Release Date: May 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Metallus Inc reported a sequential increase in profitability and continued solid cash generation despite softer demand from industrial distribution and energy customers.
- The company has authorized an additional $100 million share repurchase program, reflecting confidence in its financial stability and commitment to returning capital to shareholders.
- Metallus Inc is experiencing growth in the aerospace and defense markets, with net sales increasing by 5% sequentially and 166% year-over-year.
- The company has made significant progress in safety improvements, investing approximately $7 million in safety training and equipment enhancements, and achieving positive results in preventing serious injuries.
- Metallus Inc remains on track to achieve its targeted $80 million of profitability improvements between 2022 and 2026, having already achieved approximately 75% of this target.
Negative Points
- First quarter net sales and shipments saw a slight sequential decline of 2%, indicating some areas of weakness in the market.
- Shipments to energy customers decreased by 12% sequentially as North American oil and gas demand remains challenged.
- Industrial distribution shipments remain soft due to ongoing customer inventory rebalancing, which may take additional quarters to stabilize.
- Aerospace and defense shipments in the first quarter decreased by 11% sequentially from record high levels in the previous quarter.
- The company anticipates second quarter adjusted EBITDA to be lower than the first quarter of 2024 due to various factors including planned downtime for new technology installations.
Q & A Highlights
Q: Good morning, everyone, and thanks for taking the questions. I'd like to start with some of your end market expectations on a go-forward basis. two things I'm curious about. One, on the automotive side of the business. It seems like production rates are actually gradually improving, except for maybe one large OEM. I'm curious, if you're over-exposed to that one large OEM that may find itself excess inventory?
A: I don't believe we are, John. We are heavily focused on our working capital and we produce to the orders that we get. So if they're ordering it, we're going to make it and ship it. But we're not doing any hedging on putting inventory on the ground for any automotive customer.
Q: Okay. Fair enough. And on the industrial side, you referenced that the distributors continue to dwindle down on inventory. Any sense when we're going to reach equilibrium and debt trend reverses?
A: Well, we just got the MSCI shipment numbers for the month of March and we've had them for a couple of weeks. And we see their shipments declining year over year. So hard to forecast. If you look at the bar products, it's about 3.5 months of inventory in the distribution supply chain. And on the tubular -- on the seamless mechanical tubing, that's about eight months. So those are historically -- tubing is probably lower than its historical average, but the bar products are -- we like to see that around 2.8 months to 3. I believe it's going to take a quarter or two to work that off.
Q: Okay. Makes sense. And on the quarter itself, SG&A was up 15% year on year. I recognize in part that's due to the rebranding. I wonder if you could maybe -- how much the rebranding -- what's that increase on a year-over-year basis? Maybe what we should be thinking about as an ongoing SG&A number on a go-forward basis?
A: I'll give you my two cents and then I'll turn it over to Kris. From the rebranding perspective, it's a modest increase in our SG&A. We have an implementation plan on rebranding from signs and et cetera, et cetera, et cetera. But I don't think that's the major driver of the increase. Kris, do you have any further insight?
Q: Okay. All right. And I guess, one last question and I'll get back into queue. You mentioned that you're about 75% done on your profit enhancement programs. I'm just curious about the remaining 25%, which still remains to be done? And what's the general thoughts on the timeline on that?
A: Yes. That remaining 25% is really going to be accomplished through the investments that we are making with the automatic grinding line, the in-line saw, other investments that we're making in the -- we announced that we're going to take some downtime for the EAF. So as those investments are constructed, commissioned, we expect that to happen throughout this year and probably the first half of next year before we'll see the full run rate realization of the remaining 25%. But it's all centered around manufacturing improvements.
Q: Hey, good morning. Kris, based on your commentary, are we to take away that there were no further retroactive pricing adjustments in the first quarter in automotive components, it was just a rich mix in the quarter?
A: I think that's pretty spot on, Phil. The retro pricing that hit in Q4 -- the average pricing negotiated will continue throughout 2024. And we had a richer mix coming out of higher manufactured component shipments to the automotive end market.
Q: Good morning. This is Justin sitting in for Dave. Just a couple. Just wanted to see what kind of melt utilization level should we expect for the rest of 2024? And then what's kind of the reliance on third-party melt utilization?
A: Very little reliance on melt utilization. Hard to predict the rest -- the remaining part of 2024 on a melt utilization standpoint. With lead times so short, our visibility is short. So we stay in alignment with our customers. We're doing the best to serve, provide them the best service and the best quality and we'll continue to do that. And if the market demands improve, so will our utilization rate.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
