Ryerson Reports Third Quarter 2017 Results

Q3 2017 Highlights: 

• Reported net income attributable to Ryerson Holding Corporation of $1.7 million, or $0.05 per diluted share. Generated Adjusted EBITDA, excluding LIFO of $37.7 million in line with most recent guidance, compared to $51.5 million in the second quarter of 2017 and $48.8 million in the third quarter of 2016.
• Gained market share with quarterly shipments up 7.3 percent and year-to-date shipments up 4.6 percent compared to the prior year periods, while industry volume increased 3.0 percent in North America according to the Metals Service Center Institute (MSCI). Shipments declined 0.6 percent sequentially, but increased by 1.0 percent on a per day basis as the third quarter had one fewer shipping day than the second quarter.
• Warehousing, delivery, selling, general and administrative expenses as a percentage of sales declined to 13.8 percent compared to 14.8 percent in the third quarter of 2016, but were 50 basis points higher sequentially compared to the second quarter of 2017 driven by higher delivery expense.
• Elevated import levels and well supplied metals markets muted pricing power which, together with higher procured metal costs, resulted in margin compression on an excluding LIFO basis of 110 bps compared to the second quarter of 2017.
• Operating results included hurricane and SAP conversion related impacts of approximately $5 million. 

CHICAGO – November 7, 2017 – 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, 2017.

Eddie Lehner, Ryerson’s President and Chief Executive Officer, said, “As Ryerson celebrates our 175^th anniversary as an iconic industrial metals distribution and processing company on November 19^th, we thank every customer we have had the privilege to serve since 1842.  We look forward to providing excellent customer experiences for many years to come. Within Ryerson, we are making meaningful progress across all facets of our strategic plan, and we see encouraging macroeconomic growth trends within the manufacturing sector and improving metal supply pricing dynamics. As expected and noted in our third quarter guidance, soft demand in July, margin compression troughs in August and business interruptions in September were a drag on earnings. Irrespective of these conditions, we continued to grow our market share compared to MSCI industry metrics and maintained industry-leading expense and working capital ratios.  Moving beyond the inverted margin outcomes driven by supply side distortions in commodity prices, wide domestic to international price spreads and metal import surges, that characterized the third quarter, we move into the fourth quarter, observing improving industry fundamentals around supply, demand, and pricing.” 

Third Quarter 2017 Financial Results

Revenues were $864.2 million for the third quarter of 2017, down 1.3 percent from the second quarter of 2017 and up 17.6 percent from the year-ago quarter. Tons sold decreased by 0.6 percent in the third quarter of 2017 compared to the prior quarter and increased 7.3 percent compared to the year-ago period. Additionally, average selling prices per ton decreased 0.7 percent in the current quarter compared to the prior quarter but increased 9.6 percent compared to the third quarter of 2016.

Ryerson’s gross margin was 16.8 percent for the third quarter of 2017, compared to 16.0 percent in the second quarter of 2017 and 19.8 percent in the year-ago period. Included in cost of materials sold was LIFO income of $1.7 million for the current quarter, compared to LIFO expense of $14.2 million for the second quarter of 2017 and net LIFO expense of $1.4 million in the third quarter of 2016. Gross margin, excluding LIFO decreased to 16.6 percent for the third quarter of 2017, compared to 17.7 percent in the second quarter of 2017 and 20.0 percent in the year-ago period. Average inventory costs rose while Ryerson’s average selling prices fell in the third quarter of 2017 leading to margin compression. A reconciliation of gross margin to gross margin, excluding LIFO is included below in this news release.

Warehousing, delivery, selling, general and administrative expense increased by $2.5 million, or 2.1 percent for the third quarter of 2017 compared to the second quarter of 2017. Compared to the year-ago period, expenses increased by $10.1 million, or 9.3 percent. Ryerson demonstrated expense leverage in the third quarter of 2017 as warehousing, delivery, selling, general and administrative expenses declined to 13.8 percent of sales, even with negative impacts from hurricanes and Canada’s SAP conversion, compared to 14.8 percent in third quarter of 2016.

Net income attributable to Ryerson Holding Corporation was $1.7 million, or $0.05 per diluted share, for the third quarter of 2017, compared to net income of $0.6 million, or $0.02 per diluted share, in the second quarter of 2017, and $8.2 million, or $0.23 per diluted share, in the third quarter of 2016. Excluding restructuring and other charges and loss on retirement of debt, net income attributable to Ryerson Holding Corporation in the third quarter of 2016 was $10.0 million, or $0.28 per diluted share.

Adjusted EBITDA, excluding LIFO was $37.7 million in the third quarter of 2017, compared to $51.5 million in the prior quarter and $48.8 million in the year-ago period. Reconciliations of Adjusted EBITDA, excluding LIFO and net income attributable to Ryerson Holding Corporation and earnings per share, excluding restructuring and other charges, impairment charges on assets, and losses on retirement of debt to net income attributable to Ryerson Holding Corporation, are included below in this news release.

Nine Months Ended September 30, 2017, Financial Results

Revenues for the first nine months of 2017 were $2.6 billion, up 17.3 percent from the first nine months of 2016, as tons shipped increased 4.6 percent and average selling prices per ton increased 12.2 percent. Year-to-date, Ryerson shipments have outpaced the industry as measured by MSCI, which grew 3.0 percent through the first nine months of 2017.

Net income attributable to Ryerson Holding Corporation was $17.1 million, or $0.46 per diluted share, in the first nine months of 2017 compared to $27.3 million, or $0.82 per diluted share, for the same period of 2016. Excluding restructuring and other charges, impairment charges on assets, and losses on retirement of debt, net income attributable to Ryerson Holding Corporation was $35.1 million, or $1.05 per diluted share, in the first nine months of 2016.

Adjusted EBITDA, excluding LIFO increased 1.1 percent to $143.5 million in the first nine months of 2017 compared to $142.0 million in the first nine months of 2016. Reconciliations of Adjusted EBITDA, excluding LIFO and net income attributable to Ryerson Holding Corporation and earnings per share, excluding restructuring and other charges, impairment charges on assets, and losses on retirement of debt to net income attributable to Ryerson Holding Corporation, are included below in this news release.

Working Capital and Liquidity Management

In the third quarter of 2017, Ryerson’s inventory balance stood at 74 days of supply compared to 69 days in the second quarter of 2017 and 78 days in the year-ago period. Additionally, Ryerson maintained abundant liquidity to finance growth in the third quarter of 2017. As of September 30, 2017, borrowings were $385 million on our primary revolving credit facility with additional availability of $291 million. Including cash, marketable securities, and availability from foreign sources, Ryerson’s total liquidity was $355 million compared to $326 million in the second quarter of 2017.

Cash used in operating activities increased to $93 million for the first nine months of 2017 compared to $23 million in the first nine months of 2016, primarily due to higher valued inventory and receivables. Erich Schnaufer, Ryerson’s Chief Financial Officer, said, “Given the normal seasonal volume declines expected in the fourth quarter compared to the third quarter, Ryerson expects to align inventories to demand to generate cash flows in the fourth quarter.”

Fourth Quarter 2017 Commentary

Global supply and demand fundamentals appear stronger heading into the fourth quarter compared to the first nine months of 2017, as supply-side reforms in China, a weaker U.S. dollar, and lower domestic import levels support stronger pricing conditions in the U.S. Additionally, chrome pricing resets and recent resurgent nickel prices, along with recent mill carbon hot-rolled coil price increases, should lend further support and stabilization to average industry selling prices. Demand remains positive for most of our key end markets compared to last year, and Ryerson anticipates these conditions to continue into the fourth quarter, offset by normal seasonal declines with fewer shipping days and winter holiday seasonality. Given the supply and demand factors discussed, Ryerson anticipates margins to expand into the fourth quarter 2017.

Third Quarter 2017 Business Metrics

Third Quarter 2017 Major Product Metrics