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MI

Metallus Inc. (TMST)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 delivered solid profitability and cash generation in a softer demand environment: net sales $321.6M, diluted EPS $0.52, adjusted EPS $0.56, adjusted EBITDA $43.4M, operating cash flow $33.4M .
  • Mix tailwinds and improved melt utilization (72% vs 58% in Q4) offset lower shipments and base price pressure; EBITDA margin expanded to 12.6% vs 10.9% in Q4 and 13.2% in Q3 .
  • Board authorized an additional $100M share repurchase program; $132.1M remained authorized as of May 6, 2024, reinforcing capital return and through‑cycle discipline (potential stock catalyst) .
  • Near‑term outlook cautious: Q2 shipments similar to Q1, product mix less favorable, surcharge per ton expected to decline; adjusted EBITDA guided lower vs Q1; capex ~$60M for 2024; effective tax rate ~25% for FY24 .

What Went Well and What Went Wrong

What Went Well

  • Profitability improved QoQ and YoY despite softer end‑markets: adjusted EBITDA rose to $43.4M (Q4: $35.7M; Q1’23: $36.0M) and EBIT margin to 8.5% (Q4: 6.6%; Q1’23: 5.2%) .
  • Operational execution: melt utilization increased to 72% (from 58% in Q4) with manufacturing costs down $10.0M sequentially; cash from operations $33.4M and free cash flow $16.0M .
  • Strategic progress in Aerospace & Defense: “We currently participate in over 20 different defense‑related programs… conducting trials with a range of metals, including titanium” (CEO Mike Williams) .

What Went Wrong

  • Demand softness persisted in industrial distribution and energy; ship tons fell 2% QoQ and 10% YoY; base sales per ton and product mix pressure noted .
  • Manufacturing costs up $13.0M YoY tied to prior plant costs capitalized into inventory and released as sold; surcharge revenue per ton declined YoY .
  • Q2 guidance implies sequential earnings pressure: mix less favorable, surcharge per ton lower, and melt utilization expected below Q1 .

Financial Results

MetricQ3 2023Q4 2023Q1 2024Consensus Estimate (Q1 2024)
Revenue ($USD Millions)$354.2 $328.1 $321.6 NA
Diluted EPS ($USD)$0.51 $0.03 $0.52 NA
Adjusted EPS ($USD)$0.52 $0.36 $0.56 NA
EBIT Margin %9.3% 6.6% 8.5% NA
EBITDA Margin %13.2% 10.9% 12.6% NA
Net Income Margin %7.0% 0.4% 7.5% NA

Note: Wall Street consensus (S&P Global) for Q1 2024 was unavailable at the time of analysis; estimates comparison omitted.

Selected end‑market net sales

Segment Net Sales ($USD Millions)Q3 2023Q4 2023Q1 2024
Automotive$30.7 $44.1 $46.3
Aerospace & Defense$35.6 $32.7 $28.0
Energy$4.8 $6.2 $5.5

Key KPIs

KPIQ3 2023Q4 2023Q1 2024
Ship Tons (000s)175.8 157.6 155.2
Melt Utilization %76% 58% 72%
Operating Cash Flow ($M)$28.1 $74.1 $33.4
Adjusted EBITDA ($M)$46.8 $35.7 $43.4

Non‑GAAP adjustments (Q1 2024): Adjusted EPS/EBITDA exclude items including IT transformation costs ($1.3M), rebranding ($0.3M), and benefit plan remeasurement ($0.8M); reconciliation provided in the release .

Guidance Changes

MetricPeriodPrevious Guidance (from Q4 2023 release)Current Guidance (Q1 2024 release)Change
ShipmentsQ2 2024N/ASimilar to Q1 2024 New
Product MixQ2 2024N/ALess favorable vs Q1 New
Surcharge per tonQ2 2024N/AExpected to decline (lower busheling scrap index) New
Melt UtilizationQ2 2024N/AAverage rate less than Q1 New
Adjusted EBITDAQ2 2024N/AExpected lower than Q1 2024 New
Base Price per tonQ1 2024Annual agreements ~similar to FY2023; mix dependent Remains solid in Q2 2024 Maintained (tone)
Lead Times (bar/tube)Q1 2024Bar to April; Tube to May Bar to June; Tube to July Extended
CapexFY 2024~$60M ~$60M Maintained
Effective Tax RateFY 2024~25–28% ~25% Narrowed
Pension Contributions2024~$40M in 2024; ~$25M in Q1 ~$6M in Q2; ~$12M in 2H24 Updated schedule

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 2023; Q-1: Q4 2023)Current Period (Q1 2024)Trend
Demand & mixQ3: soft energy; planned maintenance; strong base pricing . Q4: price/mix unfavorable due to retro pricing; seasonally low shipments .Q2 shipments similar to Q1; mix less favorable .Moderating demand; mix headwind near‑term.
Melt utilizationQ3: 76% . Q4: 58% (maintenance, balancing inventory) .Q1: 72%; Q2 expected below Q1 .Improving QoQ in Q1; guided down for Q2.
Surcharge dynamicsQ4: Q1 surcharge per ton expected sequentially higher .Q2 surcharge per ton expected to decline .Turning lower.
Aerospace & DefenseTargeted growth emphasis; A&D visibility separated in reporting .Over 20 defense programs; trials including titanium conversion opportunities (CEO) .Expanding strategic focus.
Capital returnsContinued buybacks (Q3: $7.7M; Q4: $4.1M) .Additional $100M authorization; $132.1M remaining .Strengthened authorization.
Cash taxes & pensionN/A in prior call extracts.Q2 cash tax ~$21M (April), pension ~$6M; comments during Q&A .Cash outflows timing in Q2.

Management Commentary

  • CEO Mike Williams: “Our business has undergone significant transformation… we are seeing solid profitability and cash generation, despite the current softer demand environment, primarily from our industrial distribution and energy customers.”
  • CEO Mike Williams: “We currently participate in over 20 different defense‑related programs… conducting trials with a range of metals, including titanium, to expand our conversion opportunities…”
  • CFO Kris Westbrooks: reiterated strong operating cash flow ($33.4M) and continued investments, including ~$60M capex for 2024, and highlighted additional $100M share repurchase program (remarks summarized) .

Q&A Highlights

  • Cash flow cadence/Q2 headwinds: ~$21M cash tax payments in April and ~$6M pension in Q2; profitability will be primary driver of Q2 operating cash flow .
  • Cost absorption: lower melt utilization in Q2 will raise costs (absorption), with some impact possibly carrying into Q3 via inventory .
  • Pricing visibility: ~65% of order book is contractual, keeping base prices steady; spot market softened but limited spot exposure .
  • Melt reliance: minimal reliance on third‑party melt; utilization will align with demand and short lead‑time visibility .

Estimates Context

  • Wall Street consensus via S&P Global for Q1 2024 was unavailable at the time of analysis; as a result, explicit comparisons to consensus are omitted.
  • Given guidance for lower Q2 adjusted EBITDA and softer mix/surcharge dynamics, near‑term estimate revisions may trend down for Q2 while FY24 capex and tax rate are maintained .

Key Takeaways for Investors

  • Profitability resilience: Sequential margin and EBITDA improvement despite demand/mix pressures underlines operational discipline and pricing strategy .
  • Near‑term caution: Q2 mix headwinds, lower surcharge per ton, and reduced melt utilization suggest sequential earnings pressure and higher unit costs .
  • Capital allocation: Additional $100M repurchase authorization and continued buybacks support EPS accretion and share count reduction (17% diluted share reduction since 2021 noted on call) .
  • End‑market exposure: Aerospace & Defense remains a growth vector with >20 programs and titanium conversion trials; industrial distribution and energy are softer .
  • Liquidity strength: $549.0M total liquidity and $278.1M cash provide flexibility to navigate cycles and fund capex .
  • Watch KPIs: shipments/mix, surcharge per ton, melt utilization and cash taxes/pension outflows will drive Q2 cash/earnings cadence .
  • Trading implications: Near‑term guide‑down could cap the stock until visibility improves; repurchase authorization and defense momentum are positive offsets .