Ryerson Holding Corporation — Q1 2023 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2023, compared with Q1 2022. Ryerson is a North American and China-based processor and distributor of industrial metals; nearly 80% of metals sold are processed to customer specifications. It reports one segment.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $1,406.1 million | $1,748.8 million |
| Gross profit / gross margin | $264.2 million / 18.8% | $410.1 million / 23.5% |
| Operating profit / margin | $70.0 million / 5.0% | $234.8 million / 13.4% |
| Net income attributable to Ryerson | $47.3 million | $163.6 million |
| Diluted EPS | $1.27 | $4.17 |
| Cash from operations | $80.4 million | $82.5 million |
Revenue fell 19.6%, as average selling prices declined 18.2% and tons shipped declined 1.7%. Average selling price was $2,709 per ton versus $3,312; tons sold were 519,000 versus 528,000. Gross profit declined 35.6%, with selling prices falling faster than average material costs. Selling, general, warehousing and delivery expenses rose 10.8% to $194.2 million, partly reflecting acquisitions and higher costs, offset in part by lower incentive compensation. Adjusted diluted EPS, a non-GAAP measure, was $1.27 versus $4.27; Q1 2023 had no adjustments, while Q1 2022 excluded a debt-retirement loss and related tax benefit.
Cash flow and balance sheet. Operating cash flow was $80.4 million. Inventory reduction contributed $89.3 million to operating cash flow, while receivables used $94.8 million. Investing cash outflow was $66.7 million, including $38.9 million for acquisitions and $27.8 million in capital expenditures. Financing cash outflow was $9.9 million, including $53.2 million of share repurchases and $6.0 million of dividends, partly offset by increased short-term borrowings. Cash and cash equivalents were $43.7 million at quarter-end, versus $39.2 million at year-end 2022.
Total debt was $395.1 million, up from $367.0 million at December 31, 2022; net debt was $351.4 million versus $327.8 million. Total liquidity, a non-GAAP measure defined by the company as cash plus availability under credit facilities, was $856 million, down from $909 million. The $1.3 billion revolving credit facility had $395 million drawn, $14 million in letters of credit, and $766 million available; its weighted-average borrowing rate was 6.0%. Debt-to-capitalization was 31%, compared with 29% at year-end.
Material changes and notable events
- Results weakened sharply year over year amid lower metal prices and modestly lower shipment volume. Management cited a softer commodity pricing environment, easing industrial activity, and increased supply. Ryerson’s North American volume declined 0.9% year over year, while industry volumes increased 5.5%.
- Ryerson acquired Houston-based BLP Holdings on March 1, 2023, for $38.5 million, adding fabrication and processing capabilities. Purchase accounting was not finalized at quarter-end. The acquisition was identified as a principal reason for higher debt.
- On February 28, Ryerson repurchased 1,513,420 shares from Platinum Equity for $53.0 million. Platinum’s ownership fell from approximately 43% to 33%. The company’s cash-flow statement reports $53.2 million of share repurchases for the quarter.
- Subsequent to quarter-end, the Board increased the share repurchase authorization to $100 million, expiring April 2025, and declared a $0.18-per-share dividend payable June 15, 2023. Future dividends remain subject to Board approval.
Outlook, risks, and contingencies
The filing provides no quantified earnings or revenue guidance. Management described the metals service-center industry as cyclical and volatile and noted slowing growth indicators and continued contraction in U.S. factory activity in March. Demand improved sequentially across Ryerson’s end markets in Q1, particularly oil and gas and food processing and agriculture. Management expects cash from operations and credit-facility availability to fund normal operations and contractual requirements. It noted potential longer-term demand benefits from U.S. infrastructure spending, but said the operational impact is unclear.
- Pricing and demand: Metal price changes, customer pricing pressure, supply, and industrial activity may affect selling prices, margins, and inventory values. The company has no long-term fixed-price metal purchase contracts.
- Interest rates: Approximately 99% of debt was variable-rate; a hypothetical 1% increase in rates would have raised Q1 interest expense by about $1.1 million.
- Environmental contingency: JT Ryerson is a potentially responsible party at the Portland Harbor Superfund Site. Cost allocation is not expected until 2024 or 2025; management cannot estimate the company’s potential responsibility or a loss range.
- Other commitments: Estimated future lease payments were $320 million, or $449 million including leases signed but not commenced. Supplier purchase obligations were approximately $25.9 million, due within one year. The company expected about $3.1 million of minimum pension contributions during the remaining nine months of 2023.
- Management reported effective disclosure controls as of March 31, 2023, and no material changes in internal control over financial reporting during the quarter. No material changes to previously disclosed risk factors were reported.
Key facts for investors to verify
- Whether metal prices, shipment volumes, and gross margin stabilize or continue to decline.
- BLP’s post-acquisition performance, integration costs, and final purchase-price allocation.
- Credit-facility borrowings, variable-rate exposure, liquidity, and capital allocation, including repurchases and dividends.
- Developments in the Portland Harbor remediation process and any eventual allocation of costs to Ryerson.
- Cash-flow sustainability as receivables, inventory, and accounts payable fluctuate with business conditions.