Reliance, Inc. (RS) Q3 2026 earnings review
Reliance profit doubles on steel prices, but core shipments lag
Reliance, North America's largest metals distributor, earned far more on rising steel prices while its core shipment growth trailed the industry. Revenue climbed 43% from a year ago to $5.21 billion and profit per share more than doubled to $8.02, beating the company's own plan as chief executive Karla Lewis pointed to tight carbon steel supply. That price jump also forced a $188 million inventory accounting charge, which pushed the implied full-year charge to $450 million by our math.
| Tons sold, excluding border wall | +6.2% from a year ago (by our math; total tons +15.6%) |
|---|---|
| Average selling price per ton | $2,815 +8.2% from last quarter (plan: 0% to +2%) |
| Profit per share, excluding one-offs | $8.02 +120% from a year ago (plan: $6.40–$6.60) |
| Q4 profit per share outlook | $7.40–$7.60 middle of the range: +213% from a year ago |
⚖️ Verdict: 🟢 Bullish
The story got better because metal pricing power and industrial demand in semiconductor and aerospace are stronger than the company's plan assumed, and the board expanded the buyback program to $2.5 billion. One caution: the federal border wall contract supplied 9.4 percentage points of the 15.6% volume increase, so shipments outside that project grew 6% by our math and lagged the 10% industry rise.
The question now is whether Reliance can regain market share in its regular business before the first phase of the border wall contract ends in mid-2027. Either mill supply limits held back shipments temporarily while management protected margins, or competitors are taking volume that the government contract is masking. Fourth-quarter non-project volume growth against the industry benchmark will show which reading is right.
🐂 Bull Case
Carbon Steel Prices and Lower Overhead Lifted Margins
Reliance, the largest metals service center operator in North America, buys raw metal from mills, cuts and shapes it, and sells it in small orders. Chief executive Karla Lewis pointed to a "favorable market environment, characterized by continued healthy demand and tight supply, leading to increased price levels for most carbon steel products".
Average selling prices rose 8.2% from last quarter to $2,815 per ton, beating the company's plan of 0% to 2%. By our math, prices excluding the federal border wall contract rose 9.9% from last quarter. Carbon steel, which makes up 58% of revenue, led the increase.
- Carbon steel average selling price: up 12.1% from last quarter and 29.5% from a year ago
- Gross margin on a first-in, first-out (FIFO) basis, which values inventory at older costs: 31.6%, up 2.6 percentage points from a year ago
- Warehouse, delivery, and overhead expenses: 15.9% of revenue, down 3.3 percentage points from a year ago by our math
- Operating margin: 10.6%, up 3.5 percentage points from a year ago by our math
Because Reliance spread its warehouse and delivery costs over higher metal prices, pretax profit excluding one-offs more than doubled to $544.2 million. That operating leverage also overcame a 0.6-point gross margin drag from lower-priced border wall shipments.
What to watch: first-in, first-out gross margin in the fourth quarter. A reading above the company's 29% to 31% long-term target range would show that metal processors are still passing mill price increases on to customers.
Demand Strengthens Across Semiconductor and Aerospace Markets
For more than a year, excess customer inventory weighed on Reliance's high-margin aerospace and semiconductor businesses. Management now sees recovery across all of its major industrial customer groups, which helped underlying shipments grow 0.6% from last quarter instead of falling 2% to 4% as planned.
In non-residential construction, its largest market by tonnage, the company said "Strong demand from data centers, energy infrastructure and public infrastructure projects continued to offset softness in various non-residential construction sectors". Semiconductor shipments also improved on "increasing data center activity", while commercial aerospace gained from "gradual build-rate increases and growing backlogs supporting continued improvement".
What to watch: fourth-quarter tons sold in aluminum and stainless steel, which rose 6.3% and 7.5% from a year ago this quarter. Further volume growth in those specialty metals would confirm that aerospace and semiconductor demand is accelerating.
Buybacks Restart With a $2.5 Billion Authorization
After buying back no shares in the second quarter while funding inventory and customer bills, the metals distributor returned to the market. Reliance spent $44.7 million to repurchase shares at an average price of about $395 in the third quarter, and its board expanded the buyback plan to $2.5 billion on October 20.
The company has bought back $278.9 million of stock over the first nine months of 2026, cutting its diluted share count by 2.7% from a year ago to 51.4 million. That lower share count, combined with $63.8 million in quarterly dividends, turns operating profit growth into faster per-share earnings growth.
What to watch: fourth-quarter share repurchases as working capital needs ease during the seasonal winter slowdown. A step-up in buybacks would show management is willing to deploy its new $2.5 billion authorization at current levels.
🐻 Bear Case
Underlying Shipments Trailed the Industry Without the Border Wall
"Our smart, profitable growth strategy once again produced record quarterly tons shipped, contributing to non-GAAP diluted earnings per share of $8.02, up 120% year-over-year." That is how Lewis framed the quarter, and she also noted that "The U.S. Department of Homeland Security border wall contract we were awarded earlier this year continued to ramp and delivered another meaningful contribution to third quarter earnings".
The federal contract is a positive for near-term profit, adding $0.74 per share in the third quarter and lifting pretax margin by 0.4 percentage points because it uses existing warehouses at low cost. Yet stripping out the contract shows that Reliance's core business trailed the Metals Service Center Institute (MSCI) industry benchmark, reversing a multi-year record of market share gains.
- Total tons sold: 1,867.2 thousand, up 15.6% from a year ago
- Border wall contribution: 9.4 percentage points of year-over-year volume growth and $0.74 of profit per share
- Tons sold excluding border wall: up 6.2% from a year ago by our math, against 10.1% for the MSCI industry
- Fourth-quarter outlook: border wall adds 9.5 points of the planned 13.5% to 15.5% volume growth and about $0.70 of profit per share
This gap matters because the first phase of the border wall contract runs only through mid-2027, while the second phase is an unexercised customer option. Reliance relies on this single government project for nearly two-thirds of its volume growth while its regular branches grow slower than competitors.
What to watch: fourth-quarter underlying volume growth, which management forecasts at 4% to 6% from a year ago, against the MSCI industry figure. Another negative spread would confirm that core market share gains have stalled before the federal contract expires.
Cost Inflation and LIFO Charges Triple the Initial Plan
Reliance values its inventory using the last-in, first-out (LIFO) accounting method, which charges the latest mill price increases directly to current cost of sales. Because metal costs rose faster than management anticipated, the company recorded a $187.5 million LIFO expense in the third quarter, or $2.74 per share.
That charge was two and a half times the $75 million management planned for, "primarily due to higher-than-anticipated carbon steel product costs". With $337.5 million booked in the first nine months and $112.5 million planned for the fourth quarter, full-year LIFO expense reaches $450 million by our math — up from the $300 million forecast three months ago and triple the $150 million expected in the spring.
What to watch: fourth-quarter LIFO expense against the $112.5 million estimate, when full-year inventory adjustments are finalized. A fifth straight quarterly overshoot would show that mill cost inflation is still outrunning management's pricing assumptions.
Risks this quarter didn't answer
Four standing concerns from prior quarters received no new numbers in the earnings release, leaving their financial impact open.
- Mill supply availability: cited as a potential fourth-quarter headwind in construction, with no figure on unserved tonnage.
- Aluminum tariff margin distortion: Section 232 tariff effects on gross margin percentage were not quantified this quarter; the quarterly filing may give detail.
- Metal price reversal risk: average selling prices reached $2,815 per ton, and the fourth-quarter plan assumes another 1% to 3% rise rather than testing a downturn.
- Acquisitions pipeline: acquisition spending was zero for a third straight quarter, leaving inorganic growth untested.
👓 Other Themes
Trade Policy and Overseas Conflicts Cloud Supply
In its fourth-quarter outlook, Reliance flagged "ongoing domestic and international trade policy uncertainty and the continued conflicts in Iran and Ukraine, which could pose supply availability and macroeconomic risks". While domestic mill tightness currently supports steel prices, management warned that trade barriers and geopolitical tensions could disrupt supply chains or customer demand in coming quarters.
💲 Other KPIs
Free cash flow — operating cash flow minus capital spending — nearly doubled from $68.8 million last quarter, but fell 26.4% from a year ago. Higher metal prices and record shipment volumes required a "significant investment in working capital", as unpaid customer bills jumped 48.0% from a year ago by our math to $2.48 billion, absorbing $938.6 million of cash over nine months.
Net debt — total borrowings minus cash — edged down to $1.39 billion from $1.43 billion in the second quarter as the metal processor paid down $25 million on its revolving credit line, leaving $495 million drawn. Because trailing twelve-month EBITDA rose to $1.82 billion, leverage dropped from 0.9x last quarter and 0.9x a year ago.
Spending on property, plant, and equipment fell from $93.4 million in the second quarter and $81.2 million a year ago, representing 1.5% of revenue by our math. Nine-month capital spending reached $236.6 million, down from $255.7 million in the same period last year.
🔮 Guidance
New. The plan calls for profit per share excluding one-offs to more than triple from last year's depressed $2.40, while dipping 6.5% at the middle of the range from the third quarter on winter seasonality. The forecast includes about $0.70 per share from border wall shipments and $1.64 per share ($112.5 million) of LIFO inventory expense.
New. The US company expects total shipped tonnage to rise 14.5% at the middle of the range from a year ago, slightly below the third quarter's 15.6% pace. Shipments for the federal border wall project account for an estimated 9.5 percentage points of that annual increase.
New. Stripping out the border wall contract, management forecasts underlying volume to grow 5.0% from a year ago at the middle of the range, down from 6.2% in the third quarter by our math. Sequentially, base tonnage is planned to drop 6.5% at the midpoint due to fewer shipping days and holiday closures.
New. Average selling prices are planned to rise 2.0% from the third quarter at the middle of the range, following an 8.2% sequential jump in Q3. By our math, that sequential step implies fourth-quarter prices of about $2,871 per ton, up 25.3% from a year ago.
Raised. Last quarter's $300 million full-year outlook left $75 million for the fourth quarter by our math, but surging carbon steel costs pushed the Q4 estimate to $112.5 million. Combined with $337.5 million in the first nine months, the implied full-year charge reaches $450 million — the third upward revision this year (+$50M, +$150M, +$150M).
❓ Key Questions
Why did non-project volume growth trail the industry by 4 points?
Excluding the border wall contract, Reliance's third-quarter shipments grew 6.2% from a year ago by our math, trailing the 10.1% MSCI industry increase. Did mill supply limits cap shipments, or did competitors take share while Reliance focused on pricing?
Has the customer given any timeline for border wall Phase 2?
The border wall contract provided $0.74 per share in Q3 and is planned at $0.70 in Q4, supplying nearly two-thirds of year-over-year volume growth. With Phase 1 ending around mid-2027, when must the government exercise the Phase 2 option to avoid a shipment gap?
What carbon steel price assumption sits behind the $450M LIFO total?
By our math, full-year LIFO inventory expense is now on track for $450 million after Q3 charges hit $187.5 million versus a $75 million estimate. What fourth-quarter mill cost trend is embedded in the $112.5 million Q4 estimate?
Where did specialty stainless steel prices move in the third quarter?
Last quarter management expected specialty stainless prices to rise in the second half as industry inventory cleared. Total stainless average selling prices rose 6.5% from last quarter, but how much of that came from specialty grades versus standard sheet and bar?