Ryerson's Third-Quarter Results Show Margin Compression

Third-quarter sales of $864.2 million declined 1.3 percent from the previous quarter, but increased 17.6 percent year-over-year. Ryerson shipped 515,000 tons in the third quarter, nearly flat with second-quarter shipments of 518,000. The average selling price per ton of $1,678 decreased 0.7 percent from the second quarter, but increased 9.6 percent from Q3 2016. Ryerson’s gross margin in 3Q was 16.8 percent, compared to 16 percent in the prior quarter and 19.8 percent for the year-ago period.

Carbon steel shipments totaled 387,000 tons, aluminum 53,000 tons, and stainless steel 73,000 tons.

Three of Ryerson’s end markets saw significant improvements, said Mike Burbach, Regional President, North America. “Year-to-date oil and gas, certainly, is one of the largest improvements we’ve seen given what’s happened in that industry this year. But we’ve also seen nice change in construction equipment, and a surprise this year has been the improvement we’ve seen in commercial ground transportation.”

Ryerson sees electric vehicles as a new opportunity. “We’re looking more and more at what goes on around the electric vehicle, because that’s going to be very disruptive, frankly, when you think about the number of parts in an electric car, the way that car gets fueled, the electricity and charging stations,” said Lehner. “There’s a whole infrastructure that has to come to support that, and a lot of that infrastructure is going to be metal.”

When asked for an opinion on the Section 232 trade action, Lehner compared the market’s wait for a decision by the Trump administration to Linus’ vigil for the Great Pumpkin in the Charlie Brown classic. “The 232 issue through the year makes you want to go watch ‘It’s the Great Pumpkin, Charlie Brown‘ over and over again. I think every company had to make certain choices during the year on how they were going to act based on where they thought the 232 would come out.” Ryerson took a neutral stance, Lehner said, “but a lot of people imported a lot of product.” In the coastal areas, companies have to sell against import prices that keep “encroaching inland more and more.”

Lehner said it is hard to predict when the Section 232 trade action will come, but when it does “there will be some kind of short-term adjustment period based on what’s in the channel and how people have to alter their buying tactics.” The world continues to be oversupplied by metal and demand needs to increase, he said. Ryerson is expecting higher demand in 2018.