Ryerson Holding Corporation

Good day and welcome to the Ryerson Holding Corporation third quarter 2020 conference call. Today's conference is being recorded. At this time, I would like to conference over to Justine Carlson. Please go ahead, ma'am. Good morning.

Thank you for joining Ryerson Holding Corporation's third quarter 2020 earnings call. I'm here this morning with Eddie Lehner, Ryerson's President and Chief Executive Officer and our Controller and Chief Accounting Officer, Molly Kannan. Kevin Richardson, Mike Burbach, and Jim Claussen, our North American Regional Presidents, along with John Orth, our Executive Vice President of Operations, will be joining us for Q&A. Before we get started, let me remind you that certain comments we make on this call contain forward-looking statements within the meaning of the Federal Securities Law. These forward-looking statements involve a number of risks and uncertainties. including the impacts of COVID-19 and related economic conditions that could cause actual results to differ materially from those implied by the forward-looking statement. Such risks and uncertainties include, but are not limited to, those set forth under risk factors in our annual report on Form 10-K to be year-ended December 31, 2019. You are cautious not to place undue reliance on these forward-looking statements which seek only after the bid they are made and are not guaranteed a future performance. In addition, our remarks today refer to several non-GAAP financial measures that are intended to supplement but not substitute for the most directly comparable GAAP measures. A reconciliation of the non-GAAP financial measures discussed on today's call to the most directly comparable GAAP measures is provided in our third quarter 2020 earnings release filed on Form 8K yesterday.

Thank you, Justine, and thank you all for joining us this morning to discuss our third quarter results. I hope this call finds you all safe, well, and in good spirits. And I want to begin our call this morning by thanking all of my Ryerson colleagues, our customers, our suppliers, and our shareholders as we continue to navigate through the omnipresent COVID-19 environment. As the course of the pandemic continues unfolding, we continue our unwavering efforts directed toward the health, safety, and well-being of our coworkers, customers, suppliers, and communities. We remain dedicated in practicing our established health and safety protocols, which are in accordance with CDC guidelines and governing jurisdictional orders, while carefully observing COVID-19 virus data trends in the areas in which we operate to further enhance suppression and mitigation efforts. We again send our heartfelt thanks to all essential workers whose work throughout this pandemic is as heroic as it is enduring. I am compelled to express my gratitude to our Writers and Operations team that has answered that essential bell day after day while demonstrating notably improved safety performance during this challenging year. And we, like most, not all of our audience today, recognize all that has been lost and the hardships visited upon so many throughout the pandemic. We extend our heartfelt condolences to those who have lost loved ones and to those whose recovery is still in doubt. Turning to the company's consolidated performance during the third quarter, bookings, shipments, revenues, and margins all advanced incrementally from July through September, while asset efficiency and expense management were excellent throughout. As the quarter progressed, shipments moved toward 85% of pre-COVID levels and bookings increased toward 90% of pre-COVID levels with end-market restocking gaining momentum across a wider range of Ryerson's vertical markets. Pricing drivers also improved through the quarter, starting with stainless, followed by aluminum and then carbon. Operating cash flows hit a high watermark for the year at more than $120 million. while we reduced debt by more than $100 million to a more than 10-year low. In fact, since the CS&W acquisition in the third quarter of 2018, Ryerson has reduced its net debt by approximately $540 million. We did some important work on the balance sheet side of the house through the refinancing of our 2020 notes. Soon after closing the bond refinancing, we exercised our redemption right for an additional $50 million bond to clear the compensation of approximately $100 million in pension benefit obligations further reducing pension costs and reducing legacy liability risk. Even amidst the pandemic's adverse impacts, we completed a challenging ERP conversion at CS&W, which was necessary and important but caused disruption to CS&W's business in the quarter. Reorganization costs attributable to the ERP conversion at CS&W during Q3 were $3.2 million, while lost revenue impacts through the conversion period of August 10th through September 30th were approximately $30 million. We always understood and planned for the modernization and digitalization of CS&W's information technology systems as a primary and necessary factor in achieving our long-term goals for the business and franchise. I would point out that as the CS&W senior leadership team moves beyond the ERP conversion, cost target and working capital target attainment is ahead of schedule. On balance and in totality, Ryerson made some big plays and had an inspired quarter that served as another vital step in realizing our vision and potential as an organization while being very clear-eyed about the challenges that still lie ahead. Now unpacking the macro environment with some additional commentary. Macroeconomic indicators in the third quarter reflected what we believed to be the beginning of an uneven and unusual recovery with a multitude of unknowns. The U.S. Purchasing Managers Index, or PMI, reported economic expansion for the fourth consecutive month in September with readings well above the growth threshold of 50. However, U.S. industrial production, while improved from the severe contraction period in April and May, has reported average yearly year contraction of approximately 7% for the past three months. Likewise, third quarter North American industry shipments, as measured by the Metals Service Center Institute, or MSCI, came in at 10.9% below the year-ago period, though much improved from second quarter year-over-year contraction of 27.9%. Turning to commodities, as noted on our prior earnings call, the pricing environment held up better than anticipated during the pandemic as milk capacities globally and in North America adjusted more responsibly to falling demand than that experienced during the downturns of 2008-2009. After deflating in the summer months, carbon hot oil prices bottomed in August and have improved sequentially in September and October. LME aluminum moving average prices ended the third quarter higher relative to the second quarter, while LME nickel continued to increase up by 17% at the end of the third quarter compared to the end of the second. As of the first few weeks of the fourth quarter, both LME Aluminum and LME Nickel have continued to maintain relative strength, while carbon sheet spot steel prices are at a 12-month high with the latest CRU spot print coming in at $684 per net ton. Very recent events around supply-side tensioning are creating an environment across carbon, stainless, and aluminum where lead times have practically moved Thank you for joining us. of New Capacity, and overall geopolitical stability. Longer term, we are keeping a close eye on reshoring and onshoring as a function of several things, including carbon pricing, which would favor US-based manufacturers. Regarding Ryerson's end markets, customer activity in North America also continue to improve on balance, if unevenly, throughout the third quarter. Compared to second quarter volumes, Ryerson's per day volumes in commercial ground transportation Consumer Durable Food and Agricultural Equipment and HVAC sectors all improved while metal fabrication and machine shop industrial equipment and construction equipment sectors all declined quarter over quarter. Regarding the Q4 of 2020 outlook, although we saw recovery progress in both pricing and demand conditions in the third quarter, macroeconomic uncertainty prevails beyond the current restocking cycle given recent economic indicators and an increasing number of confirmed COVID-19 cases. At this point in the fourth quarter, North American average selling prices are trending higher compared to the third quarter, which we expect to be up 0 to 2% with per day shipping volumes above third quarter levels by approximately 2 to 4%. Overall, we believe the industrial metals economy is improving going into the fourth quarter and note that a broader manufacturing recovery, a greater Thanks, Eddie, and good morning, everyone. In the third quarter of 2020, Ryerson achieved revenues of $831.5 million.