Ryerson Reports Third Quarter 2019 Results

CHICAGO, Oct. 29, 2019 /PRNewswire/ -- Ryerson Holding Corporation (NYSE: RYI), a leading value-added processor and distributor of industrial metals, today reported results for the third quarter ended September 30, 2019.

Management Commentary

Eddie Lehner, President and Chief Executive Officer of Ryerson said, "First and always I want to thank our customers for your business, which we never take for granted. In the third quarter, we continued executing upon our strategy of creating consistently exceptional customer experiences across our intelligently networked industrial metal service centers. The quarter was characterized by protracted and deepening industrial metals deflation, particularly across the carbon steel spectrum, as well as recessed manufacturing demand consistent with reported macro indicators such as the 47.8 Purchasing Managers Index printed in September. Although the road of getting average costs in inventory below replacement cost has been a long and winding one, after five quarters of steep carbon price deflation, we believe the industry is transitioning to improved pricing fundamentals as well as better adjusting inventory levels to current and anticipated demand. Third quarter tons sold and average selling prices were in-line with expectations outlined in our third quarter revenue guidance. Through the third quarter, Ryerson gained same-store market share, generated same-store expense leverage, and increased counter-cyclical cash flow to reduce outstanding debt. The turnaround underway at Central Steel & Wire, or CS&W, is progressing well, albeit obscured by an 85 percent carbon steel product mix, which has amplified the persistent and acute gross margin compression throughout the year thus far." 

Mr. Lehner continued, "In the long deflationary price environment that has unfolded since July of 2018, most notably in carbon steel products, the inventory holding losses and customer hedge mark-to-market losses are subsiding. We expect average inventory costs per ton to align closer to current lower replacement costs and therefore expect gross margin, excluding LIFO to expand in the fourth quarter as we move through an industrial metals cyclical trough.  Additionally, as we move beyond this transient period of carbon steel price deflation and recessed industry conditions, we expect a positive inflection in price and demand fundamentals and for our investments in equipment, digitalization, and CS&W to create increased operating leverage across our service center network."

Ryerson achieved revenues of $1.10 billion, a decrease of 11.6 percent compared to $1.25 billion in the third quarter of 2018, with average selling prices down 8.1 percent and with tons shipped down 3.9 percent. Ryerson continued to gain market share on a same-store basis during the third quarter of 2019 compared to the third quarter of 2018, as North American industry volume contracted 6.6 percent according to the MSCI while Ryerson North American tons shipped, excluding CS&W, increased by 0.5 percent.

Gross margin was 18.5 percent for the third quarter of 2019, compared to 17.6 percent in the second quarter of 2019, and 16.7 percent for the same quarter last year. Included in cost of materials sold during the third quarter of 2019 was LIFO income of $29.6 million, compared to LIFO income of $12.9 million in the second quarter of 2019, and LIFO expense of $32.1 million in the third quarter of 2018. Gross margin, excluding LIFO was 15.8 percent in the third quarter of 2019 compared to 16.5 percent in the second quarter of 2019, and 19.2 percent in the third quarter of 2018. Margin compression during the third quarter was partially driven by mark-to-market hedging losses in addition to inventory costs falling at a slower rate than average selling prices, most notably at CS&W, which continues to work down days of supply metrics to more closely align with Ryerson's same-store levels. A reconciliation of gross margin, excluding LIFO to gross margin is included below in this news release.  

Ryerson decreased warehousing, delivery, selling, general, and administrative expense by $8.4 million, or 4.8 percent in the third quarter of 2019 compared to the year-ago period. However, warehousing, delivery, selling, general, and administrative expenses as a percentage of sales increased to 15.0 percent in the third quarter of 2019 compared to 13.9 percent in the third quarter of 2018 as revenue decline outpaced expense reduction. On a same-store basis, warehousing, delivery, selling, general, and administrative expenses decreased by $3.7 million, or 2.6 percent, but increased as a percentage of sales from 13.1 percent to 14.1 percent.

Net income attributable to Ryerson Holding Corporation was $10.1 million, or $0.27 per diluted share, in the third quarter of 2019 compared to $77.5 million, or $2.06 per diluted share, in the prior year period. Adjusted net income attributable to Ryerson Holding Corporation, excluding the gain on bargain purchase related to the CS&W acquisition, gain on insurance settlement, restructuring and other charges, and income taxes was $9.2 million for the third quarter of 2019, or $0.24 per diluted share compared to $6.3 million or $0.17 per diluted share in the prior year period. Ryerson achieved Adjusted EBITDA, excluding LIFO of $29.5 million in the third quarter of 2019, a decrease of $21.2 million compared to the second quarter of 2019 or $59.2 million less than the third quarter of 2018. Results were below the guidance articulated during our second quarter 2019 earnings as carbon steel price increases expected at the time of guidance never materialized and carbon steel prices fell to their lowest levels since the third quarter of 2016.  In the third quarter of 2019, we estimate losses of $18 million comprised of inventory holding losses at CS&W of $7 million, Ryerson customer hedge mark-to-market losses of $5 million and same-store inventory holding losses of $6 million. A reconciliation of Adjusted EBITDA, excluding LIFO to net income attributable to Ryerson Holding Corporation is included below in this news release.

Nine Months Ended September 30, 2019, Financial Results

Revenues in the first nine months of 2019 were $3.54 billion, an increase of 9.0 percent compared to the first nine months of 2018, as tons shipped increased 8.8 percent on relatively flat average selling prices. On a same-store basis, revenues were $3.08 billion in the first nine months of 2019, with average selling prices up 2.0 percent, partially offset by a decrease in tons shipped of 1.6 percent. Warehousing, delivery, selling, general, and administrative expenses increased by $50.5 million, or 11.4 percent, and increased as a percentage of sales from 13.6 percent to 14.0 percent in the first nine months of 2019 compared to the same period last year. Notably, on a same-store basis, warehousing, delivery, selling, general, and administrative expenses decreased by $6.7 million, or 1.6 percent, in the same periods and decreased as a percentage of sales from 13.3 percent to 13.1 percent.

Net income attributable to Ryerson Holding Corporation was $56.0 million, or $1.48 per diluted share, in the first nine months of 2019 compared to $105.4 million, or $2.80 per diluted share, for the same period of 2018. Adjusted net income attributable to Ryerson Holding Corporation, excluding the gain on bargain purchase related to the CS&W acquisition, gain on insurance settlement, restructuring and other charges, loss on retirement of debt, and income taxes was $56.3 million for the first nine months of 2019, or $1.49 per diluted share compared to $34.2 million, or $0.91 per diluted share in the first nine months of 2018. Adjusted EBITDA, excluding LIFO was $143.2 million in the first nine months of 2019 compared to $257.5 million in the first nine months of 2018. Reconciliations of Adjusted EBITDA, excluding LIFO and adjusted net income to net income attributable to Ryerson Holding Corporation are included below in this news release.

Central Steel & Wire Results

Central Steel & Wire continues to progress toward post-acquisition goals, exceeding customer account retention expectations, achieving approximately $32 million in annualized expense take-outs, and realizing $12 million in cumulative proceeds from real estate sales for operations that were consolidated into existing facilities. CS&W was acquired with significant working capital of nearly 140 days of inventory supply and management continues to target levels more in-line with Ryerson's same-store service center metrics. However, days of supply increased slightly at the end of the third quarter to 92 days compared to 91 days for the prior quarter, due in part to shipment declines reflective of industry demand weakness. At the same time, the continued deflationary cycle, including CRU hot-rolled coil price deflation, resulted in inventory holding losses. As a result, CS&W generated Adjusted EBITDA, excluding LIFO loss of $4.5 million in the third quarter, compared to our expectation of Adjusted EBITDA, excluding LIFO income of $3.0 million for the period and compared to a loss of $2.0 million in the second quarter of 2019. As high cost carbon inventories cycle out, margins reset, and cost take-outs renovate the expense structure of CS&W, Ryerson continues to view the company with strong commercial goodwill that is in the early innings of its turn-around potential. Management also continues to believe in its long-term, mid-cycle target for CS&W of $600 million in revenue and $50 million in Adjusted EBITDA, excluding LIFO on an annual basis.

Liquidity & Debt Management

At the end of the third quarter of 2019, Ryerson had 76.4 days of supply in inventory, or 74.2 days on a same-store basis, up from 73.6 days at the end of the third quarter of 2018. Our same-store inventory levels were within our target range of 70 to 75 days.

Cash generated by operating activities was $82.5 million for the third quarter of 2019 compared to cash used in operating activities of $44.5 million in the year-ago period, primarily driven by lower working capital requirements. We utilized our cash flow from operations to reduce our debt by $77.1 million and to invest in capital expenditures of $9.1 million during the period. Ryerson expects to generate significant cash from operating activities again in the fourth quarter given lower replacement inventory costs and normal seasonality patterns. Ryerson maintained ample liquidity of $455 million as of September 30, 2019 to operate our business.

Chief Financial Officer Erich Schnaufer said, "We are pleased that Fitch Ratings assigned a first-time B+ rating to Ryerson with a stable outlook in recognition of our improved operating performance and disciplined balance sheet management. We are proud to have continued to strengthen the balance sheet in the third quarter by utilizing the significant cash flow generated to further reduce outstanding debt. Cumulatively, the Company has decreased outstanding debt by $115 million compared to the end of 2018 and remains committed to using our free cash flow to further reduce our outstanding debt and improve our capital structure."

Outlook Commentary

For the fourth quarter of 2019, Ryerson anticipates revenues of $960 million to $1.0 billion with tons shipped down 6 to 9 percent compared to the third quarter of 2019, due to normal seasonality patterns compounded by slowing industrial growth and trade uncertainty. Carbon prices are expected to bottom in the fourth quarter and aluminum prices are expected to be neutral to modestly lower, while stainless prices, despite a recent pull-back in nickel prices, are expected to remain supported by low warehouse and stock inventories as reported by the London Metal Exchange, secular demand expectations in the electric-vehicle battery market and export restraints on Indonesian nickel ore. Collectively, Ryerson expects average selling prices in the fourth quarter to be down 3 to 5 percent. LIFO income in the fourth quarter is expected to be in the range of $6 to $10 million as declines in carbon and aluminum inventory values are partially offset by gains in stainless steel inventory values.

Given these expectations and Ryerson's anticipation of margin expansion in the fourth quarter of 2019, Adjusted EBITDA, excluding LIFO is expected to be in the range of $36 to $40 million. Earnings per diluted share are expected to be in the range of $0.08 to $0.18. Ryerson expects to continue to deleverage in the fourth quarter via the generation of counter-cyclical cash flows utilized to further reduce long-term debt. A reconciliation of Adjusted EBITDA, excluding LIFO to earnings per diluted share is included below in this news release.

Earnings Call Information

Ryerson will host a conference call to discuss its third quarter 2019 results Wednesday, October 30, 2019 at 10 a.m. Eastern Time. Participants may access the conference call by dialing 833-241-7253 (Domestic) or 647-689-4217 (International) and using conference ID 7394599. The live online broadcast will be available on the Company's investor relations website, ir.ryerson.com. A replay will be available at the same website for 90 days. 

About Ryerson

Ryerson is a leading value-added processor and distributor of industrial metals, with operations in the United States, Canada, Mexico, and China. Founded in 1842, Ryerson has around 4,600 employees in approximately 100 locations. Visit Ryerson at www.ryerson.com.

Safe Harbor Provision

Certain statements made in this press release and other written or oral statements made by or on behalf of the Company constitute "forward-looking statements" within the meaning of the federal securities laws, including statements regarding our future performance, as well as management's expectations, beliefs, intentions, plans, estimates, or projections relating to the future. Such statements can be identified by the use of forward-looking terminology such as "objectives," "goals," "preliminary," "range," "believes," "expects," "may," "estimates," "will," "should," "plans," or "anticipates," or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. The Company cautions that any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements as a result of various factors. Among the factors that significantly impact the metals distribution industry and our business are: the cyclicality of our business; the highly competitive, volatile, and fragmented market in which we operate; fluctuating metal prices; our substantial indebtedness and the covenants in instruments governing such indebtedness; the integration of acquired operations; regulatory and other operational risks associated with our operations located inside and outside of the United States; work stoppages; obligations under certain employee retirement benefit plans; the ownership of a majority of our equity securities by a single investor group; currency fluctuations; and consolidation in the metals producer industry. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth above and those set forth under "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2018, and in our other filings with the Securities and Exchange Commission. Moreover, we caution against placing undue reliance on these statements, which speak only as of the date they were made. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events or circumstances, new information or otherwise.

SOURCE Ryerson Holding Corporation

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