Ryerson Holding Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; it reports fourth-quarter operating improvement versus Q3 but does not provide a complete standalone Q4 income statement in the supplied text.
Business context
Ryerson distributes and processes industrial metals through operations in the United States, Canada, Mexico, and China. It serves approximately 40,000 customers across manufacturing end markets; more than 75% of products sold receive processing or fabrication services. Platinum Equity affiliates owned about 55% of outstanding shares.
Financial performance
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $3,466.6 million | $4,501.6 million |
| Gross profit / gross margin | $621.1 million / 17.9% | $827.9 million / 18.4% |
| Operating profit / margin | $64.6 million / 1.9% | $210.8 million / 4.7% |
| Net income (loss) attributable to Ryerson | $(65.8) million | $82.4 million |
| Diluted EPS | $(1.73) | $2.17 |
| Net cash from operating activities | $277.9 million | $193.1 million |
| Capital expenditures | $26.0 million | $45.8 million |
| Cash and cash equivalents at year-end | $61.4 million | $11.0 million |
| Total debt at year-end | $740.0 million | $981.8 million |
| Net debt (non-GAAP) | $679 million | $923 million |
Shipments declined 15.6% to 2.009 million tons and average selling price per ton declined 8.7% to $1,726. Revenue fell 23.0%. Gross margin contracted 50 basis points, while warehousing, delivery, selling, general, and administrative expense fell $82.5 million, or 13.0%, but rose as a share of sales from 14.1% to 16.0%.
Operating cash flow increased by $84.8 million, driven substantially by working-capital movements, including a $138.9 million cash benefit from lower inventory and $46.7 million from receivables. Total liquidity, a non-GAAP measure, was $373 million: $61 million cash plus $312 million of availability under the revolving and foreign debt facilities. The company reported $277 million available under the Ryerson Credit Facility specifically.
Material changes and unusual items
- Results were heavily affected by pandemic-related demand disruption and weaker metals pricing. North American service-center volumes declined 10.7%; Ryerson’s tons sold declined 17.0% on a North American basis.
- Net loss included $64.6 million of nonrecurring pension settlement charges and $17.7 million of debt-retirement costs. Excluding these and other specified adjustments, management reported adjusted net loss attributable to Ryerson of $3.1 million and adjusted diluted loss per share of $0.08, both non-GAAP measures; comparable 2019 adjusted net income was $67.9 million and adjusted diluted EPS was $1.79.
- Ryerson refinanced its 11.0% notes due 2022 with $500 million of 8.50% notes due 2028, redeemed $50 million of the new notes, and extended its $1.0 billion revolving facility to November 2025. Management estimated the refinancing and subsequent redemption would save about $16 million and a further $4.3 million in annual interest, respectively.
- Cash interest paid fell to $62.0 million from $88.3 million. Year-end debt-to-capitalization was 84%, versus 85% in 2019.
- The $65.9 million pension settlement charge included losses associated with annuity purchases and a lump-sum payout window. The defined-benefit pension obligation was underfunded by $154.4 million at year-end.
Outlook, risks, and contingencies
Management reported improving demand and pricing late in 2020: Q4 volume and pricing increased 0.6% and 2.0%, respectively, compared with Q3. PMI readings indicated manufacturing expansion in the second half of 2020 and into January 2021, but management noted industrial production remained below year-earlier levels. In early 2021, mill lead times were extending and supply was expected to remain tight. The filing gives no company revenue or earnings guidance.
Ryerson anticipated 2021 capital expenditures of up to approximately $40 million, subject to economic conditions and available funding. It expected minimum pension contributions of approximately $29.7 million in 2021, including deferred 2020 contributions, and stated that operating cash flow and facility availability were expected to fund them. Future performance remains exposed to COVID-19, cyclical manufacturing demand, metal-price and inventory volatility, supplier concentration, competition, leverage and covenant requirements, pension funding, foreign exchange, and cyber and operational disruptions.
The EPA has named JT Ryerson as a potentially responsible party in the Portland Harbor Superfund matter. The EPA’s 2017 remedy had an estimated present-value cost of $1.05 billion for the site, but responsibility has not been allocated among parties. Ryerson said it could not determine its potential responsibility or estimate a loss range. Management said other pending claims were not expected to have a material adverse effect.
Goodwill was $120.3 million; impairment testing in 2020 identified no impairment. The filing warns that weaker-than-expected recovery, operating results, or market conditions could lead to future impairment. Ernst & Young issued unqualified opinions on the financial statements and internal controls over financial reporting.
Important facts for investors to verify
- Whether post-pandemic shipment volumes, selling prices, and gross margins recover sustainably, and whether tight mill supply affects customer service or costs.
- How much of 2020 operating cash flow reflected repeatable operations versus temporary working-capital reductions, and how inventory rebuilds affect future cash generation.
- Debt repayment capacity, borrowing-base availability, interest costs, covenant headroom, and the economics and timing of any further note redemptions.
- The scale and timing of pension contributions and sensitivity of the underfunded position to discount rates and investment returns.
- Developments in the Portland Harbor allocation and settlement process, since Ryerson cannot currently estimate its potential exposure.
- Assumptions underlying adjusted earnings, total liquidity, and net debt, which are non-GAAP measures and should be reconciled with GAAP results.