Ryerson Holding Corporation (RYZ) Q3 2018 Earnings Report, Transcript and Summary

Good morning. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ryerson Holding Corporation Third Quarter 2018 Earnings 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, with Ryerson Investor Relations, you may begin your conference.

Good morning. Thank you for joining Ryerson Holding Corporation's third quarter 2018 earnings call. I'm 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, 2017. You are cautioned not to place undue reliance on these forward-looking statements, which speaks 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 third quarter 2018 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. I want to start today by thanking our customers, who we never take for granted as we look to provide ever-greater experiences through the better application of speed, product availability, value-add and final mile service. Next, I want to thank my Ryerson and Central Steel & Wire colleagues for excellent execution throughout the third quarter, highlighted by our acquisition of Central Steel & Wire company or CS&W on July 2, 2018. We welcome our CS&W colleagues to Ryerson as we realize very promising early returns from our collaborative efforts during the quarter. CS&W generated $8.9 million in adjusted EBTIDA excluding LIFO in the quarter as shipments, pricing, margins, supply chain synergies and operating expense synergies all exceeded our going in expectations. Turning to the current economic environment, industrial demand conditions remained favorable in the third quarter of 2018 while metals commodity prices started to decline for CRU Benchmark HRC, Midwest aluminum and LM Nickel in the third quarter of 2018. From a demand perspective, the U.S. Industrial economy continued to improve incrementally. North American industry volume growth as measured by the MSCI, increased 4.9% in the first nine months of 2018, compared to the prior year period. U.S. industrial production as measured by the U.S. Department of Commerce rose by 5.1% in September compared to the prior year, following a 4.9% increase in August, a sharpest growth since December of 2010. Further, U.S. manufacturing PMI remains elevated at 59.8% in September, which is higher than the base expansion measure of 50 [audio gap] The next six months with an average selling price drivers remaining above decade baseline averages. Turning now to end markets, Ryerson showed year-over-year growth on a same store basis and commercial ground transportation, metal fabrication and machine shops and consumer durable equipment sectors partially offset by fewer tons shipped to the HVAC and construction equipment sectors. Sequentially on a same store basis, Ryerson grew in the metal fabrication and machine shop sector with flat to declining tons shipped in our other end markets primarily due to one fewer shipping day in the third quarter, normal third quarter seasonality, and tornadoes that affected our Marshalltown Iowa facility and certain longtime customers in the Midwest during the latter half of July. For the first nine months of 2018, we continue to see encouraging signs from almost all of our key end markets, led by commercial ground transportation with significantly higher truck build rates year-over-year. Ryerson acquired Central Steel & Wire Company or CS&W on July 2nd. A metal service center with a value brand spanning more than 100 years. Diving deeper into the acquisition CS&W strength in long tube and strip mall [ph] play products compliments Ryerson strengths in carbon, aluminum, stainless sheet and discreet play products exceedingly well. Ryerson’s enhanced long products portfolio coupled with our strength in stainless aluminum and carbon plate provides even greater value to our customers. The acquisition increased our market share to approximately 5% from just over 4%. Our further strengthened position and long products pairs well with our growth investments and strategic acquisitions in bar, and two value added process and equipment, creating an improved structural margin profile moving forward. Further pertaining to this Central Steel & Wire acquisition, we have exceeded our revenue retention expectations while realizing increased EBITDA margins, supply chain synergies, operational synergies, working capital management synergies and non-core assets sales. Our number one objective is delivering great customer experiences for our CS&W and Ryerson customers as we work through the process of mapping improved customer solutions through the Ryerson and CS&W networks. Overall, Central Steel & Wire generated adjusted EBITDA excluding LIFO of $8.9 million in the third quarter of 2018 compared to the $12.3 three million earned in the first six months of 2018, prior to the acquisition. The long term objective is for the CS&W brand to generate mid-cycle revenue of $600 million and $50 million in adjusted EBITDA, excluding LIFO on an annual basis following a post acquisition optimization process over a three year time horizon. We're off to a very promising start so far. Looking towards the fourth quarter, we anticipate still favorable demand and pricing dynamics relative to the prior year as U.S. economic indicators remain positive in the manufacturing economy. Overall, we anticipate tons shipped in the fourth quarter of 2018 to decline less than the 7% average decline from the third quarter to the fourth quarter experienced during the past five years as measured by the MSCI. With that, I'll turn the call over to Erich, who will discuss the highlights of our third quarter 2018 performance.

Thanks Eddie, and good morning. Ryerson had another strong quarter with adjusted EBITDA excluding LIFO of $88.7 million, more than twice the $37.7 million generated in the third quarter of 2017. Third quarter 2018 revenues were $1.25 billion, an increase of $385.8 million or 44.6% compared to the third quarter of 2017. On a same store basis, revenues grew by 24% as average selling prices increased 21% and tons sold increased by2.5%. Sequentially, sales were $192.9 million or 18.2% higher. Same store sales were 1.4% higher with an average selling prices up 4.3%, partially offset by tons shipped down 2.8% driven by one fewer shipping day, normal third quarter seasonality, and shipment disruptions to longtime customers caused by tornadoes that struck Iowa in late July. Net income attributable to Ryerson Holding Corporation was $77.5 million or $2.06 per diluted share for the third quarter of 2018, compared to net income of $1.7 million or $0.05 per diluted share in the year ago quarter, and $17.5 million or $0.46 per diluted share in the second quarter of 2018. Net income attributable to Ryerson Holding Corporation excluding the gain on bargain purchase of $73.2 million from the acquisition of Central Steel & Wire Company and restructuring and other charges was $6.3 million in the third quarter of 2018 was $0.17 per diluted share. Ryerson generated gross margin of 16.7% for the third quarter of 2018, which was 10 basis points lower than the year ago period, and down 80 basis points compared to the second quarter of 2018. Included in costs of materials sold, was LIFO expense of $32.1 million and purchase accounting adjustments of $4.7 million for the third quarter of 2018. LIFO expense of $43.9 million for the second quarter of 2018 and LIFO income of $1.7 million for the year ago period. Gross margin excluding LIFO and purchase accounting adjustments was 19.6% for the third quarter of 2018 compared to 21.7% in the second quarter of 2018, and 16.6% in the third quarter of 2017. Compared to the second quarter of 2018, gross margin excluding LIFO and purchase accounting adjustments was down 210 basis points due to our costs of materials sold per ton increasing faster than our average selling prices. We maintained our industry leading expense leverage metrics as warehousing delivery, selling general and administrative expenses as a percentage of sales was 13.1% during the quarter on a same store basis, which compares favorably to 14.1% in the third quarter of 2017 and was consistent with the second quarter of 2018. Turning to the year-to-date results, revenues for the first nine months of 2018 were $3.2 billion, up 27.2% from the first nine months of 2017 as average selling prices increased 15.1% and tons shipped increased 10.5%. On a same store basis, revenues were $3.1 billion in the first nine months of 2018, with volumes up 4.4% and prices up 15.2%. Gross margins decreased by 30 basis points in the first nine months of 2018, compared to the prior year period as the average costs of materials sold was up $214 per ton. However, gross margins excluding LIFO and purchase accounting adjustments rose 220 basis points to 20.1% in the first nine months of 2018, as average costs rose by $165 per ton as compared to average selling prices, which grew by $252 per ton. Net income attributable to Ryerson Holding Corporation was $105.4 million or $2.80 per diluted share in the first nine months of 2018, compared to $17.1 million or $0.46 per diluted share for the same period of 2017. Net income attributable to Ryerson Holding Corporation excluding the gain on bargain purchase, restructuring and other charges and impairment charges on assets was $34.2 million for the year-to-date period of 2018 or $0.91 per diluted share compared to $17.2 million dollars or $0.46 per share in the year ago period, nearly double our earnings year-over-year Adjusted EBITDA, excluding LIFO increased almost 80%. The $257.5 million in the first nine months of 2018 compared to $143.5 million in the first nine months of 2017. Ryerson’s equity increased to $102.1 million at September 30, 2018 from an equity deficit of $7.4 million as of December 31, 2017 as we continue to solidify our balance sheet through income generation, smart investments in growth and continued operating model improvements. Robertson's third quarter inventory days supply was 80 days or 74 days on a same store basis compared to 74 days in the third quarter of 2017. As we continue to execute the post close optimization plan at Central Steel & Wire company, we anticipate our days of supply to return to our 70 to 75 day target range, generating significant free cash flow of $30 million to $40 million through the process. We maintained ample liquidity during the period. As of September 30, 2018, borrowings, were $589 million on a primary, revolving credit facility with additional availability of $396 million, including cash, marketable securities, and availability from foreign sources Ryerson’s total liquidity was $446 million as of September 30, 2018 compared to $414 million as of June 30, 2018 as the working capital assets acquired in the Central Steel & Wire company acquisition increased their borrowing base, which offset the cash used in purchasing the company. Ryerson used $62.4 million of cash for operating activities in the first nine months of 2018 driven by higher valued inventory and receivables compared to year end. In the first nine months of 2017, cash used in operating activities was $93.3 million, Capital expenditures were $29.7 million in the first nine months of 2018, compared to $15,8 million in the prior year period. We expect to make approximately $40 million of capital expenditures in 2018, as we continue to invest in additional processing and material handling equipment. Now, I'll turn the call back over to Eddie to conclude.

Thanks Erich. Ryerson excelled during the first nine months of 2018, and our financial position continues to strengthen demonstrably. We are improving the company in every respect through our strategic growth initiatives, intrinsic improvements in realized gross margins, coupled with better operating expense, working capital management and legacy, liability management, which have led to a book equity value of $102 million as compared to an equity deficit of $110 million at the time of our IPO in August of 2014. Ryerson’s best days are ahead of us, as we work passionately to improve the customer experience with unparalleled speed and consistency of scale. The building of an intelligent network of connected service centers that maps to an expanding array of industrial metals, value added processing and logistical resources continues to shape a rewarding future for all Ryerson stakeholders. With that let's open the call to your questions. Operator?

[Operator Instructions] Your first question comes from Martin Engler with Jefferies. Your line is open.

Hi, good morning everyone.

Good morning

Looking ahead to early 2019, can you provide a little bit of color so what your customers are seeing and anticipating regarding some of the demand trends of it among the various end markets that you serve.

Yes, Martin, I’m going to take it over to Mike and Kevin in just a second, but given all the lagging momentum that’s in the economy and even some leading indicators that are still strong relative to their baselines as to whether the economy is expanding or contracting. The feedback and the information we're getting is still positive. I think in the second half of 2019 there's still some key variables that are going to need to reveal themselves as to how robust 2019 turns out to be, or that if it backslide at all. But the feedback we have at this time of going into 2019 is that demand trends are still good and pricing although it's trended down somewhat is still fairly well supported.

Yes, thanks, Eddie and hi Martin. This is Mike Burbank, say, listen I don't have a lot to add Eddie didn't touch on, but I would tell you this listening to our customers you know both from what they're telling us, and what we're seeing from their forecasts to us for first part of next year, the sentiments and the activity looks to be pretty strong. And it's across a number of sectors. It looks like the commercial ground transportation area will remain strong in the 2019 was hearing good things about heavy equipment manufacturers. So by and large, the outlook remains pretty pretty strong. And that's the message we continue to hear from our customers

Okay, on the heavy equipment side, anything specific as far as the type of equipment the end markets that would be serving?

You know they've -- they've published different things both from agriculture construction, mining related their backlogs are good and looking strong in the next year or .So those all appear to be common themes that we're hearing from them from a number of producers.

Okay, got it. That's helpful.

Hey Martin, its Kevin Richardson. The only thing I would add and we touched on it in the opening commentary, but the one market that has been particularly strong has been the transportation particularly the Class A truck market and after a strong 2017, it looks like 2018 build rates going to finish up 20% plus and the forecast going into 2019 is for increased build rates even over the 2018 rates, so that that market in particular which has long visibility in terms of the lead times looks up looks encouraging.

Okay. Thanks that's very helpful. And taking a look into the fourth quarter here you did highlight a muted seasonal decline that's anticipated, I guess average prices probably down somewhat too, but any detail or goalpost that you can provide regarding the ASPs into 4Q. And also, I would anticipate probably a LIFO income in fourth quarter?

Yeah, Martin, well Erich will take the other LIFO question here in just a second. I think, that if you look at commodity prices one of the one of the surprises is that if you look at the indexes both the Bloomberg sub index for industrial metals and then also just the LME, LME indicators commodity prices are down. And I think you know as we move through Q4 there's been a tailing off of commodity prices that'll show up in spot average selling prices as we move through the quarter. Contract prices will be – will be better supported, based on the average nature of those of those formulas that govern those contracts. So there'll be a slight decline in ASP and it will roll with some of the other components such as nickel and chrome and so on and so forth. But compared to last year, it'll be up, and conditions in the fourth quarter as compared to last year will still be favorable when we look at it year over year but down sequentially. Mike and Kevin, you want to add to that.

No, I think that would be the way we see it as I see it as well, Eddie, not much more to add.

Yeah and just responding to your question on LIFO, we had $32.1 million of LIFO expense in Q3. We do see that flipping and turning into LIFO income in Q4. Right now, our preliminary estimate is somewhere around $10 million of LIFO income in the fourth quarter this year.

Got it, very helpful. And if I could, one last one on the capital release from Central Steel & Wire you called out there on the call. What's the time horizon that you would anticipate for that?

I mean [Indiscernible]. He's the President of Central Steel & Wire he's with us. I'll kick it over to him for some additional commentary. But, by the way we look at CS&W. I mean job one is to retain and grow revenue to the greatest extent possible. So you leave a certain amount of optionality open in terms of how you go about that process and rationalizing working capital in the smartest possible way. That said, over that three-year period that we’ve referenced in the script, we would expect to take out working capital, moving working capital down towards the Ryerson range of 70 to 80 days over that three-year timeframe reflective of the mix of Central Steel & Wire, which is more heavily weighted towards long and tube. So for long and tube relative to sheet, made you add about five days, five to 10 days as you start to bring them down, but working capital release somewhere in the neighborhood of 30 million to 40 million over that three-year period. Jim?

Thanks, Eddie. Yes, Martin, I would – Eddie, really covered the answer there, but we’re looking at continuing to work through supply chain efficiencies and optimize working capital and that will drive cash as we achieve the goal post sort of around Ryerson's best-in-class working capital management. As mentioned that’s about $30 million to $40 million and we’re working diligently to accomplish that in the coming quarters.

Thanks for answering all the questions, and nice job on results and the integration thus far.

Thanks Martin.

Your next question comes from Matthew Fields with Bank of America Merrill Lynch. Your line is open.

Hey, everybody.

Hi, Matt.

Given that you funded the central acquisition and working capital draw with revolver borrowings. In 3Q your absolute level of debt is kind of the highest it's been in a while in several years. What's the outlook in 2019 as steel prices may be rollover a bit? I don’t know, you'd be the expert on that, but what’s the outlook on 2019 is perhaps some working couples released, free cash flow is generated and you're able to pay down this debt level?

Yes, Matt, that’s the pitch I could hit. Anyway you cut it. We’re working on a monster year. So we’re having our best year since 2006, and so I would come back and say, if you look at our net debt to EBITDA, and I know the LIFO vigilantes have been sort of been holding court for most of the year. But we've always look at FIFO EBITDA adjusted ex-LIFO EBITDA and we’re cognizant of LIFO, but it's only going to go one or two ways. We banked what we've done this year and we look at that against where we’re going to wind up on a net debt to EBITDA basis, adjusted ex-LIFO EBITDA. Those metrics look pretty good. So, if we go countercyclical and we have a big cash release and we still think 2019 is going to be on balance, a pretty good year, with that cash release that net debt to EBITDA is going to take a step down as to where -- from where it's been historically. So I kind of like where we’re going and where we’re sitting going into 2019. And anything that comes our way we seen it before and we performed really well. I mean, if we go back to 2015 and we say, well this is going to be a 2014 and then 2015, 2016 environment. I sure hope not, but if it is we've been there before, and we've gotten really good job. I don't think going anywhere near there. So if it's just a little bit down, average selling prices are little bit down, demand is incrementally up and then we see what the second half of 2019 brings, first half should still be pretty good in my eyes and we still take a step down in net debt to EBITDA relative to where are our metrics have been. And then you look at the revenue addition from central and you look at the EBITDA earnings power that we’re already starting to generate from central we've got a higher baseline revenue and we got a higher baseline EBITDA. So I’m sure all those things have really been fully accounted for when looking at Ryerson through that analytical prism as to where we’re going versus maybe where we been.

And just a supplement to that a little bit, even though our absolute debt level is higher, if you do take a look at our net debt over EBITDA we’re at 4.1 turns now at the end of the third quarter and that's with the essential Steel & Wire acquisition and that's the same number 4.1 that we had at the end of June. And you backup from there, we’re at five turns at the end of the first quarter, 5.3 at the end of last year and five times at the end of 2016. So from the perspective of what are we doing with our overall debt – net debt leverage we are bringing that number down and keeping a consistent.

Unless we see some really attractive growth opportunities and again Central is a really attractive opportunity for Ryerson. Unless we see Fanello was and Guy Metals was and Laserflex was. But unless we see a really attractive growth opportunity, we’re really set up make some real – I mean, make some real strides in paying down the debt and getting our leverage ratios down. And I would say, if you look at the trends in our business and you look at -- you look at where legacy liabilities are going and you look at where debt is likely to go, good setup for us.

So, appreciate all that commentary. Any kind of quantifiable benchmarks or capital allocation themes for us to think about on sort of how you aim to tackle this in 2019?

Yes. I mean, we said two-thirds, one-third. Like I said, I mean, Central was a rare opportunity for us. We’re really wants to be liquidity neutral deal. We booked a bargain purchase gain on the transaction of 73 million, nobody saw that coming. So I think in terms of quantitative and quantitative we've pretty much stuck with two-thirds, one-third formula I think in 2019 unless we see something really attractive. We can probably improve on that in terms of how we apply that free cash to debt reduction.

And this is Erich, and we've also targeted a three turn target for us, so we moved from five down to 4.1 and we’re moving towards three.

All right. Thanks very much and good luck.

Thanks Matt.

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

Hi, good morning, Eddie, Kevin, Enrich.

Hi, Phil.

Happy Friday, guys. Question on just the operating expense, and I’m trying to parse through some of the callouts here and get to the real base. I know you had restructuring which you pulled out. But how many or how much transitory cost in your SG&A, was there in the quarter from deal costs and things of that nature that we maybe able to pull out?

What did we book 6.7 was that the number on transaction costs?

Well, our restructuring charges as we put on the face of the balance sheet $2.7 million. Those are true one-time expenses that we've had. As far as the rest of the expenses that are running through for Central Steel & Wire, we did have some purchase accounting adjustments that hit [ph] the quarter. Those were backed out from our adjusted EBITDA, so on an adjusted EBITDA basis you are seeing consistent numbers with what we would expect going forward.

So I think the really pleasant surprise for us frankly was given the headline news around cost pressures, I think we manage those pressures exceptionally well. I mean our same-store expenses are up by 5 million bucks or less than 1% quarter over quarter. So, given the environment that was just an outstanding job by all my Ryerson teammate. So our expense leverage that we got even after making a significant acquisition I think is a really good story.

Okay. And then, Enrich, am I to think that $6 million to $7 million number that you all had broken out on adjusted EBITDA so that includes both the purchase price accounting and the restructuring? Is that the way to think about it? Or is there other transaction costs that are in OpEx or OpEx included in the number?

Yes. The restructuring charges are running through reorganization. That’s the $3 million number on the adjusted EBITDA schedule. And then the purchase consideration and other transaction cost are 6.7, that 6.7 includes the 4.7 million of purchase accounting that hit our cost of goods sold number and the rest of that was in expenses.

Rest of that would have been maybe in OpEx. Okay.

Yes.

Okay. That’s helpful. And any hope on FIFO gross margins excluding purchase price accounting in Q4. I think they were what 19, little north of 19.5 in Q3?

Yes, 19.6.

So I’m just trying to gauge what we should anticipate given that obviously, you have some catch up on cost coming into the quarter?

Yes. As Enrich said, LIFO certainly peak in Q2, started coming down in Q3, it will be a credit in Q4, Phil, so there’ll be some margin compression. Don’t think its going to be outsized by any means, but there’ll be some margin compression. Just in terms of the reset they were going through that many reset that we’re going through now with a fall on nickel pricing and really maybe a flattening to even slight decline in carbon pricing as it starts to maybe move a little bit with mill price increase announcements as we through into Q4, so little bit of compression, but I don’t think it will be outsized.

Maybe I may have missed the point. The inventory trying to get Central targeting Central to get in line with your own inventory turnover. What's the effective time line that you think you can do that? Is it something you're trying to achieve in the next 12 months? Or is it something that we should think about as like one to three-year goal?

No. Its one to three years, that’s a glide path. I mean, if we see a path to doing it sooner we will, but again, I think whenever you’re looking at revenue retention is your primary objective, its very important to careful as to how you map that revenue and how you map that supply chain and where those products come from and what service center that they’re being delivered out of to the end customer. So you have to be very careful when you go through that. So, I mean, the goal, the first goal is not to just hit a working capital number for the sake of hitting working capital number. We’ll get there because that's how we run our business. But I think the real sense of the part that is whether you do it in year one, year two, year three, as you really kind of solidify the customer experience that goes with the Central Steel & Wire brand as part of Ryerson. So I have no doubt they we’ll bring Central very close, if not that's not to Ryerson's operating metrics. But I think revenue retention is really the governing principle as we go through that.

Thanks guys. I’ll turn it over [Indiscernible]

[Operator Instructions] Your next question comes from Chris Terry with Deutsche Bank. Your line is open.

Hi, guys. Few questions from me, just on the CSTW acquisition of 15 million longer term target. Can you just put that into context for actual cash flow? So what you expect to post CapEx interest and taxes? Thanks.

Cash flow, look, you want us to do a model with you on the call.

No. Just considering the sort of what that 50 million would convert into on a free cash flow basis? Or how you think about particular on the CapEx?

On a free cash flow basis, I mean, the CapEx requirement at Central is modest. It was very asset rich acquisition. If you look at the equipment that they have an equipment that we have, there are some nice points of interaction and overlap, and if we look at, say a $50 million EBITDA target over three year and a reasonable maintenance CapEx number with a little bit of growth in that kind of feels like something on order of 50.5 [ph], 50.10 [ph], so call at 7.5. So, on a free cash flow basis at that steady-state mid-cycle EBITDA run rate its 42.5.

Okay. Thanks. That’s helpful. And just in terms of and this is been a comment on from a number of the steel companies, so just interested in multi-comments, but the ordering activity in October was picked up post the somewhat of a hiatus as been mentioned in September. What’s your rate on that? Or do you any comments on that just to try to square with what other companies have said? Thanks.

Yes, Chris. There is two parts to it. I think one is a seasonal slowdown where there’s been a lot of – there’s been of call it Kiosk to the first half of the year in terms of supply chains and where material is coming from and how people are going to import or not import and how they were going to get on domestic book, so they haven’t been on domestic book. I do think that from Q3, from September even in October things have slowed down a little bit and they’ve slow down I think because people were over inventory and they’re bringing inventories down to a more appropriate level in Q4 with the holidays coming up. If that's all it is it will be short-lived and then people will start replenishing as we get into January and February and gearing up Q1 and Q2 of next year, but turns out to be a little bit more than that and prices come down a little bit further than that my protracted by a month. But I think it's -- the way it looks to us right now it's very seasonal and it's not that much different than what we saw last year, the year before. It's only different in terms of magnitude in the base level of where prices are today. So again, we look at average selling prices and we look at overall demand trends through this Q4 and going into Q1 of 2019 certainly think outside of some kind a black swan event, the set up is pretty good from again from what we can see right now the set up looks pretty good and certainly we can envision another 2014, to say 2015 transition, so momentary pause maybe in buying levels, but nothing out of the ordinary, and I would I would ask Mike and Kevin to comment on that as well.

Hey, Chris, this is Mike Burbach. I think what Eddie describes is what we’re seeing in the areas I look after. There's more seasonality than anything else that we’re looking at right now and as we touched on earlier the sentiments are pretty dumb good right now. There are some corrections in price with stainless surcharge is dropping, and hot rolled coil moderate in a little bit, but put it all together I think Q4 looks pretty seasonal. In fact, I think we mentioned earlier on that we’re thinking that our Q4 will finish probably a little bit better than what is typical for what the industry says from volume perspective but not much more to add than that.

Hey, Chris, it’s Kevin Richardson. The only think that I would add, is if you through the entire supply chain you can see mill utilization rates for the mills getting above 80% and it's been a long time since it's been above 80% and that that is the continuing shift is less import has come in and the mills have gotten busier, so which is the -- obviously the intention of what the tariffs in the quarters were geared to do.

Yes. I mean, really if cap utilization stays about 80% that becomes an enduring trend to the fourth quarter, that's actually bullish. So that could actually bring replenishment back sooner.

Thanks guys. Appreciate all the color. Thank you.

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

Well, okay, great.

Phil, you taken it double dip or you’re going come on [Indiscernible].

No. I don’t even know who those guys are anymore [ph], new band. Now the question was just on the labor market situation, I think we’re hearing from basically every single company in the metal supply chain that labor is coming tight, there’s a big competition in the market, lot of wage pressure and I think a lot of it seem to have emerge in the last – feels like last three to six months, any comments that you can make on that in terms of what you all are seeing, I think Fred was obviously the canary but it seems like it's migrating into more aggressive labor pressures as well?

Yes. I mean the job number this morning was very strong and certainly that that number would support, what we’re seeing anecdotally where the labor market is healthier than it's been at any time since 2009, so some open positions are taking longer to fill. There are some skills that are in high demand that really take longer to place in the organization. And so those things are real enough. We just got to take a quarter by quarter. And I think we got really good programs in place to mitigate and even turn that into a longer-term positive for the company, but were certainly experiencing what most firms are experiencing in terms greater tightness in the labor market. Mike and Kevin.

Hey, Phil, its Kevin Richardson. I’ll say from my perspective it’s the tightest labor market I've ever managed through. So it is everything that you hear. We see it. I mean some geographies tighter than the others, but I think one of our advantages is where we are capacity sure we’re able to flex and include business around other centers and then we’re really focused on cross train to make sure that we have as much flexibility within the workforce. But the labor markets are tight, which is a good sign of what this means for industrial America.

And when that did you think you saw that inflection or is just been something that’s been like pull like the rubber band in the last 12 months?

I really think it was Q2 and Q3 and its continuing to some extend. I mean, if you look at the year-over-year metrics the wage growth I think within our industry is more or less parallel in what’s being reported out there anywhere from 2.5% to 3.5%. We’re going to have to wait and see if that kicks up. I mean there are some projections that are indicating that wages might get bit up to 4%, but I think when those things happen you really, you double down on lean initiatives, you double down on productivity enhancing initiatives. We are fortunate that in our network we can really maximize resources within our network because we really – we have some interconnected service centers that can really work in coordinated fashion to handle orders as they come and as we can roll them over to maybe places where we have a little bit but setup in terms of capacity and labor. So I think the teams done a wonderful job of managing it. I think all of our operators for all their hard work and what they’ve done this year to-date and we’ll just withstand our toes and we’ll manage through it well.

Sounds good. Thanks for the viewpoint. Appreciate it.

Thanks Phil.

There are no further questions at this time. I will turn call back over to Eddie Lehner for closing remarks.

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