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HAYNES INTERNATIONAL INC (HAYN)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 FY2024 net revenues were $152.5M and diluted EPS $0.66; gross margin was 17.7% (adjusted gross margin 21.2% excluding nickel/cobalt headwinds), reflecting continued aerospace and IGT strength offset by CPI and Other mix actions and lingering outage impacts from Q1 .
  • Management expects Q3 FY2024 revenue and earnings to be higher than Q2 as production momentum improves and raw-material headwinds begin to ease, providing a near-term catalyst; backlog remained robust at $438.6M (down 1.8% YoY) with aerospace growth offset by CPI declines .
  • Key positives: aerospace and IGT combined exceeded 83% of shipped pounds, ASP per pound rose to $31.05 (product only) and $32.85 (including other revenue) in Q2; adjusted EBITDA was $18.0M (11.8% of revenues) .
  • Raw-material volatility (nickel/cobalt) compressed Q2 gross profit by an estimated $5.3M; Q3 headwinds expected to persist at lower levels given sell-through of higher-cost nickel inventory; management highlighted merger progress with Acerinox/North American Stainless as an additional strategic driver .

What Went Well and What Went Wrong

What Went Well

  • Aerospace revenues +15.8% YoY (+$10.5M) with ASP +6.3% and shipments +8.9%; single‑aisle demand remains strong, and aerospace + IGT exceeded 83% of shipped pounds, underscoring strong core market mix .
  • “We continue to gain production momentum after last quarter’s unplanned three‑week outage at our Kokomo hot rolling mill… Significant raw material headwinds persisted through the quarter, but are expected to begin to ease.” — CEO Michael L. Shor .
  • Adjusted gross margin 21.2% (vs. 21.3% last year) neutral to raw‑material impacts, showing underlying margin resilience; adjusted EBITDA $18.0M (11.8% margin) .

What Went Wrong

  • Gross margin down to 17.7% (from 20.2% YoY) due to $5.3M raw‑material headwind from nickel/cobalt pricing; lingering shipment impacts from the Q1 hot‑mill outage pressured volumes sequentially (-1.9%) and margins .
  • CPI revenue fell 38.2% YoY (-$10.9M) as the company flexed capacity away from commoditized lower‑margin products and felt outage-related product availability constraints; Other Markets revenue -22.0% YoY .
  • Interest expense rose to $2.0M (+$0.1M YoY) on higher average borrowings/rates; net income fell to $8.6M (vs. $12.3M YoY), primarily from raw-material headwinds and residual outage effects .

Financial Results

MetricQ2 2023Q1 2024Q2 2024Consensus (SPGI)
Revenue ($USD Millions)$152.8 $147.4 $152.5 N/A (S&P Global consensus unavailable)
Diluted EPS ($)$0.96 $0.60 $0.66 N/A (S&P Global consensus unavailable)
Gross Margin %20.2% 16.8% 17.7% N/A
Operating Income ($USD Millions)$17.1 $11.1 $12.6 N/A
Adjusted Gross Margin % (ex nickel/cobalt)21.3% 20.6% 21.2% N/A
Adjusted EBITDA ($USD Millions)$22.4 $16.2 $18.0 N/A

Notes: SPGI consensus unavailable for HAYN’s Q2 FY2024 per S&P Global data access error.

Segment revenue (product revenue only; excludes Other revenue):

Segment Revenue ($USD Millions)Q2 2023Q1 2024Q2 2024
Aerospace$66.6 $73.3 $77.1
Industrial Gas Turbines (IGT)$32.4 $35.4 $35.6
Chemical Processing (CPI)$28.6 $20.8 $17.7
Other Markets$17.6 $11.5 $13.7
Total Product Revenue$145.2 $141.0 $144.1
Other Revenue$7.6 $6.3 $8.4
Net Revenues$152.8 $147.4 $152.5

KPIs:

KPIQ2 2023Q1 2024Q2 2024
Shipped Pounds (000s)4,667 4,730 4,641
ASP per Pound – Product Only ($)$31.11 $29.81 $31.05
Total ASP incl. Other Revenue ($)$32.74 $31.15 $32.85
Backlog ($USD Millions)$446.7 (approx. from context) → $460.4 at FY-end; specific Q2 backlog: $438.6 $448.8 $438.6
Dividend per Share ($)$0.22 $0.22 $0.22 (declared May 1, payable June 14)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue & EarningsQ2 FY2024Q2 to be higher than Q1 despite raw‑material headwinds Actual Q2 delivered higher than Q1; next, Q3 expected higher than Q2 Achieved prior; raised sequentially for Q3
Raw‑Material ImpactQ3 FY2024Headwinds continuing from falling nickel expected in Q2 Headwinds to persist in Q3 but at lower level as higher‑cost nickel inventory sells through Lower headwind expected
Cash Flow & RevolverFY2024Expect positive CFO and revolver decline through FY2024, momentum in 2H Reiterated: positive CFO expected; revolver decline in FY2024 Maintained
CapexFY2024$25–$35M (raised vs FY2023) $22–$28M (Q2 update) or $25–$35M (Q1 PR); Q2 PR states $22–$28M total planned Updated range (lower) in Q2 PR
DividendOngoing$0.22 per quarter $0.22 declared (May 1; payable June 14) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2023)Previous Mentions (Q1 FY2024)Current Period (Q2 FY2024)Trend
Raw‑material (nickel/cobalt) impact6 consecutive quarters ~21% raw‑material neutral GM; rising nickel/cobalt in FY2022 then headwinds in FY2023; Q1 FY2024 expected worse than Q4 due to nickel slide PR notes nickel headwinds compressing GM; expected continued headwinds in Q2 $5.3M headwind compressing GM to 17.7%; expect lower headwind in Q3 Headwinds peaked and begin to ease
Production/OperationsSeptember outage in cold‑finished flats; A&K line upgrade planned in Q1 to debottleneck; build volume to >5M pounds/quarter Three‑week hot‑mill outage in Q1 delayed shipments; momentum improving Production momentum improving after Q1 outage; shipments 4.6M lbs; expect catch‑up in 2H FY2024 Recovering, improving flow
Market demand (Aerospace/IGT)Record aerospace and IGT revenues; proprietary alloys (282/244/233) gaining acceptance; supercycle across single‑aisle engines Strong aerospace and IGT growth; Q1 PR highlights single‑aisle demand Aerospace +15.8% YoY; IGT +9.8% YoY; combined >83% of shipped pounds Strength sustained
CPI/Other mix managementFlex capacity away from commoditized CPI; reduce quoted lead times ~50%; focus higher‑value alloys Mix management actions and outage impacts reduce CPI/Other CPI revenue -38.2% YoY; Other down 22.0% YoY; Other revenue up 10.2% Intentional mix shift persists
Cash generation/liquidityExpect positive CFO FY2024; revolver to decline; inventory positioned; backlog near record CFO positive in Q1 ($17.0M); liquidity >$105M CFO YTD $30.0M; liquidity $108.3M; revolver $103.2M outstanding Improving CFO, stable liquidity

Management Commentary

  • “Our ongoing focus on the aerospace and industrial gas turbine markets resulted in the two being over 83% of volume shipped this quarter… Significant raw material headwinds persisted through the quarter, but are expected to begin to ease.” — Michael L. Shor, President & CEO .
  • “We continue to make progress towards our proposed merger with North American Stainless… we continue to expect to complete the merger in the third calendar quarter.” — Michael L. Shor .
  • “Fourth quarter [FY2023] is now the sixth consecutive quarter where our calculated raw material neutral gross margin was approximately 21% or better… we believe there is still more incremental opportunities.” — Michael L. Shor .
  • “We expect positive cash flow from operations in fiscal year ’24… and expect to significantly pay down our revolver.” — Michael L. Shor .

Q&A Highlights

  • Raw‑material headwinds: Nickel declines create a lagged headwind that can persist ~6 months; Q1 FY2024 impact expected worse than Q4 FY2023 given continued nickel price declines .
  • Capex/debottlenecking: A&K line upgrade in Q1 to improve reliability and flow between hot rolling and finishing; expected to support shipment growth back above 5M pounds per quarter .
  • Mix strategy: CPI is viewed as two businesses—commoditized vs. specialty/proprietary; management is flexing away from low‑margin commoditized alloys, focusing on higher‑value projects and alloys (e.g., HASTELLOY HYBRID‑BC1, C‑2000, G‑35) .
  • Backlog/ship timing: Historic “50% in 6 months / 90% in 12 months” may be “slightly longer” given customers securing place in line amidst strong aerospace demand; backlog likely stays elevated .

Estimates Context

  • S&P Global consensus estimates for HAYN Q2 FY2024 were unavailable due to a Capital IQ mapping issue; as a result, estimate comparison cannot be provided for this quarter. Values would typically be retrieved from S&P Global, but were not accessible in this instance.
  • Implication: Given the company’s guidance and delivery (Q2 higher than Q1; Q3 expected higher than Q2), sell‑side EPS/revenue models likely need to reflect easing raw‑material headwinds in Q3 and stronger aerospace/IGT volume absorption with improved operational flow .

Key Takeaways for Investors

  • Core markets driving the story: Aerospace and IGT strength continue to underpin revenue and margin quality; combined >83% shipped pounds and rising ASP mix support medium‑term margin resilience despite raw‑material volatility .
  • Raw‑material headwinds are transitory: Q2’s $5.3M headwind should abate in Q3 as higher‑cost nickel inventory sells through, providing near‑term gross margin relief; adjusted margins remain ~21% neutral to raw‑materials .
  • Operations normalizing: Post‑outage momentum is improving; debottleneck actions (A&K line) and capacity initiatives support shipment recovery and better absorption through H2 FY2024 .
  • Cash generation re‑accelerating: YTD operating cash flow of $30.0M and stable liquidity ($108.3M) position HAYN to reduce revolver as volumes and margins improve in H2 FY2024 .
  • Intentional mix shift: Continued de‑emphasis of commoditized CPI in favor of specialty/proprietary alloys is a margin‑accretive strategy even if it trims CPI volumes/revenues near term .
  • Merger progress as a potential catalyst: Shareholder approval and regulatory milestones for the Acerinox/North American Stainless transaction suggest strategic optionality and potential timeline into 3Q calendar 2024 .
  • Near‑term trade: Position for Q3 sequential improvement on revenue/EPS with easing commodity headwinds; watch ASP, aerospace/IGT volumes, and adjusted gross margin trajectory for confirmation .