Business Overview and History
Metallus Inc. (MTUS) is a leading manufacturer of high-quality specialty metals, serving demanding applications in industries such as industrial, automotive, aerospace, and defense. With a rich history spanning over a century, the company has established itself as a trusted supplier, delivering innovative solutions and consistently exceeding customer expectations.
Metallus Inc., formerly known as TimkenSteel, traces its origins back to 1917 when it was founded as a manufacturer of high-quality specialty metals and components from recycled scrap metal. Headquartered in Canton, Ohio, the company has established itself as a leader in the industry, serving a diverse range of demanding applications across various end markets.
In its early years, Metallus focused on producing high-quality steel products for the automotive and industrial sectors. The company quickly gained a reputation as a trusted supplier by investing in its manufacturing capabilities and continuously improving its processes to deliver exceptional quality and reliability to its customers.
Throughout its history, Metallus has faced numerous challenges, including fluctuations in commodity prices, intense global competition, and changes in customer demand. In 2022, the company encountered a significant setback when it was forced to temporarily shut down its Faircrest melt shop due to an unplanned equipment failure. This incident impacted production and resulted in financial losses. However, Metallus demonstrated its resilience by quickly implementing a recovery plan and securing substantial insurance recoveries to offset the financial impact.
Despite these challenges, Metallus has remained committed to its core values of safety, quality, and operational excellence. The company has consistently invested in its facilities, technology, and workforce to strengthen its competitive position. In 2023, Metallus took a strategic step to improve its financial flexibility by announcing the termination of its salaried pension plan, which helped to reduce its long-term pension obligations.
Throughout its history, Metallus has operated manufacturing facilities in Canton, Ohio, where it leverages electric arc furnace (EAF) technology to produce a wide range of specialty steel products, including special bar quality (SBQ) bars, seamless mechanical tubing, and manufactured components.
Metallus' product portfolio is tailored to meet the demanding requirements of its diverse customer base, which includes industry-leading companies in the industrial, automotive, aerospace, and defense sectors. The company's commitment to quality, innovation, and customer service has earned it a reputation as a reliable and trusted partner in the specialty metals industry.
Financial Performance and Ratios
Metallus' financial performance in recent years has been characterized by a mix of challenges and strategic initiatives aimed at navigating market volatility. In the absence of the company's structural changes and continuous improvement efforts, the market challenges faced in 2024 would have had a more significant impact on profitability.
For the fiscal year 2024, Metallus reported revenue of $1.1 billion, with a net income of $1.3 million. Operating cash flow for the year stood at $40.3 million, while free cash flow was negative at -$24.0 million. In the most recent quarter (Q4 2024), the company reported revenue of $240.5 million, representing a year-over-year growth of 6.0%, primarily driven by higher shipments and strength in aerospace and defense demand. However, the quarter also saw a net loss of $21.4 million, primarily due to a $9.4 million loss on repurchases of convertible notes and an $8.5 million non-cash pension remeasurement loss.
As of the third quarter of 2024, Metallus' net sales stood at $227.2 million, a decrease of 35.9% compared to the same period in the prior year. This decline was primarily driven by lower shipment volumes, unfavorable surcharges, and product mix changes. Gross profit for the quarter amounted to $12.1 million, with a gross profit margin of 5.3%.
Liquidity and Financial Ratios
The company's current ratio, a measure of its ability to meet short-term obligations, stood at 2.09 as of the end of Q3 2024, indicating a strong liquidity position. The quick ratio, which excludes inventory, was 1.31, further demonstrating Metallus' financial flexibility.
Metallus' return on assets (ROA) and return on equity (ROE) for the trailing twelve months were 0.12% and 0.18%, respectively, reflecting the challenges faced in the current market environment. The company's debt ratio, at 0.02, suggests a conservative capital structure, with a debt-to-equity ratio of 0.024.
As of the end of 2024, Metallus reported cash and cash equivalents of $240.7 million. The company also has an available credit line of $400 million under the Amended Credit Agreement, with $247.6 million available and undrawn as of September 30, 2024.
Operational Highlights and Strategic Initiatives
Throughout 2024, Metallus remained focused on enhancing its safety management system, investing approximately $8 million to reinforce procedures and engage employees. These efforts resulted in a 7% decline in the company's OSHA total recordable injury rate and a 15% improvement in corrective action completion related to potential serious injuries.
In response to the evolving trade environment, Metallus has advocated for fair trade practices and has been closely monitoring developments. The recent executive order introducing tariffs on steel long products and certain derivative products is expected to help level the playing field for the industry, reduce imports, and boost domestic demand – a shift that Metallus believes will benefit its business.
Metallus has also made significant strides in expanding its participation in the high-growth aerospace and defense market. The company's sales in this sector increased by 17% in 2024, reaching nearly $135 million and representing 12% of total sales, up from 8% in the prior year. The company is targeting further growth in this segment, aiming to exceed $250 million in aerospace and defense sales by 2026.
To support the U.S. Army's mission of ramping up munitions production, Metallus has been awarded a $99.75 million government funding agreement. This funding will support the installation of a new Bloom reheat furnace and a new roller furnace, which are expected to enhance the company's capacity and finishing capabilities for high-quality bar-based products used in artillery shell production.
Metallus has also deepened its relationships with major petrochemical companies, committing to capital investments to expand its offerings. The company is targeting $20 million in annual sales from two important energy programs beginning in 2026, demonstrating its commitment to staying connected with customers and driving innovation.
Product Segments and Performance
Metallus operates in several key product segments:
Industrial: This segment produces special bar quality (SBQ) bars, seamless mechanical tubing, and manufactured components for various industrial applications. In Q3 2024, the Industrial segment accounted for $91.4 million in net sales, or 40.2% of total net sales. Shipment volumes were 53,100 tons, with an average base sales price of $1,320 per ton, excluding surcharges.
Automotive: The Automotive segment produces SBQ bars, tubes, and manufactured components for automotive applications. In Q3 2024, Automotive net sales were $104.9 million, or 46.2% of total net sales. Shipment volumes were 57,100 tons, with an average base sales price of $1,500 per ton.
Aerospace & Defense: This segment supplies SBQ bars, tubes, and manufactured components for aerospace and defense applications. In Q3 2024, Aerospace & Defense net sales were $12.3 million, or 5.4% of total net sales. Shipment volumes were 3,400 tons, with an average base sales price of $3,270 per ton.
Energy: Metallus produces SBQ bars, tubes, and components for the energy industry. Energy segment net sales in Q3 2024 were $14.5 million, or 6.4% of total net sales. Shipment volumes were 6,300 tons, with an average base sales price of $1,760 per ton.
Other: This category includes scrap sales, which accounted for $4.1 million, or 1.8% of Q3 2024 net sales.
Shareholder Return and Capital Allocation
Metallus has remained disciplined in its capital allocation strategy, balancing investments in the business with shareholder returns. In 2024, the company repurchased 2 million shares of its common stock for $37.6 million, reducing its outstanding shares by nearly 5%. At the end of the year, Metallus had $102.8 million remaining under its current share repurchase authorization.
Additionally, the company has been proactive in managing its debt structure, repurchasing $7.8 million of outstanding convertible notes during the fourth quarter of 2024. These actions have resulted in a significant 22% reduction in diluted shares outstanding since the fourth quarter of 2021, reflecting Metallus' commitment to enhancing shareholder value.
Outlook and Challenges
As Metallus enters 2025, the company is cautiously optimistic about the improving order book and increased shipment visibility. The anticipated implementation of tariffs on steel long products and certain derivative products is expected to boost domestic demand, providing a tailwind for Metallus' business.
For the first quarter of 2025, Metallus expects adjusted EBITDA to be higher than Q4 2024. The company anticipates Q1 2025 shipments to increase sequentially, driven by strength in the industrial, aerospace & defense, automotive, and energy end markets. Raw material surcharge revenue per ton is expected to increase sequentially due to a $50/ton increase in the scrap index. However, the company expects unfavorable price/mix in Q1 2025 due to the outcome of annual customer price agreement negotiations and weakness in spot pricing.
Melt utilization is projected to increase to approximately 70% in Q1 2025, leading to improved fixed cost leverage and lower manufacturing costs. For the full year 2025, Metallus provided guidance including depreciation & amortization expense of approximately $58 million, SG&A expense of $85-90 million (excluding IT transformation costs), an effective tax rate of about 25%, and diluted shares outstanding of approximately 44 million.
The company expects approximately $65 million in required pension contributions in 2025, weighted more heavily to Q1. Additionally, Metallus anticipates receiving approximately $37 million in government funding in 2025 to support its $125 million capital expenditure program.
However, the company remains mindful of ongoing market volatility and the potential for continued challenges in certain end markets. Metallus' management team is closely monitoring the situation and prepared to adapt its strategies as necessary to navigate the evolving landscape.
Key risks facing Metallus include fluctuations in customer demand, raw material and energy cost volatility, the potential impact of global trade policies, and the ability to effectively manage its pension and postretirement benefit obligations. The company's success in addressing these challenges will be crucial in its pursuit of sustainable profitability and cash flow generation.
Conclusion
Metallus Inc. (MTUS) is a specialty metals industry leader with a rich history and a steadfast commitment to innovation, quality, and customer service. Despite the challenges faced in 2024, the company has demonstrated its ability to adapt and implement strategic initiatives to navigate market volatility.
By investing in safety, expanding its participation in the high-growth aerospace and defense market, and deepening relationships with key customers, Metallus is well-positioned to capitalize on emerging opportunities and deliver long-term value to its shareholders. As the company continues to execute its capital allocation strategy and address industry-specific risks, investors will closely monitor Metallus' ability to drive sustainable profitability and cash flow generation in the years ahead.