Ryerson Holding Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise stated. Ryerson is a North American and China-based metals processor and distributor. Results are unaudited.
Key financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $1,239.2 million | $1,406.1 million |
| Gross profit / margin | $217.6 million / 17.6% | $264.2 million / 18.8% |
| Operating profit / margin | $0.8 million / 0.1% | $70.0 million / 5.0% |
| Net income (loss) attributable to Ryerson | $(7.6) million | $47.3 million |
| Diluted EPS | $(0.22) | $1.27 |
| Operating cash flow | $(47.8) million | $80.4 million |
| Capital expenditures | $21.8 million | $27.8 million |
Sales fell 11.9% year over year. Tons sold declined 4.2% to 497,000 and average selling price declined 8.0% to $2,493 per ton. Average cost of materials per ton fell 6.5%, less than the decline in selling price, pressuring gross margin. Selling, general, and administrative, warehousing, and delivery expenses rose $22.6 million to $216.8 million, including $9.4 million from 2023 acquisitions and $18.2 million of higher reorganization costs, primarily University Park facility start-up and systems-conversion costs.
Cash, debt, and liquidity
At March 31, 2024, cash and cash equivalents were $41.9 million, total debt was $497.3 million, and net debt was $455 million. Debt rose from $436.5 million at year-end 2023, mainly as borrowings funded higher working capital. Total liquidity, including credit-facility and foreign-facility availability, was $684 million, versus $656 million at December 31, 2023. Ryerson had $597 million available under its $1.3 billion revolving credit facility; facility borrowings were $498 million at a 6.5% weighted-average rate.
Operating cash use reflected increases in receivables and inventory, partly offset by higher accounts payable. Cash and restricted cash totaled $43.0 million at quarter-end. The company paid $6.4 million in dividends and repurchased $1.0 million of shares during the quarter. A $0.1875-per-share dividend was declared for payment in June 2024, subject to the stated record date.
Changes and management commentary
- Management attributed weaker year-over-year results to contracting industrial manufacturing demand, lower metal prices, and reduced shipments. U.S. sales decreased to $1,125.3 million from $1,288.3 million; foreign sales were $113.9 million versus $117.8 million.
- Sequentially, shipments rose 10.4% and average selling prices rose 0.8% from Q4 2023, with normal restocking and stronger demand across most end markets. Ryerson’s North American volumes increased 13.7% sequentially, compared with a 7.0% industry increase.
- Management noted a possible improvement in industrial activity: the U.S. PMI registered 50.3 in March after 16 consecutive contractionary months. The filing gives no specific earnings or revenue guidance.
- Adjusted net loss attributable to Ryerson was $6.2 million, or $(0.18) per diluted share, excluding a $2.2 million pension settlement loss, a $0.3 million curtailment gain, and related tax benefit. These are non-GAAP measures; GAAP net loss was $7.6 million.
Risks, contingencies, and unusual items
- The metals service-center industry is cyclical; metal-price volatility can affect selling prices, inventory values, and gross profit. Management said commodity-price effects on selling prices generally follow market changes over three to six months.
- Floating-rate debt creates interest-rate exposure. Less than 1% of debt was fixed-rate; a hypothetical 1% rate increase would have increased Q1 interest expense by approximately $1.3 million.
- Q1 included a $2.2 million settlement loss from termination of the fully funded Ryerson Canada Bargaining Unit Pension Plan, partly offset by CSW pension settlement and curtailment gains. Minimum required pension contributions of approximately $10.8 million are anticipated for the remaining nine months of 2024.
- The company expects approximately $33 million in debt interest payments over the next 12 months, $48 million of lease payments, and $26 million of supplier purchase obligations due within a year. It reported $9 million of letters of credit and no material changes in disclosed legal contingencies or risk factors.
- U.S. and U.K. restrictions on newly produced Russian aluminum, copper, and nickel may support metal prices, but the impact on Ryerson’s operations was described as unclear.
- Management stated disclosure controls were effective at quarter-end and reported no material change in internal controls over financial reporting.
Important facts for investors to verify
- Whether volumes and selling prices recover, and whether gross margin stabilizes as demand and metal prices change.
- Whether University Park start-up and systems-conversion costs decline, and whether acquired businesses deliver expected operating benefits.
- Working-capital movements, operating cash generation, and resulting revolving-credit borrowings, interest costs, and liquidity.
- Actual pension funding needs and the effect of pension settlements, discount rates, and plan asset returns.
- The effect of metal-price, foreign-exchange, and trade-policy developments; commodity derivatives are marked to market through current earnings.
- Capital allocation and share activity: 30,120 shares were repurchased in Q1, and the CEO disclosed a Rule 10b5-1 plan to sell up to 48,000 shares beginning July 10, 2024.