Ryerson Holding Corporation (RYZ) Earnings

Management highlights

- Merger Integration & Synergy Progress * This was the first full quarter of combined operations for Ryerson and Olympic Steel, with $5 million in synergies realized in Q2 2026, in line with guidance. Management expects $13-14 million in synergies for Q3 2026, pushing the annual run rate to $52-56 million, which will exceed the original first-year target of $40 million annual run rate synergies ahead of schedule. The total two-year target remains $120 million in annual run rate synergies. * Synergy breakdown for Q3 2026: $6.5 million from procurement, $3 million from public company efficiency/cost reduction, $2 million from commercial enhancements, $2 million from network optimization. A Mexico facility consolidation is already complete, generating $1.3 million in annual run rate synergies, and a Connecticut consolidation project is scheduled for completion in Q1 2027. * Cross-network collaboration examples include moving stored product to owned, underutilized space to cut costs and improve turnaround, cross-geography customer support, and strategic order flow alignment that allocates contract business to appropriately sized facilities, freeing capacity for higher-margin transactional work at Ryerson locations. - Operational & End Market Performance * Year-to-date North American tonnage increased 49% year-over-year (5.8% same-store), outpacing industry growth of 2.9% and delivering market share gains. Q2 total shipments increased 22.6% quarter-over-quarter (4% same-store), exceeding guidance. Secular demand from data center and power generation projects continues to accelerate, with the firm’s scale and processing capabilities positioning it for further growth in this area. * Strong quarter-over-quarter same-store volume growth: double-digit growth in climate (HVAC, supported by data center demand), solid single-digit growth in commercial transportation (led by truck cab manufacturing). Modest improvement was seen in agriculture (still recessed) and fabrication/welding (supported by data center projects); consumer products volumes were flat quarter-over-quarter, with solid growth among top appliance customers. * Operating leverage improved on the expanded platform: WDSG&A per ton decreased both total company and same-store compared to Q1 2026, and WDSG&A as a percentage of same-store sales fell from 16.8% to 15.2%. - Financial Performance * Reported net income was $15.5 million ($0.30 per diluted share), impacted by a $15.7 million one-time purchase accounting adjustment. Adjusted net income (excluding one-time items) was $27.6 million ($0.52 per diluted share). Adjusted EBITDA excluding LIFO was $101 million, exceeding the guidance range of $88-92 million. * Leverage ratio decreased to 4.0x in Q2 from 5.1x in Q1, driven by higher trailing twelve-month adjusted EBITDA. Inventory days of supply fell 1 day to 73 days, within the target range of 70-75 days, and total liquidity increased to $757 million from $618 million quarter-over-quarter. - Capital Allocation * Full year 2026 capital expenditure guidance remains $75 million, with $16 million spent in Q2 and $29 million spent year-to-date. The firm repurchased ~39,000 shares for $800,000 in Q2, and the full $100 million share repurchase authorization (valid through April 2028) remains available. A quarterly dividend of 18.75 cents per share was declared, consistent with prior quarters.

Guidance

- Third quarter 2026 volumes are expected to be 3-5% lower than Q2 2026, in line with normal seasonal industry patterns. Average selling prices are expected to be flat to up 2%, with stable carbon pricing offsetting recent corrections in stainless and aluminum prices. Total Q3 revenue is forecast to be between $1.87 billion and $1.95 billion. - Excluding remaining purchase accounting adjustments, Q3 2026 net income is expected to be $19-21 million (37-40 cents per diluted share). Adjusted EBITDA excluding LIFO is forecast to be $88-92 billion, with Olympic Steel contributing $21-23 million. LIFO expense is expected to be $16-18 million in Q3. - An additional $5-7 million in inventory purchase accounting adjustments will be recognized through the end of 2026 as remaining acquired inventory is sold. - Working capital requirements are expected to moderate in Q3 2026 as stainless and aluminum prices stabilize after recent declines, supporting free cash flow generation and net debt reduction. Management expects to reach a net leverage ratio of 3x by the end of 2026, sooner than prior targets. - The full year 2026 capital expenditure guidance is maintained at $75 million, with $50 million expected for same-store CapEx.

Segment performance

As a combined enterprise following the Ryerson-Olympic Steel merger, the firm’s revenue split between transactional and contract (program) business is currently 40% transactional, 60% contract. No additional separate product segment financials are provided beyond Olympic Steel contributing $23.5 million of the company’s total $101 million adjusted EBITDA (excluding LIFO) in Q2 2026, compared to $12.5 million contributed by Olympic in the prior quarter’s six-week sub-period. Total company net sales for Q2 2026 hit $2.01 billion, with 800,000 tons shipped; same-store revenue was $1.44 billion. Data center and power generation project-related sales represented approximately 7% of Q2 2026 revenue, growing 30% sequentially.

Risks & headwinds

- Inflationary delivery and logistics cost pressures have built through Q2 2026, driven by rising fuel prices and tightening truck capacity. There is a lag in passing these increased costs through to contract (program) customers due to fixed contractual pricing terms, creating temporary margin pressure. - Extended mill lead times, domestic metal capacity constraints, distributor inventory dynamics, and heightened geopolitical turmoil are complicating customer backlog turnover and efficient resource allocation across the business. - Pricing and margin spreads between higher-margin transactional business and lower-margin program business reached their highest delta in three years (700-800 basis points, above the historical 600-700 basis point range), creating near-term margin pressure that will take time to resolve via portfolio rebalancing. - Most contract pricing is index-based and lags current commodity prices by one or more quarters, so margin adjustments from rising carbon prices have not yet fully flowed through to program business, creating a transitional headwind. - Demand recovery across cyclical end markets (agriculture, consumer discretionary, residential construction) remains slow and uneven; agriculture demand is expected to stay subdued in the near term, and consumer demand remains constrained by high interest rates and persistent inflation.

Analyst Q&A

• Q: Where is the company seeing transactional business market share gains currently, and what is the current split between transactional and contract business? /

  A: Transactional share gains are broad-based, driven by strong in-network inventory availability (targeting 95% service level for high-demand items) and matured prior investments in quoting speed and bandwidth that have improved win rates. As a combined company, the current split is 40% transactional / 60% contract. Management aims to shift this to 45%/55% to capture wider transactional margins, by reallocating contract business to lower-cost suitable facilities to free capacity for transactional growth while improving contract margins. (312 characters)

• Q: The current 700-800 basis point margin gap between transactional and contract business is wider than historical norms; what is driving the lag in contract margins and what can the company do to close the gap? /

  A: The wider gap is largely driven by structural timing factors: most contract prices are index-based and set one quarter in arrears, so recent rising carbon prices have not yet flowed through to existing contracts. Some supply-side cost increases for key carbon products have also not yet been reflected. The main mitigation step is strategic network allocation: moving more contract business to Olympic facilities better suited for high-volume work, which improves asset utilization and frees Ryerson capacity for higher-margin transactional work, gradually narrowing the gap. (410 characters)

• Q: Why can’t rising freight and transportation cost pressures be immediately passed through to customers, as is typical? /

  A: There is a lag in passing through costs, especially for the contract segment, because fuel surcharges and price adjustments are governed by contractual terms that only allow changes at set intervals. Transactional business has much more flexibility to immediately adjust pricing to reflect higher freight costs, so pass-through is faster on that side of the portfolio. The company is also leveraging merger synergies and network optimization to reduce overall logistics costs (e.g., reducing unnecessary shipping miles) to moderate pressure while waiting for contract price catch-up. (398 characters)

• Q: What is the FIFO gross margin outlook for Q3 given the pricing and contract dynamics discussed? /

  A: Most current margin headwinds, including the 10-15% drop in aluminum and stainless prices and transitional supply chain extra costs to maintain customer service levels, are transitory. These headwinds will cycle through as the company turns inventory over the next quarter, and the firm’s biggest long-term opportunity remains growing margins through portfolio rebalancing and synergy realization. Management expects margin expansion over time once these transitional lags pass. (293 characters)