"We saw increased volume in the first quarter compared with this time last year, although our earnings did not benefit from the higher volume due largely to pricing conditions in the scrap market," said Ward J. "Tim" Timken, Jr., chairman, CEO and president.  "Ferrous metal scrap prices dropped sharply due to the strong dollar, fewer exports, increased supply and other factors. Current market indicators point to scrap prices beginning to hit bottom.

"Our mobile business continues to be strong, but our order book reflects a steeper drop in oil and gas demand and its related impact on industrial end markets," said Timken. "We formed this company in 2014 with the right structure to support the business and a unique model that delivers value to customers through our problem-solving innovation and superior quality. As the external environment has changed, we're reducing costs on an annualized basis by about $25 million across the company while continuing to pursue our strategy."

As part of its strategy to expand leadership in profitable niche markets that require specialized steel for demanding applications, the company opened an advanced technology center in Canton, Ohio, during the quarter. The technology center houses capabilities that are unique in the North American special bar quality (SBQ) market and focused on improving customers' application performance.

FIRST-QUARTER 2015 FINANCIAL SUMMARY

First-quarter net sales decreased $0.8 million or 0.2 percent year over year and 4.8 percent sequentially.

• Ship tons were approximately 271,000, an increase of 8.4 percent over the first quarter of 2014 and 0.3 percent sequentially.
• Favorable demand in the industrial and automotive end markets primarily drove the increased shipments over first-quarter 2014 and sequentially.
• Demand for energy-related products was flat compared with the first quarter of 2014. Sequentially, energy was down, driven largely by an approximately 50 percent drop in U.S. rig count.
• Surcharge revenue of $75.2 million decreased 16.0 percent from the prior-year quarter and 19.6 percent from the fourth quarter of 2014.

EBIT was $11.2 million, a 75.2 percent decrease compared to adjusted EBIT⁽¹⁾ for the same period a year ago and a 51.9 percent decrease sequentially.

• First-quarter EBIT was unfavorable primarily due to timing related to raw material spread and manufacturing costs, partially offset by LIFO income.
• Timing-related costs and $2 million of vertical caster depreciation drove higher manufacturing costs in first-quarter 2015 over first-quarter 2014.
• Sequentially, EBIT was unfavorable due largely to timing related to raw material spread and fixed-cost deleveraging because of lower melt tons.
• Melt utilization was 66 percent for the quarter, compared with 65 percent in first-quarter 2014 and 74 percent in fourth-quarter 2014.

BUSINESS SEGMENT FIRST-QUARTER RESULTS

Industrial and Mobile Segment

• Net sales of $233.5 million, including lower surcharges of $8.1 million, increased 0.7 percent over first-quarter 2014, driven primarily by demand in the industrial market sector.
• First-quarter EBIT margin of 1.9 percent is 850 basis points (bps) lower than the prior-year first-quarter adjusted margin⁽¹⁾ of 10.4 percent, due primarily to unfavorable timing impact related to raw material spread and higher manufacturing costs.

Energy and Distribution Segment

• Net sales of $155.2 million, including lower surcharges of $6.4 million, represents a 1.6 percent decrease over the first quarter of the prior year, driven primarily by unfavorable product mix offset by continued growth in demand in the industrial end markets.
• First-quarter EBIT margin of 3.0 percent is 1,290 bps lower than prior-year first-quarter adjusted margin⁽¹⁾ of 15.9 percent, driven by unfavorable product mix, timing impact related to raw material spread and higher manufacturing costs.

OUTLOOK

Guidance

Second Quarter 2015 Revenue

• Industrial & Mobile
  • Shipments to be similar to first-quarter 2015
  • Automotive demand to remain strong
  • Industrial end markets weakening due to impacts from declining oil prices
• Energy & Distribution
  • Shipments to be about half of first-quarter 2015
  • Weaker oil and gas markets due to declining oil prices and associated decrease in energy exploration and production spend
  • Lower distribution channel demand across both energy and industrial end markets

Second Quarter 2015 EBITDA

• Expect EBITDA between break even and a loss of $15 million for the second quarter
  • Negative impact from the weakness in the oil and gas market and associated industrial markets
  • Unfavorable manufacturing impacts due to lower melt utilization and inventory reduction efforts
  • Raw material spread to continue to negatively impact margin

Other

• 2015 capital spending to be between $80 million and $90 million; a reduction from prior guidance of $90 million and $100 million
• Maintain dividend at current levels⁽¹⁾
• Repurchase of 2 million shares through 2016
• Expect favorable cash flow in second-quarter 2015 from working capital reductions

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 (6"+) and seamless mechanical tubing made of its special bar quality steel, as well as supply chain and steel services. Operating from six countries, TimkenSteel posted sales of $1.7 billion in 2014.