Q1 2020 Earnings Call
Hello, and welcome everyone to the first quarter fiscal 2020 earnings call for commercial metals company.
Today's call is being recorded.
After the company's remarks, we will have a question answer session and we'll have a few instructions at that time.
I would like to remind all participants that during the course of this conference call. The company will make statements that provide information other than historical information and will include expectations regarding economic conditions effects of legislation U.S. steel import levels U.S. construction activity demand for finished steel products.
The company's future operations, the company's future results of operations the ability to realize the anticipated benefits of our investment in our new micromill into rant, Oklahoma and capital spending these and other similar statements are considered forward looking and may involve speculation and are subject to risks and uncertainties.
That could cause actual results to differ materially from these expectations.
These statements reflect the company's beliefs based on current conditions are subject to certain risks and uncertainties, including those that are described in the risk factor section of the company's latest annual report on Form 10-K .
Although these statements are based on management's current expectations and beliefs CMC offers no assurance that these expectations or beliefs will prove to have been correct and actual results may vary materially.
All statements are made only as of the state except as required by law CMC does not assume any obligation to update amend or clarify these statements in connection with future events changes in assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise.
Some numbers presented will be non-GAAP financial measures and reconciliations for such numbers can be found in the companys earnings release or on the company's website.
Unless stated otherwise all references made to year or quarter and or references to the company's fiscal year or fiscal quarter.
And now for opening remarks in introductions I will turn the call over to the chairman of the Board President and Chief Executive Officer of commercial Metals Company Ms. Barbara Smith. Please go ahead.
Thank you Andrew Good morning, Thank you for joining the call to review Cmcs results for the first quarter of fiscal 2020 like to start by wishing everyone. A happy new year as we roll the calendar forward to a new decades.
I'll begin the call with highlights for the first quarter. Paul Lawrence will then cover the quarterly financial information in more detail and I will conclude our prepared remarks with a discussion of our outlook for the second quarter fiscal 2020 after which we will open the call to question.
As announced in our earnings release. This morning, we reported fiscal first quarter 2020 earnings from continuing operations of 82.8 million or 69 cents per diluted share on net sales of 1.4 billion.
Excluding the impact of certain facility closure costs, our adjusted earnings from continuing operations were 87.8 million or 73 cents per diluted share.
I'm very proud of the CMC teams first quarter performance.
Our deliberate actions in a supportive market environment, we generated the highest quarterly core EBITDA in over a decade.
These results are the best we've ever achieved with our strategically repositioned portfolio of manufacturing focused operations.
This quarter is certainly one in which we can see the full fruits of a sound strategy and our employees ability to execute.
While the CMC team should be proud of these results.
There's still further to go and more opportunity ahead.
It's worth reviewing some of the highlights in key accomplishments this quarter.
Our fabrication segment was a strong contributor to earnings.
Solid bottom line results should continue over the next several quarters.
Our mills continue their work to enhance product mix capabilities.
Domestic mill shipments of merchant bar Spooled rebar in high value rebar increased by 14% over last year's first quarter.
The addition of the new mill capacity gives us the flexibilities to strategically redirect some production toward higher value products.
We continued our mill network optimization efforts, most recently through the closure of the Rancho Cucamonga melt shop.
The decision driven by the high energy and compliance costs of manufacturing in California.
This move will lower the cost of finished rebar out of Rancho while supporting utilization rates at our other CMC mills.
Strong financial results require satisfied customers.
And we maintained our industry, leading customer service ranking in the most recent Jacobson survey.
Solid earnings and good working capital management allowed us to further strengthen our balance sheet.
We reduced total debt by 51.5 million during the quarter, bringing gross debt to little over two times trailing 12 month core EBITDA.
This is in line with investment grade issuers and better than the metals and mining sector average of 2.5 times.
As a result of everything I previously mentioned CMC has generated a core annualized ROE I see of nearly 15% over the last three quarters.
They return well above our cost of capital that we believe provides attractive returns to our stakeholders.
Finally, as I noted in our press release as noted in our press release the board of directors declared a quarterly cash dividend of 12 cents per share of CMC common stock for Soc to stockholders of record on January 15th 2020 .
The dividend will be paid on January Thirtyth 2020.
This represents CMC is 220 onest consecutive quarterly dividend.
Turning to the market outlook, we are positioned to continue benefiting from the positive trends in our core markets and remain optimistic about the construction markets has many of the macro indicators, we monitor 0.2 resilience ahead.
Let me now cover some of them.
U.S. construction spending continues to grow year over year led by public projects in particular, we're seeing strength in state and local highway spending.
The architectural billings index, a leading indicator for construction expansion remains supportive of future growth.
The south and West region show, the highest reading readings, both core markets for CMC.
U.S. unemployment rates in interest rates remain historically low contributing positive sentiment within our markets.
And giving customers confidence to make investment decisions.
Finally, our own bidding activity remains strong offerings courage meant that the pipeline of work is solid.
I would further add that our fabrication backlog sits at a healthy volume and pricing levels.
Average price per ton in our backlog is up nearly $100 from one year ago, and we expect it to be profitable wind ships given current rebar prices.
Turning to the markets we serve in Europe .
The Polish economy remains among the fastest growing in Europe with GDP expansion of 4.1% in the most recent quarter.
Yes outlook for calendar 2020 called for continued growth of 3.5% to 4.5%.
Similar to the U.S. Poland's unemployment rate is at historic lows.
Construction activity is healthy with committed you funding in place to support infrastructure investments through 2020 , three which we expect to benefit rebar demand.
Over the outlook for nearby industrial markets, such as German manufacturing is less robust, which will negatively impact exports of wire rod and merchant products.
With that as an overview I'll now turn the discussion over to Paul Lawrence Vice President and Chief financial officers to provide some more comments on the results for the quarter.
Thank you Barbara and good morning to everyone joining us on the call.
As Barbara mentioned for the first quarter, we reported earnings from continuing operations of 82.8 million or 69 cents per diluted share compared to earnings from continuing operations of 19.4 million or 16 cents per diluted share in the first quarter of 2019.
First quarter 2020 results include after tax costs of 5.0 million related to the closure of the Rancho Cucamonga, California melting operations.
Putting these costs adjusted earnings from continuing operations for 87.8 million or 73 cents per diluted share.
Our core EBITDA from continuing operations was 174.4 million for the first quarter of 2020, an increase of 78% compared to the 97.7 million reported for the first quarter of 29 team.
This does not include this 8.3 million dollar benefit from the amortization of the unfavorable acquired contract.
As a reminder, we no longer provide specific financial performance for operations related to the rebar assets acquisition completed last year. As these locations are now fully integrated into our network of operations.
That said, we continue to be pleased with our performance the acquired mills remain nicely profitable in the first quarter and the acquired fabrication facilities contributed to the overall positive EBITDA results of the fabrication segment.
Now I will review our results by segment for the first quarter.
America's recycling segment recorded adjusted EBITDA of 3.4 million for the first quarter of 2020 compared to adjusted EBITDA 15.4 million in the same period last year.
Market environment was challenging with the recycling segment facing the effects of low ferrous pricing as well as constrained flat scrap flows in our yards.
Our average ferrous selling price declined by 33% from the first quarter of 2019, while total ferrous and nonferrous shipments declined by 14%.
Martin way, we were able to continue to generate positive EBITDA in this difficult environment through a focused on disciplined material by cost control and rapid inventory turnover.
The America Mills segment recorded adjusted EBITDA of 155.0 million for the first quarter of 2020 compared to adjusted EBITDA of 113.9 million for the first quarter of 2019.
Shipment volumes increase compared to the first quarter of last year, primarily driven by two additional months of contribution from the acquired mills.
Selling prices declined by $34 per ton from the fourth quarter, but the reduction in ferrous scrap costs of $20 per tonne allowed our mills to maintain high metal margins of $385 per ton.
This was $10 per time higher than a year ago, but a $14 per ton sequential quarter decline.
Within the context of a significant pricing volatility across the steel industry. We have managed five consecutive quarters of metal margins within a tight $25 per ton range.
We believe that this points to greater stability of our products and end markets compared to the broader domestic steel industry.
The Americas fabrication segment recorded adjusted EBITDA of 17.5 million in the first quarter of 2020 compared to an adjusted EBITDA loss of 37.0 million in the prior year quarter.
As in the past. These results do not include the benefit from amortization of the unfavorable acquired contracts.
Financial performance improved as a result of rising selling prices again declining rebar input costs, which led to significant margin expansion.
Average selling prices of $976 per tonne increased by $108 compared to the first quarter of 2019.
Hi priced work booked more recently has replaced a lower price projects awarded prior to the section to 32 terrace being implemented.
As mentioned by Barbara our backlog is favorably priced and we expected to be profitable winship in future quarters.
International Mill segment recorded adjusted EBITDA of 11.4 million for the first quarter of 2020 compared to adjusted EBITDA of 32.8 million in the prior year quarter.
Volume decreased by 54000 tons or 14% compared to the prior year due primarily to the absence of opportunistic billet sales made during the first quarter of 2019.
Rebar shipments increased year over year, demonstrating the ongoing health of the construction related demand in the domestic Polish market.
Volumes of merchant product were impacted however by lower German industrial demand.
Now I'll margins were down on both a year over year and sequential quarter basis pressured by a continued surge of imported material.
European safeguard measures have thus far being ineffective in deterring disruptive imports from countries like Turkey, Russia and Ukraine.
As demonstrated that during the third quarter of 2019, the market share of rebar imported into the EU spiked to over 18%, which is the highest level since 2017.
With respect to our consolidated results our effective tax rate for the quarter was 24.8%, which we anticipate will approximate our effective tax rate for 2020 .
Turning to our balance sheet and liquidity as of the ended the quarter cash and cash equivalents totaled $224.8 million and we had availability under our credit and accounts receivable program of approximately 660 million.
During the quarter, we generated 146 million of cash from operating activities.
Strong earnings and while working capital management allowed us to increase our cash balance sequentially, even while funding 45.6 million of capital expenditures and reducing debt by 51.5 million.
Turning to capital expenditures, we estimate spending for fiscal 2020 will be in the range of 160 to 185 million.
As we look forward our capital allocation will continue to place debt reduction as a priority.
Finally, as you will note on our balance sheet and in our Form 10-Q to be soon filed CMC adopted the new lease accounting standard this quarter, which resulted in an opening balance sheet adjustment to gross up our assets and liabilities by approximately $115.8 million.
This concludes my remarks, and now I'll turn it back to Barber for the outlook.
Thank you Paul.
We remain confident in the underlying strength of construction related demand for the remainder of fiscal 2020 our backlog is strong.
And our customers also indicate that their backlogs are healthy. However, we do expect typical seasonality to impact our second quarter, given that holidays and winter weather conditions tend to slow activity.
We expect metal margins to remain above pass cyclical averages.
But decline from first quarter levels.
Recycling should benefit from recent upward movements in the price ferrous scrap and fabrication is poised to continue contributing positively given solid backlog.
While demand remains strong margins within our Polish operations will remain under pressure from imported product.
We're proud of our Companys excellent first quarter results. Our team is working hard to maintain this positive momentum with a focus on network optimization customer service and enhanced product capability.
Thank you again for joining and at this time, we'll now open the call to question.
We will now begin my question and answer session. We request to ask one initial question and one follow up question.
If you have additional questions. Please re enter another question Q.
A follow up questions will be addressed as time permits.
To place yourself into the question Q. Please press Star then one on your Touchtone phone.
If you're using a speakerphone. Please pick up your handset and then press Star then one.
To withdraw your question. Please press Star then too.
We will pause momentarily to assemble our roster.
Huh.
Our first question comes from Matthew Korn of Goldman Sachs. Please go ahead.
Hey, happy New year, Barbara Paul Great. When you start off the new here congratulations.
Thank you Matthew we couldn't couldn't agree more.
A couple from me first given the increase in scrap costs. So we saw in December and now it seemingly anticipated for January .
The success are you seeing right now and achieving higher rebar pricing in the market and it maybe you could remind us how much of a lag is there before any higher rebar costs will start to flow into the material costs for the Q fabrication segment. Thanks.
Yeah, maybe I'll take the first half and then I'll, let Paul will comment on the lag effects.
There have been some recent adjustments in the marketplace. Matthew So I think prices are starting to firm and.
You know you you will see the part of that scrap price increase that we've seen over the last couple of months start to make its way.
Into the market.
With respect to the second part of the question you know we transfer material from the mills to the so the fab segment at a market pricing. So really the lag is just with respect to the volumes of inventory that we have as a five locations, which is somewhere less than 30 days on.
The average.
Okay, Great and then my follow up and on fabrication I saw your volumes did show.
Downturn quarter to quarter and from your commentary it appears that you're anticipating a seasonal decline into twoq you from for fab as well.
With that in context of.
Strengthen order rates to strengthen backlog that you highlight does this reflect any frictions as you've closed during some of the acquired facilities.
When we look at two Q volumes should we can we expect them to be lower year over year should be kind of flat out how would we think about that.
Yeah, I think Matthew.
We tend to get to the beginnings of of holiday impacts in November with the Thanksgiving holiday and I think I'm. The volume is really reflective of that that holiday.
And then second quarter you have the same phenomena.
And then you have winter weather that can also contribute to.
Differences or or changes in your shipping levels. So second quarter as always I think the hardest for for ourselves to forecast than for the street because you have the Christmas holiday and then of course February's, a short month, but there wasn't anything unusual that was affected by our decisions to consolidate facilities.
Hi, Thanks, much good luck team. Thank you Matthew.
Our next question comes from Martin English of Jefferies. Please go ahead.
Hi, good morning, everyone.
40 Martin.
So within Americas Mills over the past couple of quarters. The ASP you seem to be benefiting from a richer mix versus history.
Andy will provide it a little bit of contacts in the introductory remarks, but can you provide a little bit more color on what exactly is changing their has changed and if this is expected to sustain.
Well, we're we're always looking at ways to.
Optimize the product mix and as you know we've introduced some higher value products.
Recently, the most notable being the Spooled rebar.
And you know it is a product that can garner hey, hey premium to other straight rebar.
But then we have our merchant product line that we also are.
He's looking for ways to serve our customers better and.
That can change our product mix depending upon demand.
So in industrial markets versus demand on the construction side.
You know the acquisition opened up a lot of opportunities for US now that we have you know a much larger amount of available capacity and so.
So I think you're going to see is continuously tried to enhance that product mix as we move forward.
Okay. Thanks for the color there that's helpful and as a follow up there within the fabrication EBITDA was generated over $40 per ton for the quarter can you remind us where you believe normalized profitability is and then your thoughts on the near term if we might see incremental step up from here.
Maybe itself over earning a relative to this quarter over the subsequent quarters.
Thanks, Martin out I'll take this a this question I think you know what we have guided in the past is is a normalized through the cycle margin of $40 per ton, which essentially we saw as you pointed out in this this first quarter and as we look for the full 2020, that's that's really where we think thing.
This will allow will be obviously dependent on any a sharp changes and in rebar input pricing, but I think a where we see our our backlog Oh, we really see that the a the selling price will be within a relatively narrow band of of what we saw in the first quarter for the for the balance of the.
Sure.
Okay. Thanks for all the detail there and congratulations on results. Thank you learn.
Our next question comes from Seth Rosenfeld of exam B M. P. Please go ahead.
Hi, good morning.
From.
A couple of questions to go back to the outlook for I'd be American Mills segment with conversion costs. Please commercial cost it's become a bit below our expectations in Q1 can I know, obviously, you've now integrated the legacy Cordero assets with the legacy CMC assets Mckee quite a bit more color on what the drivers of the sequential improvement too bad and in particular.
Are the <unk> now operating in line with the CMC facilities on conversion cost basis, or incremental kind of post synergy upside there we could look forward to.
Are there please.
Okay I'll make some comments and then I'll, let Paul add any color he would like.
You know I think if you look at the last two or three quarters conversion cost is then you know hovering around $250 a ton and you know we at this point.
I believe we can sustain that on a go forward basis that obviously is impacted to some degree by product mix. If we were to have a heavier.
Product Mitch mix of merchant product that could affect that number but.
Any right, we think it will be sustained at that level I'm, we don't give specific mill conversion cost numbers than I don't want to.
You know for obvious competitive reasons I'm not going to make any comments there are only to say that one if cmcs key strengths is to continuously work on improving our cost structure and.
Our decision around Rancho Cucamonga wall very difficult decision because it impacted some of our workers out there was a decision that was carefully thought through and all aimed at lowering our overall cost to service our customer.
The only piece I would add to that south is that as we look forward to the second quarter. We've got some outages are coming that we'll likely see an increase in our in our manufacturing cost you know to this you know tend to kind of $15. We take the opportunity during these slower period.
Just to tend to do some of these Ah these maintenance activities and a you know now that we have a nine mills in the U.S.. It's it's just again opportunity to address some of these issues.
Great. Thank you very much.
Separately on the pull this outlook. Please you continue to talk about the this strong import pressure within Europe I was wondering if you're seeing any incremental improvements in the on the horizon with regards to be safe part because obviously, they havent done a great deal to date, but I understand things that the import quotas or not but fully exhausted for Turkey, I will be shortly exhausted for Russia, and Ukraine as well.
I agree shifted buyer behavior as some of the key historic sources of imported material that'd be good to dry out or face incremental Paris.
Yeah, Thanks stuff and you know you you've been on the ground over there. So you know that that market well.
I guess I want to.
Say a couple of comments about your statement that the safeguard measures have been you know not effective I think initially the initial safeguard measures, which were basically mirrored the to 32 measures.
Did have a a similar effect on the market in Europe .
Although.
Some of the importing countries are closer to the European market and so they redirected some of the U.S. material to Europe , but I think initially they were affected it was when the he you converted to the quota system that started to disrupt that market more and as you know the.
They have adjusted that quota system too.
Take into account some of the abuses they were seeing as they transition to the quota system.
And as you point out.
The quotas had been met for the year I think it was in July and.
That material is working its way through the system.
And I guess, we would rather wait and see the how that that flows through any effects. It. It has on the market, but certainly one would expect as that material flows through that.
It would give the domestic producers more opportunity and you know, we certainly would look to take advantage of that.
Great. Thank you very much.
Thank you so.
Once again, if you have a question. Please press Star then one on your Touchtone phone.
Our next question will come from Chris Terry of Deutsche Bank. Please go ahead.
Well I'll go over in Poland. Congrats on a on a great quarter. Just one question for me just wanted to follow up a little bit on on fabrication and the $40 per tonne margin, but you did you already out versus the historical level that so that's around around the going forward, obviously revolve potentially moving back up.
Foot for that business could be could be a headwind, but just trying to understand why you want a earn above that in some quarters for the rest of this year just thinking about the moves down in rebar and the lag on the contracts and as you start to reset some of those so just wanted a little bit more detail a if what Ken.
Yes.
And I'll open it up and Paul can remark I think Chris.
Certainly that opportunity always exists.
Right and with.
The trend that prices have been on that's that's been a positive for.
For a fab and as I indicated earlier prices look to be firming.
But that backlog is a you know it's a mix of a wide range of projects at varying pricing in varying durations and schedules of of shipments. So.
Again, taking a the longer view us as a year.
We think for modeling purposes, it would be appropriate to start with that that $40 and I'm certainly if there's opportunity for upside we're going to Jay said as hard as we can.
Okay. Thanks Barbara.
Our next question comes from Michael Gambardella of JP Morgan. Please go ahead.
Hi, good morning, and happy New year, Barbara Paul Congratulations on your continued success. Thank you Mike.
I have a couple of questions one on trade.
Have you seen any change in trade patterns coming out of Mexico and into.
All right your U.S. markets since the 232 was eliminated in Mexico.
Yes.
We have seen an increase of product flowing from Mexico into the U.S.
We we monitor all those flows on a on a consistent basis.
I don't think that its atta concerning level at this stage, Mike, but we certainly at Lonore to that carefully and you may have remembered that there was a circumvention case that was brought to calm and a few months back a this this case was based upon and actually product that wishes.
<unk>.
Prior to the changes in into 32.
Sanctions against Mexico, where they were.
Marking the material as fabricated and it clearly was not fabricated and so we had to produce the evidence and we took it to the coalition. The coalition has taken at the Commerce in Commerce has agreed with us that there that there is a case to the to be looked at here. So.
You know, we do look forward to commerce conclusions, we think that that is a very clear case of circumvention.
And when that conclusion calm and that will affect you know I think.
The flows out of Mexico and could could bring.
Some needed sanctions against Mexico for trying to to circumvent the system.
So as you know and it's always a [laughter], it's always something that you have to monitor and a lot of these countries tend to find work around if you will.
Right and.
How do you.
Rack or try to prevent circumvention or trends shipping.
Oh, just steel mill products.
Through Mexico.
It you know it it's always challenging HM but.
We have pretty good intelligence and.
You know we we also follow what's going on with other products. So there's just a lot of we've we've come to learn all the loopholes that it.
That you know these other countries try to exploit.
And can you can you be 100% sure that we're catching all of these no but I think the good news is that we have in administration that is committed to stopping these abuses when they see and Ah I think that the the actions as far as then pretty effective and.
You know I should also point out there have been some changes too.
The existing trade I would say laws, but the with the rules associated with administering those laws that.
Are more helpful too when we do find situations of.
The abuse and it'll be helpful in future trade cases.
On a go forward basis.
So it it's just it's just a a process of being extremely diligent and that's where I'm working together with our peer companies in the us in may and our trade.
<unk>.
Try to share all that good intelligence, though that we get with with each other.
Okay and the final question just in regards to the consolidation with the grow Dow assets anymore updates on maybe some strategic moves or additional cost savings there.
Well, Mike we look forward to everything that we executed on last year.
Flowing through this year and.
I think the big opportunity for 2020 is really we're going to be focusing on optimizing the network and and that could free up a working capital.
Which could you know give us more flexibility for strengthening the balance sheet or more flexibility to look at other growth opportunities, but we do see.
Some nice opportunity there.
That optimization also is <unk>.
Reducing the product at the lowest costs across the system.
And then also optimization to us means.
Trying to maximize the product mix that we can produce across our network of smells based upon you know all of the regional market demands and [noise].
Yes, you know, we not only produce rebar, but we produce merchant products and prior to the acquisition, we were really capacity constrained because many of our mills were running at very very healthy utilization rates and with.
The expansion of our footprint that has freed up opportunities for us.
To.
Really allocate more capacity to our merchant customers, who has have wanted to buy more for us over time, but we just.
Didnt have the capacity to commit to them.
That's that's where our efforts are in 2020, and then will always be looking for cost reduction, but there's not going to be the.
I'll call it huge cost reduction numbers like we were able to capture last year he'll be mortgages now that we have it how do we optimized.
Sure. Okay. Thank you Uh-huh. Thank you Mike.
Our next question comes from John Tumazos of John Tumazos, very independent research. Please go ahead.
Thank you I apologize I might be asking the same question over again in a different way.
In October and a December data.
Oh rebar imports were around 66 to 2000 tons.
Oh.
Do you expect but they will fall even more rose.
Youre Nucor's, new mills produce more [noise].
Where do you think that they're going to rise back with some Mexican action or.
50 to 100 dollar domestic price hikes was higher scrap prices.
I think each on happy new year.
I guess I'm not I'm not going to speculate a we are monitoring you know all of those situations carefully the only thing I would say is there was not a real.
Big incentive at this point in time too.
For for buyers to prioritize imported product over over domestic product in is that situation remains then.
For a levels should.
Remain muted as they've been for some period of time, but I I really cant speculate at this stage.
Hi, Joe it's our job spoke to it thank you [laughter].
Our next question comes from Alex Hacking <unk> of Citi. Please go ahead.
Hi, Thanks, and happy New year, Bob on Paul Let me up my.
Congratulations it sure seems like you guys.
Delivered on everything over the last 12 months, what you said you were going through.
That's our that's our our commitment that we try to try to do so thank you. So in terms of questions I just have a couple the first one as you.
You mentioned the opportunity to.
The ship more merchant bar out of your legacy Mills.
Haven't really seen so far.
When you you know if you're able to realize the opportunity does that change your mix of EBITDA per ton or is that just simply an opportunity to increase throughput. Thanks.
You know Alex if you if you look at market share a I think what we would find is we're actually gaining market share, which is you know fruition two to the efforts that were taking in <unk>.
Expanding the Mark merchant footprint, you know the overall merchant market is down on a year over year basis, and so that's I think probably a where you're seeing some of the or some of the lack of oh growth, but overall as far as market is concerned we are gaining market share and you know really taking full advantage to the.
Opportunity of starting to shift material around with the new group of Mills.
I think that as you also know by you shuttered operations, which that has opened up opportunity for us on.
On the merchant side as well, but I would point out I mean service centers have been de stocking last numbers I looked at the their inventory levels were.
Really low and that's normally what they do at the end of the year when they have to pay personal property taxes those sorts of things.
So we do look forward to industrial markets or potentially picking up here and also service centers.
Getting too to restock of it.
Hi, Thanks for the clarification on the market dynamics I I guess through the cycle would you expect EBITDA per ton to be.
Similar a much in Boston rebar or is there a structural difference there.
Thanks.
It's it's a historically there has been a difference.
There's there's additional cost of production associated with merchant, obviously with the various.
Sizes in grades and more change over time to produce the full range of of emerging products.
Those the premium of merchant to rebar will fluctuate through the cycle, depending upon market dynamics.
And there's less of a premium today than what there has been historically, but we you know we would expect to see.
Those.
Those trends to moderate back to historical trend.
Given the right set of market condition.
Okay. Thanks, and then just to follow up on the legacy Kurt Alex I think you've already answered this.
Effectively but when we look but you've had them for a little bit more than a year now running them. When we look back you know before you bought these assets, but EBITDA per ton show a seem like it was quite a bit lower than what you see MCV EBITDA per ton and rebar was.
But now when we look at your financial results that you you know delivered over the past few months, it's very hard.
See any kind of margin dilution Nicole in fact, it almost seems like it almost seems like the opposite.
So yeah, what do you believe that I mean have you effectively cool closed up but DAP and those scurdell assets are now running through the standard that you would expect the CMC miles and.
Therefore, the incremental opportunity is as you described earlier in kind of the network stuff.
Or is there still you know.
This is still what could be done to get those scurdell assets up for the you know the standards of your legacy commercial mental model. Thanks.
Well. Thank you Alex for acknowledging the work that we've done and I know that when we initially concluded. This is of course folks as John pointed I will try to speculate on what we can and can't do with the assets. So I'm very very proud of what our team has been able to accomplish in it.
Really a very short period of time see.
The integration was was Fla Lewis.
Not only from you know integrating the new Milton, but not dropping any balls at our existing operations and.
It just speaks to.
The history of C N C and being very very good operators.
And Ah so I'm I'm incredibly proud as of the progress that we've made and I really appreciate you acknowledging that.
What I would say is you know we have a portfolio of assets from our too.
Hey to the our micro mills, which you know are by far from a rebar production.
Vantage point, our our best in the system.
So there's a range. However, you you can see that as a portfolio, we're managing that quite effectively and.
So the progress is not going to stop or in terms of finding ways to continue to improve not only the new mills, but also our existing operations and that's.
It's something that's down of core competency as CMC and what's allowed us to.
He successfully and as you all know a very.
Challenging you know environment steel steel industry is cyclical and.
And and volatile and we're working every day to.
To be low cost and provide our customers differentiated service and and manage the best results in the best returns weekend with all those dynamics.
Alright, Thanks, Robert Thanks, Paul how they're going to happen here. Thank you you too.
At this time there appear to be no more questions Mr. Smith I'll turn the call back to you for closing remarks.
Thank you I want to thank you again for joining us on today's conference call. We look forward to speaking with many of you during our investor visits in the coming weeks.
This concludes today's commercial metals Company conference call you may now disconnect.