Ryerson Holding Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Ryerson is a North American and China-based value-added processor and distributor of industrial metals. Its interim financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $1,743.5M | $1,419.0M | $3,492.3M | $2,566.3M |
| Gross profit / margin | $465.9M / 26.7% | $257.0M / 18.1% | $876.0M / 25.1% | $454.9M / 17.7% |
| Operating profit | $286.8M | $166.1M | $521.6M | $212.5M |
| Net income attributable to Ryerson | $196.4M | $112.9M | $360.0M | $138.2M |
| Diluted EPS | $5.10 | $2.91 | $9.26 | $3.57 |
- First-half average selling prices rose 42.6%, while tons shipped fell 4.5%. In Q2, prices rose 31.1% and tons shipped declined 6.3%. Management attributed higher sales to metal prices and supply constraints.
- Six-month operating cash flow was $168.0M, versus cash used of $51.1M a year earlier. Receivables and inventory absorbed $126.9M and $179.9M, respectively; higher earnings and supplier payables partly offset those uses.
- Capital expenditures were $42.8M for the first half, compared with $13.3M in 2021. Cash and cash equivalents were $41.4M at June 30. Total debt was $533.5M, down from $639.3M at year-end 2021; reported net debt was $492.1M.
- Reported total liquidity was $894M, including $853M of availability under credit and foreign debt facilities. The amended revolving facility was increased to $1.3B and extended to June 2027; $468.5M was drawn at quarter-end.
Material changes and unusual items
- Ryerson reported first-half LIFO income of $71.6M, versus LIFO expense of $188.6M in the prior-year period. Q2 LIFO income was $73.8M, versus expense of $104.8M. The company changed its interim LIFO estimation method in Q1 2022 to project year-end inventory levels and costs and allocate the estimate across interim quarters; management said annual LIFO calculations and year-end amounts are not affected. This change materially affects interim inventory and profit comparisons.
- Higher selling prices outpaced increases in average material costs, expanding gross margin. First-half operating profit also compares against $107.7M of prior-year asset-sale gains, versus a $3.8M gain in 2022. Q2 2021 included $87.4M of sale-leaseback gains; Q2 2022 included a $3.8M facility-sale gain.
- Ryerson repurchased and retired $250M principal of its 8.50% notes during the first half, recording a $19.8M loss on debt retirement. Interest and other debt expense fell year over year, primarily due to lower note balances, partly offset by increased revolving borrowings.
- Management’s non-GAAP adjusted first-half net income was $371.9M and adjusted diluted EPS was $9.56, versus $58.1M and $1.50, respectively, in 2021. These figures exclude specified asset-sale and debt-retirement items and related tax effects; they are not substitutes for GAAP results.
- Platinum Equity’s ownership fell from approximately 54% to 43% after its secondary sale and Ryerson’s concurrent repurchase of 1,613,022 shares for $47.7M. Ryerson was no longer an NYSE “controlled company.”
Outlook, risks and contingencies
- The filing provides no quantified earnings or sales guidance. Management described the metals service center industry as cyclical and volatile. Industry indicators weakened during Q2: the ISM PMI declined sequentially in April, May and June, and U.S. industrial production fell year over year in June. North American service-center volumes declined 4.4% in the first half; Ryerson volumes declined 2.7%. Sequentially, Ryerson’s volume decreased 0.7% in Q2.
- Management cited softer demand in HVAC, food processing and agricultural equipment, partly offset by growth in oil and gas, metal fabrication and machine shops, and commercial ground transportation. It said infrastructure spending may support demand, but the company-specific impact is unclear.
- Metal price declines may pressure selling prices and margins as inventory is sold; the ability to pass on price increases depends on competition. Other exposures include variable interest rates, foreign exchange and commodity prices. A hypothetical 1% increase in variable rates was estimated to raise first-half interest expense by about $1.8M.
- The Portland Harbor Superfund matter remains unresolved. EPA has not allocated responsibility, and Ryerson said it cannot estimate its potential share or a range of loss. Management said other pending claims are not expected to have a material adverse effect.
- At June 30, the company anticipated about $2.0M of minimum pension contributions for the remainder of 2022. It also reported $31.4M of supplier purchase obligations due within a year and $18M of letters of credit.
- Subsequent events: Ryerson redeemed the remaining $50M principal of its 2028 notes on July 23, 2022, leaving none outstanding. On August 3, the board authorized a new $75M share repurchase program and declared a $0.15-per-share quarterly dividend.
Important facts for investors to verify
- How much of the margin and earnings improvement reflects underlying price-cost spreads versus the interim LIFO estimate and commodity-price movements.
- Whether demand and shipment volumes continue to weaken, and how falling metal prices could affect margins and inventory values.
- Whether operating cash flow remains positive as receivables and inventory require substantial working capital.
- Current borrowing-base availability, interest-rate exposure and debt balances following the July note redemption.
- Developments in Portland Harbor cost allocation and any change in the company’s ability to estimate a potential loss.
- Execution and funding of the new repurchase authorization and dividend, including subsequent share-count changes.