Ryerson Holding (RYI) Q4 2019 Earnings Call Transcript

Ryerson Holding (RYI 2.61%)
Q4 2019 Earnings Call
Mar 05, 2020, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Ryerson Holdings fourth quarter and full-year 2019 earnings webcast and conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to turn the call over to your first speaker today, Justine Carlson with Ryerson's investor relations department. Thank you.

Please go ahead.

Justine Carlson -- Investor Relations

Good morning. Thank you for joining Ryerson Holding Corporation's fourth quarter and full-year 2019 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 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, 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 fourth-quarter 2019 earnings release filed on Form 8-K yesterday, which is available on the Investor Relations section of our website. I'll turn the call over to Eddie.

Eddie Lehner -- President and Chief Executive Officer

Thank you, Justine, and thank you all for joining us this morning. First, I want to thank our valued customers, whose business we never take for granted. I also want to thank my Ryerson colleagues for skillfully navigating the challenging industrial environment experienced throughout 2019 that saw industrial commodity price indexes deflate across the board, most acutely in carbon steels, along with industry shipments that contracted by over 7% year over year. Ryerson fared better than the overall industry in 2019 with same-store North American shipments down by 1.3%.

Beginning with the third quarter of 2018. We are now six quarters through the most recent industrial metals counter cycle characterized by falling industrial metal prices, contracting industrial metals demand and compressed margins. The average duration of these counter cycles over the past decade has been approximately seven quarters. Consequently, we expect increasing probabilities of improving macro conditions as we move through 2020, depending on the impacts from exogenous events such as the coronavirus, whose impact to the economy is yet to be determined.

Commodity and demand environments aside, 2019 was a self-help year for Ryerson as our continued focus on strengthening our balance sheet led to the realization of several milestones, including substantial debt reduction, which was driven by strong operating cash flow, increased book value of equity, two favorable credit rating events and the closing of a sale-leaseback transaction, which established the fair market value of a small but representative sample of our real estate portfolio. All of this was achieved despite the obscuring effects of acute margin compression across the carbon steel portfolio. Because Ryerson continued its structural progression toward long-term financial targets by gaining market share, generating same-store expense leverage and continuing to meet Central Steel & Wire Company's turnaround objectives, it is instructive to look underneath and beyond macro cyclical drivers to gauge Ryerson's real progress. Reductions in leverage and legacy liabilities coupled with significant increases in year-over-year earnings per share, excluding onetime items and notable increases in net book value of equity, show the intrinsic improvements in Ryerson's underlying business model and execution.

Ryerson's ongoing investments in capex, digitalization and training centered on creating the industry-leading customer experience, are creating a stronger, more cycle-resilient Ryerson across a network of intelligently network service centers and providing customer solutions at speed and scale. Saying it plainly, Ryerson, quarter by quarter and year by year, keeps getting better. Turning to the current economic environment. The inflection of CRU carbon hot-rolled prices occurred during the fourth quarter after bottoming at $444 per ton.

Several mill price increases have since been accepted by the market, resulting in CRU hot-rolled sheet bellwether prices ranging between $560 to $600 per net ton. LME aluminum prices have remained recessed at two and a half year lows primarily due to oversupply in channel gluts, while stainless steel prices have retraced from their 2019 highs in October to their two-year average, albeit with v-shaped volatility patterns through 2019 and into the first quarter of 2020. From a demand perspective, the industrial environment was beyond seasonally subdued as industrial contraction that took hold in the third quarter of 2019 picked up pace in the fourth quarter as evidenced by sub-50 ISM manufacturing PMI readings and year over year contracting U.S. industrial production.

North American service center tons shipped is measured by the Metals Service Center Institute contracted by 8.1% in the fourth quarter of 2019 compared to the fourth quarter of 2018, contributing to a total annual contraction of 7.2%. At the same time, Ryerson's North American same-store tons shipped, excluding Central Steel & Wire, were down only 1.3% in 2019, exhibiting better than industry performance and market share gains amid the aforementioned industry challenges. Progressing through the first quarter of 2020, the demand environment is a mixed bag as January shipments were sluggish, and February North American shipment activity was incrementally better. Unknown coronavirus impacts aside, both transactional quoting and OEM program business appeared to be improving after a slow start to the year.

With respect to the unfolding coronavirus impacts, we are pleased to report that as of today, none of our buyers in China colleagues or their immediate family members have contracted the virus. As for impact, we estimate that first quarter China revenues will decrease by approximately $15 million compared to the first quarter of 2019; shipments will decline by approximately 20,000 tons compared to the first quarter of 2019; and Ryerson China adjusted EBITDA, excluding LIFO, will decrease by approximately $2 million compared to the first quarter of 2019. As it pertains to Ryerson's North American business, it is too early to formulate coronavirus estimated financial impact. However, we anticipate that the virus will be a drag on business sentiment and activity.

We continue to monitor the coronavirus threat and events as they unfold to make the necessary preparations should the virus effects worsen in the coming weeks and months. Turning more specifically to Ryerson's end markets in the fourth quarter. Food and agricultural equipment, HVAC and metal fabrication were the strongest performing sectors, with volume growth in the fourth quarter of 2019 compared to the same quarter last year on a same-store basis. Ryerson experienced lower shipments in industrial machinery and equipment, oil and gas and construction end markets, with volume contraction in the fourth quarter of 2019 compared to the same quarter last year on a same-store basis.

Collectively, contraction in weak sectors outpaced growth in strong sectors by 13,000 tons on a same-store year-over-year basis. Concluding the year and a half with the Ryerson family of companies, Central Steel & Wire continued to track above post-acquisition targets by achieving $25 million in annualized expense takeouts, realizing $12 million in cumulative proceeds from real estate sales for operations that were consolidated into existing facilities and exceeding customer account retention expectations. CS&W was acquired with significant working capital of nearly 140 days of inventory supply, and management continues to target levels more in line with Ryerson's same-store service center metrics. However, days of supply increased from 92 days at the end of the third quarter of 2019 to 103 days at the end of the fourth quarter of 2019, due in part to shipment declines, reflective of industry demand contraction as well as opportunistic restocking.

Adjusted EBITDA, excluding LIFO, improved quarter over quarter from a loss of $4.5 million in the third quarter to a loss of $0.3 million in the fourth quarter, aided by gross margin expansion and execution of structural expense takeouts that were consistent with management's turnaround strategy. As the early innings of CS&W's turnaround progress, with synergies coming together, structural expense reductions taking hold and next phase operational improvements on deck, management maintains its long-term mid-cycle target of $600 million in revenue and $50 million in adjusted EBITDA, excluding LIFO, on an annual basis. For the first quarter of 2020, Ryerson anticipates revenues of $1.03 billion to $1.07 billion, with tons shipped up 4% to 7% compared to the fourth quarter of 2019, driven by the normal seasonality patterns experienced in prior years, but mildly tempered by the subdued demand that is carried over from 2019. In addition, the coronavirus outbreak has caused several temporary operational interruptions within our China service centers, resulting in decreased shipping days and reducing our revenue outlook for the first quarter by approximately $15 million year over year.

Excluding coronavirus impacts to Ryerson China shipment levels, we expect sequential North American shipments to increase between 7% to 9% or in line with typical industry seasonality. Current carbon and stainless prices are expected to remain supported within the ranges noted, and aluminum prices are expected to be neutral to modestly lower. Collectively, Ryerson expects average selling prices in the first quarter to be flat to up 2% primarily due to mix and recovering carbon prices. LIFO income in the first quarter is expected to be in the range of $21 million to $25 million driven by lagging declines in carbon, nickel and aluminum inventory values.

Given these expectations, adjusted EBIT, excluding LIFO, is expected to be the range of $34 million to $38 million, and earnings per diluted share are expected to be in the range of $0.31 to $0.42 per share. With that, I'll turn the call over to Molly, who will discuss the highlights of our fourth quarter and full-year 2019 performance.

Molly Kannan -- Corporate Controller and Chief Accounting Officer

Thanks, Eddie, and good morning. In the fourth quarter of 2019, Ryerson achieved revenues of $962 million, a decrease of 17.1% compared to $1.16 billion in the fourth quarter of 2018, with average selling prices down 11.6% and tons shipped down 6.2%. Gross margin expanded to 18.8% in the fourth quarter of 2019 compared to 18.5% in the third quarter of 2019 and 17.2% for the same quarter last year. Included in the fourth quarter of 2019 cost of materials sold was LIFO income of $6.5 million compared to LIFO income of $29.6 million in the third quarter of 2019 and LIFO expense of $0.9 million in the fourth quarter of 2018.

Excluding LIFO, gross margin was 18.1% in the fourth quarter of 2019 compared to 15.8% in the third quarter of 2019 and 17.3% in the fourth quarter of 2018. Reflective of recessed industry shipments, Ryerson decreased warehousing, delivery, selling, general and administrative expenses by $28.4 million or 16.6% in the fourth quarter of 2019 compared to the year-ago period. Included in fourth-quarter 2019 expenses is a reduction of $11 million of accrued vacation expense, resulting from changes to our vacation policy that were adopted at the end of the year, which effectively altered the timing of accrual recognition so that vacation is earned throughout the year rather than in advance of work being performed. Warehousing, delivery, selling, general and administrative expenses as a percentage of sales were relatively flat in the fourth quarter of 2019 at 14.9% compared to 14.8% in the fourth quarter of 2018 as consolidated revenue decline marginally outpaced expense reduction.

However, on a same-store basis, warehousing, delivery, selling, general and administrative expenses decreased by $24.4 million or 17.6% and decreased as a percentage of sales from 14% to 13.5%. Net income attributable to Ryerson Holding Corporation was $26.4 million or $0.69 per diluted share in the fourth quarter of 2019 compared to $0.6 million or $0.01 per diluted share in the prior year period. Adjusted net income attributable to Ryerson Holding Corporation, excluding the gain on bargain purchase related to the CS&W acquisition, gain on sale of assets related to the sale-leaseback transaction of our facilities, restructuring and other charges, loss on retirement of debt and the associated income taxes, was $11.6 million for the fourth quarter of 2019 or $0.30 per diluted share compared to $6.2 million or $0.16 per diluted share in the prior year period. Ryerson achieved adjusted EBITDA, excluding LIFO, of $46.9 million in the fourth quarter of 2019, a decrease of $3.6 million compared to the fourth quarter of 2018, but an increase of $17.4 million compared to the third quarter of 2019.

Turning to full-year 2019 results. Ryerson generated revenues of $4.5 billion, an increase of 2.1% compared to $4.41 billion in 2018, with tons shipped 5% higher and average selling prices 2.7% lower. On a same-store basis, excluding the contributions of CS&W from the second half of 2018 and full-year 2019 results, Ryerson generated revenues of $3.93 billion, a decrease compared to prior year revenues of $4.06 billion, with average selling prices 1.5% lower and tons shipped 1.9% lower. Warehousing, delivery, selling, general and administrative expenses increased by $22.1 million or 3.6%, an increase as a percentage of consolidated sales from 13.9% to 14.1% in 2019 compared to 2018.

However, Ryerson's prudent expense management during the recessed demand environment was more clearly exhibited on a same-store basis as warehousing, delivery, selling, general and administrative expenses decreased by $31.1 million or 5.7% and also decreased as a percentage of sales from 13.5% to 13.2% in the same period. Net income attributable to Ryerson Holding Corporation was $82.4 million or $2.17 per diluted share in 2019 compared to $106 million or $2.81 per diluted share in the prior year. Adjusted net income attributable to Ryerson Holding Corporation, excluding the gain on bargain purchase related to the CS&W acquisition, gain on sale of assets related to the sale-leaseback transaction, gain on insurance settlement, restructuring and other charges, loss on retirement of debt and the associated income taxes, was $67.9 million for 2019 or $1.79 per diluted share compared to $40.4 million or $1.07 per diluted share for 2018. Adjusted EBITDA, excluding LIFO, was $190.1 million in 2019 compared to $308 million in 2018.

At the end of the fourth quarter of 2019, Ryerson had 84 days of supply of inventory, up from 76 days at the end of the third quarter as CS&W's inventory rose to 103 days of supply due to carbon restocking at lower replacement cost values. On a same-store basis, Ryerson had 81 days of supply due to sharp demand declines in the fourth quarter as well as forward carbon sheet purchases as near-term replacement cost values bottoms. We maintain ample liquidity throughout the quarter. As of December 31, 2019, borrowings was $378 million on our primary revolving credit facility with additional availability of $348 million.

Including cash, restricted cash from the sale of real estate under the sale-leaseback transaction and availability from foreign sources, Ryerson's total liquidity was $439 million as of December 31, 2019. We generated cash from operating activities of $62.6 million for the fourth quarter of 2019 compared to cash generated from operating activities of $119.8 million in the year-ago period, primarily driven by normal seasonally lower working capital requirements. Our strong cash flow generation from operating activities drove debt repayment of $172 million in 2019. In acknowledgment of the significant improvement in the company's operating performance, we are pleased that Moody's ratings upgraded Ryerson's corporate ratings to B2 and the senior secured ratings to B3.

This rating upgrade builds upon the favorable first time B+ rating awarded to Ryerson during the third quarter by Fitch Ratings, who also recognized our improved operating performance concurrent with the strengthened balance sheet. Together with S&P's existing B rating on Ryerson's senior secured debt, Ryerson's senior secured bonds are B rated across the board. Finally, 2019's achievements were further expanded upon by the completion of a sale-leaseback transaction for a portion of our real estate portfolio, which monetized the underlying asset value of nine of our properties. The transaction provided a total of $62 million in net proceeds and the recognition of a $21 million gain on the sale of assets.

In all, the fourth quarter and full-year 2019 periods proved to be commendable in terms of improving Ryerson's credit profile, fortifying the balance sheet and building forward momentum for further deleveraging. Now I'll turn the call back over to Eddie to conclude.

Eddie Lehner -- President and Chief Executive Officer

Thanks, Molly. Moving beyond the demand contraction and downward commodity volatility that characterized the 2019 metals service center industry, the year still presented opportunities to improve Ryerson's business model, which we acted upon and realized to good effect. We made real advancements where they count in debt reduction, legacy liability reduction, notable year-over-year adjusted earnings-per-share growth, increases in Ryerson's net book value, increases in market share, expense leverage attainment and market share gains. By creating the industry-leading customer experience across Ryerson's network of intelligently connected service centers, we continue on the best path forward in building sustaining shareholder value over the long term.

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

Questions & Answers:

Operator

Thank you. [Operator instructions] Your first question comes from Nick Jarmoszuk from Stifel. Your line is open.

Nick Jarmoszuk -- Stifel Financial Corp. -- Analyst

Good morning. Thanks for taking questions. On the restricted cash, I just want to confirm, is that solely for the benefit of the outstanding notes?

Molly Kannan -- Corporate Controller and Chief Accounting Officer

Yes. That's correct. We can use that for either future capital expenditures or for debt reduction on the secured bonds.

Nick Jarmoszuk -- Stifel Financial Corp. -- Analyst

OK. And so at year end, the balance was $48 million. Could you let us know what the balance is as of today?

Molly Kannan -- Corporate Controller and Chief Accounting Officer

I think it's around $40 million as of today.

Nick Jarmoszuk -- Stifel Financial Corp. -- Analyst

OK. OK. So has that reduction been used for capex or for debt repurchases?

Eddie Lehner -- President and Chief Executive Officer

Sum of both.

Nick Jarmoszuk -- Stifel Financial Corp. -- Analyst

OK. And then how do you anticipate using the remainder of that? I know you said it could be capex or debt reduction, but is it nearing '22 maturity. So is it going to be more weighted to debt reduction?

Eddie Lehner -- President and Chief Executive Officer

Yes. The purposes are for debt reduction and for capex. And so that's what we're going to use it for. So as we have opportunities to either buy back our debt or apply those proceeds in a refi, that's what we'll do.

Nick Jarmoszuk -- Stifel Financial Corp. -- Analyst

OK. And then regarding just the overall outlook for the capital structure. Can you talk about time line in terms of when you'll start addressing the outstanding ABL and the notes?

Eddie Lehner -- President and Chief Executive Officer

Yes. As soon as market circumstances dictate that we can effect an opportunistic refinancing.

Nick Jarmoszuk -- Stifel Financial Corp. -- Analyst

And then the sale leasebacks, can you talk about what additional leaseback opportunities you think you have available to the company?

Eddie Lehner -- President and Chief Executive Officer

Yes. I mean, from here, we can do all or nothing. I think the point that we were trying to establish is that we have a very hard data point from the market that's very recent and relevant that would underscore that those assets are undervalued on a fair market value basis. So we did a small representative sample at what would, in effect, be more than 2x Ryerson's enterprise value multiple.

So we thought it was a very attractive transaction to undertake, and it was important for us to set up value for those assets in the market as opposed to how they may be recognized on a GAAP basis or on an appraised basis.

Nick Jarmoszuk -- Stifel Financial Corp. -- Analyst

So it was nine facilities that were done. Can you help us frame how many additional facilities you have? Or as a percentage of gross acreage? Like how can we think about how much of the real estate portfolio is left?

Eddie Lehner -- President and Chief Executive Officer

So 62% of our square footage is still owned by Ryerson, 38% is now leased by Ryerson.

Nick Jarmoszuk -- Stifel Financial Corp. -- Analyst

OK. So it was the transaction in the fourth quarter that accounted for nearly 40% of portfolio?

Eddie Lehner -- President and Chief Executive Officer

No. No. 10%. 30% was already leased.

Nick Jarmoszuk -- Stifel Financial Corp. -- Analyst

OK. All right. That helps. And then the outlook for working capital, how should we think about outlook for working capital? Seasonal uses? And how you think it's going to look for the 2020 year?

Eddie Lehner -- President and Chief Executive Officer

There's still a lot of mystery around how 2020 turns out, I mean, getting to the other side of virus impacts. Having said that, if you want to look at it, without considering what the potential virus impacts may or may not be, we expect to generate cash in 2020 from operations.

Nick Jarmoszuk -- Stifel Financial Corp. -- Analyst

That's all I have. Thank you.

Operator

Your next question comes from Joel Tiss from BMO. Your line is open.

Joel Tiss -- BMO Capital Markets -- Analyst

Hey, guys. How's it going?

Eddie Lehner -- President and Chief Executive Officer

Good. How are you?

Joel Tiss -- BMO Capital Markets -- Analyst

All right. I wondered why the days of supply is rising. Is that because you need to hold a little extra inventory just because of the uncertain environment?

Eddie Lehner -- President and Chief Executive Officer

No, Joel, not at all. I mean we bought opportunistically in carbon, particularly at Central heading into or getting through the fourth quarter into Q1 because CRU prices were bottoming at the time. So it was just an opportunistic investment in working capital. And if we need to squeeze down days back down to 75, we can certainly do that.

And I would anticipate us bringing down our days of sales and inventory over the first half of the year.

Joel Tiss -- BMO Capital Markets -- Analyst

OK. And then when you take out the acquisitions, what was the organic volume decline versus the industry in the quarter and for the year?

Eddie Lehner -- President and Chief Executive Officer

On a same-store basis, we were down, I think we have — I believe we're down...

Molly Kannan -- Corporate Controller and Chief Accounting Officer

1.9%.

Eddie Lehner -- President and Chief Executive Officer

1.9% on a same-store basis.

Joel Tiss -- BMO Capital Markets -- Analyst

That's in the fourth quarter, right?

Molly Kannan -- Corporate Controller and Chief Accounting Officer

That's year over year.

Joel Tiss -- BMO Capital Markets -- Analyst

OK. And the industry was down 7%, right?

Eddie Lehner -- President and Chief Executive Officer

Yes.

Molly Kannan -- Corporate Controller and Chief Accounting Officer

Correct.

Eddie Lehner -- President and Chief Executive Officer

7.2%, yes.

Joel Tiss -- BMO Capital Markets -- Analyst

OK. And then can you give us a little frame of the debt reduction? I'm sort of backdooring into free cash flow expectation for 2020. I'm sure it's still moving all around, but just kind of an idea.

Eddie Lehner -- President and Chief Executive Officer

Yes. I mean, right now, it feels like if I look at the free cash flow that we generated over the last two years and the free cash flow yields we generated over the last two years, I would expect that we'd be able to generate another between $60 million and $80 million of free cash flow to further delever based on our annual operating plan baseline assumptions.

Joel Tiss -- BMO Capital Markets -- Analyst

Wow. Nice. And then last, can you just give us a little like a little flavor on the ground? I just listen to a whole bunch of companies last week, and everyone's saying there's no impact from the virus. But I'm watching things get canceled left and right, and it has to reverberate through the economy.

And I just wondered, like you guys have such a catbird seat to give us a little sense of is it too early to see any impact? Or it's starting to flow through? Or just any flavor? Thank you. And then I'm done.

Eddie Lehner -- President and Chief Executive Officer

Yes, Joel. It's really day by day. There's a website that we've been following that is maintained by Johns Hopkins University that shows the total...

Joel Tiss -- BMO Capital Markets -- Analyst

Yes, I've been watching that, too.

Eddie Lehner -- President and Chief Executive Officer

Yes, yes. And so the good news is the line, the recovery line is converging closer to the diagnosed case line, which I think is positive. I mean there could be hotspots in any part of the country at any point in time. And I think we have to manage through it day by day.

We were very transparent about what we think the impacts have been in China. They seem to be getting on the other side of it, where we should be back to 90% of regular operating capacity by the end of March. I would expect to be back to full operating capacity by the end of April. So if we use that as kind of a guide, then we can at least maybe put a color around it in terms of time where there's going to be some isolated impacts.

There's probably going to be some drag on sentiment and business activity, more so on the service side. As we've seen in manufacturing, I'd expect that to hold up a little bit better. But it looks to be about a one to three-month arc, and I think we just have to look at it day by day. We haven't seen a lot of impacts yet, just some anecdotal communications of things that are happening here and there, but nothing that we can really put a firm estimate around right now.

Kevin Richardson -- Regional President, North America

Joel, it's Kevin Richardson. The only thing that I would add to that is we have gotten quite a few calls from some of our big OEMs in the last week or 10 days, asking us to verify that our supply chains are not at risk. And what they seem to be most concerned about is just components that may be coming in from overseas, but we're not really seeing anything, to Eddie's comments. And the only other thing I would add is without question, there's been a lot of canceled conferences and meetings.

So from a travel perspective, I mean, that's definitely taking hold in the economy, but nothing directly in terms of manufacturing.

Joel Tiss -- BMO Capital Markets -- Analyst

OK. Great. Thank you.

Operator

[Operator instructions] Your next question comes from Matthew Fields from Bank of America. Your line is open.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Hey, guys. Same kind of question, but I want to ask about the situation on the ground in China. If you believe the numbers, it seems like they're getting a little bit of a handle on it. And we saw factory shut down for a little bit after Lunar New Year.

But with the reopening, we're seeing inventories pile up at ports, at mills and trader inventories and warehouses. What's the inventory situation like in China for finished goods, for other kind of parts of the steel ecosystem?

Eddie Lehner -- President and Chief Executive Officer

Matt, this is Eddie. We've been in contact with our China team every day. We have first-hand accounts of what's going on inside of the country. And so far, things are slowly gearing back toward normalcy.

It's going to take a little bit of time for those not to get on time. But based on what we can see, it looks like by the end of April, a lot of the lost operational capacity and throughput should be restored, unless virus conditions worsen. But right now, it looks like by the end of April, most of those not ought to be on time. I mean in terms of flow.

But the last time was something, I'm not going to say something similar to this happened. But the last time supply and demand conditions where there were a lot of steel inventories piling up, it was actually a good opportunity for us to buy down on our replacement cost and then see better cost of goods sold numbers flow through, which helped margins for a period of time until those inventories were worked off. But we can go by that guide what that looked like about 5 years ago, but we don't have any other information to share with you other than that.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

OK. And you don't see any indication from Chinese mills if there's going to be any kind of cuts to production to alleviate those inventory imbalances?

Eddie Lehner -- President and Chief Executive Officer

Not yet, no.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

OK. And then on the sale leaseback, you said you sold it at a sort of like a 2x of Ryerson's EV. So that's like, is it like a low double-digit implied EV-to-EBITDA multiple, which means you're prompt to paying a...

Eddie Lehner -- President and Chief Executive Officer

It was 14.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

14, OK.

Eddie Lehner -- President and Chief Executive Officer

It was 14.3 and a cap rate of 6.85. So I think that's pretty instructive when you look at how the rest of our credits price, particularly on the high yield side. So we feel there are a lot of benefits in doing that transaction.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

That is what I wanted to know. Thanks a lot, Eddie. And hopefully, maybe we'll see something around that May 15th call price step down date. But if not, good luck and talk to you next quarter.

Eddie Lehner -- President and Chief Executive Officer

Thanks, Matt. I told you I always keep my refi suitcase packed.

Operator

Your next question comes from Michael Leshock from KeyBanc Capital Markets. Your line is open.

Michael Leshock -- KeyBanc Capital Markets -- Analyst

Good morning. So first, just on the sale leaseback. What's the potential increase to your SG&A from that transaction?

Eddie Lehner -- President and Chief Executive Officer

$4.3 million in additional operating rents per year.

Michael Leshock -- KeyBanc Capital Markets -- Analyst

OK. And then just touching on like the cadence of the business activity that you've seen through the quarter thus far. We've heard that January flat rolled demand was strong on some hedge buying seen in the MSCI data, and things may have recently cooled. Kind of what are you seeing so far throughout the quarter?

Eddie Lehner -- President and Chief Executive Officer

Well, I think we want to wait for the end of the quarter to see how that MSCI's data normalizes. But the first half of January was sluggish, which we thought was a continuation of really the second half of the year and particularly December. Things picked up in February incrementally, and transactional quoting and transactional business has been relatively stronger than program business which would relate more to established OEM contracts. So we have seen a pickup in activity, in quoting activity and demand.

I'll ask Mike and Kevin to comment on that further.

Mike Burbach -- Regional President, North America

Mike, this is Mike Burbach. Yes, Eddie said it about right. As we started the year, if you looked at the activity levels, some of our larger OEMs really got out of the box a little slow, and some of which we anticipated with Class VIII declines that have been long time forecasted. But I guess the bright spot on this is the activities through our transactional side of business has been improving as we move through the quarter, both from a quoting perspective and volume of wins.

And a lot of that really is built around our ability to respond quickly, have the right inventory, put the right package together that wins those orders. So it's a good piece of the business to be improving, and we hope to continue that trend. And we certainly love our large OEMs, and we expect that their business will normalize as well. But there's also a lot of uncertainty out there, too.

So we'll do what we can do and control we can control, and let's see where it goes.

Michael Leshock -- KeyBanc Capital Markets -- Analyst

Got it. And then just looking for some more color on an end market perspective, where you're seeing the strengths and weaknesses specifically. And then if you could break out which markets which are most sensitive to coronavirus.

Kevin Richardson -- Regional President, North America

Michael, it's Kevin Richardson. I'll take that one. I don't think I can handicap the sensitivity of the coronaviruses, and the disclaimer is it's obviously a fluid situation, and it's early. But if you look at our outlook in terms of 2020 for the full year, I'd put it in two categories.

It's end markets that are under pressure, and oil and gas and the energy markets for sure. 2019 was weaker than we had expected, and we see that's still declining. Ground transportation is going to be declining, but it's coming off at relatively very high build rate, in fact, the best two years in the last 10 or the last two years. Construction equipment and industrial machinery and equipment, we think are going to be under pressure.

And then the end markets that we're more optimistic about and we see growth are ones that are more levered to the consumer. And those would be consumer-durable, food and ag, HVAC and metal fab and machine shops. But in terms of trying to handicap it to the coronavirus, that would be pretty tough.

Michael Leshock -- KeyBanc Capital Markets -- Analyst

Got it. And then just lastly for me on Central's volumes. They were reduced pretty big in the fourth quarter sequentially. Just wondering how I should think about outlook for Central volumes in 2020.

Eddie Lehner -- President and Chief Executive Officer

I'm going to kick that over to Jim Claussen who is with us today.

Jim Claussen -- Regional President, North America

Yes. We definitely had a soft fourth quarter seasonality wise and then as we work through the stages of the integration. Looking into 2020, activity has picked up to start the year very similarly to Ryerson. So we're starting to trend closer to Ryerson metrics in that regard.

There's still work to do. But as we continue to play out the synergy game on working capital and expenses, we definitely have an eye on leveraging the combined network and continuing to grow the brand and using that new working capital and expense profile to drive margins.

Eddie Lehner -- President and Chief Executive Officer

I mean we really think Central is underappreciated. I think as you come out of a year where Central's carbon portfolio is 85% of its total shipments, we had to take that margin compression on the way down as structural expenses were coming out. I think now what we see is margins are getting to be back toward our mean expectation for gross margins as costs continue to come down. So that profile has started to take shape in terms of how we envision it developing over the next several years.

So we really appreciate the work that's been done by the Central team, and we expect that to continue.

Michael Leshock -- KeyBanc Capital Markets -- Analyst

Appreciate the color. Thanks.

Operator

We have no further questions. I turn the call back over to the presenters for closing remarks.

Eddie Lehner -- President and Chief Executive Officer

Thanks for tuning in with us today and stay safe and be well, and we'll be back with you in April. Take care.

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Justine Carlson -- Investor Relations

Eddie Lehner -- President and Chief Executive Officer

Molly Kannan -- Corporate Controller and Chief Accounting Officer

Nick Jarmoszuk -- Stifel Financial Corp. -- Analyst

Joel Tiss -- BMO Capital Markets -- Analyst

Kevin Richardson -- Regional President, North America

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Michael Leshock -- KeyBanc Capital Markets -- Analyst

Mike Burbach -- Regional President, North America

Jim Claussen -- Regional President, North America

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