Greetings and welcome to the Reliance Steel & Aluminum Company’s Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brenda Miyamoto, Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning, and thanks all of you for joining our conference call to discuss our third quarter 2016 financial results. I'm joined by Gregg Mollins, our President and CEO; Karla Lewis, our Senior Executive Vice President and CFO; Jim Hoffman, our Executive Vice President and COO; and Bill Sales, our Executive Vice President of Operations. A recording of this call will be posted on the Investors section of our website at investor.rsac.com. The press release and the information on this call may contain certain forward-looking statements, which are based on a number of assumptions that are subject to change and involve known and unknown risks, uncertainties or other factors which may not be under the Company's control, which may cause the actual results, performance or achievement of the Company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include, but are not limited to those factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 under the caption Risk Factors and other reports filed with the Securities and Exchange Commission. The press release and the information on this call speak only as of today's date and the Company disclaims any duty to update the information provided therein and herein. I will now turn the call over to Gregg Mollins, President and CEO of Reliance.

Good morning, everyone, and thank you for joining us today. I continue to be very pleased with our operational performance. After six consecutive quarters of increases in our non-GAAP FIFO gross profit margin. Our margin in the third quarter declined slightly to 30.0% from 31.1% in the second quarter of 2016. However, we believe that 30% level is still outstanding and came in above our expectations. As we communicated to you during our last call, our second quarter FIFO gross profit margin of 31.1% included incremental margins achieved because of multiple mill price increases that were announced during the second quarter that allowed us to increase our selling prices before receiving the higher cost metal in our inventory. While we maintain the higher selling prices during the third quarter, our inventory cost also increased, offsetting the incremental margin gains. The pricing discipline of our managers in the field, along with diligent inventory management and our significant investments in innovative, value added processing equipment contributed to our ability to achieve a 30% non-GAAP FIFO gross profit margin in a weakening pricing and demand environment. As a result of the multiple price increases announced by the mills throughout the second quarter, mainly for carbon steel products, our third quarter average selling price was up 4.4% over the prior quarter, above the high end of our guidance range of up 1% to 3%. However, the positive metals pricing environment began to lose momentum as of third quarter progressed and prices have continued to decline thus far into the fourth quarter. The trade cases filed by the U.S. producers coupled with production capacity discipline by the same mills continue to be supportive of domestic pricing. However, overall software demand experienced in the third quarter along with normal seasonal factors heading into the fourth quarter…

Thanks Gregg, and good morning everyone. I'll begin by commenting on both pricing and demand for our carbon steel and alloy products as well as our outlook on certain key end-markets we sell those products into. Bill will then address our aluminum and stainless steel products and related end-markets. Demand for automotive remains strong at current production rates. We services this market mainly through our toll processing operations in the U.S. and Mexico. We continue to increase our volume process for the automotive industry at strong rates mainly because the increased demand for aluminum used in automotive. We began processing aluminum in the automotive industry in 2015 and since then we have continued to increase both our processing volume and capital investments in this area. In 2016, we have added equipment in our existing locations to support increase aluminum processing and will opening a new facility in Kentucky in mid 2017 to support both aluminum and steel processing in that region. As announced on last call, our new facility in Mexico commenced operation in July to support increased automotive activity in that area. We anticipate we will have this facility running at close to capacity by early 2017. As Gregg discussed, we remained committed to our focus on growth and our businesses that serve the automotive market are very well positioned from a capital perspective to continue pursuing organic investments. With our processing volumes increasing at a rapid rate, we will continue to add incremental capacity as we see best fit to drive improved profitability. Third quarter demand in heavy industry which includes railcar, truck trailer, ship building, barge manufacturing, tank manufactures and wind and transmission towers was down compared to the second quarter of 2016 levels. Heavy industry include, sales to agriculture equipment OEMs, which has been a weaker…

Thanks, Jim. Good morning, everyone. Today, I will be reviewing pricing and demand for our aluminum and stainless steel products. I will also touch upon some of the key industry trends in the markets we sell these products into. Before that I would like to congratulate our managers in the field for managing through this difficult pricing environment. Keep up the good work. I will begin with aerospace, which continues to be a strong end-market for Reliance. There have been negative reports of slowing demand in this market, but we expect that most of these changes will impact the aluminum producers more than they will impact our business. We consider build rates, lead times and backlog to be key indicator of help for the aerospace market. Looking ahead to the fourth quarter, we have been seeing some downward adjustments on build rates, primarily in the twin-aisle wide body jet business. We expect these adjustments to remain somewhat steady through the remainder of the year. Lead times have shortened significantly since January, when we saw lead times of about 11 to 17 weeks with very tight supply. Today, we’re experiencing lead times of about seven to nine weeks and supply is much more available. However, the backlog for orders of commercial planes remains very healthy. In addition in 2017, we will begin supporting the five-year, $350 million Joint Strike Fighter program. That will add to our already strong aerospace presence. Based on these trends our outlook in the aerospace market remains positive. The majority of these products that we sell to the aerospace markets are heat treated aluminum products especially plate as well as specialty stainless steel and titanium products. As stated, no lead times for heat treated aluminum plate have shortened since the second quarter, which has put some pressure on pricing. As a result, we expect to see some pressure on margins for both aerospace and general engineering aluminum plate for the remainder of the year. Common alloy aluminum pricing has remained stable and volume has increased modestly. Most of our common alloy aluminum products are sold to sheet metal fabricators that support a variety of end-markets. Pricing on common alloy sheet follows ingot and we expect some modest improvement as the Midwest spot price trends up slightly. Turning to stainless steel products, demand for our stainless steel flat products, which are primarily sold into the kitchen equipment, appliance and construction end-markets remains strong. Stainless steel pricing improved somewhat on solid demand. Pricing for stainless steel products is heavily impacted by nickel prices which have been improving modestly on a sequential quarter basis. We expect to continue to see some improvement in nickel pricing in the fourth quarter. Thank you for your time and attention today, with that I'll now turn the call over to Karla to review our third quarter financial results. Karla.

Thanks Bill and good morning everyone. Our sales in the third quarter of 2016 were $2.2 billion, down 4.4% from the third quarter of 2015 with our tons sold down 2.7% and our average selling price per ton sold down 1.8%. On a same store basis, which excludes the sales of the three companies we acquired in 2016 our tons sold were down 4.0% and our average selling price was down 2.3% year-over-year. Compared to the second quarter of 2016, our sales were down $18.7 million or 0.8% with the 4.9% decline in our tons sold mostly offset by 4.4% increase in our average selling price per ton sold. Although, metals pricing began to decline in the third quarter of 2016 our average selling price was higher because of the price increases that occurred in the second quarter and held through most of the third quarter. Our non-GAAP FIFO gross profit margin was 30.0% in the third quarter of 2016 compared to 31.1% in the second quarter of 2016 and 26.5% in the third quarter of 2015. Since the fourth quarter of 2014, we increased our FIFO gross profit margins in each successive quarter through the second quarter of 2016. The sequential decrease of 1.1% in our non-GAAP FIFO gross profit margin in the third quarter was expected. In the second quarter of 2016, we were able to expand our gross profit margin as multiple mills price increases were announced, allowing us to push through the higher price to our customers and advance to receiving the higher cost metal in our inventory. During the third quarter of 2016 as we received the higher cost metal in our inventory prices leveled off and then began to decline somewhat, eliminating the margin expansion achieved in the prior quarter. With that said we…

[Operator Instructions] Our first question comes from the line of Jorge Beristain with Deutsche Bank please proceed with your question.

Hey guys well thank you for taking on head on I guess the issue about the aerospace feedstock but I would like to dive a little bit more deeply into that and could you just clarify why you believe the impacts will be harder on the manufacturers than the service center that’s my first question?

Yes a lot of the business particularly on the larger planes is mill direct. Things like wing skins, future light skins, wing plate so we will see a bigger impact at the mill level versus our model where we are supplying cut to size just in time. Some markets over a particularly in Asia it's more of a full plate market and the mills - its more mill direct business.

Okay, that makes sense. And if you could just talk about if you are seeing an inflection on the horizon in steel prices perhaps, I just hopped of a call with steel dynamics they seem to be hopeful that things were kind of bottoming and just seeing if you are seeing any kind of mounting evidence that buyers maybe starting to anticipate maybe a fourth quarter infection coming.

As far as we can see with scrap potentially going up has gone down a little bit. And there has been a reflection of that on price discounting on the carbon steel side with the exception of the $30 ton increase on plate that Nucor announced just recently which remains to be seen if that been a hold or not we hope it does but it's still not out there. As far as pricing is concerned, we are just going to have to wait and see, it appears that imports are not as strong as they were last year. However, they are still in the marketplace. So with demand going down last quarter compared to the second quarter 4.9% for us in tons, and we are anticipating 5% to 7% down in the fourth quarter. Demand is softer than we would like it to be, softer than we thought it would be. Pricing generally follows demand level so we would love to see a price increase in particular on flat rolled products. We think it would be appropriate to kind of stop the bleeding if you will, but we are not the mill, so we are just hopeful that their discipline will work out over the long haul. But none the less we can control what we can control and the bottom line is Reliance is doing just fine and will continue to do so, but there is thing that are out of our control and demand is one of them and pricing from the mill level is the other one. So we will just wait and see and we will do exactly what we have been doing in the past. We can control our inventories, we can turn this best in possibly gain. We are going to manage those gross profit margins as best we possibly we can, I think our people on the field have done a marvelous job in doing that. So we are just going to keep our business model in place and continue to do the best job we possibly can in talk and tackling and I think we have proven that through many years.

Okay, thank you very much.

Our next question comes from the line of Aldo Mazzaferro with Macquarie. Please proceed with your question.

Hi good morning. I was wondering on the volume question, whether you can say whether it be the decline you are seeing are resulting from anything like higher prices or people shifting manufacturing offshore in response to the fact that U.S. pricing is so much higher than the little bit large. Can you comment on that? And whether you are seeing any kind of regional pattern to where the weakness seems to be showing up in the fourth quarter?

Aldo, this is Gregg, how are you doing?

Great, great how are you, Gregg?

Good. Listen we are not seeing any manufacturing okay, moving overseas, none of that would impact our fourth quarter. We are just seeing some uncertainty in the market place with our customer base. They have seen declining prices, they don’t know if it has hit bottom or not, so they are buying for need only, which kind of does well for us, because we can deliver next day on just about everything. So I think our management team believes that there is just uncertainty, it's economic uncertainty, it's political uncertainty, people are just buying absolutely what they need and no more. But we also believe that the inventory levels are there at customer base, okay as well as our peers are in pretty darn good shape. So 4.6 time turns for us, it's hasn’t hit our goal but it's one tenth, 1% below of goal. So I would not model in that there is any material change with respect to manufacturing going offshore. In don’t believe that’s taking place, I haven't heard anything from the field or from our VPs about that. So it's just as bad as that word is uncertainty that really is the word.

And Aldo, this is Jim. And on the positive side the energy market has been [indiscernible] ever, but it’s only been a couple years. Here actually we are seeing some positive signs, their quotes coming in, getting orders that haven't been there for a while, positive talk for 2017, dollars that will be spent in incompletion of rigs and [indiscernible] about that.

All right. Okay thanks. I mean then often I’ll stay on for maybe another one later. Thanks.

Thanks.

[Operator Instruction] Our next question comes from line of Phil Gibbs with KeyBanc. Please proceed with your question.

Hey good morning. Gregg I have a question just on the daily demand momentum through the third quarter and then what you are seeing here early in fourth quarter. How would you characterize that intra quarter time last quarter and then what you are seeing in October?

Well, Phil it was softer in that third quarter than frankly any of the spot. We recognized the fact the July 4 holidays and all that but we thought we would see some recovery, normally we do in August and frankly that did not happen. September normally recovers a little bit more on average daily sales basis than August does that didn’t materialize. So we guided I think 1% to 3% down in tons sold, compared to second quarter and ended up close to 5%, that was disappointing, we have not so far seen a recovery which is why our guide $0.65 to $0.75 may be somewhat disappointing to some people. But it’s realistic as far as we’re concerned and given the fact that we’re projecting about a 7% decline in our tons sold in the fourth quarter compared to the third quarter, which was down 9% compared to the second quarter. So one thing about Reliance that you will always know, okay is we tell it like it is and we don’t shoot or quote anything.

Yes and we read a lot of the headlines this morning, I spoke about there about the disappointing Q4, which on certainly and EPS numbers are but, I think to Gregg’s point being down 5% to 7%, fourth quarter historically down 5% to 7% or even 5% to 10% in volume. Last year in 2015 on quarter to quarter tons were down 7% compared to the third quarter and we are not on much in third quarter but, so to us the demand trend being the down it is, is not really ordinary. We wish it was stronger, our average selling price Q4 last year to Q3 was down 4.5%, and we are guiding downwards of 3% last year. And we’ve tried I think over the year and I think so you get it, but we really tried to make people understand, how important the shipping day is in a service center business. And we have less shipping days in the fourth quarter that even if demand stays relatively steady we’re going to shift fewer tons, because our customers are closed. And so we expect to still operate very strong in the fourth quarter, still hitting our gross profit margin, turning our inventory, doing all the things that we do well. But just given the market trends that are out there our earnings are going to be down a bit and our fourth quarter earnings per share always fall off significantly and for last year from the third quarter to fourth quarter and this year although seeing as disappointing is really not that much different then prior year trends.

I appreciate that and Karla, I may have missed it but did you give any color on what you anticipate the fourth quarter, gross profit margins are going to do, is it imply that they are going to be down a little bit with pricing?

Yes, it’s our expectation and we talked a little bit in the second quarter when we hit the 31.1% gross profit margin that there was some impact in there from the rising prices that we didn’t think would be sustainable. We saw kind of our first quarter gross profit margins levels that were 29.4% or something that could be sustainable in the current environment. The environment has gotten a little worse, but we did come in above that in Q3. And so I think from Q4 just given the market fundamentals we expect there may be a little lessening of the gross profit margins in the fourth quarter from the third quarter but not too significantly.

Okay and then I just have one operational question and I'll jump off I appreciate this. Jim, the alloy shipments were up in the third quarter versus the second quarter that’s something at we were expecting, was that based on the some of the comments that you are making on the energy side in terms of finally starting to see a little bit of pull through in oil patch?

Those are project with couple of really big orders up in Canada that we decide to get involved with it to help with our [indiscernible], so nothing concrete, I wish I can tell you yes but nothing.

And that’s kind of the normal seasonality in the Canadian markets.

The ground has to freeze up there [indiscernible].

All right. Thanks so much. Have a great day.

[Operator Instructions] our next question comes from line of Timna Tanners with Bank of America Merrill Lynch. Please proceed with your question.

Yes, hey good morning guys.

Good morning.

So clearly fourth quarter we do - it seems like often forget the sequential of the clients are consistent as you point out, but I think it's still the third quarter that surprised us. Sorry for hopping on it again, but I was wondering if you wouldn’t mind going into a little bit more color on what you are seeing in terms of your auto customary reminding that’s how much exposure you have there. I know it's relatively small. And also we are seeing some slowness there, is that something you are hearing. And then on your aerospace forecast and the way you are thinking about that market are you factoring in down [indiscernible] build rates?

Well to addresses the automotive Timna, we are doing very well in automotive. We have invested more this year, we are actually bought on another line I think in what the end of the second quarter. So we have not seen any slowdown except for the fact that July there is some maintenance shutdowns at some of the auto makers but that’s normal. So we are doing well in auto and we foresee that to continue, I mean anything in the $17 million build rate is extremely strong. So we are not complaining about our investments or the profitability of the companies that we have that are servicing the automotive business.

We also bought - our new plant in Mexico came online in July and doing quite well.

Yes that’s a good point Jim, I forgot about that. We opened up a facility and Monterrey, Mexico servicing the automotive industry and that plant opened up July 1. We moved some business that we were doing about 80 miles way in Ramos down to that plant. We expect that plant to be doing very well sometime in the first half of 2017.

And remember even in auto units build rate were to level off, we have been and through our investments and our position to process aluminum we have been picking up a lot of new business additional following business because we can process steel [indiscernible].

Okay that’s fair. All right and then I wanted to ask a question I think I have asked before, but it’s still kind of hot topic I think with the prevalence of a lot of the mini mills continue to invest in fabricating and making a focus on fabricating a lot more of their own metal. Are you seeing them infringed on any of your potential acquisitions or potential - are they starting compete a little bit more, are there still plenty of options for you to enter into more fabricating options as you discussed in further M&A opportunities?

No, they haven't infringed in our space, really I mean Nucor, just recently bought tubing mill, Independence. And that’s probably a good thing for the industry. Hopefully it's a good thing for Nucor, obviously we wish them well. But as far as then getting into the service center industry any of the mills, we haven't seen it, we don’t anticipate to see it, it's not getting in the way of our M&A outlook. So as far as we are concerned it's a non-event.

Okay. Great, thank you.

Our next question is a follow up question from Aldo Mazzaferro with Macquarie. Please proceed with your questions.

I just had a quick question on the balance sheet, the credit line and the term loan that you put in place at 30 September, I think that’s not on the balance sheet as the date of September 30th, correct?

So we did closed it out September 30, so we did the refinancing and so yes it’s good to switch, so you would see the switch from really you are not going to see anything on the balance sheet, because it's all in long-term debt. It's just little more allocated to the term loan now and so revolving credit facility which shows up on the same line in the balance sheet.

Okay, so could you briefly tell us what the strategy was behind refinancing there?

Yes, so we have the $350 million worth of senior notes that mature in November, and so we looked at the market to either refinance or to pay down that $350 million through a new bond issue or on the bank line, the bank market does have a lot of capacity now. The rates on the bank line are certainly more attractive and more accretive to our earnings per share than a new bond issue would have been. So really it was at driving higher earnings and having the availability within the bank market that allowed us to do it. We also are revolving credit line in our existing term loan, would have been maturing - it would become current at the beginning of next year in April. So we would have been out in a bank market at that anyway, so it become current. So the timing works out and again the main driver was just for more attractive pricing to drive higher earnings per share.

At this time are you are expecting any sizable acquisition transaction to happen in the industry over the next 12 months [indiscernible] something that would move the needle?

I think the acquisition pipeline continue to be pretty active than what we are seeing are a lot smaller acquisitions, some that make sense that are attractive to us, a lot that are a little outside of real house that we are not that interested in or they don’t meet the financial criteria that we look for. So we are still looking at a lot of transaction, we haven't been seeing a lot of the larger transaction, but some of the smaller transactions are extremely strong performers. It’s on a smaller base but they drive very high returns. And so those continue to be attractive to us, but to the extent we see any larger opportunities, we will look at that. There could be various reasons, market reasons that some of the larger companies might see it as a catalyst of a reason that they need to sell, but we haven’t seen or hearing anything about that currently.

All right. Thank you.

Our next question comes from line of John Tumazos with John Tumazos Very Independent Research LLC. Please proceed with your question.

Thank you very much for very informative call. In terms of the impairment charges and volume declines generally, would you characterize as many small customers and end-markets being a little bit weak collectively or that there is more specific issues like energy in Texas being weak or Boeing squeezing the aerospace supply chain or something that’s more specific to a region or end-market in particular?

It would be more associated with the oil and gas in the Southern region of the country. So you know Texas squeezes the impairment charge. So companies and we have several companies that were basically closing, their main focus has been the oil and natural gas and it’s just dried up tremendously for them and has been for a while and we don’t see that turning around with these particular companies anytime soon. So some of that business were actually going to be transfer to other energy related business that we have, basically in the Huston or Louisiana area. So we’re not going to lose the entire amount of business, we’re just going to reduce our exposure to that, cut our expenses back as best we possibly can. But everything John, related to that write down and all that is energy related.

And they are all small locations. Like Gregg said, they are kind of getting - we can still support this market and so I think that the impairment is not what is driving our guide of demanding down five, six, seven in the fourth quarter. That’s more normal seasonality and just in general as Gregg said demand being weaker because of the uncertainty out there, but that’s really pretty much across all markets, it’s not specific to any.

If I could follow-up by asking a question on sheets and I’m just looking at Nucor’s financials, because they came out this morning too. In the September quarter versus the March quarter six months earlier Nucor’s prices were $195 higher for sheet that they were $5 lower for large structurals and only $28 higher for fabricated steel and it would appear as though they made more money in sheet and plate and made less money in big beams fabricated products. Are you seeing that certain sheets are more profitable and other end-markets are weaker construction and whatnot?

No, as far as we are concerned there was a drop on structurals of 60 bucks a ton last month. So that was the correction that probably need to be made because there was a lot of discounting being had from suppliers to customers like ourselves that were below the book prices. So the book prices were in jeopardy, so I think there was $60 a ton drop okay it was appropriate. As far as profitability is concerned at Reliance, basically all of our products we have been driving gross profit margins like unbelievable in particularly over the last couple of years. So our margins basically on all the products that we have are a little bit better than they were a year ago and two years ago. So there hasn’t been any major change at least in our business other than the fact that we put a lot more emphasis on processing and providing our customers with the more finished product and charging them for it. So I hope that answers your question.

Thank you very much.

Thank you.

Mr. Mollins, it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thank you very much. Thanks again for your support and for participating in today's call. We would like to remind everyone that in mid November we will be in New York City presenting at Barclays Industrial Distribution Forum. And we will be there again in early December participating in the Collin & Company Energy and Natural Resources Conference. We hope to see many of you there and we hope you have a great day. Thanks for joining us.

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