Q4 2024 Metallus Inc Earnings Call
Audra: Good morning. My name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the Metallus fourth quarter 2024 and full year earnings call.
Audra: Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again.
Audra: At this time, I would like to turn the conference over to Jennifer Beeman, Director of Communications and Investor Relations.
Audra: Good morning and welcome to Metallus's fourth quarter and full year 2024 conference call. I'm Jennifer Beeman, Director of Communications and Investor Relations for Metallus.
Audra: Joining me today is Mike Williams, President and Chief Executive Officer, Chris Westbrooks, Executive Vice President and Chief Financial Officer, and Kevin Bracketich, Executive Vice President and Chief Commercial Officer.
Audra: You all should have received a copy of our press release, which was issued last night.
Audra: 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 describe in greater detail in yesterday's release.
Audra: Please refer to our SEC filings, including our most recent Form 10-K and Form 10-Q, and the list of factors included in our earnings release, all of which are available on the Metallus website.
Audra: where non-GAAP financial information is referenced, additional details and reconciliations to its GAAP equivalent are also included in the earnings release. With that, I'd like to turn the call over to Mike. Mike?
Good morning and thank you for joining us today.
Speaker Change: While I am proud of the progress we've made with several of our strategic comparatives, our financial results in 2024 were negatively affected by persistent weak market demand.
Speaker Change: Without the strategic structural changes to our business model over the past few years and a continuous improvement mindset, the market challenges in 2024 would have had a much more significant negative impact on profitability.
Speaker Change: In the face of these challenges, we remain focused on what was in our control by enhancing our strong customer relationships and investing in our people through additional training and development opportunities.
Speaker Change: We made improvements to our world-class assets to enhance safety, quality, and efficiency.
Speaker Change: We believe these efforts are key for our long-term growth and will better position us in the long run.
Speaker Change: Additionally, we continue to provide value to our shareholders through our capital allocation strategy, including strategic investments in our business to drive profitable growth, as well as our ongoing share repurchase program.
Speaker Change: As we begin 2025, I'm encouraged by an improving order book and increase in shipments.
at first.
Let me reflect on safety.
In 2024, we strengthen our safety management system.
Speaker Change: which equips our teams with clear guidelines for risk management, defining roles and responsibilities,
Speaker Change: Reducing Hazards, Handling Incidents, Training, and Communications all aimed at continuous improvement.
Speaker Change: Throughout the year, we dedicated resources to reinforce lockout, tagout, tryout procedures and enhance our safe work permit processes for non-routine tasks.
Speaker Change: Our commitment to safety is evident in our investment of approximately $8 million in 2024.
and plans to invest approximately $5 million in 2025.
Speaker Change: Although we recognize that achieving our safety objectives will be a journey,
We have achieved some positive improvements.
Speaker Change: Are OSHA total recordable injury rate declined 7% over the prior year?
Speaker Change: Our corrective action completion rate related to potential serious injuries improved by 15% compared to 2023.
Additionally, we improved our employee engagement.
Speaker Change: in safety with a 36% increase in near miss reporting and a 60% increase in proactive observations versus the prior year.
These measures indicate that we're proactively and continuously addressing safety.
by maturing our safety management system.
meaningfully engaging our employees.
improving our hazard recognition skills and enhancing our equipment.
As you would imagine,
Speaker Change: We have been closely following the trade environment, which substantially affects the industry's market behavior and global competitiveness.
Speaker Change: President Trump recently issued an executive order introducing a tariff of at least 25% on all steel long products.
as well as certain derivative steel products.
while closing loopholes in existing steel tariffs.
Speaker Change: These changes are expected to take effect on March 12, 2025.
Speaker Change: We believe these actions will help level the playing field for the steel industry.
reduce imports which should boost domestic demand.
In recent weeks,
Speaker Change: We've seen a meaningful increase in customer engagement, both new and existing customers.
Speaker Change: as they proactively manage their supply chains to ensure a secure and stable supply of steel.
Speaker Change: We stand ready to serve our customers and believe this marks a significant shift in the landscape for the U.S. steel industry.
Speaker Change: These actions align with our long-standing advocacy for fair trade practices and correcting market distortions.
Speaker Change: We will continue to monitor developments in the trade environment closely.
Turning to the results of the fourth quarter.
Net sales increased 6% sequentially.
Speaker Change: driven by higher shipments and strength in aerospace and defense product demand.
Speaker Change: Overall aerospace and defense has been a bright spot for us in a year where we faced weaker demand and other end markets.
Consolidated shipments increased 9% sequentially.
Speaker Change: Again, driven by higher aerospace and defense activity, as well as energy and automotive shipments.
Speaker Change: Turning to our end markets, shipments to our industrial customers declined six percent sequentially.
primarily driven by weakness and distribution and heavy equipment.
Speaker Change: On a positive note, we are seeing an increase in order activity across our distribution and broader industrial customer base in response to the trade environment.
Speaker Change: On a sequential basis, our shipments to energy customers increased 78 percent.
I'll bet from a low base.
Speaker Change: However, we are encouraged by the coupling stock and drilling tool opportunities that we are seeing in the energy sector as customers look to reliable domestic supply to meet their drilling and production needs.
Speaker Change: I'd like to take a moment to talk about some newly launched programs for our energy customers.
Speaker Change: We have worked closely with offshore well design engineers to utilize our highly engineered material suitable for corrosive environments.
Speaker Change: Leveraging our advanced capabilities, later this year we plan to produce seamless mechanical tubing specifically for use in tie-back casings and coupling for one of the highest producing natural gas wells in the world.
Speaker Change: As new wells are explored, this specialty product remains at the forefront of innovation.
Secondly, we have deepened our relationship with major petrochemical companies.
and have committed to CapEx investments to expand our offerings.
Speaker Change: Our well-established supply chain and highly engineered and qualified steel supports critical applications in this market, including high-pressure tubes for low-density polyethylene reactors.
Speaker Change: The TALUS will soon be able to support 15-meter LDPE requirements as plants increase and upgrade their capacity.
Speaker Change: We've partnered with a highly regarded fabrication and machining operation to build a supply chain.
Speaker Change: with our supply chain partner offering fully assembled LDPE reactors to the petrochemical industry.
Speaker Change: The high-pressure tubes that we provide are one of the very few globally qualified materials for this critical component.
Speaker Change: We are targeting $20 million in annual sales from these two important energy programs beginning in 2026.
Speaker Change: These programs demonstrate our commitment to staying connected with our customers in the spirit of collaborative innovation.
Moving to automotive.
Shipments sequentially increased by three percent.
shipments in the back half
Speaker Change: We remain committed to supporting all platforms internal combustion hybrid and electric vehicles.
Speaker Change: In aerospace and defense fourth quarter shipments increased as expected to approximately 11000 tons compared with approximately 3000 tons in the third quarter.
Speaker Change: On a full year basis, aerospace and defense sales increased by 17% to.
Nearly $135 million in 2024.
Speaker Change: This significant sales increase resulted in aerospace and defense, representing 12% of total sales in 2024, compared with 8% of the total in 2023.
Speaker Change: Okay.
Speaker Change: Related to specific projects within the defense sector.
Speaker Change: We continue to hit important milestones related to the installation of our Bloom reheat furnace.
Speaker Change: This asset is being designed to support the increase of capacity and finishing capability of high quality bar based products used in the production of artillery shells.
Speaker Change: In the meantime, we are actively developing partnerships and vital defense supply chain.
Speaker Change: As an example, we were recently awarded a 4 million dollar purchase order for artillery shell canister tubing for the U S Army.
Speaker Change: Additionally, we are enthusiastic about expanding our participation in aerospace and defense and other sectors by leveraging vacuum arc re melt and vacuum induction melted steel combined with our unique downstream processing capability.
Speaker Change: With the support of trusted supply chain partners.
Speaker Change: We are targeting approximately $30 million of revenue in 2025, using outside bar and vim products combined with our rolling in piercing capabilities.
Speaker Change: Using this process path supports a large defense customers, who supply the U S military missile programs.
Speaker Change: Given the high level of demand for specialty metals, including bar and Vim products.
Speaker Change: Metallics is well positioned to increase our participation in this area in the future.
Speaker Change: Through continued focus and prudent investments, we intend to capitalize on this sustained growth trend for higher value specialty metals used in demanding applications.
Speaker Change: As we stated last quarter, we expect to grow aerospace and defense sales to over $250 million by 2026.
Speaker Change: I'd like to provide a quick update on the status of our customer contracts.
Speaker Change: I am pleased that we've wrapped up our calendar year customer price agreement negotiations.
Speaker Change: Which cover approximately 70% of our 2025 order book.
Speaker Change: Average base price per ton for customers covered by annual agreements.
It is expected to decrease.
Speaker Change: By low to mid single digits on a percentage basis in 2025.
Speaker Change: Paired with average base price per ton for the full year 2020 for mixed dependent.
Speaker Change: For the remaining 30% of the order book with market spot pricing.
Speaker Change: We will continue to adjust pricing as demand evolves throughout the year.
Speaker Change: Our bar product lead times are currently at 10 to 12 weeks depending on size.
Speaker Change: And two product lead times are at 10 weeks.
Speaker Change: Distribution inventory levels appear to be coming down and some restocking has begun.
Speaker Change: To wrap up our focus will continue to be on safety exceptional customer service, new product development, especially in aerospace and defense.
Speaker Change: And our Capex investments.
Speaker Change: All of which continue to advance our strategic imperatives.
Speaker Change: Drive sustainable profitability and cash flow in all market conditions.
Speaker Change: Okay.
Chris: Now I'd like to turn the call over to Chris.
Chris: We will provide more details on our financial performance.
Chris: And outlook.
Mike: Thanks, Mike Good morning, and thank you for joining our earnings call.
Mike: During 2020 for metallic made significant strides in a variety of areas, including advancing our safety management system and workforce development programs expanding our participation in high growth aerospace and defense market, while continuing to support our automotive industrial and energy customers in a challenging demand environment.
Mike: And investing in our manufacturing facilities and processes to drive efficiency and future growth.
Mike: These achievements were realized while continuing to return capital to shareholders and maintain a strong balance sheet.
Mike: Now turning to the fourth quarter of 2024 financial results from.
Mike: From a top line revenue perspective fourth quarter net sales totaled $248 5 million sequential increase of $13 3 million or 6%, primarily driven by a sequential increase in shipments of 10300 tons.
Mike: Mike previously covered the drivers of fourth quarter shipments by end market in his comments.
The company reported a GAAP net loss of $21 4 million in the fourth quarter were a loss of <unk> 50 per diluted share inclusive of a $9 4 million loss on the repurchases of convertible notes and an $8 $5 million noncash mark to market pension Remeasurement loss.
Mike: On an adjusted basis, the company reported a net loss in the fourth quarter of $3 3 million or a loss of eight cents per diluted share.
Mike: Adjusted EBITDA was $8 3 million in the fourth quarter, a sequential increase of $2 $2 million, primarily driven by higher shipments and favorable product mix, partially offset by higher manufacturing costs.
The sequential increase in manufacturing costs of $10 $3 million in the fourth quarter was a result of lower cost absorption as well as the recognition of costs previously capitalized into inventory.
Mike: Melt utilization declined to 56% in the fourth quarter from 60% in the third quarter as a result of the planned annual shutdown maintenance and additional planned downtime to balance inventory with demand.
Mike: The company's manufacturing assets and team are well positioned to run at a higher rate of utilization beginning in the first quarter as demand begins to recover.
Mike: Now switching gears to pensions.
Mike: In the fourth quarter, the company made $5 $3 million of required pension contributions, resulting in total required contributions of approximately $43 million in 2024.
Mike: With the benefit of previous annuities station activities, the pension and retiree medical benefit liability has declined by approximately $150 million since the end of 2023 and declined by approximately $800 million since the end of 2021.
Mike: As of December 31, 2024, the underfunded position of the company's pension and retiree medical plans totaled $171 million.
Mike: As a result of the current underfunded position funding rules and year end actuarial assumptions, we estimate for required pension contributions in 2025 is approximately $65 million with a higher proportion of required contributions in the first quarter.
Mike: Following this elevated level of required pension contributions in 2025. The company is estimating a significant reduction in required contributions in future years based on assumed investment performance.
Mike: Moving to cash flow and liquidity.
Mike: During the fourth quarter operating cash flow was $13 $9 million driven by lower levels of working capital for.
For the full year, the company generated operating cash flow of $43 million.
Mike: Capital expenditures totaled $15 $2 million in the fourth quarter and $64 $3 million for the full year in line with previously stated guidance.
Mike: Approximately $8 million of the Companys capital expenditures in 2024 were supported by government funding.
Mike: Other important capex spending included safety upgrades, such as machine guarding furnace leak detection and automated testing equipment. Additionally, the automated grinding line construction and installation of the Harrison facility was a significant project in 2024, this $18 million investment, which is currently being commissioned will significantly improve the.
Mike: Efficiency of our finishing capabilities and is expected to generate over $3 million in savings per year.
Mike: Additionally, new gauging at one of our seamless mechanical tube piercing mills was upgraded last year to improve first time quality.
Mike: Lastly, we continue to invest in maintenance capex across our manufacturing footprint, including items, such as rolling mill roles tooling and electrical upgrades. These investments help ensure the reliability and integrity of the company's assets.
Mike: As it relates to the government funding during the fourth quarter. The company received $8 million of cash funding from the government as part of the previously announced 90 $975 million funding agreement and support of the U S Army as mission of increasing munitions production.
Mike: In total during 2024, the company received $53 5 million of the approximate $103 million of total committed funding.
Mike: Receipt of the remaining $50 million of committed funding is expected throughout 2025 and enter 2026 as mutually agreed upon milestones are achieved.
Mike: As a reminder, this funding more substantially pay for both the new balloon reheat furnace at the company's fair crafts facility as well as the new roller furnaces at the Gambrinus facility.
Mike: Once commissioned these investments will support the company's targeted growth in aerospace and defense product sales as well as support all metallic customers with more efficient and modern assets.
Mike: From a total capital expenditure forecast perspective, we're targeting approximately $125 million. This year inclusive of approximately $90 million of Capex funded by the U S government.
Mike: We've included a slide in the latest investor presentation available on our website to show the timing of anticipated government funding in advance of related Capex spending.
Mike: In terms of base Capex for 2025, our focus includes important safety and maintenance investments completion of prior year automation projects and growth Capex to support anticipated energy product demand that Mike previously highlighted.
Switching gears the shareholder return activities throughout 2024, the company continues to make progress on its share repurchase program in total the company repurchased 2 million shares of its common stock for $37 $6 million last year, reducing outstanding shares by nearly 5%.
Mike: At the end of 2024, the company had a balance of $102 $8 million remaining under its current share repurchase authorization.
Mike: As it relates to convertible notes during the fourth quarter, we repurchased seven $8 million of outstanding convertible notes for total cash of $17 2 million.
Mike: The repurchase premium was driven by an increase in the company's stock price, which was significantly in excess of the instruments conversion price at.
Mike: As a result of the fourth quarter convertible note repurchases diluted shares outstanding will decrease by approximately 1 million shares in the first quarter of 2025.
Mike: The outstanding principal balance of the remaining convertible notes is $5 $5 million and the balance will be settled at or in advance of the December 2025 maturity date.
Mike: Since the inception of common share repurchases in early 2022 combined with the convertible note repurchase activities, we've reduced diluted shares outstanding by a significant 22% compared to the fourth quarter of 2021.
Mike: These actions reflect the strength of the company's balance sheet and confidence in through cycle cash flow generation.
Mike: Switching gears now for an update on our targeted $80 million of profitability improvements in support of achieving our long term through cycle financial targets that were announced in early 2022.
As you May recall, our previously communicated objective is to deliver sustainable profitability and cash flow in all business cycles. In 2024 has proven out the business model in a challenging market environment.
Mike: Over the last several years the company has implemented the necessary manufacturing commercial and profit improvement actions to realize of $80 million.
Mike: Profitability improvement target although.
Mike: Although it's difficult to see the impact of these actions in a weak demand environment like 2020 for these investments and process improvements positioning the company for profitability improvement in the future.
Mike: Turning now to the outlook, we anticipate first quarter adjusted EBITDA to be higher in the fourth quarter.
Mike: Commercially first quarter shipments are expected to increase on a sequential basis as our order book continues to strengthen particularly within the industrial end market.
Mike: We also expect continued strength in aerospace and defense demand and steady shipments across the automotive and energy end markets in the first quarter.
Mike: Additionally, raw materials surcharge revenue per ton is expected to sequentially increase in the first quarter driven by a $50 per ton increase in the number one bushnell <unk> scrap index in February which will impact March surcharge revenue.
Mike: Given the outcome of the annual customer price agreement negotiations that Mike summarized earlier combined with weakness in spot price and carried over from last year, we expect sequentially unfavorable price mix in the first quarter.
Mike: Operationally melt utilization is expected to increase to approximately 70% in the first quarter, resulting in improved fixed cost leverage and sequentially lower manufacturing costs.
Mike: Contributing to the expected sequentially lower first quarter manufacturing costs was approximately $5 million of planned annual shutdown maintenance that occurred in the fourth quarter.
Mike: In terms of additional assumptions for the full year 2025.
Mike: Depreciation and amortization expense is expected to be approximately $58 million in 2025.
Mike: SG&A expense is anticipated to be approximately $85 million to $90 million. This year, excluding it transformation costs and amortization expense.
Mike: Net interest income is expected to be lower than last year, driven by an anticipated decline in the company's cash balance this year and lower market interest rates.
From an income taxes perspective, the rate is expected to be approximately 25% this year.
Mike: And in terms of the share count we estimate diluted shares to be approximately $44 million in 2025, adjusted for any share repurchases and equity compensation activity.
Mike: Regarding cash drivers in addition to the approximately $65 million of estimated required pension contributions that were discussed earlier, which are more heavily weighted to the first quarter of the year.
Mike: We expect working capital to be a use of cash in the first quarter driven by higher accounts receivable and inventory given the improving customer order book.
Mike: As a result, we expect the first quarter of 2025 to be operating cash flow negative with an anticipated improvement in operating and free cash flow as the year continues.
Mike: Additionally, the timing of approximately $125 million of Capex is more heavily weighted to the second half of the year.
Mike: Also we expect to receive approximately $37 million of government funding this year to support our capex investments with the cash funding more heavily weighted to the first half of the year.
As we progressed through the first quarter of 2025, we're optimistic about the opportunities that lie ahead.
Mike: We remain committed to delivering value to our shareholders by driving profitable growth and executing our capital allocation strategy.
Mike: Thanks to all of our employees customers and suppliers for their continued support in achieving our shared objectives.
Mike: To wrap up thanks for your interest in Metallics, we would now like to open the call for questions.
Mike: Thank you we will now begin the question and answer session. If you have dialed in I would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
Mike: I would like to withdraw your question simply press Star one again.
Speaker Change: We'll take our first question from John France, Rab at Sidoti <unk> Company.
John France: Good morning, everybody and thanks for taking the questions.
Speaker Change: I guess.
Speaker Change: The demand profile in the fourth quarter and coming into the first quarter I'm curious how much you think of that is attributed to the rebalancing of demand that you saw in the fourth quarter versus maybe.
Speaker Change: The tariff impact was may be seen in the first quarter can you kind of walk us through what you're seeing there.
Sure John So I'm very pleased to say that.
Speaker Change: Our order book is developing in a very healthy way.
Speaker Change: Such situations that we haven't seen for.
Speaker Change: Two to three quarters.
Speaker Change:
Speaker Change: The development and the positive momentum in our order book is really being driven by a couple of factors.
Speaker Change: One is the.
Speaker Change: What I would call it.
Speaker Change: Recapture.
Speaker Change: Of automotive business.
Speaker Change: And that we've achieved in 2025.
Speaker Change: A much greater.
Speaker Change: Order increase coming from the industrial base.
Speaker Change: Kind of spread heavily oriented to A&D, but kind of spread across the heavy equivalent some rail and other other.
Speaker Change: Market segments within our industrial base.
Speaker Change: And then thirdly, what we're seeing is is really a restocking coming out of distribution.
Speaker Change: Distribution really held off the second half of last year.
Speaker Change: And I kind of hand, and mouth demand scenario and inventory levels have gotten fairly low and a number of products and what we're seeing is those those customers come back in.
Speaker Change: And then I guess the last item really is the trade environment we were.
Speaker Change: We're getting a significant number of inquiries from new customers.
Speaker Change: Old customers that we haven't serviced in a while and new customers and I believe thats pretty much attributed to the.
Speaker Change: The trade environment expectation going forward as these tariffs get implemented on March 12.
Speaker Change: So Mike if I can.
Speaker Change: I want to summarize what you just said it sounds like it's a normal rebalance of demand.
Speaker Change: First driver.
And the anticipation of that.
Speaker Change: The trade environment is this secondary driver is that the way to kind of look at it from your point of view.
Speaker Change: Yes, I would say the first part really is there is.
Speaker Change: The really the recapture of market share, particularly in automotive.
Speaker Change: Yeah.
Then we have the distribution folks reloading.
Speaker Change: And then we are seeing much more activity coming out of the industrial base that was pretty weak second half of last year, where there's much more activity there.
Speaker Change: Understood.
Speaker Change: I mean.
Speaker Change: So yeah, we're pretty pleased because we all have it.
Speaker Change: Good order backlog, we have much longer visibility or lead times of almost doubled from where they were in the fourth quarter.
Speaker Change: So I think.
Speaker Change: This is more of a normal environment that that we haven't experienced in 2024.
Speaker Change: We're still somewhat in a wait and see how.
Speaker Change: The demand evolves over the next you know.
Speaker Change: The two quarters.
Speaker Change: Got it.
Speaker Change: I might have missed this but is there any expected downtime in the first quarter.
Speaker Change: Actually.
Speaker Change: We've already experienced downtime, we had due to the severe cold weather.
Speaker Change: In our region.
We had power interruptions early on in January.
Speaker Change: However, we expect to fully run.
Speaker Change: With our normal normal every other week outage activity maintenance outage activity, but no expected or planned.
Speaker Change: Downtown.
Speaker Change: Got it.
Speaker Change: You mentioned some of this is Ed.
Speaker Change: I guess, Chris mentioned in his closing remarks about that 80 million target.
Speaker Change: I guess.
Speaker Change: I guess it was two things first Chris phrased it it sounds like all the upgrades were finished and is really just a matter of.
Speaker Change: I am coming back, but then later on you mentioned that there is some expected upgrades that are going to incur.
In 2025, so I am curious of those two items independent of each other or is all the.
Speaker Change: Necessary upgrades you plan for for the $80 million target been put in place already.
Speaker Change: Well predominantly the it transformation upgrades are independent.
Speaker Change: The other investments however, all the other investments, particularly the new <unk>.
Speaker Change: GL line some of the new inspection technology that we've installed that all require support from the.
Speaker Change: Discipline.
Chris: They are involved in those projects, but what Chris is referring to is really the it transformation project, which is totally separate from those other investments.
Speaker Change: Okay.
Speaker Change: One last question.
Speaker Change: <unk> has some questions.
Speaker Change: I'm kind of curious about the share repurchase and the $1 million lower.
Speaker Change: Share count because I guess as a point of clarification is that from the average count of 2024.
Speaker Change: Or is that from the fourth quarter number because I thought I heard 44 million shares is the number we should use for the full year. So I just want to make sure I got that right.
Chris: Yes, it's Jon this is Chris it's down from the fourth quarter.
Chris: That activity happened towards the end of the fourth quarter. So there's a little bit of impact in Q4.
Chris: Good to see in the fourth quarter given that we are in a net loss position from a GAAP standpoint, but I think 44.
Chris: On average on a weighted average basis is a good estimate for 2025.
Speaker Change: Okay. Thank you so I will get back into queue. Thank you Mike.
Speaker Change: Thank you.
Dave Storms: We'll move next to Dave storms at Stonegate.
Speaker Change: Good morning.
Speaker Change: Good morning, Dave.
Speaker Change: Good morning, just hoping we could start with.
Speaker Change: With the seasonality of 2025 are you expecting anything unusual should we maybe a bit of a Q.
Speaker Change: Q1 bump as customers try to get ahead of some of these tariffs anything like that would be very helpful.
Speaker Change: Well I think the restocking is a little bit of a bubble.
Speaker Change: But then should level out.
Speaker Change:
Speaker Change: I still think that.
Speaker Change: People were still waiting to see whether the tariffs.
Speaker Change: Get implemented as stated today.
Speaker Change: And how long they last or will they will they will they last.
Speaker Change: So.
Speaker Change: Somewhat expect.
Speaker Change: That there is further.
Speaker Change: Demand development in a positive way potentially out there as people look to.
Speaker Change: Consume their current inventories that that our foreign imported and look to secure domestic demand going forward.
Speaker Change: David if I could add to that from a timing standpoint, aerospace and defense, we are expecting that to ramp throughout the year as our customers bring their capacity online to ramp up their production.
Speaker Change: No.
Speaker Change: We are optimistic that we have a strong year in aerospace defense, but it's going to continue to grow throughout 'twenty five 'twenty six.
Speaker Change: Yes.
Speaker Change: Understood.
Speaker Change: With adding the expected increase in demand.
Speaker Change: And lead times currently sitting around three months.
Speaker Change: Should we expect that to increase and are you seeing any customers maybe.
Speaker Change: Wondering a little bit extra to get ahead of those lead times or does that feel pretty normal.
Speaker Change: For the industry.
Speaker Change: Right now it feels fairly normal it's very hard for us to decipher.
Speaker Change: Whether people or over ordering for security reasons.
And future demand, but again I don't think we're back to the.
Speaker Change: We're not totally back to the 'twenty, one 'twenty two 'twenty three type demand.
Speaker Change: From an order book in an order backlog standpoint, but we sure are.
Speaker Change: On our way there so my Crystal ball is not that clear.
The order book that we have today and the positive conversations that we're having with our customers.
Speaker Change: And the hard work the sales team is putting forth as well as the business development team in securing additional new product applications in aerospace and defense as well.
Speaker Change: We've gotten some gain recapture and energy as well.
Speaker Change: That's all we're 60 days into the year.
Speaker Change: That's all.
Speaker Change: At least since strong positive messages to us right now, but we're going to have to wait and see how it evolves.
Speaker Change: Understood and if I could just ask one more around end markets.
Speaker Change: I thought you mentioned in prepared remarks that you're targeting 40% of shipments.
Speaker Change: Auto in 2025, which looks to me to be down a little bit year over year holds.
Speaker Change: Holds up.
Speaker Change: Is that a product is weaker.
Speaker Change: As expected OEM markets or maybe a stronger than expected.
Speaker Change: Stronger than historical aerospace and defense industry for industrial.
Speaker Change: Yeah, I mean, it's I mean, when you have weak markets automotive is pretty steady.
Speaker Change: They became they became a larger share of our total shipments in 2024 going forward, we say, 40% because of our view and our understanding of the industrial demand heavily driven by.
Speaker Change: Aerospace and defense and then the activity that we're seeing in energy.
Speaker Change: Increasing.
Speaker Change: Modestly.
Speaker Change: Again from a very low level, but increasing.
Speaker Change: Some of that's driven by we recaptured some market share there.
Speaker Change: But.
Speaker Change: Energy is heavily affected.
Speaker Change: By imports so.
Speaker Change: The import.
Speaker Change: Consumption of our end customers are working through the import inventories they have should drive higher demand from the domestic market.
Speaker Change: And Jonathan I am sorry, David add a little bit there our overall view of shipments and twenty-five is stronger than 2024. So part of that is the denominator in that calculation, but far driving the percentage lower but our participation still being strong.
Speaker Change: So thats all very helpful. Thank you for taking my questions and good luck in Q1.
Speaker Change: Thanks, Dave.
Speaker Change: And as a reminder, if you would like to ask a question. Please press star one well go next to Phil Gibbs at Keybanc capital markets.
Phil Gibbs: Hey, good morning.
Speaker Change: Hey, Phil.
Speaker Change: Question is just on the bridge in Q1, you talked about unfavorable price mix is that is that an absolute impact or.
Speaker Change: Per I guess or per ton impact or both.
Speaker Change: It's really and Chris can probably give you a little bit more clarity, but it's really driven by what we refer to it as a mix within the mix. It's really we had more carbon SB Q sales than we did on the alloy.
Speaker Change: Products that we sell.
Speaker Change: So you tend to see your surcharges are going to be lower.
Speaker Change: And your overall revenue and then the base prices are lower on the what I would call the more commodity carbons versus specialty alloys.
Speaker Change: We expect the industrial base continues to improve in the A&D demand continues to increase.
Speaker Change: That will drive a richer mix for us on the alloy.
Speaker Change: Products versus the more of that.
Speaker Change: Our carbon products.
Speaker Change: That makes sense.
Speaker Change: Thinking about the the.
Speaker Change: The standard bridge that you all provide in your release in this quarter like price mix was positive I can't remember, but maybe $5 million or so.
Speaker Change: Then you have the manufacturing and you have all those components.
Speaker Change: Is that price mix expected when you make those comments is that piece of it expected to be down relative to Q4, you obviously have the manufacturing piece getting better volumes getting better spreads getting better on the raw material piece, but is that price mix should we expect that piece to be on an absolute basis down based on the comments.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: That's helpful.
Speaker Change:
Speaker Change: And the pension contribution that you talked about Chris the $65 million a lot of that weighted into Q1.
Speaker Change: Is there any does does that include <unk> as well I can't remember.
Chris: No. It does not OPEC typically leverages the assets is how we pay most of those so there's a withdraw and you pay the contribution. So it's truly has the bargaining plan that's driving the majority of that contribution in 2025.
Chris: Is there anything that we should be modeling for OPEC cash contributions.
Chris: Just kind of a normal level of activity there.
Chris: And then.
Chris: On the newer products that you all talked about on the seamless side did.
Chris: Did you did you say that it was seamless mechanical tubing or seamless.
Chris: Seamless CTG.
Chris: So its mechanical tubing.
Chris: Okay.
Chris: It's basically the missile liner shells.
Chris: And then the specialized canisters.
Chris: That are for smoke.
Chris: Artillery shells.
Chris: So that's all thank you and then.
Chris: And then lastly, there was.
Speaker Change: I'm kind of.
Speaker Change: Certainly a soft patch in automotive in the back half with some of the big three.
Speaker Change: One in particular trying to take their inventory down Theres a couple right now that have that do have pretty elevated inventories.
Speaker Change: Inventories and maybe some reduction plans in the first half how are you thinking about the year just in general within within automotive it feels like we've been.
In general as a steel industry under serving that market. The last couple of quarters, but part of part of which is related to just inventory rebalancing and it seems like to me that they're all else equal should be some sort of pickup all else equal in auto maybe Q2, Q3, I don't know but.
Speaker Change: I guess help us think through kind of.
Speaker Change: What you'll see going on there. Thank you.
Speaker Change: Yeah. So we're kind of right now our view is if you look at the platforms that we're on and the applications within those platforms.
Speaker Change: We're well positioned we see modest increases in automotive demand in 2025.
Speaker Change: And I think it's really going to be.
How interest rates evolve how people their buying habits and patterns on new vehicles.
Speaker Change: But I just saw a report early this morning, and I think one of the other banks, saying that they believe the Saar rate is going to go up slightly.
Maybe a couple of hundred thousand units based on.
Speaker Change: Early assumptions of activity in February.
Speaker Change: Thanks, everyone.
Speaker Change: Sure.
Speaker Change: Thanks Bill.
Jennifer Beeman: And that concludes our Q&A session I will now turn the conference back over to Jennifer for closing remarks.
Jennifer Beeman: Great. Thanks, everyone for joining us today and that concludes our call.
Jennifer Beeman: And again this does conclude today's conference call. Thank you for your participation you may now disconnect.
Jennifer Beeman: Yeah.