Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ryerson Holding Corp (RYI, Financial) achieved positive cash flow generation in Q2 2024.
- The company repurchased 647,330 shares below book value, enhancing shareholder value.
- Ryerson Holding Corp (RYI) exceeded its cost reduction targets for the quarter.
- The redesigned e-commerce platform was successfully launched, potentially improving customer experience.
- Ryerson Holding Corp (RYI) reported a year-over-year and quarter-over-quarter increase in shipments, indicating operational improvements.
Negative Points
- Revenue for Q2 2024 was $1.23 billion, which was below expectations due to weaker-than-expected pricing conditions.
- Average selling prices for key products like carbon, aluminum, and stainless steel decreased, leading to margin compression.
- The company is experiencing higher-than-expected declines in spot average selling prices and margin pressure through Q3 2024.
- Ryerson Holding Corp (RYI) ended Q2 2024 with a net leverage of 3.2x, above its target range of 2.0x.
- The company anticipates further volume and price declines in Q3 2024, with expected revenues between $1.12 billion to $1.16 billion.
Q & A Highlights
Q: Starting on the cost savings program. This quarter, you achieved $18 million in cost reductions. How much of that is attributable to the $60 million you're targeting?
A: The lion's share of that is attributable to the $60 million target. However, $4 million of that reduction is due to lower variable compensation, which is not included in the $60 million target. As business conditions turn down, our variable cost structure declines, and we continue to optimize our network to reduce costs further.
Q: Is it fair to say that if we annualize the $18 million minus $4 million for variable costs, you're already close to the $60 million target?
A: While the variable compensation component will eventually level out, we will continue to optimize our overall network. This includes consolidations and rationalizing our cost profile as we bring new capacity online.
Q: Given that leverage is above your target, is it fair to assume that more cash flow will be directed to paying down debt in the near term?
A: Yes, as we generate more countercyclical cash flow and complete our investment cycle, debt will fall. We will also consider share repurchases under our authorization if opportunities arise.
Q: Where did you discover the incremental $20 million in cost savings from the updated annualized reduction of $60 million?
A: The additional savings were found in logistics, material movements, and reducing multiple handling. We are continually optimizing our network to reduce handling and touches in our facilities.
Q: How do you view current inventory levels and net working capital as we move into the back half of the year?
A: Aluminum and stainless inventories still have some destocking to go, while carbon has turned better. We are focused on reducing elevated aluminum and stainless inventory stocks and ensuring the right inventory profile in our service centers.
Q: How do you anticipate your third-quarter mix of carbon versus stainless versus aluminum shipments will compare to the second quarter?
A: We expect carbon volumes to outpace stainless and aluminum for the balance of the year, despite margin compression in carbon sheet prices. This is due to the relative weakness of stainless and aluminum compared to carbon.
Q: What assumptions are you baking in terms of volumes or shipments for the cost savings going forward?
A: We see this as a bottoming of the counter cycle. While we don't know exactly how long it will last, we expect volumes to increase and market share to grow as we move into an upturn. Our investments will make us more competitive with a better operating model.
Q: How are you thinking about cash flow and working capital for the third quarter and the balance of the year?
A: We expect to generate cash flow in line with business conditions. As we complete our investment cycle and move to a more normalized CapEx spend, cash flows will improve, and costs will come down.
Q: Where are we in the optimization phase, and how has it been impacting customers?
A: We are progressing through the optimization phase as projects come online and assets are commissioned. Positive churn indicates we are adding more accounts than we are losing. We are addressing common issues by improving service levels, lead times, and on-time delivery through deep root cause analysis and inventory management.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
