Business context and reporting period
TimkenSteel Corporation (NYSE: TMST) filed this unaudited Form 10-Q for the quarter ended March 31, 2021. It manufactures alloy, carbon and micro-alloy steel and related products and reports as one business segment. The request identifies Metallus Inc.; the filing itself identifies TimkenSteel Corporation, so investors should verify the intended issuer.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Net sales | $273.6 million | $259.7 million; up 5.4% |
| Gross profit / margin | $30.7 million / 11.2% | $7.8 million / 3.0% |
| Net income (loss) | $9.8 million | $(19.9) million |
| Diluted EPS | $0.20 | $(0.44) |
| Operating cash flow | $13.2 million | $63.8 million |
| Capital expenditures | $2.3 million | $2.9 million |
Cash and cash equivalents were $115.7 million at quarter-end, versus $102.8 million at year-end 2020. Total debt was $84.9 million, including $40.2 million of convertible notes due June 1, 2021 and $44.7 million of notes due 2025. The company had no Credit Agreement borrowings and reported $241.8 million of unused availability; total liquidity was $357.5 million. It reported compliance with credit-agreement covenants and the applicable minimum-liquidity requirement.
Current assets were $430.4 million and current liabilities $227.1 million. Accounts receivable and inventories increased from year-end, contributing to working-capital cash use. Pension and postretirement liabilities were $239.4 million.
Material changes versus the prior comparable period
- Sales rose despite shipments declining to 193.4 thousand tons from 213.4 thousand tons. Higher surcharges contributed $21.7 million and favorable price/mix $11.5 million; lower volumes reduced sales by $19.3 million. Excluding surcharges, sales declined 3.6%.
- Gross profit improved by $22.9 million, primarily from lower manufacturing costs and favorable raw-material spreads, partly offset by price/mix and volume. Management cited cost reductions and higher production’s benefit to fixed-cost leverage.
- Operating cash flow fell by $50.6 million, primarily reflecting less favorable working-capital movements as demand and production rose. Cash increased by $12.9 million during the quarter.
- Interest expense declined to $1.9 million from $3.2 million, mainly because adoption of ASU 2020-06 eliminated convertible-debt discount amortization, alongside lower borrowings and rates.
Outlook, commentary, risks and unusual items
- No specific revenue or earnings guidance was provided. Management said cash, projected operating cash flow and available borrowing capacity were expected to cover working capital, capital expenditures and other needs for at least 12 months.
- The company planned to repay the $40.2 million 2021 notes, plus accrued interest, at maturity using available cash. The notes were convertible before maturity; any remaining amount at maturity would be settled in cash.
- The Harrison melt and casting assets were indefinitely idled during the quarter; melt and casting activity will be consolidated at Faircrest. Annual melt capacity fell from about 2.0 million to 1.2 million tons, and shipment capacity from 1.5 million to 0.9 million tons. Harrison rolling and finishing operations were unaffected.
- Management expects about $27 million in annual savings from restructuring actions. The quarter included $8.2 million of impairment charges; related non-cash asset and spare-parts write-downs were described as $9.5 million in total. Restructuring charges were $0.5 million.
- The company agreed to sell its Shanghai subsidiary for approximately $7 million, subject to regulatory approvals and other conditions, with closing expected in Q3 2021.
- Management cited uncertain COVID-19 effects, cyclicality and customer demand, raw-material and energy prices, surcharge timing, competition, financing access, pension performance, and litigation/environmental matters as risks. It maintains a full valuation allowance against U.S. deferred tax assets.
- Under the American Rescue Plan, management said pension funding contributions might be delayed until 2028, subject to significant uncertainty and further guidance. Subsequent to quarter-end, leadership changes were announced with approximately $2.1 million of expected Q2 severance and transition charges, about $1.3 million cash.
Important facts for investors to verify
- Confirm that TimkenSteel Corporation—not Metallus Inc.—is the intended filing issuer.
- Track repayment or other settlement of the $40.2 million notes due June 1, 2021 and compliance with liquidity requirements.
- Assess whether volume recovery and base pricing can offset lower shipments and reliance on surcharges.
- Monitor the operating and cost effects of Harrison consolidation and the realization of expected restructuring savings.
- Verify regulatory approval and completion of the Shanghai sale, and the eventual effect of pension-funding relief.