RYI - Earnings call transcript Q2 2019 | Ryerson Holding Corporation

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Operator

Good morning. My name is Jessa, and I will be your conference operator today. At this time, I would like to welcome everyone to Ryerson's Second Quarter 2019 Earnings Conference Call. [Operator Instructions] Thank you.

Mr. Investor may Ryerson your with Horwitz, Relations, begin you conference. Jeff

Jeff Horwitz

Lehner, Ryerson Thank be here Q&A. Second Eddie Erich Chief Schnaufer. you and Financial morning. will Mike Claussen, our Holding Officer; this President and Executive for with Kevin I'm Good Presidents Officer, Call. our for joining Corporation's North joining Chief Regional and us Earnings Quarter morning Burbach Richardson, Ryerson's Jim XXXX American

on this implied in we the securities certain year to on those make cause limited Before statements. the for to, involve forward-looking started, comments the and risks within our Form could forth XX-K XX, remind let laws. of uncertainties and are statements federal contain December results those Such Risk that you under annual call meaning not materially set differ get me report forward-looking a the statements number Factors by XXXX. actual uncertainties that forward-looking we from of ended risks include, These but

You are not only date statements, the forward-looking as not of reliance which they undue are on to and of future speak are guarantees performance. cautioned made these place

our is second to today's that intended website. for measures discussed call measures which supplement to refer the section XXXX on earnings non-GAAP quarter is financial our filed the are GAAP A release Form in substitute comparable remarks the comparable of the most yesterday, available directly Investor but provided addition, on not X-K measures our GAAP directly financial non-GAAP Relations today to most measures. several of In reconciliation on

to over call turn I'll now the Eddie.

Eddie Lehner

effectively our for whose used want reduce cash for also executing generating Ryerson debt. well thank to granted. to our which thank Central second we Wire, business joining we Thank first us and this our line you our exceeded take top for quarter. to guidance flow, or and & morning. capital, Steel significant challenging a all free you, and Ryerson managed during my want I and expenses never colleagues I CS&W, customers, working thank Jeff, long-term

first completed and company model. stronger we first full the expense acquired exceptional capital our anticipated management year synergies July its XXXX, Ryerson exceeded in CS&W than X, year our benchmarks working with greater revenue and since retention, on acquisition

impact Ryerson might downward Despite sharp around these and of in following an investment. business The in in industry trade along The the May, successes, quarter. was shipping price recessed inflect margin prices compression. a phase saw significant in conditions that key decline slowing turned U.S. industry discussions late drivers, moves harshly for prepaid favorably, unexpected resulted and negative early like bout April second it Ryerson sheet which looked climate, and China between with the carbon during

where and, CS&W, we programs. Our hedge notable significant margins overbought losses on inventory related our most in book at holding decline incurred annual on customer sheet physical carbon was to

While aforementioned events we highlighted can as the ways in as the we business can. suddenly only improve they difficult conditions view transient, which

slackening while a expect cycle asset strategic bare we enhance balance efficiency deleverage and demand over where remove a sheet, steel a back our to playbook, cost and of domestic at laid second The the of accelerate flow the priorities. free cash balance to year, the to generation, continuing advance of prolonged deflation, quarter output us destocking time amidst a gets inventory which industry slowing countercyclical

the compression severe during of second growth we industry margin Although pricing, shipments surely move to second quarter. beyond as good would and countercyclical put this have consecutive appreciated experienced use we year in we the a will period

who cautious XXXX to duration Turning policy, buying around upward and longer a led conditions, consumers after second than in anticipated. to which uncertainty a destock accelerated to a current trade over the the due inflection declines March greater steel extent, supply ample inventories and environment, economic in commodity demand to of weakening price domestic patterns brief by quarter

Nickel albeit to decline carbon and prices end bias CRU coil hot-rolled a have through prices and been July, started stable, with relatively to of inflect plate of deflationary aluminum the continued higher, As CRU the LME quarter. prices while have Midwest

American shipped second Institute MSCI. in year, to time, as the Ryerson's Service center same-store compared continue shipped, decline by quarter of the third of to quarter American half North industrial XXXX The demand service Wire, and & our down contract of through manufacturing measured prior U.S. by slower same North tons Steel the At impact Metals demand to show the or we X.X% Central outlook PMI tons shipments, excluding move were evidenced industrial a the only of Center softening XXXX to as XXXX as X.X%. continue expansion. the appears second acquisition be in indicators

and Turning a and in on equipment shipment and in of more on ground the the transportation first were gas of shop oil agricultural to several end compared same-store XXXX, basis growth specifically half same-store half Ryerson end and performing volume XXXX markets a of HVAC, notably basis. half end markets, first commercial year-over-year strongest with metal fabrication first markets, sectors. most and machine food experienced the lower XXXX the to in sectors

Turning XXXX of to network, year half Wire metrics. second acquired the with expectations, the operate with was compared CS&W same-store significant in in exceeded to working acquisition, to service reduce which of XXXX. stronger to the half first with its Central center as Ryerson part management Ryerson's in continues it a line of returns capital, & Steel first albeit the

coil with second in to hot-rolled deflationary compared base tons the note and experienced of carbon mix to in carbon of the in CS&W's prices is quarter the CRU CS&W through as which business holding is During Ryerson's in that important period. the losses cycle, XXXX, commodity exposure. August June by inventory XX% accelerating decline XXXX, Ryerson's during inventory given XXXX began losses It continued to physical significant approximately XX% outsized inventory compared

as and XXXX, of accelerate helped the Ryerson inventory the team improvements well-honed business. Although quarter this practices management CS&W apply against us continues to forward worked exposure it second structural level of the to moving management carbon in us inventory

of price the strip-mill over mix in over carbon past CRU when lens CS&W's for long XX products term mix, short Additionally, products with the coil with a medium and viewed short-term to an years tube $XXX through expected issues term. the attributes ton of levels product we'll excellent of longer benefits carbon deal the to products, exchange carbon per hot-rolled pricing compression the plate margin and return long normative average

of of the XXXX. first LIFO, negative period million adjusted of expectation of million excluding compared quarter positive and LIFO, in compared incurred million for quarter to in of CS&W EBITDA, XXXX the excluding $X.X second the $X to EBITDA, adjusted our $X

reduced almost inventory the as XX, XXXX. quarter XXX have in stabilized at expect dissipate the inventory losses acquisition to has of from to prices holding of to appear We position CS&W's of XXXX third hot-rolled been time days XX coil days June and as

year, consolidated retention takeouts, post-close and exceeding that chain in of capital by operations revenue facilities. for performance on $XX over basis working achieving savings million existing were the into from expense surpassed past $XX reductions its operational supply $XX estate sales benchmarks approximately from proceeds Over real cumulative targets, million expense million synergies CS&W an annualized of and

in target annual we basis. plan, long-term move on Wire $XXX we & post-close EBITDA, in mid-cycle excluding an for of revenue into two to Central adjusted LIFO, synergy year As in million believe $XX Steel continue CS&W the of million our and

to gas declines construction For revenues seasonality sector the shipped significant $X.XXX to with X% sectors. patterns quarter billion more be to offset commercial normal the and down of in due to and of to Ryerson of strength volume decelerating the end anticipates oil X% XXXX, billion third in ground compared market $X.XXX quarter demand. second XXXX and Ryerson by relative anticipates transportation tons

Commodity to be prices remainder while modestly stainless of lower prices for stabilize year. move carbon and expected aluminum and to are are higher the expected products, for modestly the

the expect to to to However, due cost quarter begin prices inventory commodity expected income is to recessed be third third be range in of recover. selling X% million margins we with average replacement down in movement XXXX, the of the X% of costs. million, in quarter accelerating the as prices to $XX $XX second to LIFO quarter average to in experienced

Given of pricing excluding to $X.XX share LIFO, EBITDA, demand range expects of the per third the $XX the the countercyclical range debt in continue company, in of therefore, for and aforementioned and balance the expects adjusted the the to of deleverage, $X.XX flow Ryerson million the continuation given to million. XXXX, expectations of reducing for earnings long-term quarter diluted in year. $XX meaningfully to cash generation

XXXX With performance. will highlights to quarter that, I'll Erich, over our turn the discuss second of who call the

Erich Schnaufer

X.X%. quarter good by and in prices XX% XXXX, of the $X.X quarter XX.X% of morning. achieved decrease selling of average second of the billion compared revenues Eddie, to second with higher, of XXXX, $X.XX shipped a in offset billion, In tons increase an Thanks, partially Ryerson

down the with basis, selling shipped same-store were X.X% decrease of a On revenues billion, X.X% and for $X.XX X.X% prices quarter year-over-year, average a higher. tons

the quarter XX.X% million and year. in of of XXXX. $XX.X to LIFO XXXX second first XXXX quarter the quarter second first of second same of of cost XX.X% last Gross income the for and XXXX compared materials million margin $XX.X was compared the quarter of income of was million of in XX.X% quarter LIFO during Included to in for in the $XX.X of sold LIFO quarter expense XXXX the

in quarter margin, XXXX was to of XX.X% compared second of quarter XX.X% quarter XXXX in XXXX. the second of Gross in first excluding LIFO, XX.X% the and the

by in mark-to-market slower and inventory Wire, down during positions notably hedging Central compression a second products. at & than its Steel Margin continues impacted inventory at losses selling rate quarter was falling average to prices, work most sheet the large carbon costs which

a $XX.X driven million the expenses quarter year to X.X% administrative general compared by expense primarily of of the acquisition by of On second Warehousing, & XXXX ago million by Steel basis, delivery, in to $X.X compared Wire. and Central selling, or the increased XXXX. or decreased the XX.X% second quarter same-store period,

second and percentage administrative as in a Warehousing, sales of compared quarter expenses general quarter XXXX delivery, XX.X% to the the XX.X% XXXX. selling, to second increased in of of

However, Ryerson's warehousing, to percentage in expenses any basis, selling, on costs basis a a sales ability effectively demonstrating to year-over-year by administrative XX points and general manage declined delivery, of environment. as same-store XX.X%,

diluted to million XXXX was year $XX.X second compared decrease quarter quarter Net of Holding $XX.X the LIFO, period. adjusted achieved in the $X.XX $X.XX Ryerson XXXX. prior $XX.X to the share quarter first XXXX, the EBITDA, the XXXX per than of income of million second per of $XX.X quarter a million and million excluding Corporation in share less or to attributable second million Ryerson compared of in or $XX.X of diluted

higher half first period tons results, to shipped last selling with of billion, billion for to higher. year, average Turning Ryerson compared XX.X% an XX.X% $X $X.XX increase prices of revenues and the generated same X.X%

average with of the higher basis, compared XXXX, X.X% were half same-store shipped for selling billion, X.X%. to and X.X% $X.XX the first prices half revenues down the tons a first of increase year an On of

share attributable million compared or Net $X.XX $XX.X first the to of X share to the period in was diluted Ryerson or Holding XXXX. per $XX.X diluted income for Corporation million $X.XX XXXX per same of months

Holding $XX.X million charges on net Ryerson attributable diluted restructuring Adjusted Corporation, per for the or for income and was retirement XXXX and $X.XX to loss debt, share. period other of excluding year-to-date

EBITDA, first X the in Adjusted of XXXX months the excluding million of first in compared was $XXX.X XXXX. LIFO, X million months to $XXX.X

the inventory of XXXX. at days XXXX, basis, days quarter XX.X balance second days In quarter XX second or same-store of of supply Ryerson's in up the on from XX.X a stood

closer in within moving Our & XX target days, range same-store acquisition Steel were while Central Wire progress meaningfully of to inventory XX its continued post-closing inventory targets. levels levels commendable to our

ample quarter. We maintained throughout liquidity the

increased June as million our sources, XX, securities availability million on marketable availability borrowings million with of primary compared Ryerson's million. as $XXX were from June revolving of to credit additional of XXXX. of and to XX, foreign facility, cash, June liquidity XXXX, XX, Including As $XXX total XXXX, $XXX $XXX

to operating generate to by by by the activities working outstanding to capital operating million $XX.X costs free requirements. cash in for in reduce $XX.X year of significant lower to the in in million million in the XXXX. during lower XXXX compared quarter seasonal Ryerson and XXXX, third replacement debt cash the second generated quarter quarter of second and was of ago expected activities given period, activities We invest Cash from our flow period. of the expenditures capital half the expects million of fourth operating in inventory used XXXX driven of $XX.X $XX.X primarily inventory our destocking cash utilized

turn I'll to back the call to Eddie over conclude. Now,

Eddie Lehner

quarter, not learnings challenging and cash go showcasing Ryerson Thanks, quarter. the applying second Erich. flow free a performed in a business to admirably countercyclical generate from the make ability without price to further in declining environment, our opportunities in improvements to but

across SBQ higher XXXX runway moved persisting the second we expand. and weakness flows anticipate stabilized have over and to as substantial commodity half mix, than to more bar, appear XX% margins prices commodity cash As deleveraging a aluminum our increase despite in of countercyclical and sheet of

business, the further intelligent model network we all and continues do for long-term When business center shape variables competitive advantage. take service to our affecting our industry value-add

equity of next current value continue improving our and moving the book net from cyclical to continue operating as Our interval. grow balance model, to countercyclical interval industry the sheet we

open Operator? With your call questions. the to that, let's

Operator

Thank you. Your from the Deutsche Terry go [Operator comes Instructions] question Bank. Chris line first Please of from ahead.

Chris Terry

of team, a in Eddie mixed to the centers of outlook. my number Hi, side; terms feedback X%, companies and volume from service how from had, a versus X% we've see they guidance, I the just questions down that just few in guess, steel

destock the whether inventory in mean that typically that, plays on weather comment conservative Just X% some to in the might impact that out, be first case of wondering this you for of X% XXXX? And that might the and half? if can

Eddie Lehner

a was of the around, margins at probability a still we a on Chris, it to were at still of sitting earnings and And you I ton. a our of Eddie. during the base case X when think, was -- expand when demand countercyclical May go least these variables it's is and, back this to call, pointing durations There's think, would when CRU last our HRC lot were XXX where effect. tailing-out we go look in we $XXX The XXX. higher. cycles, look could was hanging reasonable And I that there

Just the and a and more XX trade I opposite think China from talks, folks cycle persisted. the and lot later, hours U.S. the disengaged got happened conservative destocking

this months. it, looks going So like these it things in but the fifth period, we're quarter of call X we fifth tail, these good go the this that a we're tend to And countercyclical have quarters, also durations one. that's and and of quarter and countercyclical find we cyclical a already long of And sense. back X that XX is, last when and between study they the periods, anywhere in into

transactional we inventory it's about now look weakness at it's a I see think we levels to to quoting that to QX, the and stabilizing seasonal we with quoting are transactional is QX. levels, we When our that So see typical from tailing stocking but end. ending see indicator, leading down which we from just out, going think X%. QX And is to QX our

program more a good bit And intelligence X%. there our of is so the to X% as less hanging and help third we with how guide get use the for to that typical expectations business quarter. to or that's seasonality, And in the we

Chris Terry

is any your volume Eddie, the on lot I down X% side? -- volume comments, then and they I and for price on as a maybe both on guess, well, on the think of side, guidance to pricing but the volume, X% were comments

Eddie Lehner

a if out thumb you will, pricing plus maybe this, highest again, countercyclical we volume tail QX, think as seasonality, the tails reverse. of period, starts I the of QX Yes, out and that to say, on I'd just this impact going one as tracking from to and with are another scale,

that in at a CRU, all is down XXX, look then XXX, shape June reset way sitting You at went at to the XXX. V

futures the didn't spot, XXX to really we got V. -- Coming XXXX. for the to XXX more of of XXX XXX are and a we up quarter So say first U, back a get showing

up again, catches you goods and expansion seeing prices you there's cost start as bottom, then up prices turn again, we're price. to cost your to of to before So But prices some get hop-in down effect. replacement margin again, prices does sold before up finally lagging it pull and a turn in recovery get higher. that Once turn

and for basis the that to that's X% So QX, foundation down X%.

the Now in getting nickel. and But how a over high we're balance nickel, right a that see year. we're now, of nice we'll tailwind at plays the out XX-month for

next months. pressured. to the down. move And SBQ X is muted HRC so around. our slightly as that's Aluminum to is stabilized. to into seem forward we financials to turning is going play be still Plates over somewhat X

overall to mix, by we turning X% But it. see to at look And so commodity going it's we a prices effect as pull favorable. tailing there's still when down that's out X% lagging our about

Kevin Richardson

is that environment the much in this prices, they add, destocking Chris, is some reverse, But Richardson. inventory. point, see some inflection is an inventories would how persistent out low on that happen would will quantify would we customers do hard there expect really down I are what back destock start there. an really that people it's thing that declining One to Kevin know to build with we some their take and until going but

So been environment. out is difficult, in things two a have trying those definitely net but to we're destocking

Chris Terry

Okay.

on of I said losses related that's couple a me, about, to CS&W. not talked you for the you Just others think hedging that

Just what capital were? you are for that losses on during quarter, the released what And comment wondering expect that second if we can half? can the hedging then working

Eddie Lehner

year, respect our sure. over positioned long against at hedge tons, hedge was a and strategic that when you into X Yes, book of X. a the you to book, the quarters got when short physically look position With all look going we've

more hedge positioned Our customer book is long.

for about to those the to when ton. $X.XX is so looks a to you be $X net year, the it And together, going like impact

position were in that So iron peaked well positioned, idiosyncratic, was one QX. that and we that We but was had ore.

move that's unwind million $X that, back past and into the on so the through we hedges we're customer of million balance as get year. get as And payments we'll to QX. so about those counterparty $X we we go transient, And then and

Chris Terry

thanks. the working Thanks. the capital on then just for of And year. Okay, rest

Eddie Lehner

into take and cash flow out the can you we compute come if wise. we're for going go gave to that you, where of model capital the working you the Yes, think guidance ahead I rest for I and mean, year,

I period in at think mini we're a if right look feels now, you that it this XXXX. like

of XXXX that are the model revenue, X through XXXX. look X move cash you moving think revenue we're down we if type ratio we quarters of through to cash I the and that we going flow type from, at working can the and as to you're say, $X.X generate generated So as the in see you in about billion in billion release going of to $X.X capital

Chris Terry

That's Okay. guys. from it me. Thanks,

Eddie Lehner

Chris. Thanks,

Operator

Merrill of ahead. Lynch. next Fields Your the Instructions] Matthew from [Operator comes line question go from America Please of Bank

Matthew Castellini

Castellini Matt is This everyone. Fields. Hi, on Matt here for

Eddie Lehner

Hi.

Matthew Castellini

some by recently last plate something been and you Would plate -- ton do So week. prices customers recent $XX of we've and these sheet domestic to Where seen hikes selling? price sheet? sort see a accepting raise on mills say are price you

Eddie Lehner

determined. I think be it's still to

it some have There's over And usually think at of price going to of more hold. much increase how of how really about, where I next mills. and the is have call structural the it, think that Right effort how -- taking push it a a is half of cost now, going like taken much phasing-in looks look really increases of couple to of we're this months is price hold. settles is to stabilization effect. it see a scrap the of much out versus I we're by

still plate like think it feels this be a at and stabilization determined, effort point. to I more

Matthew Castellini

it. it. Got Got

market would the okay Or right you Okay. in guys secondly, I Oversupplied? opinion? guess, now? Undersupplied? just sheet your how categorize

Eddie Lehner

Sheet well getting No market supplied. anywhere. problem is sheet

Matthew Castellini

mentioned reducing then 'XX. meaningfully Okay. you Great. guess, XH know I in I debt lastly, And

refinancing just about was expectations any So wondering, I balance? your updated

Erich Schnaufer

out we're Yes. view maturity of our date or months maturity from XX refi our I opportunistic out and mean, as date. we still

to plenty more favor. work our equation time of in So, that

see we to conditions, attractive monitoring. monitoring We'll just an where we'll So find window market might refinance. keep we'll and keep

Matthew Castellini

you Thank much. very

Erich Schnaufer

Thank you.

Operator

for time. turn over further back no remarks. are to There I management the closing call at this questions

Eddie Lehner

we again forward the Thanks for and morning, this you call. with QX us look on during to our joining being call

Operator

concludes This conference today's you. Thank call.

may You disconnect. now

Ryerson Holding (RYI) 10 Aug 192019 Q2 Earnings call transcript