Ryerson(RYI) - 2024 Q1 - Quarterly Results

First Quarter 2024 Performance Highlights Financial and Operational Highlights Ryerson reported Q1 2024 revenue of $1.24 billion, a sequential increase of 11.4%, but a year-over-year decrease of 11.9%; the company experienced a net loss of $7.6 million, or ($0.22) per diluted share, a significant decline from both the prior quarter and the same period last year; key operational milestones include the start-up of the University Park, IL service center and the completion of a major ERP system integration; in response to market conditions, the company announced a $40 million annualized cost reduction plan Financial Highlights | Financial Highlights: | Q1 2024 | Q4 2023 | Q1 2023 | QoQ | YoY | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue (Millions) | $1,239.2 M | $1,112.4 M | $1,406.1 M | 11.4% | (11.9)% | | Tons shipped (thousands) | 497 | 450 | 519 | 10.4% | (4.2)% | | Gross margin | 17.6% | 22.2% | 18.8% | -460 bps | -120 bps | | Net income (loss) (Millions) | $(7.6) M | $25.8 M | $47.3 M | (129.5)% | (116.1)% | | Diluted earnings (loss) per share | $(0.22) | $0.74 | $1.27 | $(0.96) | $(1.49) | | Adj. EBITDA, excl. LIFO (Millions) | $40.2 M | $25.9 M | $90.1 M | 55.2% | (55.4)% | | Net debt (Millions) | $455.4 M | $382.2 M | $351.4 M | 19.2% | 29.6% | - Key operational achievements include the start of operations at the University Park, IL service center and the completion of an ERP conversion and integration program across 31 service centers[2][5] - The company announced a plan for $40 million in expected annualized cost reductions through targeted workforce reductions and network cost-outs, with $25 million in savings expected during the remainder of 2024[5][7] - Capital expenditures are planned to be $110 million in 2024, decreasing to an expected $50 million in 2025 as the company shifts from investment to integration and optimization[5] Management Commentary CEO Eddie Lehner acknowledged that Q1 2024 results missed earnings guidance due to lower-than-expected gross margins from declining commodity prices and transitory operating expenses related to a significant investment cycle; he highlighted the completion of major strategic investments, including a new service center and a unified ERP system, as foundational for future growth; the company is now pivoting to an integration and optimization phase, targeting $40 million in annual cost savings to improve performance as it navigates counter-cyclical business conditions - Management noted two key milestones: the start of operations at the University Park, IL service center and the completion of the ERP system unification program, which are central to Ryerson's next-generation operating model[6] - The company missed its earnings per share and Adjusted EBITDA guidance for Q1; this was attributed to lower gross margins from declining commodity prices and transitory operating expenses from its investment cycle[7] - Ryerson is initiating a cost-saving program targeting $40 million in annual reductions, with $25 million expected to be realized in the remainder of 2024, as it shifts focus to integrating and optimizing recent investments[7] - Management is encouraged by stabilization in the carbon sheet market and improvements in bright metal commodity price indices moving into the second quarter[7] Detailed Financial Performance First Quarter Results Analysis In Q1 2024, net sales rose 11.4% sequentially to $1.24 billion, driven by a 10.4% increase in volumes; however, gross margin contracted significantly to 17.6% from 22.2% in Q4 2023, primarily due to a large LIFO income in the prior quarter; excluding LIFO, gross margin expanded by 70 basis points; operating expenses increased by 6.4% due to investment-related costs, contributing to a net loss of $7.6 million, compared to a net income of $25.8 million in the previous quarter - Net sales increased 11.4% quarter-over-quarter to $1.24 billion, driven by a 10.4% rise in shipment volumes and a 0.8% increase in average selling prices[8] - Gross margin fell by 460 basis points to 17.6% compared to Q4 2023; this was mainly due to a $59 million LIFO income in Q4 2023 versus a $1 million LIFO expense in Q1 2024; excluding LIFO, gross margin increased by 70 basis points to 17.6%[9] - Warehousing, delivery, selling, general and administrative expenses rose 6.4% sequentially to $216.8 million, primarily from higher investment-related expenses and costs from recent acquisitions[10] - The company reported a net loss of $7.6 million, or ($0.22) per diluted share; Adjusted EBITDA, excluding LIFO, was $40.2 million, up from $25.9 million in Q4 2023[11] Major Product Metrics In Q1 2024, Carbon Steel remained the largest segment by revenue ($645 million) and volume (385 thousand tons), with sales up 12.2% QoQ; Aluminum sales grew 14.5% QoQ to $276 million, driven by a 9.9% increase in average selling price; Stainless Steel sales increased 9.6% QoQ to $297 million, despite a 6.6% decline in average selling price, supported by a 17.3% surge in tons shipped; year-over-year, all product categories saw declines in both revenue and average selling prices Major Product Metrics | Metric | Q1 2024 | Q4 2023 | Q1 2023 | QoQ Change | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales (millions) | | | | | | | Carbon Steel | $645 | $575 | $692 | 12.2% | (6.8)% | | Aluminum | $276 | $241 | $310 | 14.5% | (11.0)% | | Stainless Steel | $297 | $271 | $378 | 9.6% | (21.4)% | | Tons Shipped (thousands) | | | | | | | Carbon Steel | 385 | 347 | 402 | 11.0% | (4.2)% | | Aluminum | 50 | 48 | 52 | 4.2% | (3.8)% | | Stainless Steel | 61 | 52 | 63 | 17.3% | (3.2)% | | Avg. Selling Prices (per ton) | | | | | | | Carbon Steel | $1,675 | $1,657 | $1,721 | 1.1% | (2.7)% | | Aluminum | $5,520 | $5,021 | $5,962 | 9.9% | (7.4)% | | Stainless Steel | $4,869 | $5,212 | $6,000 | (6.6)% | (18.9)% | Financial Condition and Shareholder Returns Liquidity & Debt Management Ryerson used $47.8 million in operating cash during Q1 2024, primarily due to a $32.3 million build in working capital (inventory and receivables) and the net loss; consequently, net debt increased by $73 million sequentially to $455 million; the net leverage ratio rose to 2.5x, which is above the company's target range; despite the cash usage, total liquidity improved to $684 million - The company used $47.8 million of cash from operating activities, largely due to a $32.3 million increase in working capital as inventory and receivables grew[12] - Net debt increased to $455 million as of March 31, 2024, up from $382 million at the end of 2023; the net leverage ratio (Net debt / LTM Adj. EBITDA, excl. LIFO) increased to 2.5x from 1.7x in the prior quarter[4][12] - Total liquidity, comprising cash and availability on revolving credit facilities, increased to $684 million at the end of Q1 2024 from $656 million at the end of Q4 2023[12] Shareholder Return Activity Ryerson maintained its commitment to shareholder returns in Q1 2024; the Board of Directors declared a quarterly cash dividend of $0.1875 per share, unchanged from the previous quarter; additionally, the company repurchased 30,120 shares for $1.0 million, leaving $38.4 million remaining under its current share repurchase authorization - The Board of Directors declared a quarterly cash dividend of $0.1875 per share, payable on June 20, 2024; this is unchanged from the prior quarter's dividend, which amounted to a cash return of approximately $6.4 million[13] - During the first quarter, Ryerson repurchased 30,120 shares for $1.0 million; as of March 31, 2024, $38.4 million remained available under the $100.0 million share repurchase authorization, which extends through April 2025[14] Outlook Second Quarter 2024 Guidance For the second quarter of 2024, Ryerson anticipates modest sequential growth; the company projects a 1% to 3% increase in customer shipments and a 0% to 1% rise in average selling prices, resulting in net sales between $1.25 billion and $1.29 billion; Adjusted EBITDA, excluding LIFO, is expected to be in the range of $47 million to $53 million, with earnings per diluted share forecasted between $0.15 and $0.25 Q2 2024 Guidance | Metric | Q2 2024 Guidance Range | | :--- | :--- | | Customer Shipments Growth (QoQ) | 1% to 3% | | Average Selling Prices Growth (QoQ) | 0% to 1% | | Net Sales | $1.25 billion to $1.29 billion | | LIFO Expense | $1 million | | Adjusted EBITDA, excluding LIFO | $47 million to $53 million | | Earnings per Diluted Share | $0.15 to $0.25 | Financial Statements and Reconciliations (Schedules) Selected Income and Cash Flow Data The unaudited income statement for Q1 2024 shows net sales of $1.239 billion, leading to an operating profit of just $0.8 million after accounting for cost of materials and operating expenses; following interest expenses, the company reported a pre-tax loss of $9.5 million and a net loss attributable to Ryerson of $7.6 million; cash flow from operations was negative at ($47.8 million) Selected Income and Cash Flow Data | (In Millions) | Q1 2024 | Q1 2023 | Q4 2023 | | :--- | :--- | :--- | :--- | | NET SALES | $1,239.2 | $1,406.1 | $1,112.4 | | Gross profit | $217.6 | $264.2 | $247.2 | | OPERATING PROFIT | $0.8 | $70.0 | $43.5 | | INCOME (LOSS) BEFORE INCOME TAXES | $(9.5) | $62.3 | $33.5 | | NET INCOME (LOSS) ATTRIBUTABLE TO RYERSON | $(7.6) | $47.3 | $25.8 | | Diluted EPS | $(0.22) | $1.27 | $0.74 | | Cash flow from operating activities | $(47.8) | $80.4 | $90.1 | Condensed Consolidated Balance Sheets As of March 31, 2024, Ryerson's total assets were $2.72 billion, an increase from $2.57 billion at year-end 2023; the growth was driven by higher receivables and inventories; total liabilities also increased to $1.82 billion from $1.66 billion, primarily due to rises in accounts payable and long-term debt; total stockholders' equity slightly decreased to $888.5 million Condensed Consolidated Balance Sheets | (In Millions) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $1,525.3 | $1,383.4 | | Inventories | $841.2 | $782.5 | | Property, plant, and equipment, net | $594.7 | $589.6 | | Total assets | $2,720.2 | $2,569.6 | | Total current liabilities | $729.0 | $633.9 | | Long-term debt | $493.6 | $428.3 | | Total liabilities | $1,823.0 | $1,655.1 | | Total Ryerson Stockholders' Equity | $888.5 | $905.9 | Reconciliation of Net Income to EBITDA This schedule reconciles the GAAP Net Loss of ($7.6 million) to non-GAAP measures; after adjustments for interest, taxes, depreciation, and amortization, EBITDA for Q1 2024 was $17.8 million; further adjustments for items like reorganization expenses resulted in an Adjusted EBITDA of $39.2 million; excluding a $1.0 million LIFO expense, the Adjusted EBITDA, excluding LIFO, was $40.2 million, yielding a margin of 3.2% on net sales Reconciliation of Net Income to EBITDA | (In Millions) | Q1 2024 | Q1 2023 | Q4 2023 | | :--- | :--- | :--- | :--- | | Net income (loss) attributable to Ryerson | $(7.6) | $47.3 | $25.8 | | EBITDA | $17.8 | $83.4 | $62.9 | | Adjusted EBITDA | $39.2 | $86.1 | $85.2 | | LIFO expense (income) | $1.0 | $4.0 | $(59.3) | | Adjusted EBITDA, excluding LIFO | $40.2 | $90.1 | $25.9 | Reconciliation to Adjusted Net Income and EPS The reconciliation from GAAP to non-GAAP earnings shows that after adjusting the Q1 2024 net loss of ($7.6 million) for items such as pension settlement loss and benefit plan curtailment gain, the Adjusted Net Loss was ($6.2 million); this translates to an Adjusted Diluted Loss Per Share of ($0.18) Reconciliation to Adjusted Net Income and EPS | (In Millions, except per share) | Q1 2024 | Q1 2023 | Q4 2023 | | :--- | :--- | :--- | :--- | | Net income (loss) attributable to Ryerson | $(7.6) | $47.3 | $25.8 | | Adjusted net income (loss) | $(6.2) | $47.3 | $25.2 | | Adjusted diluted earnings (loss) per share | $(0.18) | $1.27 | $0.73 | Free Cash Flow Reconciliation In Q1 2024, Ryerson had a negative free cash flow of ($68.2 million); this was calculated by starting with ($47.8 million) in cash used in operating activities and subtracting $21.8 million in capital expenditures, offset by $1.4 million in proceeds from asset sales Free Cash Flow Reconciliation | (In Millions) | Q1 2024 | Q1 2023 | Q4 2023 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(47.8) | $80.4 | $90.1 | | Capital expenditures | $(21.8) | $(27.8) | $(25.4) | | Free cash flow | $(68.2) | $52.6 | $65.1 | Q2 2024 Guidance Reconciliation This schedule provides a reconciliation for the Q2 2024 guidance; it shows the path from a projected Net Income of $5-$10 million to the guided Adjusted EBITDA, excluding LIFO, of $47-$53 million; key adjustments include interest expense, taxes, depreciation, and other non-recurring items Q2 2024 Guidance Reconciliation | (In Millions) | Q2 2024 Guidance (Low) | Q2 2024 Guidance (High) | | :--- | :--- | :--- | | Net income attributable to Ryerson | $5 | $10 | | Diluted earnings per share | $0.15 | $0.25 | | EBITDA | $36 | $42 | | Adjusted EBITDA | $46 | $52 | | Adjusted EBITDA, excluding LIFO | $47 | $53 | Other Information About Ryerson Ryerson is a prominent value-added processor and distributor of industrial metals, with a history dating back to 1842; the company operates in the United States, Canada, Mexico, and China, employing approximately 4,600 employees across 114 locations - Ryerson is a leading value-added processor and distributor of industrial metals[19] - The company has operations in the U.S., Canada, Mexico, and China, with around 4,600 employees and 114 locations[19] Legal Disclaimers and Forward-Looking Statements This report contains forward-looking statements regarding future performance and expectations; these statements are not guarantees and involve significant risks and uncertainties; the company cautions investors that actual results may differ materially due to factors such as industry cyclicality, metal price volatility, geopolitical events, and competition; Ryerson does not undertake any obligation to update these statements - The report includes "forward-looking statements" concerning future performance, which are subject to significant risks and uncertainties[22] - Key risk factors include the cyclicality of the business, volatile metal prices, competition, geopolitical events, and indebtedness[22]