TMST (2019 - Q4)

Ladies and gentlemen, thank you for standing by and welcome to the TimkenSteel Fourth Quarter 2019 Earnings Conference Call. At this time all participants are in listen-only mode. After the speakers' presentation there will question and answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jennifer Beeman. Thank you. Please go ahead. Jennifer

Thanks[Jody]. Good morning and welcome to TimkenSteel’s fourth quarter and full year 2019 conference call. I'm Jennifer Beeman, Senior Manager of Communications and Investor Relations for TimkenSteel. Joining me today is Terry Dunlap, Interim Chief Executive Officer, Kris Westbrook, Executive Vice President and Chief Financial Officer as well as Tom Moline Executive Vice President of Commercial. You all should have received a copy of our press release which was issued last night. During today's conference call we may make forward looking statements as defined by the SEC. Our actual results may differ materially from those projected or implied due to a variety of factors which we described in greater detail in yesterday's release. Please refer to our SEC filings including our most recent Form-10K and Form-10Q and the list of factors included in our earnings release all of which are available on the TimkenSteel website, where non-GAAP financial information is referenced, additional details and reconciliations to its GAAP equivalent are also included in the earnings release. Finally immediately following the conclusion of today's call we will post supplemental information regarding sales and volume by end market on the Investor Relations' page on TimkenSteel website. This information is consistent with information we have provided in previous quarters and can be located under financial information to historical data. With that, I'd like to turn the call over to Terry. Terry?

Thank you Jennifer and thank you to everyone for joining us this morning and for your interest in TimkenSteel. First the word about safety. Safety is a core value of TimkenSteel and the most important priority for all of our 2,500 employees. This safety first mindset has been a cornerstone in maintaining the overall health and well-being of our employees for many years and our team continues to implement plans and actions that reduce risk, incidents and injuries on a daily basis. Safety results for 2019 did not meet our expectations. While results were good at most plants overall we experienced slightly higher incident rates compared with the prior year. With the full engagement of our employees and the USW we have a renewed focus on safety for 2020 and are implementing a number of new initiatives including special attention to the prevention of life-threatening incidents. With our ongoing journey towards zero incidents I continue to be impressed by the motivation and commitment of all our employees to find solutions to keep everyone safe every day every shift. Nothing we do is more important than safety. Now let's move on to our results for the quarter and the year. As expected the demand environment in many of the markets we serve did not improve as we headed into the end of the year resulting in disappointing results for the quarter. Although our fourth quarter adjusted EBITDA of negative $8.7 million exceeded the high end of our guidance range when adjusted for the inventory valuation method change. Our shift tons decreased by 39% compared with the prior year quarter. This decline in demand coupled with lower raw material surcharges led to a decline in sales of $180 million or 44% compared with the prior year quarter. While our energy and industrial markets led the decline all of our major end markets saw weakness at the end of the year. Sequentially shipments declined 14%. On a positive note our cash flow story is a good one. During the quarter we generated $46 million of operating cash flow. We continue to proactively reduce inventories across the business as well as better align working capital investments with current customer demand. Regarding scrap pricing after rising by $80 per gross ton over the last three months the three city average of the number one Bushling scrap index moved down $10 per gross ton in February. Bushling fared better than most other scrap grades most of which are down approximately $20 per ton this month. Barring any major weather events or a major uptick in scrap exports supply should be more than sufficient to meet expected demand in March and scrap prices are expected to remain relatively flat. As you are well aware we are on a journey to rapidly improve the profitability of our company as well as reinforce and improve our valuable customer relationships. Through the hard work of so many in the company we achieved $40 million of cost savings in 2019 exceeding our initial guidance by $5 million. In 2019 we focused on simplifying the business and management structure which resolved in a 14% reduction in our salaried employee headcount. These actions are ongoing and I'm confident that our continued efforts to simplify the organizational structure, removed functional silos and improved collaboration not only will improve our cost structure but more importantly drive greater alignment, accountability, speed of decision-making and ultimately better results. Regarding employee benefits; after careful consideration we determined it was prudent to make two significant changes to our salary, pension and other post retirement plans to more closely align our benefit plans with those offered by our peers. We froze the future accrual of pension benefits for the 260 employees or in the salary pension plan replacing it with the contribution to their 401K plans as we do for all other salaried employees. In addition we eliminated the salary retiree medical subsidy. These plans were previously frozen to new participants in 2004 but had continued to accrue benefits. We believe these changes were a necessary part of our continued efforts to develop a more efficient cost structure while still providing competitive to our employees. In November, we announced the planned closure of our TimkenSteel material services facility in Houston. I want to thank the employees who safely and professionally completed the closure in the first quarter of 2020. The Houston facility primarily served the challenged energy sector. It's important to note that we are not exiting the energy market rather we plan to more fully utilize our supply chain partners to provide the services required by our energy customers. This change will immediately improve the company's financial performance. Also at the end of January we sold our scrap processing facility located in Akron Ohio. The landscape for scrap in our region has changed since the acquisition of this facility almost 10 years ago. Given that this facility supplied only a small percentage of our overall scrap requirements and with our network of Midwest recycled material suppliers well established we're confident we'll have an adequate and secure supply of scrap for years to come. We thank the dedicated employees of this facility for their years of service and wish them the best in the future. Kris will touch upon the financial impact from these activities in just a minute. As we previously announced the expansion of our St. Clair facility in their Dayton, Ohio continues to progress this plan. This investment is being made to support our growing value added components business primarily to serve automotive customers. Beginning in late 2018 we focused on further strengthening the long term portfolio of this business by targeting new opportunities in both traditional and new powertrain applications. We were awarded several new programs in the first half of 2019 that will provide step change growth in the value added portfolio beginning in mid 2020. Launch efforts remain on schedule for the start of production during the second half of 2020. In addition to growth in traditional powertrain applications we also were awarded two new electric vehicle applications that launched in 2021 and 2023. Our team continues to explore new capabilities and supply chains to pursue these types of applications and opportunities. To further leverage the momentum in our value-add business we recently implemented a dedicated organization structure to more effectively service customers while focusing on improving profitability and more effectively managing working capital and cash flow. The team will focus on executing projects we've won by strengthening the alignment between our customers, external suppliers and our manufacturing operations. With clear accountability for successful outcomes for all stakeholders our value-added product portfolio is positioned for success. Further with respect to our focus on customers, each year we conduct a satisfaction survey to see how we perform on a number of important metrics including quality and service. This past year over 200 customers responded to this survey and we are encouraged by the results that showed we continue to maintain a high degree of trust and satisfaction with our customers. One factor acknowledged by our customers is helping drive the positive results is our on-time delivery rate which reached an all-time record of 94% in 2019. I applaud our team for this achievement and their commitment to providing great service to our customers. We all know, however, that we must continue to get better every day and we are relentlessly implementing improvement plans in the areas most valued by our customers. In closing, we made progress on a number of strategic initiatives in the quarter including the execution of many important cost reductions including selling or closing non-core operations, implementing new inventory management controls and simplifying organization structures in many part of the business. In addition, we have deployed a number of project teams who are working hard to deliver additional performance improvement initiatives in the weeks and months ahead. That said it is clear our 2019 results were disappointing and unacceptable. The entire TimkenSteel leadership team and organization is committed to this change and actions required to deliver improved results in 2020. I spent the last five months working with our board and the TimkenSteel team as well as meeting with customers, suppliers, union leadership, shareholders, community leaders and other stakeholders to better understand the business. We have assessed and prioritized opportunities for improvement and mobilized the organization in making meaningful and in many cases difficult changes with a sense of urgency. Finally, many of you have asked about our CEO succession plan. As you know I accepted the CEO position in October with a one-year commitment to the company to focus on improving our results in the near term as well as developing a plan for long-term success and improving shareholder value. The TimkenSteel board and I remain fully committed to that plan and approach and we'll keep you informed as decisions for the future are made. With that I'll turn it over to Kris who will walk you through the numbers.

Thanks Terry. Good morning everyone. As Terry mentioned our fourth quarter results came in above the high end of our adjusted EBITDA guidance range after considering the LIFO inventory valuation change. Despite end market challenges driving lower customer demand and plant utilization we made significant strides during the fourth quarter to better position our business for improved financial performance. During the quarter we generated positive free cash flow through enhanced working capital management and cost reduction actions. Additionally, we increased the available liquidity through the refinance of our credit facility and further debt repayments. As mentioned in our earnings release we changed our inventory valuation method in the fourth quarter of 2019 from last-in-first-out or LIFO, the-first-in-first-out or FIFO. We believe that the FIFO method improves comparability with our peers or closely resembles the physical flow of our inventory and aligns best with how we internally manage the business. This change has been retrospectively applied to our prior year financial statements and none of the company's inventory remains on LIFO going forward. Further details on the LIFO to FIFO inventory valuation change will be provided in our Form 10-K that we plan to file next week. On a GAAP basis the fourth quarter of 2019 net loss was $84.6 million or a loss of $1.89 per diluted share compared with a net loss of $29.4 million or loss of $0.66 per diluted share in the fourth quarter last year. Excluding certain items the fourth quarter of 2019 adjusted net loss was $27.3 million or an adjusted net loss of $0.61 per diluted share and adjusted EBITDA was negative $8.7 million for the quarter. Turning to the main drivers of the fourth-quarter financial results. As expected shipments of 180,000 tons were 14% lower in total across all of our end markets in comparison with the third quarter of 2019. As customers carefully managed inventory levels as they approached year end adds difficult SPQ demand environment. This lower level of shipments drove a $7 million decline in adjusted EBITDA from the third to fourth quarter of 2019 and a $20 million decline in comparison to the fourth quarter of 2018. From an end market perspective shipments to mobile on highway customers were 81,500 tons in the quarter with over half of the 11,500 ton decrease from the prior quarter due to a strike at one of our customers. Shipments of 72,200 tons to industrial and 10,500 tons to energy also were negatively impacted by end market demand in the quarter. In billet shipments were 15,500 tons in the quarter. Total base price per ton remained relatively flat during the fourth quarter compared with the third quarter with variability by end market primarily due to product mix. We have seen improvement in demand in customer demand to date in the first quarter of 2020 which is reflected in our shipment guidance that I will discuss shortly. Surcharge revenue of $34.6 million in the quarter was the lowest in the past two years, down $16.7 million in comparison to the prior quarter and $69.2 million below the fourth quarter of 2018. Lower ship tons as well as the decline in surcharge revenue per ton on a lower number one Bushling scrap index negatively impacted surcharge revenue. Manufacturing costs benefited from cost reduction actions in the quarter including 18% fewer hourly employees since the end of 2018. Melt utilization of 35% in the fourth quarter drove unfavorable fixed cost leverage while resulting in a significant re-balancing of inventory to better align with the demand environment. Our current plan operating schedules provide significant flexibility to meet our customers demand. SG&A expense for the quarter was $26.9 million excluding certain items adjusted SG&A expense was $20.5 million approximately $4 million lower than the fourth quarter of 2018. This lower level of adjusted SG&A expense was a result of cost reduction and restructuring actions completed in 2019 as well as lower incentive compensation. Since 2018 we've reduced our annual SG&A expense by approximately $10 million. Turning now to our profitability improvement plan that we launched in early 2019, we are working every day to permanently reduce cost and generate cash through simplification of our business and approved efficiency while deploying our resources to those activities that have the greatest impact on our performance. As Terry mentioned we've implemented many cost reduction actions throughout 2019 that resulted in total realized savings of approximately $40 million. We estimate our annualized savings to be approximately $70 million going forward inclusive of the following recent actions. First, as you know, we've undertaken significant restructuring in the second half of 2019 to simplify and streamline the organization including the elimination of approximately 125 salaried positions, a 14% reduction. These completed actions will result in total annualized savings of approximately $18 million in 2020 with majority of the savings being incremental to 2019. The restructuring charges related to these actions were $5 million and $8.6 million in the fourth quarter and full year 2019 respectively. Cash severance of approximately $5 million is expected to be paid in the first quarter of 2020 related to these actions. Second, in November 2019 we announced the closure of our Houston Texas facility including the elimination of approximately 85 positions. We recognized an $8.3 million charge in the fourth quarter of 2019 related to the closure the majority of which was non-cash. We expect to realize approximately $8 million of annualized savings going forward and are working to maximize cash proceeds for the remaining assets. Third, we recently completed the sale of a small non-core scrap processing facility in Akron Ohio for approximately $4 million and used the proceeds to pay down debt. The majority of our 30 employees at the location were hired by the buyer. This action file is a non-cash assets right down of $7.3 million in the fourth quarter of 2019. Fourth, as Terry described we made changes to our remaining salary pension and post retirement benefit plans which resulted in the annualized savings of approximately $2 million and a reduction in the benefit obligation of $10 million as of December 31, 2019. These four actions reflect our clear focus on cost reduction, cash generation and simplification of our business. Moving on to cash and liquidity, our total available liquidity was $230.3 million at the end of 2019; our highest level of availability in over two years and an improvement of approximately $25 million since the end of the third quarter. The increased liquidity was a result of focused scrap, alloy and finished goods inventory reductions, effective management of receivables and payables and additional liquidity provided by our recent credit facility refinance. These working capital improvements enabled us to generate approximately $30 million of positive free cash flow in the fourth quarter. We remain focused on further working capital optimization actions to generate additional free cash flow in the future. Capital expenditures were $16.3 million in the fourth quarter of 2019 resulting in a full year capital spend of $38 million compared with $40 million in 2018. In 2020 our CapEx spending is projected to be approximately $30 million including $5 million to substantially complete the value added components facility expansion. From a pension and post retirement benefit plan perspective we recorded a $36.2 million non-cash loss from the annual re-measurement of the plans as of December 31, 2019. There were measurement loss which is excluded from our adjusted EBITDA was driven by lower discount rates more than offsetting a strong year of asset returns. Our total plan funded status was 86% as of December 31, 2019, an improvement of 83% at the end of 2018, required pension contributions in 2020 or modest totaling approximately $1 million. Moving on to the outlook for the first quarter of 2020, we expect shipments to be approximately 15% higher than the fourth quarter of 2019 with growth across all end markets. Base sales price levels are expected to be lower in comparison with the prior year as a result of general markets and competitive conditions. For the quarter we expect the GAAP net loss between $12 million and $22 million and EBITDA in the range of break-even to positive $10 million. To wrap-up 2019 was a challenging year from end market demand perspective and our profitability suffered. During the year we took initial steps to improve our cost structure and capital efficiency with further optimization actions planned. We are making progress to transform the company every day we look forward to continued improvement in the future. Jodi we'd now like to open up the call for questions.

Thank you. [Operator Instructions] Our first question comes from a line of Martin Englert of Jeffries. Please go ahead. Your line is open.

Hi good morning everyone.

Morning.

Morning Martin.

Can you discuss what happened with the annual contract pricing across some of your businesses here? I know you commented you expected declines but any more color context you could discuss across the business units?

Tom you want to take that one?

Yes and good morning. This is Tom Moline. A comprehensive look at base pricing is difficult because it is so heavily influenced by -- but I can't -- sorry it's difficult to offer specifics on steel based pricing other than it was most definitely pressured as a result of excess domestic supply and continued import competition and it was pressured across all markets that we participate in.

Okay. Any kind of sense for a modeling purpose what we should be thinking about versus where things were averaging? I understand that mix is going to push things around a bit but should we be thinking down like $5 a ton across the businesses or $10 a ton versus we're at average ton base is in 2019?

Martin it's Kris. It's higher than 5 to 10 but lower than say 50. So it's in that range but it's modest but impactful.

Okay. That's helpful. I appreciate it and then beyond the seasonal improvement that you're seeing in 1Q activity and that you're guiding to, are you seeing any underlying growth within any specific end markets versus a year ago in 1Q, ‘20 versus 1Q, ‘19?

Not specifically to growth. In fact most of the markets that we are participating in are forecasted to be flat to slightly weak but we seem to be gaining share in all markets to offset some of that market weakness.

Okay. Understood. And I understand that company is undergoing a lot of changes and raining in the capital spending and trying to generate cash but have you explored or discussed expanding the product offer and speak you in tubular a number of years ago. You started doing some increased external billet sales but if you thought about merchants bar or rebar to better leverage your fixed costs and improve the utilization on the mill?

Martin this is Terry. So we are evaluating our whole product portfolio right now. I think we talked about our value add business expanding and the efforts that we put forward there and investments were making to drive up the value chain if you will and we are currently one of our work streams is evaluating our product portfolio right now. So nothing to report but certainly an area of thought and consideration.

Okay. I appreciate all the color and good luck.

Thank you.

Thank you.

Our next question comes from a line of Seth Rosenfeld of Exane BMP. Please go ahead, your line is open.

Good morning. Thanks for taking the questions. I appreciate that and implementation but you can say with regard to the contract negotiations and return contracts to come through but with regards to the auto wins you commented achieving last year I think you said [indiscernible] by second half 2020 and then again some additional easy applications in the coming one to three years, especially with the contracts starting to kick-in second half of this year, can you give us any sense of scale with regard to either volume or value you should attribute to these contracts on the horizon? I'll stop there. Thank you.

I can offer something specifically with the new program business that we have been awarded in our mobile on highway value add business segment. The magnitude of that for 2020 as we've reported in the past will be in the range of 30 million to 35 million on the top line.

Thank you. Do you think color margin perspective compared to other products can you give a sense of how that would compare higher or lower versus base load?

A bit higher than base load.

Okay. Thank you. And then lastly when it comes to balance sheet please obviously you've made some good success with extending your liquidity profile. Can you give us any more sense with regards to additional flexibility around your balance sheet. Liquidity of course quite good but leverage is still elevated given where current profitability stands. How comfortable is a management team with that and what else can be done to evade any remaining risks? Thank you.

Sure. I'll take that one. This is Kris. The ABL definitely helped us from a liquidity perspective. We continue to make progress from a working capital as well generating free cash flow from that. The one maturity we do have coming in about a year and a half is the convertible debt for $86 million. Similar to what I mentioned last quarter we continue to monitor the markets closely there and believe that there are options to refinance that opportunity in advance or at the maturity date. So we're comfortable where we're at today. You can never have too much liquidity. So we will always look for opportunities but we're comfortable where we're at.

Okay. Thank you very much.

Our next question comes from the line of Justin Bergner of G. Research. Please go ahead. Your line is open.

Good morning everyone.

Good morning Justin.

I apologize my voice is a little scrappy just a handful of clarifying questions, the 30 million or 35 million of auto revenue from these new contract awards in 2020, I mean is that on an annualized basis or is that only partially, I guess benefiting 2020 and larger annual basis?

Yes. That is just the impact in 2020. On an annualized basis it'll be in the range of 85 million to 95 million.

Okay. Great. And any sort of perspective on the awards coming due in 2021, 2023 or would you rather share that a later point?

There are still two too early at this point to share any specific. So we'll provide that guidance in future calls.

Okay. Got it. In terms of the cost savings program, I mean I’ve realized that you're driving productivity every year but is the program outlined last year effectively done or are there other areas to sort of drive at and in terms of ‘70 versus the ‘60 what was sort of the incremental activity or activities drove the higher number that we're looking at now?

Yes. So the cost reduction actions are definitely not done. They are ongoing. Many of the actions we put in place in ‘19 were done throughout the year. So we'll have an ongoing benefits into the future in an incremental piece that's part of that incremental 30 million for 2020. The manufacturing continuous improvements always been part of our DNA and that will continue where we expanded as in other areas and in selling general administrative costs and other corporate functions. So if you look at the bigger piece the increase from 60 to 70 the main driver there is the incremental restructuring that we did in December as well as the announced closure the facility in Texas. Those two things drove our ability to raise that range as we got into 2020.

Okay. Got it and then in terms of the performance at the high end of your expectations in 4Q was that mainly driven by the cost side of things coming in 40 million of savings versus a 35, you've been sort of tracking a quarter ago?

That's exactly right. Yes. It was lower cost and it's not just reductions there but it’s also careful management that where we're spending in the operations. So all of that was the drivers for the improved performance. You can see it with a 35% utilization rate not getting a lot of great fixed cost leverage but manufacturing was actually favorable quarter-over-quarter if you look at the charts, the appendix of the earnings release.

Okay. Understood. Maybe one or two more. I guess sell the scrap processing facility it didn't mention the press release the impact on EBITDA is that because the impact on EBITDA is pretty negligible?

That's right. It was a profitable business but just very small.

Okay. Understood. And the severance charges that were recorded I guess and adjusted back in 2019 have those all been paid or is there a cash impact that remains in 2020?

There is a cash impact for the actions taken in the fourth quarter. It's about $5 million and that will be paid in the first quarter of 2020.

So that would be on top of the 5 million in restructuring cash charges associated with I guess book charges.

Same number. Yes that's what I'm talking about. Yes the restructuring that I mentioned on the call the cash costs associated with that is exactly the same as I just spoke up. So it's a total of five that will be paid in Q1 related to those actions in the fourth quarter.

But in terms of the executive severance and transition cost if those all been paid out or this part of that?

I am sorry. I missed the executive part of your question. My apologies. That's been paid.

Okay. Thank you and then lastly just to clarify, well I guess maybe two more, the pension you mentioned there was a $36 million re-measurement impact in 2019 that will be seen when I guess more detail on the 10-K comes out.

That's right. And we typically have large mark to market adjustments at the end of each year with the discount rate it came down close to 90 basis points when we ran our valuation that drove all of that loss and then it was offset by a 15% return on our assets realized in 2019.

Okay. And then just lastly big picture just a little more detail on the Dayton investment at any sort of new business opportunities that are material in terms of driving volume in the coming year or two? I know a couple quarters ago there was some discussion of the defense and market but anything you can share there?

Yes. Just a couple of things. Obviously we've talked a little bit about our putting more focus on the battery electric vehicles and hybrid vehicles which historically has not been an area that we've put a lot of attention on but with the shift to that technology we're moving very quickly to get engaged with those programs as they begin to launch in 2021, ‘22 and ‘23. So a heavy focus there. Those components look different than what we're accustomed to and traditional combustion, transmissions and engines. So heavy focus there. We've talked a little bit about the defense application side of things and the defense market is rather robust, one of the stronger of the industrial market sub-segments and our focus is absolutely in that area as well and a number of different applications from missiles, missile bodies, fuse components, large bombs, general munitions and projectiles and not just in the supply of SPQ products and seamless mechanical tube products but venturing further down the supply chain for those types of applications as well to get into more of the machining aspects. So those are our primary focuses at the moment.

And our next question comes from a line of Tyler Kenyon of Cowen. Please go ahead. Your line is open.

Hey good morning.

Morning Tyler.

Question is just on how we should be thinking about raw material spreads heading into 2020? I mean clearly a big headwind in 2019, I think nearly $50 million or so but if you were to take current scrap and alloy prices hold those constant and of course giving some deference to kind of the stronger leg on your cost versus surcharging how should we think about any tailwind or headwind for the year and moving into the first quarter?

Well, unpredictable as you know but certainly seeing the uptick over the last three months has been a good thing. It's always better when raw material prices are moving up versus down especially at the amplitude of the drop we saw in 2019. So from what we're gathering from all of our sources and the market is that scrap is leveling off at this point. I think the little dip we saw here recently was I'd call it probably unexpected. So I think it's moving in an upward trend but sort of again leveling off I think it's the best way to think about it. On the alloy side which matters it's been pretty stable on many fronts. Nickel certainly has dropped significantly along with a lot of other LME traded materials. So I'm predicting that is pretty tough because it moves, there's a lot of other drivers other than demand that move that materials trade on the LMA of course. So I think everything else seems like it's going to be a pretty level if you will and as I mentioned on the scrap hopefully continuing to move up but unpredictable as you know.

Sure. Would you expect a headwind or tailwind in the first quarter relative to the fourth?

Well, when it's on its way up it's always good and so I think that's what we're thinking and we don't try to make money on raw materials. We just try to make sure we have good alignment between our raw material buys and our surcharges to our customer but given the scrap in particular the precipitous drop in ‘19 month after month after month. That's certainly a very much of a headwind. So even if it's flat it's better.

A pretty rough year makes it a little bit easier. So yes that's I think Terry's depicted it properly.

Does that help Tyler?

Okay. Sure. And with respect to additional productivity benefits yet to be realized how should we be thinking about the build to that $70 million or so annual run rate as we progress through the year and what's embedded in your first quarter guidance?

Can you repeat that again? Sorry Tyler I missed that.

Sure. So just on the productivity benefits you have yet to realize just curious as to how you're thinking about the build up to that $70 million annualized run rate kind of as we projected this year and also curious as to what level, what annualized run rate you are assuming in your first quarter guide?

Yes. So I mean it's going to benefit us quickly. All those restructuring actions have been taken through the fourth quarter that were utilized and developing that incremental amount of savings. So we have a significant amount of the actions already behind us. Obviously continue to work on others but it should be fairly even throughout the year. We quickly and efficiently close down the facility in Houston. So those savings are quickly starting here as we wrap up the first quarter as well. So pretty even is how I would depict that into 2020.

Thank you.

You are welcome.

[Operator Instructions] Our next question comes from a line of Michael Leshock of KeyBanc Capital Markets. Please go ahead. Your line is open.

Hey good morning.

Good morning Michael.

So first you noted working capital focus as you are driving free cash flow. I'm just wondering how comfortable are you with current inventory positioning and how are you thinking about inventory going forward?

We have plenty of opportunity Michael. We've made a lot of progress and we have plenty of opportunity. We're working on every, every line item of working capital that we have and there's plenty of opportunity for improvement in 2020.

Got it. And then on the sequential decline in mobile shipments was that due entirely to the GM strike? Just wondering if you could provide any magnitude there and do you expect that those shipments will be pushed into 2020?

Yes. If I could the mobile on highway market as Kris alluded to was down in the quarter as a result of the strike at General Motors and a supply chain disruption that was caused by that strike as well as general seasonality across the balance of the automakers. Now our volumes were down 12% relative to the last quarter and more than half of that was a result of the strike and the balance attributed to seasonality along with a couple of one-off inventory adjustments and we have seen some very modest strike recovery pull in recent schedules through the supply chain which is a signal or a sign of an attempt to recover some of the lost production from last year. As we look at the whole market I mean vehicle sales for ‘19 were robust at 17 million units and light vehicle inventory decreases in ‘19 has the industry very well positioned for an overall healthy balance between sales and production going forward. The 2020 sales forecast is 16.8 million units which is 1% down but the production forecast is 16.5 million units which is up 1%. Now mixes is key to our participation in the auto markets. Passenger car sales continue to decline at roughly or approximately 30% of total sales but our participation is largely in truck, SUV and CUVs. So our exposure to that declining passenger car market is modest. So from our perspective the auto market is in good shape and our Q1 volumes will recover significantly relative to Q4 and likely exceed the type of levels that we saw in Q3 of 2019.

Okay. And then just lastly for me on CapEx. It looks like you're closer to your historical maintenance levels now. I'm just wondering what you're taking out of the CapEx budget relative to prior years?

It's not necessarily taking out a lot of the big investments are behind us that we've made over a four or five year stretch. So now the focus is on different areas. It's maintaining the assets like we always have in great condition. We're going to continue to do that. That's part of our budget for 2020 and in the spending the estimates there and we do have some spending still for the expansion and the facility down near Dayton Ohio. So that's really the focus. Not a lot of major investment required to achieve our objectives here in 2020.

Got it. Thanks.

There are no further questions in the queue. I will turn the call back over to Jennifer Beeman.

Thank you. Terry would you like to conclude?

Sure. We truly appreciate your interest in TimkenSteel. We are committed to driving the financial and structural improvements in our business that will benefit our customers and shareholders and doing it with safety as our highest priority. Thank you and I look forward to updating you on our progress next quarter.

Thanks everyone and that concludes our call for today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.