Q2 2021 Commercial Metals Co Earnings Call
[music].
Hello, and welcome everyone to the second quarter fiscal 2021 earnings conference call for commercial metals.
Today's call is being recorded after the company's remarks, we will have a question and answer session and we'll 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.
Guarding economic conditions and effects of legislation 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 and capital spending vs and other similar statements are considered forward looking and may involve spec.
Asian inner subject to risks and uncertainties that could cause actual results differ materially from these expectations.
These statements reflect the company's beliefs based on current conditions, but are subject to certain risks and uncertainties, including those that are described and the risk factors section of the company's latest annual report on form 10-K.
Although these statements are based on management's current expectations and beliefs.
And C offers no assurance that these expectations or beliefs will prove to be.
Incorrect and actual results may vary materially.
All statements are made only as of this date, except as required by law CMC does not assume any obligation to update and then or clarify these statements and connection with future events.
And isn't assumption, you're current or anticipated or unanticipated events, new information or circumstances or otherwise.
Some numbers presented will be non-GAAP financial measures and reconciliations for such numbers can be found and the company's earnings release for on the company's website unless stated otherwise all references made to year or quarter, and our references to the company's fiscal year or fiscal quarter.
And now for opening remarks, and introductions I will turn the call over to the chairman of the Board President and Chief Executive Officer of commercial Metals Company Ms. Barbara Smith.
Good morning, everyone and thank you for joining Cmc's second quarter earnings conference call and.
As we reported and the press release issued this morning. It was another excellent quarter and I'd like to thank Cmc's nearly 12000 employees for their continued hard work and focused efforts on behalf of our customers and our stakeholders.
And we'll begin the call with brief remarks regarding our second quarter performance before offering some perspective on the current market environment and well.
Also provide and update on Cmc's key strategic growth initiatives.
Paul Lawrence will then cover our financial results in more detail and I will conclude the prepared remarks with a discussion of the third quarter fiscal 2021 outlook after which we will open the call to questions.
Before covering my prepared remarks, I'd like to direct listeners to the supplemental slide deck of information that accompanies this call. The presentation can be found on C. M sees investor Relations website.
DMC reported fiscal second quarter 2021 earnings from continuing operations of $66 2 million or 54 cents per diluted share on net sales of $1 5 billion.
<unk> the impact of certain charges, which Paul will cover in more detail adjusted earnings from continuing operations were $79 8 million or 66 cents per diluted share.
Core EBITDA of $171 1 million was the highest ever for a second quarter, which has historically been our seasonally weakest quarter.
This record underscores cmc's enhanced earnings capability, following our multi year strategic repositioning and.
And the earnings stability provided by our integrated value chain.
To put this in context since the third quarter of fiscal 2019, Pmt's average quarterly core EBITDA level has nearly doubled compared to the preceding eight core eight years.
Over that same period quarterly EBITDA volatility and percentage terms has declined by 75 per cent.
We have now posted eight consecutive quarters of core EBITDA at or above 150 million and seven straight quarters of annualized return on invested capital above 10%.
These figures demonstrate the power of Cmc's strategic repositioning over the past several years and provide a baseline for our strict trees and strategic growth initiatives three of which I will cover in a moment.
Activity levels and Cnc's core end markets remained strong during the second quarter and North America demand for rebar was driven by a continued state and local infrastructure spending and our major geographies.
As well as strong residential activity, which is a segment of the market, where CMC has been growing its participation.
Demand for merchant product benefited from the ongoing recovery of domestic industrial production and.
And our lead and service center supply chain.
Demand for CMC as long products in Europe also remains strong during the second quarter <unk>.
Construction activity is healthy while manufacturing and our core central European markets continues to expand.
The industrial recovery is driving strong demand for merchant and wire products.
We were able to capitalize on during the second quarter.
The most recent PMI readings for both Poland, and Germany are at their highest levels and roughly three years, indicating further expansion ahead.
Now I'd like to spend a few moments discussing the current and near term market environment.
During our previous calls and October and January we noted heightened levels of near term uncertainty within our markets.
Uncertainty about states Covid related policies kept project owners on the sidelines, which resulted in delayed awarding of new work.
The historic rise and scrap prices, which began in late 2020 also clouded our near term view of the business.
Today, those uncertainties are starting to clear we've seen our backlog stabilize over the last quarter with the level of New awards increasing.
This occurred even before several governors began taking meaningful steps to normalized state economies by eliminating a rolling back COVID-19 related restrictions.
These state level government actions as well as the positive impact of broader vaccine availability are giving developers and project owners added confidence to move forward with projects under consideration.
The pipeline of potential work as robust as reflected in the volume of bids within our downstream operations.
Bid activity strengthened during the second quarter growing on both a sequential and year over year basis.
The key is turning good activity and two awarded contracts.
As I previously indicated this measure has improved recently as well.
The rate of awards over the last several months has stabilized our construction backlog at a healthy level, which will support near term shipping volume.
Conditions within the public construction sector are also encouraging key states have strong funding position and we expect to see good highway activity and calendar 2021.
And this should also be supported by the additional funds provided to state Dot's from the Covid relief Bill passed in December.
And as we've shared in the past the broadest and most historically accurate outlook for our construction markets comes from the Portland Cement Association.
Their latest forecast provides two positive signals.
Growth expectations for 2021 were recently resort revised modestly upward to one 2%.
And consumption in 2020 was stronger than previously estimated meaning 2021, we'll be growing off a higher baseline.
Now, let me make some brief comments on the domestic scrap market conditions.
Conditions appear to have settled following a six month rally from August and January scrap input cost increased rapidly month to month.
Bobby and your view of near term profitability, and creating uncertainty about the levels, and which ferrous scrap and steel pricing would stabilize.
As shared on our last earnings call, we expected margin on steel products will decline sequentially from the first quarter.
However, despite the scrap volatility scrap price volatility CMC was able to achieve margin stability during the second quarter.
Looking further ahead, we see several positive long term developments the.
And the population migration into Cmc's key geographies and appears to have solid growth accelerated over the last year.
Although new residential construction has been strong across the U S growth has been particularly significant in the sunbelt.
New single family housing permits and Cmc's core southern and Western Metro areas are up over 40% from the average level and 2017.
Compared to an increase of 18% and other metro areas.
CMT is geographically well situated to benefit in both the immediate and long term.
Other five states identified by the truck rental company U haul as having the highest net in migration of residents. During 2020, CMC operates rebar mills and for them.
And just on past experience residential constructions leads local infrastructure and nonresidential investment by 12 months to 24 months.
Additionally, although we do not have a view on ultimate timing and composition the enactment of a long term federal infrastructures infrastructure package appears likely for you.
<unk> versions of potential legislation circulated in the Senate and house of Representatives last year would have added $1 million to $1 4 million tons of incremental annual rebar demand.
Clearly, we see a number of favorable near term and longer term indicators for our business.
However, the pandemic caused disturbances across the global economy, including a swift reduction and new U S. Construction starts during 2020.
So we have not seen this impact to date and do not see and and our current backlog. We continue to monitor economic indicators for signs of emerging air pockets and demand.
I'd now like to provide and update on three key strategic initiatives I referenced earlier.
We are nearing the completion of the third rolling line and Poland hard commissioning is scheduled to begin during the current quarter with commercial production to ramp up shortly thereafter.
This project will come in meaningfully under budget and has hit all major timeline milestones are a testament to the strength of our Polish team.
Project is starting up with and a strong market environment, and we will give our operations improved flexibility to serve its multiple end markets across several products.
As we previously indicated once fully commissioned this investment is expected to generate incremental annual EBITDA of $20 million and we will utilize excess melt capacity to increase finished product output by roughly 200000 tons.
Moving to the second key initiative, we completed the closure of our steel, California operations and January and have fully transitioned to our supply chain for the California market to lower cost material produced and our central and east regions.
This was a major commercial logistical and operational undertaking that our team executed flawlessly.
We expect the meaningful financial impact other rolling mill closure to accrue further benefits to our results beginning in the third quarter.
With this action complete CMC is nearing the halfway mark of achieving the annual and network optimization benefit of $50 million that we shared during our Investor Day last August.
Next I'll comment on the third major strategic initiatives.
Site work at our Arizona, two micro Mills project is progressing well and we remain on target for startup in early 2023.
As a reminder, this will be our third micro mill and the first and the world capable of producing merchant bar product.
Once fully operational we expect this.
Day to the art mill to contribute roughly $50 million of annual EBITDA.
We look forward to giving future updates activity progressing.
During our conference call in January I discussed efforts that CMC is undertaking to expand our sustainability disclosures and reporting those efforts have progressed swiftly and we will share the results and our latest corporate sustainability report this summer.
Finally as stated in our press release, the board of Directors declared a quarterly cash dividend of <unk> 12 per share of CMC common stock for stockholders of record on March 31 2021.
The dividend will be paid on April 14th 2021.
This represents cmc's 226 consecutive quarterly dividend.
And without us and Ov 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.
Paul Thank you Barbara and good morning to everyone on the call today.
I'm pleased to discuss with you our results for the second fiscal quarter of 2021, and which we reported earnings from continuing operations of $66 2 million for 54 cents per diluted share compared to earnings from continuing operations of $63 6 million for 53 per.
Diluted share and the second quarter of fiscal 2020.
Results from the quarter include net after tax charges of $13 5 million related to cost for debt extinguishment and decommissioning of CMC steel, California operations.
Which were partially offset by a gain on the sale of certain facilities.
We expect both the debt extinguishment and closure of steel, California to provide meaningful cost and cash flow benefits going forward.
Our January refinancing will reduce annual pre tax debt service costs by roughly $8 5 million.
Ceasing rolling activity at steel, California is estimated to provide gulfport and annual EBITDA benefit of at least 10 of approximately $10 million.
In addition to the similar level of savings already realized as we ended melting operations at the facility last year.
Excluding the charges taken in the quarter adjust.
Adjusted earnings from continuing operations for $79 8 million for 66 cents per diluted share.
Our core EBITDA from continuing operations was $171 1 million for the second quarter of 2021 and increase of 18% from a year ago.
Slide five of the supplemental earnings call package illustrates the stability of our core EBITDA per ton and I'll finish the deal shipped over a period of time that included not only our global pandemic, but also a steep rise and ferrous scrap costs.
AMC has managed core EBITDA per ton of finished steel within a range of plus or minus 10% for eight consecutive quarters and nine of the last 10.
Now I will review our results by segment for the second quarter of fiscal 2021.
The North America segment recorded adjusted EBITDA of $171 6 million for the quarter compared to adjusted EBITDA of $152 8 million and the same period last year.
Largest drivers of the improvement were a meaningful reduction and controllable costs and.
And benefit of selling lower cost inventory into a rising price environment and expanded margins on raw material sales.
These factors more than offset the impact of lower margin over scrap on shipments of steel and downstream products.
Selling prices for steel products from our mills increased by $70 per ton.
On a year over year basis, and were up $83 per ton sequentially due to announce and price.
Price increases adjustments taking effect during the second quarter.
Margin over scrap increased $5 per ton on a sequential quarter basis, increasing each month during the quarter.
The average selling price of downstream products declined by $5 per ton from our first quarter. However.
However, I would like to note that over the last several months, we have seen higher mill rebar sales prices translate into higher bidding and booking prices for our downstream operations.
And a period of rise and scrap costs, we realized higher margins on sales of raw materials, which as a result of the vertically integrated network of operations helped provide the earnings stability to our consolidated results that I previously mentioned.
Operational performance was a meaningful driver of improved results and the North America.
Compared to the second quarter of fiscal 2020 controllable costs per ton of finished steel shipped declined by 9% with improvements throughout our vertical footprint.
And most significant benefit was the lower was lower mill conversion cost, which is our largest cost outside of scrap.
We are benefiting from our efforts to optimize and mill network with additional cost reductions to come in future quarters.
Mill costs and the second quarter also benefited from lower prices for consumables, such as electrodes and alloys.
Shipments of finished product and the second quarter increased 2% from the pre pandemic volume of a year ago with growth and steel products, partially offset by decline and downstream products.
Rebar volumes out of our mills are being supported by resilient and construction activity.
AMC is growing its presence and residential construction, which added meaningfully to the year over year growth and rebar shipments.
Volumes of merchant and other products also grew during the quarter.
Downstream product shipments were impacted by by lower backlog and certain geographies as well as the extreme weather experienced within the Texas and Gulf regions During February.
We estimate that the weather disruption and accounted for roughly half of the 6% decline and downstream shipments compared to the second quarter of 2020.
The recent trend and North America margins volume and cost performance can be seen on slide six.
Our Europe segment reported adjusted EBITDA of $16 1 million for the second quarter of 2021 compared to adjusted EBITDA of $13 5 million and the prior year quarter.
The improvement was driven largely by expanded margins over scrap and the <unk> of selling lower cost inventory.
Margins over scrap increased $6 per ton on a year over year basis and were up $5 per ton from the prior year quarter.
And part flows remain a negative factor, but had the EPS compared to levels experienced at times during the last two years.
Average selling prices of $532 per ton reached its highest mark since the second quarter of fiscal 2019.
Similar to North America average pricing and margins improved sequentially each month throughout the quarter.
Europe volumes decrease compared to the prior year down 7% due primarily to the unusually strong level of rebar shipments achieved and the second quarter of 2020.
Volumes of merchant and other products increased on a year over year basis, driven by good demand for industrial customers and central Europe as well as some opportunistic billet sales.
The decline and rebar sales effects for us.
Flex a return to more seasonally normal levels compared to a year ago as well as and intentional commercial decision to capitalize on the strength and industrial markets during the quarter.
Turning to our balance sheet and liquidity.
As of February 28, 2021, cash and cash equivalents totaled $367 million.
In addition, we had availability under our credit and accounts receivable programs of approximately $693 million.
In January we Opportunistically refinanced for $350 million of outstanding notes maturing in 2026 with an issuance of $300 million of notes due in 2031.
This action and the beneficial effect of Delevering CMC as balance sheet by $50 million.
Lowering our weighted average coupon.
Coupon by 63 basis points, thereby reducing annual interest expense by approximately $8 $5 million and.
And extending our weighted average maturity by slightly over one five years.
The new 2031 notes were sold to yield just three and seven.
7%, 8%.
A level that demonstrates the confidence that the fixed income market has and cmc's cash flows and credit worthiness.
During the quarter, we generated $13 million of cash from operating activities. Despite a 19 $98 million increase and working capital.
The rise and working capital has been driven by the significant increase in both scrap input costs and average selling prices.
We would expect working capital balances to stabilize heading into the back half of fiscal 2021.
Our leverage metrics remain attractive and we have improved significantly over the last two fiscal years.
As can be seen on slide 10, our net debt to EBITDA ratio now sits at 1.2, while our net debt to capitalization is just 22%.
Our robust balance sheet and overall financial strength provides us the flexibility to fund strategic projects and navigate the uncertainties of the current economic environment and pursue opportunistic M&A.
<unk> effective tax rate for the quarter was 24.0%, which was slightly below our full year effective rate forecast to be between 25 and 26%.
Lastly, I would like to provide that our current outlook for capital expenditures and fiscal 2021 is between 202 hundred $25 million.
With roughly $85 million earmarked for our new micro mill.
For comparison purposes, we have previously stated that our typical capital spend is approximately $150 million annually.
This concludes my remarks, I'll now turn the call back to Barbara for the outlook.
Thank you Paul.
We are entering the summer construction season, and a strong position.
Our construction backlog and North America remains healthy and should support near term volume levels, which we expect to be consistent with normal seasonal trends.
They've all raw material costs should lead to flat or slightly increasing margin over scrap and steel products.
We expect volumes and our Europe segment to remain strong underpinned by growing activity in both the construction and industrial sectors.
The Polish economy is recovering quickly from the global pandemic and as of January has the lowest unemployment rate in Europe and.
<unk> production and that month increased at a rate of five 6% from a year ago compared to the EU average below 1%.
Alert and CMC as North Americas segment margin should also improve from the second quarter, depending on the course of scrap costs.
Once again I'd like to thank all of the CMC employees for delivering an outstanding quarter of performance.
At this time, we will now open the call to questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speaker phone. Please pick up your handset before pressing and keep too.
And withdraw your question. Please press Star then two.
And we ask that you. Please limit yourself to one question and one follow up if you have additional questions you may reenter the question queue.
At this time, we will pause momentarily to assemble our roster.
The first question.
And today comes from Chris Terry with Deutsche Bank. Please go ahead.
Hi, Barbara and Paul and Thanks for taking my questions and I just wanted to.
In terms of the backlog for fabrication you mentioned its strong EBITDA.
And for that maybe on a year on year basis, so quarter on quarter basis, just to get an idea of all the trends and then you mentioned on the mill margins. They are expected to be better heading into the next quarter I'm. Just wondering if you could talk about the fabrication margins as well. Thank you.
Okay and.
I think I'll take the backlog question, maybe I'll flip it to Paul to talk about the.
The fab margins our backlog is really stable if you look at it on a year over year basis.
And.
We're also very encouraged by the level of projects that are out there.
And now as I indicated in my remarks coming to the market and so I would expect.
Good support in terms of our backlog going forward.
As far as the debt.
Fab margins.
We expect relative stability and the selling price on the fab side and.
And as scrap stabilizes. We also expect then that the.
The margin of the <unk>.
<unk> business over scrap to be consistent and really follow the trends that occur in the scrap market.
Right. Thank you and.
And just so just to follow up I just wanted to talk a little bit more about the end markets. Obviously, you've said, there's a little bit more clarity on where we're at this is when you last reported can you just give a bit more detail and some of the regions. Some of the stronger areas. Some of the weaker areas of the market just trying to understand what specifically maybe.
And the CMC outperformance versus the market and just some of them some more detail across across the picture. Thanks.
Yeah. Thank you Chris.
You know, we recognize it's been a little bit different difficult to monitor things I think.
Really some areas that are that are stronger than probably a lot of people expected. The internet economy is feeling so much activity in terms of warehouse and distribution that that was strong going in and it has only strengthened throughout the last year.
Infrastructure has been steady and consistent and while there are some states that have different financial situations I think the infrastructure questions that were looming a year ago about loss of state revenues and I think.
All of those questions have cleared and there's obviously been some government support to certain states that are maybe in a.
Worse condition than others.
I would remind the listeners that we've been on a multi year strategy to them.
Increase our participated participation on the on the merchant market and.
And that generally follows industrial activity and there is clearly a recovery and the industrial sector that has been.
Interesting for us in terms of.
Our ability to sell into that market.
And I think residential is one that.
Certainly.
I didn't expect as much strength and residential this past 12 months is what we're actually seeing it's not surprising.
If you follow the information around individuals making decisions to move away from the concentrated metropolitan areas. There has been a multi year migration of population.
From certain areas of the country to certain other parts of the country as I indicated in my remarks, there's been strong growth in states, like Texas, and Florida, and Arizona those trends continue and maybe one would say that they've accelerated.
So I think there has been probably a lot of focus on two indicators Abi and construction starts.
And really I don't think either one of those indicators.
And take into account and what we're seeing on the residential side or the infrastructure side and so.
Hum.
I'll pause there I think those are some of the main drivers that were we're quite encouraged by what we see.
Thanks, Paul that's helpful. Thank you thank.
Thank you Chris.
And next question comes from David Gagliano with BMO capital markets. Please go ahead.
Great. Thanks for taking my questions I just have a couple of clarification questions first of all could you just and on the fab business I misunderstood I think did you say you expect.
Overall fab margins to be flattish quarter over quarter and the.
This upcoming quarter.
David.
What we see is from a from a backlog perspective on the on the top line.
We see stability in terms of the projects that we are.
We will be shipping on over the coming quarters, and then really the margin will will will be determined based on your expectations around what happened for us to to scrap costs.
Okay, and then further add to.
To Paul's remarks that.
The balance of our backlog is is shorter dated versus longer dated and maybe what what we would have seen.
Historical periods and generally that.
Shorter dated backlog it turns faster and there's there's less.
Raw material exposure.
As a good a good trend for us.
Okay. That's helpful. Thank you and then just.
Switching gears, a little bit the commentary.
About the positive impact from selling lower cost inventory and rising steel price environment can you just quantify how much of a positive impact that was this quarter and when do you expect that to reverse.
Sure.
If we look throughout the day value chain of operations and art.
And the number of days of of metallic inventory that we have threat the processes is more or less.
And a month and a month and a half of.
Material and so.
As we saw the scrap rise during the quarter, there was probably between 25 and $30 a ton.
A benefit of selling the.
And lower cost material that we saw during the during the quarter I think as we as we look forward as Barbara outlined in her comments, we exited with metal margins.
Higher than.
And then the average for the quarter and therefore, we sort of see those two offsetting each other and that will have higher margins going forward, which will.
Offsetting.
The inventory gains from the lower cost so that there will not be much of a reversal going forward.
Okay. That's helpful. And then just the last question can you just quantify what now that the sales of California's close and May have mentioned it but what do you expect for the quarterly cost improvement beginning in the third quarter on a run rate on an ongoing basis.
Yeah, I think what we are.
What we're trying to indicate is the rolling mill closure.
Should result in $10 million of annualized savings going forward. We previously have scores shuttered the melt shop, which had another roughly $10 million. In addition to all the other network optimization effort. So we're about halfway to our goal of $50 million.
Okay got it perfect. Thank you.
Thank you.
The next question is from Timna Tanners with Bank of America. Please go ahead.
Hey, Barbara and Paul Hope, you're doing well.
Yeah. Thank you how are you timna.
I wanted to follow up on the comment about demand implied from the potential infrastructure stimulus and and I've kind of heard this wrong, but I heard one for one 4 million incremental demand and so wanted to know if that were annual because I did some quick math and the size of the rebar market and if I look at it.
Exactly it S. It's five to 8 million tonnes domestic shipments one to 2 million tons of imports so that would imply.
No matter, how you slice it a pretty huge impact if it were indeed annual so just wondering if you could provide a little bit more color on what that forecast and sales and come up with things.
Yeah, Timna I think and.
It really depends on the nature of the ultimate and final infrastructure Bill and and.
<unk>.
How much of that is allocated towards.
Concrete related activity versus I know there's some.
Internet.
Access to rural areas. So we're monitoring it very carefully and.
But our best estimate which was supported by industry analysis on the bills that have been circulating through the house and Senate.
Is that estimate of one to $1 4 million of additional incremental demand and you're right. It's impactful to.
The market and as you know if you've been covering this space for a while.
It's not a faucet that debt off and then.
And fully on day, one and these projects are at various stages of engineering and.
And so the volume will trickle into the market over time generally theres a.
12 month lag before.
Any additional infrastructure.
Bill would would start translating into steel orders, but we also believe there is.
There's been and engineering work and there are projects that have been on the boards that maybe.
And maybe were put on hold.
During the pandemic for obvious reasons due to the uncertainty of things so.
You know your your estimate our estimate are plus or minus we will see and the and what it ultimately turns out to be but it is.
It could be very meaningful to <unk>.
The demand.
And that's incremental absolute or or annual.
Annual Oh Wow, Okay helpful.
Helpful. Thank you and just.
Looking at other button administration initiatives any Intel on the.
And the upcoming review, that's expected and section 232, and I'm on higher tax rate you are at a pretty full taxpayer. So just wondering if you have any other insights on to those developments.
Yes, I like your language full taxpayer and I alluded to.
Free.
And please feel free.
Very much appreciated the.
The tax rate that we've been enjoying and that's allowed us to further invest and the business low.
I'm not sure we have any any better insights and Youtube timna debt on the tax I think debt.
Certainly corporate tax rates are.
Alright in the target and on their radar and I think.
Whatever happens and the timing, we'll we'll deal with it at the time and it's not going to be.
Detrimental to our plans going forward.
And you know.
As it relates to $2 32.
We're we're quite involved through the consortium of companies and through our trade organization.
Two <unk>.
Present, the evidence that.
A this industry is critical to the future of this country. It does have a strong national security purpose.
And it is also.
And it has a very strong purpose to having a strong <unk>.
Economy, which economic.
Economic security leads to National security.
Think that we're encouraged by the administration's Reeves.
For you and thoughtfulness that they're putting into this too not just reverse something that the prior administration put in place.
<unk> share has clear recognition that there have been.
Economic benefits I think there's clear recognition that there's massive overcapacity globally I think there is a growing understanding of the <unk>.
S G GAAP between the U S industry and the World we are the cleanest steelmakers in the world.
And we had CMC as you know we've invested in clean steelmaking technology have.
And the lowest greenhouse gas impact of any steelmaker.
And the countries and nature of our electric arc furnaces, and our micro mill technology.
Low energy consumption on and on and and so I'm I'm quite encouraged that the conversation about.
And the overcapacity and.
The ESG.
ESG impacts of.
China, and particularly the debt that has a lot of this excess capacity and and very polluting capacity, but there are other countries. So our hope is.
And those conversations I think that the administration has demonstrated a willingness to engage with business and on this topic.
And certainly we'll be.
Very involved and having our voice to be heard and.
And.
So I think we will see hopefully some changes to our existing trade regulations.
And that can reinforce the positive benefits that were brought on by 232, but I.
And I do think that.
The signs are pretty encouraging and it is going to remain in place for a while longer and then.
Other measures those and you put in place to really put the pressure on the world offenders.
Okay. Thanks Bye bye.
Thank you Timna.
Okay.
Next question comes from interest and Crosshair with Exane BNP.
Please go ahead.
Yes, hi, thanks for taking my question.
First one please all North America EBITDA performance from Q2.
Can you please confirm what was the contribution.
Raw material external sales and the quarter and we'll see vs on average.
Versus prior quarters. Please.
That's the debt.
And good morning Tricia.
And thats the benefit of the vertically integrated network of of operations that we have.
Youre right, we did see elevated margins in that business, we don't quantify what what those are but certainly if you look at the the.
Our full value chain, the raw materials segment had.
For business had.
And expanded margins and.
That was one of the propelling reasons for the strong results for the quarter.
Alright, thank you.
And second question.
Europe.
Thank you.
<unk> and ports.
And being a bit more supported.
How do you see the risk to your business.
Yeah, and safeguard measures will be removed.
This summer I believe long imports from Europe.
Significant growth decline over the past two years.
We were Turkey, Russia.
By Cordis.
So you see a risk there a scenario where come June and puts a surge back again thank.
Thank you.
And thank you Tristan I think and <unk>.
Similar to the conversation, we just had with Tim and around 232.
Europe.
Fully recognizes the same phenomena that we do that there has been a buildup of excess capacity in certain countries very inefficient capacity capacities that is <unk>.
Pollute that subsidize as.
Is is produced not not using and living wage.
And very cleanly and Europe is.
And as you know the Green movement, and Europe, arguably is more advanced than and here in the United States.
And so initially when <unk> 32 was put in place Europe, followed with a similar structure and tariff structure, they converted that tariff structure to a quota structure.
And they've been making certain modifications to that quota structure to deal with.
Surges of imports at the beginning of the quarter, which has a massive impact to the supply chain and.
And a very disruptive impact.
And so the.
Where they've landed with the with the current and modifications.
Has had a smoothing effect and has eliminated some of those disruptive.
Periods, where you get massive surges of imported product into the EU and then that has to work through the supply chain much like $2 32.
And existing quota.
And Thats in place is is due to expire, but suffices to say that the industry and euro for which is the trade organization for the European countries is very active in examining that and encouraging and extension of two years.
Three years of the safeguard and and quota measures.
Again to put pressure on.
You know the offenders and the world that have all of this inefficient subsidized.
Dirty excess capacity, so we're quite involved and following all of those developments and.
Hopefully Europe.
We'll conclude debt.
These measures have been quite beneficial and they will extend them.
Alright, thank you.
Thank you.
Next question comes from Phil Gibbs with Keybanc capital markets. Please go ahead.
Hey, good morning.
Gordon and Phil.
Hey, Barbara just I have a question on.
And just general rebar use I mean, a lot of the and the road building programs have been strong and and growing for a number of years residential construction to your point is solid.
Yeah.
Is there is there a kind of a rule or a general way to think about the break breakdown of rebar demand between road building residential and and other.
Oh Wow.
And.
I don't know that I have a great rule of thumb, we can probably follow up with you, but I would say that.
And.
And in general infrastructures is pretty heavy on.
Our uses higher higher gauge bar and and there is.
And the heavy content presidential or the lighter gauge.
Rebar that the.
And.
Normally goes through through distribution and there's been really a lack of supply there. So that's been quite beneficial to us. It's also an area that the Gerdau mills participated and to a greater extent and since CMC. So that's been a nice synergy that debt resulted from.
From the acquisition.
Industrial is.
A part of the market that's picking up the the whole movement to readjust the supply chain and not have such a dependency on foreign sourcing of critical supplies and I'm sure you've read about the semiconductor phenomena and <unk>.
Extend earlier and the pandemic around all of the day.
And pharmaceuticals and supplies needed for for health care, So I think that.
Industrial has is an area that has been a bright spot and I think it will continue to be a bright spot there are a number of fairly significant.
Projects underway that haven't even.
Broken ground that are going to.
Create demand and maybe it wasn't there historically at that same level and.
And the other area that is really strong right now and has been growing is what I'm, calling internet economy. The.
And the Amazon phenomenon, the distribution and warehouse business, we were recently and Houston visiting our site and there is a.
Amazon facility that they were describing to us five floors each floor 14 acres.
And concrete design, so you can imagine.
<unk> got those kinds of facilities popping up all over the country and.
As we evolve.
Been isolated at home and and ordering everything that we need and.
And our outlook would suggest that debt thats going to.
<unk> for some time to come.
Thanks, Barbara and then just a clarification on the fab shipments so I think.
It was mentioned that the vortex had an impact on fab shipments I think you said about half the year on year.
The decline was attributed to the delays there.
I think seasonally you said the mills picking up.
As we normally would expect and then into the construction season, but are you are you seeing that should we expect that.
And fab as well and then and then maybe on top of the seasonality of the catch up from from the delayed shipments and what kind of sequential growth should we be looking for and the downstream piece.
Yeah. Thanks, I'll I'll start and then maybe.
Paul can give more specific guidance for your modeling fill but.
And you know.
We obviously were impacted and some of our operations as we were we operate and the interruptible supply arrangements and had to shutter operations, but.
With the weather and the ice and all of that the cold temperatures and that does not provide for construction activity two to even occur when you have those conditions.
And depending on whether it's Texas or the Gulf States.
And we did last anywhere from five to nine days.
Of of shipping and due to that that terrible weather event.
And as we like to say it.
It all gets shipped the projects I'll get serviced but there is a limitation on placing that steel. So it's not like you can accelerate it and and place double the amount and.
And a short timeframe to make up for that there'll be.
No doubt everybody it will be working as many hours and the day to catch up on those projects, but it's not one for one.
What I can say is the shipping rate to date and margin is.
And quite strong and and.
And that's a good indicator for the start of the busy season.
And we would expect fab shipments too.
To be consistent with what we're seeing and the mills in terms of and and.
We expect a and.
And nice construction season.
Thank you.
Thank you Phil.
And next question is a follow up from Chris Terry with Deutsche Bank. Please go ahead.
Thanks, and thanks, Barbara and Paul.
Just a little bit more detail.
On a day on the demand you talked to we talked a lot about and Internet economy, and just wondering if you could talk more specifically about commercial office.
Medical education, and some of the other areas and non res construction. Thank you.
And I think it's a little early to see any brightline trends I can say that in my conversations with individuals that are in that.
Okay.
And office.
Commercial office situation debt.
And a number of conversations that I've had there's not a rush.
For companies to abandon.
Their existing office space there is still.
As the pandemic has gone on a lot of companies.
Have realized that there is there is difficulty and problem solving and collaboration and the virtual world.
And we've all done an amazing job to get the work done and the virtual world, but we are we are also.
Human beings that like inner.
Interaction and problem solving as best on and that way.
No.
I think early on there were proclamations that.
That companies were going to just move to virtual forever.
I think as time has gone on and as we've learned and and seen the pros and cons.
Net.
And most companies are are expecting to get back to work and maybe there's more flexibility and the work arrangement.
But that it's not going to be and abandonment.
So I think you got to watch the trends that I talked about the the population migration and generally the migration is also tied to.
Company decisions around moving moving locations or or setting up new locations in certain geographies that are business friendly so.
And probably the most distressed.
We'll be the <unk>.
Hotel, but again.
A lot of citizens are staying domestic rather than traveling internationally, because that's pretty prohibitive right now.
And so I would I would think that the domestic occupancy and activity, especially as the vaccine rolls out here it.
It could be a really.
Great Great season, and my view for for travel within the U S and.
Hotels et cetera.
Thanks Shlomo.
And Keith.
And next question is from Sean One draft with Deutsche Bank. Please go ahead.
Hi, good morning, and great quarter.
Just looking back at your are your acquisition other gerdau assets.
And that's extremely opportunistic in retrospect.
And now you're generating high levels of free cash flow and at the company.
You know with EBITDA sorted and the mid five 600 somewhere in there.
And youre not going to have as many sort of cash usage going forward.
Based on kind of the Capex levels you laid out.
And so I guess my question and answers what would be your plan for certain capital allocation.
Do you think it's more likely youll build cash and continue to seek attractive organic or M&A opportunities are.
Do you think youre going to potentially take debt levels down lower how do you think about that please.
Yeah.
And I think to start the debt levels I think we're pretty comfortable with the debt levels, where they are and.
So I don't know that it makes a lot of sense to to.
To look at that unless Theres, just some unforeseen macro event that causes a massive economic collapse or something which.
And we're not anticipating.
But so I think we've worked hard over the years and.
And to have a strong balance sheet, which gives us the maximum flexibility and we will examine all.
And avenues to return value to shareholders, we have a very attractive dividend. It gets examined every quarter by our board.
We have a.
Small.
Position left on our share repurchase program today that doesn't seem like.
With where we're trading the best use of cash to return value to shareholders.
So we continue to look at really good organic and inorganic growth opportunities and.
And I think there's certainly a number of exciting opportunities for us to consider.
Going forward.
Thank you very helpful.
Yeah. Thank you Shannon.
At this time there appear to be no further questions Ms. Smith I'll now turn the call back over to you.
Thank you and thank you everyone for joining us on today's conference call. We look forward to speaking with many of you during our investor calls and the coming days and weeks.
And.
And hopefully we look forward to seeing you in person sometime soon take care.
This concludes today's commercial metals Company Conference call you May now disconnect your lines.