Ryerson Holding Corp. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are with the same 2020 periods. Ryerson is a North American and China-based metals processor and distributor. Figures are in U.S. dollars; amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $1,575.1 | $831.5 | $4,141.4 | $2,613.6 |
| Gross profit | $364.6 | $155.9 | $819.5 | $467.2 |
| Gross margin | 23.1% | 18.7% | 19.8% | 17.9% |
| Operating profit | $184.4 | $30.3 | $396.9 | $59.8 |
| Net income (loss) attributable to Ryerson | $49.7 | $(39.9) | $187.9 | $(49.1) |
| Diluted EPS | $1.27 | $(1.05) | $4.84 | $(1.29) |
- Higher metal prices and increased shipments drove sales growth. In Q3, average selling price per ton rose 78.5% and tons sold rose 6.1%; for the first nine months, they rose 48.3% and 6.9%, respectively.
- Gross margin improved as selling prices increased faster than average material costs. LIFO expense was $102.3 in Q3 and $290.9 year to date, versus LIFO income of $16.9 and $23.0 in the comparable 2020 periods.
- Nine-month adjusted net income was $185.0 and adjusted diluted EPS was $4.77, excluding specified asset-sale gains, debt retirement losses, pension settlement charges, and related taxes. These are non-GAAP measures; reported nine-month net income was $187.9.
- Cash from operating activities was negative $71.8 for the first nine months, versus positive $296.7 in 2020. Receivables and inventory uses of cash were $322.0 and $252.0, partly offset by a $233.6 increase in accounts payable.
- At September 30, cash and cash equivalents were $39.9; total debt was $672.6, down from $740.0 at year-end 2020. Total liquidity was $698, including $658 of facility availability; net debt was $633. Debt-to-capitalization was 61%, versus 84% at year-end.
Material changes and unusual items
- 2021 results include a $107.7 gain on property sales, primarily sale-leasebacks, and a $98.3 pension settlement charge following the purchase of $206.6 of annuities. The pension charge and gain are significant, largely offsetting items in year-to-date results.
- Ryerson redeemed $150 of its 8.50% senior secured notes in Q3 for $155.5, recognizing a $5.5 loss on debt retirement. Notes outstanding fell to $300. The company reported total debt of $672.6, including $349.7 borrowed under its revolving credit facility.
- Sale-leaseback proceeds contributed to investing cash flow of $126.5 for the nine months. The transactions also added lease obligations; operating lease liabilities were $202.0 at September 30.
- Quarterly dividend declared was $0.08 per share. A board-authorized $50 share repurchase program had $49.1 remaining at quarter-end.
Outlook, commentary, and risks
- Management reported stronger demand and pricing year over year, but noted sequential per-day shipment declines in most North American end markets during Q3 as customer supply-chain constraints muted demand. No quantified earnings or revenue guidance is provided.
- Management said COVID-19, economic pressures, and supply-chain disruptions continued to affect the business. Metals service-center demand and pricing are cyclical; falling metal prices could reduce selling prices and gross profit on existing inventory, while competitive conditions affect the ability to pass through price increases.
- Management viewed proposed infrastructure spending and U.S. antidumping duties on imported common-alloy aluminum sheet as potentially supportive of demand or prices, but said the ultimate effects were uncertain. The U.S.-EU Section 232 tariff revision was also identified as having an unclear impact.
- Commodity derivative contracts generated a $43.9 loss for the first nine months. Derivative fair values included $58.2 of metal-contract liabilities and $26.2 of related assets at quarter-end; mark-to-market changes affect earnings.
- The company cannot estimate a potential loss range for its involvement as a potentially responsible party at the Portland Harbor Superfund Site because responsibility and allocation among parties remain unresolved.
- Subsequent to quarter-end, Ryerson signed a long-term University Park, Illinois lease, expected to commence in 2023, with estimated lease assets and liabilities of about $100. The board declared a $0.085-per-share dividend in November, subject to the stated payment terms.
Most important facts for investors to verify
- Whether volume, customer demand, and margins remain resilient amid supply-chain constraints and potentially changing metal prices; monitor LIFO expense and inventory values.
- Operating cash conversion and working-capital requirements, especially receivables and inventory growth, alongside available borrowing capacity.
- The recurring earnings impact after excluding sale-leaseback gains, pension settlement charges, and debt-retirement costs.
- Debt repayment, interest costs, and the full impact of sale-leaseback and subsequent lease commitments.
- Updates on Portland Harbor liability allocation, pension funding requirements, and commodity derivative exposures.