Russel Metals Q2 2026 Earnings Call Transcript

Russel Metals (TSX: RUS ) held its second-quarter earnings conference call on Friday. Below is the complete transcript from the call. This content is powered APIs. For comprehensive financial data and transcripts, visit The full earnings call is available at Summary Russel Metals Inc.

reported a record quarter in Q2 2026, with strong market conditions leading to high shipment volumes and improved margins. The company achieved a 130 basis point improvement in gross margin compared to Q1, with the Kloeckner acquisition contributing significantly to EBITDA. Russel Metals sold its Color Steels division and some real estate, aligning with its strategy to optimize capital deployment. Capital expenditures were $18 million in Q2, with further modernization projects anticipated to increase capex in late 2026 and 2027.

The US segment now represents 54% of revenues and 61% of operating profits, driven by stronger market conditions compared to Canada. The company returned $24 million to shareholders via dividends but did not undertake share buybacks in Q2. Russel Metals maintains a strong financial position with $144 million of net debt and over $500 million in liquidity. Market conditions remain robust, with healthy demand and managed supply contributing to favorable pricing dynamics.

The company expects margins to remain stable in Q3, with potential upside from further market improvements and operational efficiencies. Management highlighted a focus on value-added services and facility modernization to enhance long-term margins and market share. Full Transcript OPERATOR (Operator) Morning, ladies and gentlemen, and welcome to the 2026 second quarter results for Russel Metals. Today's call will be hosted by Mr.

Martin Juravsky, Executive Vice President and Chief Financial Officer, and Mr. John Reid, President and Chief Executive Officer of Russel Metals Inc. Today's presentation will be followed by a question-and-answer period. At that time, if you have a question, please press star one on your telephone keypad.

I will now turn the meeting over to Mr. Martin Juravsky. Please go ahead, Mr. Juravsky.

Thank you. Martin Juravsky, Executive Vice President and CFO Great. Thank you, operator. Good morning, everyone.

I plan on providing an overview of the Q2 2026 results. If you want to follow along, I'll be using the slides that are on our website. You can go to the Investor Relations section and it's located in the conference call submenu, or you can click on the link that is in the investor conference call paragraph in our press release from yesterday. If you go to page three, you can read our cautionary statement on forward-looking information.

To begin, I think that Q2 provides an indication of how the portfolio changes over the last few years have resulted in a meaningfully reconfigured business with a superior earnings generation profile. Since 2024, we deployed almost $700 million for acquisition and capex and sold $90 million of non-core assets. These changes were aimed at growing the business, enhancing our return on capital, and improving our earnings profile over the cycle. The Q2 results illustrate a new frame of reference for our earnings power when our business portfolio is combined with a favorable market environment.

If we look specifically at Q2, the market conditions were strong and broad-based. We had record shipment volumes in combination with pricing and margins that are at levels that haven't been seen for a few years. The improvement in market conditions began to be quite noticeable towards the end of Q1, and they continued that improving trend on a month-over-month basis through Q2. The margins and activity levels that we experienced at the end of Q2 have continued into the early part of Q3, notwithstanding that there is typically a seasonal pullback in volumes in and around the July—August holidays in both Canada and the US.

So let's go to page five for a little bit of a snapshot of the quarter. In Q2, we set another record for consolidated revenues and shipments from our steel service center segments. This was the result of three things: one, progress on the Kloeckner acquisition; two, a seasonal pickup in volume; and three, strength in most of the markets we serve. On the last point related to market conditions, we saw a 130 basis point improvement in our overall gross margin for Q2 as compared to Q1.

The Kloeckner business generated about $16 million of EBITDA in Q2, which was double what it generated in Q1. I think this illustrates how much upside there can be from that operation when good market conditions are combined with changes to operating practices. We entered into an agreement to sell our Color Steels division in Ontario. This business generated about $70 million worth of revenue in 2025 and had a book value of around $35 million, and we should recognize a small gain on the sale when it closes in the second half of 2026.

We also sold $4 million of real estate in Q2 on top of the Delta property that we sold in Q1. These are further refinements to our portfolio as we are focused on where we can optimize our capital deployment. In the case of Color Steels, it was a standalone niche business unit for us in Ontario that had a focus on residential construction, which is not a priority for Russel Metals. On the middle row of the diagram, our Q2 2026 capex was $18 million, which was similar to Q1.

We have recently approved a couple of modernization projects, so I expect that the capex to pick up in late 2026 and into 2027 as more of these types of projects are advanced. 9 billion. 9 billion. Generating strong return on invested capital: our return on invested capital was 24% annualized in the quarter and 23% annualized if we look year-to-date 2026.

Once again, our returns are industry-leading when compared to publicly traded comparables. We grew our US business. Our US business currently represents about 54% of revenues and 61% of operating profits for Q2. The market conditions in the US are currently stronger than in Canada, which has resulted in the higher relative profitability for our US versus our Canadian operations.

That being said, our Canadian business is making up some ground and we see a positive outlook on both sides of the border. On the last row of the diagram, returning capital to shareholders: we have always had a flexible approach on this sub-piece. In Q2, we returned $24 million via dividends but did not undertake share buybacks. 13 for a total of $333 million.

13 to the prevailing market price, the cumulative NCIB activity to date was done at an attractive discount to the prevailing market price. In the bottom right box of the page, maintaining a strong capital structure is critical as we do operate in a cyclical industry. As a result, our liquidity is strong, we have a lot of flexibility, our bank covenants, no financial covenants in our term debt, and our maturities are 2030 for both our term debt as well as our bank debt. If we go to market conditions on page six—summary—market conditions remain pretty strong right now.

We saw carbon sheet and plate prices exhibit steady increases over the last nine or so months. Hot rolled coil and plate prices in the US were up in Q2 versus Q1 and are currently prevailing higher than the Q2 averages. Overall demand is good and supply chain inventory is limited, as shown on the two right-hand charts. Mill operating rates are tracking near 80%, which is a pretty healthy level.

This suggests continued optimism. The bottom chart shows the recent pullback in aluminum prices as that market has come off a bit from its record highs, but prices remain at near-record levels. If we stand back and look at the prevailing environment and compare it to periods of the past when metal prices were robust, such as 2021, this environment seems to be driven by other and perhaps more fundamental factors. In 2021, the market was driven by global supply chain disruptions, temporary government stimulus, and a near-zero interest rate environment.

It was by definition short lived. The recent movement in metal prices and margins seems to be underpinned by healthy and broad-based demand in combination with managed supply. On page seven, you see a summary of our trend EBITDA. We've talked a lot in the past about changing our EBITDA profile to raise the cycle floor, raise the cycle ceiling, and as a result raise the cycle average.

In addition, we have focused on reducing the volatility through the cycle. These charts present those elements and show EBITDA on a trailing twelve-month basis at the various points in time. The takeaways are the chart on the right: the 2023—2026 period looks a lot better versus the left chart, which is the 2017—2019 period. Our average EBITDA is prevailing higher and the peaks to trough are less volatile.

Also on the right chart, our trailing twelve-month trends continue to improve. Our LTM EBITDA is over $400 million, and the improvement in LTM results should continue into Q3 as Q3 2026 should be better than Q3 2025. On page eight, we have a view of our working capital trends on the bottom chart in comparison to EBITDA trends on the top. If I can focus you on the far right side of the bottom chart: in Q2 we used cash for working capital purposes due to a pickup in business activity.

That being said, the $48 million for working capital was not very large when compared to up-cycles in previous times. Our business changes have translated into less volatility not just in earnings but also in working capital needs. 7 billion. EBITDA was up due to favorable conditions that I previously mentioned.

We've also shown adjusted EBITDA in the far right chart. This chart excludes the mark-to-market on stock-based compensation and the Q1 gain on the Delta sale. This adjusted EBITDA chart makes it easier to do an apples-to-apples comparison when looking at short-term trends. The adjusted EBITDA of $154 million for Q2 is a big lift from the $93 million in Q1 as well as other recent quarters.

43 in Q2, which was higher than Q1 even though Q1 benefited from the gain on the Delta sale. 63 per share, which was about double the Q1 level. The bottom right chart shows our return on invested capital. This uses the results as they are without any adjustments, and our return on invested capital for 2026 has been strong, above our cycle target and industry-leading.

On page ten, we show the reconciliation of the unadjusted to the adjusted results, and as the adjustments are to put the quarterly results on a comparative basis that is more equivalent and easier to see the operational trends. 20 per share; and two, the Q1 gain on the Delta sale, as it was a material item that is nice to have but it is non-recurring. On this page, the equivalent comparisons are in the gray area and that highlights and illustrates the large step-up in our Q2 results from an adjusted EBITDA, adjusted net earnings, and an adjusted EPS perspective.

Going to more detailed financials on page eleven, from an income statement perspective, some of the items I've already discussed, but starting at the top: revenues were up 37% versus Q1 and up 37% versus Q2 of last year, and I'll talk more about volumes later, but it was another record shipping quarter on top of the record shipment levels that were achieved in Q1. Our gross margin percent was up versus Q2. The margin profile of the former Kloeckner branches still lags that of our comparable operations, but had a strong bottom-line contribution.

If we look at the cumulative contribution for the first six months relative to the $128 million purchase price, it has equated to an over 30% annualized return on invested capital. So far, timing's been very good. The mark-to-market on stock-based comp was a $15 million expense, as I mentioned earlier, in Q2 versus a $5 million expense in Q1, and we've pulled those out of the adjusted results for purposes of easier comparison. Cash flow: I mentioned earlier in Q2 we used $48 million of cash for working capital due to an increase in business activity.

13. There wasn't any meaningful activity in Q2. 44 per share that will be paid in September. Our capex of $18 million in Q2 was similar to Q1.

Balance sheet perspective: we remain in a strong position with only $144 million of net debt, so we have a fair amount of flexibility and dry powder. 47 from March 31 and is up about 10% from this time last year. On page twelve, we show our adjusted EBITDA and the variance analysis between Q1 and Q2. In looking at the service centers, the volumes were up 6% versus Q1.

As I said earlier, to set another record, this translated to a $13 million EBITDA pickup. The margins picked up by around 130 basis points, or $70 per ton, which equates to $37 million. Costs were up by $12 million due to higher delivery costs and incentive compensation that is tied to financial performance. Energy field stores were up $5 million, which is a continuation of their favorable recent trend.

Steel distributors were up $10 million as they benefited from the favorable market conditions, and in the other bucket, corporate expenses were flat to down a little bit and there was a seasonal pickup in our Thunder Bay terminal operations. On page thirteen, we have our segmented P&L information. For service centers, I'll go through this in more detail on the next page—it was a very big improvement over Q1. Energy field stores: the revenues were up, gross margin percentages were down a little bit due to product mix but were still very good.

The operating profit in Q2 2026 was the highest quarterly level in around three years. Distributors: revenues, gross margins, EBIT were all up in Q2 versus Q1. On page fourteen, we have a deeper dive into the metrics for the service center business. The top right graph is tons shipped.

Q2 was a record quarter and was the first time that we have broken through the 500,000 tons-per-quarter level. The results were up 6% over Q1, and even if we exclude the Kloeckner contributions, same-store tonnage was up 6% versus Q2 of 2025, which reflects the strong and favorable demand environment where we are operating. Price realizations per ton were up 9% versus Q1, and that translated into a nice margin pickup that is shown in the bottom right graph. Our gross margin per tonne was $529 per ton, which was a $71 per ton pickup versus Q1 and was the highest level since 2023.

This is in spite of the lower margin profile from the former Kloeckner branches. That being said, we are seeing the early stage of relative margin pickup from the Kloeckner branches, with more relative upside on the come. On page fifteen, we have illustrated our inventory turns. 2 in Q1.

Inventories are tight as business activity is strong. Page sixteen, we've illustrated our inventory dollars. Total inventory was up about $100 million since March 31, which was driven by higher cost per ton for the service centers while total tonnage was relatively flat. Page seventeen, update on our capital structure.

Our liquidity is pretty good, very strong, and gives us significant flexibility. We're investment-grade rated by both S&P and DBRS and, since last quarter, our net debt was reduced by about $26 million and our liquidity is over $500 million, which gives us plenty of dry powder when we find capital deployment opportunities that make sense. We recently completed a normal course extension of our bank lines and have pushed them from 2029 to 2030. Page eighteen has our capital allocation priorities.

Left part of the page: our investment approach seeks average returns of greater than 15% over the cycle, and that's been consistently achieved. On the facility modernization front, we have two new projects that were recently approved. S. South at a former Kloeckner branch.

They are each for around $10 million and have solid return profiles. These are both examples of opportunities that emerged either directly or indirectly from recent acquisitions. On the acquisition front, we have been active for the last few years and we continue to look at opportunities that could complement our existing businesses. On the right part of the page, we have shown our approach to returning capital to shareholders.

Here we have that flexible approach that I mentioned earlier and have more details on the next page. Page nineteen, deeper dive on returning capital to shareholders.