TimkenSteel fights to control costs
Resource from: Canton Repository Likes:193
Aug 06,2015
The downturn in oil and gas drilling has TimkenSteel Corp. relying on layoffs to help reduce costs.
The company has cut the workforce at the Faircrest and Harrison steel mills, and a special services center in Houston. Layoffs account for about 80 percent of $25 million in savings the company anticipates this year.
This year’s drop in oil and gas drilling is a key factor in a second-quarter loss of $24.3 million, or 54 cents per share, reported by TimkenSteel on Thursday. The company is carrying a loss of $17.4 million, or 39 cents per share, through the first half.
Sales in the second quarter are down 37 percent to $278.2 million, and down 19.8 percent at $666.9 million through the first half.
Ward J. “Tim” Timken Jr., chairman, chief executive officer and president, told stock analysts Friday morning that having fewer than 900 drilling rigs in oil and gas fields around the country means there is low demand for TimkenSteel products used in drilling.
Instead of buying new equipment, companies are using the pipe and drilling bits they had in inventory and waiting before they buy new steel.
Reduced drilling has spilled over into some of the industrial sectors where TimkenSteel has customers, Timken said. Small manufacturers who supply steel equipment or parts have seen product demand drop, so they aren’t buying steel to make new products.
Timken told analysts that he hopes to see the rig count stabilize after being cut by more than half when oil prices began falling late in 2014. Once the rig count stabilizes, drilling should resume.
While the energy segment struggles, TimkenSteel has balanced the situation to a degree because of solid demand from automotive, rail and machinery customers. The company also has worked to control its inventory levels, he said.
Cutting work crew levels has done the most to help reduce costs. TimkenSteel’s mills have operated at less than 50 percent of production capacity this year, Timken said.
The company has 2,800 employees, and right now 190 are on layoff. Just over 100 of those workers are at the company’s local mills, a United Steelworkers spokesman said. Union officials also said the company has used temporary, one-week shutdowns.
Changes made to deal with the sudden downturn are part of the company’s attempt to do its “best to prepare for the up cycle,” Timken said.
Timken told analysts that customers are happy with the steel being produced by the jumbo vertical bloom caster in the Faircrest Steel Mill. About 22 percent of the plant’s steel is now made on the bloom caster, and that should increase to more than 50 percent before the year ends.
(Canton Repository)
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