Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Metallus Inc (MTUS, Financial) maintained positive profitability and operating cash flow despite challenging market conditions.
- Strong performance in the aerospace and defense markets, with shipments remaining robust.
- Automotive shipments saw a sequential 2% increase, indicating steady demand in this sector.
- Significant progress in capital investments, including the groundbreaking of a Bloom reheat furnace supported by $3.5 million in grants from JobsOhio.
- Successful execution of safety strategies, with $4.5 million allocated towards safety initiatives and positive indicators in employee engagement and incident prevention.
Negative Points
- Net sales declined by 8% sequentially, primarily due to lower shipments and unfavorable price mix.
- Weak demand in industrial and energy markets, with industrial shipments decreasing by 7% sequentially.
- Significant drop in net income, from $24 million in Q1 to $4.6 million in Q2.
- Expected sequential decline in third-quarter shipments for aerospace and defense markets due to customer order timing.
- Elevated levels of imports, particularly in SBQ and tubing, continue to pressure the business.
Q & A Highlights
Highlights of Metallus Inc (MTUS) Q2 2024 Earnings Call
Q: What were the biggest surprises in the second quarter regarding revenue and costs?
A: Michael Williams, CEO: The biggest surprise was the lack of demand, particularly from the spot market, influenced by high interest rates and economic uncertainty. Additionally, electrical supplier upgrades caused unplanned downtime, affecting fixed cost leverage. Kris Westbrooks, CFO, added that automotive customer downtime also impacted shipments.
Q: Will the unplanned downtime in Q2 be recaptured in Q3?
A: Michael Williams, CEO: Yes, the downtime from Q2 will be recaptured in Q3. However, some OEMs are optimizing their supply chain inventory, which will reduce demand. Additionally, defense customers have sufficient supply and won't place new orders until later in the year.
Q: What is the expected magnitude of the drop-off in aerospace and defense (A&D) shipments in Q3?
A: Michael Williams, CEO: The drop-off in Q3 is expected to be significant, returning to prior year levels. Kris Westbrooks, CFO, noted that the drop could be around 10,000 tons compared to Q2.
Q: Does the market softness provide an opportunity to cut costs further?
A: Michael Williams, CEO: Yes, the company is optimizing costs and reducing CapEx spending. Focus is on strategic investments like automated grinding lines and camera technology to drive higher yields and lower costs. Employee training and cross-training are also being accelerated.
Q: How should we think about CapEx guidance and its split between maintenance, hardware purchases, and IT/automation?
A: Michael Williams, CEO: CapEx guidance has been reduced, focusing on high-benefit projects. IT transformation projects remain unaffected. Some maintenance is deferred, and certain lower-priority projects are delayed to focus on more beneficial investments.
Q: What is the typical pacing for milestones in the Bloom project announced in February?
A: Michael Williams, CEO: The project has specific milestones for funding. The recent groundbreaking marks the start of excavation and foundation work. Additional payments are expected as milestones are met.
Q: How did the step-up in absolute costs in Q2 impact the outlook for Q3?
A: Michael Williams, CEO: The extended downtime for technology installation and electrical upgrades in Q2 will not change the planned outage in October. The company expects melt utilization to increase in Q3 to support Q4 orders.
Q: How aggressively should we consider share repurchases for the balance of the year?
A: Kris Westbrooks, CFO: The company is committed to exhausting the share repurchase authorization, maintaining flexibility based on market conditions. Updates will be provided quarterly.
Q: How much was mill utilization impacted by the downtime for electrical upgrades in Q2?
A: Kris Westbrooks, CFO: Mill utilization was impacted by 7-10 days of downtime, equating to a 7-10% reduction.
Q: What is the expected impact on inventory in Q3 given the increased melt rates?
A: Michael Williams, CEO: Melt rates will increase to support Q4 orders, leading to a pickup in inventory in Q3.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
