TimkenSteel sees innovation leading it to steadier ground

In the less than two years since TimkenSteel Corp. spun off from Timken Co., the Canton-based steelmaker has been working hard to establish its own name in the industry.

The company is doing more than just churning out your average steel. Instead, TimkenSteel is looking to become a design partner with its customers and is offering advice on how they can use its steel to make their products last longer.

Since the spinoff, TimkenSteel has faced a number of struggles, including high-profile safety incidents and a sharp decline in stock prices, but officials feel the company is well-positioned for the future despite some analysts’ talk about a possible sale down the road.

TimkenSteel became an independent company in July 2014 after significant shareholder pressure. In the 20 months since, it has faced a tough market as oil prices have dropped, the dollar has strengthened and imports have flooded in. The company’s stock prices (NYSE: TMST) initially climbed after its spinoff, reaching a high of $49.94 on Sept. 10, 2014. But they have fallen pretty consistently since, reaching a low of $3.99 on Jan. 11, 2016. At the close of business on March 18, the stock was worth $9.19 per share.

Shawn J. Seanor, TimkenSteel executive vice president of sales and business development, thinks the company was well positioned when it spun off from Timken, before the market downturn. Since then, he said, TimkenSteel has broadened its base as new supply chains have taken hold. New business – including new customers, as well as new sizes and grades of steel — has made up 30% of the company’s business in the past five years, company spokesman Joe Milicia said in an email.

One way the company is looking to stand out is its ability to model the performance of its steel in different products, letting customers know how long they might expect a product to last. Raymond V. Fryan, vice president of technology and quality, said this kind of capability is unusual for a steelmaker, as most just quote a project based on the specs provided. TimkenSteel wants to show companies why their plans might not provide all the benefits they want.

“That’s a real big opportunity for differentiation for us,” Fryan said.

Clean steel

Virtual component fatigue modeling allows TimkenSteel to compare how its steel will perform in a particular product against that of its competitors, said John C. Murza, senior manager of product and process technology. The so-called cleanliness of the steel, which TimkenSteel prides itself on, is critical here for a few reasons. Steel that is not as pure may be more likely to crack because of the particles left in the metal, while purer steel can let a company use less of the product.

TimkenSteel has been clean steel experts for decades, Fryan said, but that expertise was mainly used in Timken’s bearings. And while it was useful to the bearing and gear maker, it’s part of TimkenSteel’s “lifeblood,” Fryan said. TimkenSteel’s goal now is to apply that expertise to a broader customer base. The company doesn’t want to offer the lowest-priced products; it wants to be the “highest value,” he said.

TimkenSteel has the ability to do virtual and physical modeling at its new technology center on the company’s Canton campus. The center pulls together assets that were formerly in separate areas, Murza said. The 20,000-square-foot center has about 26 employees running its high-tech equipment. In addition to modeling, the center can examine the properties of the steel produced and even melt small batches for experiments. The center cost about $5 million, including about $1.5 million for new equipment, said Fryan.

That equipment includes an electron scanning microscope, which can look for almost unimaginably small particles. Being able to identify particles allows it to find how the impurities originated, Murza said.

And, Fryan added, the equipment helps the company better measure its products, which translates into better performance for customers. He said there’s always a point in science and engineering where it seems like people have learned all there is to know about a topic, but that’s rarely the case.

“We really know so little,” Fryan said. “And there’s so much more that we can do.”

Sale talk

While the company is still struggling financially, the research seems to be making an impact.

Chairman, CEO and president Tim Timken said in a news release that losses in the fourth quarter of 2015 were less than expected — and pointed to innovative efforts as a reason why.

“While we continue to feel the impact from weak global commodity markets and high customer inventory levels, our cost reduction efforts and pace of new business from innovation reduced the losses we anticipated in the quarter,” Timken said in the release. “We expect 2016 to be another challenging year, so our focus will continue to be on cash generation while maintaining industry leading customer service. We will continue to manage through this cycle in a way that will generate value for shareholders and make us stronger as markets recover.”

But that outlook hasn’t kept some analysts from calling for a company sale. A February 2016 note on TimkenSteel from KeyBanc Capital Markets stated that it saw “more value in TMST’s assets being consolidated or privatized (in the case of Ellwood Group) than in remaining a stand-alone entity.”

Justin Bergner, a research analyst for industrials at Gabelli & Co., thinks the company will only remain independent for a few more years. An independent company of its scope is a “dinosaur” in the steel industry, he said. He’s recommending the stock, as the company is a niche player in areas like seamless bar products and had little debt on its balance sheet going into the market compression. TimkenSteel also has the benefit of time, he said, and can wait out the downturn if it can minimize cash bleed. The company’s debt-holders don’t want to force it into bankruptcy, he said.

Bergner said he thinks the company cares about its employees and won’t sell to just anyone, but he does see a sale in the future.

But when asked, TimkenSteel sounds like it intends to be around for the long haul.

“We believe that operating as an independent company ensures a focus on the unique business model that makes us successful,” Milicia said in an email.

Source: Cleveland Business