. Second, liquidity/leverage risk: aggressive repurchases at a revenue trough reduced the cash cushion and increased net debt, exposing the company to refinancing or timing risk if cash generation weakens.

Tariff and input‑cost volatility also remain wildcards. Tariff shocks can compress margins materially for metal distributors if pass‑through to customers is limited by demand elasticity. The company has highlighted tariff exposure historically; given the FY2024 margin compression, any new trade disruptions would likely amplify pressure.

Finally, execution risk on acquisitions matters. Reliance has pursued bolt‑on deals to lift margin mix, but acquisitions require purchase discipline and integration execution. Poorly timed or overpriced deals during cyclical troughs can dilute returns and complicate near‑term cash dynamics.

What This Means For Investors#

Investors should frame Reliance’s FY2024 results around three balanced implications. First, operational performance is cyclically weak: margins and EBITDA contracted materially, which reduces near‑term earnings leverage to topline improvements. Second, the company continues to generate strong operating cash flow and positive free cash flow, a core strength that enabled shareholder returns and acquisitions in FY2024. Third, management’s preference to prioritize buybacks — over retaining a larger cash buffer — increases sensitivity to downside scenarios even while supporting EPS in the near term.

The appropriate investor lens is therefore one of conditional recovery: Reliance’s franchise and balance‑sheet metrics (post‑capital deployment) still provide flexibility, but the margin recovery story depends on either an industrial demand stabilization or tangible improvement in fabrication/value‑added mix. Monitor three high‑signal items: quarterly gross and operating margins (for signs of mix improvement), net‑debt/EBITDA trajectory, and the pace of share repurchases relative to free cash flow.

Investors focused on capital allocation quality should scrutinize buyback cadence against cash generation. Returning >150% of GAAP net income to shareholders in a year of declining profitability is an explicit capital‑allocation choice; the long‑term payoff depends on whether repurchases occurred at attractive valuations and whether subsequent earnings recover to justify the leverage taken on.

Historical Context and Forward Considerations#

Historically, Reliance posted stronger margins in FY2021–FY2022 when industrial demand and pricing were favorable. The FY2024 pullback follows a familiar cyclical pattern in the metals distribution industry: volumes decline, pricing weakens, fixed cost absorption drops, and margins compress. The company’s playbook — expanding fabrication and tuck‑in acquisitions — is sensible for margin recovery, but timing matters.

Forward estimates embedded in analyst models show revenue normalization in the mid‑to‑high single billions and EPS growth over the medium term (analysts’ consensus shows an estimated EPS of $15.38 for FY2025 and rising thereafter in multi‑year estimates). Those forecasts assume some end‑market improvement and margin recovery; if industrial demand remains subdued, those catalysts will take longer to materialize.

Macro context matters: leading economic indicators and industrial activity data (e.g., The Conference Board LEI and S&P Global industrial insights) point to a moderation in cyclical momentum, meaning Reliance’s path back to FY2022‑level margins likely requires several quarters of stabilization in manufacturing and construction activity The Conference Board S&P Global Market Intelligence.

Conclusion#

Reliance Steel & Aluminum entered FY2025 with a clear tradeoff: weakened operating performance and compressed margins, alongside robust cash generation that management used to accelerate shareholder returns and buy strategically‑aligned assets. The company’s scale, branch network and value‑added capabilities remain structural strengths, but the FY2024 results emphasize that recovery in earnings depends on both cyclical demand stabilization and execution on higher‑margin initiatives.

Key metrics to watch in coming quarters include gross margin trajectory, EBITDA recovery, net‑debt/EBITDA trend, and the pace of repurchases. Those data points determine whether FY2024 represents a cyclical trough that management can leverage into a margin recovery or whether the combination of active capital returns and slower demand will create a longer‑lasting drag on liquidity and earnings.

What is incontrovertible from the data: FY2024 was a turning point in capital allocation — $1.09B of repurchases amid a meaningful earnings decline — that changes the risk profile of Reliance for shareholders. That is the investment story today: strong cash generation and durable franchise weighed against narrower margins and increased balance‑sheet sensitivity.