Ryerson Holding Corporation — Q2 2021 Form 10-Q
Business context and reporting period
Ryerson processes and distributes industrial metals in the U.S., Canada, Mexico, and China. This unaudited report covers the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Amounts are in U.S. dollars unless noted.
Financial and operating performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $1,419.0M | $771.8M | $2,566.3M | $1,782.1M |
| Gross profit / margin | $257.0M / 18.1% | $115.5M / 15.0% | $454.9M / 17.7% | $311.3M / 17.5% |
| Operating profit (loss) | $166.1M | ($10.6M) | $212.5M | $29.5M |
| Net income (loss) attributable to Ryerson | $112.9M | ($25.6M) | $138.2M | ($9.2M) |
| Diluted EPS | $2.91 | ($0.67) | $3.57 | ($0.24) |
| Cash from operating activities | Not separately presented for Q2 | ($51.1M) | $176.1M |
- Q2 sales rose 83.9% year over year; first-half sales increased 44.0%. First-half average selling prices increased 34.3% and tons sold rose 7.2%. Q2 tons sold increased 21.0% and average selling prices increased 51.9%.
- First-half adjusted net income attributable to Ryerson, a non-GAAP measure excluding specified items, was $58.1M versus an adjusted net loss of $8.4M a year earlier; adjusted diluted EPS was $1.50 versus ($0.22).
- First-half operating cash flow was negative as receivables and inventory grew with higher activity, partly offset by increased accounts payable. Investing cash flow was $152.1M, including $165.9M of property-sale proceeds; financing cash flow was negative $124.0M, largely reflecting repayment of short-term borrowings.
- Cash and cash equivalents were $38.1M at June 30, 2021, versus $61.4M at year-end 2020. Total debt was $600.9M versus $740.0M; net debt was $563M versus $679M. Debt-to-capitalization was 67%, down from 84%.
- Reported total liquidity was $890M, comprising $38M cash and $852M availability under the revolving and foreign debt facilities. Revolving facility availability was subject to borrowing-base collateral and other terms.
Material changes and unusual items
- Property sales and leasebacks generated a $107.7M first-half gain ($87.4M in Q2) and $163.2M net cash proceeds. The transactions reduced owned property and added lease assets and obligations.
- First-half LIFO expense was $188.6M, compared with LIFO income of $6.1M in the prior-year period; Q2 LIFO expense was $104.8M versus $14.1M. The filing says selling prices rose faster than average material costs, supporting higher gross margin.
- Metal commodity derivatives generated a $40.1M first-half loss in cost of materials sold. The filing describes these contracts as marked to market through earnings, so results may be volatile.
- Interest and other debt expense fell to $27.1M for the first half from $41.0M, reflecting the replacement of higher-cost 2022 notes and lower revolving borrowings.
Outlook, risks and contingencies
- No formal earnings or revenue guidance is provided. Management reported stronger pricing and demand, with North American tons sold up 6.7% year over year in the first half; Ryerson’s sequential Q2 volume growth outpaced a slightly contracting industry. Management also noted ongoing supply-chain tightness and uncertainty related to COVID-19 and its variants.
- Management viewed aluminum antidumping duties as potentially supportive of domestic prices. Possible infrastructure spending could benefit demand, but the plan’s size, scope, funding, and effects remained uncertain. Removal of Section 232 steel and aluminum tariffs could increase imports and pressure prices and earnings.
- The Portland Harbor Superfund matter remains unallocated: management said it could not estimate Ryerson’s responsibility or a range of potential loss. Other claims were not expected by management to materially affect the company, though amounts were not determinable.
- Other risks include metals-price and demand cyclicality, commodity derivative exposure, pension funding requirements, and COVID-related disruption. The filing notes that 2028 Notes are structurally subordinated to liabilities of non-guarantor subsidiaries.
- After quarter-end, the company redeemed $100M and $50M principal of 2028 Notes for $104.0M and $51.5M, respectively; $300M remained outstanding. It expected to record redemption losses totaling $5.5M plus a $2.8M debt-issuance-cost charge in Q3. The board also approved a $0.08 per-share dividend and authorized up to $50M in share repurchases through August 4, 2023.
- Management stated that disclosure controls and procedures were effective as of June 30, 2021, with no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether revenue, pricing, volumes, and gross margins remain resilient as metal prices and supply conditions change, including the effect of LIFO accounting.
- How much of reported earnings and cash generation is repeatable apart from the sale-leaseback gains and derivative fair-value movements.
- Working-capital needs, operating cash flow, borrowing-base availability, and debt reduction after the July note redemptions.
- Future lease costs and obligations resulting from sale-leasebacks, and the company’s capacity to service debt and fund pension contributions.
- Developments in the Portland Harbor allocation and settlement process, and any change in the potential exposure.