Q2 2020 Earnings Call
[music].
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 will include expectations regarding economic conditions. The impact of cobot 19 affects of legislation U.S. still import levels U.S. construction activity demand for finished steel.
Products, the company's future operations, the company's future results of operations in capital spending these and other similar statements are considered forward looking it may involve forecasts 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, but are subject to certain risks and uncertainties, including those that are described in a risk factors and forward looking statements disclaimer sections on the company's latest annual report on form 10-K, and subsequent quarterly reports on form 10-Q. Although these statements are based on management's current expectations and beliefs.
CMC offers no assurance that these expectations or beliefs will prove to be correct and actual results may vary materially Oh statements are made only as of the state except as required by law CMC does not assume any obligation to update a man clarify these statements in connection with future events changes in assumptions the current.
Herself and anticipated or anticipated events, new information or circumstances, or otherwise some numbers presented or non-GAAP financial measures reconciliations for such numbers can be found in the company's earnings release or on the company's website unless stated otherwise all references made to year or Corey.
Quarter in our references to the company's fiscal year <unk> for fiscal quarter and now for opening remarks in introductions I will like to turn the conference over to chairman of the Board President and Chief Executive Officer of commercial metals Company missed Barbara Smith. Please go ahead ma'am.
Good morning, Thank you for joining the call to refuse CMC its results for the second quarter fiscal Twentytwenty I'll begin the call with highlights for the second quarter and a brief discussion regarding our company's exposure to and actions around because that 19 outbreak Paul Lawrence will.
Then cover the quarterly financial information in more detail.
And I will provide a few closing remarks before opening the call into question.
Given the heightened level of economic and policy uncertainty caused by the code that 19 outbreak, we will not be providing any forward looking earnings commentary.
As announced in our earnings release. This morning, we reported fiscal second quarter Twentytwenty earnings from continuing operations 63.6 million or 53 cents per diluted share on net sales of 1.3 billion.
As there were no charges or credits to call out this quarter. Our adjusted earnings from continuing operations was also 63.6 million.
The entire CMC team delivered another great results for the second quarter.
Despite this being our seasonally weakest period, we generated strong results highlighted by the achievement of the second highest adjusted EBITDA margin in our company's history.
The transformational actions we've taken over the last several years have realigned our portfolio to earn more on each dollar of sales and generate higher returns on each dollar of capital employed.
Our efforts to date have been further bolstered by a supportive market environment with robust construction activity in both United States in Eastern Europe.
In addition to enhancing our through the cycle earnings and cash flow capabilities are reposition capital structure provides us flexibility to manage through today's uncertain environment.
I would now like to spend a few moments on some of the strategic initiatives that helped drive our result.
Virgin has been an area of focus for us and we have targeted growth in this market.
The flexibility unlocked through our acquisition of credentials rebar assets has allowed our legacy mills to redirect production toward Nvq products and steadily increase our participation in this market.
There is further runway on this initiative and we will continue to capitalize on opportunities as they arise in the marketplace.
To further optimization efforts, we have created a new senior management role to oversee our sales inventory and operations planning or spy all functions across the Americas.
This position along with the organization he direct and the participation of all plant operations will allow us to pursue product growth initiatives optimize our production mix across mills and reduce logistics costs.
We've already captured some optimization benefit through our recent decision to shutter the Rancho Cucamonga melt shop and supply billets from other location.
We estimate this action alone will save us over 10 million on an annual basis.
Progress on our third Rolling Mill in Poland continues we've now received the required permits and construction is underway.
Our targeted startup remains at late fiscal 2021.
This expansion will take advantage of excess smelting capability or capacity and further expand our value added product portfolio of products.
On the topic of value added products are spooled rebar continues to gain ground in the marketplace.
<unk> comes in the second quarter doubled from a year ago consistent with the adoption rate we expected when justifying our investments is fooling technology.
As a reminder, spooled rebar is a higher quality product compared to standard coil.
Reduces operating cost and waste at fabrication shops.
It is best produced a micro mill and both our Oklahoma and Arizona Micromill have spilling capability.
In the second quarter, we further reduced our outstanding debt levels and reached our stated leverage target of two times gross debt to trailing adjusted EBITDA.
The rapid de levering of our balance sheet since the close of our acquisition of Codells rebar assets puts us in excellent position to faith.
In the face of the recent market turbulence.
Also as noted in our press release, the board of Directors declared a quarterly cash dividend of 12 cents per share a CMC common stock for stockholders of record on April 620 20.
The dividend will be paid on April 20 as Twentytwenty.
This represents CMC 200, and Twentys second consecutive quarterly dividend.
Now I'd like to provide a few comments regarding cmcs exposure and response to the code that 19 outbreak.
First and foremost ensuring the health and welfare of our workforce and their families is as always our top priority.
To that end, we are adhering to the most recent guidelines published from the President Perona virus guidelines for America.
The AMC is designated as a critical infrastructure industry as defined by department of Homeland security with the duty to maintain normal operations.
We're also following the governmental guidelines relevant to our Polish operations and other foreign offices.
In keeping with the guidelines, we have suspended air travel implemented a rotating work from home schedule wherever possible and asked our production sites to avoid large gathering.
We have implemented infection control measures at all our work size.
We are also encouraging all employees to practice, good hygiene as well as monitor themselves and their families for virus symptoms and seek medical attention at the first instance of concern.
This rapidly evolving environment presents unique an unprecedented challenges.
We are managing all the factors within our control.
However, we are subject to the actions of outside parties, particularly government authorities that have the potential to be disruptive to our business.
We have seen no measurable operating or shipping disruptors that disruption at this point.
But the situation remains dynamic and we have plans in place to respond to these changes.
Turning back to those aspects of CMC business that are under our control.
Our expanded domestic footprint provides us the flexibility to react quickly in the event of a disruption at one of our facilities and continue serving customers from unaffected locations.
Our new centralized sigh of function will be instrumental in making these rapid adjustments.
We have also analyzed our supply chain and we're not facing any imminent shortages of critical parts or input.
The situations in the U.S. and Poland, our fluid and we're continually monitoring conditions. Our senior management team is meeting regularly to gather information from across our operational footprint respond to issues as they arise and provide communications to our employees.
Outside of code the code the 19 turmoil in global oil markets has also weighed on our investor confidence on CMT has little direct sales exposure to the oil and gas markets.
As I previously mentioned, we will not be providing an earnings outlook, but I would like to offer comments regarding a few key internal metrics.
The volume in our current fabrication backlog is solid by historical standards and metal margins on that work does that very attractive levels.
Fabrication bidding activity has remained strong.
Our recent bookings rate has also been good.
Metal margins within our Americas Mills segment exited the second quarter at levels above historical cycle averages.
Also as a reminder of the majority of our business is driven by construction projects that are six months or longer in duration.
And our generally prefunded.
We believe this position CMC well for the eventual normalization of business activity once the current crisis abates.
So that as an overview I will now turn the discussion over to Paul Lawrence Vice President and Chief Financial Officer to provide some more comments on the results for the quarter.
Thank you Barbara and good morning, everyone joining us on the call today.
I would like to begin with a few comments regarding the strength of C.M. sees balance sheet and liquidity profile.
Our purposeful actions over the last several quarters to reduce debt levels have positioned us well to confidently maneuver through today's uncertain environment.
As Barbara mentioned at quarter end gross debt stood at just two times trailing EBITDA, while our net debt ratio was only 1.6 times.
In addition.
We have also favor we also have a favorable maturity profile.
Shortest dated bonds coming due until 2023.
Looking at our quarter end liquidity, we had 617 million of availability on our credit and accounts receivable programs as well as 232 million of cash on hand.
In addition to a conservatively structured balance sheet, we believe that our transformed portfolio of operation.
Enhances our earnings and cash flow generation ability compared to past business cycles.
Also as a reminder, CMC tends to experience cash inflows from working capital in times of declining prices or volumes as inventory and receivables are liquidated.
So to summarize all of those comments CMC stands ready and able to GAAP navigate through today's uncertain marketplace and be well positioned to take advantage of all of these opportunities that come in these times.
Turning to the second quarter, we reported earnings from continuing operations of 63.6 million or 53 cents per diluted share compared to earnings from continuing operations, a 14.9 million or 13% 13 cents per diluted share in the second quarter of 2019.
Our core EBITDA from continuing operations was 145.3 million for the second quarter of 2020, an increase of 60% compared to 90.9 million reported in the second quarter of 2019.
This does not include the 6 million dollar benefit from the amortization of unfavorable acquired contracts.
Now I will review the results by segment.
The second quarter fiscal 2020.
The Americas recycling segment recorded adjusted EBITDA of 5.8 million for the second quarter of 2020 compared to adjusted EBITDA of 10.1 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 lower shipment volumes.
Our average ferrous selling prices declined by 15% from the second quarter of 2019, while total ferrous and nonferrous shipments declined by 8%.
These headwinds the segment remained EBITDA positive through a focus on rapid inventory turnover, which help mitigate the impact of the price volatility.
The Americas Mills segment recorded adjusted EBITDA of 125.7 million for the second quarter of 2020 compared to adjusted EBITDA of 112.4 million in the second quarter of 2019.
Shipment volumes increased compared to the second quarter of last year on the strength of rebar construction consumption and our focus on growing merchant bar sales.
Despite scheduled seasonal maintenance shutdowns, we were able to reduce conversion costs by 6% year over year on continued operational improvement higher production volumes and the decision to curtail melting operations at our California Mill.
Oh margins declined to $350 per ton in the second quarter compared to $374 per ton a year ago, but remain at historically high levels.
Over the past seven quarters, we have managed our metal margins within a 50 dollar band between $350 to $400 per tonne.
This stability occurred within an environment of pronounced price volatility in the broader steel market.
As a comparison during the same timeframe margins over scrap for hot rolled coil domestic steel markets largest volume product category experienced at $250 per tonne swing from peak to trough.
The Americas fabrication segment recorded adjusted EBITDA of 16.1 million in the second quarter of 2020 compared to an adjusted EBITDA loss of 49.6 million in the prior year quarter.
As in the past. These results do not include the benefit from the amortization of the unfavorable acquired contracts.
Financial performance improved as a result of the rising average selling price against declining rebar input costs, which led to significant margin expansion.
Average selling price of $984 per tonne increased by $139 compared to the second quarter of 2019.
As higher price work booked more recently has replaced lower price projects awarded prior to section to 32 terrorists being enacted.
As mentioned by Barbara margin and our backlog is solid and we expect materials to be profitable when shipped in future quarters.
International Mill segment recorded adjusted EBITDA of 13.5 million for the second quarter of 2020.
Compared to adjusted EBITDA of 20.5 million in the prior year quarter.
Volume increased by 76000 tons or 25% compared to the prior year due largely due to the strong demand from the Polish construction sector.
Volumes of merchant products were impacted by tepid central European industrial demand.
[noise] metal margins were down on both a year over year in sequential quarter basis pressured by the continued overhang of material imported during the calendar third quarter.
European safeguard measures reduce the total volumes of rebar imports in calendar 2019 compared to calendar 2018, but did so in a way that led to significant pricing and margin disruption on a quarter to quarter basis.
We hope to move past these effects in the second half of fiscal 2020.
With respect to our consolidated results our effective tax rate for the quarter was 26.4% and we continue to anticipate that our effective rate for 2020 will be approximately 25%.
In the second quarter, we generated $107 million of cash from operating activities strong work earnings and working capital management allowed us to increase our cash balance sequentially, even while funding $51 million of capital expenditures and reducing long term debt, but a net.
$35 million.
We continue to estimate capital expenditures for fiscal 2020 will be in the range of 160 to 185 million. However, we have demonstrated in prior years, how we can reduce capital spend if necessary.
This concludes my remarks, and now I'll turn it back over to Barber.
Thank you Paul.
We're proud of our Companys excellent second quarter results. Our team is working hard through the present uncertainty, while maintaining a focus on improving our business for the long term.
As stated earlier, we will continue to monitor the impacts of the code that 19 outbreak and we'll act quickly and in accordance with the best interest of our employees customers and shareholders.
Thank you and at this time, we will now open the call to question.
Thank you we will now begin the question and answer session. We request you asked one initial question and one follow up question. If you have additional questions. Please reenter the question in queue follow up questions will be address if time permits to police 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 one to withdraw your question. Please press Star then too we'll pause momentarily to assemble roster.
And our first question will come from Seth Rosenfeld of Exane BNP. Please go ahead.
Good morning, Thank you for taking my questions today.
Thanks, I wanted to focus on your exposure to energy markets and Barbara. Thank you for common thing earlier, you mentioned very limited direct exposure to oil and gas, but can you. Please give us a sense of what portion of sales are tied to construction projects I'm either.
On the side of or directly linked to on shore Capex in the U.S. oil oil region, and perhaps a bit as a reminder, can you go back to the last energy downturn 15, 16. It was a sense of how the company's buried in that environment and how you think you might be impacted should current low oil price environment sustain.
Going through Twentytwenty and beyond.
And then secondly, please with regard to conversion cost in Americas Mills. The release commented on that 6% year over year reduction conversion costs can you walk excuse me the drivers of those gains and how sustainable it will be in coming quarters. Thank you.
Thank you Thats I think I'll take the first half and you you managed to bundle about four questions in there. So good for you and then I'll, let Paul comment on that conversion costs. So first of all in terms of our exposure to energy market.
It our fabricating business does have a indirect exposure through a construction activity that in a energy related projects such as LNG facilities.
And I would I would say that that exposure is less than 10% of our fabricating volume.
Having said that what we experienced in the prior cycle is any project that has already authorized and funded.
And in progress will continue and we'll complete.
And it it will affect the effect will be greater on new projects that haven't been.
Then initiated or or started.
I would also add that.
If you go back to prior cycles, that's the benefit of us having a a fabrication backlog is if we do see.
Pull backs in the economy, we typically have a interesting backlog that that will sustain us for a period of time and buffer the effects of any economic downturns and.
As we enter this period of uncertainty we have a very strong backlog both in terms of volume and value.
And again most of that is pre funded and so that will continue and.
It will provide not only support to the fabrication side of the business. It will provide support to to our mill operations.
With respect to the second half of the question Seth on the Americas conversion costs those the.
The cost environment that we're in today is very sustainable.
If we look at the key drivers and we've seen it's it's primarily the optimization of the a the network of facilities and the improvement in some of the cost profiles of the acquired facilities that we recognized a through much of of last year and that's why gives us confidence.
So that that these levels are continuing.
Into the foreseeable absent any any other impacting factors.
And don't forget to Ah to remember that during the during this past quarter. We have we recognized a a number of scheduled maintenance outages that we typically a take during this normally slower period and in fact had had a slight increase as.
The result of those but on a year over year basis, the the costs were down.
Thank you very much just very quickly with regards to energy exposure, the 10% exposure within fabrication would there be a similar figure for your mills business or would be but for something different progress reports hills. Thank you.
So it's less than 10% stuff. It is I want to put that caveat on it and.
Our fab business is a smaller portion of our mill output. So it would be a much much smaller impact to our our mill operation.
Great. Thank you very much huh.
And our next question will come from Nick Jarmoszuk of Stifel. Please go ahead.
Good morning.
Hoping you could comment on what you're seeing in terms of scrap flows scrap availability and whether there's any tightness in shred it in prime and how you think about.
Could we see a reset and scrap going forward or do you think that there's just been a slowness and close like help support scrap pricing.
We're not seeing any major dislocations in terms of scrap normally in the winter months, depending on weather patterns. You can see you know scrap having a more difficult time getting to markets, but this has not been particularly.
Difficult winter or certainly not in in the areas, where we operate.
In terms of going forward.
You know you might expect some softening in scrap prices because there is a a correlation to oil prices.
But I don't think that we would necessarily see a negative impact on flows in fact peddlers probably are going to bring more scrap so they can get to get some cash flow, particularly is some folks are.
Out at work due to this disruption.
Okay and then.
Highlighted in the prepared remarks of metal margins.
Generally 350 to 400 do you think that's going to be pretty defendable going forward as well.
Yeah. Unlike some other products steel products, our products generally adjust our finished product prices generally adjust with the price of scrap.
And we think this demonstrates the benefits of the consolidation that occurred.
Last year as we integrated these assets and so.
I think there's you know.
A strong a strong view that that the metal margin can be sustained within a fairly tight range.
Okay well ahead. Thank you.
Our next question comes from Chris Terry with Deutsche Bank. Please go ahead.
[laughter] automobile and coal yeah, a couple of a couple of questions from me just a full I'm just trying to flush out a little bit more detail on how you look good demand go appreciate you you're not providing guidance would be stage, but just wondering on when you look at the business where would you expect to see the pfos guided us on.
Over any slowdown you mentioned, obviously, you've got the fab business, which is which is longer term is it new fab old is or is it.
Which which pocket are you looking for that will give you sort of the can area. The coal market, that's actually happening, but that's my first question. Thanks.
Okay. Thank you Chris.
So what I can give you is the most recent update from from our operations and what I can say to you is that our shipment as of yesterday a through March we have been shipping very heavy we're continuing to supply product to job sites. So not only are we supplying to.
Our own fabricating business were generally on the rebar side shipping into.
Independent fabricators.
A pole or from our teams again as of yesterday and they've had many many conversations with our customers.
And most job sites are open most and and the job sites want they want to remain open and continue operations. However, we're monitoring it and I think we're looking closely at actions that are being taken by certain governments in turn.
Firms have.
There've been some actions to shut down certain highway systems. There there were some actions taken.
Of course in Boston, and then you're aware of the actions I'm sure that were taken in San Francisco as it relates to those two cities. The that there has not been a dramatic impact on on CMC at this stage. The other thing that we'll monitor is if a job site word to.
He an outbreak.
Then obviously that could cause disruption either a prolonged disruption or a temporary disruption to that job site.
And our our position is to you know keep.
Operations and product flowing and then make adjustments as the input comes back to us it's not our intend to run and tend to run operations and build inventory, we will make supply side adjustments as necessary again based on a way.
Whatever the market data is coming at us, but we are seeing very heavy shipments to date.
We're also seeing a continuation of bidding activity.
Our customers are telling us that.
You know, they're going to continue until.
They are unable and they are also suggesting that once the outbreak clears.
That you know, there's there's plenty of good work that will move forward and we'll we'll move forward with haste and obviously, everyone will be anxious to.
Restart any any operations or any job sites that have been disrupted by this pandemic.
Okay. That's it looks like slover appreciated the color and then just related to working capital in a unfold touched on before and I assume you answer is it depends on the situation as to where it goes the just wondered if you could find some of the context in in the opportunities that could be there.
Thank you got any data thanks.
I think you know as far as working capital is concerned I I think really the you know if we do have a downturn our working capital as historically as I mentioned provided tremendous amounts of a of cash which further solidifies our our balance sheet and.
And provides US you know the of the flexibility to maneuver through whatever troubled times are ahead I think that's that's the key to Ah to our.
Working capital management.
Without knowing you know how much it it may.
Reduce our our shipments it's hard to put a quantitative number on it but.
Historically in periods of downturn you liquidate your working capital you adjust the supply to demand and that release of working capital will further shore up our balance sheet, which we think is and outstanding position at the current level.
Great. Thanks, Bryce roadmap, so it's very cool thank you.
And our next question will come from Timna Tanners of Bank of America Merrill Lynch. Please go ahead.
Hey, good morning, guys and hope everyone. Your teams are healthy.
Hmm.
Hi, I'm just trying to.
Talk about your.
Yes, he position it as you point out your and better position you have been and in the past you have talked about being interested in having an appetite for acquisitions and being opportunistic I just wanted to sense. Your appetite given the market conditions would you be more and hold or are you looking actively at at different options <unk> <unk> divestitures says everything.
To the current environment.
Let me take this the divestiture question first Timna I think we've done you know a significant amount of printing other portfolio over the last number of years. So.
We believe the portfolio that we have is all very productive and generating nice returns as demonstrated as in the.
You know a significant increase in our return on invested capital over the last six or eight quarters.
And I personally think the acquisition environment. It is placed on hold in the current in the current environment not not only for us, but but for others and so.
I think you will see us behave as as we have historically and.
You know, we we are going to protect our balance sheet and and he's very judicious and prudent in our capital allocation and I think we have enormous levers.
To pull we talked about the working capital release, we've historically been very disciplined in terms of cap Capex. If we see a changes in demand we can move quickly to prioritize our capex to those things that are critically important.
So at this point I think.
You're going to see us see quite disciplined.
Okay perfect. That's it I was looking for thank you [laughter].
I wanted to ask about wise and can you talk a little bit about more on that fabrication backlog. He <unk> I want to make sure I understand it's at six months visibility you you made pretty clear that that look solid, but what do we know beyond that and what see ability if any for your customers to renegotiate prices can you just me my.
Yes, and where that stands.
Yes, and I don't want to say, our six month, our our backlog is longer than six months <unk>, but what we're saying is many of the projects in there has a duration of beyond six months. So.
No it will carry us for a nice period of time in the Best example, I can relate that to Timna is if you go back to Oh wait and no nine.
And if you look at the fabrication business generated enormous profits and cash flows as they service the backlog that was in place prior to that dislocation.
And you know, we're sitting in a equal or better position at this moment with the uncertainty of what lies ahead we have a.
You know a strong strong backlog both in terms of volume and in terms of of pricing.
And and and.
Most if not all of that work is pre funded so it will continue it will complete again as I go back historically, we did not see an enormous numbers of cancellations. We did not have enormous numbers as default on jobs, and we think our contracts or pay.
Pretty tight and and the pricing will be honored.
And our next question will come from Curt Woodworth of Credit Suisse. Please go ahead.
Yeah, Hi, good morning.
Morning, Kurt.
Yeah, I have sort of the some more caution around I guess.
Duration, and maybe more specifically built side when you look at your rebar volume exposure or how much of that would you say would be more.
Like shorter cycle Conns construction projects that are three to six months first you know more.
You know large size infrastructure construction just to get a sense of.
It's things towards really slow level award is short cycle exposure.
Great that's a little bit difficult to answer because much of our mill out. So it goes to third party fabricators and obviously, we do not have a window into the precise cycle of their backlog, but we'll again, what I can say in conversations with our third party customers.
They are all sitting on very healthy backlog, they're sitting on attractively priced backlogs and they will service those jobs.
In much the same way as we will so not only will our existing backlog provide support to our mills, our third party customers backlogs will provide support to our mills.
For the foreseeable future and.
Everyone will have their own view on the duration of the situation. My personal view is that it is not going to be anywhere near the long duration that we saw in Oh aid and now nine.
And and so we would expect some some disruption no doubt, but then a quick recovery I I'd further add a most people may not know, but CNC has a small office in China, we have six or eight individuals and.
We are in regular contact I can I can probably support the earth say that none of our employees in our China office contracted the virus they were.
Self quarantine for a period of time as they work to remotely they're safe.
And they are reporting as of recently that they are now able to move about and go into our office. There are some you know.
Rules that they have to comply with but they are reporting that production activity in China is ramping back up and.
Ramping up in a in a fast pace.
So.
Yes. It follows the same pattern you know then I think we would see a similar situation here.
No I make sense I agree and then.
Yes in terms of the balance sheet liquidity in free cash flow profile looks extremely healthy.
Could you be opportunistic to you know do anything on that front via share buybacks.
You know accelerate debt repayment I'm.
Just curious kind of how you see uses of free cash for the next several quarters.
I think we have tremendous flexibility. We do have you know some amount left on our existing share repurchase program I think we're going to evaluate and be prudent and judicious and really examine what what comes out of silver.
That coming weeks.
To get a better handle on what dislocations may occur.
But we have we have good flexibility of and we are going to.
Place a priority on making sure that we have really really strong balance sheet and we can whether whatever is coming at us.
Once we have better visibility I think we have.
I have enormous flexibility.
Great. Thanks, very much in Stacey thank.
Thank you Kurt you too.
Our next question will come from Phil Gibbs of Keybanc capital markets. Please go ahead.
Good Barbara good morning.
Bill how are you done.
Okay, all things considered [laughter] wild ride every day.
Just had a had a question dominated on the broader competitive environment and in terms of what you're seeing obviously, some new domestic capacity coming online, but some some taken off.
Imports of have picked up here to start relative to the last part of 2019, but.
Just trying to get your paulson on how you're viewing the overall competitive environment for your your mill products right now.
Well I think fill that you know certainly the capacity announcements that have.
That affect our products and most of that's largely complete other than the two situations that at Nucor I think they then quite clear on their intentions to lower their cost base and and not introduce a more proud.
Okay, then what is needed in terms of the demand for the product.
I think the situation is more of an issue for.
The flat roll side and other products. That's a question to be ask of.
Of those companies that are either have those project projects underway I am I, certainly think given the current environment some projects will be reevaluated and.
You know all those companies will look at Capex as a lever to to get through this situation, but it's it's better asked of those individual companies and we're not seeing a major problem in the products that we participate in.
[noise] and I appreciate that and then in terms of ran show you outlined some cost benefit.
Our I think I think you said 10 million annualized have you seen or realize that in a in the numbers to date.
Any of the quarters.
Certainly certainly you know we're seeing that in in our second quarter wrote results. There was a you know a period of ramp up as you can appreciate once you make a decision like that but.
We are that that strategy has been fully implemented so we would expect see that benefit going forward.
With with all the fiscal spending in the other bazooka out effectively at this point over the last couple of weeks domestically.
Is there any chatter that you're getting from the federal government on on infrastructure, but at least on a federal level I think the state and local spending has been tremendous.
But anything more broadly that you're hearing from from Washington, or or or tax cuts more priority.
Hi, Matt.
You know again, you can listen to the president and analyze I think they're trying to deal with the crisis as the immediate concern I think infrastructure is.
Something that will will come up quickly on the agenda, whether it's immediately following or after the election is settled I think it's something that.
Both sides of the I'll understand as a great way that further stimulated ICANN the economy, and it's something that a the country needs I was in Washington recently with a number of lawmakers and this is top of mind and.
Our top priority, having said that as you indicated.
States have taken actions states has have provided for the funding and we're seeing it as we've been talking about it the last number of quarters and in fact, our you know our backlog is now more heavily weighted to these public projects and again those are our funded and they.
We'll continue to move forward.
Again, if you have a question. Please press Star then one our next question will come from Matthew Korn of Goldman Sachs. Please go ahead.
Hey, Good morning, everyone Trust Trust as well that you in years are doing okay.
I'll apologize if my kids jump on the phones as their own questions [laughter] at a time.
Just wanted to ask.
Cost performance very impressive both domestic and international Mills can you talk little bit more you know to date.
Award in some of this is due to execution on this network document the network optimization, but you've been planning for a rearranging a product mix, putting type of product to their best facility geographically, reducing transport costs, all those kinds of things.
And then my second question would be.
Regarding cash flows balance sheet, what would you consider to be kind of the true true bottom limit for sustaining capital crunch should conditions remain uncertain and kind of frozen a pre year. Thanks.
Hey, Matt I will I'll start off and Barber can chime in as necessary, but you know if we look at the optimization from <unk> perspective were in our early innings stage, where in the infancy, you know the the low hanging fruit was.
Implementing some of just practices that Oh, we had developed and that was part of the synergy numbers from a from from last year.
But as far as the ongoing opportunities in terms of the you know producing the lowest cost material on the right mills, the that logistics savings or those types of things, though the the bar is being established now in terms of where that those opportunities lie.
The the easy answer was the high cost of energy and environmental compliance in California, and those are the ones that we we executed and those are as Barbara I. Just mentioned there are part of the a the the solid cost that we exhibited in the a and the Alaska.
Quarter. So I think a you know where we're we're in a place where there's a great deal of opportunity ahead, but at this stage, we're not a ready to ER to put and put a number on on that given the a the early stages that we are Brent.
Yeah, the individual that weighs assigned to focus on this is you know.
Going through their relocation as we speak so as we can quantify not only the cost benefit that the working capital opportunity will definitely provide more color on that I think the other half your question was around minimum capex.
And yes.
You know I think that.
My number Paul Knight disagree, we could dial that back to around 100 million and.
And really dire situation. It's a good a good fact pattern is as we get into the acquired Mills. For example, we had had assumed that we would need to spend a couple hundred million over five years and I think we we indicated earlier that you know we as we get into those operations or they don't Rick.
Fire the a the level of Capex that Ah that we originally anticipated. So we've demonstrated in the past whether it was during downturns or when we had significant capital projects like the building of the two Micromill is how we can how we can throttled back the other the Capex and now the key is we've been Maine.
Painting. The other facilities are at very high levels of World class level. So that in times, we can take a short term measures to reduce our spend and not have any impact.
Got it thanks folks best of luck to God bless.
Yeah. Thank you Matthew stay well.
At this time there appears to be no more questions mismatch I'll turn the call back to you for closing remarks.
Thank you. Thank you for joining us on today's conference call. We look forward to speaking with many of you during our and our upcoming Investor calls. If you didn't have any other questions. Please feel free to get in contact with Paul or Jason or myself and we'll be happy to help you. Thank you so much hope everyone.
In today's sake.
This concludes today's commercial metals companies conference call you may now disconnect.