Ryerson Holding Corporation (RYZ) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Ryerson First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Justine Carlson, with Ryerson's Investor Relations Department. Please go ahead.

Good morning. Thank you for joining Ryerson Holding Corporation's first quarter 2020 earnings call. I'm here this morning with Eddie Lehner, Ryerson's President and Chief Executive Officer; and our Corporate Controller and Chief Accounting Officer, Molly Kannan. Kevin Richardson, Mike Burbach and Jim Claussen, our 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, including the impact of COVID-19 on related economic conditions that could cause actual results 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, 2019. 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 2020 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 Justine. And thank you all for joining us this morning to discuss our first quarter results and our response to the novel Corona virus, or COVID-19 pandemic. I hope this call bonds you all healthy and well. Our best wishes and prayers go out to all those who are recovering from or have been lost to the virus. I want to start our call today by thanking all front line responders, whose tireless and courageous efforts are so imperative to the fight against the disease and to all essential workers, including many of my Ryerson colleagues who are part of essential and critical on-premises work required to support COVID response and basic societal functioning. During this time of extreme virus induced abnormality, we have acted comprehensively and decisively upon our first priority of providing a safe work environment for our employees, in adherence to evolving guidance provided by the Centers for Disease Control and Prevention, as well as the presiding government authorities where Ryerson operates. Upon the onset of the pandemic, a rapid response team was commissioned to plan and implement COVID-19 policies, procedures and practices within our facilities and throughout our service center network, including but not limited to social distancing, restricted travel, staggered shifts, reconfigure workspaces, dedicated communication, channels and resources, disinfecting and sanitizing our facilities and working remotely whenever possible. I want to thank each of my Ryerson teammates for their commitment to our community's health and safety and for their resolve and resilience during this ongoing public health and economic crisis. I also want to thank my Ryerson colleagues for delivering commendable results during the quarter, whose positive momentum was hijacked by the COVID-19 outbreak. Ryerson saw volumes and margins track higher through the quarter until mid-March. Before the coronavirus or BCV, we saw a slow start out of the gate with respect to volumes due to original equipment manufacturer program business contraction in commercial ground transportation, consumer durables, construction equipment, as well as sharp declines in oil and gas. We generated net income of just over $16 million exceeding guidance and adjusted EBITDA excluding LIFO of $34 million, which is in line with the guidance range articulated in our fourth quarter and full year 2019 earnings release. Further, if the mark-to-market impacts of hedges placed on behalf of our customers were excluded from our results, net income would have totaled $20 million and adjusted EBITDA excluding LIFO would have been $39 million. During the quarter, which felt like three different years in three months, Ryerson executed upon organizational priorities by repurchasing approximately $55 million of our senior secured notes at an average price below par. We generated significant cash from operating activities increased net debt by $30 million and continue to increase our net book value of equity. Meanwhile, the notable progress being made at Central Steel & Wire, CS&W was demonstrated in the company's results, as post close acquisition synergies met up with recovering carbon gross margins to provide us with a positive view of CS&W's performance in what was a below average market BCD and which was very encouraging. In advance of the onset of COVID-19 as a nationwide emergency, Ryerson established the dual mandate for our organization through the crisis. Our top imperative is to provide a safe work environment for our employees, while preserving liquidity and recovery capacity. We are seeing a paralyzing economic impact due to COVID-19 given the deep virus depression and mitigation measures required to-date requiring us to call upon lessons learned during the great recession of 2008 and 2009 and the deep industrial recession of 2015 and 2016. Today requires the same steadfast, resilience and perseverance that we exhibited then and throughout our 178-year history. Ryerson quickly in late February establishing plurality or the ability to see reality clearly and began executing a detailed plan to serve our dual mandate. Given the early chaos in capital markets, of course, significant policy responses in late March and early April, we drew upon our credit facility to increase our access to cash, established aggressive working capital targets, revised our capital expenditure budget downward to 2008, 2009 levels, and outlined warehousing, selling, general and administrative expense reductions. In the process, we variabilized our cost structure to a 67%/33% variable to fixed cost split. Given the unparalleled and a key drop in demand which was practically instantaneous, we have made difficult and pained decisions including reducing production schedules, employee furloughs, salary reductions, and workshares. As we communicated throughout our organization, we are doing the things we have to do given the dystopian abnormalities currently present in society and in the economy. Additionally, we understand that there is a very high probability that if we don't take these measures, the alternatives and outcomes will be worse. These decisions represent a culture of shared sacrifice as evidenced through Ryerson's 8-K filing on April 22nd, 2020, notifying stakeholders that Ryerson's Directors and Executive Officers were taking voluntary salary and fee reductions between 20% and 30%. This was the necessary and right thing to do under the circumstances and underscores our commitment to our COVID-19 dual mandate. Additionally, we have been actively engaged in evaluating and acted upon where applicable and appropriate the various stimulus legislation provisions that have been passed in the U.S., Canada, and China. Turning to the current economic environment. The first quarter of 2020 was three different flashbacks jammed into one quarter. The quarter started well in some sectors such as aero, auto, and construction and looping others such as machinery and equipment commercial down transportation and energy. On the price side of the equation carbon prices were recovering through the first two months of the quarter while stainless and aluminum pricing lagged due to following stainless surcharges varying supply and demand imbalances in aluminum. Our base case going into the year as communicated in our fourth quarter 2019 guidance was a slower start to the year that would see momentum picked up beginning in the second quarter of 2020 and continue for the balance of the year. Of course as we all know things have turned out starkly different. Since the end of February, as the pandemic began spreading geometrically, the economy has been largely shuttered which is painfully evident in every economic indicator. The fact is there are too many unknowns at present to guess a demand for the balance of the year given the uniqueness and magnitude of this crisis. That said, we would offer a base case scenario using our prior experiences in 2008 and 2009 and 2015 and 2016 to say we expect to see continuing demand contractions in the second quarter, with stabilization occurring in the third quarter and economic growth returning from depression levels in the fourth quarter and continuing into 2021. The price side of the ledger appears more encouraging if it holds given the speed with which supply has gone offline in this crisis as compared to others. And given that nickel, aluminum, and carbon prices went into the crisis below their 10-year averages. If history is any guide prices will soon bottom margins will begin to recover followed by demand. The biggest risk of course is the virus itself and whether we can collectively manage public health and safety risk to lower levels and take positive forward steps toward normalization. The risk also is of economic false starts where demand-driven and virus-driven business continuity cannot be reestablished with anybody inconsistency. Providing more color around Ryerson specific demand conditions, we have greater exposure to commercial ground transportation consumer durables and machinery and equipment, in aerospace automotive and in-place construction. Active demand the downside at the start of the year particularly with large OEM program accounts, but we gain momentum through the quarter as new business began onboarding late in the quarter and into the end of the second quarter albeit at pandemic-impacted reduced rates. We also saw relative strength in our transactional business and fabrication business with noted relative end-market strength in healthcare, material handling, packaging, defense, and consumer essential end markets. From a geographic perspective, China shipments have recovered the 90% of pre-pandemic Q1 levels. In Mexico, shipments have fallen to 40% of pre-pandemic levels given a greater number of customer and plant closures by Mexico government authorities but the U.S. and Canada are operating at approximately 75% of Q1 pre-pandemic levels. Ryerson's ability to quickly move to remote work readiness across our network and service centers with significant digital infrastructure to support e-commerce transactions and multi-channel buyouts for customers continues to provide valuable benefits in our ability to navigate the challenges posed by COVID-19. There have been numerous examples since March 13th, thereby our ability to service customers who spot needs utilizing multiple branches and digital infrastructure allowed for mutually appreciated customer experience thereby customers can satisfy their complete needs while getting a lower overall risk solution. Although, it is early to declare a deeply rooted trend we know what appears to be evidence of supply chain reorientation favoring domestic supply chains given the many supply chain disruptions caused by the COVID-19 pandemic, but what we hope is a lasting realization that supply chain rebalancing is among the highest economic in public safety priority is moving forward. Looking at the supply side through the quarter and through the lens of the pandemic, we have not experienced any supply disruptions as material is widely available inventories are adjusting to the demand shock and we thank our suppliers the manner in which we have worked together through the early and difficult part of this economic shutdown. Given that Ryerson imports less than 10% of its procured metal from non-domestic sources and given current supply, demand, and price conditions, import purchases are disadvantaged. As a base case, we expect supply to continue adjusting to demand shock conditions for the balance of the year with limited further downside to domestic industrial prices. The first quarter of 2020 CS&W contributed $123.5 million in revenue and $2.9 million in adjusted EBITDA excluding LIFO to Ryerson's overall results compared to $172.2 million in revenue and $3.4 million in adjusted EBITDA excluding LIFO in the year ago period and $115.5 million in revenue and a loss of $0.3 million in adjusted EBITDA excluding LIFO in the fourth quarter of 2019. First quarter results illustrate the year-over-year progress and management's commercial portfolio and cost and supply chain optimization actions. Gross margins excluding LIFO expanded by 400 basis points to 22.9% and expenses declined by 12.3% to $27.2 million. While revenue declined 28.3% on a year-over-year basis, this is within acquisition post-close expectations adjusted for current economic conditions. Next stage CS&W synergies include digitalization of legacy systems and processes as well as an ERP conversion in the Ryerson's standard European environment, which will further improve the customer experience of CS&W further enhance the bar tube and plate franchise and generate additional cost synergy opportunities. Q1 2020 performance was a validating data point for CS&W. And the future looks bright for Central Steel & Wire after we get to the other side of the COVID-19 pandemic. With respect to Ryerson's operations all Ryerson facilities except with two of our Mexico plants are operational and producing relative to current activity levels. Our operators have performed brilliantly, even more so given the current crisis. Safety performance in Q1 of 2020 as measured by OSHA's TRI metric of total recordable incidents declined to a five-year low indicating that our workplace is becoming safer and more important, our culture of workplace safety is being internalized and embedded in our behaviors. Due to the macroeconomic uncertainty stemming from the Coronavirus pandemic and overall lack of visibility into future demand trends, metal pricing and market conditions in the end markets in which Ryerson operate the company will not provide guidance for the second quarter ended June 30, 2020. What we can share and what is painfully obvious is that the virus and our proactive response to the virus in terms of pace rates, testing, tracing, containment, health care infrastructure, treatment recovery rates and mortality rates will largely dictate what happens next. Central Bank and fiscal policy responses have been surprisingly fast and on balance very positive and necessary given the suddenness of the job and difficulties involved in standing up such responses. More will likely be necessary to accelerate normalization and growth sooner rather than later. With respect to Ryerson, we have taken and we'll will continue taking the actions necessary to coheir and persevere through the pandemic. We note that April or the March shipments were down 25% in North America and down 5% in China with more significant declines noted in Mexico relative to the U.S. and Canada. It's too early to have enough visibility into demand trajectories to know whether we have -- whether we move lower or higher over the next several months. What we can say is that current demand levels represent those witnessed over a one-year period in 2008 and 2009 and two times the demand decline experienced over a two-year period in 2015 and 2016. It would be a tragic first in the lifetimes of most of us with these public health condition and economic conditions persisting for longer period than those referenced during prior industrial recessions. With that I'll turn the call over to Molly who will discuss the highlights of our first quarter performance.

Thanks, Eddie, and good morning. In the first quarter of 2020 Ryerson achieved revenues of $1.01 billion, a decrease of 17.9% compared to $1.23 billion in the first quarter of 2019 with average selling price is down 10.2% and comp ship down 8.6%. Gross margin expanded to 19.4% in the first quarter of 2020 compared to 18.8% in both the fourth quarter of 2019 and the same quarter last year. First quarter 2020 gross margin expansion was partially driven by an increase in our transactional sales mix. Included in the first quarter of 2020 cost of material sold was LIFO income of $20.2 million compared to LIFO income of $6.5 million in the fourth quarter of 2019 and LIFO income of $20.1 million in the first quarter of 2019. Excluding LIFO, gross margin was 17.4% in the first quarter of 2020 compared to 18.1% in the fourth quarter of 2019% and 17.2% in the first quarter of 2019. In the first quarter of 2020, Ryerson reduced warehousing, delivery, selling, general and administrative expense by $8 million or 4.9% compared to the year-ago period driven by reductions and variable staffing-related expenses. However, warehousing, delivery selling, general and administrative expenses as a percentage of sales increased in the first quarter of 2020 to 15.4% compared to 13.3% in the first quarter of 2019 as the decline in revenue outpaced expense reductions. Net income attributable to Ryerson Holding Corporation was $16.4 million or $0.43 per diluted share in the first quarter of 2020 compared to $29.5 million or $0.78 per diluted share in the prior-year period. Adjusted net income attributable to Ryerson Holding Corporation excluding restructuring and other charges, gains and losses on retirement of debts and the associate income taxes was $15.8 million for the first quarter of 2020 or $0.41 per diluted share compared to $29.9 million or $0.79 per diluted share in the prior-year period. Ryerson achieved adjusted EBITDA excluding LIFO of $34.4 million in the first quarter of 2020 compared to $63 million in the first quarter of 2019 and $46.9 million in the fourth quarter of 2019. At the end of the first quarter of 2020, Ryerson has 74 days of supply and inventory, down from 84 days at the end of the fourth quarter of 2019. On a same-store basis excluding CS&W Ryerson had 72 days of inventory supply in the first quarter of 2020 compared to 81 days at the end of the fourth quarter of 2019. While Ryerson achieved inventory within our target range of 70 days to 75 days on both a total company and same-store basis, we anticipate an increase in the second quarter as demand deteriorate faster than inventory levels can adjust. However, aggressive decreases in inventory purchases, alongside innovative inventory management practices, are expected to bring us below our target range by the third quarter. We generate cash from operating activities of $72.8 million for the first quarter of 2020, compared to cash used in operating activities of $18.5 million in the year-ago period, driven by lower working capital requirements and the deflating price environment. During the quarter, we wisely repurchased $54.6 million in outstanding senior secured notes, at an average price of $98.5. The transactions are expected to result in annualized interest expense savings of approximately $6.1 million and were funded through a combination of restricted cash, which was a majority of the portion of the proceeds generated through the sale-leaseback transactions completed in the fourth quarter of 2019 and company operating cash flows. Even with having completed these repurchases, we maintain ample liquidity throughout the quarter and although we are always mindful of our liquidity position, we are carefully monitoring our credit line availability and projecting working capital requirements. This includes actively managing our receivable and payable cycles and decreasing inventory purchases, in line with demand, and enabling liquidity accretive actions under the various stimulus legislation within the US Canada and China. Also, to ensure adequate cash access during the early and unsettling chaos surrounding the COVID-19 pandemic fallout during the second half of March, we proactively drew on our credit facility in March to increase our North American cash balance to $185.2 million. As of March 31, 2020, borrowings were $546 million on our primary revolving credit facility, with additional availability of $159 million. Including cash, restricted cash from the sale of real estate under the sale leaseback transaction and availability from U.S. and foreign sources, Ryerson's total liquidity was $396 million as of March 31, 2020. Additionally, to preserve liquidity we have reduced our capital expenditure budget for the year from approximately $45 million to approximately $25 million, which will be almost entirely funded through remaining restricted cash generated from the sale leaseback transaction completed in the Fourth Quarter of 2019. We have also taken decisive actions to reduce expenses and unfortunately those actions included difficult, but necessary decisions to reduce our workforce by approximately 16% since mid March to adjust to the COVID-19 demand environment. These decisions were made with careful consideration throughout Ryerson teams and combined with the aforementioned salary reductions, will preserve liquidity as we manage through this unprecedented crisis. Now, I'll turn the call back over to Eddie to conclude.

Thanks, Molly. During this crisis, I can't remember going five minutes without cycling through a word stream including unprecedented, virus, tragedy, distancing, history, pain, loss, hardship, hope, humility, determination, resolve, resiliency and optimism. Bob Dylan's song Blowing in The Wind' has been playing regularly during this period. And many times it is felt like the answer is literally blowing in the wind. We wish we didn't have to say it, but we have experienced managing through to the other side of times of great hardship and we'll do it again despite the solemnity, humility and melancholy that is at the center of all of it. We are doing what we must by generating counter-cyclical cash flows and adjusting expenses to current run rates, while keeping a safe work environment and maintaining our recovery capacity post pandemic. Ryerson is a much stronger company today than in 2008 and 2009 and 2015 and 2016. But no organization is immune to the crisis at hand. So we have polarity around the magnitude of current circumstances and the response is required. We are grateful to our employees, communities, customers and suppliers, as we have found the best in ourselves during this trying time, as hope plus all-out effort and determination will prevail. It is coming, however, at a price that seems incalculable when looking at the pain and loss already endured and what is likely to come at least in the near term. Let me paraphrase Santayana by saying, if we fail to learn from this global tragedy, we will be condemned to repeat it. Several weeks ago Marc Andreessen wrote an essay titled, it’s time to build. When I read it, I was overjoyed with a great relief that what we have been yelling from the top of peach tree for the past 20 years was catching on in earnest with other leaders outside of the industry, as failed chalkboard theories are finally seen for what they are. And we emerge from this virus-induced global tragedy with a renewed optimism and unbeatable resolve. I hope I can't go five minutes without someone saying YITTB. Why? Yes, it's time to build and apply all of our learning from COVID-19, the best possible use, so as to never see this kind of history repeat. Please stay safe and well, as a lot can change in the next three months. And may it be through all of our collective efforts and all be for the better. With that, we look forward to your questions. Operator?

[Operator Instructions] Your first question today comes from the line of Matthew Fields with Bank of America. Your line is open.

Hey, everybody. Eddie, I appreciate the heartfelt comments there. A couple of detailed questions for you. On the workforce reductions, are those furloughs versus layoffs? And is there an associated kind of upfront cash cost we should expect and if so, what's the timing of that?

Hey, Matt. Hope you and your family are doing well. The majority of furloughs, there is, again, upfront cash cost at this time and we'll be monitoring how and when we can bring our folks back to work as conditions normalize and recover.

Okay. All right. Thanks. Mills announced a price hike recently that sort of seems like they want to target 500 per ton. Again I think, Barry Zekelman earlier this week said, they were seeming to stick are you seeing the same thing?

Yeah. I mean, by and large I think for spot transactions. And what I'll call truckload quantities, yeah, I mean. Are there deals to be had for larger tonnage? There probably are but I think it was a smart move by the steel producers. I think, when they look at import cost all in and they look at where they can more or less set a floor price relative to demand. Because -- we saw this happen in 98, when I worked for Nucor Berkeley, there comes a time when you cut the price more and more you're not going to stimulate anymore demand because we're in a demand shock right. We've seen it many times before. And I think they took a thoughtful approach to it. And yes, I think, it will stick. If something doesn't change dramatic way, more than how dramatic it's been already.

Okay. I appreciate that. We're starting to hear that, the OEMs are going to start back up on the auto side, this month. Are you seeing any shipments ahead of those restarts to make sure that there is inventory on the stamping floors or is there inventory kind of already in the channel for those guys?

Matthew. It's a mix. I mean, I think, what we said in our comments is true and that is I think there are fits and starts and I think everybody wants to come back. There are a couple issues that involve that one is the safety and health of the workforce obviously and if there are confirmed cases. And we've seen shutdowns. And they haven't been long shutdowns. We've seen shut downs that have been virus related. But then, we've seen shutdowns where people come back for a couple of weeks and there's just not enough of a backlog to sustain production in a way that's effective. So, customers are really working to come back online. The real question is really demand. And is there a consistency of demand that will allow them to at least stay at a consistent operating rate that is that is plausible. But let me let me kick that over to Mike and Kevin and let them -- have them give you some more color on that.

Hey! Matt. This is Mike Burbach. See I think, the way Eddie described, it is very similar to what I would say. It's really a customer-by-customer type situation and it really I think you could kind of narrow it down a little bit in terms of what is the product they're making. So, it's a product that's needed for the -- for the current situation and supports the solution to the virus i.e. making medical equipment or something that's really in short supply. But that's one story. And then, if the customer or producer is making products that truly are not as critical as others you see a different story. So hard to put a generalized statement to say everyone is doing this or doing that. And we're watching it, very closely. A lot of them are coming back on stream, right now. Most of April was really hit with a number of people taken on one two three or five weeks off. And so I think, later this month, we'll have a better idea what that looks like, when we are all back in line.

Okay, thanks. On the energy side, I know, it's not a big part of your business. I think it was like less than 5% of your revenue last year. But is that -- we're seeing obviously a lot of closures of tubing facilities are that market sort of completely dead from your point of view? Are there other shipments still going on? Can you just give us a little color on the energy side?

I mean, I'll start then, I'm going to -- I'm going to go ahead and direct it to Kevin. I would just say that above ground where storage is really at a high degree of need above ground is active but it doesn't make up for E&P work below ground but I'd have Kevin comment as well.

Yeah. Hey Matt, Kevin Richardson, that's really the only short-term catalyst that we see, is that people are running out of room to store the oil. And we do have a segment of our business that makes above-ground storage tanks. So we're expecting a little bit of a demand boost in Q2, Q3 from that. But it's coming from a very low base. If you just look at the rig count it's -- I think it stands at like, 400 or something which is down 60% from last year. So, there is not much going on in the energy markets excluding the above-ground storage tanks right now.

Okay great. And what types of products are involved in those storage tanks long flat mixes?

Yeah. It's primarily carbon plate products where it gets rolled and fabricated and welded. There'll be some long products that would go into it. But it's all carbon products. And it's not to say -- there is no demand it's not to say that there is no demand for the typical long product alloy bar. It's just, its very depressed demand. And we don't see a big catalyst. But to your point, it's a relatively small segment of our overall business relative to what it was five or six years ago.

Right, okay. Thank you. And then obviously the last couple of months have been sort of triage but as hopefully things settle out and we hope there's is not a big second wave of this. Do you think about kind of the ability to do more sale leasebacks monetize more assets similar to the way you did kind of a little while ago to generate some cash?

Matt, I think, the positive thing is we have the assets and we have the ability and we have the optionality which we didn't really have in 2012 or 2016. We certainly have it now. And we demonstrated that, I mean, part of the reason we did project more when we did the sale leaseback. And the return on that has really been I think, we'd have to say excellent. Not just the first part of that. But then, being able to use the restricted cash to go in and buy the bonds and take down our -- take down our principal of notes. But we have significant real estate value in our company. It's certainly an option for us, when we look at different scenarios of how we -- of how we create that refinancing scenarios as we move forward and options that we have to not just generate cash and liquidity but to -- I think, it is a really important thing is to put first things first and we have a dual mandate which is a safe work environment for our people and managing liquidity and it's really important to get that sequence right. And I think as we work in the business and we follow through on the measures that, we -- that we've had to take. We will certainly shift focus as appropriate and start to run through different scenarios with respect to our bonds. I mean where -- you of course are well aware that we're still 24 plus months out from a maturity date. When we did the refi in 2016 we were 18 months from our maturity date, when we did that in May of 2016. What was interesting in doing the prep for the call, not that -- not that we don't know, but you go back and look at things that just provides a different lens through, which you look at it. But when we did the refi in 2012, we refied $900 million. So we did $600 million secured and $300 million unsecured. And when we did the refi in 2016, we did $650 million in secured, and right now we're at $533 million of secured. And we've taken a lot of debt out of this company. And that certainly makes it a lot easier when we look at what our interest expense is now versus what it was then and the options we have now versus the options we had then. And when we look at the collateral coverage, which is significantly better today than it was in 2012 and 2016. So we have time, we have options and we need to be thoughtful about it, but we'll be on time when that time comes.

Okay and then, thanks for that. And then on that vein -- in that vein, you know, that it is the strategy do you think kind of picking away at that maturity little-by-little before you get it back to a more manageable size to approach the capital markets, or do you think you can still kind of approach the capital market for a holistic refi?

Matt, I think it's going to be dependent on conditions. I mean if you -- let me say this. And we said in the script, a lot can change. We know a lot can change in one month, two months, three months, six months, a lot can change and we hope it's going to -- having been through this a couple times and not wanting to take anything for granted, I believe that there is going to be windows in which we can affect a range of good options for Ryerson and for our capital structure. Right now it's really important to focus, but I do believe that there'll be a window and there'll be multiple options that we can pursue.

All right, great. That's it from me. Thank you and good luck and hope you and your family doing well as well. Thanks.

Thanks Matt. Appreciate it.

[Operator Instructions] Your next question today comes from the line of Michael Leshock of KeyBanc Capital Markets. Your line is open.

Hey, guys, good morning.

Good morning.

So, first I just wanted to talk on SG&A, on how much it's fixed versus variable. I know you talked about how you brought your variable to fixed cost at 67% to 33%, respectively but could you touch on what that ratio was DCV or in 2019? And then how much of your SG&A is labor?

Yeah. So we've gone from about 40% variable to 67% variable over the last call it four years and it's been a very intentional progression to variabilize our cost structure more and more. We are two-thirds labor all-in-all when we look at all comp benefits, incentive plans, temp and overtime. And we're about -- I'd say even 35% would be all else and the team has done just a really -- just a good job given the circumstances and not just further variabilizing these costs, but being very fast in recognizing the situation and taking costs out in the right sequence with really good sense of timing.

Okay, got it. And then do you have a forecast at LIFO impact in the second quarter.

Yeah, I'm going to take it over to Molly in just a second. I would say that Molly is going to tell you a little bit about how LIFO pools work without getting into too much petty detail. But we had $20 million in LIFO income in the first quarter and we would continue to expect LIFO income for the year and so prices -- until replacement cost hit a bottom and then we start to inflect higher, which we're modeling for sometime in Q4 or late Q3. So we would expect to generate LIFO income through that period until we get into certain LIFO pools that were created in 2007 when commodity prices were very, very high or 2018 when we acquired Central Steel & Wire. But let me go ahead and take it over to Molly and she can give you some -- she can give you some more color and even better expertise.

Hi, thanks. Thanks, Eddie. Yeah as you know, our LIFO calculation has a lot of different variables that go into it, and we are trying to aggressively reduce our inventory on hand and as we do that, we are expecting to eat through a lot of our old LIFO layers that we have and all those layers were built on prices that were much higher at the time. And so as you read into those layers you very well could get into a situation where you're actually generating LIFO expense. We also have to take into consideration, our lower costs on market cushion as average selling prices fall. We are in a debit LIFO reserve position right now. So, there's just a lot of variables that we continue to look at. We're monitoring it very closely every month, but just think that LIFO has no impact on our liquidity and our cash flow so we're certainly going to be back here in July and give another update on how LIFO is playing out.

And, I think, Molly makes a point that we want to emphasize and that is regardless of GAAP driven LIFO optics and they're certainly important, but it's really important to keep your eyes fixed on cash flow generation and liquidity especially during this time because that is the most important metric.

Understood, got it. And then just lastly from me. Could you comment on what you've seen in May thus far versus April? In other words was April the low point for apparent demand levels based on what you've seen directionally at least in May?

We don't know. I mean, it's hard to say we don't know, but I don't think anybody knows. I actually don't. I mean here is what I'll tell you. As we were very transparent in explaining what business levels we're in April relative to March, what's been a pleasant surprise has been the transactional strength and that's a tribute to everybody in the organization. I mean, we have good digital tools. We have a good digital framework. We have a lot of expertise. We've been staying in front of customers to meet their spot demands and the network of service centers we have has been very instrumental and very useful in providing what I'll call low risk solutions when customers want one vendor or one truck as opposed to many vendors and many trucks for a host of different reasons primarily COVID safety-related. So we've been able to put a lot of solutions together using that network very effectively in moving inventory around and getting material where we have it to where it's most needed and in the course, the essential responses into the COVID marketplace pandemic response marketplace. The ingenuity of our customers and adapting their operations to make products for COVID response is astounding. And we've been really proud to participate in that as well. I would like Mike and Kevin to give you some more color on that in terms of what they're seeing in May so far, and if we see any real discernible trends one way or the other.

Hey, Michael. This is Mike Burbach. So, I think Eddie said it. We're what three to four days into May and really too early to make a call, I think to with any certainty on it. What we saw through April, is a little bit of variation with some of the customers coming on stream, going off stream and clearly inconsistent from day-to-day and week-to-week. So I would say, the three or four days probably, is not a good enough sample size to make a call for May. So sorry, I can't give you a better color than that, but I think that's the truth of the matter. I can tell you this, we're setting ourselves up to take advantage of every opportunity that presents itself to us and Eddie touched on it. With our network and with the inventory and capabilities we have, we're able to leverage all the different things we have going on. We think it's given a lot of opportunities that we've been able to seize upon and fulfill due to those resources and capabilities. So, certainly isn't the environment that we want to be working in, but we found a way to make some good out of it.

And let me add one comment. This is one of those times though that -- there's a lot of -- there's a line of sight that we don't always have, because we're not used to dealing with demand shocks that take you down 20%, 30%, 40%, 50%, 60%, 70%, even 95%. I mean this is so unparalleled that, what is different this time is, you can go to a group of OEMs in just about any sector. But let's just take industrial OEMs and you can look at what they're communicating in terms of their recovery and their reopening plans, and you can map that right back to demand. So the announcements coming from automotive plants or machine equipment manufacturers, consumer durable manufacturers. I mean, this is one of those times when if you're following the headlines you can get a pretty good pretty good beat on how it's going.

Hey Michael, Kevin Richardson. Let me just add one more -- one more comment, because this is what we're watching is two different themes. One is the positive impact from large OEMs coming back online after shutdowns in April, because a lot of the large OEMs did shut down. So that's clearly a plus. That's a little easier to predict based off of the schedules of them coming back online. What's hard to understand is the negative impact of customers that stayed open in April, but they maybe depleting their backlogs. And so, it's hard to really understand how you would net those two things out. Needless to say, we're watching it like a hawk, but to Mike and Eddie's point, we're only four or five days into May, so it's hard to get a reference point. But directionally, those are the two things we're watching closely.

Okay. We all need some clarity in times like these. I appreciate the commentary guys.

Thank you.

Thanks.

[Operator Instructions] None at this time, there are no further questions in queue. I'll turn the call back to the presenters for any closing remarks. End of Q&A

Thank you for your continued support of and interest in Ryerson, and we wish everyone the world over a safe and speedy return to health and normalcy. We look forward to being with you again as we work toward better days to come. Thank you.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.