Sign in

You're signed outSign in or to get full access.

MI

Metallus Inc. (TMST)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 delivered net sales of $354.2M, diluted EPS of $0.51, and adjusted EBITDA of $46.8M; year-over-year profitability improved materially versus the Q3 2022 loss, while sequential EBITDA softened due to surcharge declines and maintenance costs .
  • Shipments were 175.8K tons (down 1% q/q, up 11% y/y), with stronger base prices offset by lower surcharge revenue per ton; melt utilization rose to 76% (vs. 75% in Q2) supporting better cost absorption y/y .
  • Guidance: Management expects Q4 shipments to be sequentially lower, surcharge revenue per ton to decline, melt utilization to decrease (post shutdown), and adjusted EBITDA to decline sequentially; 2023 capex raised to ~$50M from ~$45M earlier .
  • Estimates: S&P Global consensus data was unavailable via our tool set; Zacks reported a Q3 EPS miss and revenue beat versus their consensus, a potential near-term stock narrative driver .

What Went Well and What Went Wrong

What Went Well

  • Base pricing strength and favorable price/mix supported net sales growth y/y; management highlighted “solid profitability” despite market dynamics, aided by collaboration with USW and internal teams .
  • Operational execution improved: melt utilization reached 76% (vs. 40% in Q3’22), driving better cost absorption and manufacturing cost improvements y/y .
  • Manufactured components momentum: in Q2, TMST shipped 2.7M pieces to automotive customers and approved ~$5M for additional machining lines tied to rising EV component demand .

What Went Wrong

  • Sequential shipment softness (down 1% q/q) driven by lower energy shipments; EBITDA impacted by continued surcharge declines as scrap/alloy prices fell .
  • Manufacturing costs increased $6.1M q/q due to planned annual shutdown maintenance timing, pressuring sequential profitability .
  • Q4 outlook calls out potential volatility from automotive work stoppages/restarts and lower surcharges per ton, pointing to a sequential adjusted EBITDA decline .

Financial Results

Core metrics vs. prior periods (USD unless noted)

MetricQ1 2023Q2 2023Q3 2023
Net Sales ($MM)$323.5 $356.6 $354.2
Diluted EPS ($)$0.30 $0.62 $0.51
Adjusted EPS ($)$0.44 $0.60 $0.52
Adjusted EBITDA ($MM)$36.0 $50.5 $46.8
Adjusted EBITDA Margin (%)11.1% 14.2% 13.2%
Ship Tons (000s)172.9 177.5 175.8
Melt Utilization (%)73% 75% 76%

End-market breakdown (Q3 2023)

End-MarketTons (000s)Net Sales ($MM)Base Sales ($MM)Surcharges ($MM)
Industrial82.4 $173.7 $130.3 $43.4
Mobile79.1 $140.1 $106.0 $34.1
Energy14.3 $35.6 $26.5 $9.1
Other (scrap)—$4.8 $4.8 —

KPIs and liquidity

MetricQ1 2023Q2 2023Q3 2023
Operating Cash Flow ($MM)$9.8 $13.3 $28.1
Cash & Cash Equivalents ($MM)$227.4 $221.9 $225.4
Total Liquidity ($MM)$530.7 $529.9 $519.1
Share Repurchases ($MM, quarter)$9.4 $11.4 $7.7

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
ShipmentsQ4 2023N/ASequentially lower in Q4New
Melt UtilizationQ3 vs. Q4 2023Q3 expected sequential increaseQ4 expected sequential decrease (post shutdown)Lowered
Base Price per TonH2 2023Remain strongRemain strongMaintained
Surcharge Revenue per TonQ4 2023N/ASequentially lower in Q4New
Adjusted EBITDAQ4 2023N/AExpected to decline sequentiallyNew
Operating Cash FlowQ3/Q4 2023Positive in Q3Positive in Q4Maintained
Capital ExpendituresFY 2023~$45M~$50MRaised
Melt Shop Shutdown CostOct 2023N/A~$7MNew

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2023)Previous Mentions (Q2 2023)Current Period (Q3 2023)Trend
Pricing/Base SalesStrong base pricing; FY mobile pricing agreements negotiated Base prices remained strong; favorable price/mix Base prices strong across sectors; surcharge declines pressured EBITDA Stable base pricing; surcharge headwind
Melt Utilization/Operations73% avg; improved absorption vs Q4’22 75%; continued operational improvement 76%; better y/y cost absorption vs Q3’22 Improving y/y; slight q/q uptick
Automotive/EV ComponentsN/A2.7M pieces shipped; $5M machining lines approved Auto work stoppage volatility flagged for Q4 Mixed: demand positives vs. near-term volatility
Safety & IT TransformationN/AOngoing IT transformation costs Focus on safety culture; ~$8M safety CapEx, ~$1M training; continued IT modernization Investment continues; cultural emphasis
Capital AllocationRepurchased notes; buybacks Ongoing buybacks; cash/liquidity robust Buybacks continued; total liquidity $519.1M Steady deployment

Management Commentary

  • “In the third quarter, our unwavering commitment to safety and our focus on strengthening our culture and fostering teamwork across our commercial, supply chain and manufacturing organizations resulted in solid profitability while meeting the needs of our customers.” — Mike Williams, CEO .
  • “We remain confident in our ability to navigate market challenges while delivering sustainable profitability and positive operating cash flow throughout the cycles.” — Mike Williams, CEO .
  • “We spent approximately $8 million on safety CapEx projects and $1 million in safety training” — Prepared remarks (call) .

Q&A Highlights

  • Surcharges and pricing mix: Management emphasized surcharge headwinds from lower scrap/alloy prices even as base pricing remained resilient, framing the EBITDA impact and Q4 expectations .
  • End-market color: Industrial shipments up q/q (defense strength), energy shipments lower; this mix contributed to slight shipment decline q/q .
  • Capital structure/share count: Since program inception (early 2022) through Sep 2023, share repurchases plus convertible note repurchases reduced diluted shares outstanding significantly; liquidity remained strong and interest income supported results .
  • Q4 cadence: Guidance clarification that shipments and melt utilization will be sequentially lower post maintenance; surcharge per ton expected to decline .

Estimates Context

  • S&P Global Wall Street consensus (EPS, revenue, EBITDA) was unavailable via our data integration for TMST at this time.
  • As supplemental context (non-S&P), Zacks reported Q3 EPS missed their consensus while revenue beat, aligning with management’s commentary on surcharge headwinds and robust base pricing .

Key Takeaways for Investors

  • Resilient base pricing offset surcharge declines; near-term EBITDA is more sensitive to scrap/alloy price movements, which management expects to be a Q4 headwind .
  • Operational execution remains a bright spot: melt utilization at 76% and improved cost absorption vs. last year underpin through-cycle margin potential .
  • End-market dynamics mixed: industrial (defense) is firm, energy softer; auto labor disruptions introduce Q4 shipment volatility risk .
  • Capital allocation remains shareholder-friendly with continued buybacks and strong liquidity ($519.1M), while elevated safety/IT investments support long-term execution .
  • Q4 set-up is more cautious (sequential declines in shipments, melt utilization, adjusted EBITDA); monitor surcharge trends and maintenance normalization into early 2024 .
  • Manufactured components exposure to EV supports medium-term growth; Q2 investments demonstrate commitment to scaling this capability .
  • Watch guidance cadence changes: capex raised to ~$50M for 2023 and post-shutdown operating rhythm; execution against Q4 outlook will shape estimate revisions and the stock narrative .

Supporting Documents Read

  • Q3 2023 Earnings Press Release (8-K with Exhibit 99.1), detailed financial statements, non-GAAP reconciliations, and outlook .
  • Q3 2023 Form 10-Q for granular financials, segment reporting approach, and MD&A drivers .
  • Prior earnings press releases for Q2 and Q1 2023 (8-Ks) for trends and prior guidance .
  • Q3 2023 earnings call transcript via Seeking Alpha/InsiderMonkey for quotes and Q&A context .
  • Q3 earnings webcast details (PR Newswire) for event context .