Ryerson Reports Fourth Quarter and Full-Year 2018 Results

2018 Highlights: 

• Generated net income attributable to Ryerson Holding Corporation of $106.0 million, or $2.81 per diluted share, including a gain on bargain purchase related to the acquisition of Central Steel & Wire (“CS&W”) of $70.0 million.
• Achieved Adjusted EBITDA, excluding LIFO of $308.0 million, up 67.3 percent from $184.1 million in 2017. Excluding the gain on bargain purchase, CS&W contributed $8.8 million of net income and $14.6 million of Adjusted EBITDA, excl. LIFO in the second half of 2018.  
• Grew revenues by 31.0 percent compared to 2017 with higher average selling prices of 15.6 percent and higher tons shipped of 13.4 percent. On a same-store basis, Ryerson grew revenues by 20.7 percent year-over-year on 16.0 percent higher average selling prices and 4.1 percent higher tons shipped.
• Expanded Gross Margin, excluding LIFO and purchase accounting adjustments by 150 basis points to 19.4 percent compared to the prior year.
• Realized expense leverage as warehousing, delivery, selling, general, and administrative expenses as a percentage of sales declined to 13.9 percent compared to 14.3 percent in 2017.  
• Reduced debt sequentially in the fourth quarter following the CS&W acquisition by $108.5 million or by 8.6 percent on strong cash flow generation in the quarter.
• Repurchased $50.5 million of our 11 percent Senior Secured Notes in December 2018 and an additional $11.6 million in January 2019, to reduce our annual interest expense by approximately $4.5 million per year. 

CHICAGO – March 5, 2019 – Ryerson Holding Corporation (NYSE: RYI), a leading value-added processor and distributor of industrial metals, today reported results for the fourth quarter and full-year ended December 31, 2018. 

Eddie Lehner, Ryerson’s President and Chief Executive Officer said, “I want to thank our customers, my Ryerson and CS&W colleagues, and our suppliers for an outstanding year in all ways.  We made the most of our opportunities and improved in every facet of our business while making important investments in profitable growth and positioning Ryerson to accelerate shareholder value accretion in the coming years.   Our mission is creating great customer experiences that become an indispensable part of our customer’s success across a network of intelligent industrial metal service centers.  Ryerson made notable strides in advancing our mission and we are poised to do more and do it better as we move into 2019.”   

2018 Results

Revenues were $4.4 billion in 2018, up 31.0 percent from 2017, as average selling price per ton increased by 15.6 percent and tons shipped increased by 13.4 percent. On a same-store basis, revenues were $4.1 billion in 2018, up 20.7 percent from 2017 with average selling prices 16.0 percent higher and volumes 4.1 percent higher.        

Gross margin was 17.2 percent in 2018, relatively unchanged compared to 17.3 percent in 2017. Included in cost of materials sold was net LIFO expense of $90.2 million in 2018 and $19.9 million in 2017. Gross margin, excluding LIFO and purchase accounting adjustments increased to 19.4 percent in 2018, compared with 17.9 percent in 2017. A reconciliation of gross margin, excluding LIFO and purchase accounting adjustments to gross margin is included below in this news release.   

Warehousing, delivery, selling, general, and administrative expense increased by $133.3 million, or 27.7 percent in 2018, compared to the year-ago period. On a same-store basis, expenses increased by $67.0 million, or 13.9 percent, compared to 2017 due to higher variable expenses with increased shipments, variable incentive compensation increases, and higher delivery costs due to tight trucking conditions. Warehousing, delivery, selling, general, and administrative expenses as a percentage of sales declined to 13.9 percent in 2018, or 13.5 percent on a same-store basis, compared to 14.3 percent in 2017, demonstrating the company’s ability to realize expense leverage at higher volumes.  

Net income attributable to Ryerson Holding Corporation was $106.0 million, or $2.81 per diluted share, in 2018, compared to $17.1 million, or $0.46 per diluted share, in 2017. Included in 2018 results is a gain on bargain purchase related to the acquisition of CS&W of $70.0 million. Net income attributable to Ryerson Holding Corporation adjusted for one-time items was $40.4 million, or $1.07 per diluted share in 2018 compared to $13.8 million, or $0.37 per diluted share in 2017. 

Adjusted EBITDA, excluding LIFO increased 67.3 percent to $308.0 million in 2018, compared to $184.1 million in 2017. Adjusted EBITDA, excluding LIFO as a percentage of sales increased to 7.0 percent in 2018 compared to 5.5 percent in the prior year. CS&W contributed $14.6 million to 2018 Adjusted EBITDA, excluding LIFO since its acquisition in the second half of 2018. Reconciliations of Adjusted EBITDA, excluding LIFO, adjusted net income attributable to Ryerson Holding Corporation, and diluted adjusted earnings per share to net income attributable to Ryerson Holding Corporation, are included below in this news release.  

Working Capital and Liquidity Management 

In 2018, Ryerson’s inventory balance stood at 73 days of supply, or 71 days on a same-store basis, consistent with 71 days in the year-ago period. Ryerson’s working capital management mitigated the impact of commodity volatility on our results by maintaining inventory levels between 70 and 75 days, significantly lower than the average for our peer group, while preserving working capital investment optionality.

Cash provided by operating activities was $57.4 million in 2018 compared to cash used in operating activities of $2.5 million in 2017, driven primarily by strong net income generation and exceptional working capital management in a year characterized by shifting supply chains and value chain bottlenecks. Ryerson generated $119.8 million in cash from operating activities during the fourth quarter of 2018 compared to $90.8 million of cash generated from operating activities in the fourth quarter of 2017.

As of December 31, 2018, borrowings were $536 million on our primary revolving credit facility with additional availability of $392 million. Including cash, marketable securities, and availability from foreign sources, Ryerson’s total liquidity was $441 million compared to $338 million in 2017. Ryerson repurchased $50.5 million of our 11 percent Senior Secured Notes in December 2018 and an additional $11.6 million in January 2019, reducing annualized cash interest payments by approximately $4.5 million. Chief Financial Officer Erich Schnaufer said, “Ryerson used its ample liquidity and repurchased a portion of our outstanding Senior Secured Notes to reduce our cash interest payments while advantageously realizing opportunities afforded by intense bond market selling impulses that started late in the fourth quarter of 2018 and continued early into the first quarter of 2019. We are committed to reducing our long-term leverage while maintaining sufficient liquidity to promote growth and manage through any market conditions.” 

Fourth Quarter 2018 Results

Revenues were $1,160.0 million for the fourth quarter of 2018, up 43.1 percent from the year-ago period due to increases in tons shipped of 22.8 percent and average selling price per ton of 16.5 percent. On a same-store basis, revenues increased 22.2 percent to $990.7 million in the fourth quarter of 2018 compared to the year-ago period with average selling prices 18.7 percent higher and tons shipped 3.0 percent higher.

Gross margin was 17.2 percent for the fourth quarter of 2018, an increase of 50 basis points compared to the third quarter of 2018 and an increase of 40 basis points compared to the fourth quarter of 2017. Included in cost of materials sold was LIFO expense of $0.9 million for the fourth quarter of 2018, $32.1 million for the third quarter of 2018, and $8.1 million for the fourth quarter of 2017. Gross Margin, excluding LIFO and purchase accounting adjustments decreased to 17.5 percent in the fourth quarter of 2018, compared with 19.6 percent in the third quarter of 2018 and 17.8 percent in the fourth quarter of 2017. Gross Margin, excluding LIFO and purchase accounting adjustments compressed sequentially due to rising average inventory costs and flat average selling prices experienced in the fourth quarter of 2018. A reconciliation of gross margin to gross margin, excluding LIFO and purchase accounting adjustments is included below in this news release.  

Warehousing, delivery, selling, general, and administrative expenses were $171.3 million for the fourth quarter of 2018, or $139.0 million on a same-store basis, compared to $121.7 million in the year-ago period. Warehousing, delivery, selling, general, and administrative expenses as a percentage of sales declined to 14.8 percent in the fourth quarter of 2018, or 14.0 percent on a same-store basis, compared to 15.0 percent in the year-ago period, demonstrating Ryerson’s ability to realize expense leverage in an expansionary environment while integrating a major acquisition. 

Net income attributable to Ryerson Holding Corporation was $0.6 million, or $0.01 per diluted share, in the fourth quarter of 2018, compared to zero in the fourth quarter of 2017.  Net income attributable to Ryerson Holding Corporation adjusted for one-time items was $6.2 million, or $0.16 per diluted share, in the fourth quarter of 2018 compared to a net loss of $3.4 million, or a loss of $0.09 per diluted share in the fourth quarter of 2017. Ryerson achieved Adjusted EBITDA, excluding LIFO of $50.5 million in the fourth quarter of 2018, an increase of $9.9 million compared to the same quarter last year. Reconciliations of Adjusted EBITDA, excluding LIFO, adjusted net income attributable to Ryerson Holding Corporation, and diluted adjusted earnings per share to net income attributable to Ryerson Holding Corporation are included below in this news release. 

Central Steel & Wire Results & Integration 

Central Steel & Wire continued to enhance Ryerson’s commercial, processing, and operational strengths during the fourth quarter. CS&W generated fourth quarter revenues of $169.3 million with average selling prices 4.0 percent lower and tons shipped only 1.1 percent lower sequentially with 2 fewer shipping days. Adjusted EBITDA, excluding LIFO was $5.7 million in the fourth quarter, or $14.6 million in the second half of 2018. As part of Ryerson’s post-close optimization plan, CS&W has realized approximately $13 million of expense savings on an annualized basis as of the end of 2018. Further, Ryerson realized approximately $10 million of cumulative proceeds since the acquisition from real estate sales for operations that were consolidated into existing facilities. CS&W’s improved working capital management increased free cash flows by approximately $40 million in the second half of 2018. Beyond the improvements experienced directly at CS&W, Ryerson’s service centers are benefiting from complimentary commercial relationships as well as complimentary inventory and fixed assets across the combined Ryerson and CS&W footprint.  CS&W’s financial performance is ahead of schedule so far, as we continue to drive toward our three-year mid-cycle objective of $600 million in revenue and $50 million in Adjusted EBITDA, excluding LIFO. 

Outlook Commentary

Customer sentiment continues to be positive as we moved through the early part of 2019 supported by stronger year-over-year shipments out of the gate despite some severe winter weather across the network in late January through mid-February. We believe average selling prices remain well supported year-over-year and gross margins have begun to expand gradually after bottoming in mid-February.  We expect to see continued strength in most of our end-markets while commodity pricing across carbon, aluminum, and nickel has stabilized or moved higher compared to levels transacted in the fourth quarter of 2018.  

 
Fourth Quarter 2018 Business Metrics