Ryerson(RYI) - 2022 Q3 - Quarterly Report

Part I. Financial Information Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2022 Condensed Consolidated Statements of Comprehensive Income (Unaudited) | | Three Months Ended September 30, | Nine Months Ended September 30, | | :--- | :--- | :--- | :--- | :--- | | (In millions, except per share data) | 2022 | 2021 | 2022 | 2021 | | Net sales | $1,543.1 | $1,575.1 | $5,035.4 | $4,141.4 | | Gross profit | $271.0 | $364.6 | $1,147.0 | $819.5 | | Operating profit | $84.5 | $184.4 | $606.1 | $396.9 | | Net income attributable to Ryerson | $55.1 | $49.7 | $415.1 | $187.9 | | Diluted earnings per share | $1.46 | $1.27 | $10.78 | $4.84 | Condensed Consolidated Statements of Cash Flows (Unaudited) | | Nine Months Ended September 30, | | :--- | :--- | :--- | | (In millions) | 2022 | 2021 | | Net cash provided by (used in) operating activities | $319.6 | $(71.8) | | Net cash provided by (used in) investing activities | $(90.7) | $126.5 | | Net cash used in financing activities | $(225.5) | $(75.4) | | Net change in cash, cash equivalents, and restricted cash | $(0.3) | $(21.5) | Condensed Consolidated Balance Sheets Highlights | | September 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | (In millions) | | | | Total current assets | $1,701.0 | $1,593.0 | | Total assets | $2,547.2 | $2,365.6 | | Total current liabilities | $705.0 | $751.0 | | Total liabilities | $1,654.6 | $1,821.0 | | Total equity | $892.6 | $544.6 | Note 4: Inventories The company changed its interim LIFO calculation method in Q1 2022, resulting in significant LIFO income versus a prior-year expense - In Q1 2022, the company changed its method for estimating LIFO on an interim basis to project expected year-end inventory levels and costs[22] - For the nine months ended September 30, 2022, the company recorded LIFO income of $92.7 million, compared to LIFO expense of $290.9 million for the same period in 2021[23] Note 8: Acquisitions Ryerson completed several non-material acquisitions during 2022 to expand its fabrication and additive manufacturing capabilities - On Feb 28, 2022, acquired Apogee Steel Fabrication for $3.1 million to enhance fabrication capabilities in Canada[31][32] - On May 9, 2022, acquired a 30% interest in FreeFORM Manufacturing, an additive manufacturing company, for $2.0 million[33] - On May 31, 2022, acquired Ford Tool Steels for $2.9 million and on August 31, 2022, acquired Howard Precision Metals for $19.5 million[34][35] Note 9: Long-Term Debt Total debt decreased significantly following the retirement of its 2028 Senior Secured Notes and an upsized revolving credit facility Long-Term Debt Composition (in millions) | | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Ryerson Credit Facility | $471.0 | $316.0 | | 8.50% Senior Secured Notes due 2028 | $— | $300.0 | | Foreign debt | $7.9 | $27.0 | | Total debt | $476.9 | $639.3 | - On June 29, 2022, the revolving credit facility was amended to increase its size from $1.0 billion to $1.3 billion and extend the maturity to June 29, 2027[37] - During the first nine months of 2022, the company retired the remaining $300 million principal of its 8.50% Senior Secured Notes due 2028, resulting in a total loss of $21.3 million[48][49] Note 14: Stockholders' Equity Stockholders' equity increased due to net income, and the company ceased to be a 'controlled company' after a major shareholder sale - On May 13, 2022, Platinum Equity sold 3,500,000 shares, and Ryerson repurchased 1,613,022 shares from Platinum for $47.7 million, reducing Platinum's ownership to approximately 43% and causing the company to no longer be considered a 'controlled company'[83] Change in Stockholders' Equity (in millions) | | Jan 1, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | | Retained Earnings | $321.7 | $722.6 | | Treasury Stock | $(8.4) | $(60.2) | | Total Ryerson Stockholders' Equity | $537.2 | $885.0 | Note 15: Revenue Recognition Revenue is primarily derived from processed metals in the U.S., with Carbon Steel products representing the largest sales category Sales by Product Line (Nine Months Ended Sep 30) | Product Line | 2022 | 2021 | | :--- | :--- | :--- | | Carbon Steel (All) | 53% | 54% | | Stainless Steel (All) | 26% | 26% | | Aluminum (All) | 19% | 19% | | Other | 2% | 1% | Net Sales by Geographic Location (in millions) | | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | United States | $4,594.2 | $3,733.8 | | Foreign countries | $441.2 | $407.6 | | Total | $5,035.4 | $4,141.4 | Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue and net income grew significantly in the first nine months of 2022, driven by higher prices despite a volatile market Industry and Operating Trends The cyclical metals industry saw slowing demand and lower pricing in Q3 2022, though year-to-date prices remained elevated - The metals service center industry is cyclical and volatile, with Q3 2022 experiencing lower pricing due to slowing demand, with average selling prices 9.4% lower than Q2 2022[109] - For the first nine months of 2022, average selling prices were 26.0% higher than the same period in 2021, driven by a higher commodity pricing environment[109] - North American service center volumes declined 2.9% in the first nine months of 2022 vs 2021, while Ryerson's volumes declined 2.3% over the same period[111] Results of Operations Nine-month sales and profits rose on higher prices, but Q3 results declined year-over-year as selling prices began to fall Key Performance Metrics (Nine Months Ended Sep 30) | Metric | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $5,035.4M | $4,141.4M | $894.0M | +21.6% | | Tons Sold | 1,564k | 1,621k | (57k) | -3.5% | | Avg. Selling Price/Ton | $3,220 | $2,555 | $665 | +26.0% | - Gross profit for the nine months ended Sep 30, 2022, increased by 40.0% to $1,147.0 million, with gross margin expanding to 22.8% from 19.8% in the prior year period[131] - For the nine months ended Sep 30, 2022, the company recorded LIFO income of $92.7 million, compared to LIFO expense of $290.9 million in the same period of 2021[130] - Operating expenses for the nine months increased by 2.7% to $544.7 million, driven by higher consulting fees, travel, facility costs, and fuel prices[132][133] Liquidity and Cash Flows Liquidity improved significantly with total liquidity reaching $906 million, supported by strong operating cash flow and reduced net debt Liquidity and Net Debt (in millions) | | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $51 | $51 | | Availability under Credit Facilities | $855 | $690 | | Total liquidity | $906 | $741 | | Total debt | $476.9 | $639.3 | | Net debt | $426.0 | $588.1 | Cash Flow Summary (Nine Months Ended Sep 30, in millions) | | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $319.6 | $(71.8) | | Net cash from investing activities | $(90.7) | $126.5 | | Net cash from financing activities | $(225.5) | $(75.4) | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks stem from interest rates on its variable-rate debt, foreign currency, and commodity prices - A hypothetical 1% increase in interest rates on variable-rate debt would have increased interest expense by approximately $3.2 million for the first nine months of 2022[163] - The company is exposed to foreign currency risk through its operations in Canada, Mexico, and China and held foreign currency contracts with a notional amount of $1.5 million as of Sep 30, 2022[164] - To manage commodity price risk, the company held swap contracts for hot roll coil (77,952 tons), aluminum (8,452 tons), nickel (487 tons), and diesel fuel (280,000 gallons) as of Sep 30, 2022[168] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective with no material changes in internal controls - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[171] - No changes in the Company's internal controls over financial reporting occurred during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, the controls[172] Part II. Other Information Legal Proceedings The company is a potentially responsible party in the Portland Harbor Superfund Site case, with its ultimate liability currently indeterminable - JT Ryerson is named as one of over 100 potentially responsible parties (PRPs) for the Portland Harbor Superfund Site, but the company cannot predict the ultimate outcome or estimate a potential loss at this time[57][62] Risk Factors A new risk factor was added highlighting the historical volatility of the company's stock price, which could lead to investor losses - A new risk factor was added stating that the company's stock price has been and may continue to be volatile, which could lead to substantial losses for investors[177][178] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased shares under a new $75 million buyback program authorized in August 2022 Issuer Purchases of Equity Securities (Q3 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Aug 2022 | 7,441 | $26.82 | | Sep 2022 | 26,810 | $26.32 | | Total Q3 | 34,251 | ~ $26.44 | - On August 3, 2022, the Board of Directors authorized a new $75 million share repurchase program, of which $74.1 million remained available as of September 30, 2022[180]