Ryerson Holding Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Ryerson is a North American and China-based value-added processor and distributor of industrial metals. Comparisons below are to Q1 2020 unless otherwise noted. Amounts are in U.S. dollars.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparator |
|---|---|---|
| Net sales | $1,147.3 million | $1,010.3 million; up 13.6% |
| Tons sold / average selling price per ton | 543,000 / $2,113 | 566,000 / $1,785; volume down 4.1%, price up 18.4% |
| Gross profit / gross margin | $197.9 million / 17.2% | $195.8 million / 19.4% |
| Operating profit | $46.4 million | $40.1 million |
| Net income attributable to Ryerson / diluted EPS | $25.3 million / $0.66 | $16.4 million / $0.43 |
| Adjusted net income attributable to Ryerson / adjusted diluted EPS (non-GAAP) | $10.2 million / $0.26 | $15.8 million / $0.41 |
| Cash from operating activities | $(47.3) million | $72.8 million |
| Cash and cash equivalents at March 31 | $43.3 million | $61.4 million at December 31, 2020 |
| Total debt / net debt at March 31 | $741.4 million / $698 million | $740.0 million / $679 million at December 31, 2020 |
| Total liquidity at March 31 | $583 million | $373 million at December 31, 2020 |
- Cost of materials sold rose 16.6%, faster than sales, and represented 82.8% of sales versus 80.6%. The company recorded $83.8 million of LIFO expense, compared with $20.2 million of LIFO income in Q1 2020.
- Adjusted results exclude the $20.3 million gain on sale of the Renton facility and related tax effect. Q1 2020 adjusted results excluded a $0.8 million gain on retirement of debt and related tax effect.
- Operating cash use reflected working-capital needs, particularly a $165.2 million increase in receivables, partly offset by a $118.5 million increase in accounts payable. Investing cash provided was $22.0 million, including $29.0 million of property-sale proceeds; capital expenditures were $6.5 million.
- At March 31, the revolving credit facility had $282 million outstanding and $509 million available; total availability under the credit facility and foreign facilities was reported as $540 million. The facility matures in 2025. The $450 million 8.50% senior secured notes mature in 2028.
Changes, outlook, and risks
- Management described metal pricing as stronger and demand as still recovering. Average selling prices rose 18.4%, while shipments fell 4.1%; North American tons sold declined 6.1%. Industry indicators, including the U.S. manufacturing PMI, showed expansion, though demand remained uneven across customer sectors.
- Revenue and GAAP earnings increased, but gross margin contracted because average material costs rose faster than selling prices. Adjusted net income and adjusted EPS declined year over year.
- Management gave no specific numerical earnings or sales guidance. It said the pandemic, supply-chain tightness, demand, and market conditions remain uncertain, and that it continues to monitor liquidity and manage costs and working capital.
- The Renton facility sale generated a $20.3 million operating gain and $29.0 million in proceeds. These proceeds were a material, nonrecurring contributor to reported results and investing cash flow.
- Commodity derivatives generated a $10.7 million loss in Q1. The company cautioned that metals-price declines can pressure selling prices, gross profit, and earnings; inventory accounting is particularly exposed to price movements under LIFO.
- Ryerson is a potentially responsible party in the Portland Harbor Superfund matter. Remediation and allocation processes were ongoing; management said it could not determine responsibility or estimate a potential loss.
- The company contributed $17 million to pension plans in Q1 and expected approximately $5 million in minimum required contributions for the remaining nine months of 2021, subject to further guidance and funding requirements.
- Other risks include COVID-19 impacts, interest-rate and foreign-exchange movements, potential impairment of goodwill or long-lived assets if conditions deteriorate, and structural subordination of the 2028 Notes to liabilities of non-guarantor subsidiaries. Management reported disclosure controls were effective at quarter-end.
Important facts for investors to verify
- Whether improved metal pricing translates into sustained margin recovery, given the faster increase in material costs and significant LIFO expense.
- Whether receivables and inventory growth, supplier payments, and other working-capital movements improve enough to restore positive operating cash flow.
- The sustainability of reported earnings after excluding the Renton sale gain, and the assumptions used in management’s non-GAAP adjusted measures.
- Current borrowing-base availability, covenant requirements, debt service costs, and the company’s ability to maintain liquidity through changing market conditions.
- Developments in the Portland Harbor matter, pension funding requirements, COVID-19 and supply-chain exposure, and volatility in metal prices and derivative valuations.