Ryerson Holding Corp (RYI) 2017 Q3 法說會逐字稿

Good morning. My name is Kelly and I will be your conference operator today. At this time, I would like to welcome everyone to the Ryerson's Third Quarter 2017 Earnings Webcast and Conference Call. (Operator Instructions)

Thank you. Mr. Jeff Horwitz with Investor Relations, you may begin your conference.

Good morning. Thank you for joining Ryerson Holding Corporation's Third 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 2 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 third 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. I want to start the call by thanking our customers for their business this past quarter. As Ryerson reaches a noteworthy milestone of 175 years in business on November 19, we look forward to providing great customer experiences for many more years to come. We also send our continuing thoughts and prayers to all those affected by the hurricanes that affected wide areas of the U.S. and Mexico this past August and September.

Ryerson remained true to its core values and provided much needed support to its affected communities, employees and family members in the wake of the storms, as those affected moved through the long and difficult process of rebuilding what was destroyed while seeking a return to normalcy.

The third quarter of 2017 can best be described by margin compression, driven primarily by nickel and chrome deflation in the second and third quarters of the year; surprisingly high levels of carbon, aluminum and stainless imports that muted pricing power, which was further spurred by panic Section 232 metal buying in advance of an anticipated trade ruling that never materialized.

Demand increased through the quarter after a slow July, but was then interrupted by devastating storms and hurricanes across significant parts of the Ryerson service center network. Ryerson's third quarter highlighted our continued structural performance improvements, despite continuing supply and demand distortions in commodity markets and trade flows.

In the third quarter we grew market share compared to the Metals Service Center Institute, or MSCI, and maintained expense and working capital discipline while managing through higher average metal costs that led to muted pricing power and compressed margins on an excluding-LIFO basis.

As expected and noted in our third quarter guidance, margins bottomed in July and August and rebounded in September. However, the lower margins in the first 2 months of the quarter and the hurricane-related business interruptions in late August through September negatively impacted earnings. Working capital and expense management were well-executed in the quarter, although some inflationary pressures were noted in delivery expense. We are optimistic heading into the fourth quarter as pricing dynamics and margins appear to be improving, albeit amidst stubbornly high import levels, despite improved global economic conditions.

No matter the environment, Ryerson has proven adept at executing its business plan. And we expect our margins to improve and our strategic initiatives and enablers to continue to gain traction, generating free cash flow in the fourth quarter. Our principle objectives of balance sheet deleveraging, smart targeted growth CapEx investments and well-disciplined strategic acquisition opportunities remain absolute, despite working capital builds to support top line growth through the first 9 months of the year.

Taking a closer look at our financial results, revenues were $864 million in the third quarter of 2017, down 1.3% from the second quarter of 2017, and up 17.6% from the prior year period. Net income attributable to Ryerson Holding Corporation for the third quarter of 2017 was $1.7 million compared to $0.6 million in the second quarter of 2017 and $8.2 million in the third quarter of 2016. Erich will speak to third quarter LIFO expense impacts in more detail later in the call.

Adjusted EBITDA excluding LIFO was $37.7 million in the third quarter of 2017, within our guidance range provided in September, but lower sequentially and compared to the prior quarter given the aforementioned margin compression.

Turning to the current economic environment, hot rolled carbon steel prices rose in the third quarter back to early 2017 levels after falling in June and maintained stability through mid-September, before again starting to trend down toward the end of the third quarter. Midwest aluminum prices continued to outperform relative to other industrial metals on the year, with less volatility than carbon and stainless with average prices in September up almost 20% compared to December of 2016. Average stainless 304 surcharge pricing fell almost 20% from the second to third quarter of 2017, significantly impacting our stainless product pricing.

Stainless surcharge pricing has been volatile due to nickel price fluctuations now paired with significant chrome pricing resets after 2 consecutive quarters of chrome deflation. Overall, Ryerson's average selling price declined 0.7% in the third quarter compared to the second quarter of 2017, primarily impacted by the stainless 304 surcharge reset with Ryerson's stainless steel prices falling sequentially by almost 4%, while our carbon and aluminum prices were flat.

From a demand perspective, conditions continue to improve when compared to the prior year period, but only incrementally. Demand as measured by U.S. MSCI shipment is up for the 9 months of 2017 by 3% year-over-year, but still lower by 9% when compared to industry demand levels in 2014. Additionally, U.S. service center months on hand for steel products rose to 2.6 months in September, compared to 2.1 months in June, a function of the noted Section 232-driven import buying.

Looking downstream at industrial demand, U.S. industrial production increased 1.6% in September compared to the prior year period according to the Federal Reserve, a 10th consecutive month at or above zero after 16 months of decline. U.S. GDP exceeded expectations at 3% growth despite significant weather interruptions in the Southeast U.S., signaling improved economic conditions.

A significant factor impeding pricing power for domestic service centers was high import levels. With U.S. imports of steel products up 16% in the first 9 months of 2017 compared to the prior year period, according to the U.S. Department of Commerce. However, third quarter steel imports declined over 8% compared to the second quarter, as elevated metal spreads between the U.S. and the rest of the world narrowed, assisted by a weaker U.S. dollar and pricing strength in many international markets. Continued supply side reforms in China, the magnitude and duration of which are all important, are supporting emergent price stabilization and import regression.

Turning now to end markets, Ryerson saw volumes decline by 0.6% in the third quarter of 2017 compared to the second quarter of 2017 with 1 fewer shipping day. On a per-day basis, volumes were up 1% sequentially. Ryerson's end markets as measured in shipments per day, showed sequential quarterly growth in the construction equipment and food processing and agricultural equipment industries, and declines in the oil and gas and HVAC sectors.

Ryerson experienced quarterly year-over-year growth in nearly all end markets, most notably in commercial ground transportation, oil and gas and construction equipment sectors, while consumer durables had quarterly year-over-year demand declines.

Consistent with the first half of the year, Ryerson noted shipment strength in the U.S. and Mexico relative to Canada and China, when evaluating market share gains year-over-year and against industry benchmarks. For the first 9 months of 2017, we continue to see encouraging signs from the oil and gas end market, as rig counts have increased over 80% compared to the prior year period and the construction equipment and HVAC end markets with construction spending near 5-year highs according to the U.S. Census Bureau.

Looking ahead to the fourth quarter, global supply and demand fundamentals appear stronger compared to the first 9 months of 2017 as supply side reforms in China and recent incrementally lower domestic import levels and a lower year-over-year dollar index supports stronger pricing conditions in the U.S. Additionally, chrome pricing resets and recently resurgent nickel prices, along with continued aluminum and zinc price strength and narrowing carbon sheet price volatility, appear to further support an improving price environment.

Demand remained positive for most of our key end markets compared to last year and Ryerson anticipates these conditions to continue into the fourth quarter. On balance, Ryerson anticipates fewer shipments when comparing the fourth quarter to the third quarter, due to expected seasonal declines with fewer shipping days, partially offset by normalizing conditions in hurricane impacted areas.

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

Thanks, Eddie, and good morning. As Eddie highlighted in his remarks, Ryerson's revenue of $864.2 million grew year-over-year by $129.1 million in the third quarter of 2017 with increased prices and higher tons sold compared to the prior year period.

Sequentially, sales were slightly down by 1.3% with average selling prices down 0.7% and tons shipped down only 0.6% with 1 few shipping day in the quarter, which is less than the normal seasonal volume decline of 2% to 3% witnessed from the second to the third quarter.

Net income attributable to Ryerson Holding Corporation was $1.7 million or $0.05 per diluted share in the third quarter of 2017, compared to $0.6 million or $0.02 per diluted share in the prior quarter and $8.2 million or $0.23 per diluted share in the third quarter of 2016.

Excluding restructuring and other charges and a loss on retirement of debt, net income attributable to Ryerson Holding Corporation in the third quarter of 2016 was $10 million or $0.28 per diluted share. Ryerson's adjusted EBITDA excluding LIFO was $37.7 million in the third quarter, compared to $51.5 million in the second quarter of 2017 and $48.8 million in the third quarter of 2016.

Ryerson's gross margin was 16.8% for the third quarter of 2017 compared to 16% in the prior quarter and 19.8% for the year-ago period. Included in cost of materials sold was LIFO income of $1.7 million for the current quarter, compared to LIFO expense of $14.2 million for the second quarter of 2017 and net LIFO expense of $1.4 million in the third quarter of 2016. Gross margin excluding LIFO decreased to 16.6% for the third quarter of 2017, compared to 17.7% in the prior quarter and 20% in the year-ago period.

Warehousing, delivery, selling, general and administrative expense decreased by $2.5 million or 2.1% for the third quarter of 2017 compared to the second quarter of 2017, and increased by $10.1 million or 9.3% compared to the prior year period. Ryerson demonstrated expense leverage in the current quarter as warehousing, delivery, selling, general and administrative expenses as a percentage of sales declined to 13.8% compared to 14.8% in the third quarter of 2016.

Revenues for the first 9 months of 2017 were $2.6 billion, up 17.3% from the first 9 months of 2016, as tons shipped increased 4.6% and average selling prices per ton increased 12.2%. Year-to-date, Ryerson shipments have outpaced the industry as measured by the MSCI, which grew 3% through the first 9 months of 2017.

Price increases have been offset by margin declines, as gross margins decreased by 340 basis points in the first 9 months of 2017 compared to the prior year period, or 210 basis points excluding the impact of LIFO. In the first 9 months of 2017, average selling prices increased more slowly than average costs, leading to margin compression.

Net income attributable to Ryerson Holding Corporation decreased to $17.1 million or $0.46 per diluted share in the first 9 months of 2017, compared to $27.3 million or $0.82 per diluted share for the same period of 2016. Excluding restructuring and other charges, impairment charges on assets and losses on retirement of debt, net income attributable to Ryerson Holding Corporation was $35.1 million or $1.05 per diluted share in the first 9 months of 2016. Adjusted EBITDA, excluding LIFO, increased 1.1% to $143.5 million in the first 9 months of 2017, compared to $142 million in the first 9 months of 2016.

Turning now to working capital and liquidity, Ryerson's inventory stood at 74 days of supply in the third quarter of 2017, compared to 69 days in the second quarter of 2017 and 78 days in the year-ago period. Ryerson maintained abundant liquidity to finance growth in the current quarter. As of September 30, 2017, borrowings were $385 million on our primary revolving credit facility, with additional availability of $291 million. Including cash, marketable securities and availability from foreign sources, Ryerson's total liquidity increased to $355 million compared to $326 million in the second quarter of 2017.

Cash used in operating activities was $93 million for the first 9 months of 2017 compared to $23 million in the first 9 months of 2016, primarily due to higher inventory and receivables. Given the normal seasonal volume declines expected in the fourth quarter compared to the third quarter, Ryerson expects to align inventories to demand to generate positive cash flows in the fourth quarter.

Now I'll turn the call back over to Eddie to conclude.

As Ryerson celebrates its 175th anniversary on November 19, I want to thank all of our customers, shareholders, suppliers and my Ryerson colleagues past and present for enabling us and sustaining us in reaching this anniversary. When viewed through a historical lens, Ryerson was founded when there were only 26 stars on the American flag. It's been an incredible ride and honor being part of building our great nation. We could not be more excited and optimistic about Ryerson's future moving forward with a say-yes-and-figure-it-out culture and determination built around speed, scale, value add and analytics.

With that, let's open the call to your questions. Operator?

(Operator Instructions) Your first question comes from the line of Jorge Beristain from Deutsche Bank.

Maybe if you could talk a little bit about how you have been outperforming MSCI in terms of your year-to-date volume shipments, and specifically which end markets are helping you guys outperform the broader MSCI.

This is Eddie, and I'm going to kick it over to Kevin and Mike in just a second. We've been doing it the old-fashioned way. We've been doing it organically. A couple acquisitions are there, Guy Metals and Laserflex from earlier this year. So those have helped. But when I think about some of the strategic initiatives that we've brought forward over the last several years, we're starting to see better and better traction as those things start to mature and get up their growth curve, so things like e-commerce, things like prospecting centers, vertical markets; things of that nature that are starting to get some good traction in the marketplace. For end markets, I'd ask Kevin and Mike to go ahead and say a few words.

Mike Burbach here. Say from an end market perspective, when you look at all the key industries that we serve over the entire company, virtually everything is pointed up this year. We've had good success. Some of that is related to the industry itself and others related to the initiatives, as Eddie mentioned.

But 3 jump out having significant improvements year-over-year and year-to-date. Year-to-date-wise, oil and gas certainly is one of the largest improvements we've seen, given what's happened in that industry this year. But we've also seen nice change in construction equipment and probably a surprise this year has been the improvements we've seen in commercial ground transportation. Those 3, more so than some others, have seen the most improvement year-over-year. And we continue to improve areas beyond that as well.

But by and large, I would say what's driving it are the initiatives that Eddie mentioned. There's a keen focus all across Ryerson on the key areas that we're focused on improving, largely built around improving a better service model and delivering a better product to our customers quicker than was typically available.

Jorge, Kevin Richardson. Just a couple of quick comments on oil and gas and transportation in particularly, which I think validates just how hard it is to predict what's going to happen. But last year I went back and looked at our notes. The consensus on the Class A truck market, for example, was that the industry was going to be down 10%, and now it looks like it's going to finish up 10%, and 2018 looks like another double-digit increase.

And then on the energy markets going into this year, last year at this time we knew it was going to get better. But it really caught us off-guard in terms of just how quick that ramp was. Last year at this time I think the rig count was like 560 or something and today it stands at 900. But those are the two end markets in particular that have really helped.

Perfect, and in terms of your guidance, you basically said that supply-demand fundamentals are stronger going into 4Q. Would we expect to see less of the normal seasonal decline that you normally see in the fourth quarter, which is about 5% to 7%? Do you think that just there's some momentum now that is overriding the normal seasonality?

I think these are the best conditions we've seen going into a year since 2013 to 2014. I mean Q4 looks to be better than typical Q4s. And the setup going into 2018 looks better than the setup that we had going into '15, '16 and '17. So yes, I feel like it's better. All indicators support that. Now we know that they can be fragile and that they can turn. But as we see it now, it's really it's the best horizon we've seen in several years, for sure.

Your next question comes from the line of Brett Levy with (inaudible) Company.

Just in terms of kind of the LIFO adjusted EBITDA number, and I'm sure you've done the metrics and maybe you want to share them and maybe you don't. But I mean clearly the previous quarter was 51-ish. And the previous year's quarter was 48-ish. This is 37-ish. And if you had to, say, kind of attribute this or put an EBITDA bridge between either the second quarter of 2017 or the third quarter of 2016, is most of it LIFO? I mean if I'm looking at kind of all of the moving parts. Sheet prices were okay. Aluminum prices were actually good. Obviously nickel and chrome and stainless were not good. But if you had to put a region or a product area kind of in the spotlight or just say it's all LIFO, can you give investors a little of an EBITDA bridge and then some reasons to believe that something closer to 50 and less close to 37 is the normalized version of the future.

Yes, Brett. This is Eddie. Let's do some math together, all right? Take $864 million and multiply it by the stainless revenue share that we show, which is 26% roughly, okay? And then multiply that by 3.9%, even round it up 4. And there's your bridge. That's about $9 million. And so when we look at the quarter and we noted margin compression and we noted the level of imports muting pricing power. So the greatest single variable in that bridge year-over-year and sequentially was the in-year volatility of nickel and chrome, which pushed down stainless. Because if you look at the sequential quarter change on average selling price per ton shipped, not a lot going on in carbon and aluminum at 0.1% down and 0.2% up. But you get to that stainless number at 3.9% and you can really zero in on that and get to about $9 million on that bridge. And that's -- I mean that's not the only element of the story, but that's really the headline. So when you start to see normalization like we've seen through September and into October, and frankly the surcharge looks to be going up by $0.05 or $0.06 again this month when it sets on November 21, the outlook for stainless pricing, even though the level of imports is higher than what I think we'd like to see, the setup for stainless looks pretty good. So there should be a good rebound in stainless selling prices and margins in Q4.

And then the second part of the question is, if there is a dynamic where there's ahead of 232 and actually it's a good opportunity to talk about kind of when you think-- I mean I know it's after tax reform. That's been made clear by Wilbur Ross. But to the extent that there is an import boom, is there any way that you can kind of involve yourself in kind of the bringing in of imports and selling to end customers, or something like that, before 232?

Yes, Brett. I mean the 232 issue through the year makes you want to go watch The Great Pumpkin Charlie Brown over and over again. I think you pretty much had to make certain choices within the year. I think every company had to make certain choices within the year as how they were going to take action based on where they thought that 232 would come out. So we took more of a neutral stance, so a lot of people imported a lot of product. I mean if you look at the level of imports being 30%, that's a lot. And so in the coastal areas of the U.S. you're going to sell against an import price. And that import price keeps encroaching inland more and more. So now you're talking about selling against a more blended price. So it's really more of a portfolio discussion which in the absence of a 232 action or other trade policy that would normalize the flow of imports to a level of, say, 20% or 25% with I'd say at least a third of that being semi-finished; in the absence of that, I think everybody has to kind of rethink their portfolio choices to get a more competitive blended price.

And when do you think 232 happens and how do you think it plays out?

Well, I'll tell you what. I wish I knew, Brett. I think that there was so much rhetoric and so many public statements that were made in year, people acted on those statements and they turned out not to materialize as we noted in the script. Nobody knows. I don't know. I think we're going to run our business well, and we're going to go ahead and we're going to be quick and we're going to be smart. And I think that's what you do. I mean when the 232 comes, there'll be some kind of short-term adjustment period based on what's in the channel and how people have to alter their buying tactics. But I think when you look at a strategic view of the world, here's the biggest surprise of the year. Chinese exports have largely withdrawn relative to '15 and '16. And yet you look at the volume of imports that have somehow made their way into the country, and you can see that there's a lot of other places to go to get material in the world. So conditions are still that the world is oversupplied with metal. Demand has not come back, even though global growth is as good as it's been since '09. We need more demand, obviously. Which we think is coming in 2018. We think incrementally demand will be better. But I do think every company has to think about fine-tuning certain adjustments in terms of how they allocate their metal spend based on just the really dynamic and fluid nature of what different suppliers are doing in the world and domestically as well. I mean if you look at aluminum suppliers, they made no secret that they're not as interested as they have been in the past in supporting common alloy aluminum. So you have to alter some of your buying plans to include that and those strategic choices by domestic aluminum suppliers in your buying plans, as an example.

And your next question comes from the line of Martin Englert from Jefferies.

So looking into 4Q rather stable ASPs, margin expansion and benefits from stainless improvement and a bit of catch-up there, also some seasonal volume weakness Q-on-Q; kind of putting all that together, do you think that your FIFO EBITDA can improve quarter-on-quarter? Or do you think that the seasonal headwinds will kind of result in normal weakness Q-on-Q on FIFO EBITDA?

Well, without giving guidance for Q4 on the call, I would just say that as we sit here today, conditions within the fourth quarter around pricing and around margins are certainly looking to be better than they were in Q3. And so demand being the wild card, with what do we have left? I mean we've got 19 shipping days in December, pretty clean. We've got another 20 in November. Yes, 20 in November. Some of those are already spoken for. So, yes, Martin. I think in Q4 the qualitative factors affecting the business look more positive than they did in Q3 on balance.

Okay. And then looking at the pricing trends that would be a LIFO expense for the fourth quarter likely or is there some offset there?

Yes, that's right. We would expect LIFO expense around the $10 million range for the fourth quarter.

(Operator Instructions) Your next question comes from the line of Joel Tiss from BMO.

So I have maybe kind of a weird question and maybe some of it was covered before too. But if we have this similar situation with the imports coming and low prices and everyone kind of trying to jam your market share and your margins, if it happens again 5 years from now, what kinds of steps can you take to minimize the impact of that? Is it more on the purchasing side to diversify where you're buying your product from? Or is it more on the cost side or mix, or could you just help us kind of just think about that? It's a little philosophical. But I think it would be helpful.

So Joel, let's go ahead and let's look out 5 years and let's put some markers down. So if you look at our inventory management structurally, it's gotten a lot better. We've talked a lot about using systems and analytics to drive out dormant inventory and take out that sedimentary layer that has existed in the industry for centuries where you've got this 20% of inventory that doesn't really move and doesn't go anywhere and doesn't generate cash. So taking that element down and we've taken it way down in improving our days, it's allowed us to be much more nimble in terms of getting in and out of working capital positions and taking even positions and making working capital investments where it makes a lot of sense. So even at the end of Q3, it made a lot of sense to bring in some stainless ahead of the surcharge increases. And so we were able to do that because we're not carrying as much of that sedimentary layer of dormant inventory. So if you project that out by 5 years, if you look at the economy today and you and I have talked about this, if you look at the economy today, the companies that are really prospering and growing and growing in all the ways that are meaningful to shareholders, are the ones that have built better systems and better platforms for doing their business.

So supply chain gets a platform and supply chain is a system. And your commercial business gets a platform and it's a system. And I think as we keep making investments like we've talked about and in your capsule you noted correctly that gravitational pull of commodity prices that we really wanted to escape from, the way that we're going to escape from that over time, both on the supply chain side, on the commercial side and the operation side is to continue to invest in our people and our knowledge, but also automation, technology, but in that systems-- that systems and the algorithmic approach to business that makes us smarter and faster. So for example, you have to be able to get in and out of supply chains really quickly. And so when you look at domestic mill suppliers, when you look at offshore suppliers and you look at trading companies and then add another component into the mix which are master distributors, you have to be able to get in and out of those relationships really quickly while maintaining a certain strategic portfolio of suppliers that are still going to make up the majority of your metal spend. But it's that other 30% to 40% looking out that really makes the difference when it comes to getting a blended price in the market that you can match really well, where the buy and the sell are really well-balanced to give you the spreads that you're looking for to improve earnings over that period of time. So really distilling that down, I would say we will continue to build better and better and systems with better and better intelligence that allows us to be very fast in identifying metal, identifying processing and identifying transportation to configure those things very, very quickly for the customer, while being able to get in and out of that 40% of supply chain spend where you can direct that spend to the most advantageous place possible. That's what it looks like in 5 years.

Hey, Joel, Kevin Richardson. Just one other thing that I would add to what Eddie just commented in terms from a portfolio perspective is the other antidote to these commodity swings is the content in terms of what our portfolio looks like from products. So on balance, long products, value-added plate products don't have that same exposure to the commodity swings than flat products. And that's not to say we don't like flat. It's just about the portfolio. And then within the customer side is getting at this fragmentation that we keep talking about is give or take, we believe there's about a million potential customers out there of which we sell 35,000 or 40,000. There are a lot of customers that you're selling more service than you are the underlying commodity. So it is striking the balance also on the commercial side.

Yes, I mean, Joel, I'm proud of the organization in that we've moved beyond this 1-dimensional view of the world where we're getting better and better at buying things out, for example, like buying out metal. So we're always going to have inventory positions in metal. Because that's our business. And so when Ryerson sells out of its own inventory, you want to be able to make a really strong margin on that inventory. When you go to buy out, you could still make great margins on buying out when a customer comes to you and they want something that isn't necessarily in your inventory, if you map to that item quickly and you don't hold that inventory for a long time, the organization gets better and better at making an EVA sale. So the asset flips really, really fast. You still make a nice margin on it and it complements the things that your customers know you most for. And as you continue to do that better and better and just sharpen that stone, we should see our business results improve proportionately.

Okay, that makes sense and that's like a good interim step toward the virtual company or whatever the ultimate vision is 20 years from now. And I just wonder if you could talk a little bit about some new markets that you guys are evaluating or if you're seeing just kind of rumblings from competitors. I'm thinking about rail. But there's probably lots of other areas that maybe some of your competitors are frustrated with and not as focused on and opening opportunities for you, and then I'm done.

Sure. I mean just based on our footprint and based on the better and better and use of technology through customer prospecting centers, through a growing e-commerce platform, through vertical markets, Joel. And I'll let Kevin and Mike expound on this. What we've seen is we've made some small, but we think are important, inroads in defense and aerospace, but still small. We're looking more and more at what goes on around the electric vehicle to what goes on all around that. Because that's going to be very disruptive frankly, when you think about the number of parts in an electric car, the way that that car gets fueled via electricity and charging stations. There's a whole infrastructure that has to come in to support that, and a lot of that infrastructure is going to be metal. So those would be a couple of places where we're spending more time. And then I'll let Mike and Kevin expound further on that.

Mike Burbach here. Say, I don't have a lot to add from what Eddie touched on. As I think about the opportunities for us, there's a lot of headroom in the key industries where we already participate in. Our market share overall is relatively small by virtue of how fragmented this industry is. So I think there are attractive new markets, like the electric vehicle. But I also think there's a lot of opportunity for us to sell additional product and create value to supply a number of industries that we currently sell. So leveraging all the tools we have surrounding our call centers, our e-commerce platform and the different ways we leverage our network; we see a lot of opportunity in virtually every end market to improve our position and grow the business.

And your next question comes from the line of Phil Gibbs from KeyBanc Capital Markets.

Hey Eddie, how did daily demand in October shape up relative to September?

Trends in October were down a couple percent relative to September. So I would say better than typical seasonality, but still down a couple points from September.

Okay, and in terms of the inventories being up a little bit in the third quarter versus the second, I think we've seen that pretty much across the space. But just any thought on that in terms of why the inventory days on hand built a little bit versus Q2? I know they were down quite a bit last year. But any color on that would be helpful.

Sure, Phil. So 3 things, first we lost some shipping days due to the storms and some interruptions. So that caused some dislocations in our inventories of inbound materials versus what was going out. The other thing is we bought ahead on stainless. So we brought some stainless in ahead of the surcharge increases, which was the smart and the right thing to do. And a third thing is we brought in some additional inventory to support contract business in Q4 primarily around Class A as their build rates continue to go higher and also on several carbon contracts as well.

And any thoughts on CapEx this year and next year in terms of what you think the spend could be?

Yes, I think it's going to be in our typical range. I'd say 25 to 30 total maintenance and growth.

And then on pricing, it sounds like stainless clearly moving up for all the reasons why that we've talked about on the call here, and carbon may be down a little bit, aluminum perhaps sideways. When you put that all together, how should we think about pricing realizations for you guys in Q4 versus Q3?

I'd say prices look to be level. They look to be moving on par with Q3. And we'll just see how that really plays out for the remainder of the year. But it looks like prices stay level and margins get better quarter-over-quarter.

Your next question comes from the line of Sean Wondrack from Deutsche Bank.

Just a couple other comments surrounding the imports, you noted that imports out of China have been down, but elsewhere they've been up pretty precipitously. What countries are we talking about here that you're really seeing it coming from? And do you think that's more transshipments where Chinese sales making its way through these countries or do you think it's actually being manufactured there?

It's hard to know. I mean it's really hard to know. I mean, look, I think it's been pretty well established that there's been some amount of circumvention. Nobody knows exactly how much circumvention. But that's been well-established. So I don't think that's fiction. It's fact. It's just how much is it really and has it become more of a factor or less of a factor? But in terms of where products coming in from, it's Korea, it's Indonesia, Europe, Australia. You've got product coming in from the Middle East more than it has in years past. And I think that's a pretty good accounting of it, in addition to our NAFTA partners in Canada and Mexico.

How about Russia? Have you seen anything move from there or the CIS nations?

Yes, I mean there's more product coming in from Russia. We don't bring a lot of product in from Russia. But yes, more Russian product has come in certainly.

And based on your analysis, do you find that the tariffs have been working against the countries that they've enacted them? Or do you still see continued pressure from those specific countries?

I think the tariffs are working to some extent. I mean it would be ignorant to say they haven't had some positive effect. I mean I think it goes back to us understanding more about how those tariffs are going to be enforced, how they're going to be collected and how countries are going to respond over a longer period of time. Because we're still moving along this vector on a case-by-case basis. I think we're all waiting to see what the circumvention ruling is going be around the case that was filed against Vietnam. And most of the other cases have really been settled. There's a few more that are out there. There's a few more that might get filed. But I think what you could say is in the absence of that, imports could be much higher. Because here's the thing I think we all have to acknowledge. And that is with the exception of a couple products which, say hot band and a few other products; most products that you can import are still priced well below their domestic counterparts. And so you've seen a lot of people-- I mean if imports are 30% or higher in the market, and we know that we import much less than that, for example. And I know that other service center companies have noted that they import much less than that. So if we're both importing much less than that, that means other people are importing much more than that. And so that product has to be coming from somewhere. And it's coming from somewhere because it's advantaged economically, even when you factor in lead times. It's still advantaged for those folks to bring it in. So I think we just have to acknowledge this truth and we have to keep working with our suppliers to make it a more disciplined marketplace.

Right, I mean one area that I've noted is that the rebar and the merchant bar market with the big influx of imports from Turkey, kind of as you rank the individual markets, would you say that's the one that's being most negatively influence or how would you kind of grade the different markets between infrastructure or cold rolled or whatever it is?

I think it's really pretty broad-based. I mean certain countries are certainly more prominent in different products. But I think what you've seen over the last 3 or 4 years is when imports from one country and one product get to a really, say, outside of a normal (inaudible) of import; when those imports get really, really high it attracts a lot of attention. And trade cases typically get filed against that country. So I would say this year it's been pretty broad-based.

Okay, thank you for that, and then just my other question is surrounding leverage. I think you guys have around a 4 turn sort of near-to-medium-term net leverage target. How long do you guys think it will take to kind of achieve that? Do you think this is something we can achieve in 2018?

I think we keep getting better and better as a business and a company. And if we use 2014 as a reference point and we do because 2014 was a year where we did about $3.7 billion in revenue and we did about $218 million in FIFO EBITDA. And if we use it as a reference point and we look at what 2014 represented to Ryerson versus the industry, we could say that prices-- since 2014, prices have come back 80% relative to that sort of pricing environment in 2014 when we look at average selling prices. And we can say that demand has really only come back by about 25% relative to what it was in 2014 when we look at the difference between MSCI shipments in '14 versus what it looks like MSCI shipments are going to finish at in 2017.

We're still clawing back that demand. And the majority of the demand that was lost in '15 and '16 has not been clawed back yet. So when we think about demand leverage, we'll perform very well as demand comes back into the market. And so with a couple good years of demand and a couple good years of operating leverage as exercised by Ryerson, we have a pretty clear line of sight on what that deleveraging looks like to bring that net-debt-to-EBITDA ratio down closer to our long-term target.

Right, so you think you'll just naturally begin the progression in that direction and there are some puts and takes that will kind of determine whether that will happen or not?

Yes, I mean you wind up in a year like this relative to '15 and '16, you wind up storing liquidity on your balance sheet in AR and inventory as you know. And so this year was a big year for supporting an increase in revenue. So there's a working capital build. And as prices level off and hopefully demand gets better, but prices maybe get incrementally better but demand gets better relative to where it was in say, a benchmark year of 2014, then we'll see good operating leverage and we'll start to see good free cash flow generation.

And there are no further questions at this time. I turn the call back over to the presenters.

Really appreciate you joining us this quarter and we look forward to being with you again early in the New Year.

And this concludes today's conference call. You may now disconnect.