萊爾森 (RYZ) 2026 年第三季法說會：營收創新高與綜效收益

重點摘要

• Ryerson Holding Corporation 在 2026 年第三季出貨量達 81.4 萬噸，創下 22 億美元的歷史新高營收。營收季增 8.6%，而出貨量則成長 1.2%，表現優於公司先前預期下降 3% 至 5% 的財測。
• Ryerson 歸屬母公司淨利達 3,200 萬美元，或稀釋後每股盈餘 (EPS) 0.61 美元。不含後進先出法 (LIFO) 的調整後 EBITDA 為 1.15 億美元，高於公司原本預期的 8,800 萬至 9,200 萬美元指引區間。
• 同店出貨量季增 1.8%，創下五年多來的單季新高。今年迄今，北美同店出貨量成長 8.8%，優於美國金屬服務中心協會 (MSCI) 所引用的 5% 產業成長率。
• 資料中心與發電專案預計占總營收的 9%，高於第二季的 6%。資料中心出貨量較 2026 年第一季成長約 65%。
• 併購綜效在第三季達到約 1,300 萬美元。管理階層預計第四季綜效將達 1,400 萬至 1,500 萬美元，相當於 5,600 萬至 6,000 萬美元的年化執行率 (annualized run rate)，並對兩年達到 1.2 億美元的目標保持信心。
• 展望 2026 年第四季，管理階層預計營收為 19.6 億至 20.4 億美元，不含 LIFO 的調整後 EBITDA 為 1 億至 1.04 億美元，稀釋後每股盈餘為 0.30 至 0.38 美元（不含剩餘的庫存併購會計調整）。

核心財務數據

毛利率受到高成本庫存、合約定價滯後以及 400 萬美元庫存併購會計調整的影響。此外，由於原料成本漲幅高於預期，Ryerson 認列了 3,000 萬美元的 LIFO 費用，超出原先預期的 1,600 萬至 1,800 萬美元。

業務與營運表現

現貨交易業務仍是今年迄今出貨成長的主要來源，而合約出貨量亦同步年增。管理階層表示第四季開局強勁，現貨與專案合約的利潤率均有所提升。然而，由於現貨價格改善速度較快，現貨與專案出貨之間的利潤率差距擴大至約 1,000 個基點 (10 個百分點)。

資料中心與發電需求支撐了空調暖通、金屬加工與焊接以及機械設備的出貨量。在服務資料中心專案及傳統產品線的 HVAC (暖通空調) 客戶帶動下，北美同店空調暖通出貨量季增近 9%。

商業運輸是另一個強勁成長的領域。在卡車車廂及拖車/半掛車客戶帶動下，北美同店出貨量季增近 3.5%。管理階層表示，良好的在手訂單支撐 8 級重型卡車 (Class 8) 的生產直至 2027 年，同時也承認通膨與利率壓力持續存在。

與 Olympic Steel 的整合正擴大庫存可視性與履約彈性。Olympic Steel 約 90% 的庫存與交易數據已整合至 Ryerson 的資訊系統中。管理階層表示，合併後的網路有助於公司調配原料、提升資產利用率，並滿足客戶對交貨前置時間的要求。

庫存天數維持在 73 天，落在 Ryerson 70 至 75 天的目標區間內。生產力達到每位員工每天 2.25 噸，管理階層稱此表現遠高於基準水準。

Ryerson 在第三季的資本支出為 2,100 萬美元，今年迄今為 5,000 萬美元。2026 全年資本支出仍預計約為 7,500 萬美元，其中包括原 Ryerson 的 5,000 萬美元與 Olympic Steel 的 2,500 萬美元。

公司以平均每股 23.85 美元的價格回購約 15.9 萬股，總計 380 萬美元。截至 2028 年 4 月前，其股票回購授權額度尚餘 9,620 萬美元。董事會亦宣佈發放每股 0.1875 美元的季度股利。

管理階層財測指引

出貨展望反映了工作天數減少以及與假期相關的輕微季節性疲軟。碳鋼價格上漲預計將抵銷不鏽鋼與鋁價的相對疲軟。

管理階層預計近 12 個月 (TTM) 強勁的 EBITDA 以及較低的季節性營運資金需求，將在年底前把槓桿比率降至 3.0 倍以下。

風險與關注事項

• 毛利率仍面臨原料成本上升，以及成本增加與每季合約價格調整之間的時滯風險，特別是碳鋼產品。
• 管理階層預計熱軋碳鋼的供應在 2027 年上半年仍將非常緊張，並可能持續一整年。鋁的供應也可能趨緊。
• 較高的營運資金需求導致第三季營運現金流為負，並使總負債與淨負債增加。
• 需求仍不均衡。管理階層指出來自 AI 基礎設施、能源、國防與航太領域的強勁需求，而農業、消費品及其他對利率敏感的市場則維持低迷。
• 儘管 10 月的報價與訂單活動依然強勁，但第四季出貨指引仍考量了正常的假期季節性疲軟與出貨天數減少。

分析師問答集錦

專案合約毛利率：管理階層表示專案利潤率開始改善，但每季價格調整落後於上升的碳鋼成本。合約出貨量亦有所成長，而現貨交易利潤率的提升速度更為迅速。

第三季出貨量超預期：Ryerson 將高於指引的出貨表現歸因於需求改善、生產力提升、庫存充足，以及合併後公司能夠採購原料並滿足客戶 24 至 48 小時交貨前置時間的能力。

併購採購議價能力：管理階層證實，Ryerson 與 Olympic Steel 正以單一買家的身份與鋼鐵廠談判。公司表示 2027 年的企業供應協議正在進展中，預計將支持合約客戶與現貨業務的成長。

成本槓桿效益：設施整合、網路最佳化以及消除重複的行政成本，預計將有助於使營業費用成長速度低於出貨量成長速度。管理階層提到，透過裁減約 36 個職位，實現了約 900 萬美元的年化節省，並且還確定了額外約 300 萬美元的節省空間。

商業綜效：第四季商業綜效預計將達到約 400 萬美元，相當於 1,600 萬美元的年化執行率，接近該類別兩年 2,000 萬美元的目標。

電話會議完整逐字稿

完整財報電話會議逐字稿

管理層陳述

Operator

Good day, and welcome to the Ryerson Holding Corporation's Third Quarter 2026 Conference Call. Today's conference is being recorded. [Operator Instructions]

At this time, I'd like to turn the conference over to Justine Carlson. Please go ahead, ma'am.

Justine Carlson

Good morning, and thank you all for joining Ryerson Holding Corporation's Third Quarter 2026 Earnings Call.

On our call, we have Eddie Lehner, Ryerson's Chief Executive Officer; Rick Marabito, our President and Chief Operating Officer; Jim Claussen, our Chief Financial Officer; and Molly Kannan, our Chief Accounting Officer and Corporate Controller. Rich Manson, Ryerson's Senior Vice President of Finance and Chief Financial Officer of Olympic Steel; Andrew Greiff, Executive Vice President of Ryerson and President of Olympic Steel; and Trent McFarland, our Senior Vice President, Supply Chain and Ryerson Processed Metals will be joining us for Q&A. A recording of this call will be posted on our Investor Relations website at ir.ryerson.com.

Please read the forward-looking statement disclosures included in our earnings release issued yesterday and note that it applies to all statements made during this call. In addition, our remarks today refer to several non-GAAP measures. Reconciliations of these adjusted numbers are also included in our earnings release.

I will now turn the call over to Eddie.

Edward Lehner

Thank you, Justine. Good morning, and thank you all for joining us.

Ryerson delivered its strongest quarter of the year, exceeding guidance across the board while eclipsing its first year synergy run rate target ahead of schedule in what continues to be a high-friction industrial economy. These achievements reflect our teammates' commitment, passion and ability to execute together as one unified organization, building toward the industry's best customer and stakeholder experience.

Our results were supported by improved market demand, which allowed us to give the CapEx investments we've made over the past several years, a good run around the track under better overall industry conditions. As we move through the first month of the fourth quarter, quote and order activity remains strong, carrying for the momentum we experienced in Q3 when daily shipment volumes and invoice counts increased each month of the quarter. We played the score sheet well in Q3, hitting the high notes as we gained market share, outperformed typical industry seasonality, increased net book value per share, managed asset efficiency at a high level and bought back $3.8 million in shares below book value.

When looking at the bigger and brighter picture, we see the continuing validation of the timing and substance of Ryerson's merger with Olympic Steel this past February. Our collaborative effort, teamwork, resourcefulness, cognitive scale and playmaking ability is really shining through as we see the tremendous potential available to us as RYZ.

With that, I will turn the call over to Rick to discuss market conditions and how we are executing operationally across the business.

Richard Marabito

Thanks, Eddie, and good morning, everyone.

On a total company basis, Ryerson generated third quarter net sales of $2.2 billion on shipments of 814,000 tons. That's a volume increase of 1.2% sequentially, better than our guidance for a seasonal decline of 3% to 5%. Same-store shipments increased by 1.8% to their highest quarterly level in more than 5 years. Our performance reflects strong customer demand across many of our end markets and our team's dedication to meeting that demand through commercial collaboration and strong execution across our expanded network, even amid tight product availability.

On a year-to-date North American basis, Ryerson's tons shipped increased by 57.3% compared with the first 9 months of 2025. On a same-store basis, Ryerson's North American shipments increased by 8.8% during the same period. That implies market share gains when compared to the industry's growth of 5%, and that's according to the Metals Service Center Institute.

Ryerson's year-to-date volume growth continues to be led by strong double-digit growth in its transactional business and is also now supported by year-over-year improvement in our contract book of business. Data center and power generation projects remain strong drivers of customer demand in the third quarter, representing an estimated 9% of revenues compared to 6% in the second quarter. And our data center volumes increased by approximately 65% in the third quarter of 2026 when compared with the first quarter of this year.

Our participation in this secular megatrend comes through our direct exposure to OEMs as well as through our support of subcontractors and spans applications like power, IT hardware, cooling and fabrication. This demand is illustrated across several of our traditional end market categories, including climate, where North American same-store volumes increased nearly 9% sequentially. Growth was led by larger HVAC customers serving both data center projects and traditional product lines with additional strength in air purification, exhaust and blower applications.

Data center and power generation activity also supported growth in our fabrication and welding sector with growth in tank and metal and closure subindustries as well as growth in our machinery and equipment sector. Our scale, processing capabilities, product breadth, access to inventory and customer relationships position us to meet more of these customer needs and win additional business in these growing markets.

And beyond these markets, commercial transportation remains another area of strength with North American same-store volumes increasing nearly 3.5% quarter-over-quarter, led by our truck cab and tractor trailer subsectors. We are optimistic about the developing recovery in Class 8 demand as healthy backlogs support production into 2027 despite persistent inflation and interest rate headwinds. Meeting this demand required our teams to coordinate resources across the network and develop tailored customer solutions. For example, in Minneapolis, our Shaw Stainless and Ryerson Coon Rapids teams work together to build out and share production operations to service the customer with growing demand for cooling component. Enabled by our merger, this collaboration is turning a new business opportunity into a meaningful contributor to our commercial synergies.

Internally, our IT teams are unlocking more of the combined network's potential with approximately 90% of Olympic Steel's inventory and transaction data now incorporated into Ryerson's information system. This creates the visibility needed to connect available material with customer demand across our facilities, enabling more effective inventory sharing and coordinated fulfillment. With mill lead times extending and inventories exceptionally lean, this capability is especially valuable.

Our increasing interconnectivity also supports our ongoing work of aligning customer programs with the facilities best equipped to serve them. We continue to evaluate opportunities to direct program volumes to Olympic facilities best suited for that business, increasing asset utilization and lowering our cost to serve our program customers, while at the same time, creating capacity for additional transactional business within Ryerson facilities. And this enables us to grow our transactional book of business with greater speed and reliability.

What enables success in all of these efforts is the willingness of our people to share their expertise, to solve problems together and to perform for our customers. Our recently introduced shared core values builds on the cultural strengths of both organizations. And our Tulsa teams offer a great example of our 2 core values in action, and that's customer commitment and teamwork. Neighboring Ryerson and Central Tube and Bar facilities are coordinating production capabilities and combining recruiting efforts to support newly awarded business while working with local educational institutions to develop a shared pipeline of skilled talent for future growth.

So I want to thank our teams across Ryerson for putting our shared values to work every day, helping our customers succeed and turning the possibilities of our combined network into new business and stronger results.

And now I'll turn the call over to Jim Claussen to review our performance relative to our third quarter guidance, discuss our expectations for the fourth quarter and provide an update on synergy attainment and capital allocation.

Jim Claussen

Thank you, Rick, and good morning, everyone.

Ryerson's third quarter performance exceeded our expectations across the board. As Rick noted, we generated record revenue of $2.2 billion on shipments of 814,000 tons and produced net income attributable to Ryerson of $32 million or $0.61 per diluted share. These results reflect effective execution by our teams, supported by strong shipment activity that persisted through a quarter when we typically experience seasonally softening demand.

As anticipated in our second quarter outlook, we experienced gross margin compression as higher cost inventory, particularly for carbon products, flowed through our cost of sales ahead of corresponding price adjustments for program customers. Our third quarter results also include a $4 million inventory purchase accounting adjustment to cost of materials sold, which reduced our gross margin and net income generation. This adjustment was approximately $12 million lower than the one recorded in the second quarter, and we expect these impacts to continue declining through the fourth quarter as we sell through the remaining acquired inventory.

Adjusted EBITDA, excluding LIFO, was $115 million in the third quarter, which exceeded our guidance range of $88 million to $92 million. Olympic Steel's contribution to adjusted EBITDA, excluding LIFO, was $30.2 million, which also exceeded our guidance. Our LIFO expense was $30 million in the third quarter compared to our guidance of $16 million to $18 million as material costs increased more than anticipated during the quarter, led by continued increases in carbon mill pricing.

Turning to our outlook for the fourth quarter. We expect that shipments will decline by 6% to 8% sequentially, reflecting fewer business days and some mild seasonal softness around the holidays. We also anticipate that average selling prices will be flat to up by 2% as higher carbon pricing is expected to slightly offset relative softness in stainless and aluminum pricing. We, therefore, expect that our fourth quarter revenues will be in the range of $1.96 billion to $2.04 billion.

Excluding residual inventory purchase accounting adjustments, we anticipate net income generation in the range of $16 million to $20 million or $0.30 to $0.38 per diluted share in the fourth quarter. We expect to record LIFO expense in the range of $28 million to $32 million in the fourth quarter, leading to adjusted EBITDA, excluding LIFO, in the range of $100 million to $104 million, with $28 million to $30 million of that generation expected to be contributed by Olympic Steel. We anticipate that higher trailing 12-month EBITDA generation, in combination with our expectation for seasonally lower working capital requirements will reduce our leverage ratio to below 3.0x by year-end.

Turning to our progress on synergies. We realized approximately $13 million across our 4 synergy pillars in the third quarter, in line with the expectations we communicated last quarter. On an annualized run rate basis, this brings our achievement substantially above the $40 million target we set for our first year together, well ahead of our February '27 merger anniversary. This is a significant milestone in delivering on the merger's value thesis, reflecting our team's success in translating the scale and capabilities of our combined network into customer solutions and earnings contributions.

Through the third quarter, we incurred $2.6 million in onetime costs to support these synergy initiatives. Based on actions already implemented and those underway, we expect to realize approximately $14 million to $15 million in synergies in the fourth quarter or $56 million to $60 million on an annualized run rate basis. Of our fourth quarter synergy attainment, we expect that our procurement synergies will generate approximately $6 million in synergies. Efficiency and public company cost savings will create approximately $2.5 million in savings and approximately $2 million of expected benefits from network optimization actions. This network optimization category is picking up steam, and we are building on the completed project in Mexico by progressing on our Connecticut consolidation, which brings together Olympic Milford and Ryerson Specialty Alloys. This consolidation is expected to be completed in the first quarter of 2027 and create a stronger operating platform with improved workflow, expanded processing capabilities, better product availability, lower fixed costs and more efficient logistics.

Turning to our commercial enhancement pillar. We continue to see performance ahead of our expectations, as Rick mentioned. Our fourth quarter forecast includes approximately $4 million in realized commercial synergies, which annualizes to $16 million and is closing in already on our 2-year commercial target of $20 million in annual synergy benefits generated by commercial strategies. This performance has been enabled by the collaboration of our commercial, supply chain and operations teams across the enterprise as they leverage the scale of our combined facilities, equipment, customer relationships and geographic reach. These actions are expected to continue to support EBITDA performance while enhancing our ability to serve customers during a period of extended lead times and constrained availability. I want to thank the Ryerson team for advancing our integration ahead of plan. With our first year synergy targets surpassed ahead of schedule, we remain increasingly confident in our ability to achieve our 2-year target of $120 million in annual run rate synergies.

Turning to our investments in the business. Capital expenditures totaled $21 million in the third quarter and included investments in the maintenance of our facilities as well as projects supporting our transactional and value-added growth. Year-to-date, we have invested $50 million in CapEx, and we still expect our full year 2026 spend to be approximately $75 million, $50 million of which we anticipate to be allocated to legacy Ryerson and $25 million to Olympic Steel.

During the third quarter, we returned $3.8 million to shareholders through the opportunistic repurchase of approximately 159,000 shares with an average price of $23.85. Following these repurchases, the company has $96.2 million remaining under its share repurchase authorization through April 2028. Our Board has declared a quarterly dividend of $0.1875 per share, which is consistent with the prior quarter and will be paid on December 17 to shareholders of record as of December 3.

Overall, our capital allocation strategy continues to be focused on enabling free cash flow generation and reducing debt. That means maintaining a disciplined approach to capital expenditures, evaluating M&A opportunities against a high strategic and financial bar, continuing to support our dividend and preserving the flexibility to prudently exercise our share repurchase authorization as conditions warrant.

I'll now turn the call over to Molly Kannan to discuss our financial performance highlights for the third quarter.

Molly Kannan

Thanks, Jim, and good morning, everyone.

In the third quarter of 2026, Ryerson generated net sales of $2.2 billion, an increase of 8.6% compared to the prior quarter, with tons shipped 1.2% higher and average selling prices 7.2% higher. On a same-store basis, revenue was $1.58 billion, an increase of 9.3% sequentially with average selling prices 7.3% higher and tons shipped 1.8% higher. Due to the material cost pressures and the onetime purchase accounting adjustment that Jim mentioned, gross margin contracted during the third quarter by 50 basis points to 17.2% compared to 17.7% in the prior quarter. Excluding our third quarter LIFO expense of $30 million and the impact of inventory purchase accounting, adjusted gross margin contracted by 60 basis points to 18.7% compared to gross margin, excluding LIFO and purchase accounting adjustments of 19.3% in the second quarter of 2026.

Warehousing, delivery, selling, general and administrative expenses or WDSG&A totaled $326.1 million in the third quarter, an increase of 1.6% compared to the second quarter, driven by variable compensation and inflationary cost pressures. WDSG&A decreased as a percentage of sales quarter-over-quarter from 16% to 15%, but increased marginally on a per ton basis from $399 per ton to $401 per ton.

In all, we generated net income attributable to Ryerson of $32 million or $0.61 per diluted share in the third quarter compared to net income attributable to Ryerson of $15.5 million or $0.30 per share in the second quarter. Third quarter adjusted EBITDA, excluding LIFO, totaled $115 million compared with $101 million in the second quarter. Olympic Steel contributed $30.2 million, up from $23.5 million in the prior quarter, while same-store adjusted EBITDA, excluding LIFO, reached $84.8 million, our highest quarterly amount achieved in 3.5 years.

Turning to cash flow. Ryerson used $18.2 million in cash from operations in the third quarter as net income generation was offset by higher working capital requirements, which supported our higher revenue generation. Our inventory remained well managed in the third quarter as our days of supply remained consistent quarter-over-quarter at 73 days, which is within our target range of 70 to 75 days. Our cash conversion cycle also remained consistent sequentially at 71 days.

We ended the quarter with total debt of $1.01 billion and net debt of $966 million, which represents sequential increases of $51 million and $53 million, respectively, due to higher working capital requirements. Our leverage ratio decreased from 4x in the second quarter to 3.2x in the third, driven by higher trailing 12-month adjusted EBITDA, excluding LIFO. As Jim discussed, we anticipate that our leverage ratio will continue its downward trend given our expectations for higher trailing 12-month adjusted EBITDA, excluding LIFO and lighter working capital requirements in the fourth quarter.

And finally, total global liquidity increased from $757 million at the end of the second quarter to $865 million at the end of the third as our borrowing base continued to expand with our working capital. Overall, our third quarter results reflect stronger sales, improved earnings and consistent working capital management with ample liquidity to support our growth strategy.

With that, I will turn the call back to Eddie to conclude our prepared comments.

Edward Lehner

Thank you, Molly.

Although growth remains uneven, and we continue to operate in a 2-speed economy with AI infrastructure, energy, defense and aerospace driving substantial growth, while agriculture, consumer and other interest rate-sensitive markets remain more subdued, we are getting a good look at how our company can perform when manufacturing activity is invigorated with much needed investment that drives higher productivity, quality jobs growth and broader-based prosperity.

We are encouraged by recent survey findings, which show more manufacturers bringing sourcing and production back to the United States with a growing pipeline of reshoring projects and plans for further investment in U.S. production capacity. This is tangible evidence of the manufacturing revitalization we have long believed can strengthen America's economic resilience, create quality jobs and expand opportunities in the communities where we live and work. This renaissance is in its early phase, and it will take time to take root, but we have to stick with it and keep it a front and center priority.

Our investments in people, technology and processing, together with the greater density and product availability of our combined intelligent network of industrial metal service centers position us to support the revitalization and grow alongside our customers. Bringing our 2 organizations together was and it is the smart play. And there is a real joy in seeing that work awarded as our people put our plans and investments into action to deliver results that are highly accretive to enterprise value and demonstrate that we are making good on what we set out to accomplish for the benefit of all Ryerson stakeholders.

With that, we look forward to your questions. Operator?

Operator

[Operator Instructions] We'll take our first question from Katja Jancic with BMO Capital Markets.

分析師問答

Katja Jancic

Maybe starting on the program business. It seems that the margins remain pressured there. Can you talk a bit more about what's -- why that is? And are you seeing any signs that, that could start inflecting?

Edward Lehner

This is Eddie. So on the program side, we've noted that we've been catching up because you've got COGS that throughout the year has increased faster than the pass-throughs to average selling price. We've seen improvement on the program side, both in volume and in margin. And it really is a catch-up, especially on the carbon side, given that aluminum and stainless have inflected somewhat, but carbon, as you know, continues to power higher. So we do see improvement in that book. And it's been a welcome surprise in Q3, especially on the volume side. We are seeing margins start to tick higher. But I'm going to have Andrew Greiff give some more color on that.

Andrew Greiff

Yes, Eddie, I think you said it well. I think we've been encouraged by seeing the program business growing. On the real side, Katja, what we're seeing is on the transactional side of the business, that really has taken to a different level. And I think that we'll continue to see that into the fourth quarter. We're finishing up negotiations for 2027, both on the -- for the customer side and for the mill side. So we'll have a better feel in the next month what that's going to look like. But certainly, what we've seen in the third quarter will continue into the fourth quarter.

Katja Jancic

And maybe as a follow-up, when you look at the margins on the program business versus the transactional, has that difference narrowed? Or how is that tracking?

Edward Lehner

Yes, it's a good question. I'm happy to say that Q4 is really off to a very promising start, and we've seen the margin differential between a transactional pound and a program pound, even though both of them are moving higher, that spread has gotten up to about 1,000 basis points, which really, I think, indicates the robustness of that transactional spot bill of material market, while the program side continues to move higher, but not at the rate that we're seeing on the transactional side. And I would ask Rick to go ahead and just add some additional color to that.

Richard Marabito

Yes. Thanks, Eddie. And Katja, you know on the contractual side, the majority of the contractual business has quarterly resets on pricing. So as Eddie commented earlier, it's just the steady rise, especially in the carbon pricing through the year. You get the bump up in the pricing at the beginning of each new quarter. And then as you work your way through the quarter as costs keep rising on the price of steel, your cost of goods sold rises and you get the reset. So -- but it's -- we're really pleased and promising how the quarter started out. I think Eddie mentioned it earlier, the contract business is in 2 ways, really starting to show some good resilience. Number one is the volumes are strengthening on some of those accounts. So it's always good when you've got the demand side of the equation starting to pick up, and we're starting to catch up a little bit on that lag. So more to come on that. But I think as we look at the start of the fourth quarter, we're encouraged.

Edward Lehner

And let me append one thing to that to kind of join the 2 questions together. And that is on the transactional side, one of the synergies we have with the combined Ryerson Olympic Enterprise, we've seen Olympics assets really rise to the occasion and find the ability to find material in the channel or even exchanging carbon through both companies. But Olympics transactional business, that half truckload, full truckload business has really picked up in the third quarter going into the fourth. And that added a really nice synergy to the overall margin and EBITDA profile as we come into Q4 and even look forward into 2027.

Richard Marabito

Yes. Not to keep prolonging our answers, but another good point to what Eddie just commented on, and I mentioned it in the prepared comments, one of the other real positives is how quickly we've been able to integrate the 2 systems. So I commented that about -- we're about 90% of the way there. So the transparency and visibility of the entire company's network of inventory now being available is a huge benefit to those things that Eddie just commented on.

Operator

[Operator Instructions] We'll now take a question from Samuel McKinney with KeyBanc.

Samuel McKinney

Can you start with the third quarter volumes increasing just a little bit quarter-over-quarter versus your guidance of a 3% to 5% decline? And whether it was tight customer inventory, you guys getting more of the product you need from the mills given your stronger buying power or something else. Can you give us some more details on what drove such an upside surprise during the quarter?

Edward Lehner

Yes. I think it was the ability to respond to quotes to meet lead time needs of our customers. And it's really kind of an all of the above answer. Very, very pleased with the performance of the RYZ team. Productivity was up. We did get expense leverage in the quarter and really did a nice job turning over the backlog as much resourcefulness as really was required to go find material given the number of past due tons we have on order with the mills, really proud of the organization we responded to the demand opportunity to increase those volumes, Sam.

And again, I'll ask Andrew to go ahead and add some more color to that.

Andrew Greiff

Well, Sam, I'd say 2 parts. So certainly, on the program contract side of the business, we started to see some life from some of our traditional. So heavy-duty equipment, truck trailer, all of those key industries that we have seen on the transportation side, but even the climate side really started to improve. And so there was a -- as you know, there was a real flatness, I'd say, if you go back second half of '23, almost through the end of '25, but we did start seeing some life in '26. And certainly, in the third quarter, we started to see that.

And the other part of it which I think is really important because the ability for -- in the growth of the transactional, the success really comes from the ability to keep inventory on the floor and continuously replenishing that inventory and growing it so that you can meet the needs of the customers because the lead times, which traditionally may have been 2 or 3 days, customers are looking for more like 24 to 48 hours. And if you don't have that inventory available on the floor, you're going to lose out. And Ryerson has done an extraordinary job to -- we've used to capitalize on the assets that are available to put more inventory on the floor and to be able to respond better to the customer.

Samuel McKinney

Okay. And then the fourth quarter volume guidance, it's relatively in line with seasonal patterns normally, but the fewer shipping days and the holiday-related seasonal softness that you cited in the release impact the fourth quarter every year. Given all the positive dynamics you just talked about remain in place, and you mentioned today, Eddie, that the October ordering trends have been really strong. Why wouldn't fourth quarter volumes do better than just meeting normal seasonality?

Edward Lehner

Sam, that's a great question. I guess we're going to have to wait until February to answer that. But we are really pleased with the start of the quarter. Looking at historic seasonality and just what happens going into the holidays and coming out of the holidays, I think we wanted to guide thoughtfully to that effect while noting that the business is performing very well, and we are very encouraged with the start of the fourth quarter as we look out through most of October being the first month of the quarter.

Samuel McKinney

All right. And then last one, excluding the higher LIFO expense, the third quarter gross margins were down just a little bit versus the second quarter, and you guys dealt with rising material costs, pricing program lags that you talked about and nonferrous pricing declines. But when are you expecting to see those dissipate in margins maybe to more fully reflect the strength of this new combined business?

Edward Lehner

We recognize that margin growth is one of our biggest opportunities as a combined company as we really start to elevate and realize the potential that we have as a combined enterprise. I would say that the real culprits in Q3 that maybe were a drag on margins, we had some mark-to-market hedging amounts come through that were subtractors from margin. And in addition to that, you do have the contract pricing lags that might have caused a little bit of margin compression. But in general, really feel positive about where we can go with respect to our gross margin profile as we move forward based on the synergies that we know are available to us and the plans that we have to grow the transactional business and also beneficiate the program side of our commercial portfolio.

Operator

And it appears there are no further telephone questions at this time.

Edward Lehner

We did have a couple of questions come in online. So we'll go ahead and take those at this time. It says -- the first question is, are you approaching the mills as one buyer now? What is the competitive environment like for accessing tons to fuel profitable share gains?

So what I'd like to do is kick that question over to Andrew and then have Trent go ahead and tend to that answer as well.

Andrew Greiff

Yes. So the easy answer is yes. We are speaking as one voice to the mills. I would tell you that on the supply side, the collaboration has been exactly as we had expected. Trent will speak more in a minute. But I will tell you on the carbon and on the white metal side of it, it has been a singular voice to the mills. Talking about tonnage and where we expect to be next year, certainly, we've seen challenges, in particular, on the carbon side of the business, the mills, domestic mills, fortunately, for the combination, we have excellent relationships with the mills.

And we've been very pleased so far, although the negotiations aren't over, we've been very pleased so far in our ability to be able to get the inventory that we have asked for and expect that our enterprise will be able to grow our business in 2027 and certainly support the growth of our long-time gold standard customers as well as supporting the increasing transactional business. We're seeing this on the carbon side. Hot roll is going to be very tight through the first half of '27 and maybe even through '27. And aluminum will also have some tightness. I think stainless will have a very appropriate year from the mills. But I think we're going to be in a very good position to be able to support our customers.

And Trent, if you want to talk a little bit more about that.

Trent McFarland

Yes. Thanks, Andrew. Yes, I would say post-merger 2026 even, the combination of the group proved very attractive in our synergy savings as we went through this year. As we approach '27, as noted, we are looking for opportunities to expand our supply chain network and also optimize that network where we have opportunities to grow and place material at a transactional level close to our customers. So whether it's contracts or transactional packages, the enterprise supply chain agreements are shaping up nicely for '27.

Edward Lehner

Thanks, Trent. And then the second question that came in online is looking out 2 to 3 years, what would allow operating expenses to grow slower than shipments?

And I thought we would go ahead and kick this over to our synergies. So Rich Manson to go ahead and take that question.

Richard Manson

Sure. Thanks, Eddie. I think it's a function of the synergies. And we've highlighted a number of those, right? So on the warehouse side, we've already consolidated operations in Mexico and didn't miss a beat. And in fact, we'll actually increase sales, which will be a further commercial synergy. Jim highlighted in his comments that the Connecticut operations will be combined by first quarter, again, reducing fixed costs without missing a beat on the commercial side. We've got a lot of opportunities like that. I think Rick highlighted the one about Tulsa, where we're literally across the street from each other. We're going to move equipment into the building that has capacity to maximize the assets. And I think you talk about it all the time, Eddie. It's about sweating the assets. And I think we have a number of opportunities whether it be in Cleveland, Minneapolis, outside of Atlanta, a lot of those type of projects are underway and will show fruition within the next year or 2.

On top of that, on the administrative side, we've done a great job of eliminating duplicated expense. And then also, we've been really smart where people have just chosen to leave, we're filling the positions with existing people. I think as of the end of the third quarter, something like 3 dozen positions were essentially eliminated without causing any friction, and it's a $9 million annualized savings. And there's probably another $3 million to go with another dozen, dozen and a half positions that we know of in the next quarter. So very optimistic that those will be very achievable in the next 2 to 3 years. As we've highlighted, we're only 9 months into this thing, and we've already exceeded the $40 million of savings. We're in the $60 million run rate, and we feel very committed to achieving the under $120 million at the end of the 2-year anniversary of the merger.

Edward Lehner

Thanks, Rich. And I would also reference our productivity this quarter at 2.25 tons per employee per day was really well above our benchmark. And I think that is evidence already of the opportunities we have to create expense leverage as we grow the business and really take full advantage of the assets and network that we do have.

Do we have any more questions? Good. One more. All right.

Justine Carlson

We have one more.

Edward Lehner

We're just getting warmed up.

Justine Carlson

It kind of plays on the last one asks if we could talk more about the learnings from the commercial enhancement synergy efforts and how are we expanding those best practices across the network.

Edward Lehner

Yes. So Rick?

Richard Marabito

Yes. I think that area in terms of synergy has been probably the biggest pleasant surprise. When you go into a merger, you always have some concerns on the commercial side where you may have overlap or customer concentrations. But boy, that's been an area I think our teams have really done a great job. Andrew Greiff led that effort with our presidents and our senior commercial people. I think we got on it literally day 1, and we were organized and committed to have one voice to the customer, listen to our customers in terms of how they would like us to serve them going forward as a new united company. So I think that's been fantastic.

I think the other part of it is we are continuing to pick up a lot of new business. And I think that just speaks to some of the benefits we knew going into the merger in terms of expanded footprint, availability of processing capabilities. So we've been really pleased with that. And it ties in, you're right, Justine, it ties in with the last question also, boy, when you've got kind of the demand engine going and you're picking up new business, and that's our expectation to continue to do that. You also gained some nice expense leverage and productivity. So thanks for the question. That's been really an area that we're really proud of the progress we made.

Edward Lehner

Seeing that there are no more questions, we want to wish everybody a safe and happy holiday season, and we look forward to being with all of you again in early 2027. Thank you.

Operator

And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.