TimkenSteel Announces Fourth-Quarter 2015 Results; Performance Improving in Challenging Market

OREANDA-NEWS. January 29, 2016. TimkenSteel (NYSE: TMST, timkensteel.com), a leader in customized alloy steel products and services, today reported fourth-quarter net sales of \\$206.6 million and a net loss of \\$25.5 million or minus 58 cents per share.  This compares with net income of \\$16.4 million or 36 cents per share in the same quarter of the prior year. 

For the full year, net sales declined by 34.0 percent compared with 2014.  EBIT for the full year was a loss of \\$113.6 million, compared with adjusted EBIT⁽¹⁾  of \\$147.7 million in the previous year. The decline was driven by lower volume from energy and industrial end market weakness, higher per-ton manufacturing costs from 49.0 percent melt utilization, and unfavorable timing impacts from raw material spread, slightly offset by LIFO income. 

During the quarter, the company completed previously announced actions to reduce costs, which will generate about \\$50 million in savings in 2016. These actions, in addition to the \\$25 million of annualized savings from reductions in the second quarter, are having a positive impact on operating results.

"While we continue to feel the impact from weak global commodity markets and high customer inventory levels, our cost reduction efforts and pace of new business from innovation reduced the losses we anticipated in the quarter," said

Tim Timken, chairman, CEO and president. "We expect 2016 to be another challenging year, so our focus will continue to be on cash generation while maintaining industry leading customer service. We will continue to manage through this cycle in a way that will generate value for shareholders and make us stronger as markets recover."

TimkenSteel reduced debt by \\$5 million in the fourth quarter of 2015, ending the year with a net debt position of \\$157.8 million and available liquidity of \\$84 million. The company also amended a \\$300 million credit agreement during the fourth quarter and continues to evaluate additional financing options.

FOURTH-QUARTER 2015 FINANCIAL SUMMARY

Fourth-quarter net sales decreased \\$201.7 million or 49.4 percent year over year and 11.2 percent sequentially.

• Ship tons were approximately 175,000, a decrease of 35.1 percent over the fourth quarter of 2014 and 1.9 percent sequentially.
• U.S. rig count dropped more than 60 percent compared with previous year, resulting in lower demand for energy and related industrial products.
• Surcharge revenue of \\$19.2 million decreased 79.5 percent from the prior-year quarter and 38.1 percent from the third quarter of 2015 as a result of lower volumes and a drop in the No. 1 Busheling Index.

EBIT was a loss of \\$38.0 million, compared with adjusted EBIT income⁽¹⁾ of \\$23.3 million for the same period a year ago and an EBIT loss of \\$48.9 million for the third-quarter 2015.

• Year over year, fourth-quarter EBIT was lower primarily due to reduced volume, increased manufacturing costs per ton and unfavorable timing impact related to raw material spread, partially offset by LIFO income and realization of cost reduction actions.
• Sequentially, EBIT was favorable primarily due to the impact of cost reductions and the timing of plant shutdowns.
• Melt utilization was 41 percent for the quarter, compared with 74 percent in fourth-quarter 2014 and 40 percent in third-quarter 2015. Lower volumes and inventory reduction efforts impacted melt utilization, increasing manufacturing costs.

BUSINESS SEGMENT FOURTH-QUARTER RESULTS

Industrial and Mobile Segment

Net sales of \\$171.3 million, including surcharges of \\$15.5 million, represents a 27.0 percent decrease compared with fourth-quarter 2014. This was driven primarily by lower surcharges and reduced demand in the industrial market sector, which offset increased mobile demand.

• Fourth-quarter EBIT was a loss of \\$20.8 million compared with EBIT of \\$12.1 million in the same period last year. Primary drivers of the change were lower volume and corresponding higher per-ton manufacturing costs and the unfavorable timing impact related to raw material spread, slightly offset by favorable impacts from cost reduction actions.

Energy and Distribution Segment

• Net sales of \\$35.3 million, including surcharges of \\$3.7 million, represents a 79.7 percent decrease over the fourth quarter of the prior year, driven primarily by lower surcharges and reduced demand for energy-related products as a result of the drop in rig count and customer destocking.
• Fourth-quarter EBIT was a loss of \\$23.1 million compared with income of \\$14.6 million in the same period last year, primarily driven by unfavorable volume and higher per-ton manufacturing costs slightly offset by favorable impacts from cost reduction actions.

OUTLOOK

First-Quarter 2016 Revenue

• Shipments approximately 5 percent higher than fourth-quarter 2015.
  • Automotive demand remains strong with shipments slightly higher sequentially.
  • Industrial end markets continue to be weak due to impact from low oil prices and global commodity markets.
• Oil and gas markets sequentially weaker due to low rig activity and decrease in energy exploration and production spend.
• Higher sequential demand in distribution channel due to tapering of inventory destocking in industrial end markets.

First-Quarter 2016 EBITDA

• EBITDA between a loss of \\$10 million and a loss of \\$20 million.
• Pricing pressure from imports and weak market dynamics.
• Improved sequential performance in manufacturing due to higher melt utilization of approximately 45 percent and continued benefits from cost reductions.
• Favorable raw material spread compared with fourth-quarter 2015 due to stabilizing scrap markets.

Other Guidance

• 2016 capital spending to be \\$45 million.
• Will fund 2016 other post-employment benefit (OPEB) expenses primarily from VEBA trust rather than operating cash flow.

The company will host a conference call at 9 a.m. EST on Friday, Jan. 29, 2016, to discuss its financial performance with investors and analysts. The financial results and fourth-quarter 2015 earnings supporting information are available on our website at investors.timkensteel.com.

About TimkenSteel Corporation

TimkenSteel (NYSE:TMST, timkensteel.com) creates tailored steel products and services for demanding applications, helping customers push the bounds of what's possible within their industries. The company reaches around the world in its customers' products and leads North America in large alloy steel bars (up to 16 inches in diameter) and seamless mechanical tubing made of its special bar quality (SBQ) steel, as well as supply chain and steel services. Operating from five countries, TimkenSteel posted sales of \\$1.1 billion in 2015 and was named Steel Producer of the Year by American Metal Market. Follow us on Twitter @TimkenSteel.

⁽¹⁾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.  EBIT is defined as net income before interest expense and income taxes. EBIT is an important financial measure used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting EBIT is useful to investors as this measure is representative of the company's performance. It also is a useful reflection of the underlying growth from the ongoing activities of the business and provides improved comparability of results.

TimkenSteel was spun off from its former parent company, The Timken Company, effective as of June 30, 2014.  For the period prior to the spinoff, the consolidated financial statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of The Timken Company.  TimkenSteel's consolidated financial statements include certain expenses of its former parent that were allocated to the steel business for certain functions, including general corporate expenses related to finance, legal, information technology, human resources, compliance, shared services, insurance, employee benefits and incentives and stock-based compensation. TimkenSteel considers the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations may not be indicative of the actual expenses TimkenSteel would have incurred as an independent public company or of the costs it will incur in the future.

Adjusted net income is defined as net income reduced for stand-alone costs reflected at a normal run-rate.  Adjusted EPS is defined as adjusted net income divided by the weighted average shares outstanding including the dilutive effect of stock-based awards. Adjusted EBIT is defined as EBIT reduced for stand-alone costs reflected at a normal run-rate. Adjusted EBIT margin is defined as adjusted EBIT as a percentage of net sales. Management believes that reporting adjusted net income, adjusted EPS, adjusted EBIT and adjusted EBIT margin is useful to investors as these measures are representative of the company's performance. They also better reflect the underlying growth from the ongoing activities of the business and provide an indication of the company's performance as an independent public company.

See the attached schedules for supplemental financial data and corresponding reconciliations of the non-GAAP financial measures referred to above to the most comparable GAAP financial measures for the three and twelve months ended December 31, 2015 and 2014. Non-GAAP financial measures should be viewed in addition to, and not as an alternative 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 "anticipate," "believe," "could," "estimate," "expect," "forecast," "outlook," "intend," "may," "plan," "possible," "potential," "predict," "project," "seek," "target," "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 company's ability to realize the expected benefits of its spinoff from The Timken Company; the costs associated with being an independent public company, which may be higher than anticipated; 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 employees in certain locations in order to avoid disruptions of business; and 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, and the amount of any dividend declared by the company's board of directors on its common shares.

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.

(1)  Please see discussion of non-GAAP financial measures in this news release.