Jeff Horwitz - Investor Relations Edward Lehner - President and Chief Executive Officer Erich Schnaufer - Chief Financial Officer Kevin Richardson - President, South-East Region Mike Burbach - President, North-West Region.

Jorge Beristain - Deutsche Bank Brett Levy - Loop Capital Seth Rosenfeld - Jefferies & Co Joel Tiss - BMO Capital Markets Phil Gibbs - KeyBanc Capital Markets.

Good morning. My name is Christina and I will be your conference operator today. At this time, I would like to welcome everyone to the Ryerson’s First Quarter 2017 Earnings Webcast and Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

[Operator Instructions] Thank you. Jeff Horwitz, you may begin your conference. .

Good morning. Thank you for joining Ryerson Holding Corporation’s first quarter 2017 earnings call. I am here this morning with Eddie Lehner, Ryerson’s President and Chief Executive Officer and our Chief Financial Officer, Erich Schnaufer. Kevin Richardson and Mike Burbach, our two North American Regional Presidents, will be joining us for Q&A.

Before we get started, let me remind you that certain comments we make on this call contain forward-looking statements within the meaning of the Federal Securities Laws.

These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those implied by the forward-looking statements. Such risks and uncertainties include, but are not limited to, those set forth under risk factors in our Annual Report on Form 10-K for the year ended December 31, 2016.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made and are not guarantees of future performance. In addition, our remarks today refer to several non-GAAP financial measures that are intended to supplement but not substitute for the most directly comparable GAAP measures.

A reconciliation of the non-GAAP financial measures discussed on today’s call to the most directly comparable GAAP measures is provided in our first quarter 2017 earnings release filed on Form 8-K yesterday, which is available on the Investor Relations section of our website I’ll now turn the call over to Eddie..

Thank you Jeff, and thank you all for joining us this morning. Let me start by thanking our customers for choosing Ryerson’s products, services and solutions, and our employees for enhancing each customer experience.

Ryerson continues to execute our strategy built around speed, scale, value-add culture, and analytics, which has generated improved financial results and a higher quality earnings stream.

In the first quarter of 2017, Ryerson grew revenues by 15.9% driven by an increase in average selling price per ton of 11.5% and a higher volume of 4%, compared to the year ago period.

Ryerson also achieved higher gross margins, excluding LIFO, higher net income and higher adjusted EBITDA, excluding LIFO, while improving our cash conversion cycle compared to the first quarter of 2016.

We also welcomed Laserflex and Guy Metals to our interconnected, value-added processing and distribution network, further enhancing our capabilities and product offerings.

In our 175th year as an iconic metals industry leader, Ryerson’s differentiated model with a local presence and national scale has laid the groundwork for further balance sheet deleveraging and growth opportunities as we continuously improve our ability to create great customer experiences across every market we serve.

Taking a closer look at our financial progress, revenues were $815 million in the first quarter of 2017, up 15.9% from the first quarter of 2016. Net income attributable to Ryerson Holding Corporation for the first quarter of 2017 improved to $14.8 million, compared to $13.5 million in the year ago period.

Adjusted net income in the first quarter of 2016 was $8.2 million, excluding a gain on debt retirement, compared to $14.8 million in the first quarter of 2017. On an adjusted basis, net income attributable to Ryerson Holding Corporation increased 80% year-over-year.

Adjusted EBITDA, excluding LIFO, increased 46% to $54.3 million in the first quarter of 2017. Ryerson’s financial performance continues to show meaningful improvement with tangible evidence of success.

Over the past ten years, our organization has rebuilt itself from the inside out to excel in cost and asset management, expand margins, and grow profitably. We continue to focus on improving our intelligent service center network of enhanced capabilities while reducing leverage and building out our business model.

Our continued progress exhibited across the income statement, most notably in EBITDA margins, the balance sheet, and our cash conversion cycle provides the foundation to realize further improvements throughout our organization within the context of a better industrial business climate relative to the past two years.

Turning to the current economic environment, conditions were more favorable in the first quarter of 2017, compared to the fourth quarter of 2016, which can be attributed to rising commodity prices, supply side stabilization, and global metal and industrial demand improvement.

The rise in prices for metallurgical coal, Chinese iron ore, and steel scrap in the first quarter, combined with increased Chinese domestic steel consumption and positive US industrial sentiment indicators have supported higher steel prices.

In April, we saw some retracement in nickel, scrap pricing and a decline in Chinese iron ore prices and Chinese steel prices. However, domestic steel prices have only moderated slightly in recent weeks supported by improving demand and additional industrial metals trade actions.

Aluminum prices have steadily increased from September 2016 through April 2017 on better than expected supply and demand fundamentals. Increases in chrome prices experienced in the first quarter of 2017 driven by supply tightening, positively impacted stainless steel prices.

However, stainless pricing has come under pressure lately as the chrome surcharge reset below first quarter levels while underlying nickel prices trended lower starting in March. Overall, the pricing environment underpinned by industrial commodities is better year-over-year and looks relatively stable moving forward.

Turning to demand, conditions appear favorable when viewed against the year ago period. US industrial production grew 1.5% in March, compared to prior year and has expanded or held for four straight months after 15 straight months of contraction.

Manufacturing sentiment indicators, as measured by PMI, continue to show expansion for the US and Chicago indices with Chicago PMI reaching a two-year high in March of 2017. According to the Metals Service Center Institute or MSCI, first quarter 2017 US service center shipments were up 5.9% year-over-year.

Further, the MSCI industry inventories fell to two months from 2.4 months in February, an indication of tightening supply in the channel and a support pillar for prices heading into the second quarter. Ryerson, on balance, sees industrial demand improving incrementally in the second quarter although some unevenness by end-market remains.

Further, Ryerson anticipates higher average selling prices in the second quarter of 2017 given the price stabilization experienced in the first quarter as carbon contract price increases offset some spot price moderation, aluminum prices continue to firm and stainless pricing resets to the movement in the surcharge.

The pricing fulcrum in the second quarter hinges more on mill operating rates and lead times relative to service center inventories and industry pricing to a convergence between average cost and replacement cost.

It is revealing that first quarter 2017 steel mill operating rates are up approximately 3% year-over-year, while finished carbon steel imports are up approximately 8% year-over-year.

If mill operating rates in the US move higher and finished steel imports moves lower over the remainder of the year, we would expect to see price support solidify at current to potentially higher levels.

Regarding end-markets, Ryerson saw volume growth in the first quarter of 2017, compared to the year-ago period in our oil and gas, construction equipment, food processing and agricultural equipment and industrial machinery and equipment sectors, offset by modest declines in metal fabrication and machine shops and HVAC industries.

Ryerson also noted shipment strength in the US and Mexico relative to Canada and China when evaluating market share gains year-over-year and against industry benchmarks.

Overall, we are seeing the most encouraging signs from the oil and gas end-markets with rig counts up 90% compared to the prior year period and the construction equipment end-market with construction spending at a five-year high in February of 2017 according to the US Census Bureau.

Ryerson continues to grow through targeted investments in high-return capital projects and acquisitions. In January 2017, we acquired The Laserflex Corporation, a metal fabricator specializing in laser cutting and welding services. We subsequently acquired Guy Metals, Inc. in February 2017, a processor and polisher of stainless steel products.

The acquisition of these companies aligns with our strategy to invest in accretive, bolt-on businesses that broaden our value-added processing and fabrication capabilities and whose products we can leverage and sell across our extensive commercial network.

With that, I’ll turn the call over to Erich, who will discuss the highlights of our first quarter 2017 performance..

Thanks Eddie, and good morning. As Eddie highlighted in his remarks, Ryerson’s financial performance in the first quarter of 2017 built upon the execution of our business model and plan.

We increased sales by 15.9% with higher gross margins, excluding LIFO, generating higher net income and adjusted EBITDA, excluding LIFO compared to the year ago period.

Net income attributable to Ryerson Holding Corporation increased to $14.8 million or $0.40 per diluted share in the first quarter of 2017, compared to $13.5 million or $0.42 per diluted share in the first quarter of 2016.

Excluding gains on the retirement of debt in the first quarter of 2016, net income attributable to Ryerson Holding Corporation was $8.2 million or $0.26 per diluted share. Ryerson achieved adjusted EBITDA, excluding LIFO of $54.3 million in the first quarter of 2017, compared to $37.2 million in the first quarter of 2016.

Average selling prices increased 11.5%, primarily driven by stainless steel and carbon steel prices which were up 13.1% and 12.8%, respectively from the year ago period.

Tons shipped increased by 4% in the first quarter of 2017 with growth experienced across all major product categories, most notably for our stainless products which improved 14.5%, compared to the first quarter of 2016. In the first quarter of 2017 Ryerson achieved gross margins of 19.7%.

Gross margins, excluding LIFO, were 19.6% in the first quarter of 2017, up 70 basis points, compared with 18.9% in the year ago period. Ryerson expanded our gross margins, excluding LIFO through our emphasis on value-added processing and enhanced supply chain optimization solutions across our distribution network.

Warehousing, delivery, selling, general and administrative expense increased $8 million or 7.3% for the first quarter of 2017, compared to the year ago period reflecting the increased activity during the quarter.

Ryerson demonstrated expense leverage in the first quarter of 2017 as warehousing, delivery, selling, general and administrative expenses as a percentage of sales declined to 14.4% in the first quarter of 2017 compared to 15.4% in the fourth quarter of 2016 and 15.5% in the first quarter of 2016.

In the first quarter of 2017, Ryerson’s inventory balance stood at 69.1 days of supply, compared to 74.5 days in the year ago period, the lowest level we have achieved in recent history. The company continues to manage inventory to maintain financial flexibility and adapt to changing metals pricing and consumption dynamics.

Cash used in operating activities was $32.5 million in the first quarter of 2017, as we grew our working capital consistent with increased activity and higher metal prices. Ryerson maintained solid liquidity in the first quarter of 2017.

As of March 31, 2017, borrowings were $334 million on our primary revolving credit facility with additional availability of $250 million.

Including our cash, marketable securities and availability from foreign sources, total liquidity was $302 million, compared to $301 million in the fourth quarter of 2016, higher sequentially even with the acquisition of Guy Metals and Laserflex. Now, I'll turn the call back over to Eddie to conclude..

Thanks, Erich. Ryerson’s ability to create great customer experiences across a local, regional, national, and international footprint is what will define us.

The way we measure ourselves has evolved to where we do not have to accept trading a wanted outcome for an unwanted outcome, a frictionless, interconnected network of intelligent service centers that increases market share and margins and generates expense leverage with asset efficiency while seeing productivity move higher will generate increased free cash flow to reduce leverage and invest in growth.

With that, let’s open the call to your questions.

Operator?.

[Operator Instructions] Your first question comes from Jorge Beristain from Deutsche Bank. Your line is open..

Hey, Eddie and Erich. Congrats on a solid quarter. .

Thanks, Jorge..

Thanks, Jorge..

I guess, you gave us a little bit of color on those other end-markets, but how important has been the oil and gas sequential move would you say to the recovery in your kind of sequential EBITDA? What I am trying to understand is that, obviously, oil and gas is coming up a very low base.

But I am trying to understand how much more room there is to run?.

Yes, Jorge, Kevin, what do you think?.

Yes, hey, Jorge. Kevin Richardson. So just to give some perspective, we don’t disclose our end-markets as a percentage of sales on a quarterly basis, but if you look at our 10-K for the full year, it was 5% and that used to be almost 10% a couple years earlier. So, you can get an idea of the impact.

Then in terms of the rig count, if you look at last May, it was down to 404 which we hope is the bottom. The most recent rig count was 870, so more than double of last year, but that’s still less than half of what the peak was which the peak was back in November of 2014.

So, the way we look at it is, we absolutely have upside and on a relative basis, coming from where were the last couple years it’s been meaningful in that portion of our business. .

Okay. Sorry go ahead..

So the only other thing I was going to say, Jorge is, I think the difference in this part of the cycle versus a few years ago is crude tends to come online much quicker and at lower cost which tends to moderate what typically has been a V shape recovery, where just you go up and up and up, so, we do see balancing of more inventory coming online. .

Okay.

And then, Eddie, maybe could you talk about, customer order activity in April and how that compares to 1Q? And speaking to the steel mills after their results this quarter, we are getting the sense that there is a bit of a dangerous game being played by clients in a sense that you flagged imports are up, inventories are low, but if imports fall, we would seem to be at a bit of a pinch point in the sector and if you could just talk about what you are doing as to the psychology of why clients might still be sitting on the sidelines?.

Jorge, I think people respond to the volatility to some extent, I mean, it’s been going on for so many years that if iron ore goes from 90 to 60, I think people take pause as scrap goes, people take pause, I still maintain what we said in Q4 and Q1 that we think things are relatively balanced as material in the channel if you get caught a little bit short displaces you can go to get it.

But I do think that, right now, things would balance, I mean people have referenced them as see high inventories between 1.8 months to 2 months, relative to 2.4 months.

And when you really shake it all up and you pour it out again, I think right now, most service centers have inventory to support the demand they have relative to understanding the risks and the volatility that’s out there.

So, I don’t think anybody gets panic, if we look at April order rates and you look at capacity utilization rates in April, there really isn’t a compelling argument for change in behavior to a great degree one way or the other.

So, April order rates were pretty consistent with Q1 and there is really no, nothing that we can see right now and of course it’s always subject to change, I mean, you look at what’s happened in nickel over the last three days. Having said that, we think it’s pretty stable and it’s pretty balanced right now. We don’t see a pinch point. .

Okay. Fair enough. And then just last question.

M&A, obviously, your net debt balance is not really falling, but it’s more a function of the fact you’ve been fairly aggressive in M&A, but I mean, is this going to – in other words, have you kind of exhausted your full year budget on M&A? Or do you see kind of keeping up this pace in the second half?.

It’s really dependent on being smart and really not done. I think that we keep looking at things and pull them our funnel, Jorge, and if they meet our criteria, then we will find a way to get it done, because if it meets our criteria, it will be accretive both from a credit perspective and an equity perspective.

So the two acquisitions we did in Q1 we are very pleased with. If we are able to pull a few more like that through the funnel then we would be active and if they don’t quite rise to that level then we wouldn’t be active. .

Okay. Thanks very much..

Your next question comes from Brett Levy from Loop Capital. Your line is open..

Hey, Eddie, hey, Erich. Very good quarter. With the Laser acquisition, the Guy acquisition, you guys are apparently trying to move more towards being a processor.

Is there a possibility in the future that you will starting breaking out the business into the distribution business and the processing business? And then, also for the processing business, to what extent are you somewhat able to take the metals’ price risk out of it and just kind of portray yourself as a pure processor and maybe get a more Worthington type multiple on that part of the business? So a kind of a complicated question..

No, no, thanks, Brett. I mean, this could turn into a good strategy session. Brett, what I would say is, I think it’s a point where those areas of our business emerged to where we hope they are going to grow too. We can certainly have that discussion as to how we report out.

I mean, at the present time we are making good progress as we add more value, move further away from the commodity coal phase. But going back to things that we’ve see that we’ve maintained over the last several years, we believe this industry is a speed game and certainly on the transactional side of the ledger, it’s speed, okay.

You can compete on speed and you have to compete on value-add.

And so, when you look at the acquisitions that we did, vis-à-vis Guy and Laserflex, meaning before that SGF and Fay, they all have certain common characteristics and certainly in the case of Guy Metals around very high value-add staying with polythene and Laserflex around high-value add fabrication, it really fits our strategy and we want to stay disciplined where we stay within our strategic initiatives and keep building out our business model and plan and when those elements of the business gets to a certain level, it would probably pause for a good discussion as to how we report.

.

Got it.

And then, the other thing was is that, and you guys appetite is actually in an presentation, is it part of the way that you guys are kind of working your days and inventory down? Is that you are sort of – at this point, able to access other sources of inventory, maybe from other distributors or other mills and as you say, it’s a speed game, it seems like there is a potential to get a lot of inventory from sources that are not traditionally available to service centers and my thought is, is that, if that’s what’s you are able to do, at some point you are able to take a lot of market share or put some of the smaller guys to some extent out of business.

Talk about sort of the degree to which that is happening right now?.

Brett, so working from the end of your question back to the beginning, I mean, we don’t look at it as who is in business and we’ve got a business. I mean, we just, we think every day there is a pool of business out there for us to go get.

We want to be the best alternative for those customers and the real key here is, our organization, our teammates have done a better and better job, progressively better job quarter-over-quarter thinking in terms of more than one variable.

So, what you are wanting to do is, use analytics, okay, you want to use analytics and create this environment where the people that are at that line is scrimmage everyday and they are quoting millions of dollars of business made up of transactions and made up of programs and contracts, but on the transactional side in the case of this question, they made good EVA decisions.

And I want to stress EVA decisions, because you’ve got to have an organization that knows how to trade off margin at times for asset efficiency, when not to make those trade-offs and where to pool inventory out of the channel because it’s everywhere. I mean, some service centers and time they function as mass distributors. Sometimes they don’t.

Sometimes mill function as service centers, sometimes they don’t. So, you really have to know where to go and so there has to be visible material the organization can see it, they can act quickly on it and they can make good EVA decisions day in and day out.

And you keep building that capability day-by-day, week-by-week, quarter-by-quarter and as we continue to do that, that will show up on our numbers and will be the better choice over a greater number of experiences year in and year out..

Thanks very much guys. .

Sure. .

Thanks..

Your next question comes from Seth Rosenfeld from Jefferies. Your line is open..

Good morning guys. .

Hi, Seth..

I have a couple of questions. I’ll start out on SG&A. Looking across your warehouse in this recent SG&A line saw notable pick up in absolute terms in this first quarter, clearly low as a percentage of sales as you flagged earlier.

Do you expect this to remain around the current mark, kind of $210 to $220 per ton in the coming quarters? Or do you think you actually need to further increase your staffing to meet the improving demand which could drive more outage as C&A per ton in the future? I’ll start there, please. .

Yes, thanks, Seth. I want to start up and turn it over to Erich, Mike and Kevin for some color. I would say this, we are – the real goal for Ryerson, okay, the objective of Ryerson is to variabialize our cost structure, okay, so we want our cost to be more and more variable and less and less fixed and we’ve succeeded to a large extent in doing that.

So, for example when you look at the nominal increase in cost year-over-year, most of that, if not the – I’d say the overall majority of that pool of nominal dollars is variable, it’s in variable incentive comp, and it’s in delivery expense, I mean, diesel fuel up $0.40 a gallon year-over-year for example.

So, as long as we keep it variable and we get expense leverage as we see our volumes and our top-line revenue go higher, then we believe we are effectively managing the expenses.

But it’s important to note that, if our average selling prices are going up and we understand very well the commodity drivers underpin that, it stands to reason that OpEx items are going to start to see some cost pressures as well.

So, now we are in a stage in our development, we are in a stage in our business where we can look to manage cost pools such as logistics and transportation to a more intelligent to a better extent and we can look to get cost efficiencies there. I am going to go ahead and as Mike and Kevin to comment and we’ll bring it back to you..

Hey, Eddie, this is Mike Burbach. So building on what Eddie just mentioned, expenses are obviously an area that we pay a lot attention to and we’ve come a long way as a company in recent years and we pride ourselves of the performance we have in this area.

So, one thing that we do spend in a extensive amount of time within the company is take advantage and leverage our interconnected network.

So, as you look at the investments we’ve made, the facilities we’ve opened the processes and tools we put in place to help our sales people see inventory and capabilities in areas that they don’t decide and it helps us drive balancing with the workloads to place us better – or make more sense given that there is a spike in any one given area.

And so, there is a lot of tools we have in place to keep this under control. And then, additionally with quite the array of locations that we do have, we spend a fair amount of time leveraging and benchmarking each facility against each other to make sure that we are taking the best practices and taking that out across the company. .

Hey, Seth, Kevin Richardson, I would just add one thing in terms of operationally what we do in a environment that’s getting better on demand.

The first thing we do and look the warehouse in particular is, before we go out and hire a lot of people or we’ll go to overtime first and we will layer in some temps depending on the type of work, but we don’t want to just automatically put in another layer of headcount and then from a trucking standpoint, if we run out of capacity what we’ll do is, we’ll look at LTL and common carrier shipments and then also balance within the network as Mike mentioned.

So we are very mindful of as Eddie mentioned, trying to keep things on a variable basis. So that we can that faucet on and off..

Okay, thanks.

Just to kind of push that a little bit more, I guess, if you can, if I were to look at SG&A excluding depreciation, should we expect the runrate seen in Q1 on a per ton basis to continue into Q2? Or should we expect that to move up or down?.

Going forward into Q2, we should be able to gain some additional expense leverage. Again, what you are going to see in the first quarter, you’ve got payroll tax resets and alike. So there is a little bit of a spike up in Q1.

So we should be able to get an some advantage in Q2 and again, just to echo the first things we do is, we have our plant staff work a little bit of overtime when rolling those up. It was nice we have a 4% increase year-over-year and it was roughly a 13% increase going from Q4 into Q1.

We will work at the math and because we’ve not nearly a 100 service centers across the country, we can’t just add a quarter percent of a percent in any given facility, what we need to do is we need to look at where is the next person that needs to be hired in which service center to maximize the equation of OT to a full-time staff or a temporary employee..

Okay, thank you. One last follow-up question.

Can you just talk a little about your expectations for FIFO gross margins going into the second quarter, obviously, it performed very well in the last three months, but given the higher ASPs but some declining spot prices, would you expect upside or downside despite for gross margins and also you touch on expected LIFO costs in Q2?.

Yes, and consistent with what we’ve heard from some of our peers on earlier calls, right now it looks like margins would come under some compression on a spot basis. And we have to wait and see how the quarter plays out. It’s still early in the quarter, but initial indications are there is going to be some modest compression.

And then that will accompanied by lower prices and we’ll have to see how those margins reset based on average cost in inventory as we move through the quarter, but it’s still early and April was only a 20 day month with the holiday baked in..

And then looking at LIFO, same thing, it is early to see -where ending prices are going to end up. We will give some guidance towards the end of June. But the expectation should be that there is going to be LIFO spent in the second quarter..

Okay, thank you very much..

[Operator Instructions] Your next question comes from Joel Tiss from BMO. Your line is open..

Hey, guys.

How is it going?.

Hey, Joel..

Good morning, Joel..

So, I just wanted to ask the usual, can you run through the end-markets and give us a sense of which ones are looking better and worse and really my real question is more about like sustainability of improvement, what are you hearing from your customers about potential to follow through this year and into next year like all I kind of been hearing is that the parts, like the equipment in the field is wearing out and the energy and mining and we need more and more parts, but not as much about actually needing to expand the installed base.

So I just wondered like, what you guys are hearing and what you can share with us. Thank you..

Thanks, Joel. I’ll make some introductory comments and kick it over to Mike and Kevin for more color. I would say that the sentiment is still strong and fabrication got off to what I would say, would have been a slow start at the very beginning of the year and started to pick up momentum as we move through the quarter and into April.

So this is the sweet spot of the year for fabrication and complex fab moving from as is distribution all the way through some more complex parts. So, sentiment is still strong, Joel. But we really have to see how that materializes and really transfers into actual demand.

I’d still think that you have to take this market quarter-by-quarter-by-quarter and be able to respond really, really well.

Having said that, this is the best start to a year since 2014 and certainly better than 2015 and 2016 and there is some structural change in the flip that would lead you to be more optimistic and pessimistic in terms of what’s happening around machinery and equipment and construction and some other end-markets.

So, now would be a good time to segue over to Mike and Kevin..

Hey, Joel, Kevin Richardson. So, there is no question that the sentiment has improved and we are seeing that in almost every end-market and geographically that’s widespread too.

I think it’s also undisputable your opening comments about the average age of equipment in a fact that there is pent-up demand, because if you look at any macro data it’s pretty compelling that at some point the investment has to come back.

Having said that, there is really nothing that’s really notable other than our comments on what’s happening in the energy market which we’ve already touched on and we think infrastructure.

If infrastructure happens which we keep talking about and we’ve seen some small projects maybe in certain states but nothing certainly widespread on a national basis. But if you look at just the average age of bridges right now, it’s more than – they are more than 40 years old and something like 10% of them are considered structurally deficient.

So, we absolutely believe on a macro basis that there is pent-up demand. There is not a lot of datapoints to support it in a big way other than obviously the swing in energy, but that’s coming off of very low base. .

And just a quick follow-up, is any of that translating into customers kind of valuing service and delivery over price or is it’s still very much of a battle out there every day on price and costs?.

Well, in the energy markets in particular, it’s really service-related. I mean, what happened in the energy markets is, there were so little inventory in the channels and I am talking about the channels whether it was distributors, mills or the end-users that any uptick in demand you’ve felt it right away.

So, it really became in that the last couple three months is, did you have it, how quickly could you get it. It really depends on the supply demand balance in any given end-market, to answer question.

The only other end-market that I will touch on that we didn’t talk about and we’ve got a pretty big part of our portfolio is the transportation market and Class A in particular and no schedules has continued to increase here in the last few months.

So when we talk and updated on this call back in November, the forecast for Class A trucks was 203,000 units, that’s now been revised up to 217,000 units for the year and so year-over-year, it looks like still down but not down nearly as it what it was.

So we are starting to see some macro data in some end-markets move and then there is a lot of other end-markets that give or take up a couple percent, down a couple percent..

And then – sorry to ask so many questions, go ahead, sorry..

No, I was going to say, look, if you really wanted to break it down in some real easy to see through categories, let’s say on the program contract side, I would say it’s still more price-sensitive, okay. But on the transactional side, I think there is more opportunity to price through value in terms of availability and speed of delivery.

So where you’ve got a competitive price, but where you have access and you can put a speed dimension to that, there is an opportunity for higher margin and then on the contract side, I think it’s still – you are going to measure it on a continuum that would still – it would still tend towards to be more price-sensitive..

And then, just in terms of like, analytics, what can you guys do or what have you been doing in terms of adding whatever big data in to be able to have a sense of, hey I think this mining pent-up demand is really going to break lose, we better have a little more inventory or maybe this whatever this energy stuff is a little overdone and we can cut back.

Like, is there any way to get a little deeper into your customers’ minds with datapoints and try to have little more anticipatory inventory levels?.

The answer is yes. There is a way to understand customer behavior if you look into the data and we do that more and more so that, we can layer in and we can position inventory better by end-market and better by geography as to where those customers and where we think we are going to – where we think they are going to pull that demand through.

And the answer is yes. I mean, we want to go too deeply into the black box but it’s something that we’ve kept our eye on as you know, we’ve been discussing this for a long time now and the good news is, we are still very much in the early innings, but the good news is that we’ve seen really good results through its application.

So, there is a lot more to come and this is - there is a lot further we can go in terms of how we apply analytical methods into our organization to the benefit of our customers..

That’s great. Thank you so much. Sorry to take up so much time..

No, thanks, Joel..

Appreciate it Joel, thank you. .

Your next question comes from Phil Gibbs from KeyBanc Capital Markets. Your line is open..

Hey, good morning. .

Good morning, Phil..

Good morning, Phil..

Yes, I had a question on the gross margins, Q1 pretty good start to the year and I know that on the transactional side, probably margins went up and you may have had some compression on the contract stuff, maybe relative to Q4.

But can you give us some insight into how you are thinking about that, maybe over the next the 19.5% to 20% that you did in Q1 or call it 19% to 20% range right now in terms of how you are thinking about that over the course of the next couple of years? That would be helpful..

Phil, there is no escape in the modulations in material cost and we all know that we are going to get affected by that to some extent. Every service center company is going to affected to some extent. When you try to do is dampen that impact as we move forward, quarter-after-quarter-after-quarter.

So to your question, the real key is, is to get that value-add component. So that, at some point, you can really jump over so as modulations, as you swing from holding gains or holding off is, and you start to really ring fence that element of it.

So over the years and looking back through the years it’s instructed, I mean, if you go back and look at Ryerson ten years ago, I mean, 2008 which was at least for the first nine months of that year in 2008 it was a monstrous year in the industry followed by a demon drop in a great recession is we all remember.

But for those first nine months of the year, gross margins at Ryerson on an ex LIFO basis were 13.2%.

So, if we just take that over a ten year time elapse view, there has been structural improvement in Ryerson’s margin profile and you can see it in the mix and you can see it in the type of business that we do and that marking through that we pick up on that transactional population of business.

While we continue to work on program contract to balance that, but we want to sell more on attributes and just in terms of one variable of price.

So when you get into program contract business, where you can add margin and where you can add EVA, is that you are able to really sell on attributes such as we have a extensive network of service centers where we can provide very efficient service to customers that might have 25 receiving locations. We can help them manage price risk.

We can work on value engineering opportunities with those customers, we can manage scrap, we can share logistics.

There is a lot of things we can do within an expanded envelope of attributes on the program contract side and if you just be working that quarter-after-quarter, you’ll get structural margin improvements that will help you offset and then just get on top of the holding gains and losses that are part of the volatility, that the underlying volatility is really sponsored by those commodity price movements that we’ve all went with for a long time now..

So where – that’s helpful, but where does that put, I guess, as you look forward, where does that put your longer-term aspirations? I think we know that there is going to be volatility in the margins, but as you’ve kind of clear throughout the noise, where does that puts your aspirations as you look out a few years, from what you can do?.

Yes, so, 20%, we want to consistently be at or above 20% aspiration is we get over the next couple of years. So we are going to get over that rainbow and then we are going to move higher. .

And just as an example the few acquisitions that we did in the first quarter, again one of the metrics that we look at is bolt-on acquisitions where their margins are higher than Ryerson’s consolidated overall margins.

So we added a $60 million base of business which is about 2% of our revenue and their margins are much higher than what Ryerson’s historical margins are. And then, and that’s just another driver that we are using to help increase pressure on moving of margins up..

Yes, I mean, we manage a portfolio margin, as you know. It’s a portfolio margin and we see working at that pottery wheel to shape that portfolio margin and move it structurally higher and higher. But 20%, I mean, that’s the next milestone, consistently that’s in that 20% area and then we’ll move higher from there. .

Okay, perfect. And then, the service center demand obviously in Q1 are the volumes across the space were very strong start to the year as we all know at this point.

What do you think the customer inventory positioning looks like at this point given the ramp we’ve had and do you feel like a lot of the customers came into 2017 with depleted inventories? Thanks..

Yes, Phil, I think it’s leaner than it’s been at past going to the cycle, it’s leaner, but it’s not imbalanced to the point where you are going to see spikes and surges on the price side. So, I think customers came into the year with leaner inventories.

I think service centers came into the year with leaner inventories and that those inventory levels I think have rebalanced to where – what’s in inventory can service demand and there is enough material that you can access and there is enough material in the channel that you can flex up if you need to flex up. .

Okay, thank you..

Your next question comes from Seth Rosenfeld from Jefferies. Your line is open..

Hi, just one last follow-up question. You had some interesting comments on how it looks for steel pricing in your prepared remarks and you noted some pressure emerging.

I just wanted to clarify, are you pointing to that given the alloy surcharge which we do expect to notably pull back the chrome and nickel? Or are you actually seeing some cracks in large in base prices as well? As we talk to your biggest suppliers – Ceranox in the US, they seems to be themselves would implement the spirit be used in the market today..

I want to kick it over to Mike Burbach in just a minute, Seth. I would say that, you look at the components staying, if you look at chrome, nickel and underlying carbon and then a few other alloys and you stack them on top and you look at what direction they are moving, I mean, the carbon component of stainless has held up reasonably well.

Chrome traded off a little bit quarter-to-quarter and nickel has gone down by a good amount. So, we would expect nickel prices to trend down. The base increases I think up through this last one have held up well. Demand is good, in the US, demand has been good.

So, demand will help support prices, but today, as we sit here today, the surcharges will be coming down, we don’t know what’s going to happen in terms of chrome Q2 to Q3 and if carbon let’s say relatively stable on balance, prices would trend down based on the surcharge and there probably wouldn’t be sufficient cover to get another base price increase through unless demand increase by a significant amount from this point forward.

So, Mike, what are you saying?.

Yes, hi, Eddie, thanks Eddie. Seth, I would echo what Eddie is saying. A lot of the commentary that we’ve discussed has to do more with the surcharge than anything else with nickel and chrome as Eddie discussed. Last year, I think you put a little perspective around this.

There were two increases, base price increases in 2016 and there has been two so prior in 2017, the first one was I think in January first and then the most recent one happened in April. Prices are up, activity is good. Overall, our activity is good.

We are up 14.5% year-over-year in stainless products and I believe the MSCI suggests that it’s pretty good business and I hear that from our suppliers as well. There are some questions in the marketplace on the second base price increase. We’ve heard, we keep an eye on it.

We see good activity, but I think we keeping an watchful eye to make sure that that – whatever is going to, we’ll react accordingly. But overall, pricing is better today than it was last year. And we’ll see what happens on a go forward basis..

Seth, you can really blow this down to just a couple issues and there is a lot going on within these issues, but you can blow it down to Chinese capacity restraint and US demand.

So when you think about US demand, and it’s hopefully being underpinned by real manufacturing growth that’s driven by productivity increases and investments, that’s going to be very good for our business. And if Chinese capacity restrain materializes and it’s real, that’s on balance going to be – it’s going to be good for our business.

So, we boil it down those two issues and then we work within those two issues to gleam better insights..

Okay, thank you very much. .

Your next question comes from Phil Gibbs from KeyBanc Capital Markets. Your line is open..

Hey, morning. Thanks again. Eddie, on the inventory turnover in Q1, it looks like that was pretty aggressive management from you guys in terms of being able to turn that inventory and get it down to a level that was quick in terms of velocity.

I think demand, I think surprise as we pull the upside hope that, but as you look over the balance of the year on average, what do you expect in terms of taking days sales out of the inventory for the year and then maybe in the next couple of years? Where do you want to be relative to that, call it, 77, 78 mark relative to the last year?.

So, Phil, we have a saying in the company when it doubt buy it up, so, we are keep inventories stratified and so we are going to continue to stock very well the items that we know our customers buy. We have analytics that really help guide us in terms of what should keep on hand and how much.

Demand through the fourth quarter into the first quarter help bring those inventory levels down.

But we continue to get better – we continue to get better analytically in how we manage our inventory and one of the real question surprises and the Ryerson team did a great job, in the fourth quarter and through the first quarter was bringing down what we call dormant inventories and those are inventories and I call it the original sin of the service center industry.

Right, it’s all the inventories never hear about, it’s the stuff that sits in warehouses for a long, long, long time and never really seems to monetize.

And that’s a key area of focus for us and as we bring those inventories down, it helps our days, because that’s going to be a permanent layer of sentiments that just is always a 10 to 12 to 15 day drag on your overall days of sales and inventory.

So if you are bringing that component down, you make a structural improvement in how you manage inventories and then your A cycle, your A items just keep spinning.

So the real key for us in keeping those inventory days down is to continue to manage out dormant inventory, disposition it, close that barring door, keep it down and invest more in A items. And really know how to locate buyouts when we don’t have or we can’t easily get our hands on materials..

So, all that said, I mean, it sounds like if you’ve got good momentum on that strategy, you should be able to continue the turnover improvement this year, I would thank..

Relative to no lead time, so if capacity utilization rates in the US stayed between 73% and 77%, our expectation would be, we would be very efficient managers of inventory consistent with the improvements that we’ve seen..

Okay. .

Yes, Phil, this is Erich, just to echo that comment, one of the things that we do is that, we incentivize our management team on EBITDA and then also on EVA economic value-add. So we’ve educated the commercial field to recognize that if you have an investment that’s not turning over, that’s not doing you any good.

You need to monetize that inventory, buy inventory that you are turning that’s generating EBITDA and that is what’s going to create larger incentives for the commercial part. And, Phil, one final note, one caveat is, if we do find an opportunity to layer in inventory, working capital is an investment like any other investment.

So we do have an opportunity to layer in advantaged inventory. We would certainly deserve the right to do that, but that would be the only caveat I would give in terms of the answer to – in terms of the answer to your question. .

Right. That makes sense. I think I’m all set. Thanks very much. .

Thanks, Phil..

Thanks, Phil..

There are no further questions at this time. I turn the call back over to Eddie Lehner..

We thank you for your continued support of and interest in Ryerson and we look forward to talking with you again next quarter. .

This concludes today’s conference call and you may now disconnect..