Ryerson Reports 1st Quarter Results
05/03/2007 - Ryerson Inc. reported net income of $28.1 million on sales of $1.7 billion for the first quarter ended March 31, 2007.
Ryerson Inc. reported net income of $28.1 million on sales of $1.7 billion for the first quarter ended March 31, 2007.
First-Quarter Performance—The $28.1 million net income ($0.91 per diluted share) compares with net income of $32.4 million ($1.12 per diluted share) in the first quarter of 2006 and a net loss of $4.4 million (loss of $0.17 per diluted share) in the fourth quarter of 2006. Results for the year-ago first quarter included a $21.0 million pretax gain ($0.44 per share) on the sale of assets. Diluted shares outstanding of 30.7 million in the current quarter included 2.9 million from the convertible notes and 1.3 million from equity-based compensation.
On a FIFO basis, Ryerson’s earnings per diluted share would have been $1.20, which compares with $1.19 (including a $0.44 per share gain on sale of assets) in the first quarter of 2006 and $1.35 in the fourth quarter of 2006.
Sales, $1.7 billion, compare to sales of $1.4 billion in the year-ago period and in the fourth quarter of 2006. Year-over-year, the average selling price per ton increased 18.4%, partially offset by a 3.0% decline in tons shipped. The company noted that service center industry volumes were below year-ago levels, due in part to softness in some end markets and high inventories at the customer level.
Sequentially, sales increased 17.6% from the fourth quarter of 2006 on a 3.7% increase in the average selling price per ton and a 13.4% increase in tons shipped. Tons shipped per day increased 6.3%, sequentially.
Gross profit was $255.8 million, which compares to gross profit of $222.6 million in the year-ago period and $183.1 million in the fourth quarter of 2006. Gross profit per ton was $307, compared to $259 in the first quarter of 2006 and $249 in the fourth quarter of 2006. The 15.4% gross margin was flat with the first quarter of 2006 and up from 12.9% in the fourth quarter of 2006.
Gross profit for the current quarter included a LIFO liquidation gain of approximately $18 million, resulting from the company's inventory reduction initiatives. Despite the $18 million liquidation gain, first quarter 2007 gross profit would have been approximately $14 million higher under FIFO inventory accounting than as reported under LIFO due to rising material costs, primarily in stainless steel.
Operating expenses were $186.2 million, compared to operating expenses of $155.5 million (including a $21.0 million gain on the sale of assets) in the first quarter of 2006 and $171.6 million in the fourth quarter of 2006. The year-over-year rise in operating expenses was primarily due to an increase in non-cash stock-based compensation, largely reflecting the recent increase in the company's stock price (up from $25.09 at year-end 2006 to $39.62 on March 30, 2007). Aside from stock-based expenses, inflationary pressures on employee and other costs were successfully offset by Integris synergy savings and other productivity gains.
Interest expense was $24.5 million, which compares to interest expense of $15.0 million in the first quarter of 2006 and $21.1 million in the fourth quarter of 2006. Results included a $2.7-million, one-time, non-cash write off of unamortized expense associated with the prior credit facility and a $2.9-million, one-time, non-cash write off of unamortized bond issuance costs, as a conversion condition of the 3.50% senior convertible notes was met as of April 1, 2007. To date, no notes have been converted.
Management Comments—"We were pleased with the progress we made in the first quarter of 2007," said Neil S. Novich, Chairman, President, and CEO of Ryerson. "In the third quarter of 2006, we put in place new supply chain management and improved inventory processes. We saw the result in the first quarter of 2007 with current value of inventory down $241 million, or 15%, from the end of 2006, and we are on track to attain our goal of 5 turns by year-end 2007.
“In mid-2006, we also began a project to address the profitability of five large underperforming service centers,” continued Novich. “We made substantial progress in the first quarter of 2007 and are on track to attain operating profit improvement of $30 million in 2007. Overall operating expenses are under good control as Integris integration cost savings and productivity gains more than offset inflation. Furthermore, we made progress on our other strategic initiatives, including the upgrade to a single, modern IT platform, and have now successfully converted the first ten Integris service centers."
Financial Condition—Ryerson ended the quarter with a debt-to-capital ratio of 60.2%, compared to 65.0% at year-end 2006. Combined availability under the amended revolving credit facility and the new receivable securitization facility was $451 million, compared to $188 million under the revolving credit facility at the end of 2006. The increase in availability was due to debt repayment of $161 million, driven by the reduction in company's inventory, and the $100-million increase in the size of its borrowing facilities.
Outlook—"Overall, we anticipate market conditions to be stable in the second quarter of 2007," concluded Novich. "We plan to further reduce inventory by at least $100 million in the second quarter and continue the progress we have made capturing cost synergies from the integration of Integris, consolidating our IT platform, and addressing underperforming service centers."
Strategic Alternatives Process—As previously announced, Ryerson's Board of Directors, with the assistance of its financial advisors, is comparing the company's current strategic plan with other strategic alternatives that could create additional value.
"The Board has chosen not to schedule this year's annual meeting until we are further along in our assessment of strategic alternatives," concluded Novich. "We recognize the importance of this process to our shareholders and the need to perform a thorough and comprehensive review of all options."
Ryerson is a leading distributor and processor of metals in North America, with 2006 revenues of $5.9 billion. The company services customers through a network of service centers across the United States and in Canada, Mexico, India, and China. Headquartered in Chicago, Ryerson was founded in 1842.
