Ryerson Holding Corp. — Q1 2020 Form 10-Q
Business context and reporting period. Ryerson is a value-added processor and distributor of industrial metals, operating in the U.S., Canada, Mexico, and China. This unaudited filing covers the three months ended March 31, 2020; comparisons are with Q1 2019 unless otherwise noted. The business is cyclical and exposed to metals prices, industrial demand, and working-capital swings.
Key financial results
| Metric | Q1 2020 | Q1 2019 / comparator |
|---|---|---|
| Net sales | $1,010.3 million | $1,230.8 million; down 17.9% |
| Tons sold / average selling price per ton | 566,000 / $1,785 | 619,000 / $1,988; down 8.6% / 10.2% |
| Gross profit / gross margin | $195.8 million / 19.4% | $231.3 million / 18.8% |
| Operating profit / margin | $40.1 million / 4.0% | $67.3 million / 5.5% |
| Net income attributable to Ryerson / diluted EPS | $16.4 million / $0.43 | $29.5 million / $0.78 |
| Operating cash flow | $72.8 million provided | $18.5 million used |
| Capital expenditures | $6.9 million | $11.3 million |
| Total debt / cash and cash equivalents | $1,096.1 million / $188.3 million | Debt $981.8 million and cash $11.0 million at Dec. 31, 2019 |
At March 31, 2020, total liquidity was $396 million, including $188 million cash, $15 million restricted cash from asset sales, and $193 million of credit-facility and foreign-facility availability. Net debt was $893 million, versus $923 million at year-end. Debt-to-capitalization was 86%, compared with 85% at year-end. Credit-facility availability was $159 million, down from $348 million at December 31, 2019.
Changes and drivers
- Sales fell as both shipments and average selling prices declined, reflecting continued metals-market weakness and the initial effects of COVID-19. Demand softness was broad, notably in construction, oil and gas, commercial transportation, and consumer durables.
- Gross profit declined 15.3%, but gross margin increased to 19.4% from 18.8% because material cost per ton fell faster than selling price per ton. Q1 LIFO income was $20.2 million, essentially unchanged from $20.1 million a year earlier.
- Operating profit fell 40.4%. Operating expenses declined 4.9%, but represented a larger share of sales (15.4% versus 13.3%), weighing on operating margin.
- Income tax expense was $2.9 million versus $13.0 million; management attributed the lower effective rate mainly to the geographic mix of earnings.
- Cash from operations improved year over year. Cash flow included a $98.5 million increase in accounts payable, alongside a $69.4 million use of cash from receivables.
- Ryerson borrowed approximately $166 million on its $1.0 billion revolving credit facility as a precautionary liquidity measure. It also repurchased and retired $54.6 million principal amount of its 11% senior secured notes, recognizing a $0.8 million gain.
Outlook, risks, and unusual items
- COVID-19: Management reported that Q2 demand to date had been negatively affected and expected Q3 to remain affected by economic pressure; the duration and financial impact were uncertain. Most facilities continued operating as an essential business, while two facilities in Mexico were temporarily closed. Management anticipated potential metals-price weakness and gross-margin contraction, partly offset by mill capacity reductions.
- Response and spending: Actions included tighter working-capital and inventory management, reduced discretionary spending, employee furloughs or reduced hours, pay reductions, deferred pension and tax payments, and delayed or reduced capital spending. The annual capital expenditure budget was reduced from $45 million to $25 million, with spending focused on critical sustaining projects.
- Liquidity and debt: Management stated that cash, operating cash flow, and borrowing sources were expected to meet requirements in the normal course. However, liquidity was lower than at year-end, credit availability had declined, and the filing identifies risks to liquidity and covenant compliance if economic conditions weaken. The credit facility matures in November 2021; its $67.9 million FILO subfacility matures June 30, 2020.
- Environmental contingency: JT Ryerson is a potentially responsible party in the Portland Harbor Superfund matter. The EPA had not allocated responsibility, and management could not estimate a potential loss range or predict the outcome.
- Asset and market risks: Management found no goodwill impairment trigger as of March 31, but warned that further deterioration could lead to future impairment. Commodity derivatives generated a $2.0 million loss; interest-rate swaps had a $4.9 million net liability. The filing also highlights exposure to interest rates, foreign exchange, metal prices, tariffs, and pension-asset returns.
- Guidance: The filing gives no formal earnings or revenue guidance. Management’s stated outlook is qualitative and emphasizes uncertain, pandemic-related demand and pricing pressures.
Important facts for investors to verify
- Subsequent-quarter sales, shipments, pricing, and gross-margin trends, particularly the effects of COVID-19 and customer shutdowns.
- Available borrowing capacity, borrowing-base limits, covenant headroom, and the June 2020 FILO and November 2021 credit-facility maturities.
- Cash generation quality, including the contribution of accounts-payable timing and the progress of inventory and receivables management.
- Developments in the Portland Harbor matter, including EPA allocation decisions and any settlement or estimated-loss disclosure.
- Whether weaker demand, prices, or market capitalization require impairment testing or changes to credit-loss and pension assumptions.