Ryerson Holding Corporation — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Ryerson distributes and processes industrial metals across the U.S., Canada, Mexico, and China; its results are exposed to cyclical metal pricing and demand. Figures below are in millions except per-share data.
Financial performance
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Net sales | $1,204.9 | $1,057.1 | $2,435.7 | $1,998.4 |
| Gross profit / margin | $211.8 / 17.6% | $185.3 / 17.5% | $443.1 / 18.2% | $350.2 / 17.5% |
| Operating profit / margin | $46.1 / 3.8% | $46.4 / 4.4% | $113.4 / 4.7% | $80.8 / 4.0% |
| Net income attributable to Ryerson | $16.4 | $17.5 | $45.9 | $27.9 |
| Diluted EPS | $0.43 | $0.46 | $1.21 | $0.74 |
| Cash from operations | Not separately provided | Not separately provided | $48.0 | $(17.9) |
- Q2 sales rose 14.0% year over year, while operating profit was nearly flat and Ryerson-attributable net income declined. First-half sales increased 21.9%, operating profit 40.3%, and attributable net income 64.5%.
- Growth chiefly reflects the July 2018 Central Steel & Wire (CS&W) acquisition and higher metal prices. On a same-store basis, Q2 sales fell 0.6% and tons sold fell 2.2%; first-half same-store sales rose 5.5%, as average selling prices increased 7.1% while tons declined 1.4%.
- CS&W contributed $154.3 of Q2 revenue and a $1.4 net loss; for the first half it contributed $326.5 revenue and $2.2 net income.
- Q2 SG&A and distribution expenses increased 18.5% overall, including CS&W. Excluding CS&W, those expenses declined $5.2, principally due to lower incentive compensation. First-half LIFO income was $33.0 versus $57.2 of LIFO expense in 2018, supporting the margin comparison.
Cash, debt, and liquidity
- At June 30, cash and cash equivalents were $22.8; total debt was $1,115.7, down from $1,153.3 at year-end 2018. Debt-to-capitalization was 89%, versus 94% at year-end.
- Total liquidity, a company-defined non-GAAP measure, was $450: $23 cash and $427 available under revolving and foreign debt facilities. The U.S. revolving facility had $395 available; its maturity is November 2021.
- First-half operating cash flow of $48.0 was driven by earnings and working-capital movements, including higher accounts payable; receivables, inventory, and lower accrued liabilities partly offset cash generation. Investing used $14.8, including $23.4 of capital expenditures and $8.6 of asset-sale proceeds. Financing used $33.6, including lower revolver borrowings and $11.8 paid to repurchase 2022 Notes.
- Debt includes $587.9 of 11.00% senior secured notes due 2022 and $511.9 drawn on the revolving credit facility. Interest expense was $23.9 in Q2 and $47.8 for the first half. The company repurchased $11.6 principal of the notes during the first half.
Outlook, risks, and unusual items
- No numerical earnings or sales guidance is provided. Management said operating cash flow and credit-facility availability should fund normal operating needs and the approximately $14 of remaining 2019 minimum pension contributions.
- Management reported stronger pricing but weaker same-store demand in the first half. It noted that metal-price changes typically affect selling prices over the following three to six months, and that the industry is cyclical and difficult to predict.
- Trade tariffs and related policy changes create uncertainty in metal prices, supply, and demand. The filing also identifies global metal overcapacity and imports as potential sources of price pressure.
- Q2 metal commodity derivative losses were $9.6; the total loss on derivatives not designated as hedges was $9.8 for the quarter and $7.4 for the first half. Such mark-to-market changes affect current earnings. Interest-rate swaps cover $210 of floating-rate debt.
- The Portland Harbor Superfund matter remains unresolved. EPA has not allocated responsibility among potentially responsible parties, and Ryerson cannot estimate its potential loss or a range of loss. Management considers other pending claims not likely to materially affect the company.
- Adoption of lease accounting in 2019 added operating lease assets and liabilities; initial adoption recorded $82.3 of assets and $87.6 of liabilities. The filing reports $125.8 of total lease liabilities at June 30.
Most important facts for investors to verify
- Whether same-store demand and shipment volumes stabilize, and whether pricing and margins hold as metal prices flow through inventory.
- CS&W’s integration and profitability, given its Q2 net loss and its material contribution to reported sales growth.
- Debt reduction, refinancing or repayment capacity before the 2022 notes mature, and the company’s high debt-to-capitalization ratio.
- Working-capital cash conversion, revolver availability under its borrowing base, and required pension funding.
- Potential exposure and timing related to the Portland Harbor Superfund remediation and allocation process.