Q3 2021 Russel Metals Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the third quarter 2021 results conference call for Russel metals today's call will be hosted by Marty dropped ski executive Vice President and Chief Financial Officer, and John Reid, President and Chief Executive Officer of Russel Metals, Inc. Today's presentation will be followed by a question and answer period at that time. If you have a question. Please press star.
One on your telephone keypad I'll now turn the meeting over to Marty Drosky. Please go ahead.
Great. Thanks, operator, good morning, everyone.
I plan on providing an overview of the Q3 results. In addition to providing some additional details on yesterdays acquisition announcement related to Boyd metals. If you want to follow along they'll be using a powerpoint slides that are on our website and just go to the Investor Relations Conference call section. If you go to page three you can read our cautionary statement.
Forward looking information.
So if we'd been begin let's go to page five and just to give a context in a bit of an overview.
The results for the quarter were exceptionally strong and built on the back of a really strong Q2.
Our initiatives over the last 12 months to 15 months have positioned us to benefit from the prevailing market as well as create new opportunities going forward.
In particular, when we reflect on what we outlined is our game plan around 12 to 15 months ago, we were pretty proud to have delivered a series of actions that align with that game plan.
So to put a little context around market conditions.
The market has been and continues to be very good.
Even though there was more inventory in the supply chain than there was three to six months ago. We are continuing to see a good supply and demand balance. In addition, our price realizations continue to increase through the quarter and overall companywide our margins were comparable in Q3 versus Q2 at a very high level.
Favorable market conditions are continuing into Q4 demand is good and the number of months inventory in the supply chain remains below the historical average therefore, we continue to remain optimistic on the overall business conditions.
In terms of our portfolio transformation.
As a bit of a reminder, the objectives behind the portfolio changes were to both enhance returns and reduce risk we've accomplished the sizable transformation and a little over a year.
The initiatives focused on reducing capital in the energy part of our business, but at the same time scoping out opportunities to redeploy that capital in higher and better uses in this past quarter, we saw those initiatives come together quite nicely.
A few key items to highlight <unk> one those CTG line pipe monitor monetization. It is effectively done with about $300 million of capital permanently removed as a reminder, that part of our business had low margins low returns tied up a lot of capital and it was volatile.
<unk> site, our timing was quite fortunate as we were able to profitably exit the business as the window opened with the improving market conditions in.
In July we closed the sale of our Canadian CTG line pipe business, the transaction repatriate a little over $100 million of cash in the quarter and we still have some upside participation in the ongoing business, but it's structured to be off balance sheet to Russell.
Our orderly liquidation of the U S. So CTG line pipe inventories is also mostly complete.
Item two capital reinvestment in value added projects is a multiyear process for us we're seeing very good results from the recent initiatives and we will be adding a series of new projects in the quarters and years ahead.
In terms of M&A, we have been very active in looking at a lot of acquisition opportunities.
Extremely disciplined as we review those opportunities that being said, we couldnt be more pleased with how the Boyd metals acquisition has come together, it's a business that fits exceptionally well.
Talk about that more detail little later on.
Free cash flow and capital structure with $188 million of cash from operating activities in Q3 and liquidity of over $600 million.
We are very good shape to continue evaluating capital redeployment opportunities.
If we go to our financial results on page six.
From an income statement perspective, the continuing strong results were across our business segments revenues of over $1 $1 billion was the highest level in over two years and EBITDA and EPS were all time records again.
Gross margin is maintained at a very high level and were comparable to Q2.
Round, 30%.
And there were a few items of note in the quarter that I just want to highlight.
As we closed the sale of the Canadian OS CTG line pipe business, we are no longer consolidating the results, but we did pick up our 50% share of their net income which is around $3 million for the quarter.
In addition stock based comp had a mark to market P&L benefit of $3 million in Q3 due to the decrease of our share price in Q3.
From a cash flow perspective.
We used $63 million due to an increase in working capital. This was a build within the service centers and steel distributors segment and was somewhat offset by the continued downsizing of our energy working capital the business condition improvements that led to an increase in inventory was somewhat offset by an increase in accounts payable.
In addition, part of the accounting for the Canadian <unk> line pipe sale is a line item that you see that's called sale of business and we have that is $77 million that $77 million plus the $32 million.
Accounts receivable that we retained and collected in the quarter is how we realized total cash proceeds of approximately $109 million.
Capex of $8 million continues to be relatively modest, but I do believe it will nudge up in 2022 as we undertake additional discretionary capex projects.
From a balance sheet perspective, the strong cash flow has led to reduction in net debt by a further $161 million in the quarter and we ended the quarter in a net cash position or.
Our liquidity is north of $600 million and our credit metrics are incredibly strong lastly, we have declared quarterly dividend of <unk> 38, a share.
If we go to page seven.
Talk through our segmented P&L information.
Let's start with the service centers the service centers did exceptionally well again revs.
Revenues were up $33 million or 5% versus Q2 gross margins remained above 30% and we delivered $132 million of operating profit. These.
These results are indicative of strong markets and really strong execution by our business groups.
We did experienced 12% lower volume in the quarter due to the seasonal dynamics in the summer months and during July in particular, however, the volume decline was more than offset by a 19% increase in our average sale prices in Q3, and that's on the back of a 19%.
Increase in average sale prices between Q1 and Q2.
This translated into continuing strong margins.
Even though margin percentage was down slightly from Q2, our margin in dollars per ton was in fact up except I expect some margin moderation in Q4 because of the higher cost of inventory that roll into cost of goods sold.
As I mentioned earlier demand is strong, but we typically do see some decline operating days as we get into the holiday period towards the end of Q4.
In energy, we are seeing positive market sentiment that is at the early stage of translating into financial results.
Our revenues came down due to the sale of our <unk> line pipe business, but revenues within our field store segment was in fact up 12% on the quarter versus Q2 also our margins in the energy business were over 20% as the segment is now being driven by the higher margin field store business.
<unk>.
Distributors had another exceptionally strong quarter from a revenue margin and bottom line perspective looking forward the backlog in a business remains good for Q4.
If we go to page eight this will give us a little bit more context around the portfolio transformation and this chart shows our inventories over the past six quarters to provide a frame of reference for how we've trends formed the portfolio.
If you look at the current total inventory position of $787 million is in fact actually lower today than it was in June of 2020, despite significantly higher steel prices.
We've pulled over $300 million out of the energy part as you can see in the Red bar at the same time as the business activity and service centers, which is the green bar in steel distributors in the yellow bar picked up.
The result is that energy today only represents around 17% of our September 30 inventory versus 55% in June of 2020.
This realignment has resulted in more effective and efficient capital utilization as we put our capital into higher and better uses.
If we go to page nine you can see the overall impact on capital utilization and returns.
When we benchmark ourselves against our competitors, we have generated top quartile returns over a cycle with our overall goal being a 15% EBIT return.
As you can see in the Red line 2021 has been well above that target through the first three quarters of 2021, we generated return on capital of 40%, 57% and in the most recent Q3, 64%.
Those numbers are exceptionally strong on both an absolute as well as relative basis compared to our competitors.
A big part of this performance is a result of our portfolio transformation is the average capital invested a few years ago was around $1 4 billion.
And it's now closer to $1 $1 billion. So.
So in summary, we had record earnings with less capital being deployed.
Going forward, we are focused on opportunities to redeploy that capital, but we will remain disciplined with respect to opportunities that meet our financial and our operational criteria. In fact, we have looked at a tremendous number of opportunities of potential acquisitions over the past six months to nine months and in many ways the benefit of seeing so.
Much deal flow is that we can remain very selective as we compare and contrast, a wide range of opportunities.
This brings us to avoid metals acquisition.
If you go to page 11, I will give a little bit of context around the transaction.
So as a starting point Boyd metals is an opportunity has been on our radar screen for some time and it is truly a hand in glove fit for us.
In terms of the few transaction highlights the purchase prices of $110 million U S subject to adjustment for changes in the final working capital Mt.
The $110 million value includes all of the business, which includes everything from working capital land buildings et cetera.
As we reviewed the boy business, we were really impressed with their financial track record their culture and their people.
With last 12 months revenues and EBITDA of $244 million and $39 million, respectively. The results are comparable to our own margins in the region.
From a valuation standpoint, this implies a multiple of around three times LTM EBITDA and over a cycle. We see the business is generating very good returns and being accretive to our earnings.
As discussed earlier, we have lots of capital structure flexibility due to the monetization of our <unk> line pipe business. So this transaction is financed with cash on hand or drawings under our existing bank lines.
We expect the deal to close in the fourth quarter.
If we go to page 12, we have an overview of the boy business and starting with the map on the top left hand part of the page Boyd has five locations with its main center being in Fort Smith, Arkansas, which is on the western edge of Arkansas.
In addition, it is for other service centers that are all located within our freight logical distance of Fort Smith, and thereby operate in a bit of a hub and spoke approach. This is a very similar approach to how Russell operates.
Moving to the right. They have a range of value added processing equipment across their system, which is also a big focus within our operations and a key part of our ongoing Capex program.
Moving down the page to the chart on the bottom right on product mix, there about 75% carbon based but they also have about 25% of their product mix as nonferrous. We liked this diversification and it's a very good balance between both carbon and the nonferrous part of the business.
If we go to the bottom left chart their customer base is very diversified across industry segments as they focus on small order sizes and non contractual business again, a very similar business philosophy in terms of how Russell operates.
If you go to page 13, you can see a map of our operations in the region as compared to Boyd's with Boyd's located locations in yellow and Russell's locations in green.
The geographic footprint is very complementary and extends the boundaries of our existing service territories.
As I said earlier boy has a very similar culture to us and we are really quite impressed by their management team and their staffing and their employee level.
Because of the alignments and similar operating philosophies between the two businesses, we expect theyre going to be some new opportunities across the two platforms relating to sharing inventory as value added processing procurement and the like and we are really excited to get started.
In closing on behalf of John and other members of the management team I would like to express our appreciation to everyone within the Russell family and we really look forward to welcoming the Boyd group to our extended family.
After a very challenging 2020, we have been able to demonstrate significant momentum through the first nine months of 2021, and we really look forward to advancing the business through the balance of this year.
Beyond <unk>.
Operator that concludes my introductory marks if you would now like to open the line for questions John and I are available.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone, you'll hear three telecom technology, our request and your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed by two if you are using a speaker phone please lift a hand.
Set before pressing any keys.
Your first question comes from Michael Dumais Scotiabank, Michael Please go ahead.
Oh, Hey, good morning, guys.
Michael Good morning.
Nice quarter first off and congratulations on the deal.
I understand the deal Hasnt closed yet but is it possible maybe that you can provide some disclosures.
The earnings history of the company and maybe some of the synergy opportunities.
Maybe correct me, if I'm wrong, but I believe you do kind of target up pretax ROIC of 15% in just how we should think about the numbers going forward.
Yeah, Hey, Michael it's Marty.
You hit the nail on the head, which is we do target a pretax rona of 15% and we've disclosed the LTM numbers in both revenue and EBITDA.
Obviously haven't gone back to the beginning of time in terms of public disclosure.
But if you want to use those metrics what I can say is that over a cycle their results without even taking into account synergies.
Would allow us to meet our objectives over a cycle of that 15% rollout.
In terms of synergies, we don't put numbers on the table.
And frankly, we think as I said earlier there are opportunities.
But we actually don't formally come up with the synergy number and we don't view it that way, we think theres going to be opportunities for the.
Boyd business in our business to work together cooperatively and find opportunities, but we don't go to the point of actually trying to put a hard wired number to it.
That's great now Thats helpful disclosure Thanks Marty.
And then.
And the outlook you talked about I think you quoted a modest retreat in margins in Q4.
If I look at consensus as a group we have EBITDA down 50% sequentially. So I imagine we're going to have to make our adjustments and I know you don't comment specifically on consensus, but any way you could help us.
With additional parameters there I know there are still two months in the quarter, but do you expect margins to normalize a little bit more quickly in Q4.
Or maybe at the same pace as Q3 versus Q2, just any comments like that would be helpful.
Why don't I make one comment and then I'll turn it over to John So the reference to consensus. Please do me a favor and take all of the consensus numbers with a grain of salt we saw consensus.
Shift massively just within the last quarter for Q3, so as it relates to what consensus is for Q4 and what consensus is for next year, It's frankly all over the map.
So with that context around John do you want to put a little bit of context around market conditions.
Conditions.
Sure.
The market conditions can get for demand are very good right now just again very solid when you look out there across the end markets and users that we use we also use the purchasing manager index both of them coincide nicely that lead to.
Increasing demand if you looked at architectural billing index is those are leading to increasing demand in construction, we're seeing that from our customer base as well oil and gas rig counts continue to improve.
To that end market is doing very well automotive is showing signs of bringing back on production.
Use more flat roll.
Although we're not into automotive that does help us hoping it available flat roll.
Have seen.
Inventory positions improve and service centers still though they are above the turns are above historical norms. So.
So we're not back to the mill capacity continues to run in the 84% to 85% range, which is basically out of capacity.
Seeing a little bit of softening in flat roll correctly, we probably overshot the mark just a little bit just rebalancing.
And getting back in line, if you look at the inverted curve with plate for the last year.
You can tell that plagued followed behind collateral that's now come almost to a neutral point platelet probably push on past that so we feel pretty good about what we're seeing demand wise going forward into Q4, and even into Q1 from what we're hearing from our customers.
In regards to pricing and margin there could be a little bit of pressure along the way, but again I don't see any reason to drive anything.
Either direction in a big change right now.
That's great guys. Thank you.
Thanks, Michael.
Thank you. Your next question comes from Michael <unk> TD Securities. Michael. Please go ahead.
Okay. Thanks, good morning.
Good morning, Mike Good morning.
Maybe just to start somewhat high level, you've now completed the exit of.
Your.
CTG business apart from the fact that you still have.
And interest in the JV I'm wondering in terms of your strategic priorities over the next 24 months now that that.
That transformation of the energy business is complete how should we be thinking about the focus going forward.
Yes.
Focus again, extending our liquidity will continue to look at opportunities out there in M&A.
There are this is.
Marty mentioned the pipeline has been pretty active will continue to grow our value added processing through our service centers.
Continue to ramp up that initiative, it's a tremendous.
Traction so far and we just see that building now.
We've gotten better and better as we start these up so we really have been almost franchise now rolled it out.
So we continue to see that going on as well.
So those would be the two big things that we're looking at going forward.
But again I think the M&A pipeline.
Continue to remain active.
Over the next 12 to 24 months.
Okay. That's helpful. Thanks, John I guess just to follow on that.
And so it certainly sounds like your capital allocation priorities haven't really changed but at the same time as you pointed out <unk> got considerable flexibility or in a net cash position, obviously, you'll use some of that cash for for the Boyd acquisition, but.
Are there certain.
Are there certain capital allocation priorities that maybe you have historically been further down on the list that.
There is simply wasn't a capacity or flexibility to address but perhaps now youre in a position to.
To also address those concurrent with the focus on M&A and value add.
Yeah. Thanks, So we've never really been capital constrained.
A very solid balance sheet, we've just continued to improve it over the last 12 months. So that even offers us more flexibility now so I don't think we've ever really constrained in the past.
We will continue to be very disciplined.
We manage working capital.
Looking at capital allocation.
A key to our business plan again and distribution in a cyclical industry, but.
I don't think there'll be any fundamental changes there, it's just think theres more opportunities coming forward.
Okay.
And then on the on the acquisition side.
So it's difficult to comment.
It sounds that you certainly looked at a lot of opportunities and I am wondering is the Boyd transaction is that.
Somewhat representative of what we should expect.
With respect to potential future transactions or.
Is that is that over simplifying things.
I think in terms of size and scale I mean board was a nice fit for us geographically it was a great fit for us.
Don't have a specific model, we're looking forward, it's nice to be able to add onto your existing footprint or to bolt on something we would look at stand alone as well, but the big thing about boy that was very attractive to us the culture lined up very very closely with our culture tremendous people.
And it's a business that plug and play their management team they stand alone they manage their business very well.
We will integrate and nicely, but we see them continuing to run this business and our decentralized culture going forward.
Okay. That's helpful. Thank you.
And then perhaps for Marty So I know the the transaction.
With marubeni closed early in the quarter, So that's really not.
We're not seeing any sort of.
Contribution really in the energy products segment in the quarter, it's in the equity pickup line, but when we look at the energy products business in the quarter you were still.
Selling down some euro CTG inventory.
Can you give me a sense for what that business would have looked like.
Sort of on more of a run rate basis in terms of how it's going to look going forward. What this quarter would have been as far as the.
The field storage contribution.
Yeah.
So I guess, Mike if you look at it.
The vast majority of it in the quarter was from field stores. Because you are right. The joint venture closed in the quarter and close to the front end of the quarter. So we literally had a few days worth of operating triumph before it got sold into the joint venture and then the wind down of the U S. So CTG line pipe business was all.
So occurring in the quarter, but it wasn't a huge.
Not a huge number for the quarter.
With me for one second.
Look yes.
Yeah.
So on a topline basis, that's about $30 million of revenue related to line pipe <unk> for the quarter.
Okay. That's helpful.
I've got a couple more but I'll get back in the queue and turn it over for now.
Thanks, Mike.
Your next question comes from Frederic Bastien Raymond James Frederick Please go ahead.
Yes.
Good morning, guys.
<unk>.
Thanks, Brad I have a few.
Two questions on Boyd, specifically, John that business is right in your backyard. So to speak so just curious how familiar you are with the business and.
If you could share how long you guys have been kind of talking to each other.
So none of the principles that Boyd.
Most of my career.
And we actually early on when we were starting to two different companies.
Prior to becoming.
We get bigger we actually shared accounts.
Zips on how to run the business.
Values and principles, so very familiar with MSA started their growth as we grew through it so.
Got it.
Very strong company.
Tom Kennedy ran the company.
Came from <unk> metals, and got a lot of experience in the steel business was kind enough to share his experience what I was getting story.
So again very very solid.
Very well run in the marketplace, we are well respected in the marketplace.
Again.
Tremendous amount of depth coming through Brian Newman, it's been there for a long time and so those two will continue to run the business there on a daily basis, so very familiar with them Fredrik very good operators in the business again, it couldnt align more closely with what we're doing at Russell culturally.
So I think it's just as Marty said.
Good for us.
Okay.
And just I know you can't comment for them, but I mean.
Do you know the <unk> administration's proposal to increase the capital gains tax may have is create a bit of urgency for them to transact.
I don't know if it was urgency we've been in discussions for probably over two years on and off and you can really get postponed with COVID-19.
I think that we're thinking about it.
Senior partners involved in the business and has been since day one.
Retirement age and maybe a little beyond retirement age Tom's getting close probably work another year or two years and so I think it was more of a timing of the principles.
The large majority of the company, we're looking for an exit strategy and looking for the proper partner.
Partner to move forward with their business now I'm sure it benefited.
<unk>.
To get it done by the end of the year I'm sure that was obvious.
The consideration for them that we try to structure it that way, but I don't think that was the determining factor.
Okay and then.
Just just wondering I mean, this business seems to be running well.
Obviously runs well and its Alan it doesn't feel like Youre going to spend a lot of effort on management time on the integration of that business.
Versus what you might have done.
Some other.
Acquisitions that Russell is done so would you then consider another deal of this size if it fell in your lap in the next few weeks few months because you certainly have the capacity to absorb it.
Yes in some ways the short answer is yes and it.
We like the boy business from all kinds of perspectives, including the fact that it's really really well run.
And doesn't require an awful lot of oversight. So to me that is a perfect fit and allows us to not only with them do what they do really well, but also continue to look at other opportunities.
Great.
One last question you comment you mentioned that the margins are similar.
To those of Russel metals in the region, but how do they compare to those of the.
Service Center.
Segment overall.
Yes.
Very similar there is some opportunity for them to continue to push forward with their value added and they just.
They've got a strong amount of value added in their business now, but they have an opportunity to push forward it may be too too.
To leverage off of what we've done currently where they can either use the value added processing.
And the tolling mechanism, where they can put in their own equipment and again that'll be their call on how they want to spend that capital, but those opportunities.
Changes are there excluding some of the high end, where we've got extreme margins and value added processing.
Almost an identical match.
Okay. Thank you both.
Great. Thanks, Brett.
Thank you. Your next question comes from Alexander Jackson, RBC capital market. Alexander. Please go ahead.
Yeah, Hey, guys congrats on the quarter and thanks for taking my question.
You've kind of touched on already but.
In terms of capital allocation with the business changing I'm curious does that dividend increase come into play kind of in the near term.
The way we look at it right now is we've always viewed the various capital allocation alternatives as being under consideration, but in terms of Boyd as an example, we think that's just a really great opportunity to put capital to work.
We continue to be as John said earlier, we continue to be actively looking at the M&A landscape. So for us actually have and capital structure flexibility to look at adding value to the business whether internally through through additional investments capex investments or their external through.
Acquisitions that meet our criteria, that's where our focus is for the near term.
Got it that's helpful. Thanks, guys.
Okay. Thanks, Alex.
Thank you, ladies and gentlemen, as a reminder, should you have a question. Please press star one on your Touchtone phone.
Next question comes from our new pre hire GMP do please go ahead.
Hi, Good morning, guys. John just wanted to ask you a sort of a big picture industry question in terms of your interpretation of the trade deal that was announced earlier on this week with EU I mean.
On the one hand, you're going to have more product country in the U S. But at the same time it seems they set those quarters to be in line with what the EU has historically sent.
And to the U S. So I'm just curious to know what impact if any do you think thats going to have on your business as you look forward to next year.
Thanks Ben.
So it's really interesting if you look historically it was about 5 million tons that they allow them from the <unk> coming.
Coming in from the EU now with the trade. So we're going to go down to about $3 4 million tons, you look at North American production.
Running in that $100 million range, you are talking about a 3% to 4% increase product coming in it's going to be predominantly.
Coated flat rolled material could cause a little backup into hot roll, but it's predominantly galvanized co Ro prepaying.
What's interesting when you read into the into the document there's 54 different quotas included in that four carbon I think theres another 16 for aluminum.
And those quotas are managed individually as well as the importers.
Individually so it really takes a sophisticated person to imported steel distribution group, obviously be in the 30 plus years very experienced.
It's really going to provide opportunities for experienced importers that have strong balance sheets really be the <unk>.
<unk> as a choice here versus maybe some of the smaller players that don't have the balance sheet and don't have the sophistication to manage those 54 different carbon variations.
With individualized quota.
Overall, I think the I think the impacts going to be fairly muted on both sides.
Great. That's helpful. Thank you I didn't realize there's going to be such a complicated endeavor.
Okay.
No it's I mean.
Okay.
I don't Kevin on the government solve more problems and then cook at home to create them. So there you go.
Alright, Thanks, a lot.
Thanks.
Your next question comes from Michael Twofold, TD Securities Michael. Please go ahead.
Okay. Thank you maybe just a follow on their.
Apart from the agreement between the U S and EU.
Can you speak more generally about about what's happening with respect to imports.
You did mention that.
Inventory in the supply chain has increased and im not sure thats.
Directly related or exclusively related to imports, but if you can comment on.
What you are seeing in the with respect to imports that'd be helpful.
Yes, theres been no material change on inbound imports you may see some product specifics I think the catch up has just been mills have been playing catch up because its supply chain.
Just cleaned out during the Covid was again, we dropped our inventory manufacturers. The mills didn't produce any inventory that end users cleaned up their inventory and their work in progress so.
I think it's taken a long time to rebuild the inventory.
We are starting to catch up some there demand took off faster than anticipated. So I think we were behind.
So I don't see a lot of import impact right now begin with the 232 still in place for other countries or quota system.
<unk> is very limited to what's coming into the country. So I'm not seeing a big impact and I think the mills approach has been very disciplined in North America, and kudos to them I think they work very hard.
At this point.
But when there is something that comes in I think they view that as a one off in that area don't react to it versus in the past where you had.
A lot more tonnage coming in available that they had to react to to maintain share. So.
Just don't see a whole lot of change in the <unk>.
It's coming in driving pricing direction from the domestic mills I think the domestic mills actually hope of the draw.
I've received on that right now.
Okay.
That's helpful and then I'm not sure. If this is related to that or not but youre steel distributors segment.
Obviously extremely strong performance this quarter and if we just look year over year the revenues.
In that segment were up a lot more than than the service centers revenues were up and I'm. Just wondering if there is there a dynamic here where.
You had ordered some material from from offshore and that was sort of on its way and coming in but it was ordered some time ago at lower prices or.
Is that what's at play there and I guess maybe.
More importantly, how do we think about that business going forward.
Yes so.
It's a good question and again, we had we did have some holding gains opportunities that came is at $2 32 came into play when we came out of Covid.
Keeping in mind that there are certain products that just arent made in Canada. So you bill heavy plates being those items will naturally always important.
Okay predominantly those margins came from our U S operations, where we had inventory in stock at the time, we see this as the price started to move up they actually held inventory waiting in anticipation of further increases.
And now is the continued forward again, just due to the imports coming into all of the problems with logistics and shipping there in a very good inventory position compared to a lot of our.
Distributor or trading competitors.
Service Center industry, again, being very lean on inventory versus the.
The mill has been at.
<unk> gave us some early opportunities to kind of flex our muscle there. If you will so I think longer term youll see their margins go normalize back to a more reasonable level, but again in this environment right now I think there'll still continue for the next two or three quarters to have.
Strong margins by comparison.
Okay, that's great Thanks, Jon and beyond the margins, though actually I was just also wondering.
Just about the top line.
Is that something we should expect.
Moderate again because of.
Was there any sort of a timing impact there or is this sort of run rate type level for the next little while.
Yes, two things part of it was time and again, especially with Canada.
Again with the restrictions people couldnt get things and so we have the opportunity part of it is just the cost of steel.
So the tonnage may not have moved up as much as just the cost of steel and three to four times, what it was a year ago.
So, but there were some opportunities specifically in Canada, where we were able to participate.
Selling you the two russel metals or to our competition, where the product was not available and so we really were able to maximize that opportunity at our Canadian operations going forward I don't see big changes there.
As again, we are doing in plate and being primarily they are not produced in Canada.
I don't see big changes to the tonnage volume, we'll just see where the pricing goes forward.
Okay.
In in service centers, the volumes down 12% quarter over quarter. I think you said in the release that that driver to that was seasonality but.
I don't know.
Is that essentially the vast majority is just a seasonal thing and similarly, I think you indicated potentially some further.
Some further decline into the fourth quarter is that also just seasonality.
The fourth quarter will be seasonality for sure really in second quarter, we saw some seasonality and we really saw.
Construction shutdown in Quebec was in full full effect I think people were tired working through Covid and so that two week shut down they really shut down for two weeks historically, we would get people kind of shutdown maybe link grow some projects, but it really shutdown. So that's one of our largest service center operations. We saw the impact and then we saw the bounce back some back later.
Into Q3 so.
Were there as far as we're concerned we're not seeing any demand issues that are out there that we're concerned about or market share issues that we're concerned about.
I think it was seasonality coupled with a strong construction shutdown in Quebec.
Okay. Thanks, and then just lastly, the equity pick up you saw this quarter.
From the JV $2 8 million.
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Is that a number that would sort of be representative of what we should be thinking about in future quarters.
Well it was an extremely strong quarter coming out of the gate.
And there is.
Just piggybacking on the last conversation about seasonality. There is also a very high seasonality attached to that business. So this is a high quarter season for that business. So it's a pretty robust level.
We're very pleased with it but this isn't what I would expect.
The average.
<unk> over an entire year type type level, especially there are.
When you get into spring breakup period, you get some that are down quarter to later on in the year. So this is a robust level, let's put it that way okay.
Okay, Alright, alright, thanks for the time.
Thanks, Mike.
Thank you there are no further questions at this time. Please proceed.
Great. Thanks, operator.
Again look I appreciate everybody for joining our call much appreciate all the questions and.
If you have any additional questions. Please feel free to reach out otherwise, we look forward to staying in touch over the course of the quarter have a good day everyone.
Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Thanks, operator.