Q4 2020 Russel Metals Inc Earnings Call
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Thank you for calling and the conference in the sense of them you have to call you wish to join please.
I would like the true for Russel metals.
Thank you could I have your first and last name.
The ground.
These brown and your company.
Doug.
And I.
Iraq I E R.
A E R a IRR.
Alright. Thank you one moment. Please the conference is now being recorded you want to follow the long they'll be using the Powerpoint slides that are on our website. Just go to the Investor Relations section of the conference call part of that website.
If you go to page three you can read our cautionary statements and forward looking information.
Before I go through some of the financial results on just step back and discuss the past several quarters to put the prevailing environment a little bit into context for starters, we couldnt be more proud of how the Russel team has navigated through some pretty unique business conditions over the past year and in some way of the challenges of 2020 create and opera.
<unk> to make a range of changes that will enhance our platform for years to come there's a long list of recent team accomplishments and has involved many many people but a quick summary includes there were some business unit business unit leadership changes and some key roles capital structure improvements portfolio streamlining including <unk>.
<unk> of selected non core assets and growing of our business.
We look at a lot of acquisitions as well as capital investment opportunities involves a fair amount of work to filter through the ones that are potential opportunities to find those that meet our return on capital criteria and our business fit criteria, we were able to bring a few of those things over the finish line and 2020 and believe there are many more opportunities on the come and the.
<unk> ahead.
So with that being said why don't we go to page five and let me begin by giving a little bit of an overview.
The flip back on where things were at the end of Q3, there were some positive signals and we had expectations of but what was on the come in Q4, we started to realize the rewards within our financial results and I would just highlight the word started to realize the rewards.
In terms of market conditions and steel.
Steel prices of surged over the last four five months of its limited.
Inventory and the supply chain and market demand from a broad based customers.
These factors when combined with inflated scrap prices has supported the prevailing price environment.
On our Q3 conference call I discussed the lag effect of steel prices to other parts of the supply chain that lag effect is now flowed into our part of the supply chain towards the latter part of Q4 and this favorable environment has continued into early 2021.
In terms of controllable business initiatives, we are continuing to implement our multi year roadmap to enhance the value added part of our business and.
In late December we announced and closed on the $13 million Sandborne acquisition Sandborne is of value added processor with and operation in Waukesha, Wisconsin. We are really happy to have the Sandborne team joined the Russell family. It's a relatively small acquisition, but it is truly a hand and glove fit with our other Wisconsin based operations.
Sandborne is located only 20 miles from our Milwaukee facility and we are of a longstanding and working relationship with them as both the customer as well as the supplier.
We've only owned the business for probably around six weeks now, but the teams are working very well the opportunities to cross sell products are being realized and the order backlog is very strong.
The <unk> project was completed a few months ago and the backlog of that business is also very strong the bottom line bottom line results of being realized.
This expansion of our value added business is a multi year journey and we will continue to make progress into 2021 as we a couple of more projects on the go and that we expect to be operational by the middle part of this year.
On the OTT G line pipe front, we made the decision.
And the middle part of 2020 to reduce debt footprint and permanently pulled back capital from that segment the.
Target reduction was about $100 million and we are hoping to get there by the end of 2021 as.
And as we will talk about later and the financial results. The Oce TG line pipe portion of the business has been and economic dray and to our overall results and we've been focused on addressing that issue, we reduced inventories by greater than $30 million and each of Q3 and Q4, and we are confident of achieving our $100 million target.
By the end of 2021 in Canada, we merged our two operations into one and and the U S. We are permanently selling down the inventories.
We'd like to thank the staff within these groups of the there are some tough decisions that have the made in terms of streamlining the business, reducing cost and reducing the capital deployed.
In terms of liquidity and capital structure improvements with $100 million $106 million of cash from operating activities in Q4 and liquidity of over $400 million.
We are and really good shape the cash generation during 2020 provided us with an opportunity to reshape our debt structure in Q4, we completed a series of changes with the net results being that we extended our maturities by several years improved our credit profile and enhanced our flexibility and reduced interest cost by about $8 million of year.
If we go to page six in terms of our financial results are part of the page.
Dart with the income statement perspective.
The change and the results from Q3 to Q4 2020 involve top line improvement across our businesses, but also bottom line improvement when we strip out some of the noise revenues improved between Q3, and Q4 by $56 million and gross margins improved by $22 million.
Adjusted EBITDA came down from $47 million to $41 million, but it was impacted by a few factors.
One of the positive contributors to EBITDA was relation to wage subsidies, which were $8 million and the quarter, but that was down from $20 million in Q3, as we said before this program worked wells and provide a cushion until business conditions recovered and support and employment base. During this transition period.
He feels pretty good to say that this government support program will likely be very small and Q1 as business conditions are vastly improved.
As negative impacts to EBITDA, our OCG line pipe business was the earnings drain and Q4 I mentioned this before talk a little bit more about it and the second there was a loss in Q4 from that part of the business, which was a little worse than Q3 as it included some additional inventory provisions of about $3 million and a few one time items. In addition stock based <unk>.
<unk> had a mark to Mark.
Mark to market impact of about $4 million and Q4 due to the increase and our share price. This was higher than the $2 million expense in Q3.
And Q3 weighted property sale gain of $6 million that positively impacted the Q3 results, but it was the nonrecurring items. The net result of we do an apples to apples comparison between Q3 and Q4, our Q4 adjusted EBITDA improved.
And the below EBITDA items that impacted the results include a noncash write off of $1 3 million for deferred financing expense. This was related to the Q4 refinancing this negatively impacted our Q4 interest expense, but the benefits from the refinancing will be visible starting in Q1 of 2021.
Lastly, Q4 had a $30 million noncash charge related to a write down of goodwill intangible and some fixed assets of our U S energy business, where we are required to do impairment testing based upon define accounting standards from a disclosure standpoint. This impairment charge is the only difference between our reported.
<unk> and adjusted results do you want the details we have a reconciliation of of that amount on page three of our MD&A.
From a cash flow perspective, we generated $85 million from a reduction in working capital and the quarter. It's more of the same and Q4 versus other recent quarters in terms of the tight controls over our working capital management.
The biggest shift was from inventories that came down by $68 million the $68 million reduction was mostly from the focused effort to reduce capital within the energy segment as we reduced debt footprint within the <unk> line pipe portion of it.
Capex of $6 million continues to be modest below DD&A and we see in and around this level continuing into 2021.
From a balance sheet perspective, net debt continued to decline from $3 $24 million at the end of Q3 to $267 million at the end of Q4 of reduction of about $57 million.
And for shareholders equity there is an accounting adjustment because of the Canadian dollar strengthening from end of Q3 versus end of Q4 bottom.
Bottom line from a liquidity perspective is that we are north of $400 million in terms of liquidity our capital structure stronger credit metrics are strong and we're in very good shape. So overall I am very pleased to say that we've made good progress on a number of initiatives that have driven free cash flow and I believe that we are more on the come lastly, we've declared quarterly.
Dividend of <unk> 38 per share.
If we go to page seven we have our segmented information.
The service centers did really well as the market improved our Q4 revenues gross margins and profitability within the service centers, all improved versus Q3 and in particular improved during each month of Q4 from and end market perspective, the improvements are fairly broad based across regions and and.
<unk>.
Tons shipped were up in Q4 versus Q3 by a little bit but substantially higher in December of 2020 of versus December of 2019 December is normally a much softer month from a volume perspective due to the holiday period, but this December was well above our normal for what we typically see.
In December periods price realizations were up around 5% and Q4 versus Q3 as the lag effect of the steel price increases, we're starting to be realized through our parts of the supply chain.
And the energy revenues picked up but margins and operating profit declined. This comes back to the challenges within the <unk> line pipe segment in particular that I've mentioned, a couple of times already when we look at Q4 and 2020 as a whole and the disconnect between our field stores results being in the plus and our <unk> results.
And the negative you can see the drag that OTT G line pipe is create on our results and why we are shrinking the footprint for that business.
That being said we have seen the impacts of the steel price increase is starting to flow through to this market and we encouraged we are encouraged about our path to reducing inventory and a prudent and economic manner.
The distributors had a pretty good Q4, and also benefited from the rebound in the steel sector.
If we go to page eight we have our segmented and inventory information to provide a frame of reference for some of our recent capital reallocation changes.
If we focus on the Middle Pie chart and the one to the right you can see that our segmented inventories declined from $862 million at the end of June to $716 million at the end of December this equates to $146 million reduction over the past six months, the majority of relates to energy, which the <unk>.
Line from $470 million at the end of June to $373 million at the end of December of that roughly 100 million dollar decline and energy inventories around two thirds of that came from the the decline of our OS CTG line pipe segment as I said earlier, we are comfortable with the $100 million target for.
<unk> the capital and that business by the end of 2021, and we've made good progress over the last couple of quarters.
At the same time, we expect to be cautiously redeploying capital in our service centers and steel distributors segment and response to favorable market conditions, but as I said it is cautiously deploying working capital, but we are seeing an uptick and that business. So overall, we've made good progress and reallocating capital with more to come I think when we showed these charts it.
The end of 2021 and will further demonstrate this evolving shift.
So two final takeaway thoughts in relation to the market, one and our relation to Russel two specifically so.
The markets the improvement that happened during Q4 has maintained itself into Q1 and 2021 and we are still seeing good demand tight inventory and the supply chain and strong margins across most of our business units and the service centers and steel distributors segment energy is getting a bit better but it is playing from behind.
Within Russel specifically, we've started on our journey to reshape the portfolio. We are really pleased with the progress to date and encouraged by the ongoing opportunities ahead of us.
And closing on behalf of John and other members of the management team I would like to express our appreciation to everyone within the Russel family for their tremendous hard work during 2020, and we are confident that the heavy lifting that was done in 2020 will be rewarded in 2021 and the years ahead.
That concludes my introductory remarks, operator, if you'd like to open the floor for questions. We're available at this point.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
Could you have a question. Please press the star followed by the one on your Touchtone phone you will hear archway and home profit acknowledging the request if you.
And the speaker phone please lift the handset before pressing any case.
First question comes from Mona Nazir Laurentian Bank. Please go ahead.
Good morning, Congratulations on the results and thank you for taking my questions.
My first one is just on the margin side of fall over 400 basis point and margin expansion year over year I'm. Just wondering how much is driven by the elevated price environment versus the value add company specific initiatives or any other items.
Yes.
The amount of good to talk to you again, there's definitely a mix there and we have seen the elevated price environment take hold and so the transactional nature of our business, we're able to pass that on very quickly.
And so we will continue to see the growth and our value added so again as it moves up the ladder and steel prices become larger we will see that impact the value added impact on that as a percentage basis overall will not grow and lockstep, but we'll continue to add to a commercially on the downside of the steel prices drop it will process.
So there's so there is an offsetting results there so and we are seeing the impacts of both of it right and that's predominantly led by the increasing price.
Okay. That's helpful and then.
I know that you stated in the prepared remarks remarks that you have started quote unquote tier realized returns of macro tailwind.
So would it be fair to say that margins into Q1 or perhaps.
Expanding even further on a sequential basis.
And have conditions improved to the correct from year end to current point are they.
And similar.
Yeah. Thanks Mona.
The continuing into Q1 at a better pace and sort of set and slightly different way. When we look at Q4 as a whole. The average of Q4 was up over Q3, and the exit speed or the exit margins within Q4 were better than the average of Q4.
And we see that continuing into Q1, so far.
Okay. That's helpful. Thank you.
And then in regard to bar, we structuring and the heavy contractually and seeing and the energy product side.
As you continue to reduce the footprint and <unk> and line pipe exposure and just wondering when can we expect that to turn the corner from a revenue and profitability perspective is Q2 for revenue and okay estimate or could it be further App Inc.
Tom.
We're seeing a little bit of of disc.
Disconnect there and line pipe and the CTG as again as we're working through inventories that are and the industry as the whole.
There were some overstocking and based on the.
Speed of the downturn and Salon pipe is coming out with share pricing rise quickly OTT G as marvell and but it's moving a little bit slower pace due to the advanced oversupply and so.
So we think that that will rebalance and Q1 lifting pricing is again, the substrate being flat roll and plate and North America has gone up considerably so we'll see that pricing lift.
As we see that move.
Forward into Q1 further into Q2, we think we'll see that reversal for the L. T J and line pipes.
And obviously the field stores.
Our producing and as a solid return right now for us considering where they are and the cycle for all of the guidance.
And then.
Yes.
Follow up on that when we look at the <unk> line pipe in Q4, it generated negative.
$8 million of operating loss that should get better.
Exact timing exact magnitude, but we think $8 million is of a low watermark.
Okay. That's great. Thank you and the last one for me and I'm. Just wondering is the crane general macro environment tailwind flow Shar shifted your strategy at all over the last couple of line.
Even on the M&A side.
No it hasnt and it is.
One of those things where are our M&A strategy stays the same throughout the cycles. The only thing that really changes is the in my mind is really the opportunities that are available and vendor expectations, but we try and be pretty consistent.
We've looked at a lot of stuff over the last little bit and I suspect, we'll continue to look at a fair amount.
What we can actually bring across the finish line in many respects, it's less about changes and our behavior changes and market and what that does to vendor expectations, but.
We continue to look very actively.
Thank you that's it for me.
Thanks, Bohn I appreciate it.
The next question comes from Michael Jamais of Scotia Bank. Please go ahead.
Hey, good morning, guys good.
Good morning, Michael.
Could you maybe start us off just by elaborating on the drivers that drove lower operating income and the year field stores and Q4 versus Q3.
Yes.
But I would say some of it was also was driven by.
In in.
In Q3, we had a really good period in particular on the Canadian side of the business that was a little bit lumpy and so it wasn't so much of.
The Q4 by itself and more of a case of Q3 had some really good business that came to the table in particular some of the Trans mountain and work.
What ended up happening in Q4 on the other side of it is.
The U S business has had some challenges so while Canada and U.
Our Canadian businesses contributed nicely in Q4, there were some struggles south of the border and when we talk about the impairment charge that we took in Q4 that was really driven south of the border in our <unk> business. There are some challenges that are going on there is a little bit of a disconnect between the Canadian oil patch and the U S oil patch right now.
So that is some of the phenomenon that you saw in Q4 some of the pullback was really a function of some of the.
The macro challenges that are ongoing within the U S sector.
Got you. Thank you and maybe more broadly speaking like I'm trying to get a sense for.
The earnings power of this business and I can make it pretty educated guess on where the metals service centers.
And is going to land and 21 based on what we saw in 2018, but.
And it gets a little bit trickier with the energy product side and it doesn't sound like you're.
The earnings there will peak at the same time as the metals service centers.
Any way again for the <unk> the energy products business any way you can size up.
The earnings power of that business when it's been fully restructured.
Yeah, Let me take a shot of that Michael So.
Yes.
When <unk>.
And obviously the last couple of years has been really challenging for that part of the business and has been and earnings drag. So we talked about negative $8 million.
Loss in Q4, it also lost money in Q3 and back for the last couple of quarters.
So in some ways for the last little debt, it's a little bit of addition by subtraction.
Lower top line, but frankly.
Eliminating some of that negative drain.
But even if we look past the last couple of years last couple of years and a longer term basis.
Best of that business was generating kind of mid single digit type returns.
So when we look at redeploying that capital.
Over a multi year basis.
It has Pat and mid single digit type returns if we look at it over a 567 year basis over the last couple of years, it's been a negative drain so we use those.
Macro factors to put it into your model by taking that capital and redeploying it somewhere else.
It should be of lower top line, but a higher bottom line is the results.
Yes that makes sense.
Michael just to add on the.
<unk> stores that you are asking about specifically look and feel more like our service centers. There are different market drivers, obviously, the geared towards more towards the oil and gas production and the timing of that but again the operational.
Once we have.
And right side of the OCD gene and line pipe of the operational side of the field store should look and feel a lot more of like our service centers for your model.
Got you I mean, it's probably early to talk about it but it feels like 'twenty, two and might be better than 'twenty, one for the energy product spaces.
And maybe if I can sneak one last day.
On the distribution segment because of that.
One <unk> and 2018, and if I remember correctly and the ability to source International steel was the big driver of to that success. So steel lead times extending beyond three months and I mean as of the possibility that you replicate the success again in 'twenty one.
Yes, there's different dynamics out there right now with the international steel, but the others. There's definitely the opportunities for that success again. This one was driven the supply chain was just depleted.
The manufacturer service center, the end user going through Covid, and everybody drew their inventories down and as manufacturing ramp back up the original.
Equipment manufacturing ramp back up the industrial.
And the supply chain, which is really bad and so there are opportunities for the pricing. In addition, scrap pricing went through the roof.
And so.
And that was the driver and so as we move into Q1 and Youre looking and extended lead times out of into May as you mentioned, but again the international market and the import market right now there's not enough spread there that's really making it overly attractive.
For people to go out and then Donovan with both fit because theres just not of again theres just not enough spread if there is a pullback on this price.
That's great. Thanks, guys.
Great. Thanks, Michael.
The next question comes from Michael Kopelman at TD Securities. Please go ahead.
Thanks, Good morning.
Hey, Mike.
Okay.
Question is just on demand.
The demand levels of activity levels and the service centers business you.
You talked about of strong pickup, particularly towards the end of the fourth quarter.
And your outlook makes it sound like that that has continued into the early part of this year I'm. Just wondering if it's possible to get a little bit more granular is the the rate of year over year change that you are seeing through the early part of the issue or is that is that.
Has that accelerated and was better than what you saw at the end of last year.
And I think it's better than the fourth quarter overall, because you see some typical seasonality and fourth quarter.
And again fourth quarter was very strong force, especially going into the end of the quarter into the December month, and we continue to see that.
And if youre looking for granularity and again Oems and industrial across the board of again picked up.
Pretty dramatically across the board construction remains very steady and really remain steady throughout the pandemic, which was very impressive.
<unk> continues to be energy, although it's improving it's just so much slower pace.
No. That's helpful. Thanks, Jon I guess, yes.
And when I refer to granularity I guess, what I, what I was looking for and that's what you suggested is helpful.
I guess I appreciate the seasonal.
Weakness that you typically see and Q4.
I'm, just wondering from a year over year perspective.
Whatever you were seeing in terms of the year over year improvement and late in the year as the rate of year over year of improvement.
And then that through the first part of this year or is it sort of consistent with what you were seeing right at the end of the year there.
And so I'd say, it's slightly up right now over where we were in December but its debt.
The improving but.
And so early and of the quarter, it's a little difficult to tell right now we just got January and look at but we are seeing improvements.
Okay.
I think one of the other aspects and this is perhaps why its hard to look purely at volume at this point is there's not a ton of inventory and the supply chain. So I think the reality is demand is outstripping available inventory, so volume could probably be higher than it is if there was available inventory for it and the <unk>.
Result of all of that is the price environment or and right now, there's just not a ton of inventory and the supply chain.
Alright, great. Thanks, guys.
You were asked about margins and Oh.
Overall, I guess, but.
So a lot of the strength of the service centers business in particular in the and the fourth quarter.
Just so I'm clear that and you had a very strong margin, 25% gross margin and service centers and the fourth quarter and that was the highest since.
The first part of 2018.
Was that was that entirely driven by the by the strengthening price environment that that occurred through the fourth quarter and particularly towards the end of the year. I mean, I know there is of value added aspect of it but just to be clear on the fourth quarter. There was nothing unusual and it's really primarily price driven.
Yes.
Sort of got John.
And predominantly price driven and again there was some lift that we're seeing and the value added process and as it continues to grow but it's predominantly price driven and it continues on and Q1 pretty strongly.
Okay. So the way to think about this going forward is it fair to say that given the fact that prices continue to strengthen into the first part of 2021.
The gross margins, we see <unk>.
Early in the year here.
It should actually be improve even further from from that level of you saw in Q4 is that am I thinking about the directionally the right way.
Spot on.
Okay perfect. Thanks.
And then just in terms of the.
The energy products business, Hugh you reaffirmed your $100 million capital reduction target and so it doesn't sound like you are.
And that's evolved and anywhere youre thinking about that any differently, but I'm just wondering if there if there has been any evolution in your thinking for that business.
Either.
I guess getting more aggressive with the way you are.
Some of the changes you might be planning or in turn and perhaps less aggressive and view of the fact that oil and gas prices have strengthened and there is actually and it looks like certainly things have bottomed there and are getting better and I'm just wondering if.
It sounds like there hasnt been any change in your capital reduction target, but I mean in terms of site closures or any other aspects of how you view that business from a strategic perspective has anything changed.
And it's really the tale of two sides of the border.
And then a couple of other dynamics that come in.
And again, we merged two of our operations or <unk> and line pipe into one and head of overhead reduction and Canada.
And we've initiated really the orderly liquidation of inventory and the United States.
However, based on the the pricing that we're seeing what's working through the supply chain is it cleaned cleaned itself up in Q1 and again the entire chain was oversupplied.
We're starting to see prices rise and as we continue to pull that inventory down. There is obviously the margin opportunities that are there to reverse of that business. So it doesn't put us in the rush.
Get out of the business Super and opportunity to do.
So that was advantageous for our shareholders and obviously it made economic sense gross we would consider it but theres no reason for rush and the rig counts and building the demands building.
And so again right now we're at a pretty good position and the states just to take our time and apply the way unless of opportunity presents itself.
And made economic sense for Us and Canada, we've continued to reduce our inventory, but its running at a very nice clip right now and our Canadian operation and frankly with the New administration and the United States. They are green energy push and we feel like that Canada will benefit from that and the.
Latter half of 2021 and on into 2022.
And with potential growth and the oil production and so it could benefit us there as well.
Okay. Thanks, and then just one last one.
Marty if I understood correctly your comment about Capex.
And what you said was that you expect sort of a similar run rate to what we saw and.
The last quarter, and I guess and 2020, you were around 2420 $5 million per for the year is that the kind of number we should be thinking about for 'twenty 'twenty, one, yes, very similar orders of magnitude correct.
Okay, and that's that's down a fair bit from where it was and certainly in 2019 and I and I think even historically so is that.
I don't know Im just trying to understand it it just seems a little bit low to me.
But is that sort of.
I guess, maybe what's changed what why is it and why is it coming down relative to where it's historically been.
And Michael as we shift more into this high and value added processing.
Little bit of the honeymoon phase if you will therefore, capex as far as depreciation on the repairs.
So would you get this new machinery coming in the first year day does not having to do a lot of things there.
As far as of the repair side of the business and that will eventually shift back out and the ramp back on the.
But as we look at some of our older machinery not as effective is still running we will ship that production over to more of the high end equipment and that will just the.
And have an end of life, where we will actually the scrap that equipment as it gets sort.
And the two weeks there.
And so youre, just seeing a little bit of it and <unk>.
<unk> and that you said that honeymoon phase of equipment and everything perfectly.
Okay that makes sense alright. Thank you.
Great. Thanks.
The next question comes from Frederic Bastien Raymond James Please go ahead.
Good morning, gentlemen.
Good morning.
It's encouraging to see how our support of the conditions and also your own momentum are entering 2020 on but if I look at consensus expectations of the average analysts expect.
Russell to earn about a dollar and 80.
Our per share this year, which is which is more than double what you delivered last year.
Does that does that number of making nervous.
We don't spend and a lot of time thinking about.
And consensus forecast to be perfectly honest.
This is almost.
We focus on what we can control and what we control control as to how we're running the business.
And what we're seeing right now in terms of market conditions is pretty good and what we're seeing in terms of the things that are within our control.
The operating cost value added opportunities is looking really good. So we're quite optimistic but we don't spend an awful lot of time trying to figure out what the street expectations are for next year and whether they are too high or too low or just about right.
We'll leave it to you guys to figure that one of them.
Yeah, I've been following and guys for 10 years of night and can tell you its quite hard.
But direction.
And obviously heading and the right direction.
Very much so and I think thats the fairpoint for the.
The wind is at the back it was a pretty decent Q4, and the exit pace coming out of Q4 was better than the Q4 average and some of the initiatives that were put in place in 2021, we're seeing the fruits of our labor and so we're quite pleased about that.
Yes.
No.
Maybe a question for John and I'm sure you're sleeping better than you are.
Nine months ago, or 10 months ago, unless unless you're caught COVID-19 more recently, but is there anything keeping you up at night right now.
As we work during the energy I mean, obviously, that's difficult for interest and the price that we're dealing with our people and and gone through that so that's obviously a difficult but from the service center side and the distribution side.
We're really.
Looking at some silver linings that happened in 2020, and the development of our people was tremendous and they were thrust into some leadership roles and they all responded just tremendously.
And so again and just accelerated their leadership and their ability to grow this business going forward. So as we go into 2021 of some momentum and the market and our back our people are just so poised to take advantage of the opportunities and theyre doing a great job of maximizing those opportunities. So.
The.
The biggest thing of the challenges with the with the people and the old CTG and lot of pipes.
Okay.
Alright, I appreciate the color thanks, guys.
Thanks, Craig.
Ladies and gentlemen ask the reminder, should you have any questions. Please press star followed by one.
Next question is from John Burgos, and Investor Day. Please go ahead.
Hi, gentlemen, how are you doing.
Keep looking at that dividend.
And our Pan out I look at just mice from what I see of raw.
The $90 million.
I know you guys have always been concerned about cutting the dividend, but if you guys cut the dividend I know you'd be concerned about the stock going down but boy, that's a lot of cash flow going out of the company.
My next question is so that's a question and I really like you guys to look at have you guys got enough inventory also can be advantaged to take advantage of this next.
Quarter with the inventories.
Really the tight out there was a source of supply and margins exploded.
And have you got enough inventory and they were really really capitalize on those margins.
Thanks, John.
From a liquidity standpoint, when we look at the dividend and again for the long term viability of the company and for the shareholder and we look at it we're in the solid liquidity and the countercyclical cash flow of these downturns, we actually throw off so much cash of the dividend is sustainable for a pretty long period of time.
And I've been a concern of the balance sheet, so we're pretty comfortable with that.
And regards to inventory, we've always taken the approach that we're going to turn our inventory and both the U S and Canada faster than our competitors the kind of minimizes the ups and downs tornado and increasing market, we actually the bulk up a little bit.
Really.
On inventory, but we've got such a good working relationship our projections forward all of our buy side with our suppliers to what were guaranteed tons of the market price.
And we really focus on the key for US is focusing on the margin side of the business and the gross margin.
Transactional nature lets us push that and immediately and maximize on that because we're not bound by contractual nature.
So we can maximize those margins quickly where the challenge becomes as again, you don't want to go out and and start selling inventories to the unusual places and <unk>.
The texture of customers in this type of environment, where some of the Mistral and allocation. So we've been able to do so we've not had inventory concerns at this point without the do have some supply of our competitors. So that are running out of inventory supply is tight.
But right now we're in a very sweet spot on that we're maintaining those turns where we get the again two to three months worth of inventory. So when there is the downturn, we should be able to race to the bottom faster than anyone else. So we think we're in a nice sweet spot. It really helps us maintain net earnings.
But again at the bottom we're going to be at a higher peak at the top we may give away a few dollars on the top side.
The other stuff and that's material to our to our share price share shareholders.
But just getting back to that dividend that $94 million going out the door, which is roughly even with your stock in 2650 like five percentage of margin I, just don't understand why that could not be used for more inventory more acquisitions.
I, just look of that dividend and go out of.
A lot of dough going out the door.
Yeah, So it's Marty here.
We look at it every quarter with our board and we look at Holistically and at the end of the day, we're not being compromised with being able to walk and chew gum at the same time and we have invested.
As required.
<unk> made an acquisition and the quarter, we've got a great capital structure with very strong credit metrics and we paid a dividend. So I think we've and a little bit of a sweet spot here right now and the sense of we can do a variety of things in terms of capital allocation and I think that's kind of evidence of what we've done this quarter.
Little acquisition, and continuing to manage working capital and the right way and paying out of dividend and continuing to look at other opportunities for value added investments within our business, we're checking of variety of boxes on that front.
Okay, and just one more thing about the margins I know the margins you guys said and the fourth quarter of near the end of our approach and 25%, so with steel going up and flat rolled and tubing and the availability and tight tight supply could the margins price, maybe get up close to 40% and the first quarter.
So we don't want to speculate on anything going forward on the debt closer now the forward looking statement, but they definitely are improving.
Okay. Thanks for your time gentlemen.
Alright, Thanks John.
There are no further questions at this time and you May proceed.
Great.
Thanks, operator.
Very much appreciate everybody for tuning in today. Thank you for taking the time. Thank you for following Russell. We appreciate it if there is any follow up items. Please feel free to reach out to John or myself, either today or in the coming days otherwise, we will look forward to staying in touch and thanks, everyone.
Ladies and gentlemen, this concludes the conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.
Okay.
Okay.