Q4 2019 Earnings Call

Csnw was acquired with significant working capital nearly 140 days of inventory Supply and management continues to Target levels more in line with ryerson's same storm service center metrics however days of Supply increased from 92 days the end of the third quarter of 2019 to a hundred and three days at the end of the fourth quarter of 2019 due in part to change it to Cline's reflective of Industry demand contraction as well as opportunistic restocking.

Adjusted ebit excluding lipo improved quarter-over-quarter from a loss of four point five million in the third quarter to a loss of point three million in the fourth quarter aided by gross margin expansion and execution of structural expense takeouts that are consistent with Management's turnaround strategy as the early Innings of Cs and W's turnaround progress with synergies coming together structural expense reductions taking hold and next phase operational improvements on Deck management maintains, its long-term mid-cycle Target of six hundred million in revenue and fifty million and adjusted ebitda excluding lifo on an annual basis.

For the first quarter of 2020 Ryerson anticipates revenues of 1.03 billion to 1.07 billion with tons shift up 47% compared to the fourth quarter of 2019 driven by the normal seasonality patterns experienced in Prior years, but mildly tempered by the subdued demand month carried over from 2019. In addition. The Corona virus outbreak is caused several temporary operational interruptions within our china service centers resulting in decreased shipping money and reducing our Revenue outlook for the first quarter by approximately 15 million year-over-year, excluding coronavirus impacts to Ryerson. China's shipment levels. We expecting a sequential North American shipments to increase between 7 to 9 % or in line with typical industry seasonality.

Current carbon is stainless prices are expected to remain supported within the ranges noted in aluminum prices are expected to be neutral to modestly lower collectively Ryerson expects average selling prices in a quarter to be flat to up 2% primarily due to mix and recovering carbon prices lifo income in the first quarter is expected to be in the range of 21 to 25 million driven by lagging declines in carbon nickel and aluminum inventory values given these expectations adjusted ebit excluding lipo is expected to be in the range of thirty $38 million and earnings per diluted share are expected to be in the range of $0.31 to $0.42 per share with that. I'll turn the call over to Molly will discuss the highlights of our fourth quarter and full-year 2019 performance.

Thanks, Eddie.

And good morning and the fourth quarter of 2019 Ryerson achieved revenues of $962 million a decrease of 17.1% compared to a 1.6 billion and the fourth quarter of 2018 with average selling price is down 11.6% and tons shipped down 6.2% Gross margin expanded to 18.8% in the fourth quarter of 2019 compared to 18.5% in the third quarter of 2019 and 17.2% for the same quarter last year included in the fourth quarter of 2019 cost and material sold was like oh income of 6.5 million compared to life. Oh income of 29.6 million in the third quarter of 2019 and life will expense of 0.9 million in the fourth quarter of 2018.

Excluding life. Oh gross margin was 18.1% in the fourth quarter of 2019 compared to 15.8% in the third quarter of 2019 and 15.3% in the fourth quarter of 2018.

Reflective of recessed industry shipments Ryerson decreased warehousing delivery selling General and administrative expenses by 28.4 million or 16.6% in the fourth quarter of 2019 compared to the year ago. Included in fourth quarter, 2019 expenses is a reduction of 11 million of accrued vacation expense resulting from changes to our vacation policy that were adopted at the end of the year which effectively altered the timing of a cruel recognition. So that vacation is Ernie throughout the year rather than in advance of work being performed.

Warehousing delivery selling General and administrative expenses as a percentage of sales were relatively flat in the fourth quarter of 2019 at 14.9% off compared to 14.8% in the fourth quarter of 2018 as Consolidated Revenue decline marginally outpaced expense reduction. However, same-store basis warehousing delivery selling General and administrative expenses decreased by 24.4 million or 17.6% and decreased life percentage of sales from 14% to 13.5%

net

Come attributable to Ryerson holding Corporation was 26.4 million or $0.69 per diluted share in the fourth quarter of 2019 compared to 0.6 month or $0.01 per diluted share in the prior year.

Adjusted net income attributable to Ryerson holding Corporation, excluding the gain on bargain purchase related to the acquisition gain on sale of assets relation to the sale-leaseback transaction of nine of our facilities restructuring and other charges loss on retirement of debt and the associated income taxes was eleven point six million for the 4th quarter of 2019 or Thirty cents per diluted share compared to 6.2 million or 16 cents per diluted share in the prior year. R. I ER h e v a just stood even excluding life of a 46.9 million in the fourth quarter of 2019 a decrease of 3.6 million compared to the fourth quarter of 2018. But an increase of Seventeen point four million compared to the third quarter of 2019 turning to full year 2019 results Ryerson dead.

revenues of 4.5

Five billion an increase of 2.1% compared to 4.41 billion and 2018 with tons shift 5% higher and am selling prices 2.7% lower on a same-store basis, excluding the contributions of Cs and from the second half of 2018 and full-year 2019 result Ryerson generated revenues of 3.93 billion a decrease compared to Prior year revenues of 4.6 billion with average selling price is 1.5% lower and tons shipped 1.9% lower.

Warehousing delivery selling General and administrative expenses increase by 22.1 million or 3.6% and increased as a percentage of consolidation a sales from 13.9% to 14.1% in 2019 compared to 2018. However ryerson's prudent expense management during the whole process demand environment was more clearly exhibited on a same-store basis as warehousing delivery selling General and administrative expenses decreased by 31.1 months or 5.7% and also decreased as a percentage of sales from 13.5% to 13.2% in the same.

Income attributable to Ryerson holding Corporation was 82.4 million or $2.17 per diluted share in 2019 compared to $106 or $2.81 per diluted share in the prior-year adjusted net income attributable to Ryerson holding Corporation, excluding the gain on bargain purchases related to the csnw acquisition gain on sale of assets related to the sale-leaseback transaction gain on insurance settlement restructuring and other charges wage loss on retirement of debt and the associate income taxes with 67.9 million for 2019 or a dollar and $0.79 per diluted share compared to Fifty Point four million or a dollar and $0.07 per diluted share for 2018.

Adjusted ebitda excluding life or was 190.1 million and 2019 compared to 308 million in 2018.

At the end of the fourth quarter of 2019 Ryerson at eighty four days of supplying inventory up from 76 days at the end of the third quarter s d as in inventory Roseburg to 103 days of Supply due to carbon restocking at lower replacement cost values on a same-store basis Ryerson had 81 days of Supply do too sharp demand defines in the fourth quarter as well as forward carbon sheet purchases as near-term replacement costs values bottoms.

Will you maintain ample liquidity throughout the quarter as of December 31st, 2019 borrowings with $370 million on our primary revolving credit facility with additional availability of 348 million including cash restricted cash from the sale of real estate under the sale-leaseback transaction page and availability from foreign sources ryerson's total liquidity was 439 million as of December 31st, 2019.

we just

Cash from operating activities of 62.6 million for the fourth quarter of 2019 compared to cash generated from operating activities of 119.8 million a year ago. Primarily driven by normal seasonally lower working capital requirements are strong cash flow generation from operating activities drove debt repayment of $1,072 million in 2019 in acknowledgement of the significant Improvement in the company's operating performance. We are pleased that Moody's ratings upgraded Rio corporate rating to be too and the senior secured ratings should be three this rating upgrade built upon the favorable first time be plus rating awarded to Ryerson dead in the third quarter by Fitch ratings who also recognized our improved operating performance concurrent with the strength and balance sheets.

Together with smps existing berating on Ryerson senior secured debt Ryerson senior secured bonds are berated across the board.

2019. The treatments were further expanded upon by the completion of a sale-leaseback transaction for a portion of our real estate portfolio, which monotone know the underlying asset value of nine of our property the transaction provided a total of $62 million in net proceeds and the recognition of a $21 million gain on sale of assets.

And all the fourth quarter and full-year 2019. Proved to be commendable in terms of improving ryerson's credit profile for defying the balance sheet and Building forward momentum for further deleveraging now. I'll turn the call back over to Eddie to conclude. Thanks Molly. We would be on the demand contraction and downward commodity volatility that characterized the 2019 metal service center industry the year still presented opportunities to improve ryerson's business model, which we acted upon and realized to good effect. We made real advancements where they count in debt reduction Legacy liability reduction notable, year-over-year adjusted earnings per share growth increases in ryerson's net Book value increases in marketshare expense leverage attainment and market share gains.

by creating the industry

Customer experience across ryerson's network of intelligently connected service centers. We continue on the best path forward in building sustaining shareholder value took over the long term with that. Let's open the call to your questions operator. Thank you as a reminder to ask a question, please press star followed by the number one on your telephone keypad. Birth question comes from Nicky Jam music from stable. Your line is open. Hi, good morning. Thanks for taking the questions on the restricted cash. I just want to confirm is that solely for the benefit of the outstanding notes? Yes, that's correct. We can use that for either future Capital expenditures or for debt reduction on the secured Bond, Okay. It's a year-end. The balance is 48. Did you let us know what the balance is as of today?

I think it's around forty million as of today. Okay? Okay. So has that reduction been used in for a capex or for Tetra purchases?

Both, okay. And then how do you anticipate using the remainder of that? I know you said it could be catbacks or is that reduction but it is an earring 22 maturity. So is it going to be more weight to age? Yeah, the purposes are for debt reduction and and for catbox, and so that's what we're going to use it for. So as we have opportunities to to either buy back debt or apply those proceeds in a refi. That's what we'll do.

Okay, and then regarding just the overall outlook for the capital structure you talk about timeline in terms of when you'll start addressing the outstanding abl and the and the notes.

Yes soon, as as soon as markets circumstances dictate that we can affect an opportunistic refinancing.

And then the sale-leaseback you talk about what additional leaseback opportunities you think you have available to the public company.

Yeah, I mean we can do from here we can do all or nothing. I think the the point that we were trying to establish is that we have a very hard data point from the market that's very recent issue of intent that would underscore that those assets are undervalued on a fair market value basis.

So we did a small representative sample at what would it in effect be more than two times viruses Enterprise Value multiple. So we thought it was a very attractive traction Undertake and it was important for us to set a value for those assets in the market as opposed to how they may be recognized on a gaap basis or on an appraised basis.

So it was nice facilities that were done. You can help us frame how many additional facilities you have or as a percentage of gross acreage like wage? Can we think about how much of the real estate portfolio is left? So sixty 62% of our square footage is still owned by Ryerson a 38% is now least virus.

Okay, so it was the transaction in the fourth quarter accounted for nearly forty percent of portfolio. No, no 10% 30% was already life. Okay. All right that helps.

And then outlook for working capital and how should we think about outlook for working capital seasonal uses and how you think it's going to look for the month for the 2020 year?

There's still a lot of mystery around how twenty-twenty turns out. I mean I'm getting to the other side of virus impacts having said that if you if you wanted to look at it without considering what the potential may or may not be we expect to generate cash in 2020 from operation.

Okay. All right. That's all I had. Thank you. Thank you. Your next question comes from your line is open. Hey, hey guys. How's it going? Good, how are you doing? All right. I wondered why that the days of Supply is rising is that cuz you need to hold a little extra inventory just cuz of the uncertain environment. No, not at all. I mean, we we bought opportunistically in carbon particularly at Central heading into the or getting through the fourth quarter into q1 because see are you prices are a lotta mean at the time. So it was just an opportunity that investment and working capital and we need to squeeze down days back down to 75. We can certainly do that and I would anticipate us bringing down our days of sales and inventory over the first half of the year.

okay, and and

Then when you take out the the Acquisitions, what was the organic volume declined versus the industry?

In in the quarter round for the year.

On a on a same-store basis. We were down I think about believer in downtown percent 1.9% on a same-store basis.

That's in the fourth quarter, right?

That's year-over-year. Okay, and and the and the industry was down 7:00, right? Yeah, 77.2. Yeah. Okay. And then and then can you give us a little frame the debt-reduction, you know, I'm sort of back during into free cash flow expectation for for 2020. I'm sure it's still moving all around but just kind of in a an idea wage.

Yeah, I mean it feel right now it feels like if if I look at the free cash flow that we generated over the last two years and the free cash flow yields. We generate over the last two years. I would expect that we'd be able to generate another.

between

16 million

free cash flow to further deliver based on our annual operating plan Baseline assumptions. Wow nice. And and then last can you just give us a little like a little over on the ground, you know, I just listened to a whole bunch of companies last week and everyone's saying there's no impact from from the virus, but I'm watching things get canceled left and right and it has to reverberate through the the economy and I just wondered like you guys have such a catbird seat to give us a little sense of of you know, is is it too early to see any impact or it's starting to fog up through or just any flavor? Thank you. And then I'm done. Yeah, July, it's really day-by-day. There's a website that that that we've been following that is maintained by a university that shows the I've been watching that too. Yeah. Yeah. And so the good news is the line the recovery line is converging closer to the diagnosed case line, which I think is

Positive. I mean we're going to either could be hot.

Spots in any part of the country at any point in time and think we have to manage through a day by day. We were very transparent about what we think the impacts have been in China. They seem to be getting on the other side of it where we should be back to 90% of operating regular operating capacity by the end of March. I would expect to be back to full operating capacity by the end of April. So if we use that as kind of a guide I can at least maybe put a collar around it in terms of time where there's going to be some isolated impacts. It's like it's probably going to be some drag on sentiment in business activity more. So on the service side as we've seen in manufacturing out excuse to hold up hold up a little bit better, but it looks to be about a a one to three-month dark and I think we just have to look at it day-by-day. We haven't seen a lot of impacts yet. Just some anecdotes Communications of of things that are happening here and there but nothing that we can really put a firm estimate around right now.

Okay, that's awesome. Thank you so much Angel Kevin Richardson. The only thing that I would add to that is we have gotten quite a few calls from some of our big oems and the last week or ten days asking us to verify that box by chance or not a risk in what they seem to be most concerned about is just components that may be coming in from overseas, but we're not we're not really seeing anything to to Eddie's comments. And the only other thing that is without question. There's been a lot of canceled conferences in in meetings. So from a from a travel perspective, I mean that's definitely taking hold in the economy, but nothing directly in terms of manufacture.

Okay, great. Thank you.

Add a reminder if you'd like to ask a question, please press star followed by the number one. Your next question comes from Matthew fields from Bank of America. Your line is open.

He got hey Molly same kind of question, but I want to ask about the situation on the ground in China, you know, if you believe the numbers it seems like they're they're getting a handle on it. And you know, we saw a factory shut down for a little bit a little bit after Lunar New Year. But with the reopening we're seeing inventories pile up at Port Mills and Trader inventories and warehouses. What's what's the inventory situation like in China for finished goods for you know for for other kind of parts of the the legal system.

Matt this is Eddie. We've been in contact with our China Team every day. We have first-hand accounts what's going on inside of the country and and so far off things are slowly gearing back towards normalcy. It's going to take a little bit of time for for those knots to get on tight, but

based on

We can see it looks like by the end of April a lot of the Lost operational capacity and throughput should be restored unless virus conditions dead person. But right now it looks like by the end of April most of those most of those not sought to be on time.

I mean in terms of like I mean in terms of flow, but the last time something I'm not going to say something similar to this happened but the last time supply and demand conditions where there were a lot of Steel inventories pilot was actually a good opportunity for us to to buy down on our replacement cost and then and then see better costs of goods sold numbers to blow through which help margins for a period of time I have those in stock inventories were worked off so we can go by that guide what that looked like about five years ago, but we don't have any other information to share with the other than that.

Okay, and you don't you don't see any indication from Chinese Mills if there's going to be any kind of cuts to production to alleviate those inventory and balance has not yet. No.

Okay.

And then on the sale-leaseback, you said you sold it at a sort of like a two times of Ryerson TV so that like is that like a low double-digit implied eBay to ebitda multiple which means paying a 14.3 and a cap rate of 6.85. So I think that's pretty interested. When you look at how the rest of our credits price particularly on the high-yield side. So we feel there are a lot of benefits in doing that transaction.

That is what I wanted to know. Thanks a lot a t and hopefully maybe we'll see something around that May 15th call Price step down date, but at not good luck and talk to you next Thursday. Thanks Matt. I told you always keep my refund suitcase packed.

Your next question comes from Michael the shock from keybanc Capital markets your line is open. Hey, good morning. Good morning. So just on the sale-leaseback, what's the potential impacts to your sg&a from that transaction?

4.3 million in additional operating rents per year

Okay, and then just touching on like the Cadence of the business activity that you've seen through the quarter thus far we've heard that January flat-rolled. The man was strong on on some hedge buying the msci data in things may have recently cooled kind of what what are you seeing so far throughout the quarter? Well, I think we want to wait for the end of the quarter to see how that MSG. I am normalizes. But the first half of January was sluggish which we thought was continuation of really the second half of the year and particularly December seem picked up in February incrementally and transactional quoting and transactional business has been relatively stronger than programmed business, which related would relate more to established contracts. Oh, you've seen a pick-up in activity according activity and demand I'll let I'd ask Mike and Kevin to comment on that further.

Hey Mike, this is Mike Burbank. Yeah said it about right is we started the year? If you looked at the activity levels of our larger items really got out of box a little slow and some of which we anticipated with with Class 8 declines that have been long long time forecast. And but I guess the bright spot on this is is activities through our transactional side of business has been improving as as we move through the quarter both from a quoting perspective and volume of of wins. So a lot of that really is built around our ability to respond quickly have the right inventory put the right package together that you know wins those orders. So it's it's a good piece of business to be improving and we hope to continue that Trend in in, you know, we certainly love our large oems and we expect that their business will normalize as well but wage

There's also a lot of uncertainty out there too. So we'll get what we can do and control it can control and

And let's see where it goes.

Got it. And then just looking for some more color on an End Market perspective where you're seeing the strengths and weaknesses specifically and then if you could break out which markets are seeing wage, which are most sensitive to Coronavirus.

Hey Michael, it's Kevin. Richardson. I'll take that one. I don't think I can handicap the sensitivity to coronaviruses. But in the disclaimer is you know, it's obviously a fluid situation and it's early. But but if I if you look at our Outlook in terms of 2020 for the full year, I put them in in two categories is end markets that are in under pressure in oil and gas and the energy markets for sure 2019 was weaker than we had expected. And we see that still declining ground transportation is going to be declining but it's coming off of relatively very high build rate. In fact that the the two years in the last ten were the last two years construction equipment and Industrial machinery and equipment. We think we're going to be under pressure and then the end markets that we that were more optimistic about wage growth or ones that are more levered to the consumer and those would be consumer durable food and egg and Metal Fab and machine shops, but in terms of trying to hack

Happened to the coronavirus that would be pretty tough.

Got it, and then just lastly for me on Central's volumes. They were reduced pretty big and in the fourth quarter, sequentially. Just wondering how I should think about Outlook 5:20.

I'm going to kick that over to Jimmy Clausen. Who's who's with us today? Yeah, I you know, we definitely had a soft fourth-quarter seasonality wise and then you know, as we work through the the you know stages of the integration looking into twenty-twenty activity is has picked up to start the year very similarly to Ryerson. So we're starting to Trend closer to Ryerson metrics in that regard, you know, there's there's still work to do but you know as we continue to play our energy game on on working capital and expenses. We definitely have an eye on on leveraging the combined Network and and continuing to grow the brand and using you know, using that New York capital and expense profile to drive margins. I mean, we we we we really think central is underappreciated I think is as you come out of a year where singles carbon portfolio is 85% of its total dead.

shipments

We had to take that margin compression on the way down as structural expenses were coming out. I think now we see as margins are going to even back towards our mean expectation for gross monthly cost continue to come down. So that profile is starting to take shape in terms of how we envision it developing over the next several years. So we really appreciate the work that's been done by the central team and we took that to continue

Appreciate the color. Thanks.

We have no further questions. I turn the call back over to the presenters for closing remarks.

Thanks for tuning in with us today and stay safe and be well and we'll be back with you in April. Take care. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may not connect.

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