TMST - Earnings call transcript Q4 2018

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Operator

Good morning. My name is Sharon and I will be your conference operator today. At this time I would like to welcome everyone to the TimkenSteel’s Fourth Quarter 2018 Earnings Conference Call. [Operator Instructions] Thank you. Mitch Byrnes, Senior Manager of Investor Relations, you may begin your conference.

Mitch Byrnes

Great. you. Thank and joining everyone you thank morning us. for Good Timken, here today Tim with; I'm Chairman. as Westbrooks, quarter as and and well CEO President; Kris XXXX results. Officer discuss year Chief to Executive our full fourth and financial Financial President Vice

make business During statements by matters. operations relate our among as statements financial future forward-looking expectations today's other These we regarding SEC. results, defined call to conference may the plans and

between financial those describe and projected and call of like use, Our is appropriate. greater we or prohibit as written equivalent have its to reports due supporting release and all actual express, now our Corporation call materially to are on SEC information financial Today's recording results turn consent. press press the Tim. variety we transmission included any may in of the to provided information With advance with TimkenSteel available over today's I'd GAAP referenced, we factors in the and/or that by reconciliations from which information in in portion the non-GAAP differ in detail a of of our supporting call website. today's information without or TimkenSteel with the which implied release, any is filed copyrighted connection call Where non-GAAP

Tim Timken

strategic upward mix. more customer to product taking also an thank taking advantage about on the on for Mitch conditions, we TimkenSteel favorable actions remained for joining and service, begin have to focused pricing all market but XXXX years. you We've continued and talk only Thanks wrap year and us three of improve today on up not as earnings straight ahead. trajectory

performance so to some We improve me journey for down the our break are you. is confident on-track company's of that let that

that the our Services by team we during the increased further improved more Golden Operationally product, but we our idea. four congratulations won for in but who employees our was generated sharpened service. a Material to year injuries safety improved challenged Houston, First, hand had XXXX, in quality We're history, our Golden it and I'd hand our for we XXXX we've as by quality of new year. low and in facility place XX%. production. we've XX delivery from years XXXX XXXX in practices special to the time and reduced also to safest in known our increase than customer performance a the implementing superior and hand Glove XXXX, performance on-time added in A in we in even claims. has Award The of record new with program like the performance people. end than had safety XX% delivery everything steep Glove more begins in customer offer demand

our goals. ISO certification. our advanced also of processing environmental All six XXXXX plans steel-making and Our facilities achieved

our also Emissions intensity. Gas We Greenhouse reduced and energy

XXXX sold of to our priorities among In we of we fact company. service our Commercially, product In enriched made also products. for best margin according environmental are and we Safety, the sales quality, mix facilities responsibility, on in our Steel's world World Environmental the improved by remain most strides. the of focusing some steel we profitable Measures. the

our was compensation on in products key fact, call what plans for of In we paths. employees process our for part based sales

XXXX. pricing well spot long negotiated product seven implemented growth. business We also improved position improved. also which future made increases last enhancements to for for us models Pricing our contract will year value-added and price and We

that pipeline increased mechanical our gains had products higher business shared We U.S. particularly our also large We government on with tariffs development the entering issue benefited rich the seamless tubing. market. remains although bar imports, overall still growth an from alloy new overcapacity We spaces. in outpaced

We programs performance. guidance on tons and TimkenSteel. from financial carry value-added XXXX an In positive and a into and XXXX consumables improvement which light significant automotive EBITDA. year expenses. many the several performance our even XXXX both We're going that ship hybrid structural sustainable customers for components. quarter electric awards dampened was pending partially maintenance in truck, great that prepared headwinds to vehicle had unplanned Unfortunately The ways, also will to forward. We helped momentum some encountered a for financial but also We our concentrated better inflation finished results, impacted those on focus transmission in for fourth strong changes and including XXXX. advanced continuous made impact adjusted have we offset exceeded our

first As we added we service. good both continued to time, own costs. downtime and out At have what's anticipate marketplace planned with come some the performance we moved customer same the and inventories, quarter, in to the operational this balance into in will our

We’re mind is scrap big affect key the second to our markets of in decreasing also XXXX. seeing on spread. question everyone's and going what's that half indices raw The alloy happen will in material

talk but growth markets general, seeing production markets gaining markets first in grow. tubing, light we sweet-spot a count and starts XXXX actually in inventory Indicators continue mining we continue half around are both but an of second managing in customers in wells. better We well, continue on automotive grow. anticipate SUVs to to the in the levels, anticipate activity, are to today we're and since markets. industrial market new however energy SAAR rig which again, and heard of customer-base levels. share. Customers remain perform increase year, in to which Our energy energy, and something the to military will particularly us of rail our also also lead the beginning We're we've caution particularly see half some not In of are noting truck offshore in activity stable, inventory we to year-over-year even be U.S. about drilling XXXX. expect

caution given overall of market positive I customer of reflects first indicators. mentioned, the but about remainder good some feel that Our the quarter XXXX we guidance the XXXX

will course to global we any for monitor change. economic indicators continue Of

effectively As putting long-term we a vision is as vision This and the clearly XXXX to decisions driven points first. for grow while business. we -- guiding and by today the it begins we look we at with cycle operate beyond, the of look all economic are people make to we

competitive vision. policies, edge engaged keeping Our to design, employees to aligned teams. is based on workforce and priorities sales industry-leading service production From leading are committed our and and our technical on quality safety our

name Second, the center In goals. core future sound-center, of we're sound to inspired by the same we to place launched to fundamentals entire in applying project large multi-year improve our bars. enterprise. our We're to are initiative core XXXX, business. the a ensure realize that project steel thinking working the was The the

results. improvements to tangible forecasting systems, processes We've and The first already phase demand customer master planning pricing and is made service and producing profitability.

we building volume. strategies our Third, to mix products and we're the stabilize towards the moving growth, improve on enrich of sell, price sustainable

We are achieve top driven line to growth.

shareholder Our clearly for sales leadership the team most Board into company investors in our opportunities is evaluating to that new coming our team this we're is driven in our Directors belief want year. of markets areas. development you pursuing growth expansion greater and in we value profitable thanking business the I and in generate team even profitable know to while join our

and Now Kris? us take Kris take numbers to is then on we'll questions. through your going more details the

Kris Westbrooks

I'm results quarter everyone. guidance and prior to good fourth and exceeded pleased year. Tim, morning, report XXXX Thanks, that the

from base Our prior million to by team the close despite in compared a and the or a customer basis, with were $XX stayed and of increase surcharge quarter XXXX loss Higher ton million. balancing. net year seasonality inventory year sales sales focused the sales increase per as and XX% net well fourth $XX net normal loss XXXX driven strong, quarter disciplined improved price million, as fourth Fourth GAAP quarter quarter. million net comparable product $XXX $XX mix were XX% a revenue. from higher was On XXXX the

re-measurement EBITDA $X.X annual adjustments, fourth which $XX.X Adjusted of in was to million $XX adjusted in quarter exceeded pension included million. costs. range maintenance $XX EBITDA XXXX, XXXX $XX million the guidance scheduled million quarter of fourth million of our the Excluding

strong You'll quarter XXXX Year-over-year of in quarter XX,XXX carried third Fourth of was tons tons quarter a same approximately market mobile markets. ship in out the XXX,XXX annual in our XXXX. recall Shipments demand end XXXX XX% shipments end with market improvement ago. and compared to increased the of energy were fourth the energy above that XXXX we year result maintenance industrial the a quarter. fourth X% quarter

volatility with rig in crude Our increase oil prices. recovered and despite count well in gas oil the shipments in XXXX, an U.S.

shipments same of prior we XXXX, expect closely first the on-hand. to quarter monitor the inventory current quarter quarter XXXX XXXX, in as quarter. first were energy to year fourth the fourth as be the similar their For customers Industrial around shipments

impacted by was before end-market inventory As seasonality we this balancing expected, normal yearend. in

to industrial strength to last XXXX, shipped started quarter customers quarter expect we economic even year positive. indicators quarter first be first lower tons For though industrial slower first as than started remain traditional our than -- expected this has

in shipments mobile were quarter the the Our about same fourth year-over-year.

XX projected a quarter higher XXXX, remain stable, light of vehicle same slightly America for year the the than million to mobile ago. of production our then units XXXX, expect period first For and North we shipments be

benefit million the the Operating of improved to X% of the net new quarter fourth in XXXX, fourth sales. source business fourth and and performance launch XXXX company's working an a levels. and at was in mobile SG&A the well-controlled flow market of financial the Our products. capital were $XX from as Capital a of $XX lower in increase quarter in result continues of share quarter. million million $XX expenditures as cash

expect from we XXXX capital in year increase we spending million, opportunities an be profitable $XX XX% around As of our to invest full growth XXXX. approximately

quarter fourth our $XX we the on credit agreements. of During million repaid XXXX,

$XXX million continues of to be XX, Our sufficient available liquidity December at XXXX. as

For were mix million, driven surcharge. price, the we price, $XX net maintaining improvement the foundation million loss million, On with product XXXX over in $XX XXXX. over a $X.X including our volume, EBITDA best-in-class while which XXXX, a mix effectiveness pension of and compared operating plan build of XXXX, to Adjusted million GAAP sales XXXX. re-measurement $XXX net improvements or million $XXX year is XX% full on from culture. a XXXX the billion, XXXX, increase significant the basis adjustment, year with in $XX and continued for was improved a full primarily safety In

less tons by first influenced XX,XXX the Price than over prior be OCTG expect fourth we to shipments approximately reduced primarily XXXX improved will quarter be billet For demand. quarter, years.

in to the increase LIFO benefit with spot along from material to Planned XXXX XXXX, balance continue of production will No. is maintenance significant short-term and XXXX. is currently start consumable pricing a to quarter we're a Raw the the impact to From in the not yearend reserve. price headwind increases. contract fixed expected decline spread cost forecasting we a X in from New leverage demand effect downtime be fourth due with a higher compared Index to Busheling inventory in spend. perspective, unfavorably

$XX the quarter pension excluding we're in of offsetting pension As pension the in questions. adjustment. we year now in of the than and non-cash mix. Sharon, million. year-end XXXX between year asset the To pricing the and a of a expense returns significant full pension $XX mark-to-market and the result, benefit XXXX full a first be a increase increase XXXX to of to is expect for year $XX improvements higher like On and lower up, pension open million call going improved basis, expenses XXXX. assumed wrap up we're has EBITDA expense a will we'd been expecting higher million impact be The into approximately re-measurement result rate. product More discount well-positioned of XXXX

Operator

[Operator with Instructions] from question Englert And comes your Martin Jefferies. first

open. is line Your

Martin Englert

morning, Hi. everyone. Good

Tim Timken

morning. Good Martin. Hi,

Kris Westbrooks

Good morning.

Martin Englert

high your that's if it for like into in your maybe looked you also $XX.X then just commentary So EBITDA was as as if correct? million, guidance what's like back XQ on could far pretty LIFO XQ circle And baked LIFO? expense

Kris Westbrooks

reserve Kris. is LIFO hand the wrapped and reserve This we that significant mix we primarily on the Martin. required higher increase year-end and production driven was of to we're look a not that up there out we overall calculated seeing the as of standpoint, level significant the as Yes, expense in Hi, that not year. cost by and had year at a XXXX, an inventory from And either. came in amount forward

So, LIFO around intended that's mean. the were to what comments

Martin Englert

Okay.

an LIFO for correct? would opposed in far as full So, XXXX the as you as something be to baking income year though expense

Kris Westbrooks

high overall level. minor into XXXX XXXX baked in of pretty at finished it's what's we where Yes, a given terms

Martin Englert

Okay, got it. Thanks for that.

Kris Westbrooks

welcome. You're

Martin Englert

that from And the expect you the you then reduced maintenance that that the more you're overall the And expect there spreads the of seasonal a as planning XQ provide scale in you do second EBITDA? of far as such regarding half maintenance little year? detail bit scrap as also guidance you're facing the several impact the cost can of and would headwind volumes on still

Kris Westbrooks

first we that so fourth impact quarter in question, of XXXX. if of costs the know third the you manufacturing half Yes, start as we carryover with had quarter and from the higher had the

first we the into as bit. us. a hope As see that first being significant into not to we inventory shutdown third the get in some manufacturing we get at a headwind be It XXXX, of to than that XXXX is will some inflation XXXX. because have still producing tons. annual short-term be scheduled settling We for quarter. which quarter mentioned experienced have are have manufacturing scheduled. similar The softening we looking that seeing and cost second half of demand the we're experiencing at do with that less third even but down here as balancing and we're some maintenance downtime in quarter half, But a the we'll in do maybe We level the is we we for comes

a the had we XXXX. quarter leverage solid where pretty leverage cost lower fourth in first fixed of really in So, quarter XXXX the cost fixed

Martin Englert

it. soon this have quarter to I XQ -- why in run pull opposed not anyway is going too third of downtime as just guess it the in if pull maintenance And the forward Got letting year? it to you're to

Tim Timken

quarter. outage Yes, We're we're a in to third it of little major makes our where planning selective a that though on sense. have doing still basis

Martin Englert

Thanks Okay, right. the got for All color all there. it.

Tim Timken

Yes, thanks.

Kris Westbrooks

Thanks Martin.

Operator

comes next with Kenyon Tyler Your question from Cowen.

Your open. line is

Tyler Kenyon

Hey good morning.

Tim Timken

Tyler. Hey

Kris Westbrooks

Tyler. morning Good

Tyler Kenyon

wondering anticipating that overall a in just year? just your contract? that the this color there shifted the being on And of We're the could a a in us I if business has you contract XXXX then provide about contract contracts, speaking pricing. just better of those realization bit realization how I proportion any Hey. know year think and went was on little annual of you're to ex-billet. of know bit how last of the pricing? think I'm also timing I delay What

Tim Timken

Well, yes, Tim. is Tyler, this

I'd way different when whole, of a the in year year Obviously, very are we it. the to through this negotiations the On went. were bit we with environment we're say a contract compared satisfied going last

the XX/XX realized now So, we achieve. running we to that to spot what bulk should think needed of running achieved still contract We're impact forward. about we -- be and we're going

Tyler Kenyon

the spot in have And value-added you so Thanks. including to Okay. are just billet? business, Or to XX that excluding XX referring billets you now?

Tim Timken

remember XX/XX I believe includes billet, Tyler, if right. I

Tyler Kenyon

thoughts as Okay. any strategy And -- the on or of with just business the while billet update there? kind on the any now we're subject, right

Tim Timken

Sure.

in pretty billet originally calls, significant for up As we of forward. we've dependency piece on said a our signed we've us. When reduced going it was business past

much also we Initially on broaden We've dependent realized kind We time exposure that kind sense as markets point. think over pretty this We the have have at it makes it we've customer. were that improved. that a to out We've about bit. reduced of little where other got of product. for that we broadened it want customer-base out one

on are time less of producing number that the U.S. billet look the Obviously, we be over was supply in announcement capable thinking you're to probably Fairfield from OCTG a producers U.S. externally to dependent recently. made of obvious So Steel here they that more the and It point talking the a of here about would internally. fairly view. supply

of our factored point billet all into from kind of we've strategy view. So thinking a along that

that's a OCTG down a a breather seen it think We're the that a first be. in And just of need year. is we that bit little guys will that kind with quarter. Obviously, so and to taking haven't the breather oil here structural we are improve where step confident things I the we're where of throughout

Tyler Kenyon

that Wondering Appreciate me, on guidance just great. one the year-to-year some the know prepared that. mentioned about And from elaborate you're could Okay, your just investments you those? I then making. one last you CapEx comments on if increase in

Ward Timken

$XX we're that some bringing in future $XX-ish on building that new into little well. business built We a budget. of a product We've maintenance, be announced capability primarily bit million platforms capital going of focused do that We million value-add CI, business. be safety, our of long have as got investment near growth here Sure. environmental. that capital number some a in on requires as investment to our as automotive well would the

So the it's the between a side. nice balance and maintenance side growth

Tyler Kenyon

taking question. Thanks Great. for our

Ward Timken

Thanks, Tyler.

Operator

Gibbs from comes Phil next Capital Market. Your question KeyBanc with

open. line is Your

Phil Gibbs

and team. are you? Chris morning, Hi, Tim, How

Ward Timken

Phil. you? How Hi, Great. about

Kris Westbrooks

Great.

Phil Gibbs

Doing well.

Ward Timken

Great.

Phil Gibbs

In terms maybe from perspective whether bar we that -- in perspective new versus maybe not change volume you And a a about expect the mix how to into think tube or of can forward and year? XXXX? or as look we and your XXXX from moving sales what here

Kris Westbrooks

You mean XXXX said you assume? I XXXX,

Phil Gibbs

coming we were from may and change where XXXX? that in XXXX then Well how

Kris Westbrooks

Oh, looking into XXXX?

Phil Gibbs

Yes.

Ward Timken

Yes the We on seen related. softness of I a would we've just end-market off think of that say that is part little tubing side late. bit

consuming We ratio a somewhat latter our -- tube, Some improved bit too a up an guess year, another delivery on And of slower. that's don't the I we're were we tubing bar as we've share a share. begun the performance come of to from bit back. as on-time markets little shift piece been see that what when did had in it half struggling is give see seeing with dependent of that last little we import and in view. XXXX, of point the but obviously of fundamental between we've

some that help did a to bit see in. beef business ought that we So two little up weakness the

Phil Gibbs

there? working XXXX And looking your you're into out Kris, Okay. That’s helpful. as capital, expectation what's net versus XXXX

Kris Westbrooks

Yes.

see in standpoint. high percent a don't where comfortable service in one but to XXXX, work I pretty I inventory about significantly of the as that same. at optimize we'll down number it XXXX. going in XXXX of We're possible, level bit and a still while at quite that keeping try in so we're growing us a working built from I pretty we customer see to we're some sales So mind. capital feel where sitting our

Phil Gibbs

you And pension. Are last to on OPEB here to the any XXXX? contribution in expecting question, just and/or Thanks. make pension cash

Kris Westbrooks

in be required looking that making. we're There's material to contributions no here XXXX

Phil Gibbs

Thanks, everyone.

Kris Westbrooks

Phil. Thanks Cool.

Tim Timken

Phil. Thanks

Operator

Next Bergner Gabelli Justin from with Instructions] [Operator question Company. & comes

line is open. Your

Justin Bergner

morning, morning, Kris. Good Tim. Good

Tim Timken

Good morning

Kris Westbrooks

Good morning, Justin.

Justin Bergner

Just here. had questions a extra couple

what business, quarters, the with forward starting shipments and to Just, about average the implied how run-rate? you've that point in first two of to the fourth this over to billet billet Just decent at going we look average is that a for shipments quarter your quarter, if were just think as things time? sort

Kris Westbrooks

Well, think we the exposure lot just probably talked the I in say of sustainable. is think Obviously, to seeing about but for is quarter time depends end-market weakness what's the fourth strength better on first in to of -- the on that our markets, quarter down kind we've in the a we're we related level guys. that OCTG that level a run-rate to certainly worked the that over would about. other a going

Justin Bergner

Okay.

the back XXXX? in mid shipped second market to the TimkenSteel of sort of pick the second XX,XXX the out is where the think up indicative XX,XXX can in play tons So the things quarter, versus of half low of fourth once of quarter sort tons for and you third

Kris Westbrooks

so. Yes, we think

Justin Bergner

Great. Okay.

as segments sales saw Secondly, those want sequentially I in think more points end-markets. the base of price those business are of about in to should go Was or some in mix in increase I the energy to being the fourth launching industrial or more guess, get room per ton and guess, sort you for that your good XXXX? quarter. into I end-markets Or both we price ask -- nice in there that more mix? price was XXXX? mix And the we about

Tim Timken

would think it price that Yes, we we benefit between I was contract is the in quarter. increasingly more and kind way and guess, to reset best what think mix XXXX, as immediately for a volumes. the of the as to that, return it then normal we'll we would of about pricing see be split XX-XX Obviously,

Justin Bergner

in talking address about terms off Okay, this start view? are about products? thinking activities. you call new organic at then markets business that’s to helpful. Are the And new point initiatives you by of with development thinking anything of you Or inorganic mainly

Tim Timken

expect comments said opportunities were in externally I in the guess XXXX we're that we to along, all that on for focused more of we XXXX. my saw well. to looking see and we impact grow continually successes But the organic as as

we do an look program have So at inorganic side the also. active to

Justin Bergner

thank you. Okay,

Operator

this [Operator call time. presenters. Instructions] We the over I'll to do not have any the at turn questions

Tim Timken

is proposition. pursuing Well of reach thank to very much The to team all TimkenSteel that want new applications interest your The company. this the and generate improve for thank and driven a core are today. we to questions your strategy our performance. greater improve will I hard shareholder you value working customers bottom-line benefit We're at for business is to even in this you value. to

hesitate Mitch Byrnes. If you have contact any Thanks don't day. additional and have to questions today us great a for joining

Operator

today's conference call. concludes This

now disconnect. may You

Metallus (MTUS) 21 Feb 192018 Q4 Earnings call transcript