Q4 2024 Ryerson Holding Corp Earnings Call
Speaker Change: Good day and welcome to the Ryerson Holding Corporation's fourth quarter 2024 conference call. Today's conference is being recorded.
Speaker Change: There will be a question and answer session later. If you would like to ask a question via the telephone, please press star 1 on your telephone keypad at any time.
Again, that is star one to ask a question.
Speaker Change: At this time, I would like to turn the conference over to Mr. Pratham Dear. Please go ahead, sir. Good morning. Thank you for joining Ryerson Holding Corporation's fourth quarter and full year 2024 earnings call. On our call, we have Eddie Lehner, Ryerson's President and Chief Executive Officer, Jim Claussen, our Chief Financial Officer, and Molly Kannan, our Chief Accounting Officer and Corporate Controller.
Speaker Change: John Orth, our Executive Vice President of Operations, and Jorge Beristain, our Vice President of Finance, will be joining us for Q&A.
Speaker Change: Certain comments on this call contain forward-looking statements within the meaning of the federal securities laws. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those implied by the forward-looking statements.
Speaker Change: These risks include, but are not limited to, those set forth under risk factors in our annual report on Form 10-K for the year ended December 31st, 2024, and there are other filings with the Securities and Exchange Commission.
Speaker Change: You are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date they are made and are not guarantees of future performance.
Speaker Change: North American industry volumes as measured by the Metals Service Center Institute or MSCI decreased by seven 1% quarter over quarter.
Speaker Change: Over the same period, Ryerson North American shipments decreased by eight 5%.
Speaker Change: In line with normal seasonality as we progressed into the fourth quarter towards Thanksgiving and the end of the year, we saw quoting activity, which represents inbound demand from fabricators and manufacturers slowdown.
Speaker Change: In terms of end markets, we saw slowdowns most pronounced in HVA.
Speaker Change: Construction equipment.
Speaker Change: Industrial machinery and metal fabrication during the fourth quarter.
Speaker Change: For the full year of 2020 for Ryerson sales volume of $1 9 million tonnes was roughly equivalent to 2023 down three tenths of a percent.
Speaker Change: I would like to note that while our sales volume was roughly equivalent to 2023, we managed through two milestone operating footprint modernization and University Park, Illinois, and Shelbyville, Kentucky.
Speaker Change: Additionally, while our industry has operated in a contractionary environment for most of 2024 based on the readings from the institute of supply management's purchasing managers index and U S. Industrial production year over year comparison, we made gains in market share.
Speaker Change: In North America industry volumes for the MSCI, we're down 3% year over year.
Speaker Change: This is compared to down 1% for Ryerson as North American volumes with Ryerson noted market share gains across our metal mix led by stainless steel and aluminum and followed by carbon.
Speaker Change: In terms of end markets, we noted slowdowns in consumer durables oil and gas commercial ground transportation and industrial machinery and equipment, which were partially offset by volume increases in HV AC food processing and agricultural equipment construction.
Speaker Change: Equipment and metal fabrication and machine shops.
Speaker Change: Given the demand conditions, we operated in.
Speaker Change: Let's turn to our fourth quarter performance compared to guidance in our first quarter 2025 outlook.
Speaker Change: During the fourth quarter, we met our guidance range for adjusted EBITDA, Excluding LIFO and beat guidance on loss per share due to higher than expected LIFO income.
Speaker Change: Additionally, we generated free cash flow despite weaker than expected market conditions.
Speaker Change: He will provide a deeper dive into our financials.
Speaker Change: Looking to the first quarter of 2025, we expect volumes to be up 11% to 13% sequentially compared to the fourth quarter with daily shipments expected to continue to increase as we move through the balance of the quarter.
Speaker Change: As such we expect revenues to be in the range of $1. One two to $1, one 5 billion with average selling price increasing zero percent to 2%.
Speaker Change: Based on these expectations, we forecast adjusted EBITDA for the first quarter of 2025, excluding LIFO in the range of $28 million to $32 million based on seasonal restocking demand and a loss per share in the range of 27 to <unk> 20 per diluted share.
Speaker Change: We expect LIFO expense for the quarter to be between $6 million to $8 million.
Speaker Change: Turning to our investments in the business.
Speaker Change: In the fourth quarter, we invested $24 million in capital expenditures, which included most notably the modernization automation and expansion of our Shelbyville, Kentucky Nonferrous coil processing facility.
Speaker Change: Strategic equipment and infrastructure upgrades through order network to increase productivity and value added capabilities.
Speaker Change: For the full year, we invested $100 million into modernizing our service center footprint highlighted by our previously mentioned two major modernization investments.
Speaker Change: Enhancements to our online sales presence through improvements to Ryerson dot com as well as equipment upgrades across our network to enhance productivity.
Speaker Change: Additionally, we kick started our transition from the investment cycle to the optimization cycle.
Speaker Change: As we announced in the first quarter of 2024, we initiated a cost reduction plan to reduce operating expenses.
Speaker Change: Over 'twenty 'twenty four we were able to reduce operating expenses to meet our $60 million annualized reduction target by reducing personnel related expenses lowering fixed expenses and creating efficiencies within our network by increasing a one inventories which allowed us to reduce freight expenses.
Speaker Change: <unk>.
Speaker Change: With our new assets in place in 2025 and beyond we will continue to pursue operating efficiency of the business, while we provide excellent customer experiences and high service levels.
Finishing off our investment cycle has led to a greater drawdown on our credit facility.
Speaker Change: This drawdown has occurred at the same time as a slowdown in business conditions, which resulted in lower adjusted EBITDA generation.
Speaker Change: We ended the quarter above our two times target range for net debt leverage at three nine times.
Speaker Change: While we remain mindful of our balance sheet and reaffirmed the importance of a healthy balance sheet as a central long term full blown balancing growth and financial discipline, we expect being above the two times net leverage over the short term as we look to normalizing our net debt level to our needs well our business drives.
Speaker Change: Generate revenue and cash across recently placed in service assets.
Speaker Change: With our continued commitment to our long term range of five to two times net leverage.
Speaker Change: In terms of our business cash generation and liquidity profile.
Speaker Change: In the fourth quarter, we generated $92 million of cash flow from our operations. We ended the period with $468 million of total debt and $440 million of net debt, which decreased from $522 million and $487 million, respectively as of the prior quarter.
Speaker Change: The company's available global liquidity remains healthy, but decreased to $451 million in the fourth quarter from $491 million in the third quarter.
Speaker Change: Turning to shareholder returns.
Speaker Change: <unk> returned $6 million in the form of dividends during the fourth quarter, we paid a quarterly dividend of <unk> 18, and three quarter cents per share and have announced our first quarter 2025 cash dividend of the same amount.
Speaker Change: Well, we did not repurchase any shares in the fourth quarter for the full year 2024, we repurchased two 5 million shares for approximately $51 million in the open market and we ended the year with $38 4 million remaining in the share repurchase authorization.
Speaker Change: As we look forward to the first quarter and into 2025, we will continue to prudently evaluate our overall capital allocation.
Speaker Change: I'll now turn the call over to Molly to discuss our financial performance.
Molly Kannan: Over the fourth quarter and the full year of 2024.
Speaker Change: Thanks, Jim and good morning, everyone.
Speaker Change: Turning to review fourth quarter and full year 2024 financial result in the fourth quarter of 2020 for Braxton reported net sales of $1.0 billion to $1 billion.
Speaker Change: 10 point.
Speaker Change: <unk> lower than the third quarter of 2024.
Speaker Change: During the fourth quarter, <unk> average selling price or ASP P. F $2254 per ton represented a decrease of 3% quarter over quarter and came in below our guidance expectation.
Speaker Change: Looking across our product mix, we experienced 6%, while our ASP on carbon products and approximately 1% lower ASP on aluminum and stainless steel products.
Speaker Change: Margin during the quarter expanded by 110 basis points versus the prior quarter to 19%, partially supported by $25 million and LIFO income between $7 million greater than the previous quarter.
Speaker Change: Excluding LIFO gross margin expanded sequentially by 10 basis points to 16, 4%.
Speaker Change: The cost of goods sold.
Speaker Change: Kris outpaced lower average selling prices for our sale.
Speaker Change: On the expense side warehousing delivery, selling general and administrative expenses decreased by $8 4 million or four 3% quarter over quarter to $189 million driven by reductions in expenses related to personnel operating expenses and delivery expenses.
Speaker Change: Decreases in expenses were partially offset by increases in professional fees as well as increases.
Speaker Change: Increases in depreciation and amortization expenses from our capital spending on major projects that were placed into service in the fourth quarter.
Speaker Change: Net loss attributable to Ryerson with $4 3 million or 13.
Speaker Change: Per diluted share.
Speaker Change: Compared to a net loss attributable to Ryerson at $6 6 million and.
Speaker Change: Diluted loss per share of <unk> 20.
Speaker Change: Higher quarter.
Speaker Change: Ryerson achieved adjusted EBITDA, excluding LIFO at $10 3 million in the fourth quarter of 2024, which compares to $21 million in the prior quarter.
Speaker Change: For the full year 2020 for Ryerson recorded net sales of $4 6 billion compared to $5 1 billion in 2023.
Speaker Change: Net sales decreased primarily due to lower average selling prices up 10% compared to 2023 with volumes basically spot.
Speaker Change: The difference in pricing represents approximately 500 million lower revenue due to market pricing environment.
Speaker Change: Comparing year over year prices December 2024 prices were 18% lower for carbon hot.
Speaker Change: Hot rolled coil, 29% lower for stainless steel nickel and 8% lower for aluminum or aluminum.
Speaker Change: Aluminum compared to December 2023 prices.
Speaker Change: The pricing dynamics translated into 2020 for average selling prices being lower across our product mix with carbon lower by 8% stainless steel lower by 15%.
Speaker Change: Lower by 4%.
Speaker Change: Due to the declining pricing environment over the year as well as the lag nature of our customer contracts.
Speaker Change: Full year gross margins, excluding LIFO contracted by 110 basis points to 17% compared to 18, 1% for 2023.
Speaker Change: Gross margin during the year contracted by 190 basis points versus the prior year to 18, 1%.
Speaker Change: Do you see a declining commodity prices impacting our inventory values, we recognized $52 5 million in LIFO income, which was 46% or $45 million less than the LIFO income recognized in 2023.
Speaker Change: On the expense side warehousing delivery, selling general and administrative expenses increased by $7 7 million or 1% year over year to $801 million driven by increases related to recent acquisition in 2023 and 2024.
These increases were partially offset by decreases in personnel operating and delivery expenses.
Speaker Change: Finally for the full year 2024, net loss attributable to Ryerson was $8 6 million or 26.
Speaker Change: Per diluted share.
Speaker Change: Compared to net income attributable ultra buyer of $145 7 million and diluted earnings per share of $4 10.
Speaker Change: Prior year.
Speaker Change: Ryerson achieved adjusted EBITDA, excluding LIFO of 114 million in 2024, which compares to 231 million in the prior year.
Eddie Lehner: And with that I'll turn the call back to Eddie.
Eddie Lehner: Thank you Molly as we start into 2025, we do so with budding optimism momentum and confidence.
Eddie Lehner: After all is there a drave instead of moving to Crow.
It can't rain all the time.
Eddie Lehner: The modernization of our operations the strategic investments, we have made and discipline, we are applied and our optimization phase.
Eddie Lehner: I expected to drive sustainable value creation for years to come.
Eddie Lehner: I want to thank my Ryerson colleagues for their hard work and dedicated efforts.
Eddie Lehner: And helping create.
Eddie Lehner: Better and stronger Ryerson for the long term amidst a long and grinding downturn, which looks to be inflicting toward an improved macro manufacturing environment as we move through the first quarter of 2025.
Eddie Lehner: I couldnt be more positive about what comes next.
Eddie Lehner: As we further integrate and optimize and begin realizing the earnings potential of investments made over these past three years throughout our facilities network and overall business.
Eddie Lehner: With that we look forward to your questions operator.
Eddie Lehner: Okay.
Mind, you that is star one if you would like to ask a question over the telephone.
Speaker Change: And we will now take a question from Phil Gibbs with Keybanc capital markets.
Speaker Change: Does it ran all the time about it but I feel.
Speaker Change: Sure feels like it's snowing.
Speaker Change: All the time.
Speaker Change: Now, let me get right to get back to that part.
Speaker Change: I knew that Wouldnt get by.
Speaker Change: [laughter].
Speaker Change: Well its not just such a sharp memorable quote.
Speaker Change: <unk>.
Speaker Change: How are you how are you all thinking about the Capex for 2000 22025.
Phil Gibbs: Yeah Phil.
Phil Gibbs: We're dialing it back to the $50 to $55 million range and the reason for that more than anything as we've.
Phil Gibbs: We've invested so much in capex and it's been an extended capex capex investment cycle that it's really time to operationalize those assets and really integrate them well into the fabric of the network. I mean, if you just look at Centralia and I was just thinking a lot about this so we moved out of Renton, Washington, where we had been for generation.
Phil Gibbs: And in Ikea store open.
<unk> opened up in time next to our service center. So at that point not the best place to conduct service Center operations. So we go to Centralia, which is close to the border of Washington, and Oregon, and we can service, Oregon, and Washington, really well and are very uncontested manner.
Phil Gibbs: And I don't think there'll be an ikea there at least for the duration of my career.
Phil Gibbs: And the beauty of that is it's very open we can reach our service territories, but if you think about the disruption of winding down our service center, where you've been for generation in all your bill of material routing and all your inputs go into that facility and then you take it down and then you move into a brand New service Center in you hired you trade you build your.
Phil Gibbs: Systems into that facility you install your equipment, it's a long transition and you take a hit during that period of time, you have to spend money on outside processing costs, which impact your margins you lose your volumes do you have to build them back up the good news is this.
Phil Gibbs: We're done with a record investment Capex cycle, and we expect to get the returns from that Capex.
Phil Gibbs: Other people that might be starting now that maybe you didn't do it over the last 345 years those costs arent coming down unless there's some type of brutal recession, that's around the corner.
Phil Gibbs: Those costs arent coming down and I think as you've followed the industry. The way that I know you do nobody has really had an easy capex cycle not even the people that are really.
Phil Gibbs: Very prolific in doing major capex so.
Phil Gibbs: Its been worth it but I think as we operationalize these assets and they start to cash flow, particularly as the market starts to inflect.
Phil Gibbs: It's really it will accrue to the benefit of Ryerson stakeholders, but we just don't need to do as much because we really need to work with what we have and concentrate our efforts there.
Speaker Change: Yes can you take us through some of the progress on University Park since the <unk>.
Speaker Change: September showing.
Speaker Change: Yes, absolutely. So in September for example, we think about University Park same kind of thing we get out of <unk>, which is the antiquated facility near mid way. We go to a brand New service Center state of the art beautiful.
Speaker Change: However, you go through a bottoming process and I'm happy to say the team has done a great job, we have a slide in the deck showing the increases in productivity.
Speaker Change: But also bookings are up by 20% from their bottom.
Speaker Change: And so as customers start to re familiarize themselves.
Speaker Change: With the service that you can provide now at a lower cost to serve so now you are.
Speaker Change: Meeting one to two to three day lead times in the market. Your quality is excellent and it's that consistency that your customers really want. So you can have high service levels. One month, and then lose service levels. The Nextgen have tight short lead times for one month, and then have them explode like a bad Atg, you really have to get back to you.
Speaker Change: System C. So University park is on a nice glide path now they are refining their inventory profile the equipment's working beautifully.
Speaker Change: And that facility is really rounding rounding up rounding out nicely.
Speaker Change: Thanks, Eddie and can you give us a picture of how.
Speaker Change: Kind of your unit.
Speaker Change: Your core unit.
Gross margins trended through the fourth quarter and kind of trending into the first quarter.
Speaker Change: Knowing that you do have a portion of your business that lags.
Speaker Change: Yes, sure. So you know.
Speaker Change: Q4 was just a wicked shimmy I mean, nichole you can see how nickel got beat up through the year I mean, if you. If you go through the commodity reporting that we do Nicholas has been a really rough rod that nonferrous, it's been a rough ride in general over the last two and a half years and we have about.
Speaker Change: 48% exposure to non ferrous, but.
As we come through Q4, now and you go through that long inventory reset where margins really bottom out now transactional margins are finally in selecting higher I'll say. This you know 2024 is a rough year or so we thought an uncharacteristic compression of spreads even between contract business and transactional business. So historically youll see transactional.
Speaker Change: Spreads are probably 6% to 10% last year, they are more like 3% to 5%. So the competitiveness of the market relative to the demand available compress those margins. So we bought about in Q4 now transactional margins really start to expand as we as we are seeing from like mid January through the present looking at forward pricing.
Speaker Change: Curve spot transactional pricing will continue to improve and then the contract book of business will start to improve because those those lagging prices, we write all that down some of our contracts have a.
Speaker Change: 90 day, plus a one month lag not all of them, but you are well versed in how that works and so as those sweep through Q4, and we come up into really Q2, and Q3, we should start to see more favorable resets as we move through the balance of the year.
Speaker Change: I mean, assuming the trends hold that we're starting to see emerge.
Speaker Change: And then lastly for me how are you all thinking about.
Speaker Change: The tariffs are managing your business around it, particularly in maybe some of the areas where you operate outside the U S. Thanks.
Speaker Change: Yes, I mean, I think there'll be some there'll be some currency headwinds, but when we look at where our revenue is concentrated so there'll be some currency headwinds in Canada, Mexico, and China, but.
Speaker Change: The majority of our revenue is generated.
Speaker Change: In the U S and so there's probably going to be some some I'd say timing differences in terms of how this all plays out but.
Speaker Change: In general as we look at the operating leverage that we have in the company and we have a lot of operating leverage that we carried through with these projects through this investment cycle.
Speaker Change: Well positioned our inventory is.
Speaker Change: Is profiling now as good as it has in three years, our inventory is really well positioned our supply chains are really good.
Speaker Change: So we believe as we're kind of looking at these forward pricing curves and I'm going to kick it over to Nick Web here, We've got a special guest here Nick Web if you've never if you've never been out to listen to Cup of Joe on Youtube, It's definitely worth an hour hour of everybody's time, but Nick really runs our risk management function and he is.
Nick Web: Really on top of these issues can we let him speak to that a little bit.
Speaker Change: But as we look at this transition I would say Phil from the average cost to replacement costs, we have already seen the master distributors raised their prices, we've seen them be more aggressive pricing to replacement cost. So that's usually a really good indicator.
Speaker Change: The prices are going to start to increase and then even if we don't know whats going to happen, yet in Canada, Mexico and China.
Speaker Change: But so far in the U S things are things, we're looking at are definitely looking up.
Speaker Change: Okay.
Nick Web: Hey, Nick Web here.
Nick Web: As it relates to tariffs I mean, theres going to be a lot that we're going to we're going to learn over the next two three weeks as the terrorists take effect at least as far as we know right now but.
Nick Web: The impacts that it's having on both commodity prices as well as conversion markets.
Nick Web: Aluminum for example over the last month or two we've seen the Midwest premiums reflect that replacement cost increase.
Nick Web: 10% to 15.
Nick Web: Similarly on conversions I'd say similar moves 10 to 15, we're seeing.
Nick Web: <unk> increase their conversion prices depo inventory prices are going up and inventories are getting a bit depleted.
Nick Web: So we have to adjust our own price book to reflect that and then on the carbon side as I'm sure you know.
Nick Web: Well <unk>.
Nick Web: Futures have.
Nick Web: Certainly re ratcheted higher to reflect that that potential for the need to increase the replacement costs there.
Nick Web: Because we're still going to be a net importer of steel so those tariffs remain in effect.
Nick Web: That metal is still going to flow and it's just going to flow into the country at a higher price.
Nick Web: Thanks, I appreciate it everybody.
Speaker Change: Thanks, Bill I appreciate you.
Speaker Change: And there are no further telephone questions at this time, but again that is star one if you would like to signal and we'll pause for just a moment.
Speaker Change: And it appears there are no further telephone questions I'd like to turn the conference back over to Mr. Later for any additional or closing comments.
Speaker Change: Yes.
Speaker Change: Thank you and thank you for your continued support of and interest in Ryerson stays safe and well and I look forward to being with you in May I think we got some questions. The way we've got some later robbing questions alright stop the presses.
Speaker Change: Yeah.
So I'll read it out the first question is from Curtis Jensen from our body <unk> company.
Speaker Change: The question is why is net debt reduction not part of your capital allocation. If you are so far out of your leverage target.
Speaker Change: Yes.
Speaker Change: I think.
Speaker Change: Maybe it's not explained well enough, but I believe what is implied certainly.
Speaker Change: Our comments.
Speaker Change: In the script and in the release.
Speaker Change: Given where we see our capex budget.
Speaker Change: Given where we think the industry is going at least based on current indicators and given the operate opera operational.
Speaker Change: Operationalize, our capex investments, we see the ability to really bring our leverage down as we as we move through 2025, and as things normalize and stabilize across our service Center network.
Speaker Change: Certainly a priority for us.
Speaker Change: And there was a follow up question written by Curtis our lease liability as part of the leverage calculation within your bank agreements.
I can I can take that one.
Speaker Change: From a bank agreement standpoint.
Speaker Change: Doug.
Speaker Change: Lease liabilities are not really factored into any any kind of a leverage ratio calculation.
Speaker Change: Our bank agreement specifically on the ABL.
Speaker Change: More about availability.
Speaker Change: And the borrowing base.
Speaker Change: The next question is from Conor read from integrity asset management.
Speaker Change: Alright, given given generally.
Speaker Change: Rising prices, how are you thinking about working capital as a use or benefit to cash flow in 2025.
Speaker Change: Sure I mean, historically, we can finance.
Speaker Change: A dollar of revenue.
Speaker Change: Yeah.
Speaker Change: So there is usually a ratio of 71 meeting will generate $7 of revenue for $1 of investment in net working capital. So we're very familiar with how to manage that we've always managed that well I would say that our working capital management has really rounded back into formed for US I mean, it's really at our standard which is the highest standards, especially if you compare to our peers.
Speaker Change: So we we are really doing a good job again in managing our working capital and I expect that thats going to continue and we will still maintain and even enhance that ratio, where we can finance more revenue with a $1 incremental increase in networking capital.
Speaker Change: And the final question is from <unk> <unk> from an average capital.
Speaker Change: Sorry.
Speaker Change: Can you discuss progress on the new ERP system, how is it handling the potential complexity of customer orders.
Speaker Change: Are you monitoring feedback with the branch level employees using it.
Speaker Change: Yes, it's a great question. So it was tough it was really really tough ERP conversions are really really hard I think we spoke to that at length through last year and even the year. Prior so we converted about 40% of our revenue too.
Speaker Change: <unk>.
Speaker Change: To wrap into a uniform ERP environment throughout our general line business, it's really hard to do if you look at the Lithia companies.
Speaker Change: Remarked on that over the years.
Speaker Change: I think at a test of that now having said that we're through the hardest part of that we've seen a really.
Speaker Change: Strong normalization of operations at all of our service centers that converted to SAP, either becoming fluent they're becoming knowledgeable those bill of materials are getting mapped effectively into the facilities again and our service levels and this is how we this is the.
Speaker Change: Tell the tape when it comes to that question our service levels at standard as our on time delivery getting better and our lead times coming in and then do we get a consistently high value customer experience. So the answer is yes across all that metric still room to improve but we are certainly through the worst of it.
Speaker Change: Think we're starting to see how we can realize the best at it.
Speaker Change: Yes.
Speaker Change: Those are all the questions.
Speaker Change: All right I'm going to wait for 10 seconds just in case.
Speaker Change: Just in case, we have anybody that wants to get in under the wire.
Speaker Change: Okay, So as I was saying.
Speaker Change: <unk> safety, well and we look forward to being with all of you would may for our first quarter 2025 of our earnings release and conference call. Thank you.
Speaker Change: And once again that does conclude today's conference. We thank you all for your participation you may now disconnect.
Speaker Change: [music].