Philip Gibbs

Phil Gibbs inquired about the one-time nature of the SG&A increase, specifically regarding compensation, professional fees, and the Sitem acquisition impact, and also asked about the primary drivers behind automotive direct sales momentum, including the role of cold rolled strip and the influence of tariffs and onshoring.

Answer

Tim Adams, VP and CFO, clarified that $2.3 million in professional fees were one-time strategic project costs, while Sitem's financial results were now integrated, distinct from a prior quarter's transaction bonus. Geoff Gilmore, President and CEO, explained that automotive growth stemmed from previously gained market share reaching full volume, with recent cold rolled strip wins ramping up. He noted significant gains were due to supply chain onshoring, not yet manufacturing onshoring.

Phil Gibbs from KeyBanc Capital Markets inquired about the components of the SG&A increase, specifically distinguishing between one-time professional fees related to strategic projects and the ongoing impact of integrating CDEM into the financials. He also asked for clarification on the primary drivers behind the impressive automotive momentum in direct sales, particularly if it was led by cold-rolled strip, and sought to understand the contribution of tariffs versus broader onshoring trends to recent market share gains.

Answer

Geoff Gilmore, President and CEO, and Tim Adams, VP and CFO, clarified that the $2.3 million increase in professional fees was indeed related to strategic M&A projects and is considered volatile. They explained that CDEM's financial results are now included in the current quarter, distinct from a prior one-time transaction bonus. Gilmore further elaborated that the current automotive momentum stems from previously secured market share programs reaching full production, with new cold-rolled strip specific wins expected to ramp up in calendar Q1 and Q2. He confirmed that a significant portion of recent market share gains is attributable to customers localizing supply chains, rather than new manufacturing onshoring announcements.

Phil Gibbs inquired about the specifics of the Sedum acquisition, including the mezzanine financing structure, the initial cash outlay, and potential residual payments. He also asked for the outlook on the automotive market, particularly regarding opportunities for market share gains in fiscal year 2026, and the impact of derivative Section 232 tariffs on electrical steel laminations for Worthington Steel's Canadian and Mexican operations.

Answer

Tim Adams, VP & CFO, detailed the Sedum acquisition financing, comprising $60 million in cash and the contribution of the NOG Gold facility, financed via ABL. He clarified that mezzanine equity, denominated in euros, is subject to exchange rate adjustments. Geoff Gilmore, CEO, President & Director, expressed cautious optimism for the automotive market, projecting a $15 million unit build rate and anticipating further market share gains in 2026, especially with upcoming contract seasons. Tim Adams added that the Section 232 tariffs on electrical steel laminations have had little material impact, as customers are willing to pay, and a significant portion of the customer base is USMCA compliant, with strong demand outweighing U.S. supply chain capacity.

Phil Gibbs asked about the financial structure and initial cash outlay for the Sedum acquisition, the automotive market outlook for 2026 and opportunities for market share gains, and the impact of derivative Section 232 tariffs on electrical steel laminations for Canadian and Mexican operations.

Answer

CFO Tim Adams detailed that the Sedum acquisition involved $60 million in cash, financed via ABL, and the contribution of the NOG Gold facility. He clarified that the mezzanine equity, denominated in euros, reflects a put option held by partners and is adjusted for FX changes, impacting EPS. President and CEO Geoff Gilmore expressed cautious optimism for the automotive market, projecting a $15 million unit build rate for the year, and confirmed ongoing opportunities for further market share gains, especially with new programs ramping up and upcoming contract seasons. Tim Adams stated that the company has seen little material impact from the Section 232 tariffs, noting that customers are willing to pay, a significant portion of the customer base is USMCA compliant, and demand remains robust due to insufficient U.S. capacity.

Phil Gibbs inquired about the specifics of the Sedum acquisition's mezzanine financing structure, the initial cash outlay, and potential residual obligations. He also asked about the automotive market outlook for 2026 and opportunities for further market share gains, as well as the impact and management strategy regarding derivative Section 232 tariffs on electrical steel laminations.

Answer

Tim Adams, VP and CFO, clarified the Sedum acquisition involved $60 million in cash and the NOG Gold German facility, financed via ABL, explaining the mezzanine equity classification due to a put option and its FX adjustments. Geoff Gilmore, President and CEO, expressed cautious optimism for automotive, projecting a $15 million unit build rate for the year, noting continued market share gains and future contract season prospects. Regarding tariffs, Gilmore stated minimal material impact, citing customer willingness to pay, USMCA compliance, robust demand, and insufficient domestic capacity.

Philip Gibbs asked for an update on March business trends following a strong February, questioned the strategy regarding market share in construction given the volume decline, and sought color on new automotive customer awards and their expected margin profile.

Answer

CEO Geoff Gilmore confirmed that positive momentum from February, driven by fundamental demand, continued into March, particularly in automotive as a large OEM customer began to normalize operations. He explained the 20% construction volume drop was against a difficult prior-year comparison when they intentionally targeted that market. Gilmore also noted that new automotive program wins are beginning to ramp up and will contribute more significantly to volume over the next six months, though some of this new business may not be as high-margin as that from their recovering OEM customer.

Philip Gibbs of KeyBanc Capital Markets Inc. questioned the abrupt sequential decline in EBITDA per ton, the specific financial magnitude of bad debt and professional fees, why these costs were not excluded from adjusted results, and the outlook for customer sentiment into early 2025, particularly concerning a key automotive customer's production cuts.

Answer

VP and CFO Timothy Adams attributed the EBITDA decline to three factors: a sharper-than-expected 7% sequential volume drop due to a major automotive customer's sudden production cuts, increased SG&A from bad debt and acquisition-related professional fees, and weaker performance at the Serviacero joint venture. Adams quantified the bad debt and professional fees at approximately $2 million each, explaining they were not excluded as they are considered normal course of business. President and CEO Geoffrey Gilmore added that he is 'cautiously optimistic' for 2025, noting that market share gains with other OEMs helped offset the volume loss and that the issue with the one OEM is a 'short-term frustration, not a long-term problem'.

Philip Gibbs of KeyBanc Capital Markets asked for an update on electrical steel contract wins and capacity allocation for the Mexico and Canada expansions. He also questioned the reasons for the sharp year-over-year decline in equity income and sought clarity on the expected returns from the Tempel business integration and ERP project.

Answer

COO Jeffrey Klingler confirmed new business wins for the Mexico expansion, with several presses already spoken for, and noted positive customer dialogue for both Mexico and Canada. CFO Tim Adams explained the drop in equity income from Serviacero was equally due to lower inventory holding gains and the negative impact of a depreciating Mexican peso. CEO Geoff Gilmore stated it is too early to quantify returns from Tempel, as the primary focus is on completing the ERP implementation to establish a reliable data baseline.

Phil Gibbs from KeyBanc Capital Markets asked about the ramp-up progress of the Calvert EAF and its contribution to the 2026 strategic EBITDA growth bridge. He also inquired about specific actions Canada has taken to address unfairly traded steel and whether these measures are deemed sufficient.

Answer

Genuino Christino (CFO) stated that the Calvert EAF is ramping up, with an expected year-end run rate of 40-50%, and its contribution to 2026 EBITDA will be split between full-year consolidation (M&A bucket) and EAF project contribution. For Canada, Mr. Christino noted that while reducing quotas for non-FTA countries is a good step, it doesn't fully address the problem, and he believes Canada needs stronger trade protection, hoping for a common trade block agreement through USMCA negotiations.

Phil Gibbs asked about the ramp-up progress of the Calvert EAF and its contribution to the 2026 strategic EBITDA growth bridge. He also questioned Canada's actions to address unfairly traded steel and reciprocity for U.S. tariffs, and whether these measures are sufficient.

Answer

CFO Genuino Christino confirmed the Calvert EAF is ramping up, expecting a 40-50% run rate by year-end, with its contribution split between M&A (full-year consolidation) and projects (EAF contribution) in 2026. He noted Canada's reduction of quotas for non-FTA countries but believes stronger trade protection is needed, especially given imports from the U.S., hoping for common rules within USMCA negotiations.

Philip Gibbs asked for the 2025 outlook for the automotive markets in North America and Europe and inquired if any significant start-up costs for the Calvert mill were included in the current results.

Answer

CFO Genuino Christino stated that ArcelorMittal sees stability in the North American automotive market, where it gained some share in 2024. For Europe, the base case is for a modest decline in production in 2025, offset by growth in Brazil. He also confirmed that there were no meaningful start-up costs related to the Calvert EAF commissioning in the Q4 results, as it is a joint venture.

Philip Gibbs inquired about Materion's decision to maintain its full-year outlook range despite increased visibility, the financial implications and shipment timeline for the new Commonwealth Fusion Systems agreement, and the specific impact and size of one-time operating items on Electronic Materials' margins in the quarter. He also asked about the potential for government stockpiling of beryllium given increased defense spending.

Answer

CFO Shelly Chadwick explained that the full-year range was maintained due to uncertainties in China and potential government shutdown impacts, though the company was on track for the midpoint. She detailed a $1 million one-time operating pickup in Electronic Materials from precious metals refining. CEO Jugal Vijayvargiya expressed excitement for the Commonwealth Fusion Systems agreement, expecting a few million in Q4 shipments and annualization next year, with significant long-term potential. He also linked increased defense spending to higher beryllium usage and confirmed active discussions with entities regarding beryllium supply for defense needs, including potential stockpiling.

Philip Gibbs asked if the government's potential interest in stockpiling certain resources would include beryllium, and if Materion anticipates any pickup in this dynamic.

Answer

Jugal Vijayvargiya, President and CEO, connected increased U.S. and allied defense spending to a greater demand for beryllium, which is critical for many defense applications. He confirmed active discussions with various entities about supporting defense needs, whether through stockpiling or direct material usage, and stated Materion is prepared to meet this demand.

Philip Gibbs of KeyBanc Capital Markets inquired about the sustainability of the strong margins in Electronic Materials, the drivers behind the sequential pickup in consumer electronics, growth catalysts in the energy business, and the company's confidence in mitigating China tariff risks. In a follow-up, he asked about potential cash tax savings from recent legislation and any discussions around replenishing strategic beryllium stockpiles.

Answer

CEO Jugal Vijayvargiya explained that Electronic Materials has reached a new performance level due to cost optimization, and while Q2's 23.4% margin is a high point, he expects strong year-over-year margin expansion. He attributed the consumer electronics uptick to shipment timing for a key customer. For energy, he highlighted growth in both traditional oil & gas and significant momentum in new energy, with H1 sales already surpassing the full year of 2024. Regarding tariffs, he expressed confidence in the full-year guide due to strong order rates, record defense bookings, and a doubled space backlog offsetting risks. He also confirmed active discussions with the Department of Defense on beryllium stockpiles. CFO Shelly Chadwick added that potential cash tax savings are being evaluated, noting the production tax credit is now scheduled to wind down by 2031.

Philip Gibbs of KeyBanc Capital Markets Inc. asked for clarification on the company's 20% EBITDA margin target in light of potential tariff impacts, which business segments are affected by Chinese customers freezing orders, and how the potential EPS headwind from tariffs was calculated.

Answer

President and CEO Jugal Vijayvargiya stated the 20%+ EBITDA margin is a performance goal the company will strive for by offsetting tariff impacts, though he acknowledged uncertainty. He noted the $100 million in U.S. sales to China is split about 50/50 between semiconductor and other markets like auto and consumer electronics, with all being affected by order pauses. The estimated EPS impact is based on potential lost volume and related factory absorption issues, offset by cost actions. CFO Shelly Chadwick added that the company is conducting extensive scenario planning.

Philip Gibbs from KeyBanc inquired about the company's positioning regarding potential tariffs, R&D budget allocation for rejuvenating Precision Optics, and the management of rising tantalite prices and supply disruptions. He also asked about the key drivers for the 300 basis point margin improvement target, particularly the contribution from Precision Optics.

Answer

President and CEO Jugal Vijayvargiya detailed a multi-faceted tariff strategy, including evaluating second-source suppliers, leveraging their U.S. footprint, and working to exempt critical national security materials. He confirmed Precision Optics is a key contributor to the new 23% margin target and that R&D spending is targeted to support its turnaround. He also noted that restructured contracts and a diverse supply base help manage tantalum price volatility, with any impacts likely related to timing.

Philip Gibbs from KeyBanc Capital Markets questioned the trade-offs between top-line impact and margin improvement from recent rationalizations, asked about proceeds from the New Mexico divestiture, and sought outlooks for the Oil & Gas and Beryllium Nickel businesses.

Answer

President and CEO Jugal Vijayvargiya clarified that the only top-line impact is the ~$10M from the divested business, with the goal being growth from a more cost-optimized footprint. VP and CFO Shelly Chadwick stated the proceeds from the sale are immaterial but provide some cash flow. Vijayvargiya expressed cautious optimism that the Oil & Gas market is approaching a bottom and noted that while initial indications for Beryllium Nickel in 2025 are favorable after a Q4 lift, he wants to see Q4 results before commenting further.

Phil Gibbs asked for an update on the West Virginia sheet mill investment, including spending and startup timelines, and sought clarification on the difference between Nucor's cash tax rate and book tax rate for 2025 and 2026.

Answer

Noah Hanners (EVP, Sheet Group) reported that the West Virginia sheet mill is approximately 75% complete in both build and capital spending, with the remaining 25% primarily in labor. He expressed excitement about the team and the state-of-the-art capabilities. Steve Laxton (Executive Vice President and CFO) stated there's no significant difference between cash and book tax rates for 2025 and 2026, as recent tax legislation primarily impacts projects started after its enactment, and most of Nucor's major spending had already begun. He noted deferred tax benefits of around $100 million in 2025, decreasing in 2026.

Philip Gibbs of KeyBanc Capital Markets Inc. asked about direct tax benefits from new legislation and the cost impact of slab tariffs on the CSI business, as well as overall energy cost trends.

Answer

CFO Stephen Laxton noted limited direct tax benefits, with the main advantage being accelerated R&D expensing. CEO Leon Topalian and EVP Allen Behr confirmed slab tariffs are impacting costs but are being mitigated through flexible global and internal sourcing. Laxton stated energy costs are stable and expected to remain so.

Philip Gibbs of KeyBanc Capital Markets Inc. inquired about any direct, near-term tax benefits from the new legislation for Nucor. He also asked about the cost impact of slab tariffs on the CSI facility and the general trend in energy costs.

Answer

CFO Stephen Laxton noted that benefits from the new bill are limited and forward-facing, with the main impact being the accelerated expensing of R&D. Management confirmed that tariffs on imported slabs are already in effect but are being mitigated through diversified international sourcing and internal supply. Mr. Laxton added that energy costs are expected to be relatively flat in the coming quarters.

Phil Gibbs asked if the $10 million Adjusted EBITDA outperformance (excluding oil and gas rights) was roughly split between operational gains and strong defense sales. He also inquired about the expected continuation of defense sales levels into Q4 2025 and the primary drivers behind the strong improvement in networking capital for free cash flow.

Answer

Kim Fields (President and CEO, ATI) agreed that the outperformance was a fair split between productivity across assets and robust defense performance, noting double-digit growth in defense programs. While Q3 saw significant defense shipments that will moderate slightly in Q4, she expects the underlying demand momentum for defense to continue building into Q4 and 2026, with jet engine revenue seeing an uptick. Don Newman (EVP and CFO, ATI) attributed the working capital improvement, particularly in Q3, to accounts receivable management, including AR factoring through a securitization facility, alongside ongoing progress in inventory efficiency.

Phil Gibbs questioned whether the $10 million adjusted EBITDA outperformance (excluding oil and gas rights) was split evenly between operational improvements and strong defense sales. He also asked if defense sales levels would continue into Q4 or if some were pulled into Q3, and inquired about the primary drivers of the strong networking capital improvement for free cash flow.

Answer

Kim Fields, President and CEO, ATI, agreed that the split was fair, attributing the outperformance to broad operational improvements and robust double-digit defense growth. She noted that while Q3 saw significant defense shipments, Q4 defense sales would moderate slightly, with jet engine sales seeing an uptick. Don Newman, Executive Vice President and CFO, ATI, explained that working capital improvement was primarily due to accounts receivable management, including a securitization facility and AR factoring, alongside inventory efficiencies.

Philip Gibbs inquired about the direct cost impact from tariffs and asked about customer demand trends in the exotics business, particularly for nuclear and critical resource applications.

Answer

EVP & CFO Don Newman explained that ATI is well-positioned to recover tariff-related costs through contractual mechanisms and is 'very, very defensive' about protecting margins. President & CEO Kimberly Fields noted strong momentum in the exotics business, with nuclear demand up 24% year-over-year, and highlighted that ATI is repurposing capacity from softer industrial markets to serve this high-margin energy demand.

Philip Gibbs inquired about the growth and headcount status of the isothermal forgings business and asked if the new titanium capacity was a drag on current earnings.

Answer

Kim Fields, President and CEO, stated that isothermal forging demand is very high with lead times into 2027, and the business is on track to exceed $1 billion in sales this year. She confirmed headcount additions are complete and crews are now in training. Donald Newman, EVP and CFO, clarified that the new titanium facility is a use of cash but not a drag on adjusted earnings and confirmed the new Airbus contract is largely for titanium.

Philip Gibbs questioned if there was a revenue catch-up in Q4 from Q3's operational issues and asked for a breakdown of the $18 million non-operational EBITDA benefit, including where it was recorded.

Answer

Executive Vice President and CFO Don Newman confirmed a Q4 revenue benefit from both a ~$20 million catch-up from Q3 and a ~$25-30 million pull-forward from Q1. He explained the $18 million EBITDA benefit consisted of an ~$8 million oil and gas gain booked at corporate and a $10.4 million IRS tax credit recorded as an expense reduction in the AA&S segment.

Philip Gibbs of KeyBanc Capital Markets asked for more detail on the backlog composition between segments and inquired about the specific products and channels affected by recent order pushouts and cancellations.

Answer

President and CEO Kim Fields stated the backlog is stable at approximately $4 billion, with about 75% in the HPMC segment and 25% in AA&S. She specified that pushouts and cancellations primarily affected airframe titanium products, largely from the distribution channel, citing a landing gear customer who pushed orders into 2025 to correct an over-inventoried position. EVP and CFO Don Newman also confirmed that the anticipated $40 million in Q4 divestiture proceeds are included within the company's free cash flow guidance.

Phil Gibbs from KeyBanc Capital Markets inquired about the anticipated turnaround or stabilization timeline for excess inventories in the aerospace and semiconductor specialty product markets. He also asked for the expected CapEx for 2026 and clarification on the cash tax rate alignment with the effective rate, considering new tax bills.

Answer

Karla Lewis, CEO and President, expects continued improvement in the aerospace and semiconductor supply chains through 2026, noting that Reliance Inc. is in a better inventory position than the overall industry. Steve Cook, COO, added that Reliance is in the 'seventh or eighth inning' for aerospace inventory. Karla Lewis indicated that the 2026 CapEx budget would likely be directionally lower than 2025's $325 million, though cash outlays might be consistent due to carryover. Arthur Ajemyan, CFO, confirmed Reliance is a full-rate taxpayer and expects bonus depreciation to incrementally reduce cash taxes by $30-40 million.

Phil Gibbs asked for an anticipated timeline for the turnaround or stabilization of excess inventories in the semiconductor and aerospace markets, inquired about the expected capital expenditure for 2026, and questioned whether the cash tax rate for 2025 and 2026 would align with the effective tax rate.

Answer

Karla Lewis, President and CEO, and Steve Cook, Executive Vice President and COO, indicated that while some pockets show improved demand, a full turnaround for high-value specialty products in aerospace and semiconductor markets is expected to continue through 2026, with Reliance's own aerospace inventory in better shape than the broader industry. Karla Lewis stated that the 2026 CapEx budget is expected to be directionally lower than 2025's $325 million budget, though cash outlays might be consistent due to carryover projects. Arthur Ajemyan, Senior Vice President and CFO, confirmed Reliance is a full-rate taxpayer and that bonus depreciation from the new tax bill could incrementally reduce cash taxes by $30-40 million.

Philip Gibbs questioned the revision of the LIFO calculation from a projected income to an expense, specifically asking if the outlook for the aerospace segment had changed. He also sought clarification on whether recent tariff announcements had incrementally accelerated reshoring discussions and requested a reiteration of the full-year cash CapEx forecast.

Answer

Executive Arthur Ajemyan clarified that the LIFO estimate was revised to an expense due to higher-than-anticipated carbon steel and aluminum costs, but the baseline assumption for the aerospace business remained relatively unchanged. Executive Karla Lewis added that rising prices causing LIFO expense is a positive indicator for the business. On reshoring, Lewis confirmed that discussions about bringing supply chains closer to U.S. operations have accelerated. She also reiterated the full-year 2025 cash capital spending forecast of $375 million to $400 million.

Philip Gibbs from KeyBanc Capital Markets asked about the 4% rise in operating expenses despite lower FIFO gross profit, questioning opportunities for cost savings. He also requested the 2025 cash CapEx outlook, clarification on semiconductor market softness, and a more detailed explanation of the mechanics behind the 2025 LIFO income guidance.

Answer

Executive Karla Lewis acknowledged wage inflation but stated the company is always seeking efficiencies while retaining key employees. Executive Arthur Ajemyan added that operating cost per ton has been steady and the company aims to grow into its cost structure. For CapEx, Karla Lewis projected a $375 million to $400 million cash outlay in 2025. Regarding the LIFO credit, Arthur Ajemyan explained the $60 million income estimate for 2025 is a timing issue, effectively shifting income from 2024 due to delayed receipts of long-lead-time specialty products, which they expect to ship in 2025.

Philip Gibbs from KeyBanc Capital Markets asked for clarification on why the LIFO reserve estimate was not increased despite lower-than-expected pricing. He also sought to confirm if Q4 gross margins are expected to be the trough and requested more context on signs of stabilization in the semiconductor market.

Answer

Executive Arthur Ajemyan and CEO Karla Lewis explained that a unique situation with long-lead-time specialty aerospace products is shifting some LIFO income from 2024 into 2025. Ajemyan clarified that Q4 gross margins are expected to be consistent with Q3, and whether it's a trough depends on Q1 2025 pricing. Lewis added that for semiconductors, they see slightly more activity in consumables as inventories are worked down, but infrastructure projects face some delays.

Philip Gibbs sought clarification on whether the 14% engine sales growth was year-over-year or sequential. He also asked for insights into the combined contribution of space and defense business to the overall A&D segment and requested an update on the timeline, construction period, and expected deliveries for the Brownfield expansion project.

Answer

Chairman and CEO Tony Thene clarified that engine sales were up 14% sequentially and approximately 20% year-over-year. He noted that the space business, while currently small, is a growing and strategic area for Carpenter Technology. Senior Vice President and CFO Tim Lain provided an update on the Brownfield expansion, stating that construction is expected to be completed in late fiscal 2027 or early fiscal 2028. He detailed that current efforts focus on site and foundation work, with a shift towards building infrastructure and equipment installation in upcoming quarters. The project remains on budget and schedule, with $175M-$185M in CapEx allocated for FY26.

Philip Gibbs sought clarification on whether the 14% engine sales growth was year-over-year or sequential, and asked for color on the contribution of space and defense to the overall A&D business. He also requested an update on the Brownfield expansion project timeline.

Answer

Tony Thene, Chairman and CEO, clarified that engine sales were up 14% sequentially and approximately 20% year-over-year. He noted that while space is currently a small but growing and strategic part of the business, he expects to discuss it more in the future. Tim Lain, Senior Vice President and Chief Financial Officer, provided an update on the Brownfield project, stating that construction is on budget and schedule, with completion expected in late fiscal year 2027 to early fiscal year 2028, and capital spending accelerating in the second half of fiscal year 2026.

Phil Gibbs from KeyBanc Capital Markets asked for a breakdown of the drivers (pricing/mix vs. volume) for the FY2026 guidance, requested the jet engine sales growth figures, and inquired if the free cash flow guidance includes any tax benefits from accelerated depreciation.

Answer

President and CEO Tony Thene confirmed that pricing, mix, and volume leverage would all be key drivers in FY2026 but did not provide a specific breakdown. He stated that aero engine sales were up 5% sequentially. CFO Timothy Lain clarified that the FY2026 free cash flow guidance does not include potential cash tax benefits from accelerated depreciation or R&D expensing, suggesting a potential for future upside.

Philip Gibbs asked if Carpenter Technology had issued or received any force majeure letters related to tariffs, sought clarification that Canadian nickel is not being tariffed, and inquired about the status of the backlog.

Answer

CEO Tony Thene stated that the company has not issued any force majeure letters and sees no need to, as it has established surcharge mechanisms to pass through any cost impacts from tariffs. He confirmed that nickel from Canada is currently not subject to tariffs. Regarding the backlog, Thene described it as very healthy, at over twice pre-COVID levels, and noted that its movement is less meaningful now because the company caps its order book, which effectively caps the backlog.

Philip Gibbs of KeyBanc Capital Markets asked for specific performance figures for jet engine sales, an update on the total backlog number, and elaboration on the nature of demand and customer conversations in the Defense market.

Answer

CEO Tony Thene and CFO Tim Lain clarified that jet engine sales were down 14% sequentially in Q2 but up 22% year-over-year, with a meaningful increase expected in Q3. Thene stated the backlog is approximately $1.9 billion, which is still about 2.5 times pre-COVID levels and provides significant strategic flexibility. Regarding Defense, he described the demand as 'urgent' and believes it reflects a long-term repositioning of the U.S. military that will persist regardless of current conflicts or administration changes.

Philip Gibbs asked about the drivers for the Q2 SAO profitability guidance and whether the potential to exceed full-year guidance was more dependent on volume or pricing. He also inquired about the source of the order acceleration seen late in the quarter.

Answer

Tony Thene, President and CEO, stated that the strong Q2 guidance reflects consistent production days relative to Q1. He noted that exceeding the full-year guidance would depend on all three key drivers: contract pricing, product mix optimization, and productivity improvements. Thene also confirmed that the acceleration in orders toward the end of the quarter was primarily from the aerospace market.

Phil Gibbs asked about the timing of new automotive contracts, specifically if any had commenced in the third or fourth quarter, and sought guidance on unit cost reductions for Q4 and momentum into Q1 2026.

Answer

Chairman, President, and CEO Lourenco Goncalves stated some auto contracts began October 1, with significant activity expected in 2026 due to Q4 seasonality and OEMs shifting production to North America. CFO Celso Goncalves indicated Q4 costs would be similar to Q3, maintaining the expectation of a $50/ton year-over-year reduction for 2025, adjusted for mix.

Phil Gibbs from KeyBanc Capital Markets asked about the development of automotive volumes in Q2 relative to prior periods, the potential for future growth in the automotive sales mix, and sought clarification on the percentage of business tied to quarterly CRU pricing.

Answer

CEO Lourenco Goncalves stated that automotive volumes are growing as OEMs reshore production to the U.S., a trend he expects to accelerate. He emphasized that Cliffs is uniquely positioned with existing capacity to meet this demand. EVP & CFO Celso Goncalves clarified that approximately 5% of the company's volume is priced on a CRU quarterly lag.

Philip Gibbs asked for an update on the timelines and status of major long-term capital projects at Middletown, Butler, and Weirton. He also sought clarification on whether the Q1 pricing mix would be higher due to a shift towards more direct automotive sales.

Answer

CEO Lourenco Goncalves outlined the $700 million CapEx plan for 2025 and confirmed the projects are progressing, with the Weirton transformer project on track for completion in a year. He and CFO Celso Goncalves confirmed a higher pricing mix in Q1, with ASPs expected to be up at least $10/ton from Q4, driven by increased automotive shipments.

Philip Gibbs of KeyBanc Capital Markets asked about the expected ramp-up of synergies from the Stelco acquisition, the status of grant money for strategic projects, and the specific impact of automotive headwinds in Q3.

Answer

Executive Lourenco Goncalves expressed high confidence in achieving the $120 million synergy target in year one, suggesting the figure is conservative. Executive Celso Goncalves added that they feel 'really, really good' about the number and will likely provide a higher updated figure on the next call. Regarding grants, Lourenco Goncalves confirmed they have received the first installments for the Butler and Middletown projects. On the Q3 auto impact, he declined to give client-specific numbers but noted that the business from underperforming customers is already starting to return.

Phil Gibbs asked if the $600 million CapEx guidance for the current fiscal year includes capital expenditures related to the businesses CMC is poised to close on. If not, he inquired about the typical maintenance level of CapEx associated with those acquired businesses and whether CMC's accelerated strategy in upstream construction-facing businesses implies a more natural buyer for its European assets.

Answer

President and CEO Peter Matt clarified that the $600 million CapEx guidance is for CMC's existing operations and does not include the acquired businesses. He stated that maintenance CapEx for CPMP is typically $8-10 million and for Foley is $10-15 million, emphasizing these are not large numbers. SVP and CFO Paul Lawrence added that maintenance CapEx in the precast space is generally 3-4% of revenues, making it very capital-light. Peter Matt affirmed that CMC 'really, really appreciate[s]' its European assets for their contribution to being a low-cost producer and their role in informing North American operations, considering them a core part of the portfolio.

Phil Gibbs of KeyBanc Capital Markets asked for clarification on the European CO2 credit timing, whether the next fiscal year's CapEx guidance was gross or net of credits, the timing of West Virginia startup costs, and if any CapEx would be pushed to fiscal 2027.

Answer

President & CEO Peter Matt and CFO Paul Lawrence clarified that the European CO2 credit is now split, with 60% ($28M) in Q4 and the remaining 40% in Q1. Paul Lawrence confirmed the $550M CapEx guidance for next year is a gross figure, with an expected net of around $425M after credits and incentives. He also confirmed West Virginia startup costs will be back-end loaded next year, with a small amount of CapEx potentially moving into fiscal 2027.

Phil Gibbs of KeyBanc Capital Markets sought clarification on the timing and amount of the European CO2 credits, whether the fiscal 2026 CapEx guidance was a gross or net number, and the timing of startup costs for the delayed West Virginia mill.

Answer

President & CEO Peter Matt and CFO Paul Lawrence clarified that the European CO2 credit payment is now split, with 60% ($28M) arriving in Q4 2025 and the remaining 40% in Q1 2026. Paul Lawrence confirmed the $550M CapEx guidance for next year is a gross figure, before an $80M tax credit and other incentives. He also stated that startup costs for the West Virginia mill will be back-end loaded in fiscal 2026.

Phil Gibbs of KeyBanc Capital Markets sought clarification on the timing and amount of European CO2 credits, whether the FY26 CapEx guidance was gross or net, and the timing of startup costs for the West Virginia mill.

Answer

President & CEO Peter Matt and CFO Paul Lawrence explained the annual CO2 credit is now split into two payments (60% in May/July and 40% in November), with the $28 million being the first tranche. Paul Lawrence confirmed the $550 million CapEx guidance for next year is a gross figure, before an $80 million tax credit and other incentives. They also noted West Virginia startup costs will be back-end loaded next fiscal year.

Philip Gibbs requested insight into the specific end markets driving the expected construction recovery in the second half of the fiscal year and asked for visibility on January scrap pricing.

Answer

Executive Peter Matt expressed optimism for a second-half recovery, citing positive sentiment indicators and strength in infrastructure, reshoring-related manufacturing projects (LNG, chips), and a potential rebound in residential construction. Regarding scrap, he described the market as an "enigma" but noted the latest indications for January were flat to up $20, while stating a belief that prices are near a bottom, which would be a positive catalyst.

Philip Gibbs of KeyBanc Capital Markets asked for the fiscal 2025 capital expenditure budget details and inquired about the company's commitment level and strategy for pursuing inorganic growth opportunities.

Answer

Paul Lawrence, Senior Vice President and CFO, outlined the fiscal 2025 CapEx budget at $630 million to $680 million, with the majority allocated to the Steel West Virginia project. Executive Peter Matt addressed M&A, stating that CMC is committed but will prioritize discipline over pace, focusing on attractive adjacent product categories that offer higher margins and complement the existing business.

Philip Gibbs of KeyBanc Capital Markets asked if Olympic Steel would realize discrete tax benefits in 2025 from new legislation, what the working capital expectations are for the second half of the year, and about the current M&A pipeline.

Answer

CFO Richard Manson clarified that the company will not receive bonus depreciation on its current major projects as they were initiated before the cutoff date. He also projected that debt levels would be 'flattish' in Q3, rather than seeing a typical paydown, due to opportunities in stainless steel. CEO Rick Marabito stated that the M&A pipeline, which had slowed, has picked up again in Q2, and while the company is actively looking at better-fitting candidates, it will remain disciplined in its approach.

Philip Gibbs of KeyBanc Capital Markets requested an explanation of the benefits of biocarbon and its potential to replace other materials. He also asked about the drivers for Sinton's expected sequential profit improvement in Q3.

Answer

EVP & CFO Theresa Wagler explained that biocarbon will replace anthracite coal, reducing Scope 1 emissions by up to 35%, and offers long-term potential for low-carbon pig iron production. Regarding Sinton, she cited higher volume and a better value-added product mix as key drivers for Q3 profit growth, along with the absence of Q2's oxygen curtailment and maintenance outage.

Philip Gibbs from KeyBanc Capital Markets requested details on the benefits of biocarbon technology and asked for the drivers of expected profit improvement at the Sinton mill in Q3, as well as the financial impact of its Q2 production loss.

Answer

CFO Theresa Wagler explained that biocarbon will replace anthracite coal, reducing emissions, and has long-term potential for low-carbon pig iron production. She identified higher volume and a richer product mix as key drivers for Sinton's Q3 improvement. CEO Mark Millett emphasized biocarbon's role in their differentiating sustainability strategy. COO Barry Schneider added that improved yields on value-added lines and favorable trade case rulings will also boost Sinton's profitability.

Philip Gibbs from KeyBanc Capital Markets requested an explanation of the benefits of biocarbon and its potential applications. He also asked about the drivers for Sinton's expected profit improvement in Q3 and the financial impact of its lost production in Q2.

Answer

EVP & CFO Theresa Wagler explained that biocarbon will replace anthracite coal to reduce emissions and has long-term potential for producing low-carbon pig iron. Regarding Sinton, she cited increased volume, a higher value-added mix, and the absence of Q2's oxygen curtailment and maintenance outage as key drivers for significant profit improvement in the upcoming quarters.

Philip Gibbs from KeyBanc Capital Markets inquired about the strategic benefits of the biocarbon project and asked for the expected drivers of profit improvement at the Sinton mill in Q3, as well as the financial impact of its Q2 production loss.

Answer

EVP & CFO Theresa Wagler explained that biocarbon will replace anthracite coal to lower emissions and has long-term potential for green pig iron production. She and President & COO Barry Schneider identified higher volume, improved value-added mix, and the absence of Q2's operational issues as key drivers for Sinton's upcoming profitability increase. Chairman & CEO Mark Millett emphasized biocarbon's role in their differentiating sustainability strategy.

Philip Gibbs from KeyBanc Capital Markets asked for an explanation of the benefits of biocarbon and its potential to replace other materials. He also requested expectations for Sinton's sequential profit improvement in Q3 and the dollar impact of its lost production in Q2.

Answer

EVP & CFO Theresa Wagler explained that biocarbon will replace anthracite coal, reducing Scope 1 emissions by up to 35%, and offers long-term potential for low-carbon pig iron production. She stated Sinton's Q3 improvement will be driven by higher volume and a better value-added mix, without the Q2 oxygen curtailment and maintenance outage. Chairman & CEO Mark Millett added that biocarbon is key to their sustainability strategy, which is a major differentiator with automotive customers.

Philip Gibbs inquired about the trend in core unit gross margins from Q4 2024 into Q1 2025 and asked how Ryerson is managing its business around potential tariffs, particularly in its non-U.S. operations.

Answer

President and CEO Edward Lehner explained that Q4 saw margin compression, especially in non-ferrous metals, but transactional margins began inflecting higher in mid-January 2025. He noted that contract business pricing should see favorable resets in Q2 and Q3. Nick Webb, Head of Risk Management, added that tariffs are causing replacement costs to rise for aluminum and carbon, with Midwest premiums and mill conversion prices increasing, which Ryerson is reflecting in its own pricing.

Philip Gibbs of KeyBanc Capital Markets asked for the timing of when the key wide-body programs (A350, 787) stepped up to the current 7-per-month pull rate and inquired about the outlook for the Space & Defense segment.

Answer

CEO Tom Gentile detailed that the 787 rate progressively increased through 2023 to reach the 7-per-month level in 2024, while the A350 moved from the 4-5 range in 2022 to the 7 range in 2024. He affirmed a bullish outlook for Space & Defense, expecting continued strength in key programs like the F-35 and CH-53K.

Asked about the company's capital spending initiatives, primary production bottlenecks, labor situation, net working capital outlook, raw material cost alignment, the nature of sustainable cost improvements, and the potential for M&A activity in the industry.

Answer

The company detailed its $18 million capital expenditure plan, with funds allocated to sustainability, modernization, and growth projects like furnace capacity. The primary bottlenecks are VIM primary melt and finishing for small diameter products. Labor has stabilized but still has room for improvement. Net working capital is expected to decrease in Q3 after a temporary increase in Q2. Raw material misalignment was minor in Q2 and is not expected in Q3. Sustainable cost improvements stem from specific projects in melting and yield improvement that are now benefiting the P&L. Regarding M&A, the company is focused on organic execution but acknowledges the tight market and potential for consolidation.