Metallus’s 2026 Q2 Call: A&D Revenue Target, Inventory Growth Drivers Don’t Match

Date of Call: Aug 4, 2026

Financials Results

• Revenue: $341 million, a year-over-year increase of $36.4 million, or 12%
• EPS: 26 cents per diluted share (adjusted), up from 21 cents per diluted share (GAAP)

Guidance:

• Third quarter 2026 adjusted EBITDA expected to be slightly higher sequentially and year-over-year.
• Expect to achieve a $250 million annualized revenue run rate in aerospace and defense by year-end 2026.
• Melt utilization expected to improve in Q3.
• Adjusted effective income tax rate expected between 27 and 30% for full year 2026.
• Lead times for products expected to be similar to Q2, extending into late Q4 2026.
• Price increases of $60/ton on bar, $100/ton on carbon seamless tubing, and $160/ton on alloy seamless tubing effective 2027, with benefit in Q3 2026 run rate.

Business Commentary:

Revenue and Profitability Growth:

• Metallus reported net sales of $341 million for the second quarter, a year-over-year increase of 12% or $36.4 million.
• The company's net income was $8.9 million or 21 cents per diluted share, with an adjusted net income of $11.1 million or 26 cents per diluted share, and an adjusted EBITDA increase of 9% to $29 million.
• This growth was primarily driven by higher shipments in aerospace and defense and automotive sectors, improved prices, and better manufacturing performance.

Aerospace and Defense Market Expansion:

• Aerospace and Defense sales reached record levels in the second quarter, with an annualized revenue around $240 million, close to the targeted $250 million run rate.
• The increase was supported by initiatives and existing program replenishment efforts, as well as new defense programs.
• Metallus expects to achieve the $250 million annualized revenue run rate by the end of 2026, driven by strong demand and new program awards.

Automotive Segment Performance:

• Automotive shipments grew 12% sequentially in the second quarter, reflecting steady demand across light truck and SUV applications.
• The company secured a new multi-year award for ring gears on a leading automaker's hybrid transmission platform, with production expected to begin in 2028.
• Growth in automotive was driven by the value placed on Metallus' quality, technical expertise, and reliability by long-standing customers.

Industrial Market Demand:

• Industrial shipments were down slightly sequentially and year-over year, but the industrial backlog nearly doubled compared to the prior year.
• The backlog growth was due to strong future demand in industrial markets, particularly in construction and mining equipment.
• Metallus expects to meet this demand in the second half of 2026 as operational improvements and asset throughput initiatives progress.

Strategic Investments and Certifications:

• Metallus is advancing operational and strategic investments, including a new ribbon-cutting ceremony for the roller furnace, which is on track for commissioning.
• The company achieved AS9100D certification, enhancing its competitive position in aerospace and defense and broadening opportunities in high-value markets.
• These investments are aimed at strengthening manufacturing capabilities and enhancing customer service levels in critical markets.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'improvements in shipments, net sales, and profitability on both a sequential and year-over-year basis,' 'record shipments and sales' in aerospace and defense, 'strong operational execution,' and confidence in achieving the $250 million run rate. The tone emphasized strategic progress, strong demand, and a resilient balance sheet.

Q&A:

• Question from Dave Storms (Stonegate): Clarification on pricing for the 30% of the order book not under contract for 2027 and customer receptiveness to economic impact.
  Response: Confirmed the 30% spot price portion applies to 2027; customer negotiations have not yet begun, but a positive pricing environment is expected due to improved demand and utilization.

• Question from Samuel McKinney (KeyBank Capital Markets): Details on drivers behind the Q2 A&D sales increase and expectation to hit the $250 million annualized run rate.
  Response: Attributed the Q2 increase to higher demand for 155mm munitions, new program awards, and expected future ramp-ups; confirmed the target of $250 million annualized revenue run rate in A&D by year-end 2026.

• Question from Samuel McKinney (KeyBank Capital Markets): Reasons for lower-than-expected Q2 melt utilization improvement.
  Response: Attributed to power interruptions and shop floor execution reliability issues; expects improvement in Q3 and cites strategic investments as future drivers.

• Question from Aaron (Back on the industrial doubling): Subcategories driving the industrial demand increase.
  Response: Industrial backlog doubling is driven primarily by construction and mining equipment (yellow goods), with additional contributions from agriculture and rail.

• Question from John Franzrep (Sedati and Company): Nature of the increased maintenance downtime expected in Q3.
  Response: It is planned maintenance for downstream assets, not a result of Q2 underperformance, and is part of a scheduled focus on reliability improvements.

• Question from John Franzrep (Sedati and Company): Outlook for automotive and energy markets in the second half.
  Response: Automotive demand is expected to be healthy but flat, focused on SUVs and trucks; energy market shows improvement due to domestic supply chain preferences and increased drilling activity.

• Question from Dave Storms (Stonegate): Impact of the new AS9100D certification on aerospace and defense business.
  Response: The certification validates quality discipline, broadens customer opportunities, and is expected to drive new awards in the high-restriction A&D market.

Contradiction Point 1

A&D Revenue Run Rate Target and Timing

Contradiction on achieving $250M A&D run rate by year-end vs. unchanged target despite program delays.

Samuel McKinney (KeyBank Capital Markets) - Samuel McKinney (KeyBank Capital Markets)

2026Q2: Confirmed the expectation to achieve the $250 million annualized revenue run rate by the end of 2026. - Mike (Metallus)

What are the drivers behind the sequential increase in A&D sales to ~$240M annualized revenue, and is the $250M annualized revenue run rate target still expected by year-end? - Samuel McKinney (KeyBanc Capital Markets Inc.)

2026Q1: The delay affects the ramp to 100,000 shells/month production. The $250 million run rate expectation for the year is unchanged, though there is some lumpiness in timing. - Michael Williams(CEO) and John Zaranec(CFO)

Contradiction Point 2

Driver of Order Book and Inventory Growth

Contradiction on whether growth is driven by volume or by inventory positioning for future demand.

John Franzrep (Sedati and Company) - John Franzrep (Sedati and Company)

2026Q2: Growth is primarily driven by volume. Steady growth is expected across automotive, A&D, and industrial markets. - Michael Williams(CEO)

What is the outlook for the second half versus the first half in automotive, and commentary on the energy side? - John Franzreb (Sidoti & Company, LLC)

2026Q1: Inventory was built in Q1 based on order book demand for Q2 and the long lead times... The order book is up over 40% year-over-year (~90,000 more tons), so inventory is being positioned to meet this visible demand. - Michael Williams(CEO)

Contradiction Point 3

Drivers of Melt Utilization Improvement

Conflicting statements on whether operational benefits or volume is the primary driver for utilization gains.

Samuel McKinney (KeyBank Capital Markets) asks about Q4 revenue growth and guidance for the upcoming quarter? - Samuel McKinney (KeyBank Capital Markets)

2026Q2: The improvement was below plan due to some power supply interruptions and, more significantly, less progress in shop floor execution and reliability than anticipated. - Mike (Metallus)

Why did Q2 melt utilization underperform expectations? - John Franzreb (Sidoti & Company, LLC)

2025Q4: The improvement is based on both a stronger order book (up 50% year-over-year) and expected benefits from the operational efficiency initiative supported by an external expert partner. - Michael Williams (CEO)

Contradiction Point 4

Automotive Demand Outlook

Contradiction on near-term automotive demand health and risk factors.

John Franzrep (Sedati and Company) - John Franzrep (Sedati and Company)

2026Q2: Expectations are for flat demand in the second half, but healthy demand on the company's platforms (SUVs and trucks) is built into the plan. - Mike (Metallus)

What is the outlook for the second half compared to the first half in the automotive sector, and what commentary do you have on the energy side? - John Franzreb (Sidoti & Company, LLC)

2025Q3: The automotive business performed well, exceeding forecasts. Demand remains solid in platforms like SUVs and trucks. While there were concerns about supply chain disruptions... No impact was seen in Q3. - Michael Williams

Contradiction Point 5

Energy Market Recovery Timing

Contradiction on the timeline for energy market recovery and volume rebound.

John Franzrep (Sedati and Company) - John Franzrep (Sedati and Company)

2026Q2: The market is volatile, but the company is seeing improvement. The U.S. tariff environment is encouraging global energy companies to secure more domestic supply, which is benefiting U.S. drilling activity. - Mike (Metallus)

What is the outlook for the second half compared to the first half in the automotive sector, and what commentary do you have on the energy side? - David Storms (Stonegate Capital Partners, Inc., Research Division)

2025Q3: Energy market recovery depends on factors like oil prices, sanctions on Russian oil, and new LNG projects. However, a significant potential for 2026 comes from U.S. customers shifting procurement away from Russian oil imports due to tariffs, leading to increased inquiries and potential volume growth. - Michael Williams