Metallus Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 8, 2025

Key Takeaways

  • Positive Sentiment: In Q2 2025, shipments rose 10% sequentially and 28% year-over-year, delivering $304.6 M in net sales, $26.5 M in adjusted EBITDA (up 50% q/q), and $34.8 M in operating cash flow.
  • Positive Sentiment: Trading environment bolstered by 50% Section 232 steel tariffs and extended lead times through October, with a $100/ton price increase on seamless mechanical tubing effective November 1.
  • Positive Sentiment: Melt utilization improved to 71% (+6 pp sequentially), and a new operations optimization initiative is expected to yield $10 M in annual cost savings by 2026.
  • Positive Sentiment: The company has secured $81.5 M of ~$100 M government funding for its bloom reheat and roller furnace projects, with key commissioning milestones on track for late 2025 and 2026.
  • Negative Sentiment: Labor negotiations with United Steelworkers begin August 18, with anticipated non-recurring negotiation costs of $3 M–$5 M in 2025 and potential wage pressures.
AI Generated. May Contain Errors.
Earnings Conference Call
Metallus Q2 2025
00:00 / 00:00

There are 8 speakers on the call.

Operator

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter twenty twenty five Metallus Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

It is now my pleasure to turn the call over to Jennifer Beaman. Jennifer, you may begin.

Speaker 1

Good morning, and welcome to Metallus' second quarter twenty twenty five conference call. I'm Jennifer Beaman, Director of Communications and Investor Relations for Metallus. Joining me today is Mike Williams, Chief Executive Officer Chris Westbrooks, President and Chief Operating Officer John Zerenik, Executive Vice President and Chief Financial Officer and Kevin Rakatich, Executive Vice President and Chief Commercial Officer. You all should have received a copy of our press release, which was issued last night. During today's conference call, we may make forward looking statements as defined by the SEC.

Speaker 1

Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in yesterday's release. Please refer to our SEC filings, including the most recent Form 10 ks and Form 10 Q and the list of factors included in our earnings release, all of which are available on the Metallus website. Where non GAAP financial information is referenced, additional details and reconciliations to its GAAP equivalents are also included in the earnings release. With that, I'd like to turn the call over to Mike. Mike?

Speaker 2

Good morning, and thank you for joining us today. Before we begin, I'd like to take a moment to welcome John Doranek to the team. John is our new Executive Vice President and Chief Financial Officer and brings with him more than twenty years of financial leadership in the manufacturing and industrial sectors along with a strong track record of engaging with the investment community. We're excited to have him on board, and I'm confident you'll enjoy working with him. Also, I'm excited that Chris recently assumed new responsibilities as president and chief operating officer after serving as our CFO since 2018.

Speaker 2

Chris now has oversight of our safety, manufacturing operations and excellence and supply chain organizations. Now turning briefly to the trade environment. Section two thirty two steel tariffs remain firmly in place at 50 for most countries, with little change resulting from the country specific agreements currently under negotiation by the administration. A fair trade environment is very important for the long term sustainability of the steel industry, an industry that is vital to our national defense and infrastructure. As a result of the recent trade actions, we anticipate growing demand for domestically produced steel.

Speaker 2

Before we dive into safety and the quarterly results, I wanna take a moment to share how honored we were to recently host vice president, JD Vance, at our Faircrest plant in Canton, Ohio. He spoke to approximately 300 of our employees and local stakeholders, emphasizing the federal government's commitment to investing in American workers and businesses. He also acknowledged our role in supporting national defense, highlighting Metallus' investment in a new bloom reheat furnace and our support of the army's increased artillery shell production. The visit left many of our employees energized and deeply proud of the vital role they play in strengthening our national's industrial and defense capabilities. Moving on to safety, our mission remains clear, to be recognized as having the safest specialty metals operation in the world.

Speaker 2

In 2025, we're on track to invest approximately $5,000,000 to enhance our safety management system and upgrade critical equipment. I'm pleased to report that our previous safety investments are delivering meaningful results. So far in 2025, we've had zero serious injuries, a forty percent reduction in injury severity, and a six percent reduction in injury frequency compared to the same period a year ago. Even more encouraging are our leading indicators, a 25% increase in the number of employees actively participating in the first aid provider program and serving as safety committee representatives, a 41% rise in near miss reporting, and a 48% increase in proactive safety engagement interactions. These trends reflect growing employee engagement and trust in our safety culture.

Speaker 2

We're also continuing to derisk our operations through robust serious injury and fatality prevention measures, comprehensive risk assessment, and targeted lockout tagout tryout enhancements. We recognize that safety is a journey. However, these positive indicators give us confidence that we're moving in the right direction toward our goal of industry leading safety performance. Moving to business results for the second quarter. Overall, shipments increased by 10% compared with the first quarter, driven by higher aerospace and defense, automotive and energy shipments.

Speaker 2

When looking at the 2025, we shipped 28% more tonnes than the 2024. Higher shipments, coupled with better manufacturing performance, resulted in a $26,500,000 adjusted EBITDA, a significant increase from the first quarter. Additionally, we recently announced a price increase on seamless mechanical tubing products of $100 per tonne, effective in November, for customers not covered by annual pricing agreements. Lead times are currently extended to October for our SPQ bars and seamless mechanical tubing products. Turning to our specific markets.

Speaker 2

Industrial shipments increased slightly in the second quarter on a sequential basis. Distribution customer inventory levels have declined over the last few months. SBQ and seamless mechanical tubes are consistently turning over, and customers are regularly ordering from us. Energy shipments improved 17% on a sequential basis. We continue to invest in our thermal treat capabilities for high pressure, high temperature applications to further expand our reach in the energy market.

Speaker 2

Tariffs aimed at protecting domestic steel producers are helping to reduce imports and stimulate demand. Automotive shipments improved by 9% sequentially. The sequential increase in shipments included some market share gains and increased demand on existing programs. The highest running light truck and SUV programs that Metallus participates in remain strong. And as we mentioned last quarter, we are continuing to see increased customer inquiries driven by tariff related onshoring.

Speaker 2

As expected, aerospace and defense shipments nearly doubled sequentially. While the industry continues to work through their short term supply chain challenges, this market remains on target to continue to grow for the foreseeable future, and we are energized by our participation in this market. We continue to build momentum with VacuumArk remelt or VAR steel, driven by our broad downstream processing capabilities and a strategic relationship with a VAR supplier. Metallus is uniquely positioned to procure, engineer, process and sell these VAR products in an efficient manner that is desired by customers. Year to date, VAR related sales have more than doubled compared to the 2024, reflecting the focused efforts of our teams.

Speaker 2

Alongside growing volumes with existing customers, the enhanced strength and durability of VARSTEEL has enabled us to win new business in the aerospace, defense and industrial sectors. As previously shared, we remain on track to achieve approximately $30,000,000 in bar related revenue by the 2025. Switching gears to operations. Our melt utilization rate improved to 71% or by six percentage points sequentially on higher production volumes. We're seeing the benefits of ongoing process improvements across our manufacturing facilities, and we expect melt utilization to further increase in the third quarter to support our solid order book.

Speaker 2

That said, we believe there are still meaningful opportunities to drive improvement in operating performance and cost structure. To support this, we've launched an initiative focused on optimizing the execution of our day to day manufacturing operating system across the organization. We expect this initiative will support the long term sustainability of our operations while reducing costs and enabling profitability growth. In terms of recent capital investments, our automatic grinding line at our Harrison facility has successfully completed high commissioning and is now fully staffed and operational. We're already seeing daily improvements in safety and throughput, clear indications of the project's positive impact.

Speaker 2

Additionally, our government funded investments continue to hit key milestones related to the installation of the new bloom reheat furnace and roller furnace to support the army's increased demand for artillery shells. The Blum reheat furnaces construction continues to remain on schedule to begin commissioning by the end of the year. The new roller furnace building and equipment foundations are nearing completion, and equipment has begun to arrive. We remain on schedule to begin commissioning in the 2026. Lastly, as a reminder, we will begin labor negotiations with the United Steelworkers on August 18 regarding the current labor agreement, which expires on September 29.

Speaker 2

As always, our aim is to achieve a timely, fair and equitable contract for both the company and our employees. We remain focused on our daily execution to support our solid order book while maintaining a commitment to safety, delivering exceptional customer service and making strategic capital investments. These priorities are key to supporting sustainable profitability, generating strong cash flow and creating long term value for our shareholders. I'm now going to turn the call over to Chris to review our financial results for the second quarter since he served as CFO for the majority of the quarter, and

Speaker 3

John will share the company's outlook. Thanks, Mike. Good morning, and thank you for joining our second quarter earnings call. During the quarter, our team delivered a sequential increase in shipments, net sales, melt utilization and profitability, consistent with our earnings guidance. We also continue to invest in the business to drive profitable growth while maintaining a strong balance sheet.

Speaker 3

From a top line revenue perspective, second quarter net sales totaled $304,600,000 a sequential increase of $24,100,000 or 9%, primarily driven by higher shipments across all end markets. Net income was $3,700,000 in the second quarter or $09 per diluted share. On an adjusted basis, net income was $8,400,000 or $0.20 per diluted share in the quarter, more than double first quarter levels. Adjusted EBITDA was $26,500,000 in the second quarter, a sequential increase of 50%, primarily driven by higher shipments and continued improvements in melt utilization driving better fixed cost leverage. During the second quarter, operating cash flow was $34,800,000 driven by profitability, lower inventory and the receipt of a $6,500,000 federal income tax refund.

Speaker 3

At the end of the second quarter, the company's cash and cash equivalents balance was $190,800,000 inclusive of approximately $34,000,000 of government funded cash on hand for future investments. In the second quarter, capital expenditures totaled $17,800,000 including approximately $15,000,000 of second quarter CapEx supported by previous government funding. Planned capital expenditures for the full year 2025 remain at approximately $125,000,000 consistent with previous guidance and inclusive of approximately $90,000,000 of capital expenditures funded by the U. S. Government.

Speaker 3

As it relates to government funding, during the second quarter, the company received $5,100,000 of cash funding from the government as part of the previously announced nearly $100,000,000 funding agreement in support of the U. S. Army's mission of increasing munitions production. Additionally, during July, the company received an additional $10,000,000 of cash funding from the government. To date, through the July, the company has received $81,500,000 of government funding.

Speaker 3

Receipt of the remaining committed government funding is expected throughout the remainder of 2025 and into 2026 as mutually agreed upon milestones are achieved. As a reminder, this funding will substantially pay for both the new Bloom reheat furnace at the company's Faircrest facility as well as the new roller furnace at the Gambrinas facility. Now switching gears to pensions. In the second quarter, the company made $5,900,000 of required pension contributions related to The U. S.

Speaker 3

Bargaining plan. Following a recent actuarial update, we're now estimating only $3,500,000 of additional required pension contributions in the 2025, which is $6,500,000 lower than previously stated guidance. As we proceed forward into 2026, the company is estimating a significant reduction in required annual pension contributions subject to investment performance, actuarial assumptions and funding laws. We continue to actively manage the pension. We'll provide further updates as available.

Speaker 3

In terms of shareholder return activities in the second quarter, the company repurchased 255,000 shares of common stock for $3,300,000 In July, an additional 67,000 shares were repurchased for $1,100,000 At the July, a balance of $92,800,000 remained under our share repurchase authorization. As it relates to convertible notes, during the second quarter, we settled the remaining $5,500,000 of outstanding convertible notes at a cash cost of $9,100,000 As of 06/30/2025, the company had no outstanding borrowings. Since the inception of common share repurchases in early twenty twenty two, combined with the convertible note repurchase activities, we've reduced diluted shares outstanding by a significant 25% or over 13,000,000 shares compared to the 2021. These actions reflect the strength of the company's balance sheet and confidence in through cycle cash flow generation. With that, I'll turn it over to our CFO, John Zuranek, to cover the business outlook.

Speaker 4

Thanks, Chris. I'm excited to be part of the Metallus team and I look forward to engaging more deeply with our shareholders and analysts in the near future. In terms of the near term business outlook, commercially third quarter shipments are expected to be similar to the second quarter with lead times currently extending to October for both bar and tube products. Additionally, base price per ton is anticipated to remain relatively steady in the third quarter, dependent on our mix in the quarter. Effective November 1, we expect base price per ton to begin to benefit from the recently announced $100 per ton spot price increase on seamless mechanical tubing products.

Speaker 4

This price increase is reflective of the improving demand environment for domestically produced products. From an operational perspective, melt utilization is expected to increase sequentially in the third quarter on improved operational performance. Consistent with prior years, planned annual shutdown maintenance will be completed in the second half of the year at a total cost of approximately $15,000,000 From a timing perspective, about $5,000,000 of the planned shutdown maintenance will occur in the third quarter for non melt shop assets. The balance of approximately $10,000,000 of planned shutdown maintenance will occur in the fourth quarter and include the melt shop. We are also expecting a full quarter of higher electricity costs starting in the third quarter as the previous long term electricity contract expired midway through the second quarter.

Speaker 4

Additionally, as Mike mentioned, we're beginning negotiations with the United Steel Workers regarding a labor agreement which is set to expire in late September. We anticipate incremental nonrecurring labor agreement negotiation costs of 3,000,000 to $5,000,000 in the 2025, which we plan to report as an operational cost and not exclude from adjusted EBITDA, consistent with treatment in prior years. Given these elements, the company expects third quarter adjusted EBITDA to be modestly lower than the second quarter. To combat some of these cost pressures and in the spirit of continuous operational improvement, we have engaged external resources to accelerate process optimization efforts, which include improving manufacturing efficiency within targeted facilities. The engagement began in July and will progress until targeted operational efficiencies are realized.

Speaker 4

We expect to realize annual savings of approximately $10,000,000 as a result of this initiative, with savings ramping up throughout the 2026. To wrap up, thank you to all of our employees, customers and suppliers for their support in the first half of the year. I'm looking forward to partnering with all of you during this exciting time for Metallus, and I'm optimistic about the opportunities that lie ahead. We are well positioned as a high quality U. S.-based specialty metals producer supporting critical markets.

Speaker 4

We remain committed to delivering value to our shareholders by driving profitable growth and executing our capital allocation strategy. As always, thank you for your interest in Metallus. We would now like to open the call for questions.

Operator

Our first question comes from the line of John Frenzreb with Sidoti. Please go ahead.

Speaker 5

Good morning, everyone, and congratulations, Chris, and welcome to the call, John. I'd like to start with maybe the new market share gains or new customers you're grabbing as a result of maybe the change of the tariff environment. Can you talk a little bit about the magnitude of the increased bidding for your products relative to what you maybe would have saw a year ago?

Speaker 2

Sure, John. You know, I would say that a majority of the increase in the share gain was gaining back some industrial and automotive business that we lost in prior years, not necessary to imports, but to domestic competitors. However, we do see a modest increase in new customer inquiries and and orders tied to the the tariff environment. But I have to qualify the fact that until the agreements are signed, there's a lot of people sitting on the sidelines waiting to see, you know, what is the final tariff and what is the impact to their supply chain. I will tell you they are they are inquiring to get domestic supply, but they haven't pulled the trigger yet until those agreements are really finalized with the signature on those agreements with both parties.

Speaker 5

Okay. Okay. So this is probably, I don't know, maybe a a fourth quarter event if it happens? Is that what you're like?

Speaker 2

Well, you know, I'm not I can't I'm not gonna try to speculate my expertise on forecasting the Trump administration. So as they are finalized, yes, we do expect to continue to see, as we said in our comments, increased demand. That's what's being signaled to us, and that's actually what we're expecting going forward.

Speaker 5

Mhmm. And in a and d, can you talk a little bit about the supply chain issues? It's kind of been, I don't know, an overhang for a couple quarters now. When do you expect that to be resolved?

Speaker 2

Actually, we've been receiving good news recently that things are starting to potentially improve in demand, and we've we've actually seen some increased orders. Just not at the rate we expected, these were investments being made by the supply chain to ramp up the munitions production, and they've had, start up and commissioning issues that have delayed that at least by sometimes six months to a year. So we have we are getting word that things we expect to see additional orders in the fourth quarter of this year.

Speaker 5

Great. Great. That's that's good to see. And it's interesting. One of my prepared questions was about melt utilization.

Speaker 5

We had that north of 80% target. Sounds like now you're bringing somebody in to help you out to achieve that number. Can you talk a little

Speaker 3

bit about maybe what's held back How's

Speaker 5

you back from hitting that number and your confidence in hitting that 10,000,000 was it $10,000,000 in savings

Speaker 2

in in 2026? Efficiency savings. Yeah. Yeah. So, you know, we had a couple percent of Mount U S utilization impacted in q two by electrical supply interruptions because of we have a interruptible power supply.

Speaker 2

It's a benefit to us because it actually provides us with a lower rate of electricity. If the electrical company, when the the grid is under extreme demand, that we we can idle and allow them to provide the electricity into the, residential community to provide you know, so they have air conditioning and they keep the lights on. So we had a couple percent utilization there. We had a couple percent utilization tied to some reliability on auxiliary equipment. Primarily cranes is the the one thing that we're focused on.

Speaker 2

We have engaged a third party to help us improve our crane reliability, but that's not the company we're referring to. We're referring to a company that is looking from how we how we schedule, how how we plan, and how we execute on the shop for and really drive a higher performance of efficiency in our execution. And that'll be anything from, you know, culture to what tools, data, etcetera, of what we should have. This is a an industry based expertise, and they bring a global best practice approach to shop floor, particularly for the steel industry execution.

Speaker 5

Okay. Alright. Good luck with that, and I'll get back into queue on that one.

Speaker 2

Sounds good.

Operator

Our next question comes from the line of Chris Olliek with Northcoast Research. Please go ahead.

Speaker 6

Hey, good morning.

Speaker 2

Good morning. You

Speaker 6

might have answered my question here a bit, but I was wondering on the SBQ bar side, are there any price increases on the books on that side? And then I guess if not and to your thoughts on kind of this customer apprehension, how does that impact your contract discussions for 2026? Is that going to be a couple of few things?

Speaker 2

Yeah. I mean, I'm not I don't wanna really publicly talk about price. We haven't seen price increases since, you know, really earlier this year. It was a modest one. That's stuck.

Speaker 2

We really haven't seen that. Do I expect as demand continues to grow? You know, typically, historically, price follows and increasing to support that higher demand. In regards to the the trade situation and people are wait awaiting to see what the final tariff environment's gonna be. I just think, you know, the small what I see is the smaller companies have already taken action to move.

Speaker 2

The larger companies are more larger steel consuming consuming companies are a little bit in a more of a wait and see. They're inquiring to make sure that they have the ability to to to get supply when they decide to make that decision. And you also have to keep in perspective. There was a fair amount of import inventory already in The United States prior to, the tariffs going into play. And we are you know, we're definitely aware that that inventory still exists, but it is being consumed.

Speaker 2

So we expect that inventory to be somewhat exhausted by the end of this quarter, early fourth quarter, and that will also play into the increasing demand for the domestic supply. Did I answer your question, Chris?

Speaker 6

Yeah. I was just I guess the other question I would have is just in terms of the contracts. Can you remind us, like, in terms of what would come up for renewal?

Speaker 2

Or Yeah. So but if you look at 2025, as we've said, 70% of our demand is under contract and about 30% spot is spot based. The contract discussions haven't really begun yet. There's a couple that have inquired, but we're we're we're basically that'll pick up in activity and discussion late September through October through November into early December. So probably the next time we have a call, we'll have a better look at how that's developing.

Speaker 6

Thank you.

Operator

Your next question comes from the line of Dave Storms with Stonegate.

Speaker 2

Hey, Dave.

Speaker 7

With the planned downtime coming up, are you going to be able to use this as a chance to implement more technology into your operations, or is this gonna be more of a maintenance update?

Speaker 2

I would say the majority of it is maintenance, but there is some technology upgrades that we're we're we're planning to implement. But I would say the majority of it is really maintenance related infrastructure, reliability oriented, investments in our shutdowns.

Speaker 7

Perfect. And then I guess double clicking on that, could you maybe spend a little bit of time talking about any tech op tech improvements you're planning on implementing your operations? Or will that be to come after your previously stated operation efficiencies?

Speaker 2

Yeah. I think well, I I think look. These are more focused on reliability. So we do we do expect to see melt shop utilization to improve on some of our key investments, our key maintenance investments. But, really, I think, you know, from a go forward, it's really gonna be this optimization and efficiency of shop floor execution that's really gonna net, you know, at least $10,000,000 in savings in our manufacturing costs.

Speaker 2

And then as we if some of these big capital CapEx investments come on later this year, the reheat bloom furnace and then early next year, the roller furnace, there's significant cost efficiency and improvements that we're going to get out of these investments that really will materialize in in 2026.

Speaker 7

Understood. Very helpful. Thank you. And then just switching gears a little bit here. With order books or excuse me, with lead times out to October, is there anything you can kind of tell us about the texture of the order book that you're seeing, maybe indications on the price to mix text that you're seeing?

Speaker 2

Sure. So our lead times are out to the October. We have, if you look at our order book, it's double the size it was a year ago at this time. So we have a much longer term view. It allows us to optimize our scheduling, become and and, increase some of our efficiencies in that regard.

Speaker 2

Defense is gonna continue to be fairly stable. Automotive looks like it's gonna continue to be very stable. And really, what's gonna develop in that order book, we do see expect some price appreciate modest price appreciation to continue to develop throughout the year as the prior announced price increases work into the shipments that we actually make, from a timing standpoint. So things look a hell of a lot better than they did the second half of last year. I could just tell you that.

Speaker 2

And then as this this tariff environment becomes much more clear, then we expect demand continue to to grow.

Speaker 7

That's great. I appreciate the commentary, and good luck in q three.

Speaker 2

Hey. Thanks. Appreciate it.

Operator

And with no further questions in queue, I will now hand the call back to Jennifer for closing remarks.

Speaker 1

Thanks everyone for joining us this morning and that concludes our call today. Thank you.

Operator

Thank you again for joining us today. This does conclude today's conference call. You may now

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