Ryerson Holding Corporation — Q3 2023 Form 10-Q
Business context and reporting period
Ryerson is a metals service center that processes and distributes industrial metals, primarily in the U.S., with operations in Canada, Mexico, and China. This unaudited filing covers the three and nine months ended September 30, 2023, compared with the same periods in 2022. The company reports one operating segment.
Financial performance
- Revenue: Q3 net sales were $1.247 billion, down 19.2% year over year; nine-month sales were $3.996 billion, down 20.6%. Lower selling prices and reduced volumes contributed to the declines.
- Profit and margins: Q3 gross profit was $249.3 million, or 20.0% of sales, versus $271.0 million, or 17.6%, a year earlier. Nine-month gross profit was $774.4 million, or 19.4%, versus $1.147 billion, or 22.8%. Q3 operating profit was $56.3 million (4.5% margin), compared with $84.5 million (5.5%); nine-month operating profit was $184.6 million (4.6%), compared with $606.1 million (12.0%).
- Net income and EPS: Q3 net income attributable to Ryerson was $35.0 million, or $1.00 diluted EPS, versus $55.1 million, or $1.46. Nine-month attributable net income was $119.9 million, or $3.34 diluted EPS, versus $415.1 million, or $10.78. Adjusted nine-month diluted EPS, a non-GAAP measure, was $3.34 versus $11.11.
- Cash flow: Nine-month operating cash flow was $275.0 million, compared with $319.6 million. Investing used $146.8 million, including $96.5 million in capital expenditures and $50.2 million for acquisitions; financing used $129.2 million, including $107.6 million in share repurchases and $18.5 million in dividends. Cash, cash equivalents, and restricted cash ended at $38.5 million.
- Debt and liquidity: Total debt was $365.9 million, versus $367.0 million at year-end 2022; net debt was $328.5 million. The revolving credit facility had $365.0 million drawn and $725 million available. Total liquidity, a non-GAAP measure including cash and facility/foreign-facility availability, was $807 million, down from $909 million at year-end. The credit facility matures in 2027; its weighted-average borrowing rate was 6.5% at September 30.
- Balance sheet and returns: Inventories were $699.0 million, down from $798.5 million at year-end; receivables were $545.0 million. The board declared a subsequent quarterly dividend of $0.185 per share, payable December 14, 2023.
Material changes versus the prior comparable period
- Nine-month average selling price per ton fell 16.9% and tons sold declined 4.5%; Q3 average selling price fell 13.5% and tons sold declined 6.6%.
- Management attributed weaker revenue and nine-month profitability to normalization of metal prices from 2021–2022 highs, slower demand, and selling prices falling faster than material costs. Q3 gross margin improved year over year, but lower shipment volume weighed on gross profit.
- Nine-month operating expenses increased $45.1 million to $589.8 million. Acquisitions added $21.1 million; other increases included reorganization and system implementation costs, compensation, benefits, and operating costs, partly offset by lower incentive compensation.
- Operating cash flow benefited from a $101.1 million inventory cash release, versus a $96.3 million use of cash from inventory in the prior-year period. Capital expenditures and acquisition spending rose year over year.
- During the first nine months, the company repurchased $107.6 million of shares. Two repurchases from Platinum Equity totaled $103.0 million; Platinum’s ownership fell from approximately 43% to 11% following the year’s offerings and repurchases.
Outlook, commentary, risks, and unusual items
- The filing provides no quantified earnings or revenue guidance. Management describes the metals service center industry as cyclical and volatile. It cited manufacturing PMI readings below 50 in July, August, and September, and slowing industrial-sector conditions. Ryerson’s North American volumes fell 4.6% in the first nine months, compared with a 0.9% increase for the industry; sequential Q3 volume fell 5.1%.
- Key exposures include metal-price movements, demand and volume changes, interest rates on variable-rate borrowings, foreign exchange, and working-capital requirements. The company states that falling metal prices can pressure selling prices and earnings as inventory is sold; hedges may offset only part of market movements.
- Nine-month LIFO income was $38.4 million, compared with $92.7 million in 2022. Commodity derivative gains recognized in the period were $9.5 million. No interest-rate swaps were outstanding at quarter-end.
- Capital commitments include estimated future lease payments of $422 million ($45 million within 12 months), approximately $23 million of supplier purchase obligations due within a year, and estimated debt interest payments of approximately $24 million over the next 12 months. Management expects operating cash flow and credit-facility access to fund normal requirements.
- The company made $7.9 million of pension contributions through September and expected approximately $1.0 million of minimum contributions for the remainder of 2023. Future pension funding depends on asset returns, discount rates, and regulatory requirements.
- On October 2, 2023, Ryerson acquired Norlen Incorporated for $30.2 million; the filing says the acquisition is not material. The filing reports no material changes to previously disclosed legal contingencies or risk factors. Management concluded disclosure controls were effective at September 30, 2023.
Important facts for investors to verify
- Whether metal prices and sales volumes stabilize, and whether margins can be sustained as LIFO benefits and inventory costs change.
- How much of nine-month operating cash flow reflects ongoing earnings versus working-capital release, particularly inventory reduction and changes in payables.
- Facility availability and borrowing costs, given $365.0 million outstanding, a 6.5% weighted-average rate, and variable-rate exposure.
- Returns on the company’s elevated investment and acquisition spending, including the University Park service center and recent acquisitions.
- Share repurchase and dividend pace relative to cash generation, debt, pension funding needs, and the company’s liquidity.