Ryerson Reports Fourth Quarter and Full-Year 2017 Results

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PR Newswire

CHICAGO, March 5, 2018

CHICAGO, March 5, 2018 /PRNewswire/ -- Ryerson Holding Corporation (NYSE: RYI), a leading value-added processor and distributor of industrial metals, today reported results for the fourth quarter and full-year ended December 31, 2017.

Eddie Lehner, Ryerson's President and Chief Executive Officer said, "First, thank you to our customers for your business which we never take for granted, and thank you to all of my Ryerson teammates for continually striving to create a better Ryerson. Ryerson made progress in 2017 on a number of important fronts while further positioning the Company for greater performance in the years to come. In 2017, we grew market share while generating favorable expense leverage and improving working capital efficiency. We continued to add more processing capabilities to our service center network, welcoming The Laserflex Corporation and Guy Metals, Inc. to the company while making growth investments in value added processing capabilities and intelligent systems design and implementation. Ryerson is well positioned to capitalize on the stronger market conditions we have seen so far in 2018, as we continue to scale and advance our business model centered on an intelligent network of interconnected service centers delivering customer solutions and great customer experiences, with an iconic industrial brand more than 175 years in the making."

2017 Results

Revenues were $3.4 billion in 2017, up 17.7 percent from 2016, as the average selling price per ton increased by 11.9 percent and tons sold increased by 5.1 percent.

Gross margin decreased to 17.3 percent in 2017, compared to 20.0 percent in 2016. Included in cost of materials sold was net LIFO expense of $19.9 million in 2017 and LIFO income, net of $6.6 million in 2016. Gross margin, excluding LIFO decreased to 17.9 percent in 2017, compared with 19.7 percent in 2016. Gross margin compression was driven by procured metal costs that outpaced pricing power in the industry primarily due to the level of imports in the market and in-year volatility of nickel and chrome, as well as some relative mix shift to sheet products, aluminum and stainless in particular, where demand was stronger than in long and plate products during 2017. A reconciliation of gross margin, excluding LIFO to gross margin is included below in this news release.

Warehousing, delivery, selling, general, and administrative expense increased by $36.1 million, or 8.3 percent in 2017, compared to the year-ago period, driven by higher variable costs as our tons sold increased. Warehousing, delivery, selling, general, and administrative expenses as a percentage of sales declined to 14.0 percent in 2017 compared to 15.3 percent in 2016, demonstrating the company's ability to realize expense leverage with higher shipped volumes, even with an environment of rising input and operating costs.

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Net income attributable to Ryerson Holding Corporation was $17.1 million, or $0.46 per diluted share, in 2017, compared to $18.7 million, or $0.54 per diluted share, in 2016. Excluding benefits from income tax reform, restructuring and other charges, impairment charges on assets, and losses on the retirement of debt, net income attributable to Ryerson Holding Corporation was $13.8 million, or $0.37 per diluted share, in 2017 compared to $28.0 million, or $0.81 per diluted share, in 2016.

Adjusted EBITDA, excluding LIFO increased 3.4 percent to $184.1 million in 2017, compared to $178.0 million in 2016. Reconciliations of Adjusted EBITDA, excluding LIFO and net income attributable to Ryerson Holding Corporation and earnings per share, excluding benefits from income tax reform, restructuring and other charges, impairment charges on assets, and losses on retirement of debt to net income attributable to Ryerson Holding Corporation, are included below in this news release.

Working Capital and Liquidity Management

In 2017, Ryerson's inventory balance stood at 71 days of supply compared to 76 days in the year-ago period. Erich Schnaufer, Ryerson's Chief Financial Officer, said, "Ryerson did an exceptional job of reducing inventory levels by five days in 2017. Structural improvements in asset management provided Ryerson greater optionality to invest in value-added growth acquisitions, such as The Laserflex Corporation, a metal fabricator specializing in laser cutting and welding services, and Guy Metals, Inc., a processor and polisher of stainless steel products. We also made targeted investments in value-added processing equipment throughout the year while continuing to maintain ample liquidity."

Additionally, Ryerson reduced its pension liability in 2017, which decreased from $216 million in 2016 to $165 million in 2017 driven by higher returns on plan assets and lower benefit obligations.

As of December 31, 2017, borrowings were $384 million on our primary revolving credit facility with additional availability of $264 million. Including cash, marketable securities, and availability from foreign sources, Ryerson's total liquidity was $338 million compared to $301 million in 2016.

Cash used in operating activities was $2.1 million in 2017, driven by increases in working capital that supported a 17.7 percent increase in revenue for the year. Ryerson generated $91 million from operating activities in the fourth quarter of 2017, as the Company reduced its working capital investment consistent with demand expectations in the period. Ryerson generated cash of $25 million from operating activities in 2016 and $48 million from operating activities in the fourth quarter of 2016.

Fourth Quarter 2017 Results

Revenues were $810.6 million for the fourth quarter of 2017, up 18.8 percent from the year-ago period. The average selling price per ton increased 11.3 percent, and tons shipped increased 6.8 percent from the fourth quarter of 2016.

Gross margin was 16.8 percent for the fourth quarter of 2017, consistent with both the third quarter of 2017 and the fourth quarter of 2016. Included in cost of materials sold was net LIFO expense of $8.1 million for the fourth quarter of 2017, net LIFO income of $1.7 million for the third quarter of 2017, and net LIFO expense of $13.8 million for the fourth quarter of 2016. Gross margin, excluding LIFO increased to 17.8 percent for the fourth quarter of 2017, compared with 16.6 percent in the third quarter of 2017. Compared to the year-ago period, gross margin, excluding LIFO decreased by 100 basis points from 18.8 percent. A reconciliation of gross margin to gross margin, excluding LIFO is included below in this news release.

Warehousing, delivery, selling, general, and administrative expense were $119.3 million for the fourth quarter of 2017 compared to $104.9 million in the year-ago period. Warehousing, delivery, selling, general, and administrative expenses as a percentage of sales declined to 14.7 percent in the fourth quarter of 2017 compared to 15.4 percent in the year-ago period showing the company's continued ability to successfully manage expenses and reap the rewards of realized expense leverage.

Net income attributable to Ryerson Holding Corporation was zero in the fourth quarter of 2017, compared to a net loss of $8.6 million, or $0.23 per diluted share, in the fourth quarter of 2016. The enactment of the Tax Cuts and Jobs Act (Tax Reform) in December 2017 resulted in a one-time income tax benefit of $3.4 million in the fourth quarter of 2017. The Tax Reform primarily impacted the valuation of Ryerson's deferred tax assets and liabilities, as well as imposed a one-time transition tax on foreign earnings. Excluding benefits from income tax reform, restructuring and other charges, impairment charges on assets, and losses on the retirement of debt, the net loss attributable to Ryerson Holding Corporation in the fourth quarter of 2017 was $3.4 million, $0.09 per diluted share, compared to a loss of $7.1 million, or $0.19 per diluted share in the fourth quarter of 2016.

Adjusted EBITDA, excluding LIFO was $40.6 million in the fourth quarter of 2017, higher than both the third quarter of 2017 and fourth quarter of 2016 balances of $37.7 million and $36.0 million, respectively. Reconciliations of Adjusted EBITDA, excluding LIFO and net income attributable to Ryerson Holding Corporation and earnings per share, excluding restructuring and other charges, impairment charges on assets, and gains or losses on retirement of debt to net income attributable to Ryerson Holding Corporation are included below in this news release.

Outlook Commentary

Ryerson continues to assess the impact of the Tax Reform and currently expects its effective tax rate for the full year of 2018 to be in the range of 26 percent to 27 percent. The Company expects to receive AMT credit refunds of $30 million in total with $15 million expected in 2019 and the remainder going forward. Given the substantial changes to the Internal Revenue Code, the estimated financial impacts for the fourth quarter and the full-year 2017 are subject to further analysis, which could result in changes to these estimates in 2018.

Global supply and demand fundamentals appear stronger in 2018 as a weaker U.S. dollar, lower domestic import levels, and supply-side reforms in China seem to support stronger pricing conditions in the U.S. Industrial metals commodity prices for CRU carbon coil and plate products, London Metal Exchange nickel, a key component of stainless products, and Midwest Aluminum all continued to trend higher in the first months of 2018 compared to the fourth quarter of 2017, and should lend further support and stabilization to average industry selling prices. Demand remained positive for most of our key end markets compared to last year, and Ryerson expects these conditions to continue for at least the first half of 2018. Given the supply and demand factors discussed, Ryerson expects further margin expansion in the first quarter 2018 compared to the fourth quarter of 2017.

On March 1, 2018, President Trump announced a 25 percent tariff on all imported steel products and 10 percent tariff on all imported aluminum products for an indefinite amount of time under Section 232 of the Trade Expansion Act. If formally enacted later this week as expected, we anticipate these actions to have an upward bias on pricing conditions for metal products in the U.S. for at least the first half of 2018. Ryerson supports fair trade practices that create a level playing field for suppliers, distributors, and metal end-users. For over 175 years Ryerson has worked with its customers through all seasons and cycles to deliver the best possible customer experiences to the market place. As enacted trade policy plays out in the months and potentially years ahead, we will exhaust every effort to provide supply chain continuity and solutions that add value for our customers.

Fourth Quarter 2017 Business Metrics

	Fourth Quarter 2017	Third Quarter 2017	Fourth Quarter 2016	Sequential Quarter Change	Year-Over-Year Change
Tons shipped (In thousands)	470	515	440	-8.7%	6.8%

Average selling price/ton	$1,725	$1,678	$1,550	2.8%	11.3%
Average cost/ton	1,435	1,396	1,290	2.8%	11.2%
Average cost/ton, excluding LIFO	1,418	1,399	1,259	1.4%	12.6%

Fourth Quarter 2017 Major Product Metrics

	Tons Shipped (Tons in thousands)					Average Selling Price per Ton Shipped
	Fourth Quarter 2017	Third Quarter 2017	Fourth Quarter 2016	Sequential Quarter Change	Year-Over-Year Change	Sequential Quarter Change	Year-Over-Year Change
Carbon steel	355	387	332	-8.3%	6.9%	1.1%	10.0%
Aluminum	49	53	43	-7.5%	14.0%	3.2%	8.1%
Stainless steel	65	73	64	-11.0%	1.6%	6.1%	16.7%

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