Ryerson Holding Corporation

Good day and welcome to the Ryerson Holding Corporation's second quarter 2025 conference call. Today's conference is being recorded. There is a question and answer session later. If you would like to ask a question, please press star one on your telephone keypad at any time. Again, that is star one to ask a question. At this time, I'd like to turn the conference over to Justine Carlson.

Please go ahead. Good morning.

Thank you for joining Ryerson Holding Corporation's second quarter 2025 earnings call. On our call, we have Eddie Lehner, Ryerson's President and Chief Executive Officer, Jim Claussen, our Chief Financial Officer, and Molly Cannon, our Chief Accounting Officer and Corporate Controller. Brent McFarland, our Senior Vice President of Supply Chain, and Jorge Beristain, our Vice President of Finance, will be joining us for Q&A. A recording of this call will be posted on our investor relations website at ir.ryerson.com. Please read the forward-looking statement disclosures included in our earnings release issued yesterday and note that it applies to all statements made during this call. In addition, our remarks today refer to several non-GAAP measures. Reconciliations of these adjusted numbers are also included in our earnings release. I will now turn the call over to Eddie.

Thank you, Justine. Good morning and thank you all for joining us to discuss our second quarter 2025 performance. As we continue winding through protracted industry downturn with PMI prints showing contraction in 30 of the past 32 months and with carbon and stainless commodity bellwethers continuing to grind lower through the second quarter, self-help is the name of the game as we continue building operating leverage for the next cyclical upturn. As necessary trade policy resets, along with relatively high interest rates, stagflation fears, global overcapacity management challenges, and tariff uncertainty impede short-term manufacturing and industrial metals activity, there is optimism when looking toward the medium and longer term secular demand trends that have been suppressed through this unique and extended downturn. Ryerson continues operationalizing its CapEx systems and acquisition investments where we have deployed more than 650 million in capital since 2021 to modernize our network of intelligently connected service centers. As these investments become fully operational and the network stabilizes around greater consistency at scale pertaining to lead times, service levels, on time delivery, and value added processing, we expect to continue to see improvements in our performance and the experience we offer to our customers. While we continue to complete projects and improve the, quote, signal-to-noise, unquote, ratio throughout our network, whereby investment-related disruptions give way to network and service center consistency and stability, we are positioning Ryerson well for the next cyclical upturn. During the second quarter, we saw customer activity turning increasingly cautious, particularly within our OEM contract book of business, while self-help-driven transactional business pulled the plow with market share gains realized even amidst ongoing bellwether price declines in carbon and stainless steel commodity indexes. It is still a price market as competitive intensity for orders among service centers is high and customers in general are buying to minimum requirements, quoting Les, That said, as we are early in the third quarter, we are seeing price trends stabilize, albeit amid slowing and below-trend demand. We are in the dog days of this extended downturn, so the playbook calls for execution around continuing to take out non-value-added costs, precise working capital management, and hustling for every order, and proving out our investments and renovated operating models.

At this point, I'll turn it over to Jim Claassen to discuss market conditions and our financial results. Thanks, Eddie, and good morning, everyone.

Given the market dynamics Eddie discussed, North American industry volumes, as measured by the MSCI, or Metals Service Center Institute, performed well below normal seasonal levels in the second quarter. decreasing by 2.1% relative to the first quarter. By comparison, our North American shipments decreased by 1.2% quarter-over-quarter, generating incremental market share gains with particular strength in carbon long, carbon plate, and stainless long products compared to the industry. Total company ton shipped were up fractionally quarter-over-quarter, with relative strength among customers in our consumer durable sector, particularly in appliances and recreational vehicles, and also among some of our customers in the HVAC sector. On the other hand, we saw quarterly sequential volume contraction in our construction equipment sector. We noted subsector industry bright spots in data center and public infrastructure projects driven by federal investment spending. And finally, we saw relative quarter-over-quarter weakness in our commercial ground transportation sector as the industry appeared to align build rates with a cautious replacement cycle environment illustrated by the ordered data published by ACT Research. Given that market backdrop, let's transition to our second quarter performance compared to guidance and our third quarter 2025 outlook. During the second quarter, we achieved adjusted EBITDA excluding LIFO at the high end of our guidance range with revenue and shipments within our range. Late in the quarter, we saw supply side increases in all three of our primary product lines, increasing our second half pricing and cost expectations. This rise in expected metal costs led to a higher LIFO charge for the second quarter as our full year estimate for LIFO grew to approximately a $40 million expense. This LIFO catch-up drove net income to the low end of our range. We know that given our inventory levels and the nature of many of our contracts, we require more than one quarter of duration to see price changes realized in the market. We also recognize that given some fluidity in trade and tariff policy, some of these increases may be short-lived. Looking ahead to the third quarter of 2025, we expect volumes to soften during the quarter by 2% to 4%, as we anticipate that the demand environment will remain challenged by continued uncertainty across many of our large end markets, as well as normal seasonality patterns. However, we do anticipate that the pricing environment will remain supportive, leading to average selling price appreciation of 1 to 3% and revenues in the range of $1.14 to $1.18 billion. We expect that gross margins will benefit from modest price resets in our contract business, but given a recess demand outlook, we expect flatter pricing expectations and margin pressure in our spot business. We forecast third quarter adjusted EBITDA excluding LIFO in the range of 40 to $45 million and earnings per share in the range of zero to six cents per diluted share. We expect LIFO expense to be between nine and $11 million in the quarter. Turning to our investments in the business, in the second quarter, our capital expenditures totaled $10 million and included investments in processing capabilities and maintenance projects. Year-to-date, we have made $18 million in CapEx investments and remain on track with our stated $50 million full-year target, which follows a record three-year investment cycle and focuses on operationalizing final components of those investments while returning to a more normalized level of investments. In the second quarter, we generated $24 million in cash from operations as our receivables normalized relative to the first quarter, but were partially offset by a modest inventory build as overall inventory cost per ton increased in the quarter more than anticipated as previously noted. Overall, although working capital was higher nominally than anticipated, we effectively managed our working capital during the second quarter achieving a cash conversion cycle of 66 days, which is slightly lower than the first quarter and 11 days lower than the year-ago period. We ended the second quarter with $510 million of total debt and $479 million of net debt, which represents a modest increase compared to $498 million and $464 million, respectively, for the prior quarter. Our countercyclical trailing 12-month adjusted EBITDA excluding LIFO generation, coupled with this sequential net debt increase of $15 million, resulted in a second quarter leverage ratio of 4.4 times, which remains above our target range of 0.5 to 2 times. As we move into the back half of the year, we expect cash flow generation to move our leverage ratio back towards our target range. From a global liquidity perspective, the company's profile remained healthy and we ended the second quarter at $485 million of liquidity compared to $490 million at the end of the first quarter. Turning to shareholder returns, Ryerson distributed $6 million in the form of dividends during the second quarter. We paid a quarterly dividend of 18.75 cents per share and have announced a third quarter 2025 cash dividend of the same amount. We did not repurchase any shares in the second quarter and ended the period with $38.4 million remaining on our share repurchase authorization. As we look forward to the third quarter and into the rest of 2025, we will continue to prudently evaluate our overall capital allocation and tightly manage our expenses and working capital. I will now turn the call over to Molly Cannon to discuss our financial performance highlights for the second quarter.

Thanks, Jim, and good morning, everyone. In the second quarter of 2025, Ryerson reported net sales of $1.17 billion, an increase of 3% compared to the first quarter, with average selling prices up 2.8% and tons shipped up fractionally. Average selling price growth quarter over quarter was driven by increases in aluminum and carbon products, which were up 6.8%, and 2.1% respectively. Gross margin during the quarter contracted by 10 basis points versus the prior quarter to 17.9%, influenced by a higher than anticipated LIFO expense of $13 million, as rising commodity prices in the period translated to material costs increasing faster than average selling prices, given the lagged nature of pricing recognized in our contractual business. Excluding LIFO, gross margin expanded sequentially by 40 basis points to 19%. On the expense side, second quarter warehousing, delivery, selling, general, and administrative expenses increased to $204 million, or by $1.5 million, compared to the first quarter as a result of one additional business day. Expenses decreased sequentially both on a percentage of revenue and on a per-day basis, illustrating our continued commitment to expense management. Second quarter net income attributable to Ryerson was $1.9 million, or $0.06 per diluted share, compared to net loss attributable to Ryerson of $5.6 million and diluted loss per share of $0.18 in the prior quarter. In summary, our adjusted EBITDA, excluding LIFO, achievement of $45 million in the second quarter of 2025 compared favorably to generation of $32.8 million in the prior quarter. And with this, I'll turn the call back to Eddie.

Thank you, Molly. I would like to conclude our prepared comments by thanking the Ryerson team for working safely and productively during the second quarter as we remain focused on what we can control. Integrating our new advanced capabilities into our interconnected network to provide our customers with a higher level customer experience while also managing the business well through the current business environment. As challenging as current and near-term conditions may be, we are proving our resiliency and expanding our earnings quality through the cycle as we look forward to a revitalized U.S. manufacturing economy, glimmers of which are already materializing in the form of negotiated trade deals and emergent reshoring data points. As I mentioned during a prior call and backed by popular demand from the movie The Crow, It can't rain all the time.

We're just looking forward to a period of some extended sunshine.

With that, and after the Q&A, we would like to share a video on the upgrades at our Shelbyville facility. For those of you dialed in, the video is also available on our Investors Relation website operator.

Please open the line for questions.

Thank you.

If you are dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. If you are in the event via the web interface and would like to ask a question, simply type your question into the ask a question box and click send. Our first question is going to come from Samuel McKinney, KeyBank Capital Markets. Please go ahead.

Hi. Good morning, Eddie and team. Hey, Sam. How are you doing? Good. The presentation calls out North American market share growth in carbon long and plate, and the release noted another quarter of increasing transactional business. Just wanted to give you the opportunity to talk more about some of the biggest wins for this demand as more of your CapEx projects have become full contributors. Yes, Sam. I mean, at the risk of going deep under the hood of the car, as you bring up these investments and you find out that what happens is you disconnect things within your ERP environment, for example. So you take out all these work centers. you build the equipment, cash goes out, and then you install the equipment and you get through a commissioning and startup curve, all things that I know you're aware of. It's the pithy things. When you go back to set up things like material masters and you set up building material routings, then you set up shuttle routings between processing centers and service center, and then it's delivery. And all that stuff needs to get connected up again. So over time, You have a better service model, but you keep refining it, refining it. You take out frictional costs in your network, which is really a big part of this. And the CapEx cycle being extended to the extent that it has been, we start to see improvements in lead times, service levels in terms of where inventory is placed, getting to the customer faster, and really consistency, being more consistent on every order. And some of the tools we've built on the system side, the ERP conversion, very difficult. But once you start to move further and further away from that, some of the tools that we've developed to quote faster, to convert faster, those things start to take center stage and start to become more prominent so that you can go out and provide that better customer experience.

It's a process, but over time, we continue to improve, and those are the things that we can fundamentally control. Okay, thank you.

And then next one for me. The second quarter EPS enjoyed a tax benefit of over a quarter a share. Just talk about the mechanics there and if we should expect a similar tailwind during the third quarter in which you expect EPS to be relatively flat sequentially. Yeah, I'm going to kick that over to Jim Closs and my partner over here.

Yeah, good morning, Sam. Really what we saw in the second quarter was With, you know, obviously reduced earnings comes, you know, a lower tax provision. So that's in line. But we also did get some discrete state tax credits in the quarter. You know, occasionally there's discrete tax items that come through on either a state or federal level. So what I would expect going forward is, you know, a basic effective tax rate around 25 to 26% between state and federal.

Okay, thank you for taking my questions. Thanks, Sam.

And our next question is going to come from Katja Janic from BMO Capital Markets.

Hi, thank you for taking my question. Maybe going back to the transactional sales, can you update us what the split currently is between transactional and contractual sales?

Sure.

On a shift in book basis, we're up to about 46% transactional, about 54% program.

And how are you thinking about this split moving forward?

The way we think about the split is continue to perform well enough consistently so we get more and more of that spot-building material business. in the market, Katya. So it's really how you compete day in and day out. And it really goes back to the fundamentals of having inventory placed close to the customer, having processing lead times that are short, quoting lead times that are short. And then when customers call, any time there's a jump ball, we win the ties. And not just winning the ties, but it's just a more consistent experience of being able to quote fast, locate the material, process the material, and ship on time more consistently. And you do tend to win more transactional business when you do that. We've noted the disruptions. I mean, coming out of 21 and 22, obviously, very, very strong years. And then really going through what I call the great unwinding of those things. A lot of commodity bellwether disinflation or deflation, if you will, demand has been falling. And then we had this investment cycle really over a three- to four-year period where we disrupted ourselves. And now that we come out of that disruption and we operationalize these investments, we can go to market in a much more consistent fashion. I mean, even where we have new service centers and major new service centers, whether it's in the Pacific Northwest or University Park in the Chicagoland area, customers still have to reacquaint themselves with Ryerson, and we have to reacquaint them with Ryerson in those geographies. providing those consistent experiences. And where we do that, we start to gain share and we start to gain more transactional opportunities as two of the more prominent examples.

I think Jim mentioned that data centers is one of the areas where there's strong demand for steel. How much of your exposure goes to that market?

It's a sub-vertical copy. It's really hard to get an exact fix on that. We know that it's a secular build-out, and we're certainly getting our share of those opportunities and looking to that opportunity. But it is a sub-sector, and we're refining in a more granular fashion what that impact is.

And one more, if I may. When looking at your capex, you maintained $50 million for $25 million. But when I look at the first half of the year, it's trending below that. Is that just the timing or is there opportunity for CapEx to come below that 50 million?

It's really a function of timing. I mean, and even having said that, I mean, you time the payments to when you hit certain milestones of commissioning and startup. So we're going to stay with 50 million, but we'll certainly have a better picture of how we're going to finish out the year when we see again in three months.

Thank you.

Thanks, Katya.

And once again, if you'd like to ask a question, press star 1 on your telephone keypad or type your question into the Ask a Question box. Our next question is going to come from Alan Weber from Roboti and Company.

Oh, good morning. How are you?

Hi, Alan. How are you?

Good. So, Eddie, can you talk about – I don't know if it's possible – The investments that you've made over the last few years, how do you think about the benefits of what you ultimately expected? How far along are you really? Or what ending are you at, if you want to phrase it?

Yeah, I mean, Alan, it's hard to run away from market conditions. I mean, if you have higher volumes and I would say if you have more duration around an upturn in pricing and demand, the whole thing is going to look better. That said, if we focus on Shelbyville, and we're going to play a video at the end of the call, Shelbyville right now is probably at about 67% of its volume ramp up. And so what we're really looking for out of Shelbyville, where we've made a significant investment in our stainless franchise to get that to 100% of the expected volumes, meet that internal rate of return case, and really start to provide a better service and lower cost model out to the market because we're taking in heavier coils. We can process those coils more efficiently at a lower cost, and we can fan that material out both to our service centers and to our customers with a better overall value proposition. I think the timeline of return, just given market conditions, has become a little bit extended, but the thesis is intact as you bring these investments up to full maturity, we operationalize these things, and then customers get used to that experience and we can also sell to those assets and where that product is going to go.

You know, right now... Yeah, go ahead. It sounds like what you're saying is, I understand market conditions, but if market conditions were flattish it still sounds as though you're in the early stages of seeing the improvements there, and they'll come even if it takes a little longer than originally expected.

Yeah, no, I think that's accurate. I mean, it varies by project, but here's some encouraging news, right? I mean, contract tons are down 50,000 tons year over year. Transactional tons are up 46,000 tons year over year. You typically don't see an inverse relationship between those different segments of our business when we look at order type, and I believe that the transactional pickups are really a result of us being able to normalize things in our network to a greater extent. For example, we put a new cut-to-length line into Dallas, and that is now fully operational, so we can start to get better volumes and throughput into that southwest marketplace, as an example. happy about the transactional progress. We've got to continue to push on that. And at the same time, our program business, we know it's going to come back. And just really getting these projects up and going to their fullest extent. But you're correct. I mean, it's still early in that return cycle for sure.

And then just a little bit unrelated, can you talk about second half cash flow, what you're expecting? and where you hope to get leverage ratios, say, by the end of the year?

Yeah, I mean, it's going to be a function, obviously, of EBITDA, as we've discussed before. We believe we're going to generate cash through the balance of the year. It is dependent on where prices go and where demand goes. I mean, frankly, if demand spiked upward and prices went up, too, I wouldn't mind it so much. So we might have to finance a working capital build in that case, but I do think our base case right now is we're going to generate cash to the balance of the year.

Okay, great. Thank you. Thanks, Alan.

And there are no further questions in the queue at this time.

I'll now pass it back over to Eddie for closing remarks.

We appreciate your continued support of and interest in Ryerson. Please stay safe and be well. I'll look forward to being with all of you in October for our third quarter 2025 earnings release and conference call. And please stay online or stay connected. And I hope you enjoy this video of Shelbyville.

Hi, my name is Tim Monholland, operations manager for Ryerson. I'd like to welcome you to our bluegrass facility at Shelbyville, Kentucky.

As part of Operation Bluegrass, an entire new bay was added to the building.

Ryerson Process Metals is comprised of 11 sites. Our capacities for RPM give us the opportunity to serve all of our Ryerson markets.

We've streamlined our process flow. We've rearranged all of our existing cut-to-link lines. We've added cut-to-link capability with our new high-speed, efficient Georg cut-to-link line. We've added two new shipping lanes to improve our loadout times. Automated storage retrieval system has 2,200 pockets that'll hold up to 5,000 pounds each of aluminum and stainless sheet. We're gonna be able to store sheets ready for shipment next day. We can fill sheets faster than I've ever seen in 30 years. We've increased our productivity. Put an order in today, it'll ship today, be delivered tomorrow.

Our mission is to provide excellent customer experiences. We're constantly looking for ways to continuously improve our processes, our technology, our equipment.

You know, we've added some great jobs to Shelby County. We've added almost 20 employees to our staff over the last year. These folks take a lot of pride in what they do. The metal that we ship out to our customers goes into many different products in the hospital industry, transportation industries, washers, dryers, hospital beds, many things that affect all of us every day. We're very proud of that fact.

This concludes today's call. Thank you for your participation. You may now disconnect.