|RELIANCE STEEL & ALUMINUM CO filed this Form 10-Q on 05/02/2019|
Interest expense was higher in the first quarter of 2019 compared to the first quarter of 2018 mainly due to higher interest rates on borrowings on our revolving credit facility.
Income Tax Rate
Our effective income tax rates for the first quarters of 2019 and 2018 were 25.0% and 24.0%, respectively. The differences between our effective income tax rates and the U.S. federal statutory rate of 21% were mainly due to state income taxes offset by the effects of company-owned life insurance policies.
The increases in our net income and net income margin in the first quarter of 2019 compared to the first quarter of 2018 were primarily the result of higher operating income and operating income margin partially offset by a higher effective income tax rate.
Liquidity and Capital Resources
Net cash generated by operating activities was $117.2 million in the first quarter of 2019 compared to $13.3 million in the first quarter of 2018. Our increased operating cash flow was mainly due to our higher profitability and decreased working capital investment (primarily accounts receivable and inventory less accounts payable) as metals pricing was more stable during the first quarter of 2019 compared to the first quarter of 2018 when prices increased throughout the quarter. To manage our working capital, we focus on our days sales outstanding and on our inventory turnover rate, as receivables and inventory are the two most significant elements of our working capital. At March 31, 2019 and 2018, our days sales outstanding rate was 42.1 days and 42.2 days, respectively. Our inventory turn rate (based on tons) during the first quarter of 2019 was 4.2 times (or 2.9 months on hand), compared to 4.5 times (or 2.7 months on hand) in the first quarter of 2018.
Net cash used in investing activities of $48.7 million in the first quarter of 2019 decreased from $77.3 million in the first quarter of 2018 mainly due to $39.6 million used to fund an acquisition in the first quarter of 2018. Capital expenditures were $53.0 million in the first quarter of 2019 compared to $41.8 million in the first quarter of 2018. The majority of our 2019 and 2018 capital expenditures related to growth initiatives.