Q2 2020 Earnings Call
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Yes.
Ladies and gentlemen, thank you for standing by and welcome to the infill industries second quarter 2020 conference call. At this time of participants' lines on a listen only mode. After speakers presentation. There will be a question and answer session. That's a question. During this session you needed press star one on your telephone please be advised at today's call.
Conference is being recorded if you require any further assistance. Please press star Zero I would now ill hand, the conference over to your speaker today, H. Woltz infield President and CEO. Thank you. Please go ahead Sir.
Good morning.
Thank you for your interest in steel and welcome to our second quarter 2020 earnings.
Eight months are based on our current expectations and information that is currently available we do not assume any obligation to update these statements in the future to reflect the occurrence of anticipated or unanticipated events or new information.
Ill now turn the call over to Mike to review, our second quarter financial results in market outlook, then I'll follow up to comment more on business conditions and other recent developments.
Thank you eights and good morning to everyone joining us on the call.
As we reported earlier today, despite continued margin pressure in our markets subject to import competition in steel posted strong results for the second quarter fiscal 2020.
Excluding the nonrecurring charges and gain that we are referenced in our release net earnings rose to 29 cents a share from a penny a share last year.
The earnings improvement for the quarter was driven by wider spreads between selling prices in raw material costs and strengthening demand for our concrete reinforcing products.
Shipments for the quarter rose, 19.2% from last year, and 19.7% sequentially from Q1 rising to their highest level since the third quarter of 2018, and the third highest in our history for the second quarter.
The strong shipping performance was driven by increased construction activity across most of our markets supported by the generally more favorable weather conditions. This year.
Average selling prices fell sequentially for the fifth straight quarter, but to a lesser extent declining 1.2% from Q1.
The pricing pressure continued to be more severe in certain of our PC strand in standard welded wire reinforcement markets susceptible to import competition, which represented around 25% of our overall sales for the quarter.
Asps for these markets dropped 22% year over year, which was double the 11% reduction for the remainder of our business.
As we conveyed on previous calls import competition in these markets has intensified in the wake of the section to 32 tariffs on imported steel, which applied imports of our primary raw material hot rolled steel wire rod and not to our finished products.
The program has incentivized foreign competitors to ramp up their downstream exports and aggressively undersell use producers, resulting in material injury to the domestic PC strand industry.
Gross profit for the quarter increased 8.3 million from a year ago, and gross margin widened 700 basis points to 13.3% from 6.3% primarily due to the higher spreads and to a lesser extent the increase in shipments on a sequential basis gross profit rose 9 million from.
The first quarter and gross margin widened 690 basis points driven by the same factors together with lower manufacturing costs.
The continued to be a wide disparity in the relative profitability of our plants during the quarter with the location supplying markets subject to import competition significantly underperforming or other facilities.
If you roll up the clients that have been more adversely affected by imports their combined gross profit amounted to point 7 million or gross margin of only 2.3% on around a quarter of our sales as compared to 14.6 million of gross profit or 17.2% gross margin for the remainder.
Of our business.
SGN a expense for the quarter rose 3 million to $9.6 million from 6.6 million or 8.4% in net sales from 5.9% last year.
The sharp increase is primarily driven by an unfavorable 1.8 million year over year change in the cash surrender value of life insurance policies due to the downturn in the financial markets with the remainder largely from increases in incentive and stock based compensation and legal expense.
Our effective tax rate through the first half of the year fell to 21.4% from 23.9% last year due to a point 2 million benefit recorded in the quarter related to the NFL carry back provisions of the cares Act.
Excluding this benefit our effective rate for the first half the year would've been 24.4% as compared to last years, 23.9%.
Looking ahead to the remainder of the year, we expect our effective rate will run around 23% subject to the level of pretax earnings book tax differences and the other assumptions and estimates entering into our tax provision calculation.
Moving to the balance sheet and cash flow statement operating activities use 3 million of cash for the quarter due to a 13.8 million build in working capital driven by increases in receivables and too much lesser extent inventories on the higher sales.
Based on our sales forecast for Q3 year quarter end inventories represented two and a half months the shipments compared with 2.9 months ended the first quarter and on an overall basis average unit carrying values relatively close to the amounts reflected in Q2 cost to sales.
After funding the Strand Tech acquisition, we ended the quarter with 40.4 million of cash on hand or over $3, a share and no borrowings outstanding under 100 million revolving credit facility, providing us with ample financial flexibility and the ability to pursue additional growth opportunities that may develop in this challenging.
Moment.
And allocating our cash flow and managing the cyclical nature of business. We remain focused on three objectives reinvesting in the business for growth and to improve our cost and productivity, maintaining adequate financial strength and flexibility and returning capital to our shareholders in a disciplined manner.
Going forward, we will continue the balance these objectives in deploying capital in any excess cash.
As we look ahead to the second half of the fiscal year visibility is limited due to the heightened uncertainty resulting from the co. Good 19 outbreak in the actions taken by governmental authorities to control the spread of the virus.
With our business deemed to be critical infrastructure by the department of Homeland Security a pandemic has had a minimal effect on insteel. Thus far as we have not experienced any disruptions in our operations and our customers have remain busy working through backlogs.
Going forward. However, its eventual impact will be determined based on future developments that are highly uncertain, depending on the severity and duration of the outbreak and the effectiveness of the actions that are taken to container mitigated.
A view of our debt free balance sheet, our high liquidity, an undrawn credit facility and our highly variable cost structure. We believe that we are ideally positioned to navigate through these challenges and remain hopeful they could be a catalyst for further growth opportunities to become available.
Ill now turn the call back over to AIDS.
Thank you Mike.
As Mike indicated our second quarter results reflect strong shipment growth relative to the prior year driven by favorable underlying demand for our concrete reinforcing products and a return to more normalized seasonal weather patterns.
We also benefited from closer alignment between our raw material costs, an average selling prices were pleased with the solid underlying demand for our products and our Q2 financial performance.
In response to the covert 19 outbreak we've implemented and are observing the CDC recommended procedures for managing our exposure to the pandemic and its transmission at our plants as well as at our administrative offices with our industry deemed essential all our manufacturing facilities have contingent.
To operate on regular schedules and order entry has remained robust although we've seen some moderation over the last week and those geographic regions of the country that have been most impacted by code that 19.
Although we are unable to predict the ultimate impact to the virus on our business. The overwhelming majority of our customers intend to adhere to their normal operating schedules quiet, serving the requisite procedures to address it spread.
We remain committed to fulfilling their requirements provided that we can do so without compromising the safety of our people.
Should we eventually expect experience a precipitous drop off in demand, we're prepared to make the appropriate adjustments to our operating plans.
Last month, we completed the acquisition of certain assets of Strand Tech manufacturing, a competing PC strand producer located in Summerville South Carolina.
As we indicated in our release announcing the transaction we plan to close the Somerville facility and service STM customers from our other three PC strand plants.
We expect that manufacturing activities will cease tomorrow. Following the conversion of remaining work in process into finished goods.
Additionally, a significant portion of our engineering group has been deployed in Somerville refining our plans to upgrade certain of the equipment prior to its relocation to other in steel facilities a process that will continue for several weeks.
Up to this point, we believe the transition for STM former customers has been seamless and we're pleased with our retention rate.
We're continuing to pursue employment operation opportunities for former STM employees, who have expressed interest in relocating to instill facilities. Although that process has been compliment complicated by the challenges posed by coded 19.
We plan on listing the Somerville real estate for sale in the very near future and are evaluating options for disposing of the excess machinery equipment and other assets located at the facility.
We're pleased with the substantial progress has been made in executing our integration plans and we're confident that the transaction will generate attractive returns for our shareholders.
Shifting to another recent development today in steel together with two other domestic PC strand producers filed anti dumping petitions against 15 countries, representing 89% of total PC strand imports entering the us in 2019.
In addition to a countervailing duty petition alleging illegal subsidies against Turkey.
The scope of the filings, which alleged dumping margins from 24% to 194% reflects the agreed just behavior PC strand producers from these countries in the us market over the 2017 to 2019 investigation period.
We expect the department of Commerce investigation will run from the first half of May until around the end of May 2021, with milestones tentatively scheduled for June July and September 2020, and April and May 2021.
I should point out however that the timeline for the cases could be impacted by procedural considerations at the department of Commerce and the International Trade Commission.
As with any litigation, it's not possible predict the outcome of these cases, but we believe they allegations are strongly supported by underlying facts and our extensive analysis.
Turning to Capex. We had previously previously estimated 2020 expenditures of approximately 17 million subject to revisions as we moved through the year.
Our progress on certain significant projects was delayed following the failure of a new production line, which came online a year ago to meet all our acceptance criteria.
During the second quarter, the equipment vendor completed substantial modifications to the line, which resolve the performance deficiencies as a result of the delay a significant portion of this year's outlays are now expected to fall into 2021, and our 2020 capex is likely to come.
In under our initial estimate.
I should note. However that we are not deferring or canceling any planned projects. We're pushing ahead aggressively with our plans, which are focused on significantly reducing our production costs. In addition to broadening our product capabilities in certain markets expanding our engineered structural.
Capacity and upgrading our information systems technology.
In summary, the outlook for 2020 has become highly uncertain.
While our business has remained strong up to this point, we expect to see some softening in coming months as the economy bears the full weight of the code that 19 mitigation measures.
We'll continue to closely monitor market conditions and aggressively pursued the appropriate actions to optimize our costs.
We'll also continue to be vigilant in pursuing attractive growth opportunities, both organic and through acquisition.
This concludes our prepared remarks, and we'll now take your questions. Justin would you. Please explain the procedure for asking questions.
Thank you Sir as a reminder to ask a question you need to press star one on your telephone. So as you. All your question press the pound key. Please standby letter you compiling acuity roster and once again that is star one if you'd like to ask a question and I first question comes from Julio Romero from Sidoti and company. Your line is now open.
Hey, good morning, everyone Hope you say unhealthy.
Yes, good morning, Thanks Julia.
Just to start can you just talk about the current operating environment. It had your facilities I understand things are changing pretty rapidly but.
Are you, having social did syncing in your manufacturing lines or.
Are you seeing any distribution challenges et cetera.
Yes.
We've adopted in or observe in all the procedures that have been recommended by CTC as well as other knowledgeable sources, which includes social distancing and aggressive.
Cleaning procedures, we've also staggered shift reporting where required.
But where where we're doing everything we possibly can to mitigate the risk thats posed by cobot 19.
Okay fair enough I guess turning over to Stantec.
Can you maybe talk about the margin profile of that business and how we should think about.
I know they did 29 million in sales last year, but yes.
Who captures a sales right do you guys expect to capture most of that or does that kind of become a jump ball for the for the industry.
Well.
I think in one respect our timing was was was favorable with strand tech as on the entire industry has developed concerns that that go beyond simply sourcing.
And I think as a result on the environment's been favorable for us, but at the end of the day.
Customers the five because your service meets their expectations your pricing meets their expectations on your quality meets their expectations and we're convinced that we can offer stantecs customer base improvements.
In the overall value that we deliver to them. So we're pleased with the retention rate up to this point, but it's one of these things where we have to earn their their confidence everyday Julio.
Julio with regard to the margin profile, it should be pretty pretty attractive following.
Assignment of that business to our facilities, where I will just gain from the operating leverage benefit and the incremental costs associated with that additional volumes should be should be pretty favorable. So I would I would expect that is from a margin standpoint it.
It should be positive relative to our overall.
Business.
Got it Thats helpful. And then I guess just on Capex.
I know you talked about in your prepared remarks that.
As a result of the delay 2020, capex likely to come in under the 17 million Youve had initially expected.
But I know in these Stantec press release, you talked about how.
That deal.
I was wondering that equipment lowers your capex requirements going forward. So.
I guess.
How just can you just talk about how that the strand tech.
Acquisition also affects your capex outlook going forward.
Yes, well first I would tell you that the statement about capex avoidance through the strand take transaction transaction is absolutely correct, but.
The Capex that we will avoid was not necessarily planned for 2020.
It would have it would have come at us in 2021 and 22 for the most part so.
So.
The timing is and is an issue there and it's hard to say exactly what some project delays will mean to 2020 capex. It all depends on on when we make deposits for new equipment, whether that falls in this year or next year, it's hard to say.
Understood I appreciate that.
Hop back into queue in let others ask some questions. Thanks very much.
Thank you and again, ladies and gentlemen that is star one if you'd like to ask a question and our next question comes from Tyson Bauer KC capital. Your line is now open.
Good morning, gentlemen.
Morning.
On the STM, the 29 million since they're feeling the same impacts from the tariff send the.
Ports would you suggest that 29 million is a far.
As a level that is pretty well insulated because they were doing much more years prior where we didnt have the tariffs and those things and what you suggest that that would be somewhat inferior stable.
As we go forward because they've already taken the brunt of the industry hits that they were going to take.
Yes, I think the market had not been kind to strand tech over the last couple of years and volume had had declined forum.
Hard hard to say, whether they had reached bottom.
But we don't expect any deterioration of there the underlying customer base that was that was there when we made the acquisition.
And then their customer base pretty well marry your own.
It actually actually is more favorable than than ours and that they had minimal presence and in the post tension segment of that market, which is the segment, which has generally been subject to the to the most import competition.
Okay.
Do you expect minimal ask DNA increases going forward as the seems to be a part of an asset purchase and.
You are just incorporating it back to your own facilities.
Yes, that's correct.
Yes, there would be any sq Nate impact other than to the extent it contributes to improved results in that that impact.
Performance incentive plan, but no incremental staffing requirements associated with absorbing the additional volume.
Okay and the original press release, you talked about so claw backs to your purchase price, which included the potential 8 million sale of the facility.
That you'll do.
Market willing.
Other asset sales.
They also have any excess net working capital that we could.
Add back or not out to the purchase price.
No I think there net working capital position with.
Really right inline with what you would expect so I wouldnt.
I wouldn't anticipate any adjustments relating to that.
Okay.
At least here in the Midwest, which was probably obviously much different than the northeast.
There's been discussions and news items regarding infrastructure projects that are actually been pulled forward one because of the weather too because of less traffic and other impediments that may it created at night only work or otherwise have you seen that in other areas to and have you seen a better.
Fit.
Speed up on certain projects.
Tyson we read the same information and were aware of the acceleration of certain projects. My sense is most of those are repair and major and and that they wouldn't really affect underlying demand for our products, which typically go in the ground or.
Or our cast in place in nature and not subject to on rapid.
Schedule acceleration based on on short term events.
Okay.
And the Harry also seeing at least some talk in the various.
Industries. It seems like what's on schedule. It will occur as it is scheduled to occur or things that would not have a schedule. Those are the ones that rescope postponement or delays not necessarily cancellation, but just a cautious stance on starting something new that wasn't already scheduled are you seeing that also.
Well I think where we think we're aware of those concerns, but but are we actually seeing that I don't think so I think the real matter is funding and what's the what's the funding.
Outlook over time on those resolved.
Depress tax receipts so across the board. Okay. I don't think we've seen any I don't think we've seen any impact from that.
Thus far I mean, the end is going to be a function of the of.
How long how long that the pandemic persists and when we when we get a resolution and good because as it stands now I think our customers largely remain busy working through their existing backlog that more an issue of the flow of new projects into the pipeline in the extent to which that that.
Gets impacted and that that which doesn't turn off immediately there's a time lag there. So I mean I think it will just be a function of the duration of of code Cobot 19.
Alright.
Characterize kind of that domestic wire rod supply and pricing and I think we have while facility that will be shutting down here or has shut down.
And kind of the margin implications does that help you.
Keep your pricing a little more sticky.
Due to that situation.
Well, that's I think Thats a good question and it's going to play out over time I mean.
Clearly we've seen.
Dramatic downward moves in scrapped we've seen.
A great deal of uncertainty in the market, which.
Which.
Is expected to under the circumstances.
Sense that capacity is not a problem at all delivery times are short on and and for anyone who needs wire rod in this environment.
Probably have a more competitive situation for supply than you would have prior to all of this happening.
Okay and the next question's a loaded question for you the discussion of a stimulus for.
Seems to both parties include some type of infrastructure component to it.
Administration seems on board leadership in the house seems to be onboard for that.
Do you think that's more likely to occur or being successful on your anti dumping.
Filing.
Against those 15 countries on the PC strand or can you get both.
Well I think they're independent of one another and certainly not mutually exclusive.
I don't see how the federal government doesn't.
Annie up here on on an infrastructure bill under the circumstances.
I think that will happen, although although it still speculative.
On the anti dumping cases, they are really see having nothing to do with any infrastructure. Bill. This is a matter of the facts that are on the record and whether the allegations can be supported.
By those facts and we believe strongly that they can.
Well they can certainly make the infrastructure more of a by America component as we've seen in the past.
That would certainly help yellow and not requiring that anti dumping immediately.
Well I mean for for the by America coverage to be expanded would take a legislative at that I wouldn't expect and I've heard rumblings of.
All on on the on the dumping cases on the impact there. If we're successful should be simply that our foreign competitors are forced to play by the roles rather than the it can't play at all so we'll just have to see what happens you know weve.
Impeded with imports in PC strand for 25 years, and we've done so successfully.
Until recently when Dom when.
It really didn't play by the rules. So we were hoping just to restore level playing field here.
Right. Thank you gentlemen.
Thank you and I'm showing no further questions I would now like to turn the call back to H. Woltz infield President CEO for closing remarks.
Thank you. We appreciate your interest in the company and we look forward to talk into next quarter in the meantime don't hesitate to contact us if you have questions. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you participating you may now disconnect.
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Ladies and gentlemen, thank you for standing by and welcome to the infield industries second quarter 2020 conference call at this time of participants I'm going to listen only mode.
Because presentation, there will be a question and answer session. That's the question. During this session you Press star one on your telephone. Please be advised the today's conference is being recorded if you acquire any further assistance. Please press star zero.
Now I'll hand, the conference over to your speaker today, H. Woltz infield President and CEO. Thank you. Please go ahead Sir.
Good morning.
Thank you for your interest in steel and welcome to our second quarter 2020 earnings call, which will be conducted by might guess, Mary and our vice President CFO and treasurer and made.
Before we begin let me remind you that some of the comments made on todays call or considered to be forward looking statements, which are subject to various risks or uncertainties that could cause actual results to differ materially from those projected.
These risk factors are described in our periodic filings with the FCC.
All forward looking statements are based on our current expectations and information that is currently available we do not assume any obligation to update these statements in the future to reflect the occurrence of anticipated or unanticipated events or new information.
I'll now turn the call over to Mike to review, our second quarter financial results in market outlook, then I'll follow up to comment more on the business conditions and other recent developments.
Thank you age and good morning to everyone joining us on the call as your reported earlier today. Despite continued margin pressure in our market subject to import competition in steel posted strong results for the second quarter fiscal 2020.
Excluding the nonrecurring charges and gain that were referenced in our release net earnings rose to 29 cents a share from a penny a share last year.
The earnings improved for the quarter was driven by wider spread between selling prices in raw material costs and strengthening demand for our concrete reinforcing products.
Shipments for the quarter rose, 19.2% from last year, and 19.7% sequentially from Q1 rising to their highest level since the third quarter 2018, and the third highest in our history for the second quarter.
Strong shipping performance was driven by increased construction activity across most of our markets supported by the generally more favorable weather conditions. This year.
Average selling prices fell sequentially for the fifth straight quarter, but to a lesser extent declining 1.2% from Q1.
The pricing pressure continued to be more severe in certain of our PC strand in standard welded wire reinforcing that markets.
First of all the import competition, which represented around 25% of our overall sales for the quarter.
Asps for these markets dropped 22% year over year, which was double the 11% reduction for the remainder of our business.
As we conveyed on previous calls import competition in these markets has intensified in the wake of the section to 32 tariffs on imported steel, which apply to imports of our primary raw material hot rolled steel wire rod and not to our finished products.
The program has incentivized foreign competitors ramp up their downstream exports and aggressively undersell U.S. producers, resulting in material injury to the domestic PC strand industry.
Gross profit for the quarter increased 8.3 million from a year ago, and gross margin widened 700 basis points, 13.3% from 6.3% primarily due to the higher spread into a lesser extent increasing shipments on a sequential basis gross profit rose 9 million.
From the first quarter and gross margin widened 690 basis points driven by the same factors together with lower manufacturing costs.
The continued to be a wide disparity in the relative profitability of our plants during the quarter with a location supplying markets subject to import competition significantly underperforming or other facilities.
If you roll up the clients that have been more adversely affected by imports their combined gross profit amounted to point 7 million or gross margin of only 2.3% on around a quarter of our sales as compared to $14.6 million of gross profit or 17.2% gross margin for the remote.
Manger of our business.
SGN expense for the quarter Rose 3 million to $9.6 million from 6.6 million or 8.4% in net sales from 5.9% last year.
Sharp increase is primarily driven by an unfavorable 1.8 million year over year change in the cash surrender value of life insurance policies due to the downturn in the financial markets with the remainder largely from increases in incentive and stock based compensation and legal expense.
Our effective tax rate through the first half of the year fell to 21.4% from 23.9% last year due to a point 2 million benefit recorded in the quarter related to the NFL carry back provisions of the cares that.
Excluding this benefit our effective rate for the first half the year would've been 24.4% as compared to last years, 23.9%.
Looking ahead to the remainder of the year. We expect are effective rate will run around 23% subject to the level of pre tax earnings book tax differences and the other assumptions and estimates entering into our tax provision calculation.
Moving to the balance sheet and cash flow statement operating activities use 3 million of cash for the quarter due to a 13.8 million build in working capital driven by increases in receivables and to a much lesser extent inventories and the higher sales.
Based on our sales forecast for Q3, our quarter end inventories represented two and a half months the shipments compared with 2.9 months ended the first quarter.
On an overall basis average unit carrying value relatively close to the amounts reflected in Q2 cost to sales.
After funding the Strand Tech acquisition, we ended the quarter with $40.4 million of cash on hand over $3, a share and no borrowings outstanding under 100 million revolving credit facility, providing us with ample financial flexibility and the ability to pursue additional growth opportunities that may develop in this challenging and by.
Summit.
And allocating our cash flow and managing the cyclical nature of business. We remain focused on three objectives reinvesting in the business for growth and to improve our cost and productivity.
Maintaining adequate financial strength and flexibility and returning capital to our shareholders in a disciplined manner.
Going forward, we will continue the balance these objectives in deploying capital in any excess cash.
As we look ahead to the second half of the fiscal year visibility is limited due to the heightened uncertainty, resulting from the cobot 19 outbreak in the actions taken by governmental authorities to control the spread of the virus.
With our business deem to be critical infrastructure by the department of Homeland Security Pandemic has had a minimal effect on in steel as far as we have not experienced any disruptions in our operations and our customers have remain busy working through backlogs.
Going forward. However, its eventual impact will be determined based on future developments that are highly uncertain, depending on the severity and duration of the outbreak.
The effectiveness of the actions that are taken to container mitigated.
View of our debt free balance sheet, our high liquidity and Undrawn credit facility and our highly variable cost structure. We believe that we are ideally positioned to navigate through these challenges and remain hopeful they could be a catalyst for further growth opportunities to become available.
Ill now turn the call back over to AIDS.
Thank you Mike.
As Mike indicated our second quarter results reflect strong shipment growth relative to the prior year driven by favorable underlying demand for our concrete reinforcing products and a return to more normalized seasonal weather patterns. We also benefited from closer alignment between our raw material costs an app.
Selling prices were pleased with the solid underlying demand for our products and our Q2 financial performance.
In response to the Cobot 19 outbreak, we've implemented and are observing the CDC recommended procedures for managing our exposure to the pandemic and its transmission at our plants as well as at our administrative offices with our industry deemed essential all our manufacturing facilities have continued.
To operate on regular schedules and order entry has remained robust although we've seen some moderation over the last week and those geographic regions of the country that have been most impacted by Copel 19.
Although we are unable to predict the ultimate impact to the virus on our business. The overwhelming majority of our customers and tend to adhere to their normal operating schedules quiet, serving the requisite procedures to address it spread.
We remain committed to fulfilling their requirements provided that we can do so without compromising the safety of our people.
Should we eventually expect experience a precipitous drop off in demand, we're prepared to make the appropriate adjustments to our operating plans.
Last month, we completed the acquisition of certain assets of Strand Tech manufacturing competing PC strand producer located in Summerville South Carolina.
As we indicated in our release announcing the transaction we plan to close the Somerville facility and service STM customers from our other three PC strand plants.
We expect that manufacturing activities will cease tomorrow. Following the conversion of remaining work in process into finished goods.
Additionally, a significant portion of our engineering group has been deployed in Somerville refining our plans to upgrade certain of the equipment prior to its relocation to other in steel facilities a process that will continue for several weeks.
Up to this point, we believe the transition for STM former customers has been seamless and we're pleased with our retention rate.
We're continuing to pursue employment operation opportunities for former STM employees, who have expressed interest in relocating to instill facilities. Although that process has been compliment complicated by the challenges posed by coded 19.
We plan on listing to Somerville real estate per sale in the very near future and are evaluating options for disposing of the excess machinery equipment and other assets located at the facility.
We're pleased with the substantial progress that's been made in executing our integration plans and we're confident that the transaction will generate attractive returns for our shareholders.
Shifting to another recent development today in steel together with two other domestic PC strand producers filed anti dumping petitions against 15 countries, representing 89% of total PC strand imports entering the us in 2019.
In addition to a countervailing duty petition alleging illegal subsidies against Turkey.
The scope of the filings, which alleged dumping margins from 24% to 194% reflects the agreed just behavior PC strand producers from these countries in the us market over the 2017 to 2019 investigation period.
We expect the department of Commerce investigation will run from the first half of May until around the end of May 2021, with milestones tentatively scheduled for June July and September 2020, and April and May 2021.
I should point out however that the timeline for the cases could be impacted by procedural considerations that the department of Commerce and the International Trade Commission.
As with any litigation, it's not possible predict the outcome of these cases, but we believe they allegations are strongly supported by underlying facts and our extensive analysis.
Turning to Capex. We had previously previously estimated 2020 expenditures of approximately 17 million subject to revisions as we moved through the year.
Our progress on certain significant projects was delayed following the failure of a new production line, which came online a year ago to me all our acceptance criteria.
The second quarter, the equipment vendor completed substantial modifications to the line, which resolve the performance deficiencies as a result of the delay a significant portion of this year's outlays are now expected to fall into 2021, and our 2020 Capex is likely to come in.
Under our initial estimate.
I should note. However that we are not deferring or canceling any planned projects. We're pushing ahead aggressively with our plans, which are focused on significantly reducing our production costs. In addition to broadening our product capabilities in certain markets expanding our engineered structural mesh.
Capacity and upgrading our information systems technology.
In summary, the outlook for 2020 has become highly uncertain.
While our business has remained strong up to this point, we expect to see some softening income remarks as the economy bears the full weight of the coded 19 mitigation measures.
We'll continue to closely monitor market conditions and aggressively pursue the appropriate actions to optimize our costs.
We'll also continue to be vigilant and pursuing attractive growth opportunities, both organic and through acquisition.
This concludes our prepared remarks, and we'll now take your questions just and would you. Please explain the procedure for asking questions.
Thank you Sir as a reminder to ask a question you need to press star one on your telephone so as you all your question press the pound.
Please standby levy compiled the Q and a roster and once again that is star one if you'd like to ask a question and I first question come from Julio Romero from Sidoti and company. Your line is now open.
Hey, good morning, everyone hope, you're saying healthy.
Yes, good morning.
Get to start can you just talk about the current operating environment. It had your facilities I understand things are changing pretty rapidly but.
Are you, having social bit syncing in your manufacturing lines or.
Are you seeing any distribution challenges et cetera.
Yes.
We have adopted in our observe and all the procedures that have been recommended by CTC as well as other knowledgeable sources, which includes social distancing and aggressive.
Cleaning procedures, we've also staggered shift reporting where required.
But where where we're doing everything we possibly can to mitigate the risk thats posed by cobot 19.
Okay fair enough I guess turning over to Stantec.
Can you maybe talk about the margin profile of that business and how we should think about.
I know they did 29 million in sales last year, but yes.
To capture those sales right do you guys expect to capture most of that or does that kind of become a jump ball for the for the industry.
Well.
I think in one respect our timing was was was favorable this trend back as the entire industry has developed concerns that that go beyond simply sourcing.
And I think as a result on environment's been favorable for us, but at the end of the day.
Customers, but five because your service meets their expectations your pricing meets their expectations on your quality meets their expectations and we're convinced that we can offer stantecs customer base improvements.
In the overall value that we deliver to them. So we're pleased with the retention rate up to this point, but it's one of these things where we have to earn their their confidence everyday Julio.
Julio with regard to the margin profile, it should be pretty pretty attractive following.
Reassignment of that business our facilities were.
The gain from the operating leverage benefit and the incremental costs associated with that additional volumes should be should be pretty favorable. So I would I would expect that does from a margin standpoint it.
It should be positive relative to our overall.
Business.
Got it that's helpful and then I guess just on Capex.
I know you talked about in your prepared remarks that.
As a result of the delay 2020, capex likely to come in under the 17 million Youve had initially expected.
But I know in the Stantec press release, you talked about how.
That deal.
I was wondering that equipment lowers your capex requirements going forward. So.
I guess.
How does can you just talked about how that Mr. Antech.
Acquisition also affects your capex outlook going forward.
Yes, well first I would tell you that the statement about capex avoidance through the strand take transaction transaction is absolutely correct, but.
The Capex that we will avoid was not necessarily planned for 2020.
It would have it would have come at us in 2021 and 22 for the most part so.
So.
The timing isn't isn't an issue there and it's hard to say exactly what some project delays while main to 2000.
20, capex it all depends on on when we make deposits for new equipment, whether that falls in this year or next year, it's hard to say.
Understood I appreciate that.
I'll hop back into queue, and let others ask some questions. Thanks very much.
Thank you and again, ladies and gentlemen that is star one if you'd like to ask a question and our next question comes from Tyson Bauer KC capital. Your line is now open.
Good morning, gentlemen.
Hi, guys.
On the STM, the 29 million since they're feeling the same impacts from the tariff send the.
Ports would you suggest that 29 million is a far.
As a level that is pretty well insulated because they were doing much more years. Prior why do we didn't have the tariffs and those things and what do you suggest that that would be somewhat in.
Stable.
As we go forward because they've already taken the brunt of the industry hits that they were going to take.
Yes, I think the market had not been kind to strand tech over the last couple of years and volume had had declined forum.
Hard hard to say, whether they had reached bottom.
But we don't expect any deterioration of there the underlying customer base that was that was there when we made the acquisition.
And then their customer base pretty well marry your own.
It actually actually is more favorable than than ours and that they had minimal presence and in the post tensions segment of that market, which is the segment, which has generally been subject to the to the most import competition.
Okay.
What do you expect minimal ask DNA.
Increases going forward as the seems to be a part of an asset purchase and.
You are just incorporating it back to your own facilities.
Yes, that's correct.
Yes, there wouldn't be any SG innate impact other than to the extent it.
Contributes to improved results in that that impact.
The performance incentive plan, but no incremental staffing requirements associated with absorbing the additional volume.
Okay and the original press release, you talked about some clawbacks to your purchase price, which included the potential 8 million sale of the facility.
That you'll do.
Market willing.
Our asset sales.
They also have any excess networking capital that we could.
Add back or not out to the purchase price.
No I think there net working capital position.
Really right inline with what what you would expect so I wouldn't I.
I wouldn't anticipate any adjustments relating to that.
Okay.
At least here in the Midwest, which was probably obviously much different than the northeast.
There has been discussions and news items regarding infrastructure projects that are actually been pulled forward one because of the weather too because of less traffic and other impediments that may it created at night only work or otherwise have you seen that in other areas to and have you seen a better.
With that.
Speed up on certain projects.
Tyson we read the same information and were aware of the acceleration of certain projects. My sense is most of those are repair and major and that they wouldn't really affect underlying demand for our products, which typically go in the ground or.
Or our cast in place in nature and not subject to.
Rapid.
Schedule acceleration based on on short term events.
Okay.
Hey, also seeing at least some talk in the various.
Industries.
Like what's on schedule it will occur as it is scheduled to occur or things that did not have a schedule.
Those are the ones that risk of postponement or delays not necessarily cancellation, but just a cautious stance on starting something new that wasnt already scheduled are you seeing that also.
Well I think where we think we're aware of those concerns, but but are we actually seeing that I don't think so I think the real matter is funding and what's the what's the funding it.
Outlook over time on those resolved.
Depress tax receipts across the board Okay, Yes, I don't think we've seen any I don't think we've seen any impact from that.
Thus far I mean, the end this is going to be a function of the of.
How long how long that.
Pandemic persist and when we when you when we get a resolution and good because as it stands now I think our customers largely remain busy working through their existing backlog more an issue of the flow of new projects into the pipeline in the extent to which that that gets impacted and that that which does.
And turn off immediately there the time lag there. So I mean I think it will just be a function of the duration of code Cobot 19.
All right.
Characterize kind of that domestic wire rod supply and pricing.
And I think we have while on facility that will be shutting down here or has shut down.
And kind of the margin implications does that help you.
Keep your pricing a little more sticky.
Due to that situation.
Well I think Thats, a good question and it's going to play out over time I mean.
Clearly we've seen.
Dramatic downward moves in scrap we've seen.
A great deal of uncertainty in the market, which which.
As expected under the circumstances.
I sense that capacity is not a problem at all delivery times are short on and and for anyone who needs wire rod in this environment.
Probably have a more competitive situation for supply than you would have prior to all of this happening.
Okay and the next question's a loaded question for you that discussion of a stimulus for.
Seems to both parties includes some type of infrastructure component to it.
Administration seems onboard leadership in the house seems to be onboard for that.
Do you think that's more likely to occur or being successful on your anti dumping.
Filing.
Against those 15 countries on the PC strand or can you get both.
Well I think they're independent of want to another and certainly not mutually exclusive.
I don't see how the federal government doesn't.
Any appear on on an infrastructure bill under the circumstances.
I think that will happen, although although it's still speculative.
On the anti dumping cases, they are really see having nothing to do with any infrastructure. Bill. This is a matter of the facts that are on the record and whether the allegations can be supported.
By those facts and we believe strongly that they can.
Well they can certainly make the infrastructure more of a by America component as we've seen in the past.
That would certainly help me out and not requiring that anti dumping immediately.
Well I mean for for the bottom Erica coverage to be expanded would take a legislative at that I wouldn't expect and I've heard rumblings of.
All on on the on the dumping cases.
Impact there if we're successful should be simply that our foreign competitors are forced to play by the roles. Rather then you can't play at all so we'll just have to see what happens you know we've competed with imports in PC strand for 25.
Here is when we've done so successfully.
Until recently when Dom when.
It really didn't play by the rules. So we were hoping just to restore a level playing field here.
Thank you gentlemen.
Thank you and I'm showing no further questions I would now like to turn the call back to H. Woltz infield President CEO for closing.