CANTON, Ohio, May 7, 2020 /PRNewswire/ -- TimkenSteel (NYSE: TMST), a leader in customized alloy steel products and services, today reported 2020 first-quarter net sales of $259.7 million and a net loss of $19.9 million. In the same quarter last year, net sales were $371 million with net income of $3.5 million. Excluding certain items, the adjusted net loss(1) was $11.3 million in the first quarter of 2020. Adjusted EBITDA(1) for the first quarter of 2020 was $9 million compared with EBITDA(1) of $25.6 million in the same quarter last year. First-quarter 2020 financial results represented a significant sequential improvement from the fourth quarter of 2019, which included net sales of $226.9 million, a net loss of $84.6 million and an adjusted EBITDA loss(1) of $8.7 million.
"Our most important priority is always the health and well-being of our employees. That has never been more important than during the ongoing COVID-19 crisis. I am proud that we achieved the safest quarter in the company's history while implementing significant COVID-19-related changes in our operations. At the same time, we remain highly focused on improving the company's financial results, significantly reducing costs and aggressively managing working capital. Our customers also are navigating an unprecedented environment and we're staying very close to them to listen to their needs and serve them effectively," said Terry L. Dunlap, interim chief executive officer and president. "During the first quarter, we generated record-high operating cash flow and achieved our earnings guidance. In the coming months, we intend to safely maintain flexible production schedules to meet what is expected to be lower customer demand while continuing to further reduce costs and prudently conserve cash to maximize our available liquidity."
FIRST QUARTER OF 2020 FINANCIAL SUMMARY
- Net sales of $259.7 million decreased $111.3 million or approximately 30 percent compared with the prior-year first quarter. Lower shipment volume, surcharge revenue and base sales per ton all were contributing factors to the decline in net sales. In comparison to the fourth quarter of 2019, net sales increased 14 percent.
- Ship tons of 213,400 declined 18 percent from the prior-year first quarter as a result of lower demand across all end markets with the exception of OCTG billets. In comparison to the fourth quarter of 2019, ship tons increased 19 percent.
- Surcharge revenue decreased $43.8 million or 49 percent from the prior-year period driven by lower shipment volume coupled with a 38 percent decline in the average surcharge per ton due to lower market prices for scrap and alloys.
- Manufacturing cost absorption was negatively impacted by low plant utilization compared with the prior-year first quarter, partially offset by aggressive cost control actions.
- SG&A expense of $23.4 million was relatively consistent with the prior-year first quarter and reflects a non-cash increase in bad debt expense and variable compensation, substantially offset by lower wages and benefits as a result of the company's restructuring actions.
(1) Please see discussion of non-GAAP financial measures in this news release.
TimkenSteel has been designated as an "essential business" by both the Department of Homeland Security and Ohio Governor Mike DeWine and, as such, the company has continued to operate to serve customers and critical end markets. To ensure a safe working environment, the company's cross-functional COVID-19 response team closely follows health and safety guidelines set forth by the Centers for Disease Control and Prevention, U.S. Department of Labor and Ohio Department of Health. Many employees are working remotely and those who cannot are practicing good hygiene and physical distancing and are adhering to enhanced safety precautions such as additional cleaning procedures, health screenings and daily audits of new procedures.
COST REDUCTION ACTIONS
In response to the significant reduction in customer demand resulting from the COVID-19 crisis, the company has taken additional actions to further reduce operating expenses, conserve cash and maximize liquidity, such as:
- Reduced interim CEO and senior executives' base salaries by 20 percent and other executives' base salaries by 10 percent, effective May 1;
- Reduced cash retainer for its board of directors by 20 percent beginning with the second-quarter 2020, and reduced the value of the board's annual equity grant by 20 percent;
- Suspended company's 401(k) plan matching contributions for salaried employees, effective June 1;
- Implemented unpaid rolling furloughs for approximately 80 percent of salaried employees, beginning in early April;
- Aggressively reduced production schedules at all plants to align operations with customer demand, resulting in the temporary layoff of manufacturing employees;
- Reduced planned 2020 capital expenditures to a maximum of $25 million, a $5 million reduction from previously stated guidance; and
- Deferred Social Security payroll tax remittance as permitted by the CARES Act.
CASH AND LIQUIDITY
Operating cash flow was $63.8 million for the first quarter of 2020, benefiting from actions to more effectively manage working capital coupled with results of cost reduction initiatives begun in the prior year. Additionally, the company realized $7.8 million of cash proceeds in the quarter from the sale of assets associated with previously announced business divestitures. Significant cash generation in the quarter enabled the company to pay down $30 million of debt and maintain a higher-than-historical level of cash at quarter-end of $65.6 million. As of March 31, 2020, the company had $290 million of available liquidity (available borrowing capacity plus cash and cash equivalents), its highest level of available liquidity in more than five years.
As noted, the company will continue to focus on employee safety, serving customers, conserving cash and aligning costs and production with sharply lower COVID-19-driven demand. The company remains committed to delivering approximately $70 million of run rate savings from its previous cost reduction actions. Additionally, the company executed recent actions as noted above and will continue to evaluate other actions to further improve its cost structure and position the company well when its markets recover.
The extent and duration of the COVID-19 pandemic and resulting effect on the company's operations and financial results remain uncertain. Given the evolving impact of COVID-19 on the overall economy, the company will not provide quarterly guidance at this time.
TIMKENSTEEL EARNINGS CALL INFORMATION
The company will host a conference call at 9 a.m. ET on Friday, May 8, to discuss its financial performance with investors and securities analysts. The financial results will be available online at investors.timkensteel.com .
About TimkenSteel Corporation
TimkenSteel (NYSE: TMST) manufactures high-performance carbon and alloy steel products in Canton, OH serving demanding applications in automotive, energy and a variety of industrial end markets. The company is a premier U.S. producer of alloy steel bars (up to 16 inches in diameter), seamless mechanical tubing and precision components. In the business of making high-quality steel primarily from recycled materials for more than 100 years, TimkenSteel's proven expertise contributes to the performance of our customers' products. The company employs approximately 2,200 people and had sales of $1.2 billion in 2019. For more information, please visit us at www.timkensteel.com .
NON-GAAP FINANCIAL MEASURES
TimkenSteel reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP") and corresponding metrics as non-GAAP financial measures. This earnings release includes references to the following non-GAAP financial measures: adjusted earnings (loss) per share, adjusted net income (loss), EBIT, adjusted EBIT, EBITDA, adjusted EBITDA, and free cash flow. These are important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting these non-GAAP financial measures is useful to investors as these measures are representative of the company's performance and provide improved comparability of results. See the attached schedules for definitions of the non-GAAP financial measures referred to above and corresponding reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures. Non-GAAP financial measures should be viewed as additions to, and not as alternatives for, TimkenSteel's results prepared in accordance with GAAP. In addition, the non-GAAP measures TimkenSteel uses may differ from non-GAAP measures used by other companies, and other companies may not define the non-GAAP measures TimkenSteel uses in the same way.
This news release includes "forward-looking" statements within the meaning of the federal securities laws. You can generally identify the company's forward-looking statements by words such as "will," "anticipate," "believe," "could," "estimate," "expect," "forecast," "outlook," "intend," "may," "possible," "potential," "predict," "project," "seek," "target," "could," "may," "should" or "would" or other similar words, phrases or expressions that convey the uncertainty of future events or outcomes. The company cautions readers that actual results may differ materially from those expressed or implied in forward-looking statements made by or on behalf of the company due to a variety of factors, such as: the potential impact of the COVID-19 pandemic on the company's operations, financial results, and liquidity; whether the company is able to successfully implement actions designed to improve profitability on anticipated terms and timetables and whether the company is able to fully realize the expected benefits of such actions; deterioration in world economic conditions, or in economic conditions in any of the geographic regions in which the company conducts business, including additional adverse effects from global economic slowdown, terrorism or hostilities, including political risks associated with the potential instability of governments and legal systems in countries in which the company or its customers conduct business, and changes in currency valuations; the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which the company operates, including the ability of the company to respond to rapid changes in customer demand, the effects of customer bankruptcies or liquidations, the impact of changes in industrial business cycles, and whether conditions of fair trade exist in U.S. markets; competitive factors, including changes in market penetration, increasing price competition by existing or new foreign and domestic competitors, the introduction of new products by existing and new competitors, and new technology that may impact the way the company's products are sold or distributed; changes in operating costs, including the effect of changes in the company's manufacturing processes, changes in costs associated with varying levels of operations and manufacturing capacity, availability of raw materials and energy, the company's ability to mitigate the impact of fluctuations in raw materials and energy costs and the effectiveness of its surcharge mechanism, changes in the expected costs associated with product warranty claims, changes resulting from inventory management, cost reduction initiatives and different levels of customer demands, the effects of unplanned work stoppages, and changes in the cost of labor and benefits; the success of the company's operating plans, announced programs, initiatives and capital investments (including the jumbo bloom vertical caster and advanced quench-and-temper facility), the ability to integrate acquired companies, the ability of acquired companies to achieve satisfactory operating results, including results being accretive to earnings, and the company's ability to maintain appropriate relations with unions that represent its associates in certain locations in order to avoid disruptions of business; unanticipated litigation, claims or assessments, including claims or problems related to intellectual property, product liability or warranty, and environmental issues and taxes, among other matters; the availability of financing and interest rates, which affect the company's cost of funds and/or ability to raise capital, the company's pension obligations and investment performance, and/or customer demand and the ability of customers to obtain financing to purchase the company's products or equipment that contain its products; the amount of any dividend declared by the company's Board of Directors on the company's common shares; and the overall impact of mark-to-market accounting. Additional risks relating to the company's business, the industries in which the company operates, or the company's common shares may be described from time to time in the company's filings with the SEC. All of these risk factors are difficult to predict, are subject to material uncertainties that may affect actual results and may be beyond the company's control. Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results and that the above list should not be considered to be a complete list. Except as required by the federal securities laws, the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
The tables below present net sales by end-market sector, adjusted to exclude raw material surcharges, which represents a financial measure that has not been determined in accordance with U.S. GAAP. We believe presenting net sales by end-market sector, adjusted to exclude raw material surcharges, provides additional insight into key drivers of net sales such as base price and product mix.
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