10-Q: Ryerson Holdings Reports First Quarter 2024 Results, Impacted by Market Slowdown

Ryerson Holding Corporation reported a net loss for the first quarter of 2024, primarily due to lower sales volumes and prices compared to the same period last year.

Summary

• Ryerson Holding Corporation reported a net loss of $7.6 million for the first quarter of 2024, a significant decrease compared to a net income of $47.3 million in the same period of 2023.
• Net sales decreased by 11.9% year-over-year to $1.239 billion, driven by an 8.0% decrease in average selling prices and a 4.2% decrease in tons sold.
• Gross profit decreased by 17.6% to $217.6 million, with a gross margin of 17.6%, down from 18.8% in the first quarter of 2023.
• Operating expenses increased by 11.6% to $216.8 million, including $9.4 million from recent acquisitions and $18.2 million in reorganization costs.
• The company experienced a $2.2 million settlement loss related to the termination of the Ryerson Canada Bargaining Unit Pension Plan, partially offset by a $0.5 million settlement gain and a $0.3 million curtailment gain related to other pension plans.
• Cash used in operating activities was $47.8 million, compared to cash provided by operating activities of $80.4 million in the first quarter of 2023.
• The company's total debt increased to $497.3 million, while total liquidity was $684 million as of March 31, 2024.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to a significant decrease in profitability, lower sales, and negative cash flow from operations. While the company maintains strong liquidity, the overall tone is concerning for investors.

Positives

• The company's total liquidity remains strong at $684 million.
• Ryerson's end market demand increased across almost all sectors compared to the fourth quarter of 2023, with the strongest growth from HVAC, Food Processing & Agriculture, and Industrial Machinery & Equipment.
• The company has implemented a new 10b5-1 plan for share repurchases.

Negatives

• The company experienced a significant decrease in net income, moving to a net loss of $7.6 million.
• Net sales decreased by 11.9% year-over-year, indicating a slowdown in demand and pricing.
• Gross profit decreased by 17.6%, reflecting lower margins.
• Operating expenses increased by 11.6%, driven by acquisitions and reorganization costs.
• Cash flow from operations was negative at $47.8 million, a significant decrease from the positive cash flow in the prior year.
• The company's debt increased to $497.3 million.
• The company experienced a $2.2 million settlement loss related to the termination of the Ryerson Canada Bargaining Unit Pension Plan.

Risks

• The metals service center industry is cyclical and volatile, making it difficult to predict demand and pricing.
• Changes in commodity prices can significantly impact the company's sales prices and gross profits.
• The company is exposed to risks related to interest rate fluctuations on its variable-rate debt.
• The company is exposed to foreign currency risks through its operations in Canada, Mexico, and China.
• The company's pension liabilities exceed plan assets, requiring future contributions.
• The company is subject to risks related to the global economy and geopolitical events, such as the recent trade actions against Russia.

Future Outlook

The company anticipates that recent trade actions will provide support for metal commodity prices, but the ultimate impact on the company's operations is unclear. The company believes that cash flow from operations and proceeds from the Ryerson Credit Facility will provide sufficient funds to meet its contractual obligations and operating requirements in the normal course of business.

Management Comments

• Management uses adjusted net income (loss) and adjusted diluted earnings (loss) per share to assess year-over-year performance excluding non-recurring transactions.
• Management intends to permanently reinvest earnings from non-U.S. subsidiaries outside of the U.S.

Industry Context

The metals service center industry is experiencing a cyclical downturn, with contracting industrial manufacturing demand impacting both volumes and pricing. The company's performance reflects broader industry trends, including a decrease in North American service center volumes.

Comparison to Industry Standards

• The Metal Service Center Institute reported a 4.1% decrease in North American service center volumes in the first three months of 2024 compared to the first three months of 2023, while Ryerson's North American volumes decreased by 6.1% over the same period, indicating a slightly worse performance than the industry average.
• On a quarterly sequential basis, the industry volume increase of 7.0% was lower than Ryerson's North American volume increase of 13.7%, indicating a better performance than the industry average on a sequential basis.
• The company's performance is also impacted by the broader economic conditions, as evidenced by the Institute for Supply Management's Purchasing Managers Index (PMI) and U.S. Industrial Production data, which showed a contraction in industrial activity for most of the first quarter of 2024.

Stakeholder Impact

• Shareholders will be negatively impacted by the decrease in profitability and the net loss reported for the quarter.
• Employees may be impacted by the reorganization and cost-cutting measures.
• Customers may experience changes in pricing and delivery times due to market fluctuations.
• Suppliers may be impacted by changes in the company's purchasing patterns.

Next Steps

• The company will continue to monitor market conditions and adjust its operations accordingly.
• The company will make a minimum required pension contribution of approximately $10.8 million in the remaining nine months of 2024.
• The company will continue to execute its share repurchase program under the new 10b5-1 plan.
• The company will pay a quarterly cash dividend of $0.1875 per share on June 20, 2024.

Key Dates

Keywords

metals service center, industrial metals, steel, aluminum, net sales, gross profit, operating expenses, net loss, pension, liquidity, debt, commodity prices