Metallus (MTUS) Q3 2025: Aerospace and Defense Backlog Jumps 80%, Shifting Order Book Trajectory
Aerospace and defense backlog surged 80% year-over-year, signaling a decisive pivot in Metallus’s end-market mix and future revenue visibility. The company’s operational execution delivered sequential EBITDA growth, even as shipment volumes softened, reflecting a focus on higher-value products and fixed cost leverage. With annual contract negotiations underway and government-funded capacity expansions progressing, Metallus is positioning for a structurally different 2026 order book.
Summary
- Backlog Realignment: Aerospace and defense order backlog up 80%, anchoring 2026 growth visibility.
- Cost and Mix Discipline: Sequential EBITDA gains achieved through improved product mix and fixed cost leverage.
- Contracting and Capacity: Annual agreements and government-backed CapEx set the stage for a higher-throughput, defense-weighted 2026.
Performance Analysis
Metallus delivered its fourth consecutive quarter of sequential net sales and EBITDA growth, with Q3 adjusted EBITDA rising to $29 million, up 9% from Q2. Net sales reached $305.9 million, a modest sequential increase, as favorable product mix—especially from aerospace and defense—offset slightly lower overall shipments. Year-over-year, total shipments climbed 36%, reflecting broad-based demand recovery, but sequential shipment declines in industrial and energy markets highlighted ongoing volatility in those segments.
Automotive shipments grew marginally quarter-over-quarter, with robust demand from core platforms like SUVs and trucks, while energy shipments remained subdued due to macro softness, though import declines and tariff enforcement are starting to shift share. Cash flow from operations was $22 million, supporting ongoing capital projects and share repurchases, with liquidity remaining strong at $437 million and no debt. Capital expenditures were $28.4 million in Q3, with $22 million funded by government grants tied to defense-related furnace upgrades.
- A&D Mix Shift: Higher aerospace and defense shipments drove improved margins and mix, supporting the company’s $250 million annual A&D sales target for 2026.
- Production Leverage: Increased melt utilization and throughput efficiency yielded better fixed cost absorption, cushioning against shipment volatility.
- Order Pipeline Strength: Over two dozen new customers added year-to-date, with lead times for key products now stretching into February 2026.
While Q4 is expected to see typical seasonality and maintenance-related cost headwinds, Metallus’s execution on mix, cost, and backlog provides a durable foundation for the coming year.
Executive Commentary
"We continue to gain traction across both new and existing programs, all supporting our targeted annual A&D sales run rate of $250 million by mid-2026. In the quarter, we added several new customer opportunities for our specialty bar and tubing products for applications, including new munitions programs, gun barrels, and aerospace bearings."
Mike Williams, Chief Executive Officer
"This marks the fourth consecutive quarter of sequential growth in both net sales and adjusted EBITDA, underscoring the consistency of our commercial execution, improving operations, sustained demand in our core markets, and our focus on growing in aerospace and defense."
John Zarenek, Chief Financial Officer
Strategic Positioning
1. Aerospace and Defense as Growth Anchor
Metallus’s order backlog in aerospace and defense surged 80% year-over-year, reflecting both new program wins and deeper penetration with existing customers. The company is targeting a $250 million annual run rate in this segment by mid-2026, driven by specialty bar and tubing applications for munitions, gun barrels, and aerospace bearings. Prototype orders for new warheads and rocket motor casings further expand the pipeline, positioning Metallus as a critical supplier to both legacy and emerging defense contractors.
2. Domestic Supply Chain and Tariff Tailwinds
Customer preference for U.S.-made steel is intensifying, as highlighted by a 97% customer recommendation rate and increased inquiries from new buyers shifting to domestic supply. Tariff enforcement is beginning to redirect energy and industrial orders back to Metallus, with management citing a “tremendous amount of inquiry activity” for 2026. The company’s commercial strategy is focused on locking in annual agreements for roughly 70% of long products business, providing greater order visibility.
3. Government-Funded Capacity Expansion
Nearly $100 million in government funding is underwriting key capital projects, including a new bloom reheat furnace and roller furnace. These upgrades, tied to the U.S. Army’s munitions production mission, will increase throughput and reliability, directly supporting the anticipated ramp in defense orders. Government funding has already covered $82 million through September, with the remainder expected as milestones are met in early 2026.
4. Cost Structure and Operational Efficiency
Metallus is actively managing energy and labor costs, with new contracts in place for electrical supply and forward purchases for natural gas. A third-party operational improvement project is underway, with benefits expected to materialize into 2026. Fixed cost leverage from higher melt utilization and production efficiency remains a core focus, especially as Q4 brings seasonal volume declines and maintenance shutdowns.
5. Shareholder Returns and Capital Allocation
Share repurchases have reduced diluted shares outstanding by 25% since 2021, demonstrating confidence in through-cycle cash flow. Liquidity remains robust, and capital deployment is balanced between growth investment and returns, with $90.9 million still authorized for buybacks.
Key Considerations
This quarter marked a strategic inflection for Metallus, with the order book and capital plan increasingly oriented toward defense and domestic supply chain opportunities. The company’s operational and commercial discipline is being tested by cost inflation and labor negotiations, but the underlying mix shift and customer demand signals point to a structurally improved outlook.
Key Considerations:
- A&D Backlog Momentum: The 80% increase in aerospace and defense backlog is a leading indicator for 2026 revenue and margin expansion.
- Annual Contracting Discipline: Securing 70% of long products business through annual agreements should stabilize order flow and pricing power.
- Energy Cost Management: New energy contracts partially insulate Metallus from market volatility, but a portion of usage remains exposed to spot pricing.
- Labor Negotiation Overhang: The pending union contract extension introduces potential for higher labor and benefit costs in Q4 and beyond.
- CapEx Execution and Timing: Government-funded projects are on track, but timing of spend and milestone payments will impact reported cash flow and CapEx cadence.
Risks
Metallus faces several near-term risks, including labor cost escalation if union negotiations result in higher wages or benefits, and exposure to energy price volatility for a portion of its electricity and gas needs. Global supply chain disruptions—especially in the automotive sector—could dampen shipment volumes. While tariff enforcement and domestic sourcing trends are currently tailwinds, any reversal in trade policy or defense spending could quickly alter demand visibility.
Forward Outlook
For Q4 2025, Metallus guided to:
- Shipments 5% to 10% lower sequentially, reflecting typical year-end seasonality and potential supply chain delays.
- Base price per ton to rise slightly as 5% bar and tube price increases are realized.
- Product mix less favorable, with Q4 adjusted EBITDA expected to be $2 to $3 million below Q3 due to mix and maintenance headwinds.
For full-year 2025, management maintained CapEx guidance at approximately $120 million, with $90 million funded by the U.S. government. Management expects slight year-over-year adjusted EBITDA improvement in Q4 versus the prior year, despite sequential headwinds.
- Labor negotiation outcomes and timing could introduce additional cost variability.
- Annual shutdown maintenance costs will rise to $11 million in Q4, up $8 million from Q3.
Takeaways
Metallus is transitioning from a cyclical specialty metals supplier to a defense-anchored, contract-driven business model. The company’s execution on backlog, customer mix, and capital allocation sets a new baseline for 2026 and beyond.
- A&D Order Book as Growth Engine: The 80% backlog increase and program wins in munitions and aerospace underpin a multi-year growth runway, with $250 million annualized sales targeted by mid-2026.
- Cost and Operational Leverage: Fixed cost absorption, energy contract management, and ongoing process improvements are offsetting volume and inflationary pressures.
- 2026 Setup: Investors should watch Q4 contract finalizations, labor negotiation outcomes, and the ramp of government-funded capacity as key determinants of next year’s earnings power.
Conclusion
Metallus’s Q3 results confirm a decisive pivot toward aerospace and defense, with a robust backlog and government-backed investments driving a structurally improved outlook. Execution risks remain, but the company’s positioning and capital discipline provide a clear path to higher-margin, contract-driven growth in 2026.
Industry Read-Through
Metallus’s surge in aerospace and defense backlog is a clear signal for the broader specialty metals sector: U.S. defense spending and domestic sourcing mandates are reshaping order flows and capacity allocation. Tariff enforcement is beginning to redirect volumes from offshore to domestic suppliers, which could pressure global competitors and benefit other U.S.-based producers. The company’s experience with government-funded capital projects and annual contracting discipline will likely become best practices for peers seeking to derisk cyclicality and capture defense-driven margin expansion. Energy cost volatility and labor negotiations remain watchpoints for the entire metals and manufacturing landscape.