It reinforces our strategic priorities and aligns with our disciplined focus on strong cash generation and sustained profitability across all market cycles. The contract offers our Canton-based bargaining unit employees annual increases to base wages for the duration of the contract, competitive health care and retirement benefits for all members, and a continued focus on employee well-being. We are pleased with the collaborative outcome of these negotiations and thank the United Steelworkers and our Canton-based employees for their constructive engagement. Moving to operations, we made significant progress in advancing our manufacturing capabilities and supporting our long-term growth strategy by completing the ramp-up for the new automated grinding line.
Utilizing robotic technology, this new asset supports growing demand from our customers for high-quality SBQ products. We remain on track for the scheduled commissioning of the new Bloom reheat furnace roller hearth furnace, and automated saw lines in 2026. These state-of-the-art assets will strengthen our ability to serve all our customers with high-quality specialty metals, enhanced production capability, and improved first-time quality. Turning to our fourth quarter financial results, shipments declined by 15,100 tons, or 9% sequentially. As expected, seasonality was a factor behind decreased volumes, with lower shipments across all end markets. Adjusted EBITDA for the fourth quarter was $2,400,000 below expectation due to lower volumes in addition to compressed raw material spread.
Results were also negatively affected by a slower ramp-up following our annual maintenance shutdown. While we are not satisfied with our fourth quarter performance, we acted decisively throughout the quarter and into early 2026 to strengthen our operational foundation and position the business for improved execution going forward. During the planned shutdown period, we accelerated several long-term operational improvements, including extending select outages to ensure our facilities are prepared to ramp efficiently in 2026 with minimal disruption. These actions support our ability to meet the growing demand reflected in our expanding order book. We also implemented targeted organizational and leadership changes to better align strategic priorities and sharpen our operational focus across all assets.
In addition, we are increasing hourly staffing levels in the areas experiencing the most accelerated demand increases. Finally, we are continuing to invest in the next stage of our operational capabilities through a standardized efficiency initiative supported by an external expert partner aimed at enhancing throughput and improving high-quality steel output. These steps collectively position us to execute with greater consistency, capture growth opportunities, and we expect to deliver stronger performance in the year ahead. Our lead times have extended, reaching into mid-second quarter for VARs and mid-third quarter for seamless mechanical tubing, and our order book has increased more than 50% year over year.
This underscores the growing demand for domestic steel and serves as a clear indicator of improved momentum we expect to carry throughout 2026. Turning to performance across our key markets, while industrial markets remain soft, the global trade environment is creating new opportunities as our customers reevaluate supply chains. Our distribution partners are also signaling concern about supply availability as inventories remain low, an environment that we believe will generate additional demand for reliable domestic suppliers like Metallus Inc. We believe we will continue to take market share in 2026. As we enter 2026, auto sales and production are both expected to be down slightly, and pricing pressure persists as OEMs prioritize margins and pass along tariff costs.
Although affordability challenges, interest rates, tight credit, and an EV slowdown could impact demand, our order book remains strong. This is supported by our solid position in light truck and SUV transmission programs, which have remained stable despite macroeconomic headwinds. Energy shipments remain at a lower level sequentially, though we are beginning to see signs of improvement. Favorable trade-related tailwinds are helping us offset continued softness in drilling activity, creating opportunities for incremental sales. Aerospace and defense outlook continues to be robust, with strong growth expected through 2026, driven both by expansion of existing programs and new platforms. We will remain focused on safety, outstanding customer service, product development in aerospace and defense, and completing our ongoing government-funded capital investments.
These priorities support our strategy for sustainable growth as we expect a much more robust 2026. I will now turn the call over to John M. Zaranec, who will provide more details on our financial performance and outlook. Thanks, Mike. During 2025, our team delivered year-over-year improvements in shipments, net sales, and melt utilization. We also advanced our transformative capital investments safely, on time, and on budget, allowing us to continue to expand upon our strong foundation to drive further profitable growth while maintaining a healthy balance sheet. Despite fourth quarter results coming in below expectations, as Mike mentioned, were temporary.
During the last few months, we took decisive actions to implement operational enhancements, the underlying headwinds that lay a solid foundation for 2026. From a top-line revenue perspective, fourth quarter net sales totaled $267,300,000, a sequential decrease of $38,600,000 mainly driven by normal seasonality but also impacted by a slower-than-expected ramp-up following annual shutdown maintenance. The fourth quarter GAAP net loss was $14,300,000, or a loss of $0.34 per diluted share. On an adjusted basis, the net loss was $7,700,000, or a loss of $0.18 per diluted share in the quarter.
Adjusted EBITDA was $2,400,000 in the fourth quarter, primarily impacted by higher manufacturing costs due to a $10,000,000 sequential increase in annual shutdown costs and lower fixed-cost leverage, as expected due to planned shutdown exercises during the fourth quarter. Shipments were lower than our expectations by around 10,000 tons due to several factors, including customers managing year-end inventory, certain customer logistics challenges, and a slower ramp-up following our annual maintenance shutdown, which included accelerating several long-term operational improvements. In addition, as a result of compressed scrap market prices, we experienced lower raw material surcharge revenue than expected of approximately $4,000,000. At the end of the fourth quarter, the company’s cash and cash equivalents balance was $156,700,000.
During 2025, we generated $16,000,000 of operating cash flow, and when excluding pension contributions, operations produced $80,000,000 in cash in 2025. This marks the second consecutive year in which operational cash generation exceeded $80,000,000 on this basis. These results provide compelling evidence of the structural transformation of Metallus Inc., demonstrating our ability to consistently deliver strong cash flows through the cycle. In the fourth quarter, capital expenditures totaled $35,300,000, including approximately $30,000,000 of fourth quarter CapEx related to government expenditures.
Planned capital expenditures for the full year 2026 are expected to be approximately $70,000,000, inclusive of approximately $35,000,000 of government-related capital expenditures, of which we are contributing approximately $15,000,000 to $20,000,000 of our own money as part of the collaborative partnership. As it relates to government funding, during the fourth quarter, the company received $4,100,000 of cash from the government as part of the previously announced nearly $100,000,000 funding arrangement in support of the U.S. Army’s mission of increasing munitions production. To date, through December, the company has received $85,600,000 of government funding, of which $32,100,000 was received in 2025.
Additional payments of approximately $17,000,000 are expected to be received in 2026, contingent on the achievement of mutually agreed upon milestones. As a reminder, this funding has substantially paid for both the new Bloom reheat furnace at the company’s Faircrest facility as well as a new roller furnace at the Gambrinus facility. Now switching to pensions. In the fourth quarter, the company made a required pension contribution of $3,500,000 related to the U.S. bargaining plan, as previously guided. During 2026, the company expects to make required pension contributions of approximately $15,000,000 to $18,000,000 related to the U.S. bargaining plan, a significant reduction compared to 2025.
Full year 2026 required pension contributions are expected to total approximately $27,000,000, representing a nearly 60% reduction from 2025 total pension contribution. We continue to actively manage the pension within our balanced capital allocation approach and will provide further updates as available. In terms of shareholder return activities, in the fourth quarter, the company repurchased approximately 71,000 shares of common stock for $1,200,000. At December, a balance of $89,700,000 remained under our share repurchase authorization. Since the inception of common share repurchases in early 2022, combined with the convertible note settlement activities, we have reduced diluted shares outstanding by a significant 25%, or 13,500,000 shares, compared to 2021.
These actions reflect the strength of the company’s balance sheet and confidence in through-cycle cash flow generation. As it relates to liquidity, total liquidity remains strong at $389,000,000 as of 12/31/2025, with no outstanding borrowings. We do expect a slight usage of free cash flow during 2026, which is consistent with historical seasonality, as the first quarter normally requires a larger amount of pension and bonus funding. Additionally, this year, our CapEx spend to complete the government projects is the highest in Q1 and ramps down throughout 2026. After the first quarter, we expect quarterly free cash flow to be positive for the remainder of 2026.
As we look to the near-term business outlook, commercially, first quarter shipments are expected to increase by approximately 10% compared with the fourth quarter, primarily due to strength in the order book and a step-up in operational performance after the fourth quarter shutdown set us up for a strong start to 2026. As Mike mentioned, our order book continues to build; it is up 50% compared to the same time last year. Annual price agreement negotiations, which cover approximately 70% of the order book, are substantially complete. Average base price per ton is anticipated to increase slightly year over year, mix-dependent.
The company recently implemented spot price increases on both bar and seamless mechanical tubing products not covered by an annual pricing agreement. These increases are effective throughout the second quarter and early third quarter, product-dependent. Based on lead times, pricing benefit, and product mix improvements, are expected to ramp each 2026. From an operational perspective, the company anticipates a sequential increase in its average melt utilization rate, supported by limited planned shutdown activity during the first quarter, greater stability and reliability across key assets, along with steady customer demand.
As a result, manufacturing costs are expected to sequentially improve by approximately $10,000,000 in the first quarter, following the completion of planned shutdown maintenance in the fourth quarter and improved cost absorption from higher first quarter melt utilization. Additionally, as Mike just mentioned, United Steelworkers recently ratified a new four-year labor agreement with Metallus Inc. The new labor agreement provides an increase in wages of 5% per year, as well as additional premiums for specialized roles, which allows us to attract the right talent for our growing business demand. The agreement also adds flexibility to manage future pension obligations, while offering competitive defined contribution plan alternatives.
As part of the agreement, a one-time payment of approximately $2,000,000 will be paid in the first quarter. Taking these factors into account, we expect first quarter adjusted EBITDA to be above fourth quarter levels, reflecting our typical seasonality and supported by a solid order book. For the full year, we expect continued market demand for our solutions, flat depreciation and amortization expense, and a low single-digit increase in SG&A expense. While we remain mindful of external variables, we currently anticipate delivering year-over-year adjusted EBITDA growth in each quarter of 2026. To wrap up, thank you to all of our employees, customers, and suppliers for their support.
We are firmly positioned as a high-quality U.S. specialty metals producer serving critical end markets. As we head into 2026 with a growing order book, our focus is on safe execution to meet rising customer demand. We remain committed to delivering shareholder value through disciplined capital allocation and sustained profitable growth. As always, thank you for your interest in Metallus Inc. We will now open for questions.
Operator: Thank you. We will now begin the question-and-answer session. Your first question comes from the line of John Edward Franzreb from Sidoti & Company. Your line is open.
John Edward Franzreb: Good morning, everyone, and thanks for taking the questions. I would like to start in the fourth quarter. There was an expectation of $3,000,000 to $5,000,000 of cost going to the P&L from labor negotiations. Curious how much you incurred in not only the fourth quarter, but have already incurred into 2026.
Michael S. Williams: Morning, John. We did not really incur any additional cost from the outcome of the labor negotiations because the agreement was not settled until early February. However, there is the payment due, which John outlined, for about $2,000,000 this quarter, plus they are starting to get the new wage increase that was agreed to in the first year of the contract. So we will see higher labor costs going forward compared to 2025. And then there is that one payment that they earned throughout the negotiation process.
John Edward Franzreb: Got it. And that $2,000,000 reference for Q1 could have been timing-impacted in Q4, but it did not happen. Honestly, we would have had the contract settled last year, but it was not. Right. So that $2,000,000 is still going to flow through the P&L. It is not going to be a one-time item. Correct?
Michael S. Williams: Well, it is a one-time item, but it will flow through the P&L in Q1.
John Edward Franzreb: Right. Got it. Understood. And regarding your expectations of melt utilization improving through the balance of the year, is that solely volume-dependent, or are you baking in any expectations from that third-party advisory program into that expectation?
Michael S. Williams: We are relying on both. We have a much stronger order book entering 2026 than we had last year, and everything we are hearing from our customers, with our annual contract negotiations pretty much settled, things look fairly robust and continue to build throughout 2026, both from a demand volume perspective and our execution.
John Edward Franzreb: That is actually a perfect segue into my next question. I was just curious about, with the order book up 50% year over year, how would you characterize the 2026 demand relative to what you thought it was going to be, say, three months ago?
Michael S. Williams: Well, we got signals as we went through the three- to four-month process of annual negotiations that there were, separate from the A&D—the A&D is just going to continue to grow throughout the year, and I will give you a little color on that—but, you know, the automotive programs that we are on, really around our transmission offerings and the platforms that we are on, we see our auto business being steady compared to 2025 throughout 2026 at this point. We are seeing some increased demand compared to last year in, I would say, on a certain isolated, focused basis in the industrial end markets.
I think we just have to see how the overall economic activity for the United States develops throughout the year, and we do expect isolated improvements in demand on some of our very large industrial customers throughout 2026.
John Edward Franzreb: Energy,
Michael S. Williams: really, as we said in our opening comments, a favorable fair-trade environment is driving some opportunity in the energy space. Even though the drilling activity, which is a majority of where our applications go, is not increasing—it has been fairly stable—it is really the A&D that is going to drive a lot of the growth for us in 2026. A number of our larger A&D OEMs have already placed four-year POs with us, and so we can see the future horizon of that demand. However, there is some dependency, particularly in the munitions side, where our OEM customers have made major investments to increase their capacity. That capacity has to ramp up.
All the signaling we are getting is that is going to happen, but it is about a year and a half, two years late.
John Edward Franzreb: So we do expect it
Michael S. Williams: see that. That is going to drive further demand growth throughout 2026 in our A&D, with that dependency on that capacity ramping up to take our product offerings. And then thirdly, in the A&D space, we have gotten over half a dozen new customers in the fourth quarter for programs in 2026. The majority of that is the VAR material that we spoke about earlier in our comments, but we are also continuing to work on getting new platforms and working with new customers.
So we are pretty excited about where we are positioning, how we are positioning, the successes that we have had in getting new programs, and how that is going to help drive profitability growth for us in 2026.
John Edward Franzreb: Just a follow-up to what you said. Is there any change in your expectations in the A&D contributions in 2026 versus your initial expectations?
Michael S. Williams: No. I think we are assuming where our A&D pricing has been is going to continue to roll forward, but the higher mix influence of that in our sales revenue will drive improved profitability growth for us in 2026.
John Edward Franzreb: Okay. Thank you for taking my questions. I will get back into the queue. Alright. Thanks, John.
Operator: Your next question comes from the line of Philip Gibbs from KeyBanc Capital Markets. Your line is open.
Philip Gibbs: Hey, Mike and team. Just curious on where you expect A&D sales in 2026? I know prior, you thought you would be above a $250,000,000 run rate on sales by mid-2026, and then also the status of your key capital investments and when those are going to be commissioned and deployed.
Michael S. Williams: Sure. So, it is early in the year, but, like I said to John earlier, we have already gotten several POs from our largest A&D OEM customers, so we see their full-year demand. We still are believing that we are going to hit that run rate, but it is dependent on the new capacity ramping up for the munitions manufacturing downstream from us. So as that ramps up, which we are being signaled is going to continue to ramp up throughout this year, we still expect to hit that at some time, either early second half.
It could move based on their ramp-up success, but we still believe we are on target to hit that $250,000,000 run rate at this point in the year.
Philip Gibbs: And then just regarding the status of your key capital investments and when those are going to be commissioned and deployed.
Michael S. Williams: Things are going pretty good there. We did have some weather delays between late in the fourth quarter and early this quarter, but we are pretty much on target. The Bloom reheat furnace—we have lit the furnace. We have cycled and simulated pushing blooms through the furnace. We expect to start to put that in operation in the next five to six weeks. We will start to ramp that up throughout the remainder of the first quarter and early second quarter. The roller hearth furnace—we are on time with that. We expect to light that furnace up towards the end of the first quarter, early second quarter.
We expect to have both assets up and ramped up to production by late second quarter, early third quarter.
Philip Gibbs: And then a question for John. Just on the share count and also the D&A. On the diluted share count, it looked like they were down about over a million shares quarter on quarter. I know buybacks were limited, so anything that would have driven that over that buyback number? So just curious in terms of what we should be using moving forward. And then also on the D&A, you said flattish year over year, but you do have commissioning of new assets. So just curious why that would be flat and not increasing as you are putting more assets to use? Thank you.
John M. Zaranec: Yes, good questions, Phil. So on the dilutive shares impact, it will be up a little bit, maybe about 1,000,000 or so in 2026 because of the net loss position on the U.S. GAAP basis. The number to use would be a little bit if you are looking at GAAP versus non-GAAP. But we do plan to continue to do share buybacks to offset equity comp dilution, so it would be fairly flat if you are using that adjusted basis. But our GAAP net loss sometimes makes that a little bit interesting to look at our diluted shares.
As far as the depreciation and amortization, recall it is only $15,000,000 to $20,000,000 of our own money, and so that is actually hitting our depreciation. The depreciation and amortization for the government funding—there is none. There is no depreciation and amortization. So as we have some assets falling off every year, the new capital spend for our base business, which is pretty consistent, will just replace that. So that is basically why D&A will stay flat. Thank you.
Operator: Your next question comes from the line of David Joseph Storms from Stonegate. Your line is open.
David Joseph Storms: Morning and thank you for taking my questions. Good morning. I want to go back to some of the customer growth you have seen in bar. Is there anything more you can tell us about maybe the types of customers here? With them being new customers, is there a potential to expand within their operations? Just anything more you can give us there.
Michael S. Williams: Well, if you look at the VAR, the majority of the VAR goes into a variety of aerospace and defense—more defense than aircraft, let us say—but it is a variety, and it is a growing product line for us. So we really cannot talk about the customers themselves or the end application on the variety of weapon systems and military technologies that these products are going into due to the confidentiality requirements, but we are pretty excited about it. We have also won some new customers and applications with VAR in the industrial space.
These are high-end equipment applications that the VAR material is specifically designed for, and we are pretty excited that now we are expanding outside of the A&D with this product offering. We just expect it is going to continue to grow. We have a great supplier partner, and we are building a very credible customer base with some pretty exciting end applications.
David Joseph Storms: Understood. I appreciate that color. And then just one more on lead times. It looks like about three to six months on lead times right now, maybe a little bit longer. Would you expect that to come in as you ramp the new assets as you just laid out? And is there a potential then to increase sales and maybe get those lead times to stay the same? Thank you.
Michael S. Williams: Yes. If you look at our seamless mechanical tubing, that is the one that is out the furthest. That is early August. We are adding an additional crew, and we are making some investments in some of the key assets involved with our tube-making process. And so as those investments ramp up and the additional shift comes on here in early March, we do expect to bring those lead times in because our availability of product to customers will increase. The bar is what it is. We have seen a pretty good increase in demand, and we are going to try to keep our lead times as competitive as possible.
We do believe the new assets are going to help with better quality right the first time, higher efficiency, and throughput. And as those assets ramp up, we specifically believe that will also make sure that we have competitive lead times. Right now, as we see a much larger order book, it allows us to be more efficient with our planning and scheduling across our key bottleneck assets. So things are looking very positive for us, and we expect to deliver, as I said, much better results throughout 2026.
Operator: And that concludes our question-and-answer session. I will now turn the call back over to Jennifer K. Beeman for closing remarks.
Jennifer K. Beeman: Thank you all for joining us today. We look forward to updating you in the future, and that concludes our call.
Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Before you buy stock in Metallus, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Metallus wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $415,256!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,151,865!*
Now, it’s worth noting Stock Advisor’s total average return is 892% — a market-crushing outperformance compared to 194% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
*Stock Advisor returns as of February 20, 2026.
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Metallus (MTUS) Q4 2025 Earnings Call Transcript was originally published by The Motley Fool
