Good morning, ladies and gentlemen, and welcome to the Reliance Steel & Aluminum Co. 2013 First Quarter Conference Call and Webcast. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Brenda Miyamoto, Investor Relations. Ma'am, the floor is yours.

Good morning, and thanks to all of you for joining our conference call to discuss our first quarter financial results. I'm joined by David Hannah, our Chairman and CEO; Gregg Mollins, our President and COO; and Karla Lewis, our Executive Vice President and CFO. After the completion of this call, a printed transcript, including Regulation G reconciliations, will be posted on our website at www.rsac.com in the Investor Information section. Before we begin, please remember that our prepared remarks and responses to questions may contain forward-looking statements relating to future financial results. Our actual results may differ materially as a result of factors over which Reliance Steel & Aluminum Co. has no control. These risk factors and additional information are included in our annual report on Form 10-K for the year ended December 31, 2012, and other reports on file with the Securities and Exchange Commission. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained. Reliance undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. I will now turn the call over to David Hannah, Chairman and CEO of Reliance.

Good morning, everyone, and thank you for joining us today. Our first quarter results reflected some seasonal improvement in demand relative to the fourth quarter of 2012, although pricing weakened during that period, which is not typical. Compared to the first quarter of 2012, however, demand was weaker due to increased economic uncertainty, resulting in a year-over-year decrease of 6.9% in our same-store tons sold, coupled with a 7.7% reduction in our same-store average price per ton sold. That said, we continue to be pleased with the strong operational execution by our managers in the field, as demonstrated by our solid year-over-year increase in gross profit margins during an environment of lower demand and weaker pricing. First quarter net income was $83.7 million or $1.09 per diluted share. Earnings per share are up 3% from the previous quarter but down 29% from the first quarter last year. Sales for the first quarter were $2.03 billion, up 7.2% from the prior quarter due to normal seasonal trends. Our sales were down 11.5% from the first quarter of last year, reflecting continued economic uncertainty, which has put pressure on pricing and negatively impacted volumes during the quarter, coupled with one less shipping day and an early Easter holiday impacting March. Our average price per ton sold in the first quarter of $1,832 was marginally lower on a sequential quarter basis but was 6.5% lower year-over-year, reflecting recent trends in metal pricing. Pricing is down across all of our product groups from the 2012 first quarter, with carbon and stainless steel products down about 10% each. Our LIFO credit in the 2013 first quarter helped to boost our margins, but more importantly, our local managers were able to increase FIFO gross profit margins despite this difficult pricing environment. We sold 1.1 million tons…

Thank you, Dave, and good morning. As Dave pointed out, we were pleased with our results in the first quarter. Demand on an average daily sales basis softened as the quarter progressed, which is not typical by historical standards. Much the same as the actions we put in place in the fourth quarter, with the decline in volume, we doubled our efforts on managing our gross profit margins. On a FIFO basis, gross profit margins were similar to the fourth quarter at 25.9% compared to 25.8%. Our sales people in the field did a great job in maintaining margins in light of lackluster demand and pricing volatility. We're very proud of their performance. Inventory turn for the quarter was 4.1x in dollars and 4.5x in tons. The decline in volume in the quarter had a negative impact on inventory turns. In spite of softness in demand, we still feel pretty good about most all of the major industries that we service and their outlook going forward. Commercial aerospace build rates continue to rise, and our companies doing business in this space are doing very well. Oil and natural gas continue to be one of our strongest markets and, here again, our companies doing business in this industry are also doing quite well. Heavy industries such as rail cars, barge and tank manufacturers and transmission towers are strong. Agricultural equipment makers, coming off a very strong 2012, are still doing well. Automotive, supported by our toll processing businesses in the U.S. and Mexico, are doing extremely well. And the future looks bright. We are expanding 2 of our plants to keep up with demand as well as adding additional processing equipment. We are very positive about our toll processing operations supporting the automotive and appliance markets. Nonresidential construction is showing signs…

Thanks, Gregg, and good morning, everyone. Our 2013 first quarter same-store sales, which exclude the sales of our 2012 and 2013 acquisitions, were down 13.6% versus the 2012 first quarter, with a 6.9% decrease in tons sold and a 7.7% decrease in our average selling price. Same-store sales compared to last quarter were up 7.4%, with a 9.1% increase in tons sold and a 1.3% decrease in our average selling price. The sequential increase in demand was not as strong as we had anticipated, and most of the announced mill price increases did not hold, resulting in weaker-than-expected pricing as well. Our gross profit margin was 26.1% compared to 25.3% in the first quarter of last year and 27.8% in the 2012 fourth quarter. Our LIFO adjustment for the quarter was a credit or income of $5 million or $0.04 per share compared to a charge or expense of $7.5 million or $0.06 per share in the first quarter of last year and income of $37.1 million or $0.30 per share in the 2012 fourth quarter. Our LIFO adjustment is included in cost of sales and, in effect, reflects cost of sales at current replacement costs. Given the weak pricing environment in the 2013 first quarter and expectations that this will continue through 2013, we currently estimate our annual LIFO adjustment to be a credit or income of $20 million, excluding any impact from the Metals USA acquisition. As percentage of sales, our SG&A expenses for the first quarter were 17.7% compared to 15.6% for the first quarter last year and 18.3% in the 2012 fourth quarter. The lower metal prices in 2013 compared to 2012 significantly impacted our SG&A expenses as a percent of sales. On a same-store basis, our 2013 first quarter expenses decreased $11.2 million or about…

[Operator Instructions] Our first question today is coming from Sal Tharani.

Just wanted to get some more color after the MUSA acquisition how to look at your margins, inventory turns and if -- and what is the inventory position at Metals USA? Are you satisfied with it or do you think there is some opportunity to reduce it?

As far as the inventory turn is concerned at Metals USA, they're roughly in the 3.5 turn range. We think we could -- there will be improvement there over time. As you know, Sal, the inventory turns just can't click on in a heartbeat, it takes a little bit of time. We expect -- we have a goal of 5 turns at Metals USA, but we expect that, that will take somewhere between 1.5 to 2 years in order to get to that point. But right now, it will have a drag on our inventory turn, their being 3.5, ours being 4.1 on a dollar value.

Yes. And their gross profit margin has kind of been fairly steady around 22.5%, 23% gross profit margin. And we do think, again, over time that there is room to improve that, both through the way that they service their customers and also with some of our buying power that we have at Reliance. Some of that could come a little faster but we have not quantified what we think that improvement in gross profit margin will be.

Yes. We have a unique [ph] goal right now, Sal, at 25% that we've given to management. And with the caveat that we expected that will over time go up to where we are, which is, on a FIFO basis, roughly 26% to 27%.

And just so you know, Sal, the dollar value, the change in the inventory at today's business level, at today's inventory level, that 1.5 turn improvement represents a bit over $100 million.

Okay. And one more question. How does the pipeline look post MUSA? Do you still have the capability of doing some tuck-in small acquisitions? Obviously, you don't want to wait for the big one. But are you still active or you have just slowed down for a while and then will wait a couple of quarters after you pay down some debt?

Sal, we're still active. There isn't a lot of opportunity out there at the moment, as you probably know. There are a couple of smaller, as you mentioned, tuck-in type deals that could be possible over time. The big ones, you also know, there aren't a lot of big ones out there, and we would like to pay down some debt before we tackle anything big. But if something comes up, I think we're in a fine position from a balance sheet perspective to go ahead and really get done any deal that we believe is a great opportunity for the company long-term.

Yes. And we would certainly consider the right mix of how to finance a large transaction.

Right.

Our next question today is coming from Michelle Applebaum.

I was -- Dave, in your prepared remarks, you said that the transaction will be accretive before expenses associated with the deal. Does that mean it won't be accretive after the expenses associated with the deal?

Michelle, we do believe that it will be. But we're just -- because we don't have everything finalized yet, we were giving ourselves a little room there. But based upon our current estimates, we should -- it should still be immediately accretive in the second quarter, even after deal-related costs.

Okay. And what about purchase accounting?

Yes. So purchase accounting, we've made preliminary estimates on that, but the actual formal valuations for their fixed assets and their intangibles have not been completed. So we did include our current estimates of what the changes in, for instance, depreciation and amortization expense would be. We've also got to get some more -- do some more work for the final tax rate for the quarter. But with our current estimates, which we feel pretty good about, it's still -- I mean those are baked into the numbers that make it still immediately accretive in the second quarter.

Okay. So you're saying even after purchase accounting, it would still be accretive?

Yes.

Yes.

Cool, okay. I didn't -- I completely did not get that. Okay, second question. Just some reflection on steel pricing. There's been a lot of noise about this whole CRU index and -- 2 issues, one is CRU discount and the other is -- there are some people who say that the index has vulnerabilities in terms of -- what's the word I want to -- there's words I don't want to use, but the index might be, as an indicator, might be vulnerable. I'm just wondering how all of this shakes out for Reliance?

You want to...

Well, I will say this, Michelle. As far as the CRU index is being discounted, extremely unhealthy for the -- our suppliers, okay? Not so much for us as it is for them, so I would expect that, that should and will go away, the discounting off the CRU. What happens with the CRU itself, I really can't comment on because I'm not sure. I think the suppliers have much more say in that than, and certainly, the service centers do. But I will tell you over the -- since I've been out in the field visiting suppliers since the first of the year, there's a tremendous amount of discontent about the discounting off the CRU.

Okay. And I want to make sure that I understand it, that everybody understands it. The CRU index is a monthly index that CRU Group puts together, that is a proxy for the spot -- average spot price, right?

Correct.

Okay. So if you start -- so it's not a list price. It's an actual supposed to be transaction price. So if you start discounting off the CRU price in month -- if the price is whatever it is in month 1, in month 2, if you discount off the CRU price, then the discounted CRU price goes into CRU's calculation for month 2 and it's an automatic then it creates -- it's kind of like a self-fulfilling prophecy of declining prices because it's not like discount off of list, it's a discount off of transaction and that discount goes into the next month's average transaction. And then there's a lot of contract arrangements, the companies, the buyers have that are based on CRU. So they bake in that discount the next month, right?

Yes.

Yes.

It seems -- it would seem to be not viable.

Yes. It's subject to being moved around, too. There's no real way, Michelle. I know that you were searching for a word before. I think the word you were searching for is could it be manipulated and...

I have friends at CRU so I just want to...

Yes. But well, I said it, you didn't say it. But yes, it could. And I think that's part of the issue with it. And as Gregg pointed out, it hurts our suppliers. And if it hurts our suppliers, it hurts us, but not as much as them. We always like it when prices are higher. So if this discounting issue goes away then all in all, that's a positive. It hasn't been a huge thing for Reliance because, as you know, we don't do a lot of large volume contractual type business. We do some and we did have some business that was based on CRU. Metals USA probably has more of their business based on CRU as a percentage of their own business.

But it's still not substantial.

Right. So while it's bigger for the producers and other people than it is for us, it's still something that if it can be resolved somehow, it would be beneficial to all of us.

It's interesting to me that we're in this period of -- I think there have been $200 a ton of price increases for sheet announced in the most recent past. And the price is down $50 a ton, where for the first time since the '90s, price increase announcements don't seem to mean price increases anymore. I mean, what is that doing to your book of business?

Well, it's not doing much because demand is what demand is, okay? But I will tell you that the -- there is -- the feeling is more on price increases, it's to stop it from going down rather than actually have that price increase go into effect, if that makes any sense.

I think it makes a lot of sense but it doesn't seem to be helping.

No.

No, it doesn't.

It is a big headwind, Michelle. Our revenue was impact -- our average price per ton sold was down 6.5% compared to 1 year ago and almost 1.5%, 1.3% compared to the fourth quarter. So if you figure -- if you think about the impact of that and based upon our numbers, even if we sold the same number of tons, our revenues would be down 6.5%. And then certainly the tons were down because demand -- all the macro issues have been weakening each month of this first quarter, which is really something that we've only seen, I've only seen, Gregg's only seen in his career one other time, and that was probably in the first quarter of 2009, which we're all trying to forget. But we've never seen daily sales in March down from daily sales in February, but we did this year. So not huge but each of the months of the quarter have been successively weaker slightly from demand, and then pricing has been weakening right along with it. So you put those 2 things together and it's not a real pretty picture. But as Gregg pointed out in his remarks, we're still pretty proud of the way that we were able to hold on and actually increase our FIFO gross profit margins during that time period when demand is weak and pricing is also weak. So I think our folks did a really, really good job concentrating on the basics and just getting done what they need to get done.

One more, then I'll go back in. There seems to be a lot of ink being used to quote people in your sector saying that the industry needs to cut production, that people need to close mills in the U.S. I see this over and over again, and people are saying, "Well, that's when pricing will stabilize." Do you think that the domestic industry needs to cut production to stabilize this market or is it something else?

I believe that absolutely they have to do that. And I know it's a very, very difficult thing for them to do but it definitely needs to be done. There is just too much capacity domestically as it applies to not only demand today but I'd say future demand as well.

You don't think that if the domestic guys cut production, we would just have that deficit made up with more imports?

Well, depending on the dollar, and global demand in Europe -- I mean, there's so many different pieces to the puzzle to line up. But I don't believe that the -- I believe if they cut production, that it would not be -- offset or offshore would be coming in as much as the cut in production would be. I think it would be positive to the entire industry if production was cut.

We'd rather see imports just take it up there because we're very loyal to our domestic producers. And why should they have to cut back in order to try to resolve some of this issue? But it's very clear, as Gregg pointed out, that based upon demand levels today, there's too much capacity. And we can't reasonably expect the import material to go away. If we -- if there was something that could be done there to better balance the supply and demand then that certainly would be preferable. But that's -- I don't know how possible that is.

And from our standpoint, Michelle, and you know this, we've gone public with this many times, over 90% to 95% of what we buy in all products is right here domestically produced. So we're not a part of the problem when it comes to bringing material in from overseas.

Our next question today is coming from David Lipschitz. David A. Lipschitz - Credit Agricole Securities (USA) Inc., Research Division: From CLSA. My question is -- 2 quick questions for you. First is on synergies. I know you'd mentioned, I think, $10 million before. Do we have any update on that or is that still a good number?

I think what we're comfortable talking about right now is about $15 million to $20 million annually. We believe, over time, we'll have more visibility on that and that, that number could increase, but it's what we're comfortable with today. Some of that -- a lot of that comes from just the reduction of public company costs, including not having another public company CEO as well as other audit and other public company costs. At the Metals USA level, certainly, our financing rates are lower but we do have incremental borrowings for the purchase price. We also factor in there some improvements in our metal buying costs. But again, really over time, we'll see how that plays out. David A. Lipschitz - Credit Agricole Securities (USA) Inc., Research Division: Okay. And my second question is, are you seeing anything else on the nonres demand side? I know you talked about coming off low levels and everybody talks about the ABI, but the ABI was down to 51 from 54, new was down from 64 to 60. I mean, if it were to fall -- and I have no clue whether it will or will not, to fall below 50, does that shake the psyche of the market? Or how does that -- how do you feel about that if the ABI were to fall below 50 in terms of your -- the end market?

It wouldn't be a good sign. I think if you looked back at what happened the last 3 years maybe, we've had ABI up over 50 for 3, 4 months, maybe 5 months in a row. And then just about this time of the year in each of those past years, it dropped down below 50 and in fact, the momentum that was being gained earlier in those years kind of went away. So it is important, I think, that it stays above 50. And now it's been, what, 8 months, Gregg, that it's been above 50, which is a really good sign. And Gregg can talk more about some of the things that we're seeing in the marketplace. It is different than the last 3 years when the ABI was higher and then it weakened. We have the residential side that's definitely improved. And not that, that means a lot to our business directly but it does have an impact on nonres over time. And then...

Because we've seen some pickups and some projects involving schools, universities, hospitals, power generation plants, refineries, so there's -- we've seen some positive inquiries as well as jobs in those areas. So it's really -- we'll see what happens with nonres. But 8 months in a row of the ABI is a positive thing. And I realize that there was a drop there that just occurred, it was announced yesterday. But we're still in positive territory. Do we watch it? Yes. Will it have a major impact, time will tell, but it is an index that I think everybody takes a look at from a nonres point of view. David A. Lipschitz - Credit Agricole Securities (USA) Inc., Research Division: And then just one more quick question. You said it's coming up off of low levels. How much higher would it have to be? I know if you look at the McGraw-Hill data, we're still like 50% of where we were during the mid-2000s or at the peak and things like that. How much higher would it have to be you think to get a major incremental benefit to your business?

I think 20%.

15% to 20%.

15% to 20%. Yes. And that ends up being a huge impact on our business. Nonres still, even with Metals USA in there, I'd say it represents about 30%, somewhere around there, of our business. And when you're talking 30% of $10 billion, that's a big number. And...

And if we see that demand improvement, we should see pricing support also, which also helps.

Right.

Our next question today is coming from Richard Garchitorena. Richard Garchitorena - Crédit Suisse AG, Research Division: Credit Suisse. So first question, in the prepared release, you mentioned that aerospace was mixed during the quarter and demand had declined slightly. Can you give us some color in terms of what you're seeing there, which products were weaker? And are you -- is that primarily just continued de-stocking or is there anything that concerns you more at this point?

We're talking primarily plate on that, 2000 and 7000 series plate for aero. And we have seen a slight decline in that. It's nothing to be overly concerned about. There has been slight overhang in inventory at the manufacturer's level so they've been working through that. And so that has impacted their purchases from us. But it has not been dramatic. We just wanted to point it out just to make sure everybody was clear on the subject matter. But we're not concerned about it in the least, and we think that probably over the course of the second quarter that, that overhang will be -- will correct itself. It's not a big deal. Richard Garchitorena - Crédit Suisse AG, Research Division: Okay. And then just touching back on the Metals USA acquisition, the synergies. I know in the past, you've mentioned that you expect to improve turns on the inventory side. If demand continues to remain fairly weak, do you still think that's achievable? What's your assumption in terms of demand through the second half of the year to achieve greater inventory turns?

Certainly would be fantastic if demand improved then that would certainly help the inventory turn improve at a faster rate. But on the other hand, with availability of product, okay, flat-rolled being 2- to 3-week lead times availability in virtually all the products that we have regardless if it's carbon steel, aluminum or stainless, lead times on all of our products other than, really, aerospace are very, very short, so we should be able to leverage that. And also there's programs that we have in place at Reliance companies that are not in place at Metals USA that we plan to bring to the table. We're meeting -- we met with them the first and second day, the 15th and 16th of this month. We have a major meeting planned back east in Philadelphia. A good portion of that around inventory turn, the other good portion of that on gross profit margins, okay? So we think we can achieve an improvement in inventory turn regardless of demand.

Our next question today is coming from Chris Olin.

I'm with Cleveland Research. A couple of quick questions. First is are you able to separate what kind of impact weather might have had on the quarter? I know March was weak and there was a lot of snow and rain during that period. Is there any kind of breakout you can do just in terms of that?

We really don't take that into consideration. I know a lot of people do, but we don't. And the reason for that is that we have orders, okay, and if they -- if we're shut down at a plant for 3 days, that doesn't mean our sales department is shut down, okay? We have ways of communicating with our customers, okay, even if they're at home. But we're going to ship the material, okay? And they've got -- they have to have the material at some point in time. So we just -- although it's problematic with our people in the field, at the end of the day, whether it's billed in the first quarter or it's billed in the second quarter, it's going to get shipped and it's going to get billed.

Yes. So we know we have a few locations that were impacted 1 day or 2 here and there, but we have not quantified it because as Gregg said, we don't -- one, we don't think it was significant, and two, we think we've made it up.

Fair enough. Could you break out what automotive represents now in terms of sales and what it would be post -- or with MUSA?

Yes. So it's really -- currently, our automotive is coming from our toll processing business, which is 2% to 2.5% of our total revenue dollars. On a tons basis, they're processing through that 2% actually more tons than we sell through the rest of the business prior to MUSA. So incrementally on the revenues, it's not a lot. But it's a very good business for us and very profitable compared to the other parts of our business and very strong and steady cash flows. With MUSA, I don't know their exact percent, so we would expect auto to go up marginally. But I would believe it would still be well below 5% of total company revenues.

Right. And their returns are roughly about 2.5x to 3x that of our normal service center business.

Our toll processing business.

Right.

Okay, that's helpful. Last question I have just kind of circling back to the nonres story. One of the things I've been watching has been this new highway bill and the TIFIA component embedded with that. You see some pretty big numbers on infrastructure spend looking out the next 2 to 3 years. And when you really break the projects out, there is bridge work in there, there is rail. And I'm just wondering if you've taken a look at what that could mean for your business or steel demand in general?

We look at that data but very honestly, that data has confused us more than once. We -- what we -- our pulse is our people in the field and quotations that are coming through. And if that data holds true and there's more bridge building that's made and all that, God bless it, we'll be right there for it.

Yes. Our local managers are really monitoring that and on top of what's there potentially for their local areas and working with their customers to try to get those quotes that Gregg was talking about. But from a kind of global national company-wide basis, we're not trying to monitor or track that.

So nobody's really talking about it at all yet in terms of the regional centers?

The regional guys are. My -- we're feeling pretty good because they're feeling pretty good about jobs, projects, quotations. Current jobs that they already have secured. So they're more positive today than they have been in some time. And we did have our annual managers meeting the first week of March. We had a discussion about nonres at the meeting. And we had some speakers from some of our larger sites that do business in huge amounts with nonres. And their presentations where -- I'm not going to say they were just fantastic but they were certainly more upbeat than they have been since about 2000 -- the fourth quarter of 2008.

And Chris, we include the -- all of this infrastructure-related opportunity that you're talking, that's all part of what we refer to as nonres. So whether it's bridge or roads or waterworks or electrical grid work or something like that, that's all kind of included in our nonres comments, which we do feel better about today than we did 30 days ago and 90 days ago and 6 months ago. So it seems to be a little, I guess, more solid or we feel a little more solid in our thinking than probably last year at this time, that's for sure.

Yes. We're hopeful that the second half of the year will be busier than the first half. And that seems to be the attitude from our people in the field.

Yes.

Our next question today is coming from Mark Parr.

KeyBanc Capital Markets. I appreciate all the color and the description of the macro condition. And it certainly seems like on the one hand, things are really not as strong as you would like. But on the other hand, life could be a whole lot worse. And the markets are not all that damaged, they just lack recovery momentum. Is that a fair way of thinking about your message?

Yes. I think business is not as bad as a lot of people think it is. It's just not -- it's just -- it doesn't have a real strong sense of direction. There's activity out there but there's really no real commitment to one direction or the other. But that being said, it seems to be pretty steady with some slight improvements in certain areas. And we like the areas that we're most exposed to. We think those like aerospace, auto related through our toll processing businesses, the energy side and a lot of the business that we have just in manufactured products, capital goods, which would include heavy industry, ag, that kind of stuff. We're positive on all of those things. We just don't expect anything to really take off. But we do expect some steady improvement as the year progresses. But you're absolutely right, Mark. It's just -- it just feels soft and kind of without any real commitment out there.

Okay. The -- I had -- along those lines, I had just a couple of questions. I know in the past that you've discussed organic growth initiatives, which go beyond M&A activity. And certainly, there's an awful lot of excitement around this recent acquisition you've made and congratulations on that. But I'm curious if you have any specific goals as far as organic growth initiatives for 2013 to try to help offset some of these, call it, less-than-upbeat end market environments?

Well, we're always after organic growth. We always have organic growth initiatives there, Mark, and we invested -- last year was our biggest investment that we've ever made in our company's history. I think it was $215 million that we did, of which probably 60%, 70% of that was involved in growth initiatives, the rest in, like, maintenance. We've got another $180 million that does not include Metals USA's CapEx spending, which is approximately in the $20 million range. So yes, we're expanding plants, we're adding processing equipment. One of the reasons why I hear a lot about stainless and everybody crying the blues about stainless demand and the suppliers are all can't get price increases through, nickel's going down, all that, we had double-digit growth last year in stainless and it was strictly in our minds and we can track it pretty closely. It was because the growth initiatives that we implemented in the Midwest, and the Northeast, that really allowed us to have double-digit growth in that product mix. And it's not over, okay? Our growth in those areas including -- and this is flat-rolled related nonferrous, are up over 3% compared to last year's first quarter. And last year's first quarter was fantastic. So yes, we're definitely on top of the internal growth. And not only is it a very profitable avenue for us, but it's also, from a morale standpoint, our people really get behind those growth initiatives and it just makes them feel good.

We would expect to grow, Mark, and I think we've probably mentioned this before, overall organic growth at 1 or 2 points better than whatever the industrial economy is growing. Pricing certainly has an impact to that. I think we said in our prepared remarks that there's some headwinds out there given the, kind of, the current economic environment. But still, we do expect to be able to grow a little bit more than whatever industrial economy is growing. And we do that because of some of the investments that Gregg was referring to.

Okay. I appreciate that color. Just one other thing, if I could ask your opinion. If the Calvert, Alabama carbon rolling mill is acquired by a domestic steel producer, do you think that has any potential to help further stabilize the pricing environment, maybe even create some upside to pricing on carbon flat-rolled?

Absolutely. That would be our dream come true if a domestic producer would acquire that asset. It would be problematic if someone came in from overseas and managed the sales and pricing methodology within that company. But if someone like U.S. Steel, for example, got their hands on that, that would be -- that would have a very positive influence.

Our next question today is coming from Tony Rizzuto.

Tony Rizzuto with Cowen Securities. I've got several questions here, I appreciate all your color on the economy, and I got another one here. Just is there any way -- could you talk a little bit about what you're seeing in terms of maybe trends so far in April? And have you continued to see, kind of, month-on-month a little bit of deterioration?

I think daily -- on a daily basis, our sales are flat from what we've seen in April compared with what they were in March.

Okay, all right, at least [indiscernible]...

I wish we could tell you something different but that's what it is, Tony.

Yes. No, no, no. I appreciate that.

We appreciate that all of you out there have some very high expectations for us and it really bites when we can't meet those. But the fact of the matter is we're -- we have an economy to deal with, and I think we're going to continue to get more than our fair share and do the best. But we can't just manufacture this business. So...

No, no, no, that's understood. Appreciate that. I have a question also about Metals USA, and I seem to recall that their defense exposure was pretty significant for that company. As a standalone, if I'm correct, maybe it was around 20%. So if I do my math correctly as a percent of your -- the newco combined with you guys, it would maybe be around 5% or a little bit maybe less than that, depending upon whatever defense exposure you guys had before, and I know you have some.

Yes.

But would you just -- could you...

Yes. The defense side is very small for them, Tony. They're a total nonferrous business. And maybe this is what you were thinking, their total nonferrous business is in that 20%, 25% range, I believe. Karla's checking on it now. But the defense piece is smaller than that.

It's quite small.

Okay. I was going to ask you generally if sequestration is -- what kind of impact? And overall, are you seeing any major impact from the standpoint of how your businesses are aligned?

From -- on the defense side, we haven't really seen anything yet, Tony. But as this sequester issue continues to go on, we would expect that something could be impacted there. But defense as a total percentage of our -- of Reliance without Metals USA, because I don't know -- I haven't calculated that number, but it's about 3%...

It's 2% to 3%.

Of our Reliance revenues. So -- and it's a higher percent of our overall aerospace business, but certainly over -- because aerospace is about 7% or 8%, 7% -- 8% to 10% in good market. But -- so it's not -- it's -- we're not -- while there could be a negative impact there, we're not expecting it to be significant. And we haven't seen it yet.

And Tony, one other. On the defense side, okay, with Metals USA, they have a particular company that focuses in on that, okay, and that which represents all of what Metals USA does with defense or at least 90% of it, and that's maintenance. It's primarily centered around maintenance. So it's not production-related and that's important to note. So we don't expect any of the downsizing with government spending to have very much of an impact whatsoever on Metals USA, given the fact that it's maintenance-related.

Okay. The only other question is maybe a comment. So with all the pressures that we're all seeing in steel these days and -- when are you guys going to shed the name from your name and maybe become more like one of those general distribution companies?

We'd do it tomorrow if you thought it [indiscernible]. We're going to be 75 years old next year but we can get rid of that part of the name if [indiscernible].

Well, Tony, we have recently adjusted our logo a bit, it deemphasized steel, so maybe that will help a little bit.

Okay. And just talking about that a little bit, I guess I wasn't fully certain about the thought process. So if the Calvert, Alabama assets were to be acquired by a U.S. player, the assumption, I guess, that you would be thinking about is that they would supply it with slabs from an existing plant in the United States. So basically taking out maybe some existing capacity and they're supplying it, rather than an overseas situation and undisciplined behavior. Would that be the thought process?

Yes. That would be, in a nutshell, the answer is yes, okay? And certainly sourcing the slab here would be wonderful. But most importantly, is to get some discipline in there, okay, where -- and I don't -- we don't have to elaborate on that. You know what I'm talking about, so there just needs to be some discipline, and right now, that's lacking.

Our next question today is coming from Aldo Mazzaferro.

It's Macquarie Securities. A lot of the questions I had have been answered or touched on at least. I just wanted to talk about your inventory management practices here, where I noticed that first quarter was up from the fourth, and that was despite your shipments being up from the fourth. So are you planning to get your purchases below your shipments for the second quarter?

Yes. I'll answer that before Gregg does. Thank you.

It seems like the market is realizing all at once that the seasonal pattern isn't here this year.

It's not here this year and with lead times as short as they are, there's really no reason for us not to improve our inventory turn. Gregg?

No, the answer -- yes, it's exactly right with David. And you know what happened with us is that we just figured that March would be typical March and have a higher average daily shipping rate than February. Typically, January and February are pretty close to one another in average daily sales then we get a kick, okay, in March. That's normal, okay? And our buyers out in the field anticipated the normal and they bought to that and it didn't materialize. In fact, it went down about 1.6%, so that kind of hurt a little bit. So...

And the same thing kind of happened, 2012, our turns were not where we'd liked them either because we had the strong January and February of 2012 and then March unexpectedly fell off a bit last year and we continued to decline on a demand basis through all of '12. So we were trying to catch up all of last year also.

Right. And in the certain products that we were in, like in the first half of last year, like SBQ product, for example, lead times were out 18 to 25 weeks and we're buying way in advance based on activity levels that we had in 2011, and so it just got out of whack. The business started to go down, lead times started to come in. But we had material on order that we had to -- we were obligated to. So there was a number of different reasons why our inventory last year did not turn to the extent that we would have liked. This comment is more directed to Dave than it is to you, Aldo.

So Gregg, where does your seasonal patterns usually peak like on a typical year? Is it May or June?

It's typically -- the best months of the year are March, April, May, June. And then it goes down and then we normally get a kick in October, right? Okay? And those are the best months we typically have.

In a normal year.

In a normal year, whatever normal happens to be.

Yes, exactly.

And last year, to Karla's point, second quarter was not better than first quarter last year, which was really very strange and unusual but that...

It's kind of like in 2005, the fourth quarter was the best quarter we ever had.

Exactly, yes.

At that time.

That's when nonres kicked in.

Exactly.

In spades, so to speak, at that end of 2005.

So that's the first time we've ever seen a fourth quarter be the best quarter.

First and only.

Yes.

One final question, David. If you had a chance to do a deal comparable in size to Metals USA in this kind of a market, would the market itself be a reason not to do it? Or do you think you would just kind of plow through it and say for the long-term this works?

No, I think if we were convinced that it was in the long-term best interest of the company, then we would get the deal done. And as Karla mentioned before, we'd look at -- I think given our balance sheet, we have a lot of alternatives on how to finance and -- but if there was an opportunity there, we would take advantage of it. This market doesn't dissuade us.

And remember, Aldo, too, we're not -- when we value a company, we're not looking at just the last 12 months. We're looking at kind of a normalized number that we come up with. So as long as we think that just market impacts affecting the company at the time, we would still expect to do our consistent valuation and hope to get the deal done for the long-term.

Our next question today is coming from Sam Dubinsky.

Sam Dubinsky from Wells Fargo. I dialed in the call a little late so I apologize if this question's already answered. But are there any headwinds outside of financing expenses regarding the MUSA deal that hit in Q2 there versus in Q3? For instance, for any reason, MUSA lost share temporarily due to merger that should resolve by the back half of the year? Or is it just the markets just weak?

No, I don't think there was any impact on their share because of the deal. I think it's just typical market conditions that we're facing.

Okay. And did you break out what the core business is expected to be down in Q2 versus MUSA's expected to be down?

We did not, Sam. The same market factors that affect us are affecting them, the other a little heavier in some of the products than us. But generally, we think we're anticipating slight demand improvement in the second quarter compared to the first quarter levels. We do still think the pricing environment will be a challenge but -- so we do expect earnings to be up moderately from normal operations in Q2 versus Q1.

Okay. And then in terms of just normal seasonality, I know you just touched on this, but is there any reason to believe that the back half of the year, for whatever reason, could be at least equal to the first half because historically, that has not been the case?

Historically, it has not been the case, and the only way that, that would really happen, Sam, would be if we had a situation where nonres really kicked in. And we're not anticipating that at this time. We think it's going to improve from where it is. But would it kick in big enough to cause the second half to be better? It's possible but we're not anticipating it right now.

Our next question today is coming from Timna Tanners.

I'm affiliated with Bank of America Merrill Lynch. Just 2 remaining questions and I appreciate all your candor. We actually marked it in our note. But I'm wondering in the MSCI data, it looked like volumes rose 14% quarter-over-quarter and your same-store shipment quarter-over-quarter was more like 9.1%. So I just wanted to get any thoughts on that.

Yes. Once again, Timna, the MSCI data is heavily weighted towards flat-rolled. And I think that if you look at the components of how that number's put together, you'll see that we're right where we should be, in line with the others. But our flat-rolled business is only, what, 11 -- carbon flat-rolled, is only 11% of our revenue dollars. So same kind of thing happened back in 2010 when the auto industry started to accelerate out of the recession in 2009. So we lagged when you just look at the overall numbers. So we're happy with where we are. We're not concerned about the disparity of the numbers on the surface because we actually look at it more by product. And flat-rolled -- the MSCI data embedded in your 14% that you had referred to, the flat-rolled component was actually up 17%. So that has a huge impact on the overall and...

And carbon flat-rolled is basically 65% of the tons being reported in the MSCI data.

Right. Yes.

So it's very heavily weighted, the overall number towards the carbon flat-rolled.

You have to be careful with the MSCI numbers because the days, if you're looking on a per day basis, there are some differences in what we count as days and what I think the MSCI uses as days. For instance, Good Friday, where we count that as a full business day. There are other instances like that Presidents' Day and some of the other holidays where we tend to be open. But the general -- in general, a lot of people are not open. So we always look through that data. And I know it's hard for you because you don't have a lot of the detail but it's dangerous to just put out some number on the surface without knowing how that number is kind of put together.

Okay, that's helpful. The other question is just in some of our channel trips, we've been hearing that, in particular, service centers have been feeling a pinch from this deteriorated market environment and some of the mills going directly to their customers. So your gross margins held up nicely in the range that we've seen historically, but are you experiencing any of that pressure? If you could give us some comments on that.

No, we're not. We haven't lost any business to mills that are going direct to our customer base. They have not -- it has not happened that I'm aware of, and believe me, I'd be the first one to get the telephone call from our guys in the field if that was taking place. So it is not. And thank you for acknowledging our gross profit margin management. We're pretty proud of that given all the uncertainty and overcapacity and pricing and all that stuff. I thought our people in the field did a remarkable job in maintaining and improving those margins.

Yes, definitely. I guess I'm just still confused as to why some of the other mills have been more positive and optimistic in terms of prices and demand than you are, and I don't know where that might be coming from. Is there something different that they're seeing? Is there some reason to believe that these prices or volumes can improve in the second half? I know you've commented on that, and it would have to take a nonres recovery, but just wondering why your comments have been more cautious? I don't think you'd be any worse off than anyone else but just wondering if you have any thoughts.

You mean with regard to the mills, Timna?

Yes. There aren't that many service centers to compare you to anymore.

Exactly, yes. So I just want to make sure that you were kind of referring to the mills. And it's just different. We -- so much of our business is dependent upon the number of business days that we have to ship material. And so much of the mills' business is dependent upon the number of days they have to produce material and then they can ship it out. So they're not as impacted in the back half of the year as much as we are except to the -- by their customers' order patterns.

Are they being more positive about the pricing, Timna?

Price and demand, yes.

Yes. The -- well, it just depends on which marketplace. If you're talking to U.S., that's a flat-rolled operation. And it's [indiscernible]...

[indiscernible] related than that. That's more positive.

I'd be very positive, if I were them, about that. Or AK, on electrical and whatnot with res. So it just depends on who you're talking to. And as for the pricing, the reason why we're not overly pessimistic about pricing, is just that what's been happening over the past 5 months, okay, we can't see -- we're hopeful that it will change and these prices, we're very supportive of price increases on all products and we give the mills our full support on that. The unfortunate thing is somebody breaks ranks, and one of the produces breaks ranks, the next thing you know, the price increase is no longer in effect. And we've seen that over and over and over and over again, okay, for the last 5 months basically since November. And we hope that, that's going to change. But unless there's better discipline in the marketplace, which doesn't appear to be because they're running at capacities of less than 80% and there's just a whole lot of production being put out there in the marketplace, in a market of lackluster demand.

And when you look at scrap pricing, if we were thinking that scrap pricing was going to go up, I think we'd feel better about price increases holding and lead times. So if you consider all of what Gregg mentioned and then consider what's scrap doing and what are lead times doing, then that's kind of how we develop our feeling on price. The good news is -- let's talk about the silver lining here. The silver lining is last year, in the first quarter, that prices were pretty high and then started really to go down throughout the rest of the year with a couple little blips and maybe 1 month or so that got a little bit of an increase. There is no room for those prices to go down this year. So we feel better that not the-- we don't expect them to go down, we don't expect them to go up a lot. But the bias is on the upside and any improvement in pricing is positive for us and positive for our suppliers. And hopefully, they see some things or expect some things that we don't see right now. But the good news is, again, is that we're really at the bottom in terms of carbon pricing anyway. And there's pretty much nowhere to go but up.

I think some of it also has to do with the nonres. I mean, you got Nucor, their Vulcraft division seems to be doing well. You get CNC, their rebar division seems to be doing extremely well. So all of those, in some way, shape and form, have an impact on us in the nonresidential construction arena.

And those are the kinds of signs that are different this time. When -- back in 2005, when -- early 2005 when nonres was still not recovered and had been down for about 4.5 years, in midyear, late in the second quarter and in the third quarter, we started hearing what Gregg's referring to now, where some of our suppliers that are in these construction-related products or have building product divisions, they started talking more positively about their order books and their outlook. And we weren't seeing it when they were talking about it. But then shortly after that by, what, October, September, October in 2005, we started to see it.

It's typically about a 4- to 6-month lag where the mills, we'll see the -- they increase in projects in nonres until it actually -- that we see it.

So hopefully, that's a good sign again this year.

Yes.

Our final question today will be coming from John Tumazos.

John Tumazos Very Independent Research. In terms of volume, both the big picture market and your company in particular, it's very hard to understand the final 4 months of last year when domestic steel shipments were bouncing around, 7.25 million, 7.5 million tons, down 1 million tons from the good months early in the year, or when their as poor as there've been, you're saying March, we saw the January number for AISI that looked good. And February was a short month, funny month. But autos are strong, appliances are strong, nonres construction dollars are going up or they would seem to be, how is the market as bad as it is? Is it specialty capital goods like Caterpillar and export machinery, electrical machinery, natural gas drilling combined with import penetration, and poor exports combined with inventory liquidation? Are you selling to a lot of little distributors that are contracting their books real badly out of fear? Is just hard to see how -- because part of the business is good.

Yes. I think, John, business isn't as bad as people think it is. And we're -- we all have to remember also that we're comparing the first quarter of 2013 to the first quarter of 2012, which was a record quarter for us. And things were pretty good then. There was some pretty -- there was momentum in pricing in all of our products in the first quarter 1 year ago, and there was -- that was helping on the demand side and there was a little more optimism in the economy at that point, too. So the first thing I'd say is that it's not as bad as maybe you're thinking, not as bad as you might expect it to be or yes, but it's not as good compared to 1 year ago, but we're still -- and we've been saying this every year, every quarter since 2009 -- we have not fully recovered. So some of the industries that we're involved in have come back better than others and nonres is the big one and it has not come back. It's lagged everything else. So we're pretty proud of the fact that we've been able to build our earnings per share last year. We didn't make it up to our record number of earnings per share that we achieved in 2008, but we're creeping up on it. And that was with 30% of our market not recovered. So it's not as bad as maybe you might think it is. It's just not as good as it was 1 year ago.

Yes. And to your question too, John, I mean, yes, at Reliance, we do focus more on kind of the smaller machine shops and customers who may adjust their buying patterns more frequently than some of the larger buyers that -- we're not selling tons directly into auto or appliance...

In a big way, yes.

Which are our stronger markets right now?

That's more mill direct.

Yes.

Ladies and gentlemen, we have no further questions in the queue at this time.

Great. Thanks again for all of your support and for participating in today's call. We'd like to remind everyone that we'll be presenting on May 8 at the Wells Fargo 2013 Industrial and Construction Conference, and also participating in the JPMorgan Metals and Mining CEO Dinner Series, also on May 8 in New York. Both of those are in New York. Hope to see some of you or many of you there. Have a great day, and thanks, again for your time.

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.