Ryerson Holding Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Ryerson is a value-added processor and distributor of industrial metals operating in the U.S., Canada, Mexico, and China. Its single reportable segment is metals service centers.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First six months 2023 | First six months 2022 |
|---|---|---|---|---|
| Net sales | $1,343.5 million | $1,743.5 million | $2,749.6 million | $3,492.3 million |
| Gross profit | $260.9 million | $465.9 million | $525.1 million | $876.0 million |
| Gross margin | 19.4% | 26.7% | 19.1% | 25.1% |
| Operating profit | $58.3 million | $286.8 million | $128.3 million | $521.6 million |
| Net income attributable to Ryerson | $37.6 million | $196.4 million | $84.9 million | $360.0 million |
| Diluted EPS | $1.06 | $5.10 | $2.33 | $9.26 |
Q2 sales declined 22.9% year over year; tons sold fell 5.3% and average selling price per ton fell 18.6%. For the first six months, sales fell 21.3%, with tons down 3.5% and average selling price down 18.4%. Management attributed lower gross profit primarily to selling prices falling faster than material costs. Q2 and first-half 2023 gross profit included LIFO income of $9.0 million and $5.0 million, respectively, versus $73.8 million and $71.6 million in the comparable 2022 periods.
First-half operating cash flow was $195.7 million, up from $168.0 million. Investing cash outflow was $124.2 million, including $74.1 million of capital expenditures and $50.2 million for acquisitions. Financing cash outflow was $79.9 million, including $103.6 million of share repurchases and $12.2 million of dividends. Cash and restricted cash totaled $31.1 million at June 30, 2023, down from $40.5 million at year-end 2022.
Debt and liquidity
Total debt was $396.1 million at June 30, 2023, compared with $367.0 million at December 31, 2022; net debt was $366.1 million versus $327.8 million. The debt-to-capitalization ratio increased to 31% from 29%. The $1.3 billion revolving credit facility had $398.0 million drawn, $14 million of letters of credit, and $712 million of availability. Total liquidity, a company-defined non-GAAP measure, was $790 million versus $909 million at year-end. The weighted-average rate on facility borrowings was 6.3%.
Current assets were $1,447.8 million and current liabilities were $712.4 million. Management said operating cash flow and facility availability should be sufficient for normal operating requirements. The company estimated approximately $26 million of debt interest payments over the next 12 months and total future lease payments of $431 million, including $46 million over the next 12 months.
Material changes, outlook, and risks
- Results weakened substantially versus 2022, when metals prices and supply disruption supported selling prices and margins. Management reported first-half average selling prices 18.4% lower and gross margin 600 basis points lower year over year. U.S. manufacturing indicators were contracting in April through June; Ryerson’s first-half volumes declined 3.5% while North American service-center volumes rose 4.2%.
- Operating expenses increased 10.8% year over year in both Q2 and the first half, reflecting acquisitions, higher compensation and benefits, reorganization and system implementation costs, and start-up costs at the new University Park facility. Lower incentive compensation partly offset the increase.
- Ryerson acquired BLP for $39.9 million in March 2023 and paid $9.7 million for certain ExOne assets during the first half. The University Park, Illinois operating lease commenced in Q2; the initial lease asset and liability were each $99.9 million, with starting annual rent of approximately $7.3 million.
- The company raised its expected 2023 capital expenditures to approximately $125 million. No specific revenue or earnings forecast was provided; future dividends remain subject to Board approval. A $0.1825-per-share quarterly dividend was declared after quarter-end.
- Metals demand and prices are cyclical; falling prices can pressure selling prices and margins as inventory is sold, while higher rates increase costs on variable-rate debt. A hypothetical 1% rate increase would have raised first-half interest expense by approximately $2.3 million.
- Ryerson remains a potentially responsible party at the Portland Harbor Superfund Site. Cost allocation was not expected until 2024 or 2025, and management said it could not estimate the company’s responsibility or a potential loss range. Management considered other pending claims not likely to materially affect the company.
- In 2022, results included a $19.8 million loss on retirement of debt and a $3.8 million gain on asset sales; neither recurred in the first half of 2023. First-half 2023 adjusted net income and adjusted diluted EPS were $84.9 million and $2.33, respectively, as no adjustments were made to reported results.
Important facts for investors to verify
- Whether sales volumes, selling prices, and gross margins stabilize amid weakening manufacturing indicators and changing metals prices.
- Whether the $125 million 2023 capital expenditure plan, acquisitions, and new facility costs generate expected returns without materially reducing liquidity.
- Borrowing availability, variable interest costs, and compliance with credit-facility covenants as debt and working-capital needs change.
- Developments in the Portland Harbor allocation process, including any EPA notices and the eventual estimate of Ryerson’s potential share.
- Progress integrating BLP and other acquired operations, and the effects of share repurchases and dividends on cash and per-share results.