Q3 2020 Commercial Metals Co Earnings Call
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For the company's remarks, we will have a question answer session, which will have a few instructions at that time I would like to remind all participants that during the course of this conference call. The company will make statements that provide information other than historical information and will include expectations regarding economic conditions, the impact of cobot 19 effects legislature.
Action U.S. steel import levels U.S. construction activity demand for finished steel products the company's future operations. The company's future results of operations in capital spending these and other similar statements are considered forward looking statements and make involved forecast then and are subject to risks and uncertainties that could cause.
Material <unk> actual results to materially different from the expectations beat actual results.
Statements reflect the company's beliefs based on current conditions, but are subject to certain risks and uncertainties, including those that are described in the risk factors and forward looking statements disclaimer sections of the company's latest annual report on form 10-K, and subsequent quarterly reports from form 10-Q. Although these statements are based on management's current expectations and beliefs.
C. N C offers no assurance that these expectations or beliefs will prove to be correct and actual results may vary materially all statements are made only as a mistake actually expect as required by law.
Yes, he does not assume any obligation to update amend or clarify these statements in connection with future that.
Changes in assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise.
Some numbers presented our non-GAAP financial measures reconciliations for such numbers can be found in the Companys earnings release or on the company's website, unless otherwise unless stated otherwise all references made to year or quarter end all references to the company's fiscal year fourth fiscal quarter.
Now for opening remarks, an introduction I will turn the call over to chairman of the Board President and Chief Executive Officer of commercial metal companies as Barbara.
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Good morning, and welcome to our third quarter earnings Conference call I'd like to begin with a sincere. Thank you to our 11500 CMC employees around the world.
Covert 19 crisis for each of them to make significant adjustments sacrifices in nearly every aspect of their lives.
In the face of these challenges they prove they are adaptable creative and collaborative while showing their commitment to their communities and each other through countless acts of kindness.
Several months clearly demonstrate the power of CMC, if people and our culture. They are the backbone of CMC and I'm enormously proud of how they perform during this personally and professionally difficult time.
Turning to our third quarter results I will now review highlights from the quarter, including a discussion of the impact of covered 19 as well as our response to the crisis and also provide a brief update on current business activity levels.
Oh, Lawrence will then cover the quarterly financial information in more detail and I will conclude our prepared remarks with a discussion of our outlet for the fourth quarter fiscal 2020.
After which we will open the call to question.
As announced in our earnings release. This morning, we reported fiscal third quarter 2020 earnings from continuing operations 64.2 million or 53 cents per diluted share on net sales of 1.3 billion.
Excluding the impact of certain charges, which Paul will cover in more detail. Our adjusted earnings from continuing operations were 70.4 million or 59 cents per diluted share.
Our GAAP and adjusted earnings from continuing operations increased sequentially from the second quarter.
The empties entire third quarter was impacted by the cobot, 19% pandemic.
From the onset of the crisis each of the U.S. jurisdictions, where we operate.
C. N C was recognized as an essential business, reflecting our company's role in supplying the necessary materials and services for the construction of much of our nation's most vital infrastructure.
Just a few examples of these critical projects include an expansion the Medstar Georgetown surgical hospital in Washington D.C.
And you every winship cancer treatment center in Atlanta.
The D.C. clean water project and the refurbishment or the New New York Laguardia Airport.
The regulatory designation in Poland is different but the practical outcome was identical and construction activity continued largely unabated.
Well the essential business designation allowed C. N C to avoid any mandatory curtailments, we took actions to ensure our people remain safe and all our plants remained open serving customers.
CNC acted early to institute practices that limited the spread of the virus at our facilities, including social distancing enhance annotation visitor restrictions and remote work arrangement.
We formed a task force to respond to a constantly evolving set of circumstances in a timely and open manner.
This group worked tirelessly to coordinate efforts and share best practices across our organization.
Very proud to report that not only did CMC avoid any in infection related disruptions. We also have avoided any loss of productivity, which is highlighted by our third quarter cost performance.
This achievement can be attributed to our operating teams, who given any set of challenges always find a way to improve efficiency.
The cobot 19 pandemic created economic stress and uncertainties unique in our lifetime.
It's such an environment, we concentrated our efforts on the elements of our business. We can directly control in particular customer service cost and cash management.
On the customer front, we enhanced our collaboration even further to accommodate changing needs in an environment where forward visibility was diminished.
Fluid situations in their own businesses, let customers to quickly adjust product needs quantities turnaround times and even delivery procedures.
Our ability to rapidly adopt was recognized with increased market share in both the U.S. and Colin.
The difficulties presented by the pandemic gave CMC an opportunity to further improve our value to customers.
And our commercial operations and logistics teams seized upon it.
The next lever cost management yielded equally impressive result.
As noted in our press release, the Americas Mills achieved its best conversion cost levels since our November 2018 acquisition.
This accomplishment was aided by our ongoing optimization efforts that included the earlier decision to curtailed, California melting operations and supply billets from more efficient plant.
Cost reduction also benefited from the operating flexibility gain through the 2018 acquisition.
In fact in an environment of general economic malaise, we continue to improve.
As an example, one of our mills set a new quarterly production record well in May two others posted their best monthly conversion costs under CMC ownership.
Not to be out on our Polish team demonstrated their ability to lower cost and improve efficiencies.
First in cost per tonne decline, both on a sequential and year over year basis, despite modest reductions in shipping volumes.
Additionally, in our fabrication segment reduced its controllable cost per ton to the lowest level in two years as we continue to optimize our network of fabrication facilities, allowing us to rationalize the location in California.
Turning to cash management, you can clearly see the results on our balance sheet.
Nearly doubled our cash balance during the quarter, increasing it by 230 million, an ending the quarter with 462 million of cash on hand.
We tightly controlled working capital striking the right balance between keeping material in stock to provide a high level of customer service.
And mitigating the amount of cash tied up in inventory.
We've reduced inventory by approximately 10% from the second quarter.
Much of this reduction was driven by our efforts to optimize our network and eliminate redundant stock.
We also closely monitored accounts receivable and we're a proactive and collection effort, we did not occur any significant deterioration our aging.
In total CMC was able to harvest 150, 657 million of cash from working capital during the quarter and generate cash from operations of 278 million.
As a result, our strong balance sheet and leverage profile improved further.
Our net debt to trailing 12 month adjusted EBITDA.
Stands at 1.2 times versus 1.6 times at the end of the second quarter.
Our net debt to capitalization improved from 32% to 24%.
BMT is performance within a turbulent economic environment demonstrates both the strength of our vertically integrated business model as well as the attractiveness of construction end markets.
Looking first at our vertical structure, a robust backlog at Prefunded fabrication projects supported volumes at our domestic mills during the quarter.
Additionally, our downstream presence provided our mill with forward visibility, which allowed us to optimize production during the quarter and manage conversion costs and logistics costs.
The stabilizing nature of fabrication was evident and in third quarter, while many businesses across the U.S. industrial landscape Expiries experienced margin compression.
Our fabrication business achieved significant expansion as spreads between six selling prices and lower spot input cost widen.
This more than offset market challenges faced in our upstream recycling business.
More broadly the third quarter showed that construction end markets don't behave like other steel consuming sectors.
They're not driven by near term discretionary spending and don't quickly shutdown projects already underway, our prefunded and were generally become income generating properties upon completion.
This means that work continues even as other sectors Hello.
We also experienced the same pattern during the last recession.
The combination of our vertical structure, securing mill volumes the impact of expanding margins on fixed price work and the resilience and construction activity led to an extraordinary outcome when when viewed within the broader global economic context.
PMC is finished project product volumes.
Which excludes recycling declined only modestly year over year.
Our gross margin as a percent of net sales actually increased from a year ago, while core EBITDA and EBITDA margin also increased.
As a reminder, our Polish operations also benefited from an identical vertical structure, which helped to so stabilized performance during the quarter in an equally challenged European market.
Let me now make a few comments regarding current activity levels.
Our domestic mills remain busy and our shipping at a historically normal rate for this time of year.
We did experience a temporary decline in order rates for merchant products during April as service centers purposely destocked.
There was it rebounded merchant volume in may and buying patterns appear to be normalizing as the economy reopened.
The volume in our current fabrication backlog is near record levels and metal margins on that work are very attractive a current rebar prices.
Fabrication bidding activity has remained strong our.
Our recent booking rates has also been good.
Metal margins within our Americas Mills segment exited the third quarter at levels above historical cycle average.
Also as a reminder of the majority of our U.S. businesses driven by Prefunded construction projects that are six months or longer in duration.
Construction demand in Poland continues to also be robust as I noted earlier.
Finally, as I stated in our press release the board of Directors as stated in our press release the board of directors declared a quarterly cash dividend of 12 cents per share of CMC common stock for stockholders of record on July six twentytwenty. The dividend will be paid on July Twentyth 2020. This represents the answer.
These 220 threerd consecutive quarterly dividend.
With 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 on the call today.
I would like to begin with a few comments regarding Sam sees balance sheet and liquidity profile, which is currently at its strongest level and well over a decade.
Our purposeful actions over the last several quarters to reduce debt levels have positioned us well to maneuver today through today's uncertain environment.
As Barbara mentioned net debt stood at just 1.2 times trailing EBITDA at quarter end and our gross debt ratio with two times.
We have a conservative capital structure with net debt of only approximately $700 million outstanding.
Given the current economic backdrop, we are encouraged to see each of our bonds trading above par a sign that creditors also appreciate our solid financial position.
At quarter end, we had liquidity in excess of $1 billion, including 462 million of cash and 604 million of availability on our credit and accounts receivable programs.
We currently have no plans or need to draw against our credit facilities.
Turning to the third quarter financial results, we reported earnings from continuing operations 64.2 million or 53 cents per diluted share compared to 78.6 million or 66 cents per diluted share in the third quarter of 2019.
We incurred net after tax charges of 6.2 million during the quarter, primarily related to our decision to continue to consolidate our west coast operations and exit a fabrication facility.
This is another action in our ongoing effort to optimize Cmcs network. Following the 2018 rebar asset acquisition.
The vast majority of the charges taken were non cash and we expect to realize cost benefits in future periods.
Our core EBITDA from continuing operations was 154.8 million for the third quarter of Twentytwenty.
Flight increased from 153.6 million reported in the third quarter of last year, Despite a pandemic impacting global economy.
The Americas recycling segment recorded on a.
Adjusted EBITDA loss of 1.7 million in the third quarter of 2020 compared to EBITDA of 12.3 million in the same period last year.
The market environment for scrap was already challenging exiting the winter months.
Additional strain of Cove at 19 pushed lower pricing, even lower and caused several third party male customers to significantly reduce thereby programs.
We were able to preserve metal margins during the quarter by making early and rapid adjustments to our scale prices and tightly managing inventory turns.
However, this was more than offset by the effect of sharply lower volumes as industrial scrap generation was meaningfully slowed due to the temporary idling of manufacturing facility.
The total ferrous and nonferrous shipments declined by 21% from a year ago, hitting their lowest mark and over three years.
We did not however have any issues getting sufficient scrap into our mill operations.
The Americas Mills segment recorded adjusted EBITDA of 133.2 million for the third quarter of 2020.
Compared to adjusted EBITDA of 158.1 million for the third quarter 2019.
Shipment volumes declined by only 4% from a year ago.
When compared to the broader steel market, which will likely experience a sharp double digit decrease we believe the single digit decline highlights the relative strength and near term stability of construction end markets.
Shipments of merchant products also declined only march modestly due largely to being able to gain incremental market share.
As Barbara mentioned, our domestic mills achieve their best per tonne cost conversion cost levels in the last two years, despite incurring some incremental costs relating to keeping our employees safe.
Metal margins remained at historically high levels.
Third quarter average of $367 per tonne increased $17 per ton sequentially that scrap costs fell but was down $19 from a year ago.
Over the last eight quarters, we have managed our metal margin within a 50 dollar bad from $350 per ton to $400 per ton.
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 roll coil.
Domestic markets biggest largest volume product category experience, a $250 per ton swing from peak to trough.
The Americas Fabrications segment recorded its best quarterly profit nearly 12 years.
Adjusted EBITDA of 31.9 million improved significantly from the adjusted EBITDA loss of 23.3 million in the prior year quarter.
Similar to the America Mills volume was only marginally impacted by select job outages in certain jurisdictions.
Financial results improved as a result of the rising average selling prices against declining rebar input costs, which led to margin expansion.
Average selling prices of $966 per tonne increased $41 per tonne compared to the third quarter of 2019.
Margin in our backlog is solid and we expect merit material to be profitable went shipped in future quarters based on current rebar pricing.
Also the volume of our backlog remained strong sitting at approximately 96% of recent peak levels.
The International Mill segment recorded adjusted EBITDA of 14.3 million for the third quarter of 2020 compared to adjusted EBITDA of 24.1 million in the prior year quarter.
Modest decline in shipments from a year ago was driven by lower opportunistic billet volume last year.
Finished goods shipments out of our mill actually increased by 2% year over year helped by continued strength of demand for construction steel and market share gains and merchant and wire rod products.
Within an environment of contracting central European industrial activity, our Polish team added new customers and took share.
Metal margins were down year over year, but stable on a sequential quarter basis pressured by import orders and the overall challenging steel market in Europe.
Turning back to our consolidated results our effective tax rate for the quarter was 27% and we anticipate that our effective rate for 2020 will be approximately 25% to 26%.
In the third quarter, we generated $278 million of cash from operating activities with $157 million coming from working capital liquidation.
Looking at cash flow performance over the last 12 month gives us an even bigger picture of Cmcs capabilities for following our strategic 2018 acquisition.
We generated $787 million of cash from operating activities and free cash flow defined as free cash flow from operations minus capital expenditures totaled 606 million.
This has allowed us to pay down $200 million of debt over that time period and increase our cash balance to 462 million at May 30 Onest.
We estimate the capital expenditures for fiscal 2020 will be in the range of 155 to 170 million.
This is down slightly from our prior guidance of 160 to 185 million and is based on a clear view of total spend as we approach the end of the fiscal year.
This concludes my remarks, and now I'll turn it back over to Barbara.
Thank you Paul.
As we previously indicated CMC exited the third quarter with near record level backlog. This will support fourth quarter shipments.
Our Americas Mills, and fabrication segments, where we expect normal volume seasonality to spike of at 19.
Vacation margins are anticipated to remain strong as we continue to benefit from a solidly price backlog and easing of input costs.
Recycling should return to a modest profitability with activity levels picking up from depressed third quarter levels.
International Mill performance it is expected to be relatively stable quarter over quarter.
Stepping outside of our internal view I'll share the 2020 and 2021 outlet published last week by the Portland Cement Association.
One of the most reputable forecasters have construction activity.
The organization expects cement consumption to decline just under 4% this calendar year.
By roughly 1% growth next year.
I'm proud of our Companys excellent third quarter performance strong profits and cash flows.
Our results of the extraordinary efforts of our CNC team.
The last three months, where unlike anything we've ever experienced the determination creativity in collaboration of our people, which is the CMC way steered our company through every challenge and brought us out stronger than ever.
Thank you and at this time, we will now open the call to questions.
Thank you we will now begin a question and answer session you feel I'd like to ask your question. Please press Star then one on your Touchtone phone.
Your question has been addressed you would like to withdraw your question. Please press Star then too.
And the interest of time, please limit yourself to one question and follow up after which you may recall.
Our first question today will come from Chris Terry with Deutsche Bank. Please go ahead.
Oh, hi, Bob or in Poland. Thanks for your comments.
My question just relates to the to the overall market in terms of the backlog and what you're saying there and some other comments and indicated that it might have shortened the little bit. So just just wondered if you can elaborate on.
Maybe some more detail on your specific backlog and then as part of that question on noted the market share comments I'm they've done a great job weve during the quarter just wonder if you could comment on other opportunities there and whether you think you'll be able to continue to get market share in future quarters.
Okay.
Yes.
Excuse me in terms in terms of the backlog our backlog is extremely strong as as we indicated.
And.
In every year, our backlog has a certain amount of seasonality in it.
Construction is obviously impacted by weather and so this this is the busy time of year when you move into spring and summer and typically tend to see the backlog.
Go down a little bit in the fall and then it picks back up in as you enter the new year and build for the spring.
But what I would what I, so we're not seeing any.
Any change in the normal pattern of our backlog.
We're obviously monitoring that carefully given the economic.
Carnage from Covidien night, Ti, but thus far we're not see any project cancellations to speak of we continue to see good projects to bid on we continue to see.
A nice booking rate, which which follows historical patterns.
So we're really pleased with with how thats evolving and of course, many states are reopening in economic activity is is beginning to pick up nicely.
In terms of the market share.
We had a stated strategy to to grow our our merchant business and with the added flexibility of our larger mill for footprint that gives us more flexibility for the mills that do produce merchant products.
We've made some some rather small investments in order to improve that product offering increased the size ranges available.
The able to better protect the product and the climate controlled environment in certain geographies.
And I would remind you that there was some capacity that has been taken out of the market on the merchant side.
And that has.
Presented a nice opportunity for us to to step in and supply the needs.
Great. Thanks, Robert.
Thank you Chris.
The next question will come from.
The other with Exane BNP Paribas you get ahead.
Good morning, I think going for taking my questions that.
If I may add the question with regards to be outlook for conversion cost within Americas Mills, obviously very strong performance this past quarter to significantly improve the grid dial acquisition, how should we think about this on a go forward makes sense are we now approaching a poster at steady state worker Dow conversion costs for on par with.
The legacy commercial metals assets or do you see something significant more to come you did comment on flight the noncash charges and this past quarter, how much contribution could be from about moving forward.
And then secondly, pleased with regard to the outlook for working capital obviously strong release this past quarter. The im pleased with a little bit of guidance outlook for Q4, and perhaps going into 21.
Assuming the market continues to strengthen thank you.
Good morning, South.
Yes, as far as conversion costs. It if we look year over year really we see the huge benefit in terms of the decision that we took in terms of closing the the melt operations and in California, and that that really has provided a significant opportunity for us.
Two.
Drive the the overall costs lower.
In addition to that there because of some of the.
The negative economic activities, we've seen some deflationary pressures and in some of the cost some of the alloy pricing has has come down and in some of the electrode costs have also come off certainly there other peaks from.
From 12 to 18 months ago, and so we believe that these costs that we saw in this.
This past quarter, certainly are things that we can continue into the to the future I think in addition.
We're not done optimizing the the network of facilities and there are still opportunities too.
To to drive these these costs.
Lower but I think you will see costs in the fourth quarter, probably be similar to to what we had in the in the third quarter.
With respect to.
Working capital, we obviously very proud of the the release of working capital in the in the quarter.
If we look at the components of of what.
What drove that is we saw some tightening in terms of the days.
Receivables and days of inventory that we have.
Standing at this time.
So those were very prudent measures that we took in order to manage our working capital levels as the as we got ourselves into this uncertain period, but we also saw a fair bit of.
Valuation reduction in terms of our inventory levels given that the value of of scrap in the second quarter was substantially higher than what it was in the in the third quarter.
We do see however, as we look forward that the fourth quarter will likely be another generator of of working capital, there's still more opportunity, but it certainly won't be at the same same level as the.
As the third quarter unless of course, we have a major price.
Range of the underlying assets, which we don't see.
Great. Thank you very much.
Thanks.
The next question will come from Timna Tanners with Bank of America Merrill Lynch. Please go ahead.
Yes, hi, good morning.
Wanted to ask about little bit more about the American mail Americas Mills segment.
Just broadly when you made the comments Paul talked about single digit declines potentially in construction relative to double digit declines for overall steel is that just using like high level industry forecasts or is there something specific you're seeing there that you can talk through and when you know what timing you're referring to.
And also on on the Americas Mills, if you could talk a little bit about the supply side.
In terms of day, if you're seeing much impact of the increase in imports in April and May and some new supply coming into the market. Thanks.
Thanks, Tim if you're doing well.
Yeah.
So as you can appreciate everybody's trying to get their arms around on the go forward forecast coming out of of Kovac 19 and.
What I would say is that each time, we see.
You know some expert in the market and there are many many indicators that we all follow.
On the revision seem to be more optimistic in other words the magnitude of.
Economic decline following the pandemic is.
Is not as dramatic as what folks thought two or three months ago. When we were.
In the beginning of it.
So what I, what I have reported was the Portland cement latest projections, which is calling for.
At 4% decline year over year in cement consumption for 2020, and then a rebound of 1% next year.
And we highlighted Dow and because we have found of all the indicators that we monitor.
Portland cement.
Tense to be fairly accurate in their projections.
But.
Clearly there is.
A lot more that we that we need to monitor in watches.
Time moves on.
But I.
Im still fairly optimistic in in that go forward because.
Of course, the president is discussing his infrastructure Bill the house in the scientists have proposal out there and Thats before you think about onshoring or re shoring of manufacturing and supply chain adjustments that may occur as a result of this.
But certainly we're going to continue to monitor all the different market projection.
Going forward.
On the supply side, you're you're very familiar of course with.
The the capacity coming online more specifically the two new car rebar mills and.
The data is is.
Coming online and of course, Nucor will update their progress on that and we are starting to see a bit of that product in the market but.
As as they had plans to introduce that commercially we had plans.
To.
Make room for that so to speak so we.
I have not seen any major impacts yet.
And then of course, the Frost proof is is not yet ready for commissioning.
So we'll see how that progresses.
Later on this year I think as their projected date.
In terms of imports.
Most definitely we're seeing more import offers particularly Mexico and Turkey.
We monitor that very carefully as well.
There is.
Then a surge of product from from Mexico, not only on the rebar side, but also merchant and.
At this point.
We we believe customers are hesitant to.
To take the risk on a lot of that that product, but it is something that we're monitoring and.
Well again with our larger network, we have more ability to satisfy the customers and meet their needs and and provides more flexibility for them. So.
So.
You've you've been around this business along time and as.
Always something that we're monitoring very carefully I should point out Mexico.
Department of Commerce.
Ruled on the fact that Mexico is circumventing.
The the to 32 tariffs situation by manipulating the straight bar and welding hook on it and clearly trying to circumvent are our trade regulations. So.
I would.
Remind those listening that.
These other countries don't respect our trade laws and so it's a constant battle for us to try to keep them honest and convey those things back to.
To our trade regulators and we're very pleased to see commerce come out and and recognize that Mexico was definitely circumventing.
Okay. That's really helpful overview. Thanks, No question I wanted to sneak in if I could as Justin I.
No mention of that much that improve liquidity or the best liquidity in over a decade. It is I think a really important point and I just wondered if in along those lines you could update us on your capital allocation priorities any thoughts on.
M&A or increasing the dividend or other uses of cash and what timeframe are you thinking would it be to get passed this kind of environment are you thinking maybe opportunistically about.
Opportunities really in the downturn.
Well. Thank you Tim that we are so proud of that where we stand of course, we we could never as anticipated that we should be facing a global pandemic, but this is a cyclical business. So you always need to protect the balance sheet for for any.
Unexpected situation and so it's really helping us in this current moment.
And and having said that.
This could be a moment, where there are opportunities that present themselves and I think that we're in a position where we have enormous flexibility.
For potentially M&A, if it were to present itself.
The dividend, we have a fairly robust dividend and it's certainly something that we look out on a continuous basis.
I think we would like to see a little more clarity.
Before making a dividend change.
So we have all options available to us we constantly keep a list of attractive capex projects that.
We're continuously considering and.
Evaluating based on on market conditions, and other cash needs. So theres always a set of ideas there.
You are going to see us be disciplined and prudent with whether its capex or.
Dividend or M&A or any of those.
Types of uses of cash, but that certainly if if there are opportunities. We're in a really great position to consider it and seize those opportunities.
Okay. Thanks again, thanks Timna.
The next question will come from Phil Gibbs with Keybanc capital markets. Please go ahead.
Hey, good morning, Paul Barberton Tia Maria.
Alright.
Good.
Pricing in Americas Mills, I think was pretty stable quarter on quarter and we've seen some.
Some easing at least in the indications from from folks like Platts just in the rebar pricing.
And.
Clearly that didn't play out of the results. So I'm curious if this is a product mix issue or any good way.
Or timing thing, where we may see some some pricing.
Creep down in Q4, you've obviously given the outlook on the volume side, but I'm curious in terms of.
Spreads.
Yes, I feel we we really.
Don't give pricing guidance that that's an area that we don't don't step into and however.
We manage the business by by trying to manage the metal margins, which are really what drives our earnings and our result and.
I think Paul gave some.
Great information around this ability of metal margin.
In this in this space.
Owing in part two.
Relatively strong construction markets, but also I think it speaks to our commercial approach and speaks to the benefits of the acquisition that we did in 2018.
But if you go back in time.
Rebar metal margins.
Have have had a lot more stability and a tighter range around peak to trough than.
You know and many others steel products and we we believe.
Over the long term given the repositioning of our portfolios that that will lead to more stability in our our margin.
And our earnings profile.
When compared to.
Other products that that tend to have a lot more volatility.
In their metal margins.
Thanks, Barbara and.
I know you have an expansion projects in Poland that you've talked about a handful of times on these calls over the last couple of years, where where does that.
Project stand right now and maybe you can remind us what what it is or what the timing is and what the benefits to you all over the next call. It mid term summarize them.
Yes, good morning, Phil.
The the Polish investment.
Is progressing well earlier this fiscal year, we we received all of the the necessary permitting and are continuing to to complete that that project. We are looking to start commissioning near the end of fiscal 21, and just by way of.
Reminder.
This was a project too.
Debottleneck are Rolling Act rolling activities, and Poland to really free up an incremental 200000 tons of.
Capability at the the fight for some of the higher margin wire rod products that that we produce in in Poland and felt it is it as a attractive project from an overall return perspective.
But from an overall increase incremental impact to our business. We're looking at 22 and it will it will ramp up through through that fiscal period.
To start contributing to our earnings.
What's the investment cost.
Oh, it's approximately $80 million.
And have you all have you all started spending that money yet.
At this stage its if it's approximately half spent.
I'll have spot okay.
Thank you appreciate it.
Thanks.
Well I mean next question will come from Andreas broken Hauser from GBS. Please go ahead.
Well. Thank you very much. Thanks for taking my question I'm just a brief two part question for me related.
It's been a little while now seeing sure rebar asset acquisitions in the us.
The question is really.
What were the kind of the problem areas you saw in those existing assets and that made you think that that we can do a better job with these assets and could you give us is just an update on how that's going now that you've been operating them for a while those all my questions. Thank you very much.
Thank you Andrew as well.
We're we're approaching 18 18 months of of operating the combined platform of assets and.
Really the biggest area of opportunity that we saw was to have a consistent commercial approach and to improve the overall service to to the customers.
The assets were fairly well maintained initially we thought we would have to put a bit of capital into the assets that after taking ownership.
The capital need it's not been as great as we originally anticipated.
But a lot of those just basic blocking and tackling in terms of.
You know.
Really more on the customer service side and having the appropriate inventory available those assets has been starved of working capital, which does not give them any flexibility to serve the customer needs.
Other opportunity for us, it's really optimizing our network of operation and servicing the customer from the the lowest cost site and not.
Freighting product path one facility.
To the end customers so theres been.
Some logistic savings and that that type of thing.
Interestingly enough there were even leveraged by.
Procurement savings, we we didn't expect that because anchored has a much larger companies that we thought they had more leverage over their suppliers, but there were even opportunities in that regard so.
I think.
It's just been a home run for us all the way around and.
We while we do see.
Some opportunities going forward in terms of continuing to optimize the network and maybe wring out some additional working capital and you know, it's just our nature to constantly be working on cost opportunities but.
At this point were.
We are well past the integration of those assets into our complete portfolio.
And I would further add that.
We acquired a lot of really talented individuals and.
It was really giving them the tools that they needed to be successful and they have fully embraced and just really delivered beyond our expectations.
That's clear thank you very much.
Thank you.
As a reminder, few would like to ask your question. Please press Star then one.
Our next question will come from David Gagliano with BMO capital markets. Please go ahead.
Hi, Thanks for taking my questions. It since the two since you mentioned the potential for.
Infrastructure spending specifically as a as another potential tailwind I did want to drill down on this a bit more I think a lot of us it had been around for a while to have actually been down. This path a few times, we've had the joy and trying to frame.
What the actual impact on steel consumption. The U.S. would be from a say for example, one trillion dollar spending bill based on things like steel intensive video projects total capital costs and.
Projecting that over a one trillion dollar incremental spending boost.
I think many came to the conclusion that it may not necessarily be this massive demand booster.
That obviously the headlines would imply definitely helps obviously, but perhaps not a massive demand boost and could even incentivize more supply that is needed.
And then there's also a time lag issue I think that that comes up as well. So my question specifically as what do you think the specific impact would be on steel consumption U.S. from a.
For example, one trillion dollar spending bill what do you projected be the timing of the on sort of that impact.
In terms of actual orders for steel.
Well, thank you, David and you're right.
Infrastructure as a topic that then.
Something certainly I've talked about for the last 10 years that I've been around CMC in 15 years in this industry and.
I think was encouraging about the current situation and.
We're not really even thinking in terms of the president.
One trillion what you have is a house proposal on the table and you have a Senate proposal on the table and.
You have the existing fast act, which is due to expire at the end of September.
So first and foremost to have both the house in the Senate have a proposal on the table at this stage is a good development, it's not something that that we've seen historically.
Second both bills are an increase over the existing spending in in the existing fast Act.
I think that that there is no debate over the need for and that has never been the issue I think but there has been an unwillingness of both sides to come together to to agree on something and I think that.
The pandemic.
Both sides of the I'll are highly incented to help the U.S. economy recover from the after effects and that means.
Operating jobs that in jobs that that create economic value and building. Our infrastructure is is is vitally necessary.
For the United States to remain competitive over the long term so I think.
There is going to be something that that they can agree upon and I think it will be.
Above the current spending level.
And there are many people that that will make predictions on.
What what the increase in steel demand will be as a result, we do our own projections and our estimate would suggest that there's.
Anyone anywhere from a million 2 million in half.
Additional tons steel that.
Could be consumed as a result of a bill that would be.
At a higher spending level than than the existing fast Act and I think thats good for the industry. It would certainly help.
Absorb the capacity that's been announced.
And this is a very innovative industry, we find ways to always improve productivity to meet those kinds of challenges.
And so I I believe something will move forward and of course as you rightly point out it depends on the type of project in terms of steel intensity.
But we have some pretty pretty bright people in our organization that have looked at it Perry pretty carefully in there.
Well piped into both the house and Senate proposals and I'm I really look forward to.
Seeing where this this ends up.
But I I think it has a high likelihood of.
Coming to some sort of resolution.
And I think in terms of the timing.
As we said earlier the US economy was was scorching hot prior to the pandemic as evidenced by.
Our results in this quarter and the fact that the construction activity that was already planned. It continued on and so I think that the timing could be ideal.
When.
This money would be become available and new work would be planned and begin to.
Translate into to steal orders so I don't think Theres you know.
Going to be a tremendous time lag.
If the house and Senate come together and and they take action prior to the expiration of the existing Bill and as I said, I think theres a high probability.
That they will get something done.
And I I think we can't forget the repositioning as supply chain I have no doubt that.
We learned quite a bit through this.
We all are familiar with the amount of critical supplies that.
We no longer make in this country.
And we had shortages and difficulties whether it was ventilators pharmaceuticals.
On and on and I know I've talked to some of our customers who are actually already taking steps to new supply chain back.
And I believe we're going to see a lot of supply chain rebalancing that that will present opportunity.
For growth in industrial activity in the U.S.
Which would further support the need for a strong infrastructure.
Plant.
Okay. That's that's helpful. I appreciate I think there's.
Theres, a miss quotes out there on Bloomberg, So I really appreciate clarifying.
The views on.
Potential for infrastructure spending I appreciate it thanks.
Thank you David.
At this time there appears to be no further questions Smith I'd now like turn call back over to you.
Thank you Sean. Thank you all for joining us on today's conference call. We look forward to speaking with many of you during our investor calls in the coming weeks.
Have a great afternoon. Thank you.
This concludes today's commercial metals Company conference call you may now disconnect.
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