Q4 2019 Earnings Call
You feel fourth quarter 2019 earnings conference call.
At this time all participants are in listen only mode. After the speakers presentation. There will be a question answer session.
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On show up on Keypad, I would now like to and the conference over to your speaker today, Jennifer Beeman. Thank you. Please go ahead.
Thanks, Jody good morning, welcome to Timkensteel fourth quarter, and full year 2019 conference call on Jennifer Beeman Senior manager of Communications and Investor Relations for Timkensteel. Joining me today is carried Dunlap interim Chief Executive Officer.
Chris Westbrooks Executive Vice President and Chief Financial Officer, as well as Tom Alain Executive Vice President of commercial you. All should've received a copy of our press release, which was issued last night.
During today's conference call, we may make forward looking statements as defined by the FCC. Our actual results may differ materially from those projected or implied due to a variety of factors, which we described in greater detail in yesterdays release, please refer to our FCC filings, including our most recent form 10-K and form 10-Q.
You and the list of factors included in our earnings release, all of which are available on the Timkensteel website, where non-GAAP financial information as referenced additional detailed reconciliations to its GAAP equivalent are also included in the earnings release. Finally immediately following the conclusion of today's call we will.
Post supplemental information regarding sales and volume by end market on the Investor Relations page of the Timkensteel website. This information is consistent with information we have provided in previous quarters I can be located under financial information historical data with that I'd like to turn the call.
Over to Terry Terry.
Thank you Jennifer and thank you everyone for joining us this morning and for your interest in Timkensteel.
First the word about safety.
Safety is a core value with Timkensteel and the most important priority for all of our 2500 employees.
The safety first mindset has been a cornerstone and maintaining the overall health and wellbeing of our employees for many years and her team continues to implement plants and actions that reduce risk incidence and injuries on a daily basis.
Safety results for 2019 did not meet our expectations well results were good at most plants overall, we experienced slightly higher incident rates compared with the prior year.
With the full engagement over employees and the U. S. W. We have a renewed focus on safety for 2020 and are implementing a number of new initiatives, including special attention to the prevention of life threatening incidents.
With our ongoing journey towards zero incidents I continue to be impressed by the motivation and commitment of all our employees to find solutions to keep everyone safe.
Every day every shift nothing we do is more important than safety.
Oh, let's move onto our results for the quarter into year.
As expected the demand environment in many of the markets. We serve did not improve as we headed into the ended the year, resulting in disappointing results for the quarter.
Although our fourth quarter adjusted EBITDA of negative $8.7 million exceeded the high end of our guidance range when adjusted for the inventory valuation method change or ship tons decreased by 39% compared with the prior year quarter.
This decline in demand.
Coupled with lower raw material surcharges led to a decline in sales of $180 million were 44% compared with the prior year quarter.
While our energy and industrial markets led the decline all of our major end markets saw weakness at the end of the year.
Sequentially shipments declined 14%.
On a positive note our cash flow story is a good one.
During the quarter, we generated $46 million of operating cash flow.
We continue to proactively reduced inventories across the business as well as better aligned working capital investments with current customer demand.
Regarding scrap pricing after rising by $80 per gross kind over the last three months.
Three city average of the number one busheling scrap index move down $10 per gross ton in February.
Bush link fared better than most other scrap grades most of which were down approximately $20 per ton. This month.
Barring any major weather events or major uptick in scrap exports supply should be more than sufficient to meet expected demand in March and scrap prices are expected to remain relatively flat.
As you were well aware, we're on a journey to rapidly improve the profitability of our company as well as reinforce and improve our valuable customer relationships.
Through the hard work of so many in the company, we achieved $40 million of cost savings in 2019 exceeding our initial guidance by $5 million.
In 2019, we focused on simplifying the business and management structure, which resulted in a 14% reduction in our salaried employee head count.
These actions are ongoing and I'm confident that our continued efforts to simplify the organizational structure remove functional silos and improved collaboration not only will improve our cost structure, but more importantly drive greater alignment accountability speed of decision, making and ultimately better results.
Regarding employee benefits after careful consideration we determined it was prudent to make two significant changes to our salary pension and other post retirement plans to more closely align or benefit plans with those offered by our peers.
We froze the future accrual of pension benefits for the 260 employees, who are in the salaried pension plan.
Replacing it with the contribution to there for a one k. plans as we do for all other salaried employees.
In addition, we eliminated the salary retiree medical subsidy.
These plans were previously was previously frozen to new participants in 2004, but had continued to accrue benefits.
We believe these changes where necessary part of our continued efforts to develop it more efficient cost structure, while still providing competitive benefits to our employees.
In November we announced the plant closure of our Timkensteel material services facility in Houston I.
I want to thank the employees, who safely and professionally completed the closure in the first quarter of 2020.
The Houston facility, primarily served the challenging the challenged energy sector.
It's important to note that we're not exiting the energy markets, rather we plan to more fully utilize our supply chain partners to provide the services required by our energy customers.
This change will immediately improve the companys financial performance.
Also at the end of January we sold our scrap processing facility located in Akron, Ohio.
The landscape for scrapping or region has changed since the acquisition of this facility almost 10 years ago.
Given that this facility supplied only a small percentage over overall scrap requirements and with our network of Midwest recycled material suppliers well established we're confident we'll have an adequate and secure supply of scrap for years to come.
We thank the dedicated employees of this facility for their years of service and wish them the best in the future.
Chris will touch upon the financial impact from these activities and just a minute.
As we previously announced the expansion of our Sinclair facility in their Dayton, Ohio continues to progress as planned.
This investment is being made to support our growing value added components business, primarily to serve automotive customers.
Beginning in late 2018, we focused on further strengthening the long term for portfolio of this business by targeting new opportunities in both traditional and new powertrain applications.
We were awarded several new programs in the first half of 2019 that will provide step change growth in the value added portfolio beginning in mid 2020.
Launch efforts remain on schedule for the started production during the second half of 2020.
In addition to growth in traditional powertrain applications. We also were awarded to new electric vehicle applications that launch in 2021 and 2023.
Our team continues to explore new capabilities and supply chains to pursue these types of applications.
And opportunities.
To further leverage the momentum in or value add business. We recently implemented a dedicated organization structure to more effectively service customers, while focusing on improving profitability and more effectively managed with managing working capital and cash flow.
The team will focus on executing projects, we've won by strengthening the alignment between our customers external suppliers and our manner manufacturing operations.
With clear accountability for successful outcomes for all stakeholders, our value added product portfolio is positioned for success.
Further with respect to our focus on customers each year, we conduct the satisfaction survey to see how we performed on a number of important metrics, including quality and service.
This past year over 200 customers responded to the survey and we are encouraged by the results that showed we continued to maintain a high degree of trust and satisfaction with our customers.
One factor acknowledged by our customers is helping drive the positive results is our on time delivery rate, which reached an all time record of 94% in 2019.
I applaud our team for this achievement and their commitment to providing great service to our customers.
We all know however that we must continue to get better everyday and we are relentlessly implementing improvement plans in the areas most valued by our customers.
In closing, we made progress on a number of strategic initiatives in the quarter, including the execution of many important cost reductions, including selling we're closing noncore operations implementing new inventory management controls and simplifying organization structures in many part of the business.
In addition, we have deployed a number of project teams, who are working hard to deliver additional performance improvement initiatives in the weeks and months ahead.
That said it is clear our 2019 results were disappointing and unacceptable the entire Timkensteel leadership team an organization is committed to this change and actions required to deliver improved results in 2020.
I spent the last five months working with our board and the Timkensteel team as well as meeting with customers suppliers Union leadership shareholders community leaders and other stakeholders to better understand the business.
We have assessed and prioritize opportunities for improvement and mobilize the organization organization and making meaningful and in many cases difficult changes with a sense of urgency.
Finally, many of you have ask about our CEO succession plan.
As you know I accepted the CEO position in October with a one year commitment to the company to focus on improving our results in the near term as well as developing a plan for long term success and improving shareholder value.
The Timkensteel board and I remain fully committed to that plan and approach and we'll keep you informed as decisions for the future are made.
With that I'll turn it over to Chris who will walk you through the numbers.
Thanks, Terry good morning, everyone.
As Terry mentioned, our fourth quarter results came in above the high end of our adjusted EBITDA guidance range after considering the LIFO inventory valuation change.
Despite end market challenges driving lower customer demand and plant utilization, we made significant strides during the fourth quarter to better position our business for improved financial performance.
During the quarter, we generated positive free cash flow through enhanced working capital management and cost reduction actions.
Additionally, we increased available liquidity through the refinance of our credit facility and further debt repayments.
As mentioned in our earnings release, we changed our inventory valuation method in the fourth quarter of 2019 from last in first outs for LIFO to first in first out or fight FFO.
We believe that the FIFO method improves comparability with our peers. We're closely resembles the physical flow of our inventory and aligns best with how we internally managed the business.
This change has been retrospectively applied to our prior year financial statements and none of the company's inventory remains on LIFO going forward.
Further details on the LIFO to FIFO inventory valuation change will be provided in our form 10-K that we plan to file next week.
On a GAAP basis, the fourth quarter of 2019, net loss was $84.6 million or a loss of $1.89 cents per diluted share compared with a net loss of $29.4 million or a loss of 66 cents per diluted share in the fourth quarter last year.
Excluding certain items the fourth quarter of 2019, adjusted net loss was $27.3 million when adjusted net loss of 61 cents per diluted share and adjusted EBITDA was negative $8.7 million for the quarter.
Turning to the main drivers of the fourth quarter financial results.
As expected shipments of 180000 tons were 14% lower and total across all of our end markets in comparison with the third quarter of 2019.
As customers carefully managed inventory levels as they approached year ends in a difficult SBQ demand environment.
This lower level of shipments drove a 7 million dollar decline than adjusted EBITDA from the third to fourth quarter of 2019, and a $20 million decline in comparison to the fourth quarter of 2018.
From an end market perspective shipments to mobile on highway customers were 81500 tons in the quarter with over half of the 11500 ton decreased from the.
On the prior quarter due to a strike at one of our customers.
Shipments of 72200 tons to industrial and 10500 tons to energy also were negatively impacted by end market demand in the quarter.
And billet shipments were 15500 tons in the quarter.
Total based price per ton remained relatively flat during the fourth quarter compared with the third quarter with variability by end market, primarily due to product mix.
We have seen improvement in demand in customer demand and to date in the first quarter of 2020, which is reflected in our shipment guidance that I will discuss shortly.
Surcharge revenue of $34.6 million in the quarter was the lowest in the past two years down $16.7 million in comparison to the prior quarter and $69.2 million below the fourth quarter of 2018.
Lower ship tons as well as a decline in surcharge revenue per tonne on a lower number one busheling scrap index negatively impacted surcharge revenue.
Manufacturing costs benefited from cost reduction actions in the quarter, including 18% fewer hourly employees since the end of 2018.
Melt utilization of 35% in the fourth quarter drove unfavorable fixed cost leverage while resulting in a significant rebalancing of inventory to better align with the demand environment.
Our current plant operating schedules provides significant flexibility to meet our customers demand.
SGN expense for the quarter was $26.9 million, excluding certain items adjusted SJ expense was $20.5 million approximately $4 million lower than the fourth quarter of 2018.
This lower level of adjusted EPS Gionee expense was the result of cost reduction and restructuring actions completed in 2019 as well as lower incentive compensation.
Since 2018, we've reduced our annual SGN expense by approximately $10 million.
Turning now to our profitability improvement plan that we launched in early 2019.
We are working everyday to permanently reduce costs and generate cash through simplification of our business in approved and efficiency, while deploying our resources to those activities that have the greatest impact on our performance.
As Terry mentioned, we've implemented many cost reduction actions throughout 2019 that resulted in total realize savings of approximately $40 million.
We estimate our annualized savings to be approximately $70 million going forward inclusive of the following recent actions.
First as you know we've undertaken significant restructuring in the second half of 2019 to simplify and streamline the organization, including the elimination of approximately 125 salaried positions a 14% reduction.
It's completed actions will result in total annualized savings of approximately $18 million in 2020 with the majority of the savings being incremental to 2019.
The restructuring charges related to these actions were $5 million and $8.6 million in the fourth quarter and full year 2019, respectively.
Cash severance of approximately $5 million isn't expected to be paid in the first quarter of 2020 related to these actions.
Second in November 2019, we announced the closure of our Houston, Texas facility, including the elimination of approximately 85 positions.
We recognized an $8.3 million charge in the fourth quarter of 2019 related to the closure the majority of which was noncash.
We expect to realize approximately $8 million with annualized savings going forward and are working to maximize cash proceeds for the remaining assets.
Third we recently completed the sale of a small noncore scrap processing facility in Akron, Ohio for approximately $4 million and use the proceeds to pay down debt.
The majority of our 30 employees at the location were hired by the buyer.
This action follows a noncash asset write down of $7.3 million in the fourth quarter of 2019.
Fourth as Terry described we made changes to our remaining salary pension and postretirement benefit benefit plans, which resulted in annualized savings of approximately $2 million and a reduction in the benefit obligation of $10 million as of December 30, Onest 2019.
These four actions reflect our clear focus on cost reduction cash generation and simplification of our business.
Moving onto cash and liquidity, our total available liquidity was $230.3 million at the end of 2019, our highest level of availability in over two years and an improvement of approximately $25 million since the end of the third quarter.
The increase liquidity was the result of focus scrap alloy and finished good goods inventory reductions effective management of receivables and payables.
And additional liquidity provided by our recent credit facility refinance.
These working capital improvements enabled us to generate approximately $30 million of positive free cash flow in the fourth quarter.
We remain focused on further working capital optimization actions to generate additional free cash flow in the future.
Capital expenditures were $16.3 million in the fourth quarter of 2019, resulting in a full year capital spend of $38 million compared with $40 million in 2018.
In 2020, our Capex spending is projected to be approximately $30 million, including $5 million is substantially complete the value added components facility expansion.
From a pension and postretirement benefit plan perspective, we recorded a 36.2 million dollar noncash loss from the annual Remeasurement of the plans as of December 30, Onest 2019.
The Remeasurement loss, which is excluded from our adjusted EBITDA was driven by lower discount rates more than offsetting a strong year of asset returns.
Our total plan funded status was 86% as of December 30, Onest 2019, and improvement of 83% at the end of 2018.
Required pension contributions in 2020 year modest totaling approximately $1 million.
Moving onto the outlook for the first quarter of 2020.
We expect shipments to be approximately 15% higher than the fourth quarter of 2019 with growth across all end markets.
Based sales price levels are expected to be lower in comparison with the prior year as a result of general markets and competitive conditions.
For the quarter, we expect a GAAP net loss between 12 million in $22 million and EBITDA in the range of breakeven to positive $10 million.
To wrap up 2019 was a challenging year from an end market demand perspective, and our profitability suffered during the year. We took initial steps to improve our cost structure and working capital efficiency with further optimization actions planned.
We're making progress to transform the company every day, we look forward to continued improvement in the future.
Jody we'd now like to open up the call for questions.
Thank you as a reminder to ask a question you want me to press Star one on your telephone.
To withdraw your question press, the pound or hash key please standby, while we compile documenting roster.
Our first question comes from the line of Martin Englert of Jefferies. Please go ahead. Your line is open.
Hi, good morning, everyone.
Good morning, when the Martin.
Can you discuss what happened with the annual contract pricing across some of your businesses here. I know you commented you expected declines, but any more color contacts you could discuss across the business units.
Tom you want to take though yeah. Good morning this family.
It's a comprehensive look at based pricing is difficult.
Because it is so heavily influenced by.
Yes.
But I can't so it's difficult to offer specifics on steel based pricing other than it was most definitely pressured as a result of excess domestic supply and continued import competition.
And it was pressured across all markets that we participate in.
Okay.
Kind of sense for modeling purposes, what we should be thinking about.
You know versus where things were averaging I understand that mix is going to push things around a bit but should we be thinking down like $5 a ton across the businesses are $10 a ton versus where it averaged on bases in 2019.
Martin This Chris it's higher than five to 10, but lower than you'll say 50, so it's in that range.
But it's modest but impactful.
Okay. That's helpful. I appreciate it and then beyond the seasonal improvement that you're seeing in one QNX activity in that you're guiding to are you seeing on any underlying growth within any specific end markets versus a year ago, and one Q 20 versus 119.
Not specifically to to growth in fact, most of the markets that we are participating in our forecasted to be flat to slightly weak, but we seem to be gaining share in all markets to offset some of that market weakness.
Okay understood and.
I understand the company is undergoing a lot of changes and reining in the capital spending and trying to generate cash but have you explored or discussed expanding the product offering be on SBQ and tubular number years ago, you started doing some increase external billet sales.
We thought about merchant bar or rebar to better leverage of fixed costs and improve the utilization on the mill.
Martin now this is Terry so we are evaluating our whole product portfolio right now I think we talked about our value add business.
Expanding in the efforts, we put forward there and the investments we're making too.
To drive up the value chain, if you will and we are currently one of our work streams is evaluating our product portfolio right now so nothing to report, but certainly an area of.
Of thought in consideration.
Okay I appreciate all the color and good luck.
Thank you. Thank you.
Our next question comes from the line of Seth Rosenfeld of exam BNP. Please go ahead. Your line is open.
Good morning, Thanks for taking the questions.
Oh I'm sorry.
I appreciate that and up to this and limitations, but you can say with regard to the contract negotiations and term contracts to come through but with regards to auto wins, you comment to achieving last year. I think you said there'd be some sizable benefit by second half Twentytwenty and then they can from additional applications in the coming one to three years.
With the contract starting to kick in the second half of this year can you give us any sense of scale with regard to either volume or value. We should it would be to these contracts on the horizon will start there. Thank you.
I can offer something specifically with the new program business that we have been awarded in our mobile on highway value add business segment.
On the magnitude of that for 2020 as Weve reported in the past will will be in the range of 30 to 35 million on the topline.
Thank you and we think other from margin perspective, compared to other products consider new sense of how that would compare higher or lower prices be slowed.
A bit higher than base load.
Okay. Thank you.
And then lastly, when it comes to balance sheet. Please obviously you've made some good success with extending your liquidity profile.
Can you give us any more sense with regard to additional flexibility around your balance sheet.
Yeah of course quite good but leverage is still elevated given where current profitability Stan how comfortable as a management team with that and what else can be done Swiss made any remaining risks. Thank you.
Sure I'll take that one this is Chris the the ABL refinanced definitely helped us from a liquidity perspective, we continue to make progress from a working capital as well generating free cash flow from that the one maturity, we do have coming in about a year and a half is the convertible debt for $86 million.
Similar to what I mentioned last quarter, we continue to monitor the markets closely there and believe that there are options to to refinance that opportunistically in advance or at the maturity date. So we're comfortable where we're at today.
You can ever up too much liquidity. So we'll always look for opportunities, but we're comfortable were at.
Okay. Thank you very much.
Our next question comes from the line of Justin Bergner GE Research. Please go ahead. Your line is open.
Good morning, everyone.
Good morning joking.
Guys My voice little Scrappy, just a handful of clarifying questions.
The 30 35 million of auto revenue from these new contract awards in 2021, I mean does that on an annualized basis or is that only.
Partially I guess.
Benefiting 2020 in larger into the annual basis.
Yes that is just the impact in 2020 on an annualized basis. It will be in the range of 85 to 95 million.
Okay, great at any sort of perspective on the awards coming due in 2021 2023 or would you rather sure. There later point.
There is still too early at this point to share any specifics so we'll provide that guidance in future calls.
Okay.
Got it.
And in terms of the cost savings program, I mean, I realize that you're driving productivity every year, but as the program outlined last year and effectively done or.
Are there other areas to sort of drive that Ed in terms of sort of the 70 versus the 60.
What was sort of the incremental.
Activity or activities.
The higher number.
We're looking at now.
Yes, so the cost reduction actions are definitely not done there. They are ongoing many of the actions we put in place and 19 were done throughout the year civil have an ongoing benefits into the future an incremental piece, that's part of that incremental $30 million for 2020, the manufacturing continuous improvements always been power.
All of our DNA and that will continue where we expanded as in other areas and and selling general administrative costs and other corporate functions. So if you look at the bigger piece the increase from 60 to 70 that the main driver. There is the incremental restructuring that we did in December as well as the announced closure the facility in Texas.
Those two things drove us our ability to raise that range is we got into 2020.
Okay got it and then in terms of the.
Sure performance at the high and your expectations and for Q was that mainly driven by the cost side of things coming in.
40 million of savings versus 35, you've been sort of tracking a quarter ago.
That's exactly right, yes, it was lower cost of its not just reductions there, but there's also careful management of where we're spending in the operations.
So all of that was the drivers for the improved performance that you can see it with a 35% utilization rate not getting a lot of great fixed cost leverage, but manufacturing was actually favorable quarter over quarter. If you look at the charts.
Appendix of the earnings release.
Okay understood.
Maybe one or two more the.
I guess sale to scrap processing facility. It Didnt mentioned the press release the impact on EBITDA is that because the impact on EBITDA.
ER is pretty negligible.
That's right it was a profitable business, but just very small.
Okay.
Understood and the severance charges that were recorded I guess and adjust it back in in 2019 have those old and paid or is there a cash impact that remains in 2020.
There is a cash impact for the actions taken in the fourth quarter, it's about $5 million and that will be paid in the first quarter of 2020.
So that would be on top of the 5 million in restructuring cash charges associated with the I guess book charges to the same number yes, that's what I'm talking about yeah that the restructuring that I mentioned on the call. The cash cost associated with that is exactly the same as I just spoke up so that's a total of five that.
We'll be paid in Q1 related to those actions in the fourth quarter.
But in terms of the executive severance and transition costs of those all to pay down or those part of that Oh, I'm, sorry, I missed the executive part of your question My apologies that's been paid.
Okay. Thank you and then lastly, just to clarify.
So I guess, maybe two more the pension you mentioned there is a $36 million re measurement.
The impact in 2019 that will be seen when I guess more determined the 10-K comes out.
That's right to new we typically have large mark to market adjustments at the end of each year with the discount rate. It came down close to 90 basis points. When we ran our valuation that drove all of that loss and then it was offset by 15% return on our assets realized in 2019.
Okay, and then just lastly, big picture, just a little more detail on the Dayton investment in any sort of new business opportunities that are material in terms of driving.
You have in the coming here too I know a couple of quarters ago. There were some discussion of the defense end market, but anything you can share there.
Yes, just a couple of things obviously, we've we've talked a little bit about.
Our.
Putting more focus on the battery electric vehicles and hybrid vehicles, which historically has not been an area that we've put a lot of attention on but with the shift to that technology, we're moving very quickly.
Good engaged with with those programs as they begin to launch in 2020, 122 and 23. So heavy focus there those components look different than what we're accustomed to and traditional combustion transmissions and engines. So heavy focus there.
We've talked a little bit about the defense applications side of things and the defense market is is rather robust one of the the stronger of the industrial markets sub segments and our focus is absolutely in that area as well and a number of different applications.
From missiles missile bodies fuse components.
Large bombs.
General munitions and projectiles and not just in the supply of SBQ products and seamless mechanical two products, but venturing further down the supply chain for those types of applications as well to get into more of the machining aspects.
So that those are our primary focus is at the moment.
And our next question comes from the line of Tyler Kenyon of Cowen. Please go ahead. Your line is open.
Hey, good morning.
Claims Tyler on how we should be thinking. Good morning question is just on how we should be thinking about raw material spread heading into 2020, I mean, clearly a big headwind in 2019, I think nearly $50 million or so, but if you were to take current scrap and alloy prices hold those constant and of course.
Giving some deference to kind of the stronger lag on your cost versus versus Surcharging.
How should we think about any any tailwind or headwind for the year and moving into the first quarter.
First quarter.
Well, a an unpredictable as you know, but certainly seeing the uptick over the last three months has been a good thing it's always better when raw material prices are moving up versus down, especially at the amplitude of the drop we saw in in 2019. So from what we're gathering from from all of our sources and the market is that.
Scrap is.
Leveling off at this point I think the did little dip. We saw here recently was I'd call it and probably unexpected so I think it so on moving and an upward trend, but sort of.
Yeah leveling off I think it's the best way to think about it on the alloy side, which which matters. It's been it's been pretty stable on many fronts nickel certainly has dropped significantly along with a lot of other LM me traded materials. So in predicting that is pretty tough because it moves.
Lot of other drivers other than demand that move that material materials trade O'neal a may of course, so I think you know everything else seems like it's going to be pretty pretty level. If you will and as I mentioned on the scrap hopefully continuing to move up and but unpredictable as you know.
Sure or would you expect a headwind or tailwind in the first quarter relative to the fourth.
Well when it's on its way up it's always good and so I think that's that's what we're thinking and we we don't try to make money on raw materials. We just try to make sure. We have good alignment between our raw material buys and our and our surcharges to our customer, but you know given the scrap into.
Particular, the precipitous drop in 19 month after month after month, that's certainly a very much of a headwind.
So even if it's flat it's it's it's better so I went off a a pretty rough year makes makes it a little bit easier. So yeah. That's I think Terry depicted it properly.
To help Tyler Okay.
Sure and with respect to.
Additional productivity benefits you got to be realized.
How should we be thinking about the build to that $70 million are so annual run rate as we progressed through the year and and what's embedded in your first quarter guidance.
Okay.
Could you repeat that again, sorry, Tyler I missed that.
Sure. So just on the productivity benefits you have you have yet to realize just curious as to how you're thinking about the build up to that all 70 million dollar annualized run rate kind of as we progress. After this year and also curious as to what what level what would annualized run rate you're assuming in your and your first quarter guide.
Yes, I mean, it's going to benefit US quickly you know all those restructuring actions have been taken.
Through the fourth quarter that were utilized in developing that incremental amount of savings.
So we have significant amount of the actions already behind us.
Obviously, continuing to work on others, but.
It should be fairly even throughout the year.
We cook quickly and efficiently close down the facility in Houston. So those savings are quickly starting here as we wrap up the first quarter as well so pretty even aside to pick that into 2020.
Thank you.
Welcome.
And again, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from a line of Michael a shock of Keybanc.
All markets. Please go ahead your line is open.
Hey, good morning.
Well Michael.
So a first as you noted a working capital is the focus as you are driving free cash flow I'm. Just wondering how comfortable are you with current inventory positioning and how are you thinking about inventory going forward.
We have plenty of opportunity Michael we've made a lot of progress and we have plenty of opportunity. We're working on a on every every line item of a working capital that we have an there's plenty of opportunity for improvement in 2020.
Got it and then on this sequential decline in mobile shipments.
Is that due entirely to the GM strike just wondering if you could provide any magnitude there.
And do you expect that those shipments where we'll be pushed into 2020.
Yeah, if I could imagine the mobile on highway market as Chris alluded to was was down in the quarter.
As a result of the strike at General Motors in the supply chain disruptions that was caused by that strike.
As well as general seasonality across the balance of the automakers.
Our volumes were down 12% relative to the last quarter.
And more than half of that was a result of the strike.
And the balance attributed to seasonality along with a couple of one off inventory adjustments.
And we have seen some very modest strike recovery pool in recent schedules for the supply chain, which is a signal or a sign of an attempt to recover some of the lost production from last year.
As we look at the whole market I mean vehicle sales for 19 were robust at 17 million units.
In light vehicle inventory decreases in 19 has the industry very well positioned for an overall healthy balance between sales and production going forward.
The 2020 sales forecast is 16.8 million units, which is 1% down but the production forecast is 16 and a half million units, which is up 1%.
No mix is key to our participation in the auto markets.
Passenger car sales continue to decline or at roughly or approximately 30% of total sales.
But our participation is largely in truck guess, you B and C C movies.
So our exposure to that declining passenger car market is modest.
So from our perspective, the auto market is in good shape.
And our Q1 volumes will recover significantly relative to Q4 and likely exceed the type of levels that we saw in Q3 of 2019.
Okay and then just lastly from me on Capex on it looks like you're you're closer to your historical name maintenance levels now I'm, just wondering what you're taking out of the capex budget relative to prior years.
Oh, that's necessarily taking out a lot of the big investments as you know are behind us that we've made over a four or five year stretch. So now the focuses on.
Different areas its maintaining the assets like we always have been great condition were going to continue to do that that's part of our budget for 2020, and then the spending the estimates there and we do have some spending still for the expansion in that facility down your Dayton, Ohio.
So that's really the focus not a lot of major investment required to achieve our objectives here in 2020.
Got it thanks.
There are no further questions in the queue I will turn the call back over to Jennifer Beeman.
Thank you Terry you like to conclude sure. We truly appreciate your interest in tint Timkensteel, we are committed to driving the financial and structural improvements in our business that will benefit our customers and shareholders and doing it with safety as our highest priority.
Thank you and I look forward to updating you on our progress next quarter.
Thanks, everyone and that concludes our call for today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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