Q3 2022 Commercial Metals Co Earnings Call

[music].

Hello, and welcome everyone to the third quarter of fiscal 2022 earnings call for commercial metals company today's materials, including the press release and supplemental slides that accompany this call can be found on C. N CS Investor Relations website.

Today's call is being recorded after the company 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 regarding economic conditions effects of legislation.

U S steel import levels U S. Construction activity demand for finished steel products, they expected capabilities and benefits of new facilities. The company's future operations. The timeline for execution of the company's growth plan the company's future results of operations financial measures.

Capital spending.

These and other similar statements are considered forward looking and may involve certain assumptions and speculation and are subject to risks and uncertainties that would cause actual results to 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 in the risk factors and forward looking statements sections of the company's latest filings with the Securities and Exchange Commission, including the company's latest annual.

Our report on Form 10-K, and subsequent quarterly reports on Form 10-Q.

Although these statements are based on management's current expectations and beliefs CMC offers no assurance that these expectations or beliefs will prove to be correct and actual results may vary materially.

All statements are made only as of this date, except as required by law CMC does not assume any obligation to update or clarify these statements in connection with future events changes in assumptions, the occurrence of anticipated or unanticipated events, new information or circumstance.

Is or otherwise.

Some numbers presented will be non-GAAP financial measures and reconciliations for such numbers can be found in the company's earnings release and supplemental slide presentation or 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 third quarter earnings Conference call.

Before we begin I'd like to congratulate cmc's employees on another remarkable quarter of performance.

Your dedication creativity and customer focus.

What makes results like this possible and on behalf of the entire CMC leadership team we're extremely proud.

And grateful for all your efforts.

I'd also like to welcome our approximately 650, new CMC employees of tensor.

Yeah, certainly joined at an exciting time for our company.

And I'm confident the juror contributions along with those of your talented colleagues will make cnc's future even brighter.

I will start today's call with brief highlights from the quarter as well as in discussion of Cmc's markets and how we are positioned well.

I'll also share some early observations following the closing of the terms of our acquisition.

Before turning to commentary on market trends, we see developing in Europe .

All Lawrence will cover the quarters financial information in more detail.

And I will then conclude our outlook for the fourth fiscal quarter and beyond after which we will open the call to questions.

Before starting my prepared remarks, I would like to direct listeners to the supplemental slides that accompany this call.

The presentation can be found on C. M sees investor Relations website.

For our fiscal third quarter 2022, net earnings were $312 4 million or $2.54 per diluted share on net sales of $2 5 billion.

Excluding excluding the impact of non operational items that Paul will discuss adjusted earnings were $320 2 million or $2.61 per diluted share the best in our company's history.

Fancy generated core EBITDA of $483 9 million.

The increase of 110% from a year ago.

Nearly 50% above the previous record, which was achieved in the first quarter of fiscal 2022.

With this quarter's exceptional performance Cmc's 12 months trailing 12 months core EBITDA totaled roughly one 4 billion.

And our trailing 12 month return on invested capital was in excess of 24%.

During the last 13 quarters.

Time period that includes the global pandemic and widespread supply chain and Labor force challenges.

M. C has generated annualized return on invested capital well above 10%.

Our past and current strategic actions have clearly created consistent and substantial value for our shareholders and we are poised to continue doing so.

I would like to now turn to C M seize market environment with a particular focus on the United States.

Looking at our business, we see no signs of a slowdown demand in the third quarter was strong across each of our product lines and major geographies.

The key indicators that lead rebar consumption by nine to 12 months remain not only positive but robust.

These indicators include both external and internal metrics that have a history of reliability and our indices, we often referenced in our forward looking comments.

First I would like to discuss several of the key external indicators we track.

The architectural billing index has been an expansionary territory for over a year signaling future growth in private nonresidential spending.

The most recent reading of 56.5 is noteworthy as the Abi has rarely breached the 55 level in the 13 years since the global financial crisis.

Additionally, readings for the southern and western regions to geographies, where CNC has a core presence are particularly strong.

The Dodge momentum index, another measure of nonresidential projects entering the planning phase he had a 14 year high in May.

Both the commercial and institutional components of the index increased meaningfully on a year over year basis, driven by offices hotels education and health care.

Offices, and hotels are two market sectors that.

May that many had assumed would take years to recover if ever but both are now making a comeback.

M sees an internal view mirrors the picture provided by the external measures.

Our downstream bidding activity reached a new record high during the third quarter.

Driven by a broad basket of project types in both the public and private sectors.

So to sum up our near term view, while we certainly don't discount the economic concerns, making headlines the best indicators of future construction activity continue to point toward expansion ahead.

Beyond the near term, we believe there are several structural trends underway that will bolster domestic construction activity.

The first is a federal infrastructure package signed in November of last year.

At full run rate. This plan is expected to increase federal funding for core rebar consuming projects, such as highways bridges and related structures by 65 per cent compared to the fast act that it replaced.

We estimate the impact will be one 5 million tons of incremental annual rebar demand within a domestic market of roughly 9 million tons.

Presenting an approximately 17% increase in consumption.

Spending is expected to ramp up over a period of five years and assuming typical time frames for project approvals bidding and awarding.

We should begin to see the impact on construction activity in early calendar 2023.

This timing matches very well with the anticipated startup of Cmc's, Arizona Micro mill next year.

This plant will have a capacity of roughly 500000 tons and the ability to flex production between rebar and merchant products.

The second structural trend to note is the expected follow on local infrastructure and nonresidential investment to support the recent rapid growth and newly formed residential communities.

This activity generally lags residential spending by 12 to 24 months and includes projects such as roads wastewater treatment water supplies schools and shopping centers.

Over the last two and a half years.

Worth to South population migration that is already occurring has X has significantly accelerated.

Of the five states that have experienced the greatest net in migration CNC operates a rebar mill and four of them.

The fifth state, Georgia is next door to two C M females.

So the pace of year over year growth in new single family housing starts has slowed starts in the south are still more than 30% above the levels seen in the first half of 2019 and 2020.

The third structural trend is the re shoring of critical industries.

We have previously mentioned the massive scale and pace of construction of new semiconductor facilities.

There are five such projects now underway in the U S.

Four are in course M C states too.

Two each in Arizona and Texas.

Those plants are the highest profile examples of re shoring. However.

Given the ongoing supply chain disruption seen in everything from basic materials like photos fertilizer and chemicals to manufactured products, it's reasonable to expect other industries to invest heavily in domestic capacity.

We've all learned over the last three years, the global supply chains are more fragile than previously believed.

And the loss of a few critical inputs can have a significant cascading effect throughout the economy.

I have just discussed several reasons to anticipate continued strength in construction activity and CMT is poised to capitalize on these trends as.

As I mentioned, we expect to start up our new Arizona two state of the art Micro mill in early calendar 2023 that will feature a world class operations.

Operational footprint and product quality.

Along with AZ to the addition of tenths or increases cmc's exposure to infrastructure through both existing and new markets and tense ours already significant customer value proposition can create even greater value under the current labor materials and trucking availability constraints.

Of course, we know from experience that margins can shift quickly and the future does not always turn out as expected.

If our markets do shifts Cmc's business model is designed.

To weather the inevitable market cycles to reinforce that point, our downstream backlog is sitting at record levels on both a volume and price basis, providing a strong base load of highly profitable work into the future.

We have invested nearly 900 million in working capital over the last two years.

Which would be harvested as cash and a softer environment.

PMT also operates a world class network of facilities across which we can optimize production product mix logistics and customer service to meet virtually any demand scenario.

Turning now to a quick update on C M CS acquisition of tensor.

Please reference the presentation available on <unk> Investor Relations website for more information and a detailed description of the business.

As we stated in this morning's press release Cnc's leadership is even more confident in the strategic rationale for the transaction.

After the first five weeks of having the tenths our team on board.

Well, we have learned thus far confirms our expectations regarding both organizations shared customer solutions, driven culture value creation through innovation and expertise to stabilization applications.

Our interactions and work today have heightened our expectation that significant commercial synergies can be achieved in the CNC can build out a truly unique portfolio of solutions for both existing and new customers.

We are still too early in the planning phase to share specifics, but I would say this any acquisition diligence process requires making certain assumptions about gray areas.

Five weeks in we can confidently share that our assumptions appear conservative and that the tenths. Our team is proving to be an excellent addition to cmc's portfolio of construction solutions.

Well on the topic of strategic growth investments I will offer a brief note on Cmc's announced fourth micro mill to be located in the Eastern U S.

Currently we are working through site selection and making progress toward a final choice of location.

We remain fully committed to this strategically attractive project and look forward to providing a more complete update once a final decision is made.

I would like to now provide some color on developments in Europe .

At the time of Cmc's last earnings call in March the war in Ukraine.

Had already driven roughly one 4 million refugees into Poland.

Given continuing hostilities in ongoing devastation that number has unfortunately grown to over three and a half million dollars, which is equal to nearly 10% of the Polish population.

No government can possibly be prepared to house feed and care for such a massive and sudden migration of people.

Much of the burden has fallen to the Polish citizens, who have responded with remarkable compassion and empathy.

I'm extremely proud of the efforts of Cmc's team in Poland to assist those in need.

Leadership continues to work with well known humanitarian aid groups that specialize in helping victims of armed conflicts and natural disasters.

And as also made C M C accommodations available to refugees.

Many employees have taken refugees into their homes, providing them as shelter food comfort.

In safety.

The response to this tragedy is inspiring and we sincerely.

Thank our employees and CMC Poland.

In the midst of this crisis our team in Poland has continued their exceptional performance.

Nancy as Europe segment generated record adjusted EBITDA during the third quarter on strong volumes and margins.

It's worth sharing several emerging secular trends.

They may have a lasting impact on the eastern European steel market.

The first is the trade sanctions placed on Russia, and Belarus, which are only beginning to be felt during the third quarter.

These two countries generally account for over a quarter of the long product imports into the European Union and over half of the direct arrivals into Poland.

The absence of these volumes will likely tightened the supply conditions meaningfully in eastern Europe .

The logical alternative for imported imported material to Europe is Turkey.

However, logistics directly to Poland and its neighbors are challenging.

This could result in little or no impact backfill for the Russian and Belorussian material blocked from the market, allowing CMC the opportunity to fulfill this demand.

The other noteworthy secular trend is the ongoing energy shortage in Europe , which the war in Ukraine has only exacerbated.

CMT is experiencing higher energy costs than in past periods.

But to a far less significant extent than many competing producers.

Nancy's leadership in Poland has expertly navigated the situation by having in place physical and financial hedges prior to the start of the conflict, which have defray much of the cost impact.

Electricity and natural gas costs per ton were up 28% on a year over year basis, compared with an average spot price increase of over 200% in Germany, Spain and France.

The recent addition of Cmc's.

Europes third Rolling line has positioned us to more fully capitalize on these trends.

Over the last four quarters volumes of finished products ships have exceeded the mills 10 year average by 35%.

It was the third rolling line operating we're better leveraging our melt shop benefiting from a higher value product mix and able to act with more commercial and operational agility.

Finally as stated in our press release, our board of Directors declared a quarterly cash dividend of <unk> 14 per share of CMC common stock for stockholders of record on June 29, 2022.

The dividend will be paid on July 13th 2022.

And this represents Cmc's 230, <unk> consecutive quarterly dividend.

With the amount paid per share increasing 17% from quarter three of fiscal 2021.

With that as an overview I will now turn the discussion over to Paul Lawrence Senior Vice President and Chief Financial Officer to provide some more comments on our results for the quarter.

Thank you Barbara and good morning to everyone on the call. This morning.

As Barbara noted, we reported fiscal third quarter 2022, net earnings of $312 4 million or $2 54 per diluted share compared to prior year levels of $130 4 million or a dollar and seven respectively.

Results. This quarter include net after tax charges of $7 8 million, the majority of which relates to <unk> acquisition of tens or.

These costs were in the form of acquisition expenses and purchase accounting adjustments related to inventory write ups.

The quarter also included a small asset impairment charge taken in North America.

Putting the impact of these items adjusted earnings were $320 2 million or $2 61 per diluted share.

Or EBITDA was $483 9 million for the third quarter of 2022 more.

More than double the 235 million generated during the prior year period.

Slide 11 of the supplemental presentation illustrates the strength of <unk> quarterly results.

Both our North American and Europe segments contributed significantly to year over year earnings growth, while core EBITDA per ton of finished steel reached a record level of $293.

Now I will review our results by segment for the third quarter of fiscal 'twenty two.

AMC is north American segment generated adjusted EBITDA of $379 4 million for the quarter equal to $332 per ton of finished steel shipped.

Segment, adjusted EBITDA improved 83% on a year over year basis, driven by significantly increased margins on each of our steel products downstream and raw material product groups over their underlying scrap costs.

Partially offsetting this benefit were higher were higher controllable costs on a per ton of finished steel due primarily to the increased unit pricing for freight energy and alloys.

Pace of unit price increases for these items moderated in the third quarter and as a result, when combined with the impact of the fixed cost leverage CMC was able to hold controllable cost per ton flat from the prior quarter.

Selling prices for steel products from our mills increased by $316 per ton on a year over year basis and $69 per ton sequentially.

Margin over scrap on steel products increased $213 per ton from a year ago and $33 per ton sequentially.

Average selling price of downstream products increased by $281 per ton from the prior year, reaching a new record of $1244.

This increase was two seven times the rate of change in the underlying scrap costs, leading to significant expansion in profitability on volumes processed and shipped through CMC is vertically integrated value chain.

During our fourth quarter earnings call in October I indicated that CMC is downstream backlog was expected to reprice higher throughout fiscal 2022, as new higher priced work replaces older lower price work.

We are seeing this scenario play out as demonstrated by the $230 per ton and downstream average selling price from CMC as fourth quarter of 2021 to the third quarter of 2022.

We continue to expect further upward movement and CMC as average backlog price, particularly in light of strong market demand in bid volumes that we are experiencing within our downstream business.

Shipments of finished product in the third quarter were largely unchanged from a year ago, and followed a typical seasonal pattern compared to the second quarter.

End market demand for our mill products remains robust, which we are seeing in both order rates and broader industry data we track.

Downstream product shipments decreased by roughly 2% from the prior year period, Despite a mid teen percentage increase in the backlog volumes.

Progress on construction sites in certain geographies has been impacted due to the constrained supply of labor and materials.

We expect this situation to dissipate heading into the autumn months and as a reminder projects in the CMC is downstream backlog are contractually committed and for the most part fully financed.

We believe current constraints are likely to extend the construction cycle rather than pose a threat to the ultimate shipping volumes.

Turning to slide 13 of the supplemental deck, our Europe segment generated an impressive adjusted EBITDA of 121 million for the third quarter of 2022 compared to adjusted EBITDA of $50 million in the prior year quarter.

Improvement was driven by expanded margins over scrap and a significant increase in shipment volumes.

Higher costs for energy and mill consumables, partially offset these positive factors. However, on a sequential quarter basis controllable costs per ton were largely unchanged, which isn't a remarkable accomplishment given the inflationary environment. We are currently experiencing.

Margins over scrap increased $149 per ton on a year over year basis, reaching $437 per ton.

Robust market conditions provided a backdrop to achieve a $303 per ton increase in average selling price with solid year to year trends across each product we sell.

Europe volumes increased 18% compared to the prior year as a result of favorable market fundamentals and CMC strong competitive position.

The supply side and energy cost factors that Barbara discussed have created commercial opportunities in our primary markets.

The addition of the third Rolling line has allowed us to more fully respond to these circumstances.

Shipments of each of our major mill products rebar merchant bar and wire Rod, we're up 20% or more from the prior year period.

In addition to incremental production the third Rolling line has enhanced our margin mix and improved our ability to leverage fixed costs.

Demand conditions within Central Europe remains supportive the Polish construction market continues to grow driven by solid expansion in residential spending.

In addition, the EU COVID-19 recovery funds should provide a tailwind to Polish construction activity towards the end of the calendar year.

Hence our generated EBITDA of $4 9 million during the first five weeks as the CMC company.

Excluding a $2 2 million dollar adjustment related to purchase accounting effect on inventory EBITDA amounted to $7 1 million on net sales of $28 million.

EBITDA margin of 25, 2% was consistent with the trailing five year average of the business.

As noted in this morning's press release tenths, our performance will be included within CMC as existing segments, but we intend to provide ongoing visibility into the business results and developments.

Of the $7 1 million in EBITDA, excluding purchase accounting adjustments $5 4 million was included within CMC as North American segment, while the remaining $1 7 million was reported within the Europe segment.

Based on the preliminary allocation of purchase price, we expect to incur annual depreciation and amortization of intangibles related to the acquisition of 10 and $20 million respectively.

Turning to the balance sheet liquidity and capital allocation.

As of May 31, 2022, cash and cash equivalents totaled $410 3 million.

<unk> also had $126 3 million of restricted cash, which is primarily earmarked for the funding of Arizona, two and was raised through the offering of the 25 year tax exempt bonds.

In addition to cash and equivalents, we had approximately 623 million of availability under our credit and accounts receivable programs, bringing total liquidity to slightly over 1 billion.

Bmc's $330 million 2023 notes have moved into current on the balance sheet. We are currently evaluating refinancing alternatives that are consistent with our commitment to maintaining a healthy balance sheet financial flexibility and a strong liquidity position as well as utilized.

<unk> cash to lower CMC as overall leverage.

During the quarter, we generated $187 million of cash from operating activities, despite $212 million increase in working capital.

Rise in working capital was driven by the significant increase in average selling price across cmc's.

The legacy businesses.

Our leverage metrics remain attractive and we have improved significantly over the past several fiscal years.

As can be seen on slide 17, our net debt to EBITDA EBITDA ratio now sits at just <unk> seven times, even after the purchase of 10 sorry.

We believe our robust balance sheet and overall financial strength provide us flexibility to finance, our strategic organic growth projects.

And pursue opportunistic M&A, while continuing to return cash to shareholders.

<unk> effective tax rate was 22, 9% in the third quarter and we expect the forecast for the full year tax rate to be between 23 and 24%.

Turning to Cmc's fiscal 2022 capital spending outlook, we expect to invest between $475 million to $500 million in total this year roughly half of which can be attributable to Arizona too.

Looking ahead to fiscal 2023, we anticipate our capital investment will be relatively consistent with a level of 2022 with a large portion continuing to be attributable to strategic growth projects.

Barbara noted our announced fourth micro mill project remains in the site selection phase as a reminder, we assess projects like this using a view of through the cycle cash flow expectations. So while slight site selection has taken longer than anticipated we remain very encouraged by.

The strategic merits of this project.

Lastly, CMC purchased roughly 1 million shares during the fiscal third quarter at an average price of $38 34 per share.

Transactions since the initiation of the buyback program have amounted to roughly $55 6 million.

Leaving a little over $294 million under the authorization.

That we announced in October .

We plan to maintain the pace of repurchases in the fourth quarter consistent with what we have accomplished to date.

This concludes my remarks, and I'll turn the turn.

Turn it back to Barbara for the financial outlook.

Thank you Paul.

We expect strong financial results in the fourth quarter of fiscal 2022 demand for CMC has major product lines is anticipated to remain robust across our key geographies.

With America shipments should be underpinned by record levels of construction backlog volume while in Europe , we anticipate tight market supply to continue providing CMC with opportunities.

For share gain margins in both North America, and Europe should remain near third quarter levels.

Looking a little further ahead, we expect the market factors I previously discussed to continue to support business activity Cmc's pipeline of new downstream work as very strong pointing to healthy demand into our fiscal 'twenty three in North America. The impact of increased federal infrastructure funding should begin to manifest.

In the second half of fiscal 2023 and.

And reassuring projects currently underway will benefit much of our mill in downstream network.

Our view of future demand in Europe is a bit more difficult to predict but supply dynamics should remain favorable benefiting both our volumes and margins as highlighted in my earlier market outlook comments.

Once again I'd like to thank all of the CMC employees for delivering yet another quarter of outstanding performance.

Yeah.

Thank you and at this time, we will now open the call to questions to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Please limit yourself to one question and one follow up at.

At this time, we will pause momentarily to assemble our roster.

Today, our first question comes from Emily Cheng of Goldman Sachs. Please go ahead.

Good morning, Barbara and Paul and thank you for the update today. My first question is just around the power price environment in Europe , I think you for some of the detail in the presentation deck that but could you remind us how those contracts are structured how long does extend until and if there is any spot power exposure there at all.

Sure Good morning Emily.

You know our team and in Poland has done a phenomenal job of managing energy and the key.

Point to note is obviously these were put into place well before all of the volatility that we have recently seen.

The Polish arrangements for for electricity and include a a 10 year financial hedge that's in place that is.

Now being in place probably for a year and a half. So it is a very long runway associated.

In addition to that strip that 25% strip theres another strip of of more of a physical arrangement with the with a provider which provides.

Some some.

Some some longer term, but it's probably in that in the two year rotating.

We're repricing environment that does around another quarter of their energy needs.

<unk> needs.

The rest is has been subject to spot and I would say that are in relation to other countries in Europe . The volatility of energy pricing has been significantly less so as Barbara mentioned, you know the impact to our two us in our overall <unk>.

<unk> costs, including natural gas has been around 28% on a year over year basis and I think these these are instruments that we have in place will continue to ensure that competitively we are at an advantage against other European producers.

Great. That's very helpful and my second question I wanted to ask was just around I think you'll order book there I think Paul you made a comment earlier around perhaps if you are to see some demand weakness on the downstream that you might not necessarily see as large of an impact to shipment levels that but.

Maybe talk through the strength of your order book, how many months ahead do you have that visibility.

And do you think that there is enough of a cushion that in terms of pent up demand that you know shipments will not in fact be as impacted as as you know and a very.

Bad case scenario.

Yeah, Let me take a crack Emily and we can Paul can add anything that I my.

So mid here.

But our downstream backlog as we indicated is at the highest level that we've seen in 13 years.

And.

I would say through the cycle backlog normally is about a six month backlog contained and that could be shorter term projects and then some that are much longer term product projects.

But in this case you know the backlog is is.

Well above that that cycle average so it gives us a lot of confidence moving into 2023 in terms of you know the.

The demand scenario for our business and I would add that we you know we continue to see very very strong bidding levels. So.

That's where the backlog stands today, but there are still lots of projects.

Across a broad spectrum of of geography and types of projects.

That continue to come to the market Yeah, that's what I would add to that Emily as you know if you look at construction that it's a very diverse makeup in terms of where construction activity takes place whether it be infrastructure.

On the public side Nonresidential, obviously has ebbs and flows and we see the onshoring activities really picking up steam we see the community Buildout as Barbara mentioned in.

In addition to residential.

Construction activity and so if you look at our flexibility of serving all of those various markets within the construction industry are I think we're very well protected by the outlook for each of those areas that Barbara outlined in the in the prepared remarks.

And that's absent you know significant sign of or it's absent really the effect of the new infrastructure.

Spending bill, which which we would anticipate seeing coming in this coming fiscal year.

Understood that's very clear. Thank you. Thank you Emily.

Our next question today comes from David Gagliano of BMO capital markets. Please go ahead.

Hi, Thanks for taking my questions I.

I did want to ask about this dichotomy between these strong results in the optimistic outlook.

You know versus the broader headwinds that seemed to be fairly significant you know aside from the general concerns about the man, let me cover inflation rising interest rates.

A few weeks ago, the Portland Cement association they cut their cement consumption forecast for 2023, plus 2.5% to minus 0.8%.

The reason I flagged that it's because of the PCA as another source of CMC as cited in the past is a really solid proxy for.

Demand for Cmc's business. So my question is.

Is that PCA forecast for negative year over demand in 2023 is that a reasonable proxy for your business as you look beyond you know what you see now.

Because I do think that PCA also factors in the positive offsetting variables like that you'd noted in the prepared remarks, and if it's not a reasonable forecast.

If you can just touch on you.

So your view why it's different now versus when things were going positively.

Yeah. Thank you David I appreciate your question and you know certainly.

Appreciate that there's a lot of moving parts out there and folks are trying to digest. It all what I would say is there has been a severe cement shortage.

<unk> recently.

That I think probably factors into them too.

Some of what you're seeing there and that's why we really we like Portland cement, we track that like we do many of the other indicators that we that we spoke of him, but we track a wide range of indicators because you can see anomalies in in one.

One indicator from time to time in.

And so we remain quite.

Quite bullish we also remain quite nimble to adjust to any market conditions that we.

We may be presented with that Theres been a significant shortage I think thats going to resolve itself.

But we've seen that on our.

Our our own projects and.

The fact that a number of factors and and outages and unexpected outages and so forth and I think that'll get resolved in the coming months and quarters.

Okay.

Okay. That's helpful. So your view is that the Portland cement demand forecast is actually a supply constraint driven negative headwind for cement specifically.

And then just in terms of the combination of of you know.

The duration of the backlogs.

For most of your business if you could just in general give us a sense.

If there is a demand slowdown.

You know as of today, when would that actually start to flow through.

Cmc's result at this point given the backlog that you have.

Yeah David.

Before I moved to that I, just want to also back to the Portland cement point you to some recent market comments from Vulcan and Martin Marietta, which or are good indicators and theyre pretty bullish in their market outlook. So you might want to take a look at that.

You know.

Our.

Our business model is really.

Zine to weather cycles, I believe better than than you know other other companies or other sectors of the economy and the reason why is because we carry that backlog and the backlog is pre funded.

And in periods of changes in economic conditions that.

That provides a very strong baseload of work to keep our operations running ads.

At at nice utilization rates.

Having said that we also have a very flexible cost structure and very flexible product mix and a uh huh.

A wide network of operations and and we can flex very quickly to any set of market conditions, but at the end of the day.

If one part of the construction sector.

Starts to slow.

Generally there are other parts of the construction sector that can and will offset that and I I say that to point again to the infrastructure, which we.

We haven't seen the increased spending levels.

We have said for a long period of time that we expect to see that and many other companies are making similar.

Projections.

That the infrastructure is going to begin to to come to fruition.

In fiscal 2023.

And so.

You know again are our business model is designed to weather bumps in the road and in shocks and.

There there are many parts of the.

The.

Residential nonresidential and infrastructure that that we see good demand ahead back to the the non res that follows.

The housing formation and if you go back in time in other periods areas of the country, where there has been a strong residential.

Component.

As these ebbs and flows in the economy occur that nonresidential build out it has to come to support.

Those communities.

And we're seeing that occur just as it always does you know theres a lag 12 <unk>.

12 months to 18 months following a.

A strong residential build out and I think you know the areas of the country that have seen.

You know rising.

Population and strong residential build out in <unk>.

I I point to an announcement yesterday, where caterpillar is moving their headquarters location.

You know into the heart of where we are in Irving Texas.

So there continues to be a.

A lot of of that kind of change that is occurring and.

And again the supply chain.

Chain rebalancing is a topic that we've been talking about for a while.

But just the projects that are well publicized are massive they're multiple years.

They are massive consumers of.

The structural steel that.

That we produce in there in the heart of of where we're located.

So.

We still remain very optimistic from a demand perspective.

Okay.

Okay. That's very helpful. Thank you for the additional color. Thank you David.

Again, if you have a question. Please press Star then one.

Our next question today comes from Seth Rosenfeld of Bnb Paribas. Please go ahead.

Hi, good morning, Thanks for taking our questions today.

Part of that look for imports into the U S.

So the market remains very tight could pricing, we have seen U S imports increased very sharply in recent months.

Awesome.

Both high interregional spreads.

The impact that's having on the market at present historically.

Historically.

I would assume it would be.

<unk> been much more problematic.

But part of the issue simply that you are seeing higher costs and foreign market with FERC in Europe , making them less pain from a pricing perspective.

I'll start there please.

Yeah. Thank you Seth hope you're doing well.

As you know are important so it's something that we constantly monitor and.

There has been some recent increase for certain product lines.

And I think it reinforces the point, we've been making around the strong demand environment here and in the U S. What I would say is that there's still some structural factors that make it less attractive for buyers to.

Make big commitments in this area logistics is is the number one thing I would point to.

In terms of inconsistent and very very high costs logistics.

So right now.

We have seen some we have we monitor that carefully but we don't see a big structural shift at this point in time.

Okay. Thanks, and then second question. Please on the growth side in recent months your team's spoken publicly about an interest in potentially expanding capacity within European long products. Obviously, the geopolitical situation has changed dramatically over the last few months.

How do you think about your interest in European growth.

Any potential timeline of that and what would make you want to pull the trigger.

The macro backdrop.

Yes, Seth we you know we take a very long time horizon to evaluate them.

Anything that we're doing whether it's organic growth or inorganic growth.

And you know certainly.

You have to factor in the current environment and how long do you think that that's going to persist.

But when we make these decisions we take a very very long view and we also take a very conservative view in terms of.

The financial metrics that we use to model those types of.

Investments and so.

I think our track record has been one of great discipline, and and actually yielding very good results. We if you look at the investments incremental investments that we've made on the growth side.

They have yielded.

Margins that are well above our long term average margins so.

I guess.

Im not prepared to talk about anything specific but we do look at things all the time, because there's a long lead time to execute on particularly organic type projects. We have an outstanding balance sheet, a very strong balance sheet and.

We remain very nimble and and.

If we were to move into a more difficult economic situation that might present attractive opportunities for us to examine and with our strong balance sheet, we certainly want to be in a position.

To take a look at that but we we always value them and think about them over a very long horizon.

Okay. Thank you very much.

He says.

Our next call today comes from Phil Gibbs of Keybanc capital markets. Please go ahead.

Go ahead.

Okay.

Okay.

Hello.

Phil go ahead, we can hear you folks second okay. Good morning, Greg.

Good morning.

On the fiscal 'twenty three our initial guidance for Capex.

I think in the range of.

Nearly 500 million.

What what's your assumption in that.

For your new proposed northeast U S smell and have you begun.

The equipment for that given the lead times necessary for for a lot of C. L.

On the books here.

Yeah.

Yeah, Phil good morning.

As we look at the sort of the construction process associated with a with a new a new facility.

The permitting process is generally one in which its a year or two to 15 months or so and so we have not got any significant amounts in the are in the guidance that we provided for for 'twenty three with <unk>.

Respect to that project, just simply because outside some initial down payments it would not be a significant amount of outlay that we would expect to do with during that permitting process.

As it relates to your second half of the question.

We've we've.

We've had a lot of discussions with equipment suppliers and.

And were confident and they have assured us that they have the capacity to.

To take care of our needs.

And when the time comes.

Thank you.

Thanks, Phil.

At this time there appears to be no further questions Ms. Smith I'll now turn the call back over to you.

Thank you everyone for joining us on today's conference call. We look forward to speaking with many of you doing during our investor calls in the coming days and weeks. Thank you so much.

This concludes today's commercial metals Company conference call you may now disconnect.