Cuộc họp công bố kết quả kinh doanh quý 3/2026 của Metallus (MTUS): Tăng trưởng mảng quốc phòng và triển vọng năm 2026

Metallus, Inc. (NYSE: MTUS) đã báo cáo doanh thu và EBITDA điều chỉnh quý 3 năm 2026 tăng cao hơn, nhờ kết quả kỷ lục ở mảng hàng không vũ trụ và quốc phòng, giá bán cải thiện cùng cơ cấu sản phẩm thuận lợi. Ban lãnh đạo dự báo áp lực mùa vụ trong quý 4 nhưng kỳ vọng tiếp tục tăng trưởng có lợi nhuận trong năm 2027.

Các điểm chính

• Doanh số thuần quý 3 tăng 10% so với cùng kỳ năm ngoái lên 337 triệu USD, trong khi EBITDA điều chỉnh tăng 19% so với cả quý trước và cùng kỳ năm ngoái lên 34,5 triệu USD.
• Sản lượng giao hàng mảng hàng không vũ trụ và quốc phòng đạt gần 22.000 tấn, tăng 34% so với cùng kỳ năm ngoái và tăng 10% so với quý trước. Mảng này chiếm 13% khối lượng giao hàng nhưng đóng góp 20% doanh số.
• Metallus đã đạt mục tiêu doanh số quy năm 250 triệu USD cho mảng hàng không vũ trụ và quốc phòng. Hợp đồng mới với Cơ quan Logistics Quốc phòng (DLA) bao gồm đơn hàng ban đầu khoảng 125 triệu USD và mức trần lên tới 995 triệu USD trong 5 năm.
• Ban lãnh đạo dự kiến sản lượng giao hàng quý 4 sẽ giảm ở mức từ 7-9% so với quý trước do yếu tố mùa vụ, nhưng vẫn cao hơn so với cùng kỳ năm ngoái.
• EBITDA điều chỉnh cả năm 2026 dự kiến đạt từ 100 triệu USD đến 105 triệu USD. EBITDA điều chỉnh quý 4 được dự báo sẽ giảm so với quý trước nhưng vượt cùng kỳ năm ngoái.
• Metallus kết thúc quý 3 với 98,6 triệu USD tiền mặt, tổng thanh khoản 389 triệu USD và không có khoản vay nợ dư nợ.

Dữ liệu tài chính chính

Metallus đã mua lại khoảng 190.000 cổ phiếu với giá 3,6 triệu USD trong quý. Hạn mức mua lại còn lại là 78,2 triệu USD. Kể từ đầu năm 2022, việc mua lại cổ phiếu và trái phiếu chuyển đổi đã làm giảm 26% số lượng cổ phiếu pha loãng đang lưu hành, tương đương 14,2 triệu cổ phiếu.

Kết quả kinh doanh và hoạt động

Hàng không vũ trụ và quốc phòng

Mảng hàng không vũ trụ và quốc phòng dẫn đầu đà tăng trưởng trong quý 3. Doanh số thuần trong thị trường này tăng 41% so với cùng kỳ năm ngoái, và cơ cấu sản phẩm có giá trị cao hơn đã hỗ trợ lợi nhuận của công ty.

Hợp đồng DLA có đơn hàng giao ban đầu khoảng 125 triệu USD và giá trị tối đa lên tới 995 triệu USD trong thời hạn đặt hàng 5 năm. Metallus dự kiến các đợt giao hàng đầu tiên sẽ bắt đầu vào quý 2/2027 và tăng dần trong phần còn lại của năm 2027 sang năm 2028. Đơn hàng đầu tiên phải được hoàn thành trong vòng hai năm kể từ khi nhận được.

Công ty cũng đã giành được đơn đặt hàng trị giá 10 triệu USD từ một nhà thầu chính mới cung cấp các linh kiện thành phẩm lắp ráp hoàn chỉnh phục vụ chương trình đạn dược. Ban lãnh đạo cho biết đơn hàng DLA mới sẽ giúp doanh số hàng không vũ trụ và quốc phòng duy trì ổn định trên mục tiêu quy năm 250 triệu USD trước đó, mặc dù các đơn hàng DLA trong tương lai không được đảm bảo.

Ô tô, công nghiệp và năng lượng

Sản lượng giao hàng và doanh số ngành ô tô giảm so với quý trước do yếu tố thời điểm và tương đối đi ngang so với cùng kỳ năm ngoái. Ban lãnh đạo đánh giá nhu cầu vẫn ổn định, nhờ lượng đơn đặt hàng chờ xử lý, các chương trình hiện tại và việc giành được các nền tảng mới.

Sản lượng giao hàng mảng công nghiệp giảm 3% so với cả quý trước và cùng kỳ năm ngoái. Ban lãnh đạo cho rằng một phần áp lực giao hàng trong quý 3 là do việc cắt giảm điện tại xưởng nấu kim loại, làm giảm sản lượng nấu khoảng 10.000 tấn. Lượng đặt hàng mảng công nghiệp vẫn cao hơn mức cùng kỳ năm ngoái, với nhu cầu được hỗ trợ bởi các khách hàng thiết bị xây dựng và máy móc chung.

Sản lượng giao hàng mảng năng lượng giảm so với quý trước nhưng tăng so với cùng kỳ năm ngoái. Công ty báo cáo tín hiệu nhu cầu mạnh mẽ về thép thanh và thép ống từ các khách hàng chủ chốt.

Dự báo của ban lãnh đạo

• EBITDA điều chỉnh cả năm 2026 dự kiến đạt từ 100 triệu USD đến 105 triệu USD.
• Sản lượng giao hàng quý 4 dự kiến sẽ giảm ở mức từ 7-9% so với quý 3 chủ yếu do tính mùa vụ thông thường cuối năm, nhưng vẫn cao hơn quý 4/2025.
• Giá và cơ cấu sản phẩm quý 4 dự kiến sẽ thấp hơn một chút so với quý trước, phản ánh cơ cấu sản phẩm thay vì sự thay đổi giá mang tính hệ thống.
• EBITDA điều chỉnh quý 4 dự kiến sẽ thấp hơn so với quý trước nhưng cao hơn so với cùng kỳ năm ngoái.
• Hoạt động bảo trì định kỳ hàng năm dự kiến sẽ làm giảm EBITDA điều chỉnh quý 4 khoảng 10 triệu USD đến 15 triệu USD so với quý 3 do chi phí dừng hoạt động cao hơn, đòn bẩy chi phí cố định thấp hơn và tỷ lệ sử dụng công suất lò nấu thấp hơn.
• Tổng chi phí vốn cả năm dự kiến đạt khoảng 70 triệu USD, bao gồm khoảng 35 triệu USD cho các dự án chủ yếu do Chính phủ Mỹ tài trợ.
• Thuế suất thuế thu nhập doanh nghiệp hiệu chỉnh điều chỉnh dự kiến ở mức 27% đến 30% cho năm 2026.
• Ban lãnh đạo kỳ vọng một năm tăng trưởng có lợi nhuận nữa vào năm 2027, nhờ lượng đơn đặt hàng chờ xử lý mạnh mẽ hơn và các đơn đặt hàng của khách hàng kéo dài sang quý 2/2027.

Metallus đã áp dụng mức tăng giá 60 USD/tấn đối với thép thanh và ống cơ khí không mối nối tôi và ram vào đầu tháng 10 cho các khách hàng nằm ngoài hợp đồng giá hàng năm. Ban lãnh đạo kỳ vọng lợi ích từ việc này sẽ tăng dần trong năm 2027. Công ty tiếp tục hướng tới mục tiêu khoảng 70% đơn đặt hàng sản phẩm dài thuộc các hợp đồng hàng năm.

Rủi ro và các yếu tố cần theo dõi

Tình trạng cắt giảm điện vẫn là một hạn chế đối với hoạt động vận hành. Yếu tố này đã làm giảm 3 điểm phần trăm tỷ lệ sử dụng công suất lò nấu trong quý 3 và ảnh hưởng đến sản lượng giao hàng mảng công nghiệp.

Kết quả quý 4 sẽ đối mặt với sự sụt giảm sản lượng giao hàng theo mùa và tác động tài chính từ việc bảo trì dừng hoạt động hàng năm. Áp lực lạm phát cũng được dự báo sẽ triệt tiêu một phần lợi ích từ việc tăng giá.

Giá theo các hợp đồng hàng năm có thể thấp hơn mức tăng của thị trường giao ngay, và việc ghi nhận doanh thu có thể bị trì hoãn sang cuối quý 1 hoặc đầu quý 2/2027 do lượng đơn hàng tồn đọng hiện tại.

Metallus có đủ công suất để bắt đầu và hoàn thành đơn hàng DLA ban đầu, nhưng vẫn đang đánh giá nhu cầu vốn dài hạn hơn trong khi cân đối hợp đồng đó với các cơ hội tăng trưởng quốc phòng khác. Ban lãnh đạo lưu ý rằng các khoản đầu tư vốn mới có thể mất nhiều năm mới mang lại đóng góp.

Điểm nổi bật trong phiên Hỏi & Đáp với chuyên gia phân tích

Ban lãnh đạo kỳ vọng sự liên tục về mặt chiến lược khi ông Kristopher Westbrooks kế nhiệm ông Michael Williams làm Chủ tịch kiêm CEO vào tháng 1. Các ưu tiên ngắn hạn bao gồm thực hiện lượng đơn hàng hiện có, hoàn thành hợp đồng DLA và hỗ trợ tăng trưởng có lợi nhuận trong năm 2027.

Về hợp đồng DLA, ban lãnh đạo cho biết doanh thu sẽ được ghi nhận tương tự các khoản doanh số hàng không vũ trụ và quốc phòng khác, với việc sản xuất sẽ tăng dần trong năm 2027 và sang năm 2028. Công suất hiện tại đủ để đáp ứng cam kết ban đầu, mặc dù công ty tiếp tục đánh giá các phương án mở rộng.

Ban lãnh đạo cho rằng mức giảm giá dự kiến quý 4 so với quý trước chủ yếu là do cơ cấu sản phẩm, chứ không phải do giá nền tảng suy yếu. Các đợt điều chỉnh giá trước đó vẫn có hiệu lực, trong khi các cuộc đàm phán hợp đồng hàng năm đã hoàn thành khoảng một phần ba.

Toàn văn biên bản cuộc họp báo cáo kết quả kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

Operator

Hello, everyone. Thank you for joining us, and welcome to the 3Q 2026 Metallus, Inc. Earnings Call. [Operator Instructions]

I will now hand the conference over to Jenna Johnson. Please go ahead.

Jenna Johnson

Good morning, and welcome to Metallus' Third Quarter 2026 Conference Call. I'm Jenna Johnson, Senior Manager, Finance and Investor Relations for Metallus. Joining me today are Mike Williams, Chief Executive Officer; Kris Westbrooks, President and Chief Operating Officer; and John Zaranec, Executive Vice President and Chief Financial Officer. You 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. Actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in yesterday's release. Please refer to our SEC filings, including our most recent Form 10-Q, which will be filed later today as well as the risk factors included in our earnings release, all of which are available on the Metallus website. Where non-GAAP financial information is referenced, additional details and reconciliations to its GAAP equivalent are included in the earnings release and the earnings presentation available on the Investor page at metallus.com.

Now I'll turn the call over to Mike Williams for his remarks.

Michael Williams

Thank you, Jenna, and good morning, everyone. Our third quarter results reflect strong execution across the organization. Through a continued focus on operational excellence, commercial discipline and strategic initiatives, we increased profitability both sequentially and year-over-year for the third consecutive quarter. Additionally, we achieved our $250 million annualized aerospace & defense run rate sales target. This milestone was made possible by our dedicated teams working across the organization and expanding partnerships with customers in this market.

During the quarter, we also reached several milestones that support our long-term growth strategy. In August, we commissioned the new strategic manufacturing assets supporting critical defense materials, a significant milestone in our long-term growth strategy. We were honored to host representatives from the U.S. Army, regional economic development organizations, customers and government leaders as we showcased investments that strengthen the domestic munition supply chain and support U.S. national security. In late September, we were awarded a contract by the U.S. Defense Logistics Agency, or DLA, to supply steel for critical defense applications. The contract includes an initial delivery order valued at approximately $125 million and a ceiling of up to $995 million over a 5-year ordering period. The award reflects Metallus' ability to produce specialty steel products that meet the rigorous performance, quality and traceability requirements of critical defense applications. It also highlights our team's metallurgical expertise in partnering with our customers to find critical solutions for their evolving needs. Additionally, we continue to gain traction with new participants in the defense market.

We recently secured a $10 million purchase order from a new prime contractor for finished fully assembled components supporting a growing munitions program. This order is another sign that our capabilities and reputation are helping us provide solutions for new customers. Together, the customer momentum and recently achieved AS9100 certification provides external validation that our focus and investment in aerospace & defense is working. These wins are not isolated events. They reflect the sustained deliberate effort we have made to grow and deepen our presence in this expanding market.

Finally, as previously announced, I plan to retire as Chief Executive Officer at the end of the year. Kris Westbrooks, our President and Chief Operating Officer, will succeed me. This planned transition reflects the Board of Directors' commitment to a well-planned and seamless succession and positions Metallus to build on its established momentum into the future.

With that, I'll turn the call over to Kris to walk through our third quarter highlights and end market performance in more detail.

Kristopher Westbrooks

Thanks, Mike. Good morning, everyone. I'll start with our third quarter highlights, then discuss demand across our end markets and close with our positive outlook for 2027. Third quarter adjusted EBITDA was $34.5 million, increasing 19%, both sequentially and year-over-year. The quarter benefited from a favorable product mix, record aerospace & defense sales and shipments and the continued impact of disciplined pricing actions.

Turning to operations. Melt utilization reached 76% in the third quarter, excluding a 3 percentage point impact of electricity curtailments. Underlying operating performance improved during the third quarter despite the increased weather and grid-related disruptions. We continue to take steps to reduce the operational impact of electricity curtailments and meet growing customer demand. Additionally, our team completed its planned annual shutdown maintenance at the melt shop in October. I'm encouraged by the melt shops performance to date in the fourth quarter following the shutdown maintenance.

Turning to our end markets. As expected, automotive shipments and sales declined sequentially due to timing and were relatively flat year-over-year. Automotive is a core part of our portfolio and demand trends remain steady in this market, supported by a healthy order book. Our existing auto programs, platform wins and customer relationships provide a solid foundation. We remain focused on delivering the performance and partnership our customers expect. Industrial shipments declined slightly at 3% sequentially and year-over-year. Spot price increases implemented throughout 2026 continue to benefit base sales per ton and total sales within the industrial market. Inventory levels in the industrial distribution supply channel remained low, reflecting strong demand and tight supply. A strong trade environment and ongoing supply chain reassessments are resulting in customers increasing their needs from domestic suppliers. This is supported by industrial bookings, which remain elevated compared with a year ago and positions Metallus to capture additional industrial opportunities.

Leading our third quarter end market performance was aerospace & defense, or A&D for short. A&D shipments reached nearly 22,000 tons in the quarter, up 34% year-over-year and 10% sequentially. Net sales increased 41% year-over-year in the A&D market. And as Mike mentioned, we achieved our $250 million annualized sales run rate target. Our continued progress in end market diversification is also improving profitability. While aerospace & defense accounted for 13% of total shipment volume, the A&D sales contribution was much larger at 20% of sales in the quarter. This underscores how higher-value A&D product offerings strengthen product mix and profitability.

In Energy, shipments declined sequentially but increased year-over-year. The U.S. rig count is up approximately 10% from a year ago. We are seeing strong bar and tube demand signals from key customers. Energy remains a strategic market for Metallus. And although energy shipments represent a smaller proportion of overall shipments, we see continued opportunities for growth in this sector.

Finally, let me briefly update you on our 2027 outlook at a high level. Market conditions remain favorable, and our order book has grown both sequentially and year-over-year. These conditions provide solid visibility with customer orders booking into the second quarter at this time. The strong market demand, combined with our strategic advancements and continued operational execution, reinforces our confidence in another year of anticipated profitable growth as we plan for 2027.

With that, I'll turn the call over to John Zaranec to walk through the financial highlights of the quarter.

John Zaranec

Thank you, Kris. During the third quarter, our team delivered improvements in profitability on both a sequential and year-over-year basis for the third consecutive quarter, consistent with our guidance. We also continued to diversify sales across our markets, expanding our margin through favorable mix. From a top line revenue perspective, third quarter net sales totaled $337 million, a year-over-year increase of $31.3 million or 10%, primarily driven by higher shipments in aerospace & defense and energy markets. Net income was $23.8 million in the third quarter or $0.55 per diluted share. On an adjusted basis, net income was $14.9 million or $0.35 per diluted share. Adjusted EBITDA was $34.5 million in the third quarter, both a sequential and year-over-year increase of $5.5 million or 19%. The increased sequential profitability was primarily driven by improved base prices and mix, partially offset by planned shutdown maintenance timing, higher operating costs to support demand and an increase in electricity curtailments, as Kris previously discussed.

In the third quarter, we generated $6.8 million of operating cash flow, reflecting solid profitability, partially offset by investments in inventory to support the continued ramp-up of our business and our annual insurance premium payment in July. In the third quarter, capital expenditures totaled $13.1 million, including approximately $4.9 million related to the projects primarily funded by the U.S. government. Consistent with our previous communications, planned capital expenditures for the full year are expected to be approximately $70 million, inclusive of approximately $35 million of capital expenditures primarily funded by the U.S. government. At the end of the third quarter, the company's cash and cash equivalents balance was $98.6 million.

As it relates to government projects, during the third quarter, as Mike noted, the company celebrated the commissioning of new assets supporting critical defense materials, and we further strengthened our long-term growth outlook with a new commercial DLA award, including an initial $125 million purchase order and a contract value of up to $995 million over the next five years. We are currently establishing the production and shipment schedule for the initial DLA order as well as assessing any longer-term capital requirements. The first order must be fulfilled within two years of receipt, and we anticipate shipments to commence in the second quarter of 2027 and ramp further throughout the remainder of next year.

Now switching to pensions. In the third quarter, the company made no required pension contributions related to the U.S. bargaining plan, consistent with our guidance. Based on our updated actuarial analysis, no additional pension contributions are expected for the remainder of 2026. As a reminder, our 2026 pension contributions represent a reduction of over 60% when compared to 2025.

In terms of shareholder return activities, in the third quarter, the company repurchased approximately 190,000 shares of common stock at a cost of $3.6 million. At the end of September, a balance of $78.2 million remained under our existing share repurchase program. Since the inception of common share repurchases in early 2022, combined with the convertible note repurchase activities, we've reduced diluted shares outstanding by a significant 26% or 14.2 million shares. 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 remained strong at $389 million as of September 30, 2026. At the end of the third quarter, the company had no outstanding borrowings.

Turning to the near-term outlook. Commercially, fourth quarter shipments are expected to be lower than the third quarter by a high single-digit percentage, primarily due to normal year-end seasonality. However, shipments are expected to be higher when compared to the prior year fourth quarter. Lead times for bar and tube products currently extend into the second quarter of 2027. Based on lead times and anticipated product mix, fourth quarter price and mix are expected to be slightly lower than in the third quarter.

The company recently announced price increases of $60 per ton on both bar and quench and temper seamless mechanical tubing, effective early October for customers not covered by annual pricing agreements. Based on lead times and order backlog, the company expects to realize the benefit of these price increases ramping throughout 2027. We are also in the middle of our annual customer contract season. And while we expect pricing expansion when compared to last year's annual contracts, historically, the annual contract prices are lower than the spot price market increases. We will share more on the pricing impact on 2027 anticipated results during our year-end call in February.

From an operational perspective, annual shutdown maintenance in the fourth quarter is expected to unfavorably impact adjusted EBITDA by approximately $10 million to $15 million compared to the third quarter, reflecting incrementally higher shutdown costs, lower fixed cost leverage and lower melt utilization, consistent with prior year timing. And finally, an adjusted effective income tax rate between 27% and 30% is expected for the full year 2026. Given these elements, the company expects fourth quarter 2026 adjusted EBITDA to be lower sequentially but higher than the prior year fourth quarter. We expect full year adjusted EBITDA for 2026 to be between $100 million to $105 million.

Before we conclude today's prepared remarks, I would like to turn the call back over to Mike for some closing comments.

Michael Williams

Thank you, John. This is my final earnings call as CEO of Metallus. I'd like to take a moment to reflect on the company's progress over the past six years. Metallus is a stronger company today based on a strong foundation of metallurgical expertise and world-class specialty solutions. We have improved operational performance, strengthened our commercial discipline and invested in capabilities that differentiate us in specialty metals. We've expanded in aerospace & defense while continuing to serve our automotive, industrial and energy customers. We've also deepened customer and stakeholder relationships.

Together, we have strengthened our financial position, supported by a solid balance sheet and nearly $400 million in liquidity. Additionally, our share repurchase program has meaningfully reduced our share count. These achievements reflect years of disciplined financial decisions, a balanced approach to capital allocation and consistent execution.

Serving as CEO has been a privilege. I'm grateful to our employees, customers, suppliers, shareholders and Board of Directors for their trust and partnership throughout these years and for the opportunity to help shape Metallus' future. This is my final earnings call as CEO. I leave knowing the company is well positioned for its next chapter. Kris Westbrooks will become President and CEO in January. As we prepare for that transition, Metallus is building on this foundation and we'll continue to pursue opportunities ahead to drive profitable growth for all stakeholders. I also want to express my complete confidence in Kris as he prepares to assume his new role. He is a proven leader who understands our business, our customers, our strategy and most importantly, our culture. Our priorities remain clear: operate safely, serve our customers reliably, execute our strategic initiatives and create sustainable long-term value for our shareholders. Thank you for your continued confidence in Metallus and for the opportunity to serve as the CEO. I look forward to watching the company's continued success in the years ahead.

With that, Kris and John will handle your questions this morning. Operator, can you please open up the line for questions?

Operator

[Operator Instructions] Your first question from the line of Aaron Reed with Northcoast Research.

Phần hỏi đáp

Aaron Reed

I just want to congratulate you on the quarter and then congratulate Mike on your retirement. One of the first questions I have is, with the retirement, should we expect any strategic shifts once Westbrooks takes over at year-end? Or do we expect a fairly stable continuation here going forward? How should we think about that?

Kristopher Westbrooks

Aaron, this is Kris. Thanks for the question. One of the purposes of the succession planning process is to have that consistency and strategy we've been working together over the past few years to develop that to roll that out. And we're sitting here today with a really strong order book, a new order from the Defense Logistics Agency that we're going to deliver on, and that's going to be our focus in the near term. deliver on that order book, drive a stronger 2027. And as we advance the company, obviously, our strategy will continue to evolve. We want to drive the company's growth profitably, and you'll hear more about that in the future.

Aaron Reed

Very exciting. And for my follow-up question here, I just wanted to touch on the A&D space. So now that you've hit the $250 million run rate, what's the next target? Or another way, how quickly do you expect further DLA orders beyond the initial $125 million?

Kristopher Westbrooks

So we're working through the timing right now with that initial DLA order. It's a significant one. As we noted, we can't begin to ship on that until the second quarter. So we're in the process of scheduling that out. We have two years to deliver on that commitment. We're optimistic that there will be future orders, but there's no guarantees for that. So safe to say with that new order, that's going to put us north of the $250 million target consistently. And we're going to continue to monitor that as we schedule out the DLA and continue to drive additional new orders into our book, we'll revisit that target.

Operator

Your next question from the line of Dave Storms with Stonegate.

David Storms

Mike, congrats on your retirement here. Kris, I know last year around this time, we were discussing targeting approximately 70% of your long-term products under annual agreements heading into the new year. Is that still the target going into 2027? And just maybe any further thoughts on commitments, how those negotiations are going, anything of that nature?

Kristopher Westbrooks

Sure. Thanks, Dave. You're accurate. We're still targeting about 70% of our long product orders to be on annual contract. We're about 1/3 of the way through those negotiations right now. So still a lot of work to be done. It's premature for us to comment on the size of the average price increase given those negotiations, but we are optimistic we'll realize base price increases as we move into 2027. There are a few other factors, though, we should all keep in mind. It's a competitive process. So that's something that we're working through with our customers confidentially with them.

Similar to a few years ago, sometimes there's also a lag in price realization. We do have a backlog right now. We're working through in a long order book. So you may see that price realization not occur immediately in January, but trend a little bit later into Q1 and even early Q2. And then lastly, there still are some inflationary pressures out there that we expect to be impacting our financial results, and that will partially offset some of those price increases. But overall, we're encouraged by the work that's been done to date. And we do expect a net positive benefit from pricing to flow through the bottom line, and we'll provide additional information as we complete those negotiations and have our call in February.

David Storms

Understood. That's great color. I appreciate that. And then maybe just as a follow-up, I know I believe it was John's prepared remarks that you're still assessing new assets needed, capital requirements for the DLA project. With this initial order, maybe can you give us a sense of what your expectations were going into it? Do you think you have the capacity to fill this order and then maybe new assets would come with any follow-on orders? Or is there a different way we should be thinking about this?

Kristopher Westbrooks

We're currently working through that right now. We have capacity to start the order and deliver on our near-term commitments and ultimately fulfill it. It's just how do you balance that with our growth opportunities in other spaces within the defense area. So we're working through that right now. Even if we were to put in capital, you're a couple of years out from seeing the benefit of that. So our focus is on delivering that order with existing capacity and continuing to look for opportunities as it makes sense to grow the overall portfolio.

Operator

[Operator Instructions] Your next question from the line of Samuel McKinney with KeyBanc Capital Markets.

Samuel McKinney

Congrats to Mike on the retirement. It's been great working with you the last few years.

Michael Williams

Thanks, Sam.

Samuel McKinney

In the industrial end market, it was made clear on the last earnings call that the backlog had nearly doubled year-over-year with strength in equipment and providing you strong visibility into second half shipments. With the third quarter shipments down versus the second quarter, I think it would be helpful if you could provide some more detail on that decline, whether it was prioritizing other end markets or simply demand that didn't come to fruition from some of those major industrial customers? Anything there would be helpful.

Kristopher Westbrooks

Thanks, Sam. Yes, that's a good point. Yes, we're still seeing solid demand from the industrial markets. The order book is up slightly, still at a solid level. We're seeing good demand from a construction equipment perspective as well as general machinery.

What we did impact -- have impacted in Q3 was around the melt shop curtailments. That was a few percentage points of utilization, equivalent to about 10,000 tons of melt production, and that had to be distributed amongst our order book, and we felt some of the impact in the industrial markets in the third quarter impacting those shipments. We still have good visibility into the future, and we're optimistic about where those markets, specifically industrial is going as we move forward, but you did see the lower shipments in Q3 as a result of that downtime.

Samuel McKinney

Okay. And then just given the strength of the overall steel market and continued price increases for you guys flowing into the order book, can you elaborate just a bit more on your expectation for fourth quarter pricing to decline sequentially? I assume it's a mix thing as you shift more focus to the base end markets like auto and industrial. But any more color would be helpful as we think through the end of the year.

Kristopher Westbrooks

That's exactly right, Sam. It's more of a mix element that we're experiencing in fourth quarter. There's no systemic changes in pricing. We're still seeing the benefits of what we implemented earlier this year as we head into 2027 as well. It's just the mix of products that our customers need in the fourth quarter that's going to drive, we believe, that base pricing to be down some.

Operator

Your next question from the line of John Franzreb with Sidoti & Company.

John Franzreb

Again, congratulations to Mike. Just on the DLA contract, I'm kind of curious about the timing of the flow-through of the revenue. How should we be thinking about that over the next year or two years? How does that timing kind of play out on the top line?

Kristopher Westbrooks

We expect it to ramp throughout 2027 into 2028. The order came in, in late Q3 2026. We have two years to supply that. Obviously, we want to fulfill that order efficiently as quickly as we can, but we also have other customer orders to balance. And our goal is to balance all of those while still supporting the DLA with their initial order. So we do expect it to ramp throughout the year, and it's going to hit the top line just like a regular sale into the aerospace & defense market.

John Franzreb

Okay. Kris. So it's not going to kind of -- you can use some downtime maybe and use that as an opportunity to maybe balance the shipments, nothing like that's going to happen.

Kristopher Westbrooks

With the current order book, I don't see that. And maybe in a weaker market, you would take a different approach. We're going to obviously make it as efficiently as we can. So if there's an opportunity to have a longer run of this product to drive efficiency and increase yield in our shop, then we're going to do that, and that will benefit everyone.

John Franzreb

Got it. And just maybe if you could provide a little bit more color what you're seeing in the automotive market. It was down sequentially, normally, third quarter is relatively strong in the auto sector. You just said that you expect it to be down a little bit in Q4. What are you anticipating in the coming quarters in the auto side?

Kristopher Westbrooks

It's been pretty steady. If you look at Q2 was a strong auto shipment quarter, which really drove some of the decline that you saw in Q3. And if you were to normalize for all of that, I think you look at our auto shipments as being up year-over-year, but fairly steady as we head into 2028. 2027, you'll see some programs beginning to drop off, and we're quoting new opportunities and it may even be in a different market like industrial, for example. So we're still well positioned there. It's an important part of our mix. I think we finished in the high 30% on a percent of sales for the quarter in automotive, which is about what we're targeting.

Operator

There are no further questions at this time. I will now turn the call back to Jenna for closing remarks.

Jenna Johnson

Thank you for joining us today, and that concludes our call.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.