Apr 25, 2013
Executives
Brenda Miyamoto - Vice President of Corporate Initiatives David H. Hannah - Chairman and Chief Executive Officer Gregg J.
Mollins - President, Chief Operating Officer and Director Karla R. Lewis - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Assistant Secretary
Analysts
Sohail Tharani - Goldman Sachs Group Inc., Research Division Michelle Applebaum - Steel Market Intelligence Inc David A. Lipschitz - Credit Agricole Securities (USA) Inc., Research Division Richard Garchitorena - Crédit Suisse AG, Research Division Christopher David Olin - Cleveland Research Company Mark L.
Parr - KeyBanc Capital Markets Inc., Research Division Anthony B. Rizzuto - Cowen Securities LLC, Research Division Aldo J.
Mazzaferro - Macquarie Research Sam Dubinsky - Wells Fargo Securities, LLC, Research Division Timna Tanners - BofA Merrill Lynch, Research Division John Charles Tumazos - John Tumazos Very Independent Research, LLC
Operator
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.
Brenda Miyamoto
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.
David H. Hannah
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 of metal during the first quarter.
This was up 9% from the prior quarter and down 5.8% year-over-year. In general, overall demand in the quarter was softer than anticipated, particularly in the month of March, which has traditionally been the strongest month of the first quarter.
Relative demand strength was led by the auto market, primarily through our toll processing operations, which was the only end market where volume increased year-over-year. Aerospace and energy, that being oil and gas, were both down year-over-year but continued to perform well relative to other end markets and are expected to improve as the year progresses.
Manufactured goods, including agriculture and heavy equipment, followed and are expected to moderately improve throughout the remainder of the year. Nonresidential construction continues to show signs of life with a slow and steady recovery, yet demand remains well below peak levels.
We're cautiously optimistic that this important market will improve more as we move through 2013. Reliance continues to operate from a position of financial strength.
Operating cash flow for the quarter was $72.2 million compared to a negative $63.2 million in the first quarter of 2012. We plan to utilize incremental cash flow to pay down our debt.
Our strong balance sheet provides a solid foundation for our operating activities and our growth strategies, both organic and through acquisition, which we continue to aggressively pursue. We'll continue to use our capital responsibly as we evaluate growth opportunities going forward.
Subsequent to the end of the first quarter, we completed a series of financing transactions, which Karla will discuss in more detail, that enabled us to complete our previously announced acquisition of Metals USA. The addition of Metals USA to the Reliance family of companies includes 48 strategically located service centers across the U.S., complementing our customer base, product mix and geographic footprint.
Metals USA is a significant and important transaction for us with its approximately $2 billion in annual sales. Reliance now has assets exceeding $6.5 billion and annual sales of over $10 billion.
We expect this acquisition to be immediately accretive, excluding the impact of expensing our deal-related expenditures. With respect to dividend, on April 23, 2013, the Board of Directors declared a regular quarterly cash dividend of $0.30 per share of common stock.
The dividend is payable on June 21, 2013, to shareholders of record May 31, 2013. The $0.30 per share dividend rate is double the $0.15 per share paid in the 2012 second quarter.
The company has paid regular quarterly dividends for 54 consecutive years, and we're pleased that our solid financial position provides us the flexibility to execute our growth strategies while also returning capital to our shareholders through quarterly cash dividends. Turning to our outlook for the second quarter of 2013.
We expect global economic and political uncertainty to continue to provide challenges to industrial growth, and we expect only slight improvements in demand with a weak pricing environment persisting. We will, however, have 2.5 months of earnings from Metals USA contributing to our results.
We expect that the contribution of Metals USA to second quarter results will be accretive to our earnings. As a result, for the second quarter ending June 30, 2013, we currently expect earnings per diluted share to be in the range of $1.10 to $1.20, excluding deal costs related to the Metals USA acquisition.
Please note, however, there could be significant changes to certain of our assumptions because of the Metals USA transaction, such as our tax rate or purchase price allocations. As we've noted in the past, Reliance has a broad range of products, significant customer diversification and a wide geographic footprint.
These attributes have helped us achieve industry-leading operating results on a consistent basis, and we remain confident in our ability to continue this track record of success going forward. I'll now hand the call over to Gregg to comment further on our operations and market conditions.
Gregg?
Gregg J. Mollins
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 of life, mainly through industrial construction projects throughout North America.
The Architectural Billing Index has posted gains above 50 for 8 straight months, and our feeling is for improved demand in the second half of this year. As for pricing on carbon steel products, price increases on flat rolled were announced in the fourth quarter that did not stick due to lackluster demand, imports and excessive domestic capacity.
Further increases and discounting were announced in the first quarter, which resulted in prices dropping below the $600 a ton mark on a spot basis, which is not a good thing for the producers or service centers. Beams and mini-mills have been relatively flat and plate has recently had 2 $30 a ton increases.
As for aluminum, Midwest spot ingot is trading in the $0.95 to $1 a pound range in the April, May time frame down from $1.05 in January. Lead times on aerospace sheet and plate are 8 to 12 weeks, and prices have remained relatively flat.
Demand and pricing on general engineering plate is fairly stable with lead times 8 to 10 weeks. Common alloy aluminum sheet demand is still good and pricing on this product follows ingot.
Stainless steel nickel surcharges are in the $0.75 per pound range, and there was a base price increase announced for April that was not followed by a large producer and therefore did not hold. Our volume in stainless flat-rolled and bar is still quite strong.
To conclude, we are very excited about the Metals USA acquisition. They have a solid management team and they are eager to focus their efforts on improving gross profit margins, inventory turns and ultimately pretax profits.
We believe the major industries we support will continue to do well and we will make every effort to grow our business with them. We are excited about what lies ahead in 2013.
Now I'll turn the program over to Karla to review the financials. Karla?
Karla R. Lewis
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 3% from the 2012 first quarter. And our current cost structure can support significantly higher volumes and we anticipate that our SG&A expense as a percentage of sales will begin to decline when our volumes and pricing improve.
Operating income for the quarter was $130 million or 6.4% of sales compared to $184.6 million or 8.1% of sales in the first quarter last year, but lower volume and pricing contributed to the reduced operating profit. Our effective income tax rate for the first quarter was 29.5% compared to a rate of 33.2% last year, with the difference primarily attributable to settling certain tax matters during the 2013 first quarter.
We expect the full year 2013 rate closer to 33%. The lower tax rate in the 2011 first quarter added about $0.06 per share to our earnings.
However, our results also included certain deal costs related to the Metals USA transaction that reduced our earnings by about $0.03 per share. Net of these items, our 2013 first quarter earnings per diluted share were $1.06, near the low end of our guidance given the weaker-than-anticipated operating environment.
We provided cash from operations of $72.2 million for the quarter compared to using cash in operations of $63.2 million in the same period last year. We typically use cash in the first quarter to rebuild working capital from lower year-end levels.
However, given the weak business conditions in the 2013 first quarter and our focus on improving our inventory turnover rate from 2012 levels, we did not build working capital to typical levels. Our accounts receivable balance decreased $103.8 million from the first quarter last year.
And our days sales outstanding rate as of March 31 was up about 0.5 day from 1 year ago on a trailing 12-month basis. Our inventory turn rate based on dollars was 4.1x for the quarter, improved slightly from our 2012 full year turn rate of 4.0x.
We invested $26.8 million for capital expenditures during the first quarter. This included investments in new processing equipment as well as purchases of land and buildings to improve and expand our existing capabilities.
Our 2013 capital expenditure budget is $180 million, excluding any incremental increase for Metals USA. Our outstanding debt at March 31, 2013, was $1.15 billion, down from $1.21 billion at year end, and our net debt to total capital ratio was 22.4% at March 31.
During the quarter, we paid down $60 million on our revolver and had over $1 billion available on our $1.5 billion credit facility at March 31. Subsequent to quarter end, we amended and restated our existing revolving credit facility and raised $500 million in a new term loan.
The new credit agreement has a term of 5 years, expiring in April 2018 and includes an increase option for up to an additional $500 million on the revolver. We also raised an additional $500 million from the sale of 4.5% 10-year senior notes through an offering in April.
As Dave noted in his remarks, on April 12, we completed the acquisition of Metals USA. The purchase price for Metals USA was $786 million in cash for the Metals USA stock, options and restricted stock and the assumption of $454 million of debt.
This represents an enterprise value of approximately $1.24 billion. We funded the transaction and refinanced Metals USA's debt with proceeds from our new $500 million term loan and our $500 million senior notes offering, with the balance drawn on our $1.5 billion credit facility.
The credit markets remain favorable for Reliance and we are happy with the pricing and other terms under our new bank facility, term loan and senior notes. On a pro forma basis, giving effect to the acquisition of Metals USA and the associated financing, our net debt to total capital ratio would have been approximately 39% based on our outstanding borrowings as of March 31 and our pro forma liquidity was about $800 million.
We're very comfortable with our leverage and liquidity position but do plan to use our cash from operations to reduce our current debt levels as well as support our working capital needs, invest in capital expenditures and maintain our quarterly dividend. That concludes our prepared remarks.
Thank you for your attention, and at this time, I'd like to open the call up to questions. Operator?
Operator
[Operator Instructions] Our first question today is coming from Sal Tharani.
Sohail Tharani - Goldman Sachs Group Inc., Research Division
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?
Gregg J. Mollins
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.
Karla R. Lewis
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.
Gregg J. Mollins
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%.
David H. Hannah
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.
Sohail Tharani - Goldman Sachs Group Inc., Research Division
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?
David H. Hannah
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.
Karla R. Lewis
Yes. And we would certainly consider the right mix of how to finance a large transaction.
David H. Hannah
Right.
Operator
Our next question today is coming from Michelle Applebaum.
Michelle Applebaum - Steel Market Intelligence Inc
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?
Karla R. Lewis
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.
Michelle Applebaum - Steel Market Intelligence Inc
Okay. And what about purchase accounting?
Karla R. Lewis
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.
Michelle Applebaum - Steel Market Intelligence Inc
Okay. So you're saying even after purchase accounting, it would still be accretive?
Karla R. Lewis
Yes.
David H. Hannah
Yes.
Michelle Applebaum - Steel Market Intelligence Inc
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?
David H. Hannah
You want to...
Gregg J. Mollins
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.
Michelle Applebaum - Steel Market Intelligence Inc
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?
Gregg J. Mollins
Correct.
Michelle Applebaum - Steel Market Intelligence Inc
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?
Gregg J. Mollins
Yes.
David H. Hannah
Yes.
Michelle Applebaum - Steel Market Intelligence Inc
It seems -- it would seem to be not viable.
David H. Hannah
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...
Michelle Applebaum - Steel Market Intelligence Inc
I have friends at CRU so I just want to...
David H. Hannah
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.
Gregg J. Mollins
But it's still not substantial.
David H. Hannah
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.
Michelle Applebaum - Steel Market Intelligence Inc
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?
Gregg J. Mollins
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.
Michelle Applebaum - Steel Market Intelligence Inc
I think it makes a lot of sense but it doesn't seem to be helping.
David H. Hannah
No.
Gregg J. Mollins
No, it doesn't.
David H. Hannah
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.
Michelle Applebaum - Steel Market Intelligence Inc
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?
Gregg J. Mollins
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.
Michelle Applebaum - Steel Market Intelligence Inc
You don't think that if the domestic guys cut production, we would just have that deficit made up with more imports?
Gregg J. Mollins
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.
David H. Hannah
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.
Gregg J. Mollins
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.
Operator
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?
Karla R. Lewis
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?
David H. Hannah
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...
Gregg J. Mollins
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?
Gregg J. Mollins
I think 20%.
Karla R. Lewis
15% to 20%.
David H. Hannah
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...
Karla R. Lewis
And if we see that demand improvement, we should see pricing support also, which also helps.
Gregg J. Mollins
Right.
Operator
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?
Gregg J. Mollins
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?
Gregg J. Mollins
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.
Operator
Our next question today is coming from Chris Olin.
Christopher David Olin - Cleveland Research Company
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?
Gregg J. Mollins
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.
Karla R. Lewis
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.
Christopher David Olin - Cleveland Research Company
Fair enough. Could you break out what automotive represents now in terms of sales and what it would be post -- or with MUSA?
Karla R. Lewis
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.
Gregg J. Mollins
Right. And their returns are roughly about 2.5x to 3x that of our normal service center business.
Karla R. Lewis
Our toll processing business.
Gregg J. Mollins
Right.
Christopher David Olin - Cleveland Research Company
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?
Gregg J. Mollins
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.
Karla R. Lewis
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.
Christopher David Olin - Cleveland Research Company
So nobody's really talking about it at all yet in terms of the regional centers?
Gregg J. Mollins
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.
David H. Hannah
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.
Gregg J. Mollins
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.
David H. Hannah
Yes.
Operator
Our next question today is coming from Mark Parr.
Mark L. Parr - KeyBanc Capital Markets Inc., Research Division
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?
Gregg J. Mollins
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.
Mark L. Parr - KeyBanc Capital Markets Inc., Research Division
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?
Gregg J. Mollins
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.
David H. Hannah
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.
Mark L. Parr - KeyBanc Capital Markets Inc., Research Division
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?
Gregg J. Mollins
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.
Operator
Our next question today is coming from Tony Rizzuto.
Anthony B. Rizzuto - Cowen Securities LLC, Research Division
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?
David H. Hannah
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.
Anthony B. Rizzuto - Cowen Securities LLC, Research Division
Okay, all right, at least [indiscernible]...
Gregg J. Mollins
I wish we could tell you something different but that's what it is, Tony.
Anthony B. Rizzuto - Cowen Securities LLC, Research Division
Yes. No, no, no.
I appreciate that.
Gregg J. Mollins
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...
Anthony B. Rizzuto - Cowen Securities LLC, Research Division
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.
Gregg J. Mollins
Yes.
Anthony B. Rizzuto - Cowen Securities LLC, Research Division
But would you just -- could you...
David H. Hannah
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.
Gregg J. Mollins
It's quite small.
Anthony B. Rizzuto - Cowen Securities LLC, Research Division
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?
David H. Hannah
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%...
Gregg J. Mollins
It's 2% to 3%.
David H. Hannah
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.
Gregg J. Mollins
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.
Anthony B. Rizzuto - Cowen Securities LLC, Research Division
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?
Gregg J. Mollins
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].
Karla R. Lewis
Well, Tony, we have recently adjusted our logo a bit, it deemphasized steel, so maybe that will help a little bit.
Anthony B. Rizzuto - Cowen Securities LLC, Research Division
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?
Gregg J. Mollins
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.
Operator
Our next question today is coming from Aldo Mazzaferro.
Aldo J. Mazzaferro - Macquarie Research
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?
David H. Hannah
Yes. I'll answer that before Gregg does.
Thank you.
Aldo J. Mazzaferro - Macquarie Research
It seems like the market is realizing all at once that the seasonal pattern isn't here this year.
David H. Hannah
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?
Gregg J. Mollins
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...
Karla R. Lewis
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.
Gregg J. Mollins
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.
Aldo J. Mazzaferro - Macquarie Research
So Gregg, where does your seasonal patterns usually peak like on a typical year? Is it May or June?
Gregg J. Mollins
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.
Karla R. Lewis
In a normal year.
Gregg J. Mollins
In a normal year, whatever normal happens to be.
Karla R. Lewis
Yes, exactly.
David H. Hannah
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...
Gregg J. Mollins
It's kind of like in 2005, the fourth quarter was the best quarter we ever had.
David H. Hannah
Exactly, yes.
Gregg J. Mollins
At that time.
David H. Hannah
That's when nonres kicked in.
Gregg J. Mollins
Exactly.
David H. Hannah
In spades, so to speak, at that end of 2005.
Gregg J. Mollins
So that's the first time we've ever seen a fourth quarter be the best quarter.
David H. Hannah
First and only.
Gregg J. Mollins
Yes.
Aldo J. Mazzaferro - Macquarie Research
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?
David H. Hannah
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.
Karla R. Lewis
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.
Operator
Our next question today is coming from Sam Dubinsky.
Sam Dubinsky - Wells Fargo Securities, LLC, Research Division
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?
David H. Hannah
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.
Sam Dubinsky - Wells Fargo Securities, LLC, Research Division
Okay. And did you break out what the core business is expected to be down in Q2 versus MUSA's expected to be down?
Karla R. Lewis
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.
Sam Dubinsky - Wells Fargo Securities, LLC, Research Division
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?
David H. Hannah
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.
Operator
Our next question today is coming from Timna Tanners.
Timna Tanners - BofA Merrill Lynch, Research Division
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.
David H. Hannah
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...
Karla R. Lewis
And carbon flat-rolled is basically 65% of the tons being reported in the MSCI data.
David H. Hannah
Right. Yes.
Karla R. Lewis
So it's very heavily weighted, the overall number towards the carbon flat-rolled.
David H. Hannah
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.
Timna Tanners - BofA Merrill Lynch, Research Division
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.
Gregg J. Mollins
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.
Timna Tanners - BofA Merrill Lynch, Research Division
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.
David H. Hannah
You mean with regard to the mills, Timna?
Timna Tanners - BofA Merrill Lynch, Research Division
Yes. There aren't that many service centers to compare you to anymore.
David H. Hannah
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.
Gregg J. Mollins
Are they being more positive about the pricing, Timna?
Timna Tanners - BofA Merrill Lynch, Research Division
Price and demand, yes.
Gregg J. Mollins
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]...
David H. Hannah
[indiscernible] related than that. That's more positive.
Gregg J. Mollins
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.
David H. Hannah
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.
Gregg J. Mollins
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.
David H. Hannah
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.
Gregg J. Mollins
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.
David H. Hannah
So hopefully, that's a good sign again this year.
Gregg J. Mollins
Yes.
Operator
Our final question today will be coming from John Tumazos.
John Charles Tumazos - John Tumazos Very Independent Research, LLC
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.
David H. Hannah
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.
Karla R. Lewis
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...
David H. Hannah
In a big way, yes.
Karla R. Lewis
Which are our stronger markets right now?
Gregg J. Mollins
That's more mill direct.
David H. Hannah
Yes.
Operator
Ladies and gentlemen, we have no further questions in the queue at this time.
David H. Hannah
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.
Operator
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.