RYI: Forging a Stronger Future Through Strategic Investment and Operational Excellence - RYI Stock Research Report

## Executive Summary / Key Takeaways * Ryerson Holding Corporation ($RYI) is undergoing a profound operational transformation, having deployed over $650 million in capital since 2021 to modernize its service center network and integrate advanced technologies, aiming for higher and more stable earnings through market cycles. * Despite a protracted industry downturn characterized by falling commodity prices and cautious demand, Ryerson has demonstrated resilience, gaining North American market share in key product lines and growing its transactional business. * Core investments, including the University Park and Shelbyville facilities and a significant ERP system conversion, are nearing full operationalization, expected to drive enhanced productivity, improved customer experience, and a lower cost-to-serve. * While recent financial performance reflects market headwinds and LIFO impacts, the company is focused on rigorous expense management, targeting $60 million in annualized cost reductions, and disciplined working capital management to generate cash flow and reduce its leverage. * Management anticipates a cyclical market upturn in 2025, driven by abating destocking and stabilizing prices, positioning Ryerson to capitalize on its modernized infrastructure and strategic initiatives for future growth and improved profitability. ## The Enduring Strength of Metals: Ryerson's Strategic Evolution Ryerson Holding Corporation, founded in 1842, stands as a venerable institution in the industrial metals sector. As a leading value-added processor and distributor, Ryerson supplies a comprehensive range of carbon steel, stainless steel, aluminum, and other specialized metals to diverse industries, including manufacturing, construction, and transportation. A cornerstone of its business model is extensive processing services, with nearly 80% of its metals undergoing custom fabrication such as laser cutting, welding, and bending to meet precise customer specifications. This deep engagement in value-added services underscores Ryerson's commitment to being more than just a distributor; it is a critical partner in its customers' supply chains. The industrial metals industry is inherently cyclical and susceptible to volatile demand and pricing. Recognizing this, Ryerson embarked on a transformative journey around 2021, initiating a record capital expenditure (CapEx) cycle. This strategic pivot involved deploying over $650 million to modernize its extensive network of service centers across the U.S., Canada, Mexico, and China. This substantial investment was designed to address a "legacy investment deficit" and fundamentally renovate its operating model, aiming to generate higher and less volatile earnings across future business cycles. ## Technological Edge and Operational Modernization At the heart of Ryerson's strategic overhaul is a significant technological and operational upgrade designed to enhance its competitive moat. The company's investments are focused on creating an "intelligently connected network" of service centers, leveraging automation and advanced processing capabilities. For instance, the modernization of its Shelbyville, Kentucky, non-ferrous coil processing facility is a prime example. This facility, which is approximately 67% ramped up in terms of volume, is strategically located within a 500-mile radius of the epicenter of non-ferrous supply. It can now process very heavy coils and mill-edge coils, performing value-added services in-line, which significantly reduces the cost-to-serve and improves efficiency. These investments, combined with those in Specialty Metals Processing (SMP) and TSA, are expected to establish an industry-leading value-added network for stainless steel in North America once the stainless market recovers. Another critical technological leap has been the challenging but successful conversion of approximately 40% of Ryerson's revenue base to a uniform SAP-based Enterprise Resource Planning (ERP) environment. This transition from a 50-year-old legacy system, while initially disruptive, is now showing "strong normalization of operations." The new ERP system provides a unified platform for data management, enabling scalable application development that facilitates faster quoting, better fulfillment, and improved visibility across the network. This operational consistency is crucial for enhancing customer experience, with facilities like the new University Park, Illinois, location now achieving 1-3 day lead times and seeing bookings increase by 20% from their bottom. These technological advancements are foundational to Ryerson's ability to offer consistent, high-value customer experiences, which is paramount in a competitive market. ## Competitive Dynamics and Market Positioning Ryerson operates in a highly competitive and fragmented market. Its primary direct competitors include Reliance Steel & Aluminum Co. (TICKER:RS), Olympic Steel (TICKER:ZEUS), Worthington Industries (TICKER:WOR), and Commercial Metals Company (TICKER:CMC). Ryerson holds an estimated 5-10% aggregate market share in the U.S. metals distribution market, with a growth trajectory of 5-7% annually. Compared to its larger peer, Reliance Steel & Aluminum (RS), Ryerson lags in overall scale and financial efficiency. RS, with its estimated 10-15% market share, typically boasts higher gross margins (25-28% for RS vs. Ryerson's TTM 18.18%) and better Return on Invested Capital (ROIC) (15-18% for RS vs. Ryerson's TTM 2%). This suggests RS benefits from greater economies of scale and more efficient capital deployment. Ryerson's operational costs per unit are estimated to be 10-15% higher than RS's due to RS's broader supplier network. While Ryerson's custom processing services are comparable, RS's integration with advanced digital tools can result in 5-10% faster processing speeds in shared markets. Against Olympic Steel (ZEUS), which holds a smaller 5-8% market share, Ryerson generally outperforms in processing capabilities, with quantifiable advantages like 15-20% faster machining speeds due to its broader equipment range. However, ZEUS's focus on cost leadership can result in 5-10% lower operating costs per unit. Ryerson's gross margins (TTM 18.18%) are generally higher than ZEUS's (TTM 0.99%), indicating better profitability. Ryerson's global presence in China and Mexico also offers a diversification advantage that ZEUS lacks. Worthington Industries (WOR), specializing in value-added steel processing, often matches Ryerson in strategic focus but leads in innovation. WOR's R&D investments (2-3% of revenue) enable more efficient processing, such as lower material waste, while some of Ryerson's older machinery can result in 5-10% higher energy consumption per unit. Ryerson's operating margins (TTM 0.36%) are significantly lower than WOR's (TTM 8%). Commercial Metals Company (CMC), focused on steel production and recycling, benefits from vertical integration, leading to 15-20% lower costs per unit compared to Ryerson. Ryerson's competitive advantages stem from its extensive distribution network and historical expertise. Its proprietary processing technologies enable 10-15% faster cutting speeds, translating into higher customer loyalty and potentially better gross margins in specific segments. These advantages help Ryerson target premium segments and counter the cost leadership of some rivals. However, technological gaps, such as higher energy consumption from older machinery, and supply chain dependencies remain vulnerabilities that could impact costs by 5-10% and expose Ryerson to competitors' efficiencies. The company's strategic investments are directly aimed at closing these gaps and enhancing its competitive standing. In terms of market share, Ryerson's North American volumes have consistently outperformed the broader Metal Service Center Institute (MSCI) industry volumes. For instance, in the first six months of 2025, Ryerson's North American volumes decreased by 1.1% compared to MSCI's 2.7% decrease, implying market share growth. This outperformance was seen across carbon long, carbon plate, and stainless long products in Q2 2025. The company's "self-help driven transactional field business" has been a key driver of these market share gains, with transactional sales reaching approximately 46% of total sales in Q2 2025, up from about 43% in Q4 2024. This growth is fueled by improved service levels and shorter lead times, aligning with the industry's "law" that proximity and in-stock availability significantly increase the chances of winning spot orders. ## Financial Performance and Liquidity Ryerson's recent financial performance reflects the challenging market backdrop against which its transformation is unfolding. For the six months ended June 30, 2025, net sales were $2,305.0 million, a 6.5% decrease from $2,464.7 million in the prior year period. This decline was primarily due to lower metal commodity prices, which reduced average selling prices across carbon and stainless product lines, partially offset by increases in aluminum. Gross profit for the six-month period was $413.8 million, or 18.0% of net sales, slightly higher than the 17.9% in the prior year, but a decrease from $441.1 million. Operating profit saw a significant decline, falling to $8.1 million (0.4% of net sales) in H1 2025 from $23.6 million (1.0% of net sales) in H1 2024, primarily due to the impact of lower average selling prices and gross profit. Net income attributable to Ryerson Holding Corporation for the first six months of 2025 was $3.7 million, compared to $2.3 million in the prior year. However, adjusted net loss attributable to Ryerson for H1 2025 was $3.1 million, compared to $5.0 million of net income in H1 2024, after adjusting for non-core items like insurance settlements, impairment charges, and pension-related adjustments. The company experienced a LIFO expense of $20.0 million in H1 2025, compared to LIFO income of $9.0 million in H1 2024, as rising commodity prices in the period translated to material costs increasing faster than average selling prices.

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Despite these headwinds, Ryerson has maintained a strong focus on expense management. Warehousing, delivery, selling, general, and administrative expenses decreased by $10.1 million in H1 2025 compared to H1 2024, primarily due to lower reorganization costs associated with the University Park facility and ERP conversion activities. The company has a stated target of $60 million in annualized cost reductions, which it is on track to achieve. From a liquidity perspective, Ryerson's profile remains healthy. As of June 30, 2025, total liquidity, defined as cash and cash equivalents plus availability under credit facilities, stood at $485.0 million, up from $451.0 million at December 31, 2024.

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The company's primary source of liquidity is its $1.3 billion revolving credit facility, which was extended to June 29, 2027. Total debt increased to $510.2 million at June 30, 2025, from $467.4 million at December 31, 2024, mainly due to increased working capital requirements driven by higher sales levels.

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This resulted in a net debt leverage ratio of 4.4x in Q2 2025, above its long-term target range of 0.5x to 2x. Management believes Q1 2025 marked a cyclical leverage peak and expects cash flow generation in the back half of 2025 to move the ratio back towards its target. Working capital management is a key focus, as it tends to be counter-cyclical, generating cash during periods of contraction.

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## Outlook and Future Trajectory Ryerson's outlook for the third quarter of 2025 reflects a cautious but optimistic stance on market conditions. Management expects volumes to soften by 2% to 4% sequentially, anticipating continued demand challenges due to uncertainty across end markets and normal seasonality. However, the pricing environment is expected to remain supportive, with average selling price appreciation of 1% to 3%, leading to revenues in the range of $1.14 billion to $1.18 billion. Gross margins are projected to benefit from modest price resets in contract business, though flatter pricing in spot business may create some margin pressure. For Q3 2025, Ryerson forecasts adjusted EBITDA, excluding LIFO, in the range of $40 million to $45 million, with earnings per share between $0.00 and $0.06 per diluted share. LIFO expense is anticipated to be between $9 million and $11 million for the quarter. The company reaffirms its full-year 2025 CapEx target of $50 million, a significant reduction from prior years, as it shifts focus to operationalizing its recent investments. Management expresses optimism for the medium and longer term, citing improving cyclical drivers such as abating destocking, positive commodity price curves, stimulative economic policies in China, and incrementally declining interest rates across G7 economies. They also highlight "latent secular manufacturing and industrial metal demand," including "subsector industry bright spots in data center and public infrastructure projects driven by federal investment spending." While tariff policy remains a source of uncertainty, Ryerson anticipates that any sustained tariffs would likely lead to higher domestic metal prices, benefiting its replacement costs. ## Risks and Challenges Despite the strategic progress, Ryerson faces several inherent risks. The cyclical and volatile nature of the metals service center industry means that demand and pricing can be difficult to predict. Fluctuating metal prices directly impact gross profits, as competitive conditions dictate the extent to which price increases can be passed on to customers or how quickly declines affect existing inventory. Tariff policy uncertainty, with repeated announcements and retractions, creates significant supply chain uncertainty and could impact financial performance. Operational risks include the ongoing integration of new facilities and ERP systems, which, while largely complete, can still present challenges. The company's pension funding requirements are also subject to investment returns and discount rates, potentially impacting cash flows. Furthermore, the high competitive intensity, particularly in a "price market" where customers buy to minimum requirements, can compress margins, as seen in 2024 where transactional spreads were 3-5% compared to a historical 6-10%. Ryerson's higher exposure to non-ferrous metals (48-49% of sales) compared to the industry average (67-70% carbon) also means it is more sensitive to the prolonged weakness in stainless steel and nickel markets. ## Conclusion Ryerson Holding Corporation is in the midst of a profound transformation, strategically investing in its operational backbone and technological capabilities to emerge as a more resilient and profitable entity. The company's extensive CapEx cycle and ERP conversion, while causing temporary disruptions and costs, are foundational to its long-term vision of delivering superior customer experiences, optimizing its cost structure, and expanding its market share. The shift towards operationalizing these investments and a disciplined approach to expense and working capital management are critical to improving its financial health and de-leveraging. As the industrial metals market shows glimmers of a cyclical upturn, Ryerson's modernized network and enhanced processing capabilities position it to capture growth opportunities, particularly in transactional business and emerging sectors like data centers. While competitive pressures and commodity price volatility remain inherent risks, Ryerson's strategic focus on value-added services, continuous operational improvement, and technological leadership provides a compelling narrative for investors looking for a company poised to capitalize on a revitalized North American manufacturing economy. The successful integration of its strategic initiatives and the anticipated market inflection in 2025 are key indicators to watch as Ryerson aims to realize the full earnings potential of its multi-year transformation.