Ryerson Holdings’ Earnings Call: Market Gains Amid Challenges

Ryerson Holdings ((RYI)) has held its Q2 earnings call. Read on for the main highlights of the call.

Ryerson Holdings’ recent earnings call highlighted the company’s resilience in a challenging market environment. The sentiment was a mix of optimism and caution, as Ryerson demonstrated its ability to gain market share and improve EBITDA performance and net income. However, the company continues to grapple with demand challenges, leverage concerns, and gross margin pressure, reflecting a balanced view of positive operational achievements against ongoing market difficulties.

Incremental Market Share Gains

Ryerson Holdings has successfully increased its market share despite a slight decrease in North American shipments by 1.2% quarter-over-quarter, compared to the industry’s 2.1% decrease. This achievement was particularly notable in carbon long, carbon plate, and stainless long products, showcasing Ryerson’s strategic positioning in the market.

Adjusted EBITDA Performance

The company reported a second quarter adjusted EBITDA, excluding LIFO, of $45 million, which was at the high end of the guidance range. This marks a significant improvement from $32.8 million in the prior quarter, underscoring Ryerson’s enhanced operational efficiency and financial performance.

Cash Conversion Cycle Improvement

Ryerson has made strides in operational efficiency, achieving a cash conversion cycle of 66 days, which is 11 days lower than the same period last year. This improvement indicates a more efficient management of working capital and operational processes.

Positive Net Income

The second quarter saw Ryerson achieve a net income of $1.9 million or $0.06 per diluted share, a turnaround from a net loss of $5.6 million in the previous quarter. This positive net income reflects the company’s ability to navigate challenging market conditions effectively.

Continued Demand Challenges

Despite positive financial metrics, Ryerson anticipates a 2% to 4% decrease in volumes for the third quarter due to ongoing uncertainty across large end markets and normal seasonal patterns, indicating continued demand challenges.

Higher Leverage Ratio

The company’s leverage ratio increased to 4.4x, which is above the target range of 0.5x to 2x. This was due to a sequential net debt increase and countercyclical EBITDA generation, highlighting a potential area of concern for Ryerson.

Gross Margin Pressure

Ryerson experienced a contraction in gross margin by 10 basis points to 17.9%, driven by higher-than-anticipated LIFO expenses and material costs rising faster than average selling prices. This pressure on gross margins is a critical area for the company to address.

Soft Pricing and Margin Pressure in Spot Business

The spot business is expected to face margin pressure despite an anticipated supportive pricing environment. This is attributed to a recess demand outlook, which could impact Ryerson’s profitability in the near term.

Forward-Looking Guidance

Looking ahead, Ryerson provided guidance for the third quarter, projecting a 2% to 4% decrease in volumes but expecting average selling price appreciation of 1% to 3%. They forecast revenues between $1.14 billion and $1.18 billion, with adjusted EBITDA, excluding LIFO, anticipated to be between $40 million and $45 million. The company also expects EPS to range from $0.00 to $0.06 per diluted share, maintaining a cautious but optimistic outlook.

In conclusion, Ryerson Holdings’ earnings call reflected a company that is navigating a complex market landscape with both achievements and challenges. While the company has made significant strides in market share and operational efficiency, it continues to face demand and margin pressures. The forward-looking guidance suggests cautious optimism, with expectations of price appreciation and stable revenues, but also highlights areas of concern such as leverage and gross margin pressure.