Ryerson Holding Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Ryerson is a value-added processor and distributor of industrial metals operating in the U.S., Canada, Mexico, and China.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Net sales | $1,748.8 million | $1,147.3 million | Up 52.4%; average selling price per ton rose 56.7%, while tons sold fell 2.8%. |
| Gross profit / margin | $410.1 million / 23.5% | $197.9 million / 17.2% | Margin increased 630 basis points. |
| Operating profit | $234.8 million | $46.4 million | Q1 2021 included a $20.3 million gain on sale of assets. |
| Net income attributable to Ryerson | $163.6 million | $25.3 million | Basic EPS was $4.26 and diluted EPS $4.17, versus $0.66 for both in Q1 2021. |
| Adjusted net income / diluted EPS | $167.5 million / $4.27 | $10.2 million / $0.26 | Non-GAAP measures; adjustments exclude specified debt retirement loss or prior-year asset-sale gain and related taxes. |
| Cash from operating activities | $82.5 million | $(47.3) million | Improved despite working-capital investment, primarily on higher operating profit. |
| Capital expenditures | $18.8 million | $6.5 million | Higher as the company increased investment to modernize operations and develop facilities. |
Cash, liquidity, and debt: Cash and cash equivalents were $44.7 million at March 31, 2022, down from $51.2 million at year-end 2021. Total liquidity, a non-GAAP measure, was $760 million, including $715 million of availability under credit and foreign debt facilities. Total debt was $551.3 million, down from $639.3 million; net debt was $506.6 million. Debt-to-capitalization declined to 44% from 54%. The $1.0 billion revolving credit facility matures in 2025; $294 million was drawn at quarter-end. The company reported $19 million of letters of credit.
Material changes and unusual items
- Management changed its interim LIFO estimation method in Q1 2022, projecting year-end inventory levels and LIFO costs and allocating the estimate across interim quarters. Management said this better estimates full-year LIFO expense and reduces interim earnings volatility; year-end amounts are not expected to change. Reported LIFO expense was $2.2 million in Q1 2022 versus $83.8 million in Q1 2021, a significant contributor to the year-over-year comparison.
- Ryerson repurchased and retired $63.1 million principal amount of its 8.50% 2028 notes for $68.4 million, recording a $5.3 million loss on retirement and writing off $1.0 million of debt issuance costs. The notes’ remaining principal was $236.9 million at quarter-end.
- Higher selling prices reflected metal-price inflation, supply constraints, and the Russia-Ukraine war. Average selling prices increased faster than average material costs; industry demand was mixed, with Ryerson’s North American tons sold down 1.0% year over year, less than the industry’s 4.7% decline.
- Q1 2021 operating results included a $20.3 million gain from the sale-leaseback of the Renton, Washington facility; Q1 2022 did not include a comparable gain.
- Apogee Steel Fabrication was acquired for $3.0 million in February 2022; the filing states the acquisition was not material.
Outlook, risks, and contingencies
- The filing provides no quantified earnings or revenue guidance. Management described improving industrial indicators and demand recovery to pre-COVID-19 levels, but emphasized that the metals service-center industry is cyclical and volatile. Infrastructure spending may support demand, though its effect on Ryerson was uncertain.
- Risks include changes in metal prices and demand, the ability to pass cost increases through to customers, supply-chain constraints, and interest-rate and foreign-exchange movements. Russia-related trade measures and tariffs were discussed; Ryerson said it had not purchased material from Russia or the named Ukrainian regions in 2022 as of March 31.
- The Portland Harbor Superfund matter remains unresolved. EPA allocation among potentially responsible parties has not been determined; management cannot predict Ryerson’s responsibility or estimate a loss range.
- After quarter-end, Ryerson repurchased another $15.2 million principal amount of 2028 notes for $16.5 million, recording a $1.3 million loss in Q2. On May 4, 2022, the board authorized repurchases of up to $172 million of the notes through year-end, subject to market conditions. The board also declared a $0.125-per-share quarterly dividend.
- Management expected approximately $559 million of debt principal payments over the stated maturities, about $28 million of interest over the next 12 months, $43 million of lease payments over the next 12 months, and $49.9 million of supplier purchase obligations due within a year. It believed operating cash flow and facility availability would be sufficient for normal operating requirements.
- Disclosure controls and procedures were reported effective as of March 31, 2022; no material change in internal controls was reported.
Most important facts for investors to verify
- How much of the sharp earnings and margin improvement reflects sustainable price-cost spreads versus metal-price movements and the interim LIFO estimate change.
- Whether lower shipment volumes persist and how demand, supply constraints, and metal prices evolve.
- Cash conversion and working-capital needs, particularly receivables and inventory, alongside planned capital spending and debt repurchases.
- Debt reduction plans, interest-rate exposure, facility availability, and the effect of repurchases on liquidity.
- Developments in Portland Harbor cost allocation and any other material contingencies.