Reliance Steel & Aluminum Co. (RS) Q3 2011 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Reliance Steel Aluminum Sponsored Third Quarter and 9-months Financial Results Conference Call. [Operator Instructions] Now, I'd like to turn the floor over to your host, Mr. David Hannah. Sir, the floor is yours.

Great, thank you. Good morning, and thanks to all of you for joining our conference call for the third quarter and 9 months ended September 30, 2011. Gregg Mollins, our President and Chief Operating Officer; and Karla Lewis, our Executive VP and CFO are also here with me today. After the completion of this conference call, a printed transcript, including Regulation G reconciliations, will be posted on our website at www.rsac.com in the Investor Information section. This conference call may contain forward-looking statements relating to future financial results. Our actual results may differ materially as a result of factors over which Reliance has no control. These risk factors and additional information are included in the company's annual report on Form 10-K for the year ended December 31, 2010, and other reports on file with the Securities and Exchange Commission. For the 2011 third quarter, Reliance reported net income of $84.9 million, that was up 74% from 2010 third quarter net income of $48.7 million and it was down 14% from $98.7 million in the 2011 second quarter. Our earnings per diluted share were $1.13 in the 2011 third quarter, up 74% from 2010 third quarter earnings per diluted share of $0.65 and down 14% from the 2011 second quarter. Sales for the 2011 third quarter, were $2.14 billion, up 29% from 2010 third quarter sales of $1.65 billion and up 4% from 2011 second quarter sales of $2.05 billion. For the 9 months ended September 30, 2011, our net income amounted to $275.9 million. That was up 78% compared with net income of $154.9 million for the 2010 9-month period. Earnings per diluted share were $3.68 for the 9 months ended September 30, 2011. That was up 77% compared with earnings of $2.08 per diluted share for the 9 months ended September 30, 2010. Our sales for the 2011 9-month were $6.1 billion, up 29% from 2010 9-month sales of $4.73 billion. We sold 1.08 million tons of metal in the 2011 third quarter. That was up 13% from the 2010 third quarter and it was up 4% from the 2011 second quarter. The average price per ton sold in the 2011 third quarter was $1,973 and it was up 16% compared to the 2010 third quarter and about flat compared to the 2011 second quarter. For the 2011 third quarter, carbon steel sales were 53% of our net sales; aluminum sales were 15%; stainless steel was 15%; alloy sales were 11%; toll processing sales were 2%; and other miscellaneous were 4%. By commodity, we sold 876,000 tons of carbon steel products in the 2011 third quarter. That was up 2% from the 2011 second quarter, with average selling prices down 1%. Our aluminum tons sold of 57,000 were down 2%, with the average price up 1%. Stainless steel tons sold were 53,000, up 6%, with the average price down 3%. And alloy tons sold of 77,000 were up 33%, with the average price up 2%. Now the large increase in our alloy tons sold was due to our Continental Alloys acquisition, which closed on August 1. In the end, the third quarter had more twists and turns than we anticipated. Volume turned out to be a little stronger with same-store tons up 1.4% from the second quarter. Typically, third quarter volumes are down from the second quarter, and this was certainly true in July when our tons sold per day decreased 1.5% from June. And then normally, we see a pretty good uptick in volume per day in August compared to July, but that didn't happen as same-store volume per day dropped almost 1% in the face of the U.S. debt ceiling embarrassment, more talk of a double-dip recession, European financial concerns, a falling stock market and softening prices for most all the metals we sell. All of those events led to an even higher level of discomfort and uncertainty that preempted any thoughts of improvement in business levels or confidence. In September, though, volumes did improve and our tons sold per day were up over 4% compared to August. Our FIFO gross profit margins dropped over 2% during July and August as volume was off and mill prices for most of the products we sell were decreasing. Then in September, our gross profit margins leveled out as carbon steel pricing began to improve along with sales volumes. So in summary, tons were a little better and pricing and margins were clearly worse than what we expected for the quarter. Our balance sheet continues to be in excellent shape with net debt to total capital of 31% at September 30, 2011. We have plenty of capital available to fund the growth of our existing operations as well as anticipated acquisition opportunities. Year-to-date, 2011 has certainly improved from 2010, but we're still far from our peak earnings capacity. Overall, real demand has continued its slow and steady growth this year. We feel good about many of our end use markets but are still anticipating further improvements, especially in the non-res construction area which has significantly lagged in improvement compared to our other markets. We're most positive on our exposure to the aerospace, agriculture, mining and energy industries. It's important to note that business conditions, while not ideal, are not as bad as the market is indicating or as portrayed by the media. Prices for the various metals we sell continue to be volatile and currently are mostly softening, which we expect to continue through the fourth quarter. Additionally, we expect demand to be steady but down from the third quarter due to normal seasonal issues. Given those expectations, we currently estimate earnings per diluted share in a range of $0.70 to $0.80 for the 2011 fourth quarter. Also during the quarter, we completed the acquisition of Continental Alloys & Services, Inc., for a transaction value of $415 million. Continental, headquartered in Houston, Texas, and its affiliates, comprise a leading global materials management company focused on high-end steel and alloy pipe, tube and bar products, and precision manufacturing of various tools designed for well completion programs of global energy service companies. Continental has 12 locations in 7 countries including the U.S., Canada, the U.K., Singapore, Malaysia, UAE and Mexico. On October 26, our Board of Directors declared a regular quarterly cash dividend of $0.12 per share of common Stock. The dividend is payable on December 20, 2011, to shareholders of record November 29, 2011. We paid our dividends for 52 consecutive years and we've increased our dividend 16 times since our IPO in 1994. We have an exceptional group of managers and employees, along with a broad and diverse product base and a wide geographic footprint that positions us well in our industry. We have significant exposure to industries that are poised for growth in the years ahead, and we have the experience and capital available to continue our successful growth strategies. Thank you for your support. Gregg will now comment further on our operations and our market conditions. Gregg?

Thank you, Dave. Good morning. As Dave pointed out, we were pleased with our results in the third quarter and 9 months ending September 30, as compared to the same timeframe in 2010. Demand was relatively flat in the quarter, as compared to the second quarter, with tons up on a same-store basis. As expected, prices on most all of our products softened in the third quarter, which had a negative impact on our margins. The FIFO margins for the quarter were 24.1% compared to 26.1% in the second quarter. Inventory turn on a same-store basis, excluding Continental, was 4.7x in dollars and 4.8x in tons. From a demand standpoint, we remain pretty optimistic on the most markets that we service. As Dave mentioned, our strongest markets are aerospace, oil and natural gas, electronics and semiconductor. Heavy industries such as agriculture and mining equipment, barge and tank manufacturers, transmission towers, wind towers, solar and railcars are also strong. Non-residential construction continues to struggle at low levels but there have been some signs of modest improvement in certain parts of the country. We service the automotive industry through our toll processing operations where we have no metal exposure. After some declines in auto production in the second quarter due to the tragedy in Japan, our automotive volumes have come back. So we feel good about many of our end use markets and look for ongoing improvement in demand in the future, subject to seasonal changes and shipping days. As for pricing, carbon steel prices began to soften in the spring and, in some products, including flat roll, continue to do so. With the addition of new capacity and an increase in imports, there has been more pressure on pricing throughout the supply chain. Scrap has traded in a pretty narrow range since the first of the year and raw materials, such as iron ore and coking coal, have been in decline recently. The producers with high-cost operations are going to have to seriously consider their strategies going forward as pricing is getting dangerously close to their costs of production. Midwest spot aluminum ingot peaked in May at $1.28 a pound with steady monthly declines through the summer. Aerospace sheet and plate is very strong primarily because of increased build rates. Plate lead time are 16 to 18 weeks. The multiple price increases announced in the first half of the year have all held, and life is good in the aerospace world. Engineered aluminum plate is also very strong, and here again, 3 price increases went to effect in the first half and all have held. Common alloy sheet demand is pretty steady and at reasonable levels with lead time, 6 to 8 weeks. We like what we see on the aluminum side of the business. The demand for stainless flat-rolled is fairly strong with the year-to-date tons up over the same period in 2010. Service centers and OEMs are being very cautious on the buy side with nickel surcharges in steady decline since May. Stainless bar, which yields much higher margins, is still quite strong especially with products sold into the energy and aerospace markets. Given the discounts in the surcharge, we believe our sales and margins held up quite well. To conclude, for most of our major end use markets, with the exception of non-residential construction, volumes are gradually improving. Pricing is a bit of a challenge, but that being said, we have a strong, proven and effective management team in the field that exercise strong business judgment in all markets. We have strategies in place to grow our business organically and our balance sheet is in great shape to pursue other growth opportunities. We are excited about the future of Reliance. I'll now turn the program over to Karla to review the financials. Karla?

Thanks, Gregg. And good morning. For the 2011 third quarter, our same-store sales, which exclude the sales of our 2010 and 2011 acquisitions, were up 21.7% compared to our 2010 third quarter with an 8.3% increase in tons sold and a 13.3% increase in our average selling price. For the 2011 9 months, our consolidated sales were up 29%, with tons sold up 11.6% and our average selling price up 16.2% compared to the 2010 9 months. On a same-store basis for the 2011 9 months, sales were up 24.9%, with an 8.9% increase in tons sold and a 15.3% increase in our average selling price. Compared to the 2011 second quarter, same-store sales were basically flat with a 1.4% increase in tons sold and a 1.3% decrease in our average selling price. September 2011 average sales per day and tons shipped per day were our highest since November 2008 because of our acquisitions since that time, indicating that we have significant additional earnings capacity on our existing businesses once underlying demand returns to more normal levels. Due to the strength in certain of our end markets, that Dave and Gregg mentioned, as well as our acquisition of Continental, we've seen a shift in our product mix, with alloy products representing 11% of our sales in the 2011 third quarter compared to 8% in our 2010 third quarter. Our 2011 third quarter gross profit margin was 23.1% compared to 24.0% in the 2010 third quarter and 24.9% in the 2011 second quarter. From the 2011 9 months, our gross profit margin was 24.8% compared to 25.2% in the 2010 9 months. Consistent with the direction of mill prices in 2011, we have experienced a continued margin compression throughout 2011. Our LIFO adjustment was a charge or expense of $22.5 million in the 2011 third quarter compared to LIFO expense of $9.75 million in the 2010 third quarter and $25 million in the 2011 second quarter. Our 2011 9-month LIFO expense was $67.5 million compared to $24.75 million in the 2010 9 months. Our LIFO adjustment is included in cost of sales and in effect reflects cost of sales at current replacement cost. We currently estimate our 2011 full year LIFO adjustment at $90 million. Our estimate anticipates mill prices to be at or somewhat below current prices at the end of the year along with lower quantities on hand at that time compared to our current levels. As a percentage of sales, our 2011 third quarter SG&A expenses were 14.9%, down from 16.8% in the 2010 third quarter. For the 2011 9 months, our SG&A expenses are 15.6% of sales compared to 17.3% in 2010. The improvement is due to higher volume and pricing on a relatively consistent cost structure. On a same-store basis, our 2011 third quarter expense amount was consistent with our 2011 second quarter amount. Operating income for the 2011 9 months was $460.5 million or 7.5% of sales, improved from $282.6 million or 6% of sales in 2010. The improvement was mainly due to our higher sales levels and our effective expense management. Depreciation and amortization expense increased by $9.8 million in the 2011 9 months compared to 2010 due to our 2010 and 2011 acquisitions, depreciation expense on our 2010 and '11 capital expenditures and amortization of financing fees related to the renewal of our credit facility in the 2011 third quarter. We had other expense of $6.5 million in the 2011 third quarter compared to other income of $0.5 million in the 2010 third quarter, for a $7 million swing. The expense in 2011 was mainly due to foreign currency translation losses because of the strengthening U.S. dollar and our increased exposure due to our acquisition and financing of Continental's foreign operations in August. Our annualized effective income tax rate at September 30, 2011 was 32.2% compared to our estimate as of June 30, '11, of 34.2%, which resulted in a catch-up in the 2011 third quarter and a quarterly effective rate of 27.2%. The rate decrease was mainly attributable to statute expirations and lower state rate due to favorable changes in tax regulations of certain states. Our 2011 9-month rate was 33.4%. Our 2011 third quarter earnings per diluted share were $1.13. However, if you adjust for the positive impact of our lower quarterly tax rate as well as the negative impact of our foreign currency adjustment, our earnings would have been $1.09 per share for the quarter. Because of improved business conditions in the 2011 first half, we increased our working capital using cash from operations. However, due to our profitable business activity and effective working capital management, we generated $102.8 million of cash from operations in the 2011 third quarter, resulting in cash provided from operations of $17.3 million for the 2011 9 months. Our accounts receivable balance, net of acquisitions, increased $270.7 million from the 2010 year end because of increased sales. And our days sales outstanding rate has remained consistent at 42 days. Net of acquisitions, our FIFO inventory levels increased $362.1 million and our accounts payable and other liabilities increased $159.6 million at September 30, '11, from year-end 2010. The increased inventory levels support our increased shipment volumes and reflect the higher metal costs. We spent $112.7 million for capital expenditures in the 2011 9 months, which included a buyout of certain facilities that we previously leased as well as costs to purchase land and construct new facilities. At this point, we do not expect to spend our full 2011 capital expenditure budget of about $200 million, although we have not purposely slowed our growth activities. Our outstanding debt at September 30, 2011, was $1.5 billion, up from $941 million at year-end 2010, mainly due to borrowings to fund our acquisition of Continental and our capital expenditures. We had total borrowings outstanding of $790 million on our $1.5 billion credit facility at September 30, 2011. Our net debt-to-total capital ratio at September 30 was 31%, up from 23.5% at December 31, 2010. The covenants in our credit facility require us to maintain a debt-to-capital ratio of less than 60% and an interest coverage ratio of at least 3x. Our interest coverage ratio at September 30, '11, was 8.8X. Effective July 26, 2011, we amended and restated our $1.1 billion unsecured credit facility for 5 years and increased the size to $1.5 billion. The restated credit facility includes an increase option for up to an additional $500 million and includes more favorable pricing terms than our prior facility that would have matured in November 2012. Other than pricing, the terms remained fairly consistent, including the financial covenants. Effective August 1, 2011, we funded our acquisition of Continental Alloys with borrowings on our credit facility of approximately $424 million. And this amount included the payoff of approximately $105 million of Continental's outstanding bank debt at that time. We're comfortable that we have adequate cash flow and capacity on our new revolving credit facility to fund our debt obligations as well as our working capital, capital expenditure, growth and other needs in the near future. Thank you, and we will now open the discussion for questions.

[Operator Instructions] So we'll take our first question from David Olkovetsky (sic) [Brett Levy] with Jefferies & Company. [Technical Difficulty] Brett Levy - Jefferies & Company: Ready? Can you hear me?

Yes. Brett Levy - Jefferies & Company: Yes, it's interesting. It's -- that's my junior's name. I'm not sure how that quite happened. But in any case, you guys have said in the past that it's tough to take market share without discounting or anything else like that. But you guys are making acquisitions, you're building out new centers, you're hearing other guys in the industry who are closing centers, just about concern about carrying inventories in a period of declining prices per sheet. Where do you think your U.S. market share is, or North American market share is? And do you actually see it growing?

Yes, we do, Brett. It takes a lot to move the needle, though. I think we're still around 6%. As best as we can tell, about 6% of the market. And that's not based on tons, that would be based on revenue dollars. And we do believe that we can continue to take market share through service and quality. And we think that, organically, we should be able to grow volumes at slightly above what GDP is growing. So if GDP is 2.5%, we should be 3% or so at least in a normal market. Now pricing can sometimes have an impact on that and make it either bigger or smaller if you're looking at revenue dollars. Brett Levy - Jefferies & Company: And today is a tough day to notice because we had such a nice run in some of the stock prices. But sort of during that period when everyone's stock prices were falling, were you guys a bit opportunistic? Is there anything sort of in the M&A pipeline that we should hear about in the relatively near term, suggesting your continued growth through the M&A market?

Well, as you know, there's not many public companies out there in our space, and those are typically the ones -- our space is what we've been concentrating in. So we need a run in stock prices, it's what we need, for our company as well as others in the industry that are performing well out there. So if I'm looking through your question, I'm hearing, is there M&A opportunity out there? And yes, there is, it's a little bit better than it was earlier this year. I still think that we're not going to see a lot of activity until, really, market conditions, overall, gets better than they are now. Most of the companies are still making a reasonable amount of money, the private mill companies in our industry. But still, none of us are where we would like to be. And until people get to that point, they're not as likely to want to sell their companies because they still have doubts on whether they're going to get the kind of price that they'd like to have.

We'll take our next question from Timna Tanners with Bank of America Merrill Lynch.

I just wanted to understand a little bit better the guidance with 105, 115. I understand that the margin was probably lower than you expected because prices fell, but that didn't include Continental. So I'm just wondering if you could give a little more color, specifically, what was the Continental contribution? And if -- prices only fell 1%. Why did that cause the degree of margin decline you saw?

Well, I think prices, average prices and margins don't always move at the same rate. So pricing can come up. When higher cost of materials come into your inventory, you may be selling it at a higher price, but your cost might be moving in a different -- it might be coming up more than your pricing, so your margins can get compressed. So I think that was the situation that we saw in the quarter, particularly, earlier in the quarter. In terms of Continental, you're right, we didn't have any contribution from Continental in our guidance. And that was because it hasn't closed yet, when we had our conference call at the end of the second quarter. And we knew it was scheduled to close when we talked to you all 3 months ago on August 1, but sometimes things happen and they don't always close on schedule. So as far as Continental contribution, we don't -- I think you remember that we don't give out individual companies or subsidiaries results, but we will tell you this: that for 2 months that Continental has been there, their contribution has been substantially more than what we anticipated from the way that we value our acquisitions. So it's been very, very good.

And seasonally, it is a strong time for Continental's business. And I think also on the margins, in addition to the pricing changes that were occurring, because of the general uncertainty out in the economy and the market with everything going on, there are -- competitive pressures also played a part in the margin compression during the quarter.

Got it, okay. If I could, one more. On the fourth quarter, there's a bit of a working capital build, small in the third quarter. You talked about destocking the normal seasonality of maybe of your customers and yourselves as well. Can you give us an idea about how much working capital release or days or anything you can tell us on the fourth quarter targets for destocking?

Yes, I mean, last year, the fourth quarter of 2010, we did see some substantial cash flow from ops. We saw about $170 million generated in the fourth quarter of 2010. The third quarter of this year, even though inventory levels held relatively steady, we generated $103 million. So we would expect to be someplace in between those. We expect to bring inventory down in the fourth quarter. So we should see some substantial cash flow generated then.

We'll take our next question from Sal Tharani with Goldman Sachs.

A couple of questions. First, the guidance, Karla, on -- what do you have for tax in there for the fourth quarter?

Yes, we had expected, potentially, because of the way the accounting rules work, our 32.2% could trend up to like 33%.

33% for Q4, not the average for the year.

Yes.

Okay. I want to ask you about your LIFO assumption a little bit. Your conference call was on July 25. Obviously, prices went down. But they have deteriorated significantly more from there, you're keeping your LIFO expectation as it is. Are you leaving a cushion? Or do you think that you are, at the moment at least where the prices are, you think that you are right on that assumption? Because we have seen that others who have LIFO accounting had taken the credit or reduced their LIFO expectations for the year, not the service side but on the mill side. And I was just wondering if you have a different view on the pricing going into the fourth quarter.

Yes, Sal, we feel that the average price in our inventory at the end of the year is going to be less than what the average price is in our inventory as of the end of September. As the less-expensive material that's being bought now and has been being bought for the last 60 days probably, at least, that comes into our inventory. It's going to average down our LIFO cost. So we clearly believe that average prices will be less in inventory at the end of the year. And then also that our quantities on hand will be less than what they are now. And so we're anticipating that our LIFO assumption for the year is, I think, as Karla mentioned, is at $90 million. And our actual LIFO, if September was the end of our year, we'd have been about $110 million or something-like-that million dollars. So we are anticipating that those prices and quantities will come down as we work through the fourth quarter. Very similar to what happened last year.

And, Sal, one thing is, a company with less LIFO, but then with then having the LIFO accounting method for inventory costing there's also the way you record your LIFO during the year. Some companies, not Reliance, record their actual LIFO adjustment each quarter, which as Dave commented, if Reliance have that method, we would be at $111 million of expense year-to-date and we would be expecting to reduce that down to $90 million with a LIFO income in the fourth quarter. However, at Reliance, our method to book the LIFO adjustment is that we estimate the full year amount, which has been at $90 million at the end of the second quarter and we still believe that's the right number, but we have to book to 25% a quarter of our current estimates. So at 9/30, we're booked to 75% of $90 million, and we'll, at this point, anticipate booking $22.5 million additional expense in the fourth quarter.

If we're exactly right, we would book another $22.5 million LIFO charge in the fourth quarter. The chances of, Sal, being exactly right are not really good. At least, we would be hopeful that we're close.

We'll take our next question from Tony Rizzuto with Dahlman Rose & Company. Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: I don't want to have to get back in the queue, so hopefully you'll oblige all my questions right now. And the first one I have is, you guys have knocked the cover off the bull. Your tons sold, up 11%. By your own admission, it's not been maybe the best of all economies and you're pretty far away from the peak. But if you have to put your crystal ball out there and take a look at it, would you be able to realize a similar kind of growth level in terms of tons sold in 2012 even in spite of a lot of the challenges? That's my first question. I've got a couple more too.

Yes, we do, Tony, I think it's a good healthy number. But yes, we think that's achievable next year. And it could certainly be surpassed if we really got some improvement in the non-res side, which we don't know when that's going to happen. It will happen sometime, whether it's next year or late next year or some time after that. But I think the important thing is that we're coming into next year at volumes generally higher than we started last year -- started this year. So I think that also will be over the early part of the year on a comparable basis. So yes, I think it's certainly achievable, and it could even be better. Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: Excellent. And then there's a lot of talk about further destocking, but it seems like whoever we talk to and people have generally acknowledged that inventories are low in maintenance supply chain. And I'm wondering, how much is there to go on that, assuming the world doesn't fall apart? And that's my second question. And then I've got another one after that, too. I'm sorry about all the questions this morning.

No problem. I'll give you a little -- my comment. Gregg might have some more comments on the inventory levels. But you hear that inventories are low, and I guess, compared to historical levels, they might be low. But I think they're about right in the industry. We have a lot of folks in the industry that used to carry more inventories that are -- that learned to live with less inventory because of the volatility in pricing now. So I think we're in good shape. Our customers' inventories are at healthy levels in terms of not being over inventory, so they're on the skinny side, I would think, on inventory. In our industry, nobody's running out, as far as I know. So I think we're in pretty good shape from an inventory standpoint. We're not over-inventoried like we used to be many times in the past. But I don't think there is a lot of inventory to be taken out of the industry, either. So we are talking about our inventories coming down in the fourth quarter, but that's just more of a seasonal thing. And there a lot of shipping days in the fourth quarter, businesses still, many times, close down for extended holiday periods. So we'll build our inventories again in the first quarter. Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: Okay. And then it's interesting with some of the large integrated mills, as you guys are aware, talked about bringing operating rates in quite a bit for the fourth quarter. And I'm wondering, is this enough with low imports? The data doesn't fully bare that out, but our view is that imports are going to continue to recede. Do you see this rebalance the market? And do you see this perhaps changing some of the buying behavior out there in the marketplace right now? I'd -- specifically with regard to carbon.

I guess our read is, Tony, that it can -- the bulk of this excess capacity that's coming on, okay, namely at Thyssen and Severstal and RG, et cetera, it's going to be very difficult for demand to be able to absorb that much volume increase, in our opinion. I've heard people say that there's not an overcapacity situation here in the United States, and I beg to differ. That's insanity. There is a problem here with overcapacity. And the mills are just going to have to take a look at it and determine whether or not they are at a high-cost position or a low-cost position. If they're high cost, you're going to have to shut things down. Or the maintenance helps, it's like a Band-Aid, okay, to a gaping head wound, in my opinion. You're going to have to step up, there's going to have to be some closures.

We'll take our next question from Grace Chan with Crédit Suisse. Richard Garchitorena - Crédit Suisse AG, Research Division: It's actually Richard Garchitorena. The first question, I just want to touch back on the LIFO commentary and on pricing. You're expecting pricing would be lower at the end of the year versus September. Is that for all products across-the-board? Or is there any differentiation -- most of your inventories are most likely carbon. So can you guys give some color on that?

In our opinion -- I'll just address the pricing issue, and Karla, you can get into the LIFO. But we're anticipating pricing to go down, in particular in carbon, going forward. We've got iron ore, that's dropped in the past 4 weeks at 30%. Coking coal is going down. Scrap has been relatively stable all year long, but there's some anticipation that, that's going to go down next month. So carbon steel pricing, as much as we would like to see it otherwise, we anticipate that it's -- there's going to be further declines. Different products will probably decline more than other products. Certainly, flat-roll is more volatile, it's always more volatile, it seems, I think, from a plate standpoint. Cold-finished bars, SBQ, might be a little different, that would be stable. And many mill and beam products, they'll probably go down as scrap goes down but it's not going to be anything meaningful. A plate, plate's an issue. Plate's been the strong -- one of the strongest products in the carbon steel arena all year long from a demand point of view. But unfortunately, there were some pretty hefty spreads between domestic pricing and offshore, and there's been a tremendous amount of carbon steel plate that's come into the United States since April. So there's probably going to be some pricing corrections there, unfortunately.

I think we'd like to take this opportunity now because there is a lot of talk about pricing, and usually when people are talking about pricing on carbon steel products, they're talking about hot roll, the benchmark pricing in hot roll. We just ask you'd all keep in mind that the carbon steel flat-roll is not a very big product for us. Hot roll itself is only about 4% to 6% of our sales dollars, and carbon flat-roll in total is only about 12% of our revenue. So while it's important, it doesn't have the impact on us as much as it does others in the industry.

And you've also mentioned the other products, stainless steel products, we've seen steady declines in the nickel surcharges through -- since May. With one exception, in September, there was a little bump of about $0.05 a pound, but followed by an $0.11 a pound drop in October and another $0.12 in November. So we're anticipating that nickel surcharges are pretty close to being at low levels. We expect maybe even a little bump in December. So I think we're pretty close to being at bottom on stainless steel. And on aluminum, we've seen ingot going down, again, since May. Everything seemed to go down beginning in May, all products, and all various alloys. But I think we're getting pretty close to being at bottom on ingot there too. We're pretty close to about $1.06 a pound, and at peak it's about $1.28, in the April-May timeframe. So our anticipation is we're pretty close to bottom on the aluminum side. And even on the carbon side, on the flat-rolled, Dave mentioned the flat-rolled side. We're looking at prices. We're hearing, you read in the paper that there was $570 a ton. We have not seen anything below $600. And we've, very honestly, we're paying in the neighborhood of $630 to $650 a ton. So if there's a mill listening to us out there that's selling it for $570 a ton, please call us. Richard Garchitorena - Crédit Suisse AG, Research Division: Great. That's very helpful color. And then my other question is just on -- you gave some good color in terms of shipments during September, being at their highest levels on a per-day basis. Any color you can give us on October?

October, so far, looks like it's running steady with September. On a per-day basis, the volumes are pretty much on top of each other. Richard Garchitorena - Crédit Suisse AG, Research Division: Great. And my last question, just you did mention earlier that you think that the business is actually better than what the equity market and the news is implying. Any plans for further share buybacks in the future?

Well, we're -- we have an active share repurchase program. It's out there, we haven't used it since early '08, I think was the last time we bought some shares back. We're really a -- we're having a look at it, certainly we could buy our shares and have some accretion compared to maybe what we would pay for an acquisition, and we do evaluate it that way. But there are some other things to think about, too, and that's potential M&A opportunities going forward. We want to make sure that we don't use capital to buy shares when we think a longer-term M&A opportunity is much better for the company. So we prefer to use the capital to grow the business organically as well as through acquisitions. So that's kind of in our thinking as well. So it's out there, we're thinking about it, but I can't tell you today that we have any plans to start that activity.

We'll take our next question from Martin Engert [ph] with Jefferies & Company.

I had a question about the guidance for the upcoming quarter. You noted seasonal weakness reduced shipping days and then slightly lower prices. I guess, what do you think is the biggest impact there when you look at it from an earnings standpoint? I thought -- just looking at things, initially, I thought of, maybe, it would've been a little bit better than the guidance due to the Continental acquisition.

The bigger impact that we're anticipating is from a volume standpoint just due to the normal seasonality with the fewer shipping days in the fourth quarter. If you go back to 2010, we had a couple of small acquisitions that came in, in the fourth quarter, but our tons were down in Q4 '10 from Q3 '10, a little over 6%.

And one other quick question. Was there any impact from inventory holding losses in the third quarter there?

No.

No.

We'll take our next question from Michelle Applebaum with Michelle Applebaum Research.

Thanks for the heads up on the accounting anomaly going into the fourth quarter where you had FIFO margin compression but you're taking a LIFO charge. So that's very helpful. And thanks for explaining what your quarterly LIFO true-up would be. Karla, any further thoughts on actually going to that accounting basis? I've been trying to talk you into that for a little while now.

Yes, if it was as easy as doing what I want to do, we would've done it a while ago.

I know, I know. I'm just highlighting the problem because all I can say is I'm glad that I'd paid for that accounting degree, I'm glad. Okay. So the second thing I wanted to ask you guys is -- I'm excited to hear you talking more about organic growth and continuing to talk about acquisitions. But I'm just wondering, with your stock selling only one multiple point higher on an EBIT-to-EBITDA basis as U.S. Steel, I don't know that you need to talk about growth, it doesn't seem like the market is giving you credit for the history of reinvestment. And I'm also glad that you're taking a long-term view on share buybacks because I've learned my lesson over the long term, watching some other growth-oriented companies listen to people like me and buy back shares and let others grow in their business and then lose in the long run. So I think taking a long-term view is great. I also wanted to ask you, in terms of organic growth, have we come to a point where you can actually grow your business by either putting in people in telephones or bricks and mortar at a higher return than you can acquire? Is that what you're saying by emphasizing that?

It depends. I know that's not a very good answer, Michelle, but we have gone into areas, we have -- some of our businesses have done a really outstanding job in getting sales people into an area first, developing some market, servicing that area out of the closest branch that they might have and then volume builds and we'll actually lease a small facility, keep some material handy locally so we can penetrate the market further. And then if the business continues to grow, we'll end up putting a facility with some processing equipment in. So we kind of step into it. And we've done that actually -- we don't -- it doesn't get a lot of attention outside the company, it gets a lot of attention inside the company because it's really exciting for us. And we do like to grow. We will grow through all market conditions. I agree with you that the market certainly isn't recognizing our history and our pattern and the successes we have right now. But we do believe -- we have to believe that, eventually, it will again recognize what we've accomplished. So we can't control that. What we can control is what we do with our company, and we're going to continue to push it and grow it and do the things that we think, long-term, will eventually be recognized. So internally, we do a step approach, it's less risky that way when we move organically into an area. Even after we've gone in with the facility and put profits and equipment in, if it doesn't work out at that point -- we're usually pretty far along at that point so we know what we're doing in terms of the market penetration. But the downside is, is that we have to pick that piece of processing equipment up and move it to another location. And usually, we always have a need somewhere else, if that's the case. I don't know if Gregg has any further comments on that or not?

Not really. It's just that I think the most important statement that you just made is that it's so exciting for our company, that the people, we promote from within. Opening new branches is something that is just extremely exciting for, just internally, our people. They -- it gives them opportunities to advance. And that's fantastic. And we're very service-orientated, as you know, and quality-orientated, and we've put in the best equipment known to man. And we just try to out-service our competitors in the marketplace. So anyway, we're going to continue to do it.

I wanted to ask you a different question. You're big players in the plates business. I would imagine you're the largest buyer of plate in the country, is that correct?

Yes, I think that's fair.

Okay. So there are -- it hasn't been a market that's had huge duties, but there are some, and they're coming up for renewal. And I was just curious if Reliance is a buyer of plates. Got a view on that?

We're buying our material almost exclusively domestic. And we support our domestic mills. We're certainly aware of what the import offerings are out there. We would prefer to keep those things off of our shores.

Probably 95%, Michelle, of what we buy in plate is domestic. And we just keep our toes in the offshore market, but we try to support our domestic mills in everything that we do. And sometimes, sometimes it's to our detriment, very honestly, but most of the times, it's not. But the spreads on plate, I don't know who's -- well, when I say I don't who's behind the plate, that's actually bull because I actually do know who's buying the plate. Okay? But the spreads were pretty great, and there should be duties, okay? I think it's a tragedy that one of the strongest markets that we have in the country, and at a time when our economy is not doing well, is being attacked by foreign plate that goes into some of the strongest markets that we have in the country, like the Bay Bridge. What are we doing with 40,000 tons worth of foreign plate from China in the San Francisco Bay Bridge? That's pathetic. But now I'm starting to sound like Dan DiMicco, so I better...

So listen, you're speaking from a very different place than Nucor or U.S. Steel. When you talk as a steel buyer, if you're taking a long-term view and realize that the opportunistic dumping once -- 1 quarter out of 4 years, 5 years, what you get, puts at risk your entire supply base. I mean, you're not being political, you're being economically smart to take a long-term view of your purchasing, so...

I just find it very difficult to walk through mills and shake guys' hands and ask them how many hours they worked that week and they say 24 hours or 30 hours. And then you hear about imports coming in at record levels. It makes me sick. So that's just my view.

Well, you're agnostic, you don't leave a horse in the race and neither do I, and I agree with everything you're saying.

Thank you, Michelle.

Thanks, Michelle.

We have a follow-up question coming from Sal Tharani with Goldman Sachs.

Just 2 questions. One is, I'm looking at your 2009 and 2010 10-Ks, and it mentioned non-res as a total -- estimated total of your sales. This year's non-res has remained depressed and other markets have moved up. Do you have any idea for the first 9 months what would that ratio would go down to?

It's really difficult just to get that visibility, Sal. A lot of our estimation on that market share is based on the types of products we're selling. And certainly, some of the products that go into non-res are going into kind of newer things now, like solar and wind towers. And we haven't seen it -- but we still don't really have that visibility and it's probably a little less than 1/3 now, but it certainly hasn't gone down by 10% or 15%.

I'll be surprised if it came down below 30%, very honestly.

Okay, great. And on Continental, I know you don't give all the margins for each business, but I just wanted a sense if the Continental is helping you to average up your margin, gross margin, would you say that?

Yes.

Oh, yes, definitely.

And also the product mix, you mentioned that alloy was up 33% and that's because of Continental. Is Continental also providing for other and -- for the other products you mentioned, or it's just all alloys in there?

It's primarily alloys. There is some stainless in there, okay, but the great majority of it is in alloys. And then the vast majority of what they sell is also pipe and tube.

It wouldn't have changed the other percentages, Sal, because what they have in those other areas, relative to what the rest of the company does there, it's very, very small. But on the alloys side, it's the opposite. And probably the reason why we kind of separate alloys, Sal, is that alloy is, without a doubt, one of the most highest gross profit margin-commodities that our company stocks. And there's just -- the competition on the alloy business is a lot smaller than it is on hot-rolled coil.

You're right.

Thank you very much, ladies and gentlemen. I'm showing no further questions in queue.

Great. Well, thanks for all of you for your support and your time. We look forward to talking to you again. And I guess it's probably -- what, Q3 -- in February. So thank you very much, and have a great fourth quarter. Thanks. Bye-bye.

Thank you very much, ladies and gentlemen. This concludes today's presentation. You may disconnect your lines, and have a wonderful day. Thank you.