Ryerson (RYI 11.80, +0.70, +6.31%) is trading higher today after guiding above
expectations for Q2. Since steel processors are not widely followed by
investors, we wanted to provide some color here. Chicago-based Ryerson is one
of the largest steel processors in North America. Its industry is highly
fragmented with the largest companies accounting for only a small percentage of
total market share.
Its customer base ranges from local, independently owned fabricators and machine shops to large, international OEMs. It carries a full line of over 65,000 products in stainless steel, aluminum, carbon steel, and alloy steels and a limited line of nickel and red metals in various shapes and forms.
Metals service centers like RYI serve as key intermediaries between metal producers and end users of metal products. Metal producers (AKS, MT, NUE, STLD, X) offer commodity products and typically sell metals in the form of standard-sized coils, sheets, plates, structurals, bars, and tubes.
Typically, Ryerson buys 20-ton steel coils from steel producers then it processes the metal further. Services include bending, beveling, blanking, blasting, burning, cutting-to-length, drilling, embossing, flattening, forming, grinding, laser cutting, machining, painting, perforating, slitting, stamping, threading etc. You get the idea. They can do a lot of different things to metals. RYI works closely with its customers. More than 75% of the products it sells are processed to meet customer specifications.
RYI operates over 90 facilities across North America and five facilities in China. Its service centers are strategically located near its customers, which allows RYI to quickly process and deliver product, often within the next day of receiving an order. RYI serves approximately 40,000 customers across a wide range of manufacturing end markets.
Producers prefer large order quantities, longer lead times, and limited inventory to maximize capacity utilization across their typically higher capital-intensive structure. End users of metal products seek to purchase metals with customized specifications. End-users in highly diverse industries such as machinery, construction, and transportation often look for "one-stop" suppliers that can offer processing services along with lower order volumes, shorter lead times, and more reliable delivery.
Turning to the guidance, RYI expects Q2 revenue of $1.04-1.05 bln, which is slightly above market expectations. RYI anticipates year/year volume growth in nearly all end markets, most notably in commercial ground transportation, consumer durable equipment, and industrial equipment. Compared to Q1, RYI expects growth in almost all end markets as the company continues to execute well within improved industrial demand conditions experienced thus far in 2018. Ryerson continues to see improved pricing conditions in Q2 as commodities appreciated compared to Q1 and the manufacturing economy remains strong.
In sum, RYI's upside revenue guidance was good news for investors. This follows a weak MayQ report from another steel processor Worthington (WOR) on Wednesday after the close. That stock took a bit of a hit after reporting results. Namely, RYI is seeing volume growth in nearly all end markets. Other steel processors to watch: ROCK, RS, WOR, ZEUS.
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