Ryerson(RYI) - 2023 Q1 - Quarterly Report

Part I. Financial Information Financial Statements Ryerson's Q1 2023 net sales decreased to $1.41 billion with net income of $47.5 million, while diluted EPS fell to $1.27 and total assets increased to $2.40 billion Condensed Consolidated Statements of Comprehensive Income Q1 2023 vs Q1 2022 Performance | Metric | Q1 2023 (in millions) | Q1 2022 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $1,406.1 | $1,748.8 | -19.6% | | Gross Profit | $264.2 | $410.1 | -35.6% | | Operating Profit | $70.0 | $234.8 | -70.2% | | Net Income | $47.5 | $163.8 | -71.0% | | Diluted EPS | $1.27 | $4.17 | -69.5% | Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $80.4 | $82.5 | | Net cash used in investing activities | $(66.7) | $(20.8) | | Net cash used in financing activities | $(9.9) | $(68.1) | | Net change in cash | $4.5 | $(6.6) | - Investing activities increased significantly in Q1 2023, driven by $38.9 million for acquisitions and $27.8 million in capital expenditures, compared to $3.0 million and $18.8 million respectively in Q1 2022[16] - Financing activities in Q1 2023 included $53.2 million in share repurchases, a substantial increase from $0.5 million in Q1 2022. Debt repayment was minimal at $0.4 million compared to $68.8 million in the prior-year period[16] Condensed Consolidated Balance Sheets Balance Sheet Summary | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $1,456.5 | $1,441.6 | | Total Assets | $2,401.5 | $2,334.3 | | Total Current Liabilities | $665.4 | $619.2 | | Long-term Debt | $391.1 | $361.2 | | Total Liabilities | $1,520.5 | $1,441.3 | | Total Equity | $881.0 | $893.0 | - Inventories decreased to $710.7 million as of March 31, 2023, from $798.5 million at the end of 2022[18] Notes to Condensed Consolidated Financial Statements - On March 1, 2023, JT Ryerson acquired BLP Holdings, LLC for $38.5 million, adding complex fabrication services such as saw cutting, machining, and water jet cutting[32] - On February 28, 2023, Ryerson Holding repurchased 1,513,420 shares of its common stock from Platinum Equity for $53.0 million. Concurrently, Platinum sold 2,486,580 shares in a secondary offering, reducing its ownership from approximately 43% to 33%[20][66] - Subsequent to the quarter end, on May 1, 2023, the Board of Directors increased the share repurchase authorization to $100.0 million and extended it to April 2025. A quarterly dividend of $0.18 per share was also declared[83][84] Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2023 revenue declined 19.6% due to lower prices and volumes, gross margin contracted to 18.8%, operating expenses rose 10.8%, while operating cash flow was $80.4 million and total liquidity remained strong at $856 million Industry and Operating Trends - The metals service center industry experienced cyclical volatility in Q1 2023. Ryerson's average selling prices were 18.2% lower than Q1 2022, attributed to a less constrained commodity pricing environment compared to the prior year's surge[91] - Key industry indicators like the ISM Purchasing Managers' Index (PMI) showed contraction in factory activity during Q1 2023[92] - Ryerson's North American volumes decreased by 0.9% YoY, underperforming the Metal Service Center Institute's reported industry-wide volume increase of 5.5% for the same period[93] Results of Operations Q1 2023 vs Q1 2022 Operational Metrics | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,406.1M | $1,748.8M | -19.6% | | Tons Sold (thousands) | 519 | 528 | -1.7% | | Avg. Selling Price/Ton | $2,709 | $3,312 | -18.2% | | Gross Profit | $264.2M | $410.1M | -35.6% | | Gross Margin | 18.8% | 23.5% | -470 bps | | Operating Profit | $70.0M | $234.8M | -70.2% | - Warehousing, delivery, selling, general, and administrative expenses increased by $18.9 million (10.8%) YoY, primarily due to expenses from recent acquisitions ($6.1 million), higher salaries ($4.3 million), and increased operating costs ($3.6 million)[115][116] - Interest expense decreased by 26.2% to $7.6 million due to the retirement of the 8.50% senior secured notes in 2022, partially offset by higher borrowings and rates on the revolving credit facility[118] Liquidity and Cash Flows Liquidity Position | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $43.7 | $39.2 | | Total Debt | $395.1 | $367.0 | | Net Debt | $351.4 | $327.8 | | Total Liquidity | $856 | $909 | - Net cash from operating activities was $80.4 million, driven by a decrease in inventory levels, which offset an increase in accounts receivable[125] - Cash used in investing activities was $66.7 million, mainly for the $38.5 million acquisition of BLP Holdings, LLC and $27.8 million in capital expenditures[126] - Cash used in financing activities was $9.9 million, reflecting $53.2 million in share repurchases and $6.0 million in dividends, funded by a net increase of $28.3 million in short-term borrowings[127] Capital Resources and Material Cash Requirements - The company expects to make principal payments of approximately $400.8 million to satisfy debt obligations, primarily the $395.0 million for the Ryerson Credit Facility due in 2027[133] - Future lease payments are estimated at $320 million, with $40 million due over the next 12 months[135] - As of March 31, 2023, the company had outstanding purchase obligations of approximately $25.9 million expiring within a year[136] Quantitative and Qualitative Disclosures About Market Risk Primary market risks include interest rates, foreign currency, and commodity prices, with 99% of debt variable-rate; a 1% interest rate hike would increase Q1 2023 interest expense by $1.1 million - A hypothetical 1% increase in interest rates on variable debt would have increased interest expense for Q1 2023 by approximately $1.1 million[140] - The company held foreign currency contracts with a notional amount of $3.1 million and various commodity swap contracts, including 28,986 tons of hot roll coil and 19,228 tons of aluminum[141][145] - A hypothetical 10% change in commodity prices would impact the fair value of commodity derivative contracts by $1.7 million as of March 31, 2023[146] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls over financial reporting during the quarter - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[148] - No changes in internal controls over financial reporting occurred during the quarter ended March 31, 2023, that have materially affected or are reasonably likely to materially affect the company's controls[149] Part II. Other Information Legal Proceedings The company is involved in various legal actions, including designation as a PRP for the Portland Harbor Superfund Site, with no material adverse effect anticipated - JT Ryerson is named as a potentially responsible party (PRP) for the Portland Harbor Superfund Site, with a final cost allocation among PRPs not anticipated until 2024 or 2025. The ultimate outcome and potential loss cannot be estimated at this time[51][53][56] Risk Factors No material changes to risk factors have occurred since the company's 2022 Annual Report on Form 10-K - No material changes to risk factors have occurred since the company's 2022 Annual Report on Form 10-K[153] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1,518,433 shares in Q1 2023, including a significant transaction with Platinum Equity, with $20.0 million remaining under the program Q1 2023 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2023 | — | $— | | Feb 2023 | 1,513,420 | $35.02 | | Mar 2023 | 5,013 | $33.56 | | Total | 1,518,433 | N/A | - On May 1, 2023, the Board of Directors authorized an increase in the existing share repurchase program to $100.0 million, expiring in April 2025[155] Exhibits Exhibits filed with the Form 10-Q include a CEO retention bonus agreement and Sarbanes-Oxley Act certifications by the CEO and CFO - Exhibits filed include certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002[157]