Ryerson Holding Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Ryerson is a value-added industrial metals processor and distributor operating in the U.S., Canada, Mexico, and China. Figures are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $1,543.1 | $1,575.1 | $5,035.4 | $4,141.4 |
| Gross profit / margin | $271.0 / 17.6% | $364.6 / 23.1% | $1,147.0 / 22.8% | $819.5 / 19.8% |
| Operating profit / margin | $84.5 / 5.5% | $184.4 / 11.7% | $606.1 / 12.0% | $396.9 / 9.6% |
| Net income attributable to Ryerson | $55.1 | $49.7 | $415.1 | $187.9 |
| Diluted EPS | $1.46 | $1.27 | $10.78 | $4.84 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $319.6 | $(71.8) |
Liquidity, debt and capital
- At September 30, cash and cash equivalents were $50.9; total debt was $476.9, down from $639.3 at December 31, 2021. Net debt was $426.0 versus $588.1.
- Total liquidity, including cash and available credit, was $906 million, compared with $741 million at year-end 2021. The $1.3 billion revolving credit facility had $471 million drawn and $815 million available; its maturity was extended to June 2027.
- Debt-to-capitalization declined to 35% from 54%. Ryerson retired the remaining $300 million principal of its 8.50% 2028 Notes during the first nine months, recognizing a $21.3 million loss on debt retirement.
- Capital expenditures were $71.2 million; dividends paid were $14.0 million and share repurchases totaled $49.1 million in the first nine months. The board later declared a $0.16 per-share quarterly dividend, payable December 15, 2022, subject to record-date requirements.
Changes versus prior comparable periods
- Q3: Sales declined 2.0%; tons shipped fell 1.3% and average selling price declined 0.7%. Gross profit fell 25.7%, and operating profit fell 54.2%. Management attributed margin pressure to declining selling prices alongside higher-cost inventory received from earlier purchases.
- Nine months: Sales increased 21.6%, as average selling prices rose 26.0%, partly offset by a 3.5% decline in tons shipped. Gross profit increased 40.0% and operating profit increased 52.7%.
- Operating cash flow improved to $319.6 million from a $71.8 million use of cash, as stronger earnings more than offset working-capital investment. Inventory increased to $933.1 million from $832.1 million at year-end.
- Q3 net income was higher year over year despite weaker operating profit, in part because Q3 2021 included a $98.3 million pension settlement charge.
Outlook, commentary and risks
- Management described the metals service-center industry as cyclical and volatile. It cited slowing factory growth, higher inflation and interest rates, and lower metals pricing. North American service-center volumes declined 2.9% year over year in the first nine months; Ryerson volumes declined 2.3% over that period and 4.3% sequentially in Q3.
- No specific earnings or revenue guidance was provided. Management said operating cash flow and facility availability were expected to provide sufficient funds for normal operating requirements. It viewed federal infrastructure spending as a potential source of demand, but said the ultimate impact was unclear.
- Inventory accounting: Ryerson changed its interim LIFO estimation method in Q1 2022, projecting year-end levels and costs and allocating the estimate across quarters. Nine-month LIFO income was $92.7 million, versus $290.9 million of LIFO expense in 2021; management linked the change to forecast lower year-end prices. The annual LIFO method and year-end amounts are stated to be unaffected by the interim estimate change.
- Interest-rate exposure increased: the weighted-average rate on credit-facility borrowings was 4.4% at September 30 versus 2.5% at year-end 2021; no interest-rate swaps remained outstanding. Management estimated a 1% rate increase would have added approximately $3.2 million to first-nine-month interest expense.
- A potential environmental liability at the Portland Harbor Superfund Site remains unallocated. Ryerson said it could not estimate its responsibility or a range of potential loss. Management stated other pending claims were not expected to materially affect the company, though their amounts were not determinable.
- Other developments included acquisitions of Apogee, Ford Tool Steels, and Howard Precision Metals, and a 30% investment in FreeFORM Manufacturing. Howard was acquired August 31; a further acquisition, Excelsior, closed November 1, after quarter-end. On May 13, Platinum Equity’s ownership fell from approximately 54% to 43% following a secondary offering and Ryerson repurchase, ending Ryerson’s NYSE “controlled company” status.
Key facts for investors to verify
- Whether falling metals prices and higher-cost inventory continue to pressure gross margins and earnings.
- How much of nine-month earnings and margin improvement reflects LIFO effects, and the eventual full-year LIFO result.
- Credit-facility borrowing levels, variable-rate interest costs, and available borrowing capacity as market conditions change.
- Developments in the Portland Harbor remediation and allocation process, including any eventual estimate of Ryerson’s potential exposure.
- Cash conversion, inventory levels, and returns on increased capital spending, acquisitions, dividends, and share repurchases.