Q2 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Schnitzer Steel's second quarter fiscal 2020 earnings conference call.
At this time, all participants are in listen only mode.
After the speaker presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone.
Please be advised the today's conference is being recorded.
Your acquire any further assistance please press star zero.
It is now my pleasure to introduce Michael Bennett Investor Relations.
Thank you Andrew and good morning.
Michael benefit the company senior director of Investor Relations.
I'm happy to welcome you to shift your steels earnings presentation for the second quarter fiscal 2020.
In addition to today's audio comments, we issued our press release and posted a set of slides both of which you can access on our website at since your steel dotcom or www Dot SC eight and dotcom.
Before we start let me call your attention to the detailed safe Harbor statement on slide two which is also included in our press release and then the company's form 10-Q, which we filed later today.
As we note on slide two we may make forward looking statements on our call today, such as our statements about our targets volume growth and future margin expansion.
Our actual results may differ materially from those projected in our forward looking statements.
Additional information concerning factors that could cause actual results to materially differ from those in the forward looking statement is contained in slide two as well as our press release of today and our form 10-Q.
Please note that we will be discussing some non-GAAP measures during our presentation today.
We've included a reconciliation of those metrics to gap in the appendix to our slide presentation.
Now, let me turn the call over to Talmer Lundgren, our chairman and Chief Executive Officer, She will host the call today with Richard Peach, Our Chief Financial Officer, and Chief of corporate operations.
Thank you Michael Good morning, everyone. Thank you all for joining us on our second quarter fiscal 2020 conference call.
Well I normally start the call today by focusing on the strong second quarter performance, we just delivered I'm going to start instead by discussing the actions that we've taken in connection with the coal that 19 outbreak.
I'll then review our second quarter results and brief you on the strategic initiatives we have underway.
Richard will follow with more detail on our segment performance, our capex investments and our capital structure.
I'll wrap up and then we'll take your questions.
And given the heightened pull of uncertainty caused by the coded 19 outbreak, we will not be providing any forward looking guidance.
Let's turn now to slide four.
In a shockingly short amount of time 'cause. It 19 has created a global health and economic crisis.
We are committed to doing whatever we can you provide support to our employees and our customers suppliers and communities. During this time.
We are included in the critical infrastructure sector and related supply chain as defined by the U.S. Department of Homeland Security and.
And we are considered an essential business by state and local government authorities in the U.S., including Puerto Rico.
And Canada.
As a result, our facilities have continued operating.
As always ensuring that health and welfare of our employees.
And all who visit our sites is our top priority.
Accordingly.
We are following all CDC and state and local health Department guidelines.
And Weve implemented infection control measures at all if our sites travel and meeting restrictions and other social distancing measures.
We are encouraging all employees to practice, good hygiene, and just stay home and seek medical attention if they feel sick.
We realized that this situation its stressful for all.
And we are actively communicating with our employees regarding resources, we can provide in support of their physical and mental wellbeing.
I'm very proud of the extraordinary efforts of all our employees.
You have not missed a beat in transitioning to a new normal working environment, whether that means new protocols in operations or working remotely from home.
At the same time, you've shown enormous generosity.
Whether in donating masks to local hospitals, providing support to local food banks and the American Red Cross.
Or supporting one another as situations change.
Your actions have reflected the collaboration innovation and resilience that define our culture and our company.
I also want it, especially highlight the work of our frontline team members, who have deployed new work processes to protect our employees and all visitors to our sites, while continuing to work safely and deliver improved safety performance.
Fiscal 19 was the safest year recorded in our company's history, and we have continued to make progress by further improving our T.C. IR and L. T IR trends through the first half of this fiscal year.
To all our employees listening to the call. This morning.
It has been inspiring to see you execute on our mission to support our country's critical infrastructure and essential businesses.
I want to thank you again for everything that Youre doing for our country, our communities and our company.
In addition to safety our commitment to our other multiyear sustainability goals as shown on slide five it's even more important in today's environment.
These goals are focused on conserving resources, reducing waste in emissions, maintaining an ethical engaged and inclusive workplace and giving back to the communities where we operate.
During the quarter, we were recognized by several very well respected organizations for various aspects of our sustainability program.
And I want to acknowledge the contributions of all our teammates as these honors reflect your commitment to our core values and culture.
So, let's turn now to slide six.
The rapidly evolving environment that we're in today presents unique an unprecedented challenges.
It's worth noting however that we are a company that was founded in 19 owes six and we've experienced downturns and volatility from the great depression to the great recession, there's a legacy at our company facing challenges head on and navigating through the toughest of times.
We have a strong balance sheet with low net leverage and interest expense.
Significant cash on hand to weather declines in demand.
We also have a strong track record of delivering positive through the cycle operating cash flows.
It's worth noting that we have historically generated significant operating cash flow in declining markets through the reduction of working capital, which provides a natural hedge against the risk of lower earnings.
Equally as important we benefit from an operating platform, where the majority of our costs are variable.
And we have multiple levers available to us to manage through this challenging period.
We have reduced our capex forecast by 30% in light of known and probable delays.
And our productivity improvement program, which we announced in October is on track to deliver $15 million of benefits we targeted for this fiscal year.
In addition in light of softening demand and lower supply flows we've reduced operating hours at some of our sites and have also reduced other variable costs associated with lower volumes.
Right now none of us can say when the pandemic will be over or what additional adjustments may be required. However, the actions that we've taken over the past several years have prepared us to move quickly and effectively as the situation requires.
So now, let's turn to slide seven to review our second quarter results.
Earlier this morning, we announced our fiscal 22nd quarter adjusted earnings per share of 31 cents.
Both our divisions delivered solid operating results and I'd like to start by mentioning a few of our key achievements in the quarter.
First.
Amar delivered <unk> operating income per ferrous Khan of $23, a significant improvement versus the first quarter.
The team did an outstanding job navigating through a volatile quarter in particular.
I'd like to know Theres strong execution of our major productivity initiatives and their ability to continue to diversify our sales we shipped our ferrous and nonferrous products to 20 countries in Q2.
Second CSS achieved operating income of $4 million. This was in line with Q1, despite lower finished steel prices higher scrap input costs and the adverse impact from their planned maintenance outage sales volumes at CES up or up 37%.
And year over year amidst robust construction demand in our west coast markets.
And relatively mild winter weather.
And third our strong focus on working capital management enabled us to deliver positive operating cash flow.
Notwithstanding higher prices for raw materials.
And the second quarter also marked the issuance of our 104th consecutive quarterly dividend.
Let's now turn to slide eight to review market trends and conditions in more detail.
As you can see in the upper left hand chart.
Ferrous scrap prices rose steadily during the first two months of the quarter before softening in February so.
Since the end of the quarter, however, both export and domestic prices have fallen significantly.
As the auto oil and gas construction and manufacturing sectors have slowed down in response to covert 19.
And while we continue to see inquiries for export ferrous shipments of both the east and West Coast. There is a risk that temporary or extended disruptions at destination ports may delay shipping activity.
Turning to non ferrous prices as you can see in the lower left hand corner of this slide during the first half of Q2 prices rose from decade low levels before retreating.
They are now hovering around levels that we last saw in 26 team.
Similar to the ferrous markets. The recent price movements have largely been influenced by declining industrial global demand.
Not surprisingly.
Supply flows for both ferrous and nonferrous materials. Since we ended the quarter have also slowed due to reduced generation of materials and weaker flows of materials as a result of covert 19.
Let's turn now to slide nine to discuss some of the longer term trends underlying demand for scrap.
There's a significant degree of uncertainty in near term market conditions due to covert 19.
We have seen softening demand trends and supply chain issues.
Including reduced availability of containers and other logistics constraints.
Despite the current volatility however, the long term drivers of scrap demand remain intact due to the greater emphasis on recycling.
The continued growth in global Eas steelmaking capacity.
And the increased metal intensity of lower carbon based economies.
Well, none of us knows when the covered pandemic will end, we're managing all the aspects of our business within our control.
And we are continuing to move forward with a number of strategic initiatives that will drive long term growth.
So now, let's turn to slide 10 to review these actions.
Our strategic initiatives address three dynamics cyclicality structural change and long term drivers scrap demand.
We are addressing each of these dynamics through programs focused on productivity improvements and advanced organizational change.
Technology investments.
And increasing the products and services that we can offer to our customers.
So let's discuss each of these in order.
At the beginning of our fiscal year, we announced a productivity improvement program.
Centered on delivering benefits from production and functional cost efficiencies improved asset management and logistics the benefits and cost savings from this program have been largely completed.
In order to provide greater focus through the cycle on our strategy and growth and enable greater focus on the critical drivers of our business, we will be transitioning from the multi divisional organizational structure, which is currently in place to more simplified operating model.
We refer to this new model as the one schnitzer model as it will move us to a functionally based integrated organization.
We will consolidate our operations sales services and other functional capabilities at an enterprise level.
We're excited about this transition and believe that this new structure will enable us to create a dedicated platform to accelerate growth in products and services.
To further standardize our operations to ensure our low cost operating position and promote operational excellence.
To solidify the productivity and cost efficiency benefits announced in October that have been substantially completed.
And to increase the connectivity between shared services and operations.
We expect to transition to this new operating model over the remainder of fiscal 2020 and to report our financial results in a single segment commencing with the first quarter fiscal 2021.
Second as Richard will describe in more detail our investments in advanced metal recovery technologies continue to move forward, Although we may see some near term equipment delivery and permitting delays due to covert 19.
Once these projects are completed we will be able to improve the efficiencies of our processes increase our throughput extract more materials from our shredding process and meet global metal content and quality requirements on a cost effective basis.
Importantly, these investments will also support our sustainability objectives of increasing recycling and reducing waste and the third leg of our strategic growth initiative is focused on increasing our sales products and services over the course of the last several years as our ferrous and nonferrous and.
Pick and pull volumes have grown we've also seen an increasing demand from our customers for a wider range of products and services, including furnace ready nonferrous products and recycled auto parts as well as logistics and related services to help them improve the sustainability of their own supply chains.
Together, we believe that these initiatives position us well to significantly grow our revenues improve our margins and continue generating strong operating cash flow through the cycle.
So now let me turn it over to Richard for more detailed review of our segment performance and our strategic Capex investments Richard.
Thank you Tom ROE and good morning, I'll begin with a review of our cash flow on capital structure on slide 11.
Operating cash flow in the second quarter was $6 million.
For the first half of fiscal 20 was $17 million.
On the ended the quarter or net debt was $152 million.
Our net leverage ratio was 16%.
Under reissue mid day to adjusted EBITDA was 1.2 times.
A revolving credit facility is $700 million and does not mature until the end over the school Twentytwenty three.
Given uncertainties caused by Kubat 19 on April horse, we increased our borrowings under our facility by $250 million supervisory those with additional liquidity and financial flexibility.
Including the drawdown, we know how cash on hand of approximately $300 million.
Capital expenditures in the second quarter totaled $13 million on for the fiscal year to date or total topics was $57 million.
As Tom mentioned.
We've also taken action to reduce our annual capex by almost 50%.
Or $35 million I know, we expect to spend a tool to live up to $90 million in fiscal 20.
This new tool includes $50 million on growth projects on the balance of $14 million is for maintaining the business, including $10 million on environmental projects.
Adjusted corporate costs in the second quarter were $9 million under effective tax rate was an expense of 20%.
During the quarter, we made significant progress and implementing productivity initiatives, which we doesn't last October.
We are targeting realize benefits of $15 million school twentytwenty.
Oh, which $6 million has been achieved in the year to date, including $4 million in the second quarter.
These savings are coming primarily from war MSG any in MSR.
In connection with these productivity initiatives, we incurred to restructuring charges and other exit related costs of approximately $5 million in the second quarter.
These charges are excluded from our adjusted EPS.
As we transition to our new operating model, we will be in shooting that's in coming months will provide more detail on the reporting implications over new organization structure.
Our enterprise level reporting will still includes revenues costs EBITDA and earnings.
We also plan to continue reporting operating statistics, including volumes and selling places where our meet your products.
As well as you expected benefits and returns put or strategic initiatives.
No totaling to the next slide I'd like to provide an update on the status of our technology strategy.
We're continuing to focus on progressing or major strategic initiatives to replace upgrade and I'm not sure nonferrous metal recovery technologies.
Our plan includes Zorba separation capabilities advanced sorting equipment on technologies for clean copper recovery.
The new equipment is being installed in our major facilities on boot east and West coast of the United States.
Once implemented these new technologies will allow us to generate gruesome rental yields reduce processing costs.
Improve the quality over products.
We also expect to produce more fairness ready products and that the new technology will allow us to convert zorba, two twitch cope or brass zinc.
Zinc stainless steel and although sealable metals.
We expect the aggregate capital investment should be in the range of $75 million to $85 million.
$10 million already spent in fiscal 19 up to $40 million to be spent in fiscal 20 on the bones <unk> in fiscal 2002 one.
In accordance with our strategic plan, we continue to police priority on progressing the implementation of these new technologies.
Our new copper recovery plans already complete and operational.
Although installations plan for fiscal 2003 or will advance.
However in the current cobot 19 situation. Some disruptions who are projects is inevitable and there may be delays to receiving remaining equipment.
Obtaining necessary permits and reduced availability, although say contractors.
Once the new non ferrous technology is fully implemented we expect a benefit to operating income to be at least $8 per ferrous ton.
This translates to an annual benefit of approximately $14 million consistent with our long term target of ferrous volumes of 5 million tones.
We also expect an average p. Mike of three years.
Return on investment, which is significantly in excess over coast of Council.
No, let's turn to sleep their team to discuss or ferrous sales platform.
In the second quarter, we continue to put strong focus on optimizing our global sales reach ongoing diversification.
We delivered a products to customers in civil coincidence, including Asia, South America and Euro.
As well as the U.S. on Canada.
Despite winter seasonality the higher price environment led to a sequential improvement in supply flows.
Similar to the first quarter, we sold almost two thirds or ferrous protocols. So the export market.
The remainder domestically, including two or one mill.
Since the end of the quarter.
Governments have implemented restrictions in response to covert thing team and we continue to monitor these developments.
Now, let's turn to slide 14 for an update and nonferrous.
The structural changes in the market for recycled nonferrous products have included Chinese tariffs and increasingly restrictive kudos for Chinese scrap importers.
Recently, China honors the removal of tariffs on certain mental scrap imports from the U.S.
China has also to build new quality standards for imported scrawl.
Although uncertainties remain we understand these new standards will be implemented this year.
On July 1st.
Thereafter, we understand nonferrous products that meet the new definition of raw material and comply with the new quality standards, maybe you eligible for imports into China with El Cuatro limits.
These structural changes reinforce the importance of or technology strategy under sales diversification and in the first house, we shipped 92% or nonferrous products two countries other than China.
We've also expanded or customer base, and we sold or nonferrous pull those 13 countries in the second quarter.
These included India, South Korea, Malaysia, Taiwan, Thailand.
Having a diversified sales strategy is beneficial.
Given the potential for disruption from cope with 19.
Now, let's turn to slide 15 to discuss the old pricing trends that you anymore.
The second quarter Hmos, adjusted operating income was $20 million or $23 per ton.
This represented a significant improvement in sequential performance.
Increased demand resulted in net selling prices for our ferrous shipments moving sequentially higher like 14%.
Ferrous sales volumes also increased sequentially by 2% on the improved market conditions led to increased supply flows despite the adverse impact of winter seasonality.
In our had a positive impact from average inventory accounting of approximately $4 per ton.
As compared to a detriment of $5 per ton in the fourth quarter.
The improvement MGM. Our performance also included benefits of higher prices for platinum group metals I'm from productivity initiatives, which led to a sequential reduction in MRC. Thanks Jenny.
Now, let's move to slide 16, and discuss operating trends in CSS.
CSS is second quarter operating income was $4 million, which was in line with the previous quarter.
Performance benefits it sequentially from a higher contribution from recycling operations.
Increased finished steel sales volumes on from productivity initiatives.
Recycling revenues were 10% higher sequentially.
Primarily due to a flow through of the higher scrap price environment.
Finished steel sales volumes in the second quarter, we're also sequentially higher like 13% amid robust construction demand on relatively mild winter weather.
These benefits were offset sequentially by approximately $1 million of plan maintenance and by margin compression caused by the decrease in average net selling prices for finished steel products.
I'll now turn the presentation back over to tomorrow.
Thank you Richard our strong second quarter results reflect the resiliency of our operations and the ability of our team to navigate well during an improving but still volatile quarter.
Both divisions achieved higher sales volumes and benefited from strong execution of the productivity initiatives. We implemented during the quarter. In addition, our strong focus on working capital management enabled us to deliver positive operating cash flow notwithstanding higher prices for raw materials.
While the near term outlook is uncertain.
Our team his experience in managing what we can control in the short term, while continuing to execute on our longer term initiative.
I am very proud of how our company is reacting to this worldwide crisis adapting to new ways of working and demonstrating the resilience and resolve that has been a hallmark of our company for over a century.
By acting decisively, making the right immediate moves and asking the critical long term questions. We will be stronger when this is all over.
To all our employees.
Thank you for everything that you are doing to remain safe to keep your families and friends safe and to support your colleagues your communities our company and our country.
Now operator, let's open up the call for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key.
Please standby, while we compile the Q when a roster.
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Your first question comes from the line of Matthew Korn with Goldman Sachs.
Hey, good morning, everyone.
Good morning, it's great here and what sounded so so so healthy and.
Good.
Congratulations on the quarter its bittersweet that we seem to be coming from such great conditions, you know as the calendar year started off in two years uncertainty.
Could you comment a little bit right now.
The conditions on the ground.
You mentioned your facilities are open or you're running with any reduced workforce are you seeing any absenteeism you know any competition are there any shredders being closed you know what are you seeing there and then.
As far as reduction in flows.
Yeah, maybe some comments there what you're seeing how it might be able to quantified or frame that versus last quarter versus last year or any of that would be helpful.
Sure. Thank you and it's good to hear you as well not glad that all as well.
To date as we said in our prepared remarks today could have a 19 has had limited impact on our operations I'm. The most prevalent lever that we have then utilizing has been reduced operating hours and as you may well imagine with our regional model.
I have the flexibility to adjust operations at various sites and redirect flows. So we've seen limited date or limited impact today on an operations supply flows is is a bit different I mean, we clearly have seen supply flows weaken.
In certain regions, but not uniformly across the country.
For for for the month of March we were for ferrous pretty much flat a year over year, but but clearly the last 10 days or so we saw a decreasing trend.
April domestic prices haven't settled yet as you know.
And well scrap flows are lower generally due to reduced generation and some constrained logistics.
We are hopeful that the April domestic pricing when it does settle will not exacerbate a the lower supplies that we've already begun to see.
All right.
Good to hear will keep watch my other question Richard Love Your comment here you know.
Thanks again for the up given the technology and what do you plan on doing how do you think.
About the viability of the cost savings measures that you're putting in place you know that can be executed over the course this year a unit volumes and activity levels, you're really do propel the decline at least in the near term.
Hi, Matt I'm glad you your voice.
We are more levers that we can access.
As we said in her remarks.
We substantially completed.
The $50 million old benefits.
We announced back in October this year before 6 million in the year to D.
The actions have already been tecan, so you'll see the balances.
In the remainder of the year and looking ahead and the majority of are cool or urea.
And so as Tom said, we're already in a position to flickers and an ships and other reduction dependent costs.
Scrap costs are beautiful so we have the opportunity to.
Adjust adjusted news for changes in the market.
And this significant minority over production costs and east you need.
Our beautiful and as well so there is an opportunity to T actions there.
On the balance sheets.
As we mentioned, we reduced or count makes my 30%.
And we continue to actively manage your working capital including.
Inventory and receivables and payables so those.
In summary, lower labor and we're.
Already very active on that site.
Great appreciate the color folks best of luck dog here and there as well okay all right.
Thank you enter next question comes from the lineup Tyler Kenyon with Cowen.
Good morning, Tyler.
Hey, good morning, everybody go up everybody is helping those just one of the lead off your weird a question on PGM products I've never specific lingered you call out.
Benefits or headwinds from that category, which was curious if you could describe it but more about what's happening there.
And how to think about how much that is contributing to two spreads currently.
Sure Hi, Oh [laughter], it's Richard.
Yes in terms of their improvement sequentially in operating income from the first quarter two the second quarter.
The significant majority all the improvements in profitability came from a combination.
Oh, well better spreads and promise ferrous market improvement.
And the benefit from average inventory accounting, but there were other contributory benefits from a productivity improvements.
The higher.
In the group remains tools, but these were you know the minority yeah, absolutely improvement.
Quarter over quarter as you know, there's many and components and you know car.
And you know we are spread business, so horribly close to the car.
It includes the volumes of different components, including the bottom group metals and of course.
You know when we sell these we eat rica spread and with the the places Oh Watson group <unk>, increasing during the second core so we see the benefit would be you called out.
Okay got it. Thank you that's helpful. And then with you know ferrous and nonferrous volumes kindergarten tracking below last year they.
And you know I imagine that there's there's more pressure here in the back half of your.
Fiscal year that is.
I mean, how should we be thinking about the operating leverage.
Should volumes slow pretty significantly I mean, I know in the past you've mentioned every every one dollar recall in every 100000.
Tons change in the volume should impact your operating leverage by about a dollar per tonne EBIT per ton that is.
So your productivity improvement targets appear on changed it looks like so.
I'm wondering if there's some action you you can take or or taking that that could help mitigate some of that and back.
Yes, Yeah, Tyler I, just said today, we've got a law levers on the cost side and the significant majority of of course are variable scrap costs are variable.
We have significant amount of course in the production areas.
It's genies.
So there's.
Plenty of actually we already taking on canteen to adjust or be able to course, you lose and continue to weaken and our productivity initiative of course, and these address or fixed costs because they seem to me.
Permanent changes in our cost base and future operating leverage.
Okay, and then I'm, just some capex spend to change the $35 million reduction for fiscal year 2020 should we be thinking about that 35 million dollar reduction shifting into 2021 for now Richard I'm not sure. If you offered in specifics on that yet.
And yes, you're correct in the ER, we've reduced by.
30, 35 million dollar so that that $35 million will will likely shift into fiscal 21, but it could who showed some costs that were playing to win in the following year too so and it's just really pushing out relative to the <unk> the cool with 19.
And situation it doesn't necessarily mean.
I think increasing and instead school twin although having said that the extent or group County, Texas is less in fiscal 20 of course will make up the balance in fiscal 21.
Okay, and then lastly, you know just given the challenges that that you know appear on the horizon here.
Wanted to ask about your commitment to the dividend and then also maybe how we should be thinking about.
Ah share repurchases in light of the current market environment.
Sure I'll I'll take that Oh, I Tyler based on everything that we are seeing today and the actions we've taken and the plans that we have we don't anticipate any changes in our capital allocation priorities, which are balanced and their balanced among.
Maintaining and investing in our business, reducing our debt and returning capital to our shareholders.
Thanks, very much they say thank you you too.
Thank you and as a reminder to ask a question you will need to press star one on your telephone.
Our next question comes from the line of Michael the shop with Keybanc capital markets.
Hey, good morning.
Good morning, and so I just wanted to continue on the Capex side growth Capex was cut by about 20 million and so now you're looking at about 40 million given the co. Good demand Chuck can you talk as to what projects that you're prioritizing given that lower level of spending.
So is that lower level of spending across all projects are there are some that you're prioritizing over others.
Hi, Michael It's it's Richard here.
Of course these these nonferrous technology projects on a long term investments.
But the covert 19 situation doesn't mean, we we've begun to see him. Some believe they're not impacting any one project in particular, it's more a situation where and all or most of the projects are being impacted by.
For example.
The impact on permitting or equipment deliveries or availability. So you can track there. So we continue to push on with what we can control.
But we have seen some believes that our and it really to to the current situation, which is why we reduced there are expected company I would mention though on the group tropics, it's a it's actually.
On the technology projects or a 10 million and dollar change from or from our last prediction on on lose a group capex projects. So we continue to most of the situation or who is going a.
Long term and each of these investments and continuing to execute on our strategic objectives.
Okay, Great and then so what's the timeline now and getting the a dollar at time benefit in profits given those capex deferrals had has that been pushed out as well.
No we're still sticking with her expectation that we can complete the projects by the end of the force our fiscal 21, although having said that some of the individual projects within the program will be a subject to some the elite.
Within that time period because of the current situation.
But we're going to continue to monitor how it goes and this is any change in or overall target Dee Ann will be I'm sure to update you on future calls.
Got it and then just given the intensifying co good material handling restrictions in Asia, along with the global nonferrous demand weakness on the auto fallout can you talk about how you're navigating some of those obstacles going forward.
Sure.
Well, we are saying is that export demand is weaker.
But there continues to be inquiries from customers across our major markets.
And most of the people.
Most people that we are speaking to today want to maintain operations, even if they're at a reduced level because they want to be able to restart operations quickly when the pandemic its past us and the ports that we're shipping to are still operational although discharge.
Maybe slower due to report reduced personnel. So as I mentioned before a supply flows are down a world, where we're seeing export demand continue but I think everything is at a bit of a slower pace, a little lower levels and a little bit a being executed.
Slowly.
Okay, great I appreciate that color.
And then just just lastly from me I know, there's a lot of uncertainty right now, but just given the levels of activity you've seen in the past month or so in your ability to take out costs. You expect am are to be profitable in the third quarter.
As we started with the with the Oh first a bit of our prepared remarks, we're not providing an outlook at this time.
But what we you know what we have a shared with you and what Richards repeated a few times now. This morning is we've got multiple levers.
And we we benefit from a platform.
Where the majority of our costs are variable. So if we see an extended slowed down there a lot of levers that we can pull a flex hours and ships and scrap costs and and I've seen a and productivity and the like.
Great. Thanks, Thank you.
Thank you and I'm showing no further questions at this time, so with that I'll turn the call back over to Tamra Lundgren for closing remarks. Thank.
Thank you Andrew and thank you everyone for joining us on our call. Today. These are very volatile and uncertain times and we wish for all of it. It continued to take care of yourselves and your loved ones and we look forward to speaking with you again and again, thank you very much.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating and you may now disconnect.
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