TimkenSteel, a provider of customized alloy steel products and services, reported first-quarter 2019 net sales of $371 million and net income of $4.2 million or $0.09 per diluted share. In the same quarter last year, net sales were $381 million with a net loss of $1.9 million or minus $0.04 per diluted share. EBITDA for first-quarter 2019 was $26.3 million, an increase of $5 million over the same quarter last year.
"As anticipated, our performance strengthened in the first quarter, with continued expansion in gross margin and increased net income compared with the same quarter last year. We achieved these results by executing a strategy to sell a richer mix of products, improve price and deliver on time," said Tim Timken, chairman, CEO and president. "This commercial strategy combined with operational excellence in safety, quality and customer service remains our priority and will drive shareholder value."
First-Quarter 2019 Financial Summary
First-quarter net sales decreased $10 million or 3 percent year over year.
- Ship tons were 260,900, a decrease of 13 percent from first-quarter 2018. The decrease was in line with prior guidance and primarily due to lower oil country tubular goods (OCTG) billet shipments.
- Net sales benefited from improvements in product mix and price, driven by improved 2019 contract pricing, prior-year spot price increases and a continued focus on the sale of higher-margin products.
- Surcharge revenue of $90 million represents a slight decrease from the prior-year quarter, primarily as a result of lower volumes.
First-quarter 2019 EBIT increased to $8.5 million compared with $2.8 million for the same period a year ago.
- Net income was $4.2 million, an increase of $6.1 million from first-quarter 2018.
- Improvements in contract pricing and the benefit of prior-year spot pricing, combined with lower OCTG billet volume, resulted in a $22 million improvement in product mix and price.
- Manufacturing costs reflected lower fixed-cost leverage of $9 million due to first-quarter 2019 planned production downtime to balance inventory with near-term demand.
- Raw material spread was an $11 million headwind due to the decline of the No.1 busheling scrap index and lower volumes compared with first-quarter 2018.
Second-Quarter 2019 Outlook
- Shipments are expected to be similar to first-quarter 2019 on 12 percent lower production.
- Lower second-quarter demand and production provides the opportunity to accelerate certain scheduled maintenance into the second quarter from third-quarter 2019. As a result of this timing change, second-quarter fixed-cost leverage will be lower by approximately $10 million and second-quarter maintenance will increase by approximately $7 million, with an offsetting benefit in third-quarter 2019.
- Raw material spread is expected to be a headwind as the No.1 busheling scrap index trends downward compared with first-quarter 2019.
- Adjusted EBITDA is projected to be between $0 and $10 million. At this time the company is unable to reconcile its second-quarter outlook for adjusted EBITDA to a comparable GAAP range due to an expected re-measurement of one of its postretirement plans during the second-quarter 2019. The gain or loss from the re-measurement cannot currently be estimated.
Full-Year 2019 Additional Information
- Improved product mix and price compared to 2018 are expected to continue to benefit the company for the remainder of 2019.
- Actions are being implemented that are expected to drive improved profitability of approximately $50 million on an annualized basis, with approximately $30 million being realized in the remainder of 2019.
- 2019 capital spending is projected to be approximately $50 million.