Metallus Inc. (MTUS) is a leading manufacturer of high-performance specialty metals, serving demanding applications across diverse end markets. With a storied history spanning over a century, the company has weathered numerous industry cycles, cementing its reputation as a resilient and adaptable player in the specialty metals landscape.
Business Overview
Metallus’ origins can be traced back to 1899, when the company was founded as The Timken Roller Bearing Company. Over the decades, the business evolved, eventually spinning off its specialty steel operations as TimkenSteel in 2014. In 2023, the company rebranded to Metallus, reflecting its focus on providing high-quality specialty metals, manufactured components, and comprehensive supply chain solutions.
The company has faced significant challenges in recent years, particularly during the COVID-19 pandemic in 2020, when it experienced substantial financial losses. This led to a restructuring effort that included workforce reductions and the closure of certain facilities. Metallus also had to navigate volatility in raw material prices and supply chain disruptions during this period.
Despite these setbacks, Metallus has remained committed to investing in its manufacturing capabilities and improving efficiency. In 2021, the company completed a major upgrade to its electric arc furnace at the Faircrest facility, enhancing its ability to produce high-quality steel. This investment aligns with the company’s focus on maintaining its competitive position in the specialty metals market.
Metallus has also been working on diversifying its customer base, expanding beyond its traditional industrial and automotive markets into the aerospace and defense sectors. This strategic shift has helped the company to mitigate risks associated with market fluctuations in specific industries.
Throughout its history, Metallus has maintained a strong emphasis on safety and sustainability. The company has implemented numerous initiatives to reduce its environmental impact, including increases in scrap metal recycling and the use of renewable energy sources. These efforts complement its vertically integrated operations and EAF technology, which contribute to its competitive advantage.
Metallus’ commitment to employee development and maintaining a positive workplace culture has not gone unnoticed. The company was recently recognized with the NorthCoast 99 award in 2024, highlighting its status as an attractive employer in the region.
Metallus operates a single business segment, manufacturing a range of products including special bar quality (SBQ) bars, seamless mechanical tubing, and precision steel components. These materials are used in a diverse array of critical applications, from industrial equipment and automotive parts to aerospace and defense systems.
Financial Performance and Liquidity
Metallus’ financial performance has demonstrated resilience in the face of challenging market conditions. In the most recently reported fiscal year (2023), the company generated net sales of $1.36 billion and net income of $69.4 million. While net sales grew 2.3% year-over-year, net income declined 19.2% due to the impact of higher raw material costs and other market pressures. Operating cash flow for 2023 was $125.3 million, with free cash flow reaching $73.7 million.
The company’s balance sheet remains strong, with total liquidity of $496.8 million as of September 30, 2024, including $254.6 million in cash and cash equivalents and $242.2 million in available borrowing capacity under its amended credit facility. Metallus’ current ratio stood at 2.64, with a quick ratio of 1.68, indicating a robust ability to meet short-term obligations. The company’s debt levels are low, with a debt-to-equity ratio of just 0.018, providing ample financial flexibility to navigate the current environment.
In the first nine months of 2024, Metallus reported net sales of $843.5 million, a decrease of 18.4% compared to the same period in the prior year. Net income for the nine-month period totaled $22.7 million, while adjusted EBITDA reached $69.4 million. The company generated $26.4 million in operating cash flow and $3.6 million in free cash flow during this period.
The third quarter of 2024 proved particularly challenging, with net sales of $227.2 million representing a 35.9% decrease compared to the prior year period. This decline was primarily driven by a 55,900 ton, or 31.8%, reduction in shipment volumes, as well as lower surcharge revenue due to decreases in raw material costs. The company reported a net loss of $5.9 million for the quarter, or $0.13 per diluted share on a GAAP basis, and an adjusted net loss of $4.4 million, or $0.09 per diluted share. Adjusted EBITDA for Q3 2024 was $6.1 million, with the sequential decline primarily driven by lower shipments and unfavorable product mix.
Operational Highlights and Strategic Initiatives
Metallus has remained focused on enhancing its operational efficiency and positioning the company for long-term growth. During the third quarter of 2024, the company invested $17.6 million in capital expenditures, with projects aimed at improving safety, product quality, and asset reliability. For the first nine months of 2024, capital expenditures totaled $49.1 million.
One key initiative is the installation of an automated grinding line at the company’s Harrison facility, which is expected to be operational by the end of 2024. This investment will enhance safety, quality, and efficiency, while also eliminating the need to outsource certain cutting processes. Additionally, Metallus is progressing with the installation of a Bloom Reheat furnace at its Faircrest facility, which will significantly increase the company’s ability to serve the needs of the Department of Defense and support its broader customer base.
In parallel, Metallus has received government funding to support these strategic investments. In the first nine months of 2024, the company received $45.5 million in funding from the U.S. government, which is expected to cover a significant portion of the capital expenditures related to the Bloom Reheat furnace and a new roller furnace at the Gambrinus facility.
Product Portfolio and Market Dynamics
Metallus’ product portfolio is diverse, catering to various industrial applications. The company’s bar products, which include special bar quality (SBQ) bars, accounted for $126.3 million, or 55.6%, of total net sales in Q3 2024. For the nine-month period, bar products generated $500.3 million, or 59.3%, of total net sales. However, bar sales volumes decreased in both the quarter and year-to-date periods compared to the prior year, driven by lower demand across the industrial, automotive, and energy end-markets.
Tube products, primarily seamless mechanical tubing, contributed $27.6 million, or 12.1% of total net sales, in Q3 2024, and $110.4 million, or 13.1%, of net sales year-to-date. Similar to bars, tube sales volumes declined compared to the prior year periods due to softer demand.
Manufactured components, which include precision steel components, generated $69.2 million, or 30.5% of net sales, in Q3 2024 and $218.4 million, or 25.9%, of net sales for the first nine months of 2024. The increase in the percentage of net sales from manufactured components was driven by relatively stronger demand in the automotive and aerospace & defense end-markets compared to the industrial and energy sectors.
The company also records revenue from the sale of scrap materials, which amounted to $3.0 million, or 1.3% of net sales, in Q3 2024 and $14.4 million, or 1.7%, of net sales year-to-date.
End Market Dynamics and Challenges
Metallus’ diverse end market exposure has provided a degree of resilience, though the company has not been immune to the broader challenges facing the specialty metals industry. In the third quarter of 2024, the company experienced a 20% sequential decline in shipments, with weaker demand across its industrial, automotive, and energy sectors.
The automotive market, in particular, has faced several issues, including ongoing equipment problems, recalls, and unexpected downtime. Additionally, the company’s energy customers have seen a slowdown in drilling activity, dampening demand for Metallus’ highly engineered steels. However, the aerospace and defense (A&D) sector has remained a bright spot, with the company anticipating an increase in A&D shipments in the fourth quarter of 2024 and into 2025 as customer capacity and demand continue to ramp up.
One persistent challenge for Metallus has been the influx of seamless mechanical tubing imports, particularly from China, which has exerted pricing pressure in the industrial and energy markets. The company is hopeful that increased Section 301 tariffs on these imports may provide some relief in the future.
The specialty steel industry as a whole has seen a compound annual growth rate (CAGR) of approximately 3-5% over the past 5 years, driven by increased demand from key end markets like automotive and aerospace. However, the industry has been impacted by volatility in raw material costs and global trade tensions.
Outlook and Future Guidance
Despite the current market headwinds, Metallus remains cautiously optimistic about its long-term prospects. For the fourth quarter of 2024, the company expects shipments to increase slightly on a sequential basis, driven by higher aerospace and defense shipments. Adjusted EBITDA is also anticipated to modestly increase compared to Q3 2024.
Looking ahead to 2025, Metallus expects base capital expenditures to be below 2024 levels, although CapEx spending on investments supported by government funding will ramp up. The company forecasts full-year 2024 capital expenditures of approximately $65 million, including $15 million supported by government funding. This represents a $5 million reduction in base CapEx from previous guidance.
Metallus expects required pension contributions in 2025 to be similar to 2024 levels of approximately $43 million. The company remains committed to its capital allocation strategy, including investing in profitable growth, maintaining a strong balance sheet, and returning capital to shareholders through continued share repurchases.
In terms of long-term goals, Metallus expects to grow its aerospace and defense sales to over $250 million by 2026, underlining the company’s focus on this high-growth sector.
Conclusion
Metallus’ strong balance sheet, active share repurchase program, and positive long-term outlook suggest the company is well-prepared to navigate the ongoing challenges in the specialty metals industry. As the company continues to execute its capital allocation strategy and focus on driving cost reductions and profitability improvements, investors may find Metallus an interesting play in the specialty metals space. The company’s strategic investments, supported by government funding, are expected to enhance its operational capabilities and position it to capture future growth opportunities, particularly in the aerospace and defense sector.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.