Q2 2020 Nucor Corp Earnings Call
[music].
Please standby.
Good day, everyone and welcome to Nucor's corporations second quarter up 2020 earnings conference call.
A reminder, today's call is being recorded.
Later, we will conduct a question answer session and instructions will be carried at that time certain statements made during this conference call will be forward looking statements that involve risk and uncertainties. The words, we expect to believe anticipate can variations of such words or similar expressions are intended to identify those forward looking statements, which are based on managements.
Current expectations information that is currently available.
Although in a core believes they are based on reasonable assumptions there can be no assurance that future events will not affect their accuracy.
More information about the risks and uncertainties related to the forward looking statements may be found in Nucor's latest Kincaid and subsequently filed 10-Q.
Which are available on the Fccs Nucor website.
Forward looking statements made in this conference call speak only as of this date and core does not assume any obligation to update them either as a result of new information future events or otherwise.
For opening remarks, and introductions I would now like to turn the call over to Mr. Leon propylene.
Executive Officer from New Nucor Corporation. Please go ahead Sir.
Good afternoon, and thank you for joining us for our second quarter earnings call as we continue to navigate to cope with 19 pandemic lots you again, thank the doctors nurses MTS.
Other first responders for their efforts in this fight.
I'd also like to thank our team who have continued to serve our customers throughout this pandemic.
Joining me today on the call or the members of Nucor's executive team, including Jim Frias, Our Chief Financial Officer.
I will bear responsible for plate in structural products.
Craig Feldman responsible for raw materials.
Rained a politician responsible for engineered bar products as well as nucor's digital initiatives.
Mary Emily slate responsible for sheet and tubular products, Dave Sumoski responsible for bar rebar fabrication and construction and engineering services.
And Chad Utermark responsible for fabricated construction products.
Before going over our financial performance for the quarter I want to congratulate our team on our safety performance.
We began the year with a challenge to become the world safest steel company.
And I couldn't be prouder of our efforts on the most important value we have as a company.
While the current pandemic is challenged all of us.
It has also allowed our team to expand how we care for the safety health and wellbeing of one another.
I wanted to take a moment to recognize Nucor steel, Arkansas, and Nucor Castro, Arkansas.
For going more than one year without a recordable injury.
Impressive accomplishment for one of our larger more complex steel mills.
I'd also like to congratulate Nucor steel, Connecticut for going three years without a recordable injury congratulations to our teammates at these divisions. We look forward to replicating these results across more of our operations. So that this becomes the new normal every location.
Safety also means creating more diverse and inclusive company.
With the events gripping our nation, we're committed to taking the necessary steps to ensure that every team member in our company feel safe.
Not just in how we produce or steel, but safe in every sense of the word.
Safe and how we treat one another regardless of the color of our skin.
Religious beliefs age or sexual orientation or political views.
Our culture is the foundation that has made nucor the preeminent north American steel producer for over 50 years, and we are committed to ensuring that our culture remains the hallmark of our success for the next 50.
Turning to second quarter financial performance earnings were better than we anticipated due to our diversified product mix and strong position in nonres construction markets.
We continue to see the benefits of our recent initiatives to improve the performance of our businesses that serve these markets specifically in rebar fabrication and metal buildings.
I want to thank those teammates for embracing the changes we've made in these business units.
During the quarter, we had very strong cash flow and increased our financial flexibility with the issuance of $1 billion of new nodes. Jim for you guys will discuss this more in detail in a few minutes.
As we discussed on our last call Oliver domestic steel and steel product operations are considered to be an essential business in a state operating since the pandemic began our ability to continue operating along with proactive engagement with our customers has enabled us to grow our businesses with existing customers.
As well as develop new customer relationships.
We're also getting inquiries in conducting trials with customers, who are planning to reashure their manufacturing operations.
In the uncertain environment created by covert 19 pandemic, our teams reliability and resilience is appreciated by our customers I want to thank our teammates for their dedication and commitment to living our culture over these last few months, which is why we were able to exceed our customers' expectations.
During the quarter. We're we're pleased to receive two awards from General Motors.
For the second consecutive year Nucor's earn GM supplier of the year Award.
We remain the only E bay's steelmaker to receive this prestigious award.
We value the partnership we have built with GM and look forward to growing that partnership in the future.
Congratulations to all of our teammates who are successfully executing our strategy to grow our share in the automotive market.
In addition, Nucor steel Berkeley was recognized by GM for excellent quality and responsiveness and received a supplier quality Excellence Award my congratulations and thanks to the entire Berkeley team for this outstanding achievement, we're very proud of your success.
Now I'd like to provide some updates on growth projects, we recently commissioned.
Progress continues at our Hickman specialty cold Rolling Mill. The mill is already producing 980 Mega Pascal string steel. We just five passes through the mill versus 25 or more passes required to produce comparable material had a conventional reverse in cold mill.
Pigment is continuing to trial advanced high strength steels with both existing and potential customers.
The new galvanizing line that our Gallatin sheet mill is fully operational and the team continues to focused on optimizing yield and productivity.
The mill received IC ATM quality certification in May and is working on qualifications relevant to other markets, including green beans, and cooling towers.
Gallatin also received a new supply award from a major automotive OEM and they continue to see strong performance in the solar market.
Our new Sedalia rebar micro mill in Missouri is already achieved positive EBITDA for June.
We forecasted the mill will be bottomline profitable by September and will be capable of full production capacity early in the fourth quarter.
This below commissioning has been completed and Spooled product is being well received in the market. We're growing our number of active customers each month.
Our Kankakee, Illinois Division has continued to commission equipment and starting to develop a wide range of products on our new Nvq mill there.
We will start to ship orders to customers this quarter.
While market conditions are difficult to forecast, we're optimistic that we will achieve positive cash flow from this project by the end of the year.
We also continue to make progress on several projects that are currently under construction, including Cross Brew, Florida Rebar Micro mill is on track for startup in the fourth quarter.
The Hickman generation three flex galvanizing line the team progress with building construction and installing equipment foundations during the quarter.
We are targeting startup of the line there for the second half of next year.
Finally, with respect to the Gallatin modernization and expansion and the Brandenburg plate mill, we are greenlighting. Each of these projects to move ahead at full speed. Our decision has guided by the incredible market opportunities. These investments afford us our strong operating cash flow and the adjustments we have been able to maker.
Across the company in response to the pandemic.
We did receive our air permit for the Brandenburg plate mill and we have remained on track with our timeline there by continuing to push ahead on the engineering work for the project.
Despite the significant challenges posed by cobot 19 pandemic, the 26000 men and women of the Nucor team worked hard to maintain profitability during this challenging quarter.
I'm, especially proud of how our team has come together in continues to live our culture with that I'd like to now turn it over to Jim Frias.
Thanks Leon.
Our second quarter results demonstrate once again, the strength and resilience of Nucor's business model with the Nucor team delivering better than expected earnings and robust cash from operations in a very challenging and uncertain environment.
Second quarter earnings of 36 cents per diluted share exceeded our guidance range of 10 to 15 cents per diluted share.
Results for the month of June exceeded our forecast at several businesses, including our rebar and merchant bar Mills, rebar fabrication joist and deck tubular products and at our sheet Mills.
Cash provided by operating activities exceeded $1.1 billion for the quarter.
With working capital contraction on the inventory receivables and payables line items totaling $650 million.
Working capital reductions generally provide a counter cyclical benefit to nucor in downturns like the current one enhancing our cash flow and liquidity.
Scrap inventory has been an area of particular focus as the pandemic has unfolded.
Today, we are much leaner in this area than we were at the Pandemics outset, and I think we will be able to use this experience to stay lean when growth resumes and prices rebound.
Reducing the asset base that we required to generate strong profitability.
Our cash provided by operating activities for the first half was $1.35 billion. Our second best first half performance in terms of operating cash flow.
It exceeded our year to date capital expenditures and cash dividends to shareholders by more than $300 million.
During the second quarter, we took advantage of attractive market conditions, and nucor's strong credit profile to issue low coupon debt.
$500 million of five year senior notes with the coupon rate of 2% and $500 million of tenure senior notes with a coupon rate of 2.7%.
Concurrent with our capital raise standard and Poor's and Moody's both reaffirmed their nucor credit ratings of a minus and be deployed one respectively. While also maintaining their stable outlooks.
We continue to hold the highest credit ratings of any steel producer headquartered in North America.
At the close of the second quarter, our cash in short term investments totaled more than $3 billion more than double our cash and short term investment position of about $1.4 billion at the ended the first quarter.
Nucor's liquidity also includes our Undrawn $1.5 billion unsecured revolving credit facility, which does not mature until April of 2023.
Our next significant debt maturity is not until September of 2022 $600 million of unsecured notes with the coupon rate of 4.1% to 5%.
The flexibility provided by Nucor's low cost operating model and financial strength.
Has been and we'll continue to be a critical underpinning to our company's ability to grow long term earnings power and reward our shareholders with attractive returns on capital.
On our April call, we reported that we had revised our full year 2020 capital expenditures budget down to less than $1.5 billion.
While that measure was taken to maximize our flexibility in light of a dramatically different economic outlook than we anticipated beginning of year.
We have not slowed any capital spending related to safety operational reliability or environmental compliance.
With respect to our most significant organic growth projects that Brandenburg plate mill and the expansion modernization of our Galton sheet mill as Leann has already indicated we have decided to re accelerate investments in each of them.
We are taking to step after a thorough review of these projects and are compelling economic returns as well as our cash flow performance.
This will mean that capex in the second half will be approximately $250 million higher than it would have been otherwise.
We now project their total capital spending for Twentytwenty will be in the area of $1.7 billion.
Before I turn the call back over to Leon Let me provide a few comments about the outlook.
While the current environment is highly uncertain with sheet plate and raw material markets remaining challenging at this point, we expect nucor's third quarter earnings to be similar to our second quarter results.
Our long products and downstream businesses continued to benefit from solid nonresidential construction market conditions.
And our teammates continue to capitalize on nucor's advantage cost position flexible production capability and financial strength.
Thank you for your interest in our company Leann.
Thanks, Jim before we take your questions I, just want to comment on a phrase I hear regularly getting back to normal.
I've overheard this phrase over the last few months.
And I recognized that our team and folks in our communities are saying it to simply indicate they wish the pandemic was behind us I wish that too for sure but in a sense I also reject this as an aspiration you see of Nucor our goal our aim in our focus isn't simply to returned to pre coated operating levels.
When I think about getting back to normal in terms of safety I don't ever want to go back to normal I want to replicate the performance that I've shared earlier on Nucor, Connecticut, and Nucor cast strip and new quarter Hickman, Arkansas I want every operating division the entire team to go without a single injury for an entire year. Because then from there we can replica.
Great that over and over our focus to become the world's safest steel company is uncompromising.
And also from a financial standpoint, I don't want to returned to pre covert operating for performance levels I want us to continue to focus on the things that we've been able to do over the last five months that will be a part of our business as we move forward.
We appreciate the valuable shareholder capital that you entrust us with every day and our goals in our aim in focus is to return in maximizing the profitability back to each of our shareholders and our team.
And finally, we want to continue to strengthen the relationships that we've built with our customers over long period of time. However, during this pandemic. It is creative unique ways for us to connect and develop those further and solar so that we continued to be the supplier of choice in meeting your needs. We appreciate the trust you put in our company in place.
With every order that you entrust us with.
While it has been a challenging first half of the year I truly believe nucor will come out of this crisis, a stronger more profitable and more inclusive company.
With that we'd now be happy to take your questions.
Thank you if you'd like to ask a question my second by pressing Star wondering your telephone keypad, if you're using a speakerphone. Please make sure that your mute function is turned out to layer signal three chart equipment. Let's again that is started one if you'd like to ask a question, we'll pause for just a moment hello, everyone and opportunity to signal.
We'll take our first question today from Chris Terry with Deutsche Bank. Please go ahead.
All the way on that and Jim Thanks for taking my questions.
I had a couple just wondering if you comment firstly on your expectation for the utilization right feed mills.
Three Q.
Yes, Chris I appreciate that and as we.
Furthermore out that forecast each of the groups that I would tell you in general we would anticipate utilization rates to be improving as we go into Q3 and beyond.
Okay, and then the Capex plans going to 1.7 foot 2020 can you talk through the speed cadence into 21, and maybe just the total for the 20 long I think originally it was 2 billion to Bill that 2020, and 2021 to just wondered if you could comment on.
On the 21 picture thanks.
Yes, it's too soon for us to predict our 2021 capital spending, but we're going to stay the same discipline and making capital investments next year, because we don't expect the pandemic target for stated earlier from being completely behind us.
Back to your comments.
I always get invest in safety is silly reliability.
Facility reliability, no matter, what economic environment, we will move forward with our significant strategic investments, which include Brandenburger plate mill and the gelfand she'll modernization and expansion.
We will selectively invest in projects with returns with it. The returns are so compelling that they shouldn't be cover deferred but I would expect to not reached 2 billion, but will.
Well update and that.
Probably in January because in every we'll go to the board of directors for approval for that 2021.
And then we'll we'll share that you get to low net earnings call in January 21.
Okay and the law firm for me just if you could give an update on the they are off facilities.
Certainly maybe I'll kick it off and then as Craig Feldman raw materials to.
Provide some some more detail, but as we look certainly theres been an awful lot of pressure based on where iron ore pricing Waller at the same time I want to congratulate our.
NSL 18, who is work incredibly hard through this pandemic as well as the new 100 team in Trinidad who are now operating ahead the.
The period of time, where they were taking down by the Trinidadian government now we're back up and running but in particular with NSL. A is you know we the reliability has not been more we've come to expect and into the third quarter last year. We took a 60 day downturn to improve the reliability that started back up in November of last year.
Over the last nine months I would tell you NFL eight AR VR I plan and in Louisiana is run at the best liability levels, we've ever seen in silver we're very proud of those accomplishments, there's still more work to do and again the pressure on our results in our performance there because of iron ore pricing will probably.
EBITDA for some some period of time, but Craig you want to provide some detail sure you hit a lot of the high points. So just a couple of things I'd Echo your appreciation and.
Gratitude for the teams in both Louisiana in Trinidad done a remarkable job and you're right after the.
Second half a shutdown last year, the Louisiana plenty going incredibly well on track. This we are continuing today, we continue to set continuous operational records of 57 days today, so that they've run incredibly reliable since the improvements we made last fall we feel really good about that proud of that the.
Very appreciative.
The other point I.
I guess the point about 50 57 days as you may not be completely intuitive to everybody. But this is 24 seven continuous operation. So that 57 days of uninterrupted production is quite important milestones.
The other than the other thing I'd point out is relative to the arises how it fits in the overall raw material sourcing strategy.
It really gives us unique flexibility in the industry to really fluxes shift between various various with Alex.
Obviously pig iron as well as Dara is low scrap so really well position and I would say that you need flexibility is.
Really unparalleled in the industry.
Thank you Craig.
Thanks, Thanks Thats it from the thank you.
Thanks, Chris.
Thank you all know here now from the set frozen filled with Exane BNP. Please go ahead.
Good afternoon. Thank you taking my questions today.
If I may have one follow up with regards to from the growth projects and one of the new Opex that look for the plate market with regard to Gallatin Brandenburg can you just confirm the expected timeline for development in the ramp up the project recognizing the recent delay obviously only one quarter in nature that should be expected going on roughly.
Lima, prior target or something that slower.
And then secondly, with regard to the U.S. plate market outlook. Obviously this has been one of the areas that weighed on performance of late I'm wondering can comment on whether or not there any conditions in margin potential improvement into the second half of the year I'm just looking at second quarter performance as well I. It looks like your volumes fell much more sharply within your peer ACA baby.
Offering that your ASP for much more stable than at the baby K.'s comment either the competitive dynamic between yourself and your largest competitor there. Thank you.
Okay says I'll I'll try to make sure. We entered all then if I don't please remind me because there's a few questions in there, but let me begin with your first question, which is the the expected anticipated timeframe for startup that both gallatin as well as the Brandenburg plate Mills I would like Middle I would tell you at Brandenburg.
Sure.
Despite slowing down the Capex spend the team has done a great job in what we didn't slowdown Seth at this point. It was the engineering design work that was being down over the last few months, our anticipation is that.
We would have no delay in the startup of Brandenburg and expect that would be late fourth quarter of 2022 is still on track with respect to Gallatin.
While it may be a couple of month delay the team is going to work very hard to to bring that again again in sometime in mid next year I think is the target and so it may be a.
Couple of months delay on that what we're still trying to work through that and figure out if we can make up that time still but again worst case scenario with a couple of months.
I'll, probably turn it over to out here to add some some more.
We'll provide more information regarding the overall plate market, while I'm not to speak very directly to our competitors.
We think about these investments and think about the plate market in general we shared about a third of the market what we recognize unrealized overtime in about none of the 13 markets that we serve nucor's that market leader, we understand what what that means and the opportunities that affords us and so with Brandenburg coming online. It also provides why.
Just most diverse product mix offering of any plate mill in North America, so that on top of being located in the largest play consuming region in the Midwest is going to will afford us a freight advantage from our current mills that are supplying that market. So we're very excited about it and as Jim mentioned.
We're going to be very deliberate and how we spend our capital maintaining our financial flexibility moving forward, but the normal cyclicality of the plate market or in general the steel market.
It's something we've grown accustomed to in the within and fit for 50 years. However, this black Swan event of this pandemic is certainly given us some pause, but we believe we're at the 12 of the market and things will begin to to continue to improve as we enter Q3 in Q4.
Anything you'd like to add on on the plate market in general Yeah.
And I'd Echo ER Leon does your excitement our excitement about that that project in Brandenburg and during a period of capital preservation. We remain very busy we've got a small team on the ground to Kentucky, that's navigating that project and doing an outstanding job focusing on the less capital intensive parts of the project so that.
When it when we moved back to full throttle as we are today, we can take advantage and maintain our end of 2022.
So that's the we're on track we're excited and we're headed headed towards added in terms of the plate market in general our utilization was down in Q2 as you would expect.
It was down largely with the market the market data for June is not yet published so we don't know.
Industry statistics, just yet but that are indicators say that we probably gave up a couple of points of share in Q2, we had gained share in Q1 little weaker in Q2, largely due to a strategy to resist some of the price erosion. We succeed as he then Dennis unfolded.
So year to date, we're confident we picked up some share inflate wasn't even talk about the outlook for second half.
It is very clearly as it is in a lot of our segments, but we see some recovery coming back in parts of energy not overall, but power transmission and so some bright spots parts of heavy equipment. So perhaps some uptick we do expect some restocking and some regular buying from service centers to occur over the second half so.
We do expect some modest recovery in those utilization rates and so upward movement.
But the farther out we go the harder it is to really predict what it what it looks like.
Thanks.
Thanks, Seth could recover your again.
Yes, yes, that's great. Thank you very much like.
Thank you.
Thank you will hear next from Timna Tanners with Bank of America.
Hey, good afternoon guys.
Good afternoon Timna.
I wanted to start out and just ask a little bit more about what you're seeing in that construction arena and knowing that you mentioned that it's been pretty steady. So I just wanted to square that with some of your other comments on the volume declines would that be fully.
Function of inventory de stocking and if that's the case and I would expect maybe a restocking.
Yes, I would expect more volumes into keeps me you're expecting kind of steady on results. So just trying to square those things and I was hoping you could provide a little more color.
Yes, you know tend to I think the.
The first part of your question was around them.
Construction in so look as we look at our numbers today to that end market for US and then the construction market has shown an incredible resiliency and I really want to call out our partnership in the jobs are our teams have done and Vulcraft verco when our decking group.
Our skyline business and piling and really the relationships built into their fabricators over a long period of time that end market has held up incredibly well and it's not to say a guttural when we hope things go well in Q3 and four.
Backlog for example.
Our.
Almost 10% higher year to date than they were a year ago. When we last year for our construction businesses in the decking and Vulcraft side was a record year, so our backlog or order rates are shipment rates continue to be very encouraging.
At the same time look we are watching all the metrics in terms of entry rates. All the billing index is in and looking out to okay does that mean, a slowdown at the end of the year Q1, but again as several as mentioned, it's a little too early to begin to predict what the and certainly may look like I was just tell you in the next two quarters.
The.
We anticipate that they'll remain pretty strong. So I don't think it's a de stocking issue I think inventory levels are relatively low and quite frankly or distributors are very cautious about adding inventory right now which is understandable. So I don't think that's a that's the case and then what was the.
The second half your question, Tim and she was asking about the where volumes went down a little bit it maybe I could showing year Liana I would you say that first of all we had some reduction in volumes that are all of our steel mills, but the biggest reductions were in our engineered bar mills in our sheet Mills and.
The long term story is excellent we are gaining share in those places our share in 19 for sheet is greater than it was an 18 is greater in 20 in the first half than it was in 19, but at the same time, we are heavily weighted in both engineered bar and she both auto and in energy.
Yes, and those markets took the biggest hit all the markets. We serve in the second quarter I think for sheet very loosely like 10% energy, 10% automotive so so 20% of our sheet market.
Our our sheet market went away and similar probably levels may even greater in higher Sandro market for for engineered bar went away, but the good news is relative to that is I was coming back. So six that we're expecting things to be similar next quarter part of is that we think that.
The volumes are going to pick up but margins are compressed right now so we're starting the quarter with lower margins that we started last quarter. So net net we think those things result in close to say performance, it's really a bit of a guessing game right now.
To answer your question, though about why we're saying flat performance would see upside and then to energy some of our bigger customers in the.
Two space that make products that are sheet those.
Serve the energy markets.
I think by didn't view there gets you to pickups as well so we're hopeful that could happen, but we're seeing it will clearly today and auto pickup in demand both in engineered bar energy.
I can make one comment.
Year over year were up 8% rebar and 3%.
So on the construction or construction products side, we were actually up issues.
Just on that this sequential quarters or we were down in all products I think in Q2 versus Q1.
Yeah, Okay, I mean, I'm looking at sexual down pretty begun and bars, even year over year end quarter over quarter and I think of those as construction. That's why I was I was asking for that and I want to and believe right.
Most people in ours. Its go ahead.
Most of the bottom discounts in engineered bar, that's where the production here.
Okay. Thanks.
My follow up with just to ask a little bit more about how we see the market shaping up and then second half because clearly you know automotive is retiring but at the same time assembled blast furnaces are we starting and steel prices do slipping and so it's a it's strange combination of more supply that more demand and you say, you're taking market share and dynamics has it taken market share.
Just wondering how we see this playing out in the balance of the throughout the year with that growth in supply and demand and how that how that plays out and that he could also comment on that lag effect on some of your sheet pricing for C or you contract is that still attacking.
Sure I'll now starting to soften and I'm going ask Barry and Weve slate to jump in on them in particular on the sheet sided and committed the if the question you asked on the front end of that is something we're looking at every day the supply demand. Ultimately this is the ultimate economic driver of our business instead of as we think about deferred.
Quarter moving into the ended the year, how are things going to shape out where where we think is by August we're going to see 13 or 14 blast furnaces come online, but we also sell something through this pandemic, maybe I've not seen in my 25 years in this business isn't that was a shedding of about 20 million tons of of the supply come out of the market very very clear.
Equally so where we sit today, we're forecasting similar around 10 million tons of restarts. So were 10 million tons fill offline most of that in the sheet arena flatten reena or all of that in flat most of it in sheet, we anticipate that the projects at Nucor has as well as some of the other more.
Good.
Expansions are going to be.
Still well under the 10 million tons that I'm not sure ever restarts and again I don't want to predict what I would tell you the ultimate drivers the low cost.
Q3 wins in and so nucor's focus and taking your Vrthirteen from a safety perspective, it's also matched by ensuring that we remain at low cost position. So that we can continue to be the supplier of choice and grow our market share with regard to automotive, though you know the while we're not GM or 400, BMW and Mercedes.
These tier one they get supplier, we're working hard every day to be their best supplier and so the things that that team has done a really resulted in why we've been selected to have been named the GM supplier of the year award back to back here. So the even though autos will be down this year and really probably for the next year in terms of pre.
No one coping levels our share of that opportunity is going to grow in we think by the end of year, we will surpass shipping levels of what we did in 19 Merian, we would like to make a few comments on on the street market and in particular the pricing.
He Leon and thank you for the question on that about somebody for so.
What we sell machine market.
His contract.
So have about 30%.
Our book, that's associated with spot pricing and that 70%.
Well five is between a lot of if right and that's right.
Well be some lag effect and pricing that we also feel while with oil and gas as well.
Which drives a lot of hot rolled pride.
We're at a bar.
Action point County, So we will see some correction mark.
Okay. Thanks, guys.
Thanks dinner.
Thank you will hear Nick next from David Gagliano with BMO capital markets.
Hi, Thanks for taking my questions.
First one I just want to ask a question about the second quarter results actually the.
A 13 days before the end of the quarterly guidance was.
I remember was five to 10 cents or 10 to 15 cents or something that it came in way better.
Hi, I'm curious what changed in the last 30 day looks like.
No our numbers.
EBITDA came in over $100 million higher based on the now the Guy that was 13 days before the end of quarter Im trying to figure out what changed.
You know.
We're not proud of the fact that were not the Grace forecasters and what are we really are and our business units more than doubled their forecast for June in terms of division contribution, which is an EBIT like number so.
Most of that that you'd be asked and on the steel side and so I would you say that reprice, our divisions were frankly conservative expectations for June.
And Thats why we ended up I'm missing high by such a large margin.
Okay understood.
Just such a wide gap this quarter.
We're a company with 27 million sense your capacity and we're making low numbers 50 cents. This year 30 cents a share those are low numbers relative to our capacity and so it's a big Miss in terms of it. If you just look at the number we think about it on a per ton basis or you think about in terms of our our capacity generators. It's a small this so.
I agree with you bought just that little carrier.
Hi, Fairpoint there just on the on the follow up a bit you know in terms of the prior questions and on the comments around supply demand.
Three months ago, there was a pause obviously in Dallas and you know.
And as prices have weakened obviously don't make decisions I know that's the answer we don't make decisions on 20 year investment Threem up moves in pricing I totally get that but.
It was there anything else that changed in the last few months I gave you so much confidence to bring gallatin back on and still shoot for mid 2021 start up when you do have all this capacity coming on.
Restarting all blast furnaces, you mentioned 10 million tons plus other projects coming online what changed the last three months specifically that prompted the you know the the quick turnaround.
Yes, David I'll start and maybe Jim can jump in because I want to make sure I paid.
Particularly at this point well I would tell you is less of a change in terms of that either there's no change in strategy, but I would tell you was when we went into.
No early March in shared on the call in April.
Our view of what the cobot pandemic was going to mean, how deep it was going to hit how long in like the with US we certainly recognize it as a black Swan event gave us pause and what we wanted to do at that time was ensuring we maintain the financial flexibility to do the things that we were committed to doing like providing our dividend making sure that.
We could fund that fund our capital needs in terms of maintenance Capex and so really it was a pause to recognize this effect, but make no mistake. It never change our focus in our thought process around those two projects being strategic long term decisions that were the right for our team and for our <unk>.
Sure holders moving forward Kim anything you want that yeah, Dave when we when we made the decision to slow spending down it wasn't in isolation.
We wanted to Maximise liquidity, the second quarter because of this unknown of Wabco has been due to us and so our strategy with to cancel not essential projects.
Well, the big projects down not stop and slow them down temporarily but continued for the number of projects, including the cross through.
Micromill, so far down Pat and do those things to maximize liquidity in Q2, and we accomplish that separate of the of the debt issuance, we increased our cash by 600 million in second quarter.
So our free cash flow is extremely strong we demonstrate that we could have strong free cash flow through the year and so now we have that companies and we also have a better understanding of how we're being impacted in the economy by coded those things together RV underpinning for saying, let's go forward on the on those projects. So it was accommodation.
Our results in terms of liquidity as well as our understanding our better understanding of how much were being impacted by call. It.
Okay. That's helpful. Thanks, and then but some of the phone supply demand perspective.
Is your view that the Gallatin, specifically Galton mill will be you know almost entirely going after market share.
Oh of course, it will long term mr. aspect sorry on it. That's good finished up so long term our strategies to grow our share and she is where the places where we're a little underweight relative to the market where market leader in most places recompete and galaxy.
Is what we have really doesn't perform any sense of incremental capacity that that move that needle little bit. So certainly our goal is to gain share.
Right, Okay and last question trial I'll turn it over just stuff just wanted to confirm the capex for the two products is it still expected total capex of golf and 650 million and then also at the Kentucky, playing out I think 1.4 billion of those numbers unchanged in total.
Yeah, they both under SEC, Gallatin, I'm going to numbers, not and change and I think we reported and our last call that the Jim did it was 1.1 point 7 billion at bring to bear.
Yeah, we now we know that to increase in our call last quarter.
Okay all right.
Well, it's 300 million all right. Thanks I appreciate it.
Thank you David.
Thank you will hear next from Phil Gibbs with Keybanc capital markets.
Hey, good afternoon.
Good afternoon Phil.
Just to just to piggyback off both what what they've just asked.
Does the solid theres been much spent to date on Brandenburg and then on on Gallatin.
Maybe a maybe a little bit relative to that 700 million.
Yeah right.
You want the breakdown of what we spent on those projects. So far this year that what you're asking for just to date, yeah, I mean, not not necessarily this year, but just how how much of you spent.
In terms of where we are right now.
Yeah, I have that I have the outlook, but I don't have the history I'm, sorry, I don't have them I think it gets I'm sorry.
The other ideas date, they give us with information is Brandenburg has been a $150 million laws.
We spend about 245 million.
Yep.
Yeah.
Okay.
Gallup and we expect you're going to $20 million spill.
Did you get that could you give those numbers.
Hi, good ideas they can you.
And then I know from last call your target on inventory for the year. I think you said you want to take out a billion of of inventory is that still something that you think achievable.
We said, we wanted to reduce inventory significantly and we bought it could be up to a billion, we knock scrap inventory down by about 850000 funds and so I don't know that itself is a billion dollars I think it is but we made a significant significant proper harvest and scrap effects grappling with them I think three.
Tons is at the end of Q1, two somewhere around 1.3 million comes at the end of.
Q2.
It was over that.
Our 2.3 doses that are two points.
Okay.
Maybe the DNA numbers look like they're coming in a bit higher than what we are forecasting them. In this includes amortization, but I I have almost 200 million quarter for Q1 in Q2 is that something that should be repeated for the rest of the there.
Yes, I think it's going to be about right for the year I'm told your forecast is.
724, depreciation and just over 84 amortization.
Okay.
Got it and then on the side of the tax.
The deferred tax benefits.
With these project timelines essentially intact and I know that there were some benefits. This year next year and then another 2022, maybe just remind us what those what those are and how much how much maybe you received thus far.
Yeah.
We'll get vacated in terms of.
You get into 0.1st of all US extent, we're making money we can talk that those profits in that state taxes. So how much we get as you're probably depends on the make we think that benefit. This year I'm just going to be neighborhood of $200 million summed up will be and allows that left to go through a process to get what the government, but this year's benefit we think it was being $200 million.
And the cumulative benefit over three years is expected to be in the neighborhood of $700 million.
[noise], Jim how much of that 200 million and you've got so far this year.
Well look at the against and everything that we've gotten as tax expense, we haven't had to pay.
Got it.
Thanks, everyone.
Thank you.
Thank you we'll take our next question from Andreas Bokkenheuser with yes.
Thank you very much just a quick clarification I think you kind of answered the question already but that's been obviously, we'll talk about taking market share and you know you guys have been doing that and you continue to do so and we've seen your do so as well before in the past in these kind of price trough markets.
We're obviously seeing you sold your competitors racing sheet prices now which of course you could do.
But you know instead of doing so of course some of the integrators could restart capacities show I guess the question is is to focus on your second half strategy or maybe 12 months strategy more on continuously taking market share kind of in time with what you've gone in the past these kind of truck markets.
Well look at the end of the day Andreas our our focus is to serve our customers well and make sure and providing a differentiated value proposition and set as we think about moving forward.
You know our pricing decisions are going to remain independent of what our competitors are doing we will evaluate for ourselves.
We believe in markets that and when and if it would be time to raise pricing. So as we move forward, we absolutely want to grow and market share as I mentioned nine of the 13 markets. We care. We are market leaders, we are not marketing leaders today in plate Brandenburg will help provide the differentiated value proposition, where we would be and also in cheap today your semi.
During the 16, 17% of the overall market range, we have an awful lot of opportunities the growing that his humor committed to earlier. So again as we move forward like we do in every product group and have made pricing decisions, we will evaluate that independent of what our competitors are doing.
But that's very clear and then maybe as a follow up to that when we kind of look at Q3, and there's been some talk about expectations of scrap prices and then raw material prices kind of pulling back in August.
So would you say that from a raw materials price environment point of view that.
That being bomb. It is supportive of you know a margin expansion into the third quarter, all things equal I mean, given the prices Pfeiffer from raw material price point of view the distribution he had larger support there.
Sorry, yeah.
Okay. Very fair question. Then obviously, we are we track and follow that and me the scrap market volatility over the last several months is certainly something we watch Craig Feldman over our raw material Craig wanting to come into what you're seeing how you look at the market over the next few months sure yes.
Relatively stable my guesses or overall network, yeah, there's going to leasing activity, particularly a export activity in China in Turkey are really driving drug in piece a little more accurate.
It's a fairly well balanced market to supply demand standpoint, and certainly with what are you seeing any major moves in the near term.
I would venture a guess most must be on the next 60 days or so, but I think probably is a relatively stable.
Modest moves in the short term.
Dislocation.
Region.
For export activity for Houston.
Some pricing a little bit but for the most where we see the outlook a stable.
All right excellent. Thank you very much for taking my question appreciate it.
Absolutely thanks interest.
Thank you, we'll take our last follow up question from Philip Gibbs with Keybanc capital markets.
And thank you very much.
The raw materials side I think there were a couple of pretty big outages in Q2, one at Louisiana, because the code Red and the one in Trinidad because of Covance, but.
The results in Europe, the raw materials segment were a lot better.
Than I would've thought.
You now have those operations back online so I would've thought you you would have gotten some.
Some better momentum in the third quarter relative to the socket. So just curious in terms of how you.
You know, how we see that interplay why it's down.
Why the second quarter was that was I guess, so good and media I think it was even probably better than the expectations that you have for yourselves.
Oh, Yes, Hello strike.
Yeah definitely is a better than we had expected.
Question earlier about the forecast.
The real headwinds advantage continues to be even though your eyes.
So as to who we hire linerboard prices so that will happen, we're real production and the team that David Joseph recycling operations really nice job really outperforming or so that was a big pickup.
Driving those results.
<unk> individually you results without was that was probably the biggest upside and again this from Egypt recycling operations in Q2, and it's certainly going forward I don't know you know we're going to see much change in under more pressure, we've talked about a number of times. When these goals the margin pressure that's excessive we continue to see.
And if anywhere and workplaces go.
Back to get some relief, but the direct operation, but 'cause your guess is good mine in footwear.
With that.
Thank you.
Thank you Phil.
[noise] banking that does conclude our question answer session today I'd like to turn the conference back over to Mr. Capella in for any additional closing remarks.
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