Q1 2024 Commercial Metals Co Earnings Call
[music].
Hello and welcome everyone to the first quarter fiscal 2024 earnings call for CMC.
Hello, and welcome everyone to the first quarter fiscal 2020 for earnings call for CMC. Joining me on today's call are Peter Matt <unk>, President and Chief Executive Officer, and Paul Lawrence Senior Vice President and Chief Financial Officer, today's materials, including the press release and supplemental.
Joining me on today's call are Peter Matt, CMC's President and Chief Executive Officer, and Paul Lawrence, Senior Vice President and Chief Financial Officer. Today's materials, including the press release and supplemental slides that accompany this call, can be found on CMC's Investor Relations website.
Slides that accompany this call can be found on <unk> Investor Relations website.
Today's call is being recorded after the company's remarks, we will have a question and answer session and we will have 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.
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, construction activity, demand for finished steel products,
So if legislation U S steel import levels construction activity demand for finished steel products the <unk>.
The expected capabilities, benefits, and timeline for construction of new facilities.
I couldn't capabilities benefits and timeline for construction 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 and capital spending.
the company's future operations, the timeline for execution of the company's growth plan, the company's future results of operations, financial measures, and 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 could cause actual results to differ materially from these expectations.
These and other similar statements are considered forward looking and may involve certain assumptions and speculation and are subject to risks and uncertainties that could cause actual results to differ materially from these expectations.
These statements reflect the company's beliefs based on the current conditions but are subject to certain risks and uncertainties, including those that are described in the risk factors and forward-looking statement section of the company's latest filings with the Securities and Exchange Commission, including the company's latest annual report on Form 10-K .
These statements reflect the company's beliefs based on current conditions, but are subject to certain risks and uncertainties, including including those that are described in the risk factors and forward looking statements section of the company's latest filings with the Securities and Exchange Commission, including the company's latest annual report on Form 10-K.
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.
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, amend, or clarify these statements in connection with future events, changes in assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances, or otherwise.
All statements are made only as of this date, except as required by law CMC does not assume any obligation to update amend or clarify these statements in connection with future events changes in assumptions, the occurrence of 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 in the company's earnings release under supplemental slide presentation or on the company's website.
Some numbers presented will be non-GAAP financial measures and reconciliations for such numbers can be found in the company's earnings release under Supplemental Slide Presentation or on the company's website.
Unless stated otherwise all references made to year or quarter end are references to the company's fiscal year or fiscal quarter.
Unless stated otherwise, all references made to year or quarter end are references to the company's fiscal year or fiscal quarter. And now, for opening remarks and introductions, I would like to turn the call over to Peter.
And now for opening remarks, and introductions I would like to turn the call over to Peter.
Good morning, everyone and thank you for joining Cmc's first quarter earnings conference call I Hope each of you had a wonderful holiday season.
Peter Matt: Good morning, everyone, and thank you for joining CMC's first quarter earnings conference call. I hope each of you had a wonderful holiday.
Peter Matt: As we reported in our press release issued this morning, the first quarter of fiscal 2024 marked another period of strong financial performance with Cori Bidaw margin and free cash flow continuing at historically high levels.
As we reported in our press release issued this morning, the first quarter of fiscal 2024 marked another period of strong financial performance with core EBITDA core EBITDA margin and free cash flow continuing at historically high levels I would like to thank Cmc's 13000 employees.
Peter Matt: I would like to thank CMC's 13,000 employees who make results like these possible. Your hard work and focused efforts for customers are the driving force behind CMC's success.
Floyd, who make these results make results like these possible your hard work and focused efforts for customers are the driving force behind CMC picks up.
I will start today's call with a few comments on Cmc's first quarter performance and then discuss the rationale behind the realignment of our reportable segments.
Peter Matt: I will start today's call with a few comments on CMC's first quarter performance and then discuss the rationale behind the realignment of our reportable segment.
Peter Matt: and then provide an update on the current market environment and our strategic growth investment.
And then provide an update on the current market environment and our strategic growth investments Paul will cover the quarters financial information in more detail and I will conclude with our outlook for the second fiscal quarter and beyond we will then open the call to questions additional.
Peter Matt: Additional information regarding the quarter is provided in the supplemental slides that accompany this call, which can be found on CMC's Investor Relations website.
Additional information regarding the quarter is provided in the supplemental slides that accompany this call which can be found on CMC.
M <unk> Investor Relations website.
Before commenting on CMC as financial performance during the quarter I would like to highlight our exceptional safety performance. Our incident rate was the best on record, meaning we work safer than ever before.
Peter Matt: Before commenting on CMC's financial performance during the quarter, I would like to highlight our exceptional safety performance. Our incident rate was the best on record, meaning we worked safer than ever before.
Keeping our employees safe is a core tenet of our culture and priority number one for every team member from the shop floor to executive leadership performance in the first quarter demonstrates how seriously we take this responsibility.
Peter Matt: Despite records being set, there is more work to be done to push forward our ultimate goal of zero incidence.
Despite records being set there is more work to be done to push forward, our ultimate goal of zero.
Incident.
Peter Matt: As I mentioned, CMC's first quarter financial results were among the strongest in our company's history, though down from recent record levels.
As I mentioned Cmc's first quarter financial results were among the strongest in our company's history, though down from recent record levels.
Peter Matt: CMC generated net earnings of $176.3 million, or $1.49 per diluted share, on net sales of $2 billion.
AMC generated net earnings of $176 3 million or $1 49 per diluted share on net sales of $2 billion.
Excluding the impact of nonoperational items, which Paul will cover in detail adjusted earnings were $192 7 million or $1 63 per diluted share.
Speaker Change: excluding the impact of non-operational items, which Paul will cover in detail, adjusted earnings were $192.7 million, or $1.63 per diluted share.
CMC generated consolidated core EBITDA for the quarter of $325 3 million producing a core margin of 16.2 and an annualized return on invested capital of 14, 9%.
Speaker Change: CMC generated consolidated core EBITDA for the quarter of $325.3 million producing a core margin of 16.2 and an annualized return on invested capital of 14.9%.
Results in our North America Steel group were supported by healthy construction activity and near record margins on downstream products are Europe steel group performed well against a difficult market backdrop benefiting substantially from the recognition of $66 3 million related to energy.
Speaker Change: Results in our North America Steel Group were supported by healthy construction activity and near record margins on downstream products.
Speaker Change: Our Europe Steel Group performed well against the difficult market backdrop, benefiting substantially from the recognition of $66.3 million related to energy cost rebate programs.
<unk>.
Cost rebate programs the emerging businesses group was a solid contributor to profits during the quarter driven by supportive conditions in our North American markets customers continued adoption of our high margin proprietary solution solutions and the recent acquisition of ads go faster.
Speaker Change: The Emerging Businesses Group was a solid contributor to profits during the quarter, driven by supportive conditions in our North American markets.
Speaker Change: customers continued adoption of our high-margin proprietary solutions and the recent acquisition of Edsco Fasteners' industry-leading portfolio of anchoring systems.
<unk> industry, leading portfolio of anchoring systems.
I would like to next cover the recent realignment of Cmc's reportable segments. This decision falls important changes, we have made to our organizational structure to better facilitate the execution of our strategy.
Speaker Change: I would like to next cover the recent realignment of CMC's reportable segment.
Speaker Change: This decision follows important changes we have made to our organizational structure to better facilitate the execution of our strategy.
Speaker Change: From a financial point of view, our objectives are to drive higher through the cycle margins and accelerate value accretive growth.
From a financial point of view, our objectives are to drive higher through the cycle margins and accelerate value accretive growth.
Speaker Change: The new structure also better reflects the varying characteristics and needs of our business group.
The new structure also better reflects bavarian characteristics and needs of our business groups.
Speaker Change: Internally, we believe these changes will greatly enhance visibility into our key value drivers, helping unlock commercial and operational synergies across the business.
Internally, we believe these changes will greatly enhanced visibility into our key value drivers, helping unlock commercial and operational synergies across the business.
Speaker Change: optimize capital resource planning, and better focus our decision-making on value creation.
Optimize capital resource planning and better focus our decision making on value creation externally Cmc's realigned segment reporting should provide enhanced insights into the factors that drive value creation across the company.
Speaker Change: Externally, CMC's realigned segment reporting should provide enhanced insights into the factors that drive value creation across the company.
Speaker Change: and enhance the investment community's understanding of our strategy, future growth plans, and capital allocation.
And enhance the investment community's understanding of our strategy future growth plans and capital allocation.
Speaker Change: Slide five of the supplemental presentation offers a brief outline of the strategic focus for each business group.
Slide five of the supplemental presentation offers a brief outline of the strategic focus for each business group, Our North America and Europe steel group's operate in large more mature markets, where they have a high degree of penetration and strong positions their primary focus.
Speaker Change: Our North America and Europe steel groups operate in large, more mature markets where they have a high degree of penetration and strong position.
Speaker Change: Their primary focus areas will be operational and commercial optimization to produce higher through the cycle margins with less volatility and value accretive growth that strengthens our core operations and enhances CMC's customer value proposition.
Areas will be operational and commercial optimization to produce higher through the cycle margins with less volatility and value accretive growth that strengthens our core operations and enhances cmc's customer value proposition.
The businesses in our emerging business group or <unk>, while often serving mature markets can bring innovative solutions with relatively low levels of penetration that typically have higher more stable margins. As an example, we estimate current penetration.
Speaker Change: As an example, we estimate current penetration of CMC's tensile geogrid solutions is around 10 to 15% of the addressable market, with margins that are higher than our overall group margin.
<unk> of Cmc's tenths, or Geo grid solutions is around 10% to 15% of the addressable market with margins that are higher than our overall group margins, our new structure will provide the attention and stewardship stewardship to these businesses to enable them to realize their full potential.
Speaker Change: Our new structure will provide the attention and stewardship to these businesses to enable them to realize their full potential in the CMC portfolio.
<unk> in the CMC portfolio.
Speaker Change: Accordingly, we expect that over time, EBG will grow faster and maintain higher through the cycle margins compared with the more mature steel groups, driven by an increasing levels of market penetration, commercial synergies across our portfolio, organic investment, and acquisition.
Accordingly, we expect that over time, <unk> will grow faster and maintain higher through the cycle margins compared with the more mature steel groups driven by an increasing levels of market penetration commercial synergies across our portfolio organic investment.
And acquisitions, a key role of E. B G will be to strengthen our core steel business through the creation of commercial solutions that enhance the value of our steel offerings to customers.
Speaker Change: A key role of EBG will be to strengthen our core steel business through the creation of commercial solutions that enhance the value of our steel offerings to customers.
In summary, we are excited about what these organizational and reporting changes will mean for the future of CMC. We believe tremendous value can be realized over time by optimizing how we manage each group and by working as a group to strengthen cmc's.
Speaker Change: In summary, we are excited about what these organizational and reporting changes will mean for the future of CMC.
Speaker Change: We believe tremendous value can be realized over time by optimizing how we manage each group and by working as a group to strengthen CMC's commercial proposition.
<unk> proposition, we are committed to providing updates on the evolution of this strategy over time.
Speaker Change: We are committed to providing updates on the evolution of this strategy over time.
Turning now to Cmc's markets in North America construction activity remained healthy during the first quarter, providing a good demand environment for our reinforcing products total finished steel volumes increased on a year over year basis as did combined rebar shipments from our mill.
Speaker Change: Turning now to CMC's markets in North America, construction activity remained healthy during the first quarter, providing a good demand environment for our reinforcing product.
Speaker Change: Total finished steel volumes increased on a year-over-year basis, as did combined rebar shipments from our mill and downstream operations. Activity levels across our geographies and into our various customer groups were consistent with recent quarters. Overall, seasonal volume pattern, the seasonal volume pattern was normal.
And downstream operations activity levels across our geographies and into our various customer groups were consistent with recent court orders overall seasonal volume pattern bus seasonal volume pattern was normal.
Last quarter, we discussed the pressure that increased import competition exerted on CMC steel product margins. This trend continued during much of the first quarter, but has since abated, we expect that recent developments, including domestic price announcements.
Speaker Change: Last quarter, we discussed the pressure that increased import competition exerted on CMC's steel product margin.
Speaker Change: This trend continued during much of the first quarter, but has since abated.
Speaker Change: We expect that recent developments, including domestic price announcements and higher global rebar pricing, will support an inflection in steel product margins over the next few months.
And higher global rebar pricing will support an inflection and steel product margins over the next next few months.
Turning to our key external forward looking indicators the indices, we track point to stability in nonresidential construction overall.
Speaker Change: Turning to key external forward-looking indicators, the indices we track point to stability in non-residential construction overall and the likelihood of increasing levels of infrastructure activity in the quarters ahead.
And the likelihood of increasing levels of infrastructure activity in the quarters ahead.
Speaker Change: The Dodge Momentum Index, which measures the value of non-residential projects entering the planning phase, generally leads on-the-ground activity by approximately 12 months.
The Dodge momentum index, which measures the value of nonresidential projects entering the planning phase generally leads on the ground activity by approximately 12 months well off.
Speaker Change: While off highs above 200, it has registered four consecutive months of stability around 180, which is still within the top decile of all historical readings.
Hi is above 200, it has registered four consecutive months of stability around 180, which is still within the top decile of all historical readings.
On the infrastructure side the value of projects in pre design and design phases reflects a strong multiyear pipeline of future work data provided by Dodge analytics indicate that projects in these stages of development increased more than 10 fold during the three months ended in.
Speaker Change: On the infrastructure side, the value of projects in pre-design and design phases reflects a strong multi-year pipeline of future work. Data provided by Dodge Analytics indicate that projects in these stages of development increased more than tenfold during the three months ended in November compared to the same period of the prior year.
November compared to the same period of the prior year.
Speaker Change: This indicator has a long lead time because once a project has been designed, it generally moves to budgeting, funding, and letting phases. It is in the letting phases that contracts are awarded, resources are scheduled, and the on-the-ground activity can begin.
This indicator has a long lead time, because once a project has been designed it generally moves to budgeting funding and letting phases. It is in the leading phases that contracts are awarded resources are scheduled and the on the ground activity can begin.
The Dodge analytics data has now been running at an elevated level for the past nine quarters. We are seeing average increases in state department of transportation budget of around 15% and continued strong growth in highway contract.
Speaker Change: The Dodge Analytics data has now been running at an elevated level for the past nine quarters. We are seeing average increases in state Department of Transportation budgets of around 15 percent and continued strong growth in highway contract awards. We expect this to drive increasing infrastructure activity during the upcoming construction
Awards.
We expect this to drive increasing infrastructure activity during the upcoming construction season.
Speaker Change: Although the construction pipeline is robust, we have continued to experience a slower rate of contract awards. This in turn has caused some reduction to the volume and the value of CMC's quarter-ended downstream backlog, which declined 13% by volume compared to the prior year. We believe this weakness is temporary and would note that we saw a pickup in award activity during December .
Although the construction pipeline is robust we have continued to experience a slower rate of contract awards. This in turn has caused some reduction to the volume and the value of Cmc's quarter ended downstream backlog, which declined 13% by volume compared to the prior year.
We believe this weakness is temporary and would note that we saw a pickup in award activity during December.
Looking beyond these near term dynamics, we remain very confident in the long term outlook for our business, which is driven by powerful structural trends that are remaking much of our economy and will bolster construction activity for years to come.
Speaker Change: Looking beyond these near-term dynamics, we remain very confident in the long-term outlook for our business.
Speaker Change: which is driven by powerful structural trends that are remaking much of our economy and will bolster construction activity for years to come.
Speaker Change: Enormous investments have been announced, with some already underway, to improve our nation's transportation infrastructure, reshore vital manufacturing, electrify vehicle fleets, and upgrade the electrical transmission grid to facilitate the transition to renewable energy.
Enormous investments have been announced with some already underway to improve our nation's transportation infrastructure reassure vital manufacturing electrified vehicle fleets and upgrade the electrical transmission grid to facilitate the transition to renewable energy.
Speaker Change: As seen on slide 8, we estimate that these structural trends could lead to incremental rebar consumption equal to 20 percent or more of the current domestic market.
As seen on slide eight we estimate that these structural trends could lead to incremental rebar consumption equal to 20% or more of the current domestic market.
Speaker Change: So even with the challenges in some areas of construction, such as office, retail, and hospitality, we anticipate higher overall rebar demand over a multi-year period.
So even with the challenges in some areas of construction such as office retail and hospitality, we anticipate higher overall rebar demand over a multiyear period. Additionally.
Speaker Change: Additionally, the benefit won't be limited to rebar. We also expect a meaningful tailwind for many of the value-added solutions within our emerging businesses group.
Additionally, the benefit won't be limited to rebar. We also expect a meaningful tailwind for many of the value added solutions within our emerging businesses group.
Speaker Change: I'll now turn to Europe , where market conditions remain challenging.
I'll now turn to Europe, where market conditions remain challenging.
Speaker Change: Sluggish demand put pressure on pricing and margins during the quarter. General economic uncertainty continues to negatively impact sentiment and activity levels across our construction and industrial end markets.
<unk> demand put pressure on pricing and margins during the quarter.
General economic uncertainty continues to negatively impact sentiment and activity levels across our construction and industrial end markets.
The Polish long steel industry has responded to market imbalances by meaningfully reducing our production and right sizing inventory levels.
Speaker Change: The Polish long steel industry has responded to market imbalances by meaningfully reducing production and right-sizing inventory levels.
Speaker Change: These supply-side adjustments appear to be having an impact as long steel pricing has begun to rebound from the lows reached in our fiscal first quarter.
These supply side adjustments appear to be having an impact as long steel pricing has begun to rebound from the lows reached in our fiscal first quarter.
Speaker Change: Since our last earnings call, two potentially meaningful green shoots have appeared. The first is a rapid increase in new mortgage originations, driven by a government program to assist first-time homebuyers. The value of new mortgages taken out in October improved fourfold from the calendar 2023 low and approached all-time high.
Since our last earnings call to potentially meaningful Green shoots have appeared the first is a rapid increase in new mortgage originations driven by a government program to assist first time homebuyers.
<unk> of new mortgages taken out in October improved fourfold from the calendar 2023, low and approached all time highs.
Higher new new loan activity since late summer should support Polish residential construction over the next several quarters.
Speaker Change: Hire new new loan activity since late summer should support Polish residential construction over the next several quarters
Speaker Change: The second development is the likely release of approximately $60 billion of European Union COVID relief funds that were held due to disputes with the prior government.
The second development is the likely release of approximately $60 billion of European Union Covid relief funds that were held due to disputes with the prior government.
Speaker Change: Following the Polish elections held in mid-October, the roadblocks have been cleared for receipt of the funding. In fact, $5 billion has been already released to projects in Poland. Much of this package is earmarked for renewable energy and the modernization of infrastructure, and it should begin impacting construction activity within the next 12 months.
Following the Polish elections held in mid October the roadblocks have been cleared for receipt of the funding. In fact 5 billion has been already released to projects in Poland. Much of this package is earmarked for renewable energy and the modernization of infrastructure and it should begin.
<unk> impacting construction activity within the next 12 months.
Speaker Change: The environment in Europe is currently difficult, but we expect that it will normalize. Given our view of market conditions and the steps we have taken to optimize costs, we expect that beginning with the spring construction season, operational EBITDA for our Europe Steel Group should improve sequentially for the remainder of fiscal 2024.
The environment in Europe is currently difficult, but we expect that it will normalize given our view of market conditions and the steps we have taken to optimize costs, we expect that beginning with the spring construction season operational EBITDA for our Europe steel group should improve.
Sequentially for the remainder of fiscal 2024.
Market conditions for the emerging businesses group, we're supportive during the quarter benefiting from good levels of construction in North America, where we derive nearly 90% of our net sales.
Speaker Change: Market conditions for the emerging businesses group were supportive during the quarter, benefiting from good levels of construction in North America, where we derived nearly 90% of our net sales. Activity remains slow within our European markets, primarily due to the impact of economic uncertainty on construction activity in the region.
Activity remains slow within our European markets, primarily due to the impact of economic uncertainty on construction activity in the region.
Encouragingly across our global footprint, we continue to see increasing adoption rates for cmc's newest and highest margin tenths or geo grid solution driven by a superior customer value proposition that reduces project costs and extend asset life.
Speaker Change: Encouragingly, across our global footprint, we continue to see increasing adoption rates for CMC's newest and highest margin Tensor GeoGrid solution, driven by a superior customer value proposition that reduces project costs and extends asset life.
Speaker Change: Growing investment in infrastructure, renewable energy, and electricity transmission capacity have supported demand for EBG's soil stabilization, performance-reinforcing steel, and anchoring systems solutions.
Growing investment in infrastructure renewable energy and electricity transmission capacity have supported demand for <unk> soil stabilization performance reinforcing steel and anchoring systems.
<unk>.
Before turning the call over to Paul I would like to provide a brief update on Cmc's key strategic projects, where we made significant progress over the quarter.
Speaker Change: Before turning the call over to Paul, I would like to provide a brief update on CMC's key strategic projects where we made significant progress over the quarter.
Paul Lawrence: First, after a successful summer startup, production levels at our new state-of-the-art Arizona II micromill have increased each month and are now routinely setting new daily output records.
First after a successful summer startup production levels at our new state of the art, Arizona Micro mill have increased each month and are now routinely setting new daily output records. The team has done an exceptional job commissioning a very technologically advanced operation. However.
Paul Lawrence: The team has done an exceptional job commissioning a very technologically advanced operation.
The learning curve has been more extended than we originally anticipated.
Paul Lawrence: We now expect to produce approximately 250,000 tons in fiscal 2024 compared to our previous guidance of 400,000 tons.
We now expect to produce approximately 250000 tons in fiscal 2024 compared to our previous guidance of 400000 tons. As a reminder, we are targeting 500000 tons of output at a full run rate consisting of 350000 tons of rebar.
Paul Lawrence: As a reminder, we are targeting 500,000 tons of output at a full run rate consisting of 350,000 tons of rebar and 150,000 tons of merchant product.
And 150000 tons of merchant product.
Paul Lawrence: Currently, the mill is focused on increasing rebar production and will begin commissioning merchant products early in calendar 2024.
Currently the mill is focused on increasing rebar production and will begin commissioning merchant products early in calendar 2024.
Paul Lawrence: We anticipate monthly EBITDA breakeven for AZ-2 by the end of the third quarter.
We anticipate monthly EBITDA breakeven breakeven for <unk> two by the end of the third quarter.
Work at Cmc's future, Pos Virginia site is progressing well.
Paul Lawrence: Work at CMC's future Steel West Virginia site is progressing well. Civil work is nearly complete, after which we will begin setting foundations.
We will work is nearly complete after which we will begin setting foundations. We expect to begin commissioning. This exciting project in late calendar 2025.
Paul Lawrence: We expect to begin commissioning this exciting project in late calendar 2025.
Finally, we have successfully integrated a number of recent acquisitions, which extend our operational and commercial capabilities and further our strategic position.
Paul Lawrence: CMC's mill projects, along with our recent strategic bullponds, broaden our exposure to favorable structural trends powering domestic construction and are expected to drive strong future growth in earnings, cash flow, and shareholder value.
Cmc's mill projects, along with our recent strategic bolt ons broadened our exposure to favorable structural trends powering domestic construction and are expected to drive strong future growth in earnings cash flow and.
And shareholder value.
With that I will now turn the call over to Paul for more detail on our financial results.
Paul Lawrence: With that, I will now turn the call over to Paul for more detail on our financial results.
Thank you Peter and good morning to everyone on the call.
Paul Lawrence: Thank you, Peter, and good morning to everyone on the call.
Paul Lawrence: As noted earlier, we reported fiscal first quarter 2024 net earnings of $176.3 million, or $1.49 per diluted share.
As noted earlier, we reported fiscal first quarter 2024, net earnings of $176 3 million or $1 49 per diluted share compared to the prior year levels of $261 8 million.
Paul Lawrence: compared to the prior year levels of $261.8 million and $2.20 respectively.
And $2 20, respectively.
Results. This quarter include net after tax charges of $16 4 million related to the ongoing commissioning efforts at Arizona too.
Paul Lawrence: Results this quarter include net after-tax charges of $16.4 million related to the ongoing commissioning efforts at Arizona II.
Excluding these items adjusted earnings were $192 7 million or $1 63 per diluted share in comparison to adjusted earnings of $266 2 million or $2 24.
Paul Lawrence: Adjusted earnings were $192.7 million or $1.63 per diluted share in comparison to adjusted earnings of $266.2 million or $2.24 per diluted share during the prior year period.
Per diluted share during the prior year period.
Core EBITDA was $325 3 million for the first quarter of 2024, representing a decline from recent levels, but still among the most profitable quarters in CMC history.
Paul Lawrence: Core EBITDA was $325.3 million for the first quarter of 2024, representing a decline from recent levels, but still among the most profitable quarters in CMC history.
Slide 11 of the supplemental presentation illustrates the year to year changes in Cmc's quarterly results.
Paul Lawrence: Slide 11 of the supplemental presentation illustrates the year to year changes in CMC's quarterly results.
Paul Lawrence: Financial performance at our North American Steel and Europe Steel Groups declined from the prior year, while results of the Emerging Business Group were largely unchanged.
<unk> performance at our North American steel in Europe steel groups declined from the prior year, while the results of the emerging business group were largely unchanged.
Consolidated core EBITDA margin of 16, 2% remained well above average historical levels.
Paul Lawrence: consolidated core EBITDA margin of 16.2% remained well above average historical level.
Before reviewing our segment results I would like to make a few comments on how CMC will report and discuss each group.
Speaker Change: Before reviewing our segment results, I would like to make a few comments on how CMC will report and discuss each group.
For both the North America Steel group and the Europe Steel group, we will continue providing the same operating statistics as we did under the previous segmentation.
Speaker Change: For both the North America Steel Group and the Europe Steel Group, we will continue providing the same operating statistics as we did under the previous segmentation.
Speaker Change: You can find the recast figures on our investor relations website.
You can find the recast figures on our Investor Relations website.
We view these metrics as offering valuable insight into the factors that drive these businesses, including selling prices margins over scrap and product volumes.
Speaker Change: We view these metrics as offering valuable insight into the factors that drive these businesses.
Speaker Change: We will also begin highlighting adjusted EBITDA margins as a percentage of net sales to support our focus on higher through-the-cycle margins across our business.
We will also begin highlighting adjusted EBITDA margins as a percentage of net sales to support our focus on higher through the cycle margins across our businesses.
The two key metrics for the emerging business group, our net sales and EBITDA margin.
Speaker Change: The two key metrics for the emerging business group are net sales and EBITDA margin.
As Peter mentioned, we expect faster growth from this segment over time and our fundamental measure of our success will be the ability to increase topline performance in it.
Speaker Change: As Peter mentioned, we expect faster growth from this segment over time, and a fundamental measure of our success will be the ability to increase top-line performance in an EBITDA and value-accretive manner.
And EBITDA and value accretive manner.
Given the high value add proprietary nature of the solutions offered by <unk>, We anticipate EBITDA margins will be higher and more stable relative to traditional steel industry levels.
Speaker Change: Given the high-value-add proprietary nature of the solutions offered by
Speaker Change: With that, I will now review our segments for the first quarter of fiscal 2024.
With that I will now review our segments for the first quarter of fiscal 2024.
CMC steel group generated adjusted EBITDA of $266 8 million for the quarter equal to $243 per ton of efficient finished steel shipped.
Speaker Change: Segment adjusted even decreased on a year-over-year basis
Segment, adjusted EBITDA decreased on a year over year basis.
Speaker Change: driven primarily by a lower steel product margin over scrap cost.
Driven primarily by a lower steel product margin over scrap costs as well as higher costs related to the operational startup of Arizona too.
The adjusted EBITDA margin for the North American Steel group of 16, 8% compares to 21% in the prior year period.
Speaker Change: The adjusted EBITDA margin for the North American Steel Group of 16.8% compares to 21% in the prior year period.
Speaker Change: Turning to slide 13 of the supplemental deck, our Europe Steel Group reported adjusted EBITDA of $38.9 million.
Turning to slide 13 of the supplemental deck, our Europe Steel group reported adjusted EBITDA of $38 9 million for the first quarter of 2024 compared to $61 2 million in the prior year period.
The decline was primarily driven by a lower margin over scrap cost and a 27% reduction in shipment volumes.
Speaker Change: The decline was primarily driven by a lower margin over scrap cost and a 27% reduction in shipment volume.
Speaker Change: Partially offsetting these headwinds was the recognition of energy rebates totaling $66.3 million during the quarter.
Partially offsetting these headwinds was the recognition of energy rebates totaling $66 3 million during the quarter.
Speaker Change: Of these, $27.7 million is related to an annual CO2 credit under a government program that extends to 2030.
Of these $27 7 million is related to an annual credit under a government program that extends to 2030.
And the remaining $38 6 million.
Speaker Change: And the remaining $38.6 million is structured as a reimbursement by the Polish government for elevated energy costs incurred during the European energy crisis.
Is structured as a reimbursement by the Polish government for elevated energy costs incurred during the European energy crisis.
The prior year period includes $9 $5 million related to the annual C O two program.
Speaker Change: The prior year period includes $9.5 million related to the annual CO2 program.
The first quarter adjusted EBITDA margin for the Europe Steel group of 17, 3% compares to 15, 8% in the prior year period.
Speaker Change: The first quarter adjusted EBITDA margins for the Europe Steel Group of 17.3 percent compares to 15.8 percent in the prior year period.
Despite lowering production levels to meet demand controllable costs benefited from lower energy costs during the quarter.
The emerging business group first quarter net sales of $177 2 million decreased three 9% from the prior year period, driven largely by the addition of anchoring systems previously called Ensco fasteners.
Uh huh.
Demand.
Conditions were generally positive during the quarter with relative strength in North America and weaker.
Speaker Change: Conditions were generally positive during the quarter with relative strength in North America and a weaker weaker environment
Weaker environment elsewhere.
Speaker Change: construction activity in the United States drove solid demand for Tensar GeoGrid solutions.
Construction activity in the United States drove solid demand for <unk>, our Geo grid solutions construction services anchoring systems and performance reinforcing steels.
Speaker Change: construction services, anchoring systems, and performance-reinforcing steel.
Speaker Change: Adjusted EBITDA for the emerging business group of $30.9 million during the first quarter was flat compared to the prior year period.
Adjusted EBITDA for the emerging business group of $30 9 million during the first quarter was flat compared to the prior year period.
Speaker Change: Adjusted EBITDA margin of 17.4% represented a decline of 100 basis points.
Adjusted EBITDA margin of 17, 4% represented a decline of 100 basis points as the positive impact from the addition of CMC anchoring systems and the benefit of improved adoption rates for the proprietary Geo grid solutions in North America were offset by lower construction activity in Europe.
Speaker Change: positive impact from the addition of CMC anchoring systems.
In the middle East impacting our Geo grid business outside of North America.
Turning to the balance sheet.
Moving.
As of November 30, <unk> cash and cash equivalents totaled $704 6 million.
Speaker Change: In addition, we had approximately $820 million of availability under our credit and accounts receivable facilities, bringing total liquidity to just over $1.5 billion.
In addition, we had approximately $820 million of availability under our credit and accounts receivable facilities, bringing total liquidity to just over one 5 billion.
During the quarter, we generated $261 million of cash from operating activities.
Speaker Change: During the quarter, we generated $261 million of cash from operating activities.
Our free cash flow amounted to $194 1 million defined as our cash from operations less $67 million of capital expenditures.
Speaker Change: free cash flow amounted to $194.1 million, defined as our cash from operations left $67 million of capital expenditures.
Our leverage ratios remain attractive and have improved significantly over the past several fiscal years.
Speaker Change: and have improved significantly over the past several fiscal years.
Speaker Change: As can be seen on slide 18, our net debt to EBITDA ratio now sits at just .3 times, with no maturities until
Can be seen on slide 18, our net debt to EBITDA ratio now sits at just <unk> three times with no maturities until 2030.
Speaker Change: 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.
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 for the quarter was 21, 6% due to the release of evaluation allowance looking ahead for the remainder of fiscal 2024. We currently expect an effective tax rate of approximately 24% with a rate slightly higher than the second quarter.
Speaker Change: DMC's effective tax rate for the quarter was 21.6% due to the release of evaluation allowance.
Speaker Change: Looking ahead for the remainder of fiscal 2024, we currently expect an effective tax rate of approximately 24 percent, with a rate slightly higher in the second quarter.
Turning to Cmc's fiscal 2024 capital spending outlook, we reiterate our previous guidance of between 550 and $600 million in total.
Speaker Change: Turning to CMC's fiscal 2024 capital spending outlook, we reiterate our previous guidance of between $550 and $600 million in total. Outside of normal
Outside of normal sustaining investments anticipated expenditures in fiscal 2024 includes substantial capital dollars for the construction of steel West Virginia of approximately $250 million.
Speaker Change: Anticipated expenditures in fiscal 2024 include substantial capital dollars for the construction of steel West Virginia of approximately $250 million.
Lastly, <unk>.
CMC repurchased nearly 622000 shares during the fiscal first quarter at an average price of $45 70 per share.
Speaker Change: CMC repurchased nearly 622,000 shares during the fiscal first quarter at an average price of $45.70 per share.
Speaker Change: Transactions since the initiation of the buyback program through the first quarter have amounted to approximately $292 million.
Transactions since the initiation of the buyback program through the first quarter have amounted to approximately $292 million, leaving $58 million remaining under our current authorization as at November 32023.
Speaker Change: leaving 58 million remaining under our current authorization as at November 30th, 2020.
This concludes my remarks, and I'll turn the call back to Peter for additional comments on CMC financial outlook. Thank you Paul.
Speaker Change: This concludes my remarks and I'll turn the call back to Peter for additional comments on CMC's financial.
Peter Matt: Thank you, Paul. We expect shipment volumes within our North America Steel Group to decline sequentially due to normal seasonality during the winter months.
We expect shipment volumes within our North America steel group to decline sequentially due to normal seasonality during the winter months.
Peter Matt: Margins on steel products are likely to experience some further compression during the second quarter. However, recent price announcements on rebar, merchant bar, and wire rod should support an inflection point in the coming month.
Margins on steel products are likely to experience. Some further compression during the second quarter. However, recent price announcements on rebar and merchant bar and wire Rod should support an inflection point in the coming months.
Peter Matt: downstream product margins should exhibit good stability sequentially.
Downstream product margins should exhibit good stability sequentially.
Peter Matt: Conditions in Europe are expected to remain challenging, but adjusted EBITDA excluding energy rebates should improve from the levels of the past two quarters.
<unk> in Europe are expected to remain challenging, but adjusted EBITDA, excluding energy rebates should improve from the levels of the past two quarters.
Financial results for our emerging businesses group are anticipated to follow a typical seasonal pattern with some slowing of activity in Q2.
Peter Matt: Looking beyond the second quarter, which is CMC's seasonally slowest period, we expect robust spring and summer construction activity driven by the increased impact of rising infrastructure investment, which should support an already healthy demand backdrop.
Looking beyond the second quarter, which is cmc's seasonally slowest period, we expect robust spring and summer construction activity driven by the increased impact of rising infrastructure investment, which should support an already healthy demand backdrop.
Both the North America Steel group and the emerging businesses group should benefit from anticipated strong activity levels regarding the Europe steel group supply side adjustments and the impact of increasing levels of residential and infrastructure construction should drive sequential.
Peter Matt: Both the North America Steel Group and the Emerging Businesses Group should benefit from anticipated strong activity levels.
Peter Matt: Regarding the Europe Steel Group, supply side adjustments and the impact of increasing levels of residential and infrastructure construction should drive sequential improvement in financial results beginning with the spring construction season.
Improvement in financial results, beginning with the spring construction season.
It's an exciting time for CMC, we believe the realignment of our organizational and reporting structure will allow us to better execute our key strategic priorities and harvest significant value for shareholders.
Peter Matt: We believe the realignment of our organizational and reporting structure will allow us to better execute our key strategic priorities and harvest significant value for shareholders.
Powerful structural trends in North America should drive construction activity for years to come and CMC has positioned itself as a key beneficiary. Additionally, the green shoots emerging in Poland, and our strong cost position should provide an opportunity for our results.
Peter Matt: Powerful structural trends in North America should drive construction activity for years to come and CMC has positioned itself as a key beneficiary. Additionally, the green shoots emerging in Poland and our strong cost position should provide an opportunity for results to rebound going forward.
To rebound going forward.
Peter Matt: Once again, I would like to thank our customers for their trust and confidence in CMC and all of our employees for delivering yet another quarter of very solid performance.
Once again I would like to thank our customers for their trust and confidence in CMC and all of our employees employees for delivering yet another quarter of very solid performance.
Thank you and at this time, we will now open the call to questions.
Speaker Change: Thank you and at this time we will now open the call to questions.
I would like to ask a question. Please press Star then one on your telephone keypad.
Speaker Change: If you would like to withdraw from the question queue, you may press star then queue.
If you would like to withdraw from the question queue. You May Press Star then two.
Speaker Change: If you're using a handset today, please pick up your phone before pressing the button.
If youre using a handset today, please pick up your phone before pressing that button.
Speaker Change: In the interest of time, we ask that you limit yourself to one question and one follow-up. We'll pause momentarily to
In the interest of time, we ask that you limit yourself to one question and one follow up.
We will pause momentarily to assemble our roster.
Today's first question comes from Phil Gibbs with Keybanc capital markets. Please go ahead.
Speaker Change: Today's first question comes from Phil Gibbs with KeyBank Capital Markets. Please go ahead. Hey, good morning.
Hey, good morning.
Hey, Phil.
Yes.
Phil Gibbs: In terms of the scrap market for January , there's been a lot of mixed news on the market over the last couple weeks. Just curious in terms of what you all are seeing for your key consuming grades.
The scrap market for January there, there's been a lot of.
Our news on the market over the last couple of weeks just curious in terms of what.
You all are seeing for your key consuming grades.
Yes, so thank you Phil for the question.
Speaker Change: Yeah. So thank you, Phil, for the question. We we have kind of heard and anecdotally seen some of this some of this weakness and honestly, not a huge
We have kind of heard anecdotally seen some of this some of this weakness and honestly.
Not a huge surprise.
Speaker Change: for us given the rapid run-up that we've seen over the last several months in scrap.
For us given the rapid run up that we've seen over the.
Kind of last several months in scrap.
Speaker Change: I think it's important to say that, you know, as it relates to the price increase that we announced, which I think may be part of what you're getting at, the move in scrap, the price increase that we announced did not fully cover the move that we've seen in scrap. And the move in scrap was kind of part of what motivated our move on price.
I think it's important to say that as it relates to the price increase that we announced which I think maybe part of what youre getting at.
The move in scrap.
The price increase that we announced did not fully cover.
The move that we've seen in scrap.
And the move in scrap was kind of part of what motivated or move on price.
Speaker Change: but only part and the other part was uh... strong demand that we're seeing in the market so uh... in spite of uh... of uh... kind of potentially sideways movement in scrap we remain uh... very confident in the uh... kind of pricing position that we've taken in our ability to uh... kind of hold on to it and build on it
But only part and the other part was the strong demand that we're seeing in the market. So.
In spite of the.
Kind of potentially sideways movement in scrap we remain.
<unk> confident in the kind of pricing position that we've taken in our ability to kind of hold onto it and build on it.
Thank you and then as it relates to.
Speaker Change: CapEx, you said your outlook there was intact. You had $250 million related to West Virginia. How much is left over to spend for West Virginia in 2025 and beyond, fiscal 2025 and beyond? And what's your sustaining CapEx with all the investments you've made?
Capex you you said.
Your outlook there was impact you had $250 million related to West Virginia, how much is left over to spend for west Virginia in 2025, and beyond fiscal 'twenty five and beyond.
And what's your sustaining capex with all the investments you've made.
Speaker Change: Yeah, Phil, as far as the, uh, our, our CapEx, you know, our, our guidance typically is, is that our CapEx, our maintenance.
Yes, Phil as far as the <unk>.
Our capex.
Guidance typically is is that our capex, our maintenance Capex, which is a pretty liberal definition of anything.
Speaker Change: pretty liberal definition of anything not significant enough to call out is around 250 million per year. This year you know on top of that we've got the finishing off of the investments in in Arizona too as well as the the West Virginia spend.
Not significant enough to call out.
Is around $250 million per year.
This year.
On top of that we've got the finishing off of the investments in.
In Arizona, two as well as the <unk>.
West Virginia spend so we anticipate given that we anticipate starting up West Virginia in late 2025 that next year spend will be somewhat similar to this year in West Virginia.
Speaker Change: So we anticipate, given that we anticipate starting up West Virginia late 2025, that next year's spend will be somewhat similar to this year in West Virginia, and then possibly finishing up a little bit into 2026.
And then possibly finishing up the.
In the a little bit into 2026.
Thank you.
Thanks, Phil.
Speaker Change: Thank you. The next question is from Tim Natanis with Wolf Research. Please go ahead.
Thank you. The next question is from Timna Tanners with Wolfe Research. Please go ahead.
Oh, Hey, guys, good morning, and happy new year.
Tim Natanis: Oh, hey guys, good morning and happy new year. Um, wanted to, um, just kind of ask a little bit more about capital allocation just because of the stark.
I wanted to just ask a little bit more about capital allocation just because of the stock.
Tim Natanis: uh... reduction in your debt you can let you point out really nicely and fight eighteen uh... you kept the dividend flat i think some of us were expecting that you might have raised that and down your capital running above and at least for the last six quarters so can you can talk a little bit more about how you're seeing opportunities and emanate versus organic you haven't and he said you're not gonna build any more steel mills after these next one which sounds good uh... what what are the types of opportunities that you
Reduction in your debt you slot you point out really nicely on slide 18, you.
You kept the dividend flat I think some of that's we're expecting that you might've raise that and your cash is running above trend at least for the last six quarters. So can you can you talk to us a little bit more about how youre seeing opportunities in M&A versus organic you haven't you said youre not going to build any more steel now is after these next one which sounds good.
But also the types of opportunities that you might be looking at for use of cash.
Speaker Change: Yeah, so thank you for the question, Tim. I mean, we continue to plan a balanced capital allocation strategy, and that's going to include given our balance sheet condition is very good. It's going to focus on
Yes. So thank you for the question Timna.
We continue to plan a balanced capital allocation strategy and that's going to include given our balance sheet condition is very good it's going to focus on really growth.
Speaker Change: really growth, and then returns to shareholders. We have, on the growth side, obviously we've got the, you know, kind of the West Virginia project that we're in full course on at this point in terms of getting that spending ramped up.
And then returns to shareholders.
We have.
On the growth side, obviously, we've got the.
The <unk>.
West Virginia project that were in full.
Of course at this point in terms of getting that spending ramped up.
Speaker Change: And there are, you know, kind of other smaller, organic projects around the company that we're also investing in at this time. On the M&A side, we see a lot of different opportunities, and we're doing a lot of work around strategy to figure out.
And there are kind of other smaller organic projects around the company that we're also investing in at this time on the M&A side.
We see a lot of different opportunities and we're doing a lot of work around strategy to figure out.
Speaker Change: you know, precisely where our priorities are, because we want to make sure that the M&A growth that we do pursue is M&A growth that is, number one, complementary to the core, and, number two, growth that we can generate or growth where we can generate returns in excess of our cost of capital.
Precisely where our priorities are because we wanted to make sure that the M&A growth that we do pursue is M&A growth that is number one complementary to the core and number two growth that we can generate.
Growth, where we can generate returns in excess of our cost of capital. So, but we do see a decent amount of M&A opportunity out there and we're just going to be disciplined about doing that as it relates to returns to shareholders.
Speaker Change: So, but we do see a decent amount of M&A opportunity out there, and we're just going to be, you know, kind of disciplined about doing that. As it relates to returns to shareholders, you know, we did increase our share buyback in the most recent quarter. You'll note, as others have noted, that we are coming to the end of our authorization on share buybacks. And I would say...
We did increase our share buyback in the most recent quarter.
Youll note as others have noted that we are coming to the end of our authorization.
On share buybacks and I would say.
Speaker Change: You know, this is a topic that we discuss on a regular basis with our board.
This is a topic that we discuss on a regular basis with our board.
Speaker Change: So, I would stay tuned on share buybacks as an overall piece of the pie.
So I would stay tuned.
Sure sure buybacks as.
Overall piece of.
Overall piece of the pie and on dividends again, we periodically review the dividend.
Speaker Change: Again, we periodically review the dividend, and we'll continue to do that. But overall, the strategy is balanced capital allocation between kind of growth and return of capital to shareholders.
And we'll continue to we'll continue to do that but but overall.
The strategy is balanced capital allocation between kind of growth and return of capital to shareholders.
Okay, great. Thanks for that comprehensive answer.
Speaker Change: Okay, great. Thanks for that comprehensive answer. I know I threw a lot in that last question. Just the next one is a little, hopefully, smaller one. We have seen the pace of government awards and highways slow down a bit, and I know you alluded to that in your commentary. Can you give us a little more color on what's driving that? Is that just, you know, tough comps? Is that, you know, resources availability? Is it anything to be cautious about, or is it just kind of the normal cadence after a big, you know, big spending program coming through?
A lot of on that last question just the next one is a little hopefully smaller ones.
We have seen the pace of government awards in highway and highway it slowed down a bit.
And I know you alluded to that in your commentary.
It's a little more color on what's driving that is that just tough comps is that resources availability is it anything to be cautious about or is it just kind of a normal cadence after a big.
Big spending program coming through.
Speaker Change: Yeah, we actually feel very confident about where we are on government awards and actually, you know, we've seen government awards continue at a healthy pace here. What I'd say is just kind of taking a couple steps back, you know, if you look at infrastructure spending, infrastructure spending grew in 2023. We expect and all the other prognosticators expect that it's going to grow in 2024.
Yes.
Actually.
Feel very confident about where we are on government awards and actually.
We've seen government awards continue at a healthy pace here.
What I'd say is just kind of taking a couple of steps back. If you look at infrastructure spending infrastructure spending grew in 2023.
We expect and all the other prognosticators expect that it's going to grow in 2024, and we can see.
Speaker Change: And we can see both in the form of, you know, kind of the pipeline of projects and the design and pre-design phase.
Both in the form of.
Kind of the pipeline of projects in the design and pre design phase significant increases that have been significantly increased over the last literally nine quarters. So so that we think is.
Speaker Change: significant increases that have been significantly increased.
Speaker Change: over, you know, the last literally nine quarters. So, so that we think is, is, uh, you know, kind of evidence that there's more coming through the pipeline. And lastly, what we're seeing is, uh, state budgets.
Evidence that theres more coming through the pipeline and lastly, what were seeing is state budgets are growing at a healthy healthy rate and we commented in the prepared remarks that they are up about 13% on average.
And we believe.
We are seeing some of the J E money coming through now remember, it's a little difficult to see.
Speaker Change: We are seeing some of the IIJA money coming through now. Remember, it's a little difficult to see precisely when it comes because the funds are co-mingled with state monies. But we do believe we're starting to see that. And we believe that's going to grow over the course of 2024. And one thing that I'd also kind of point out on IIJA is, remember, the way the program is structured.
Precisely when it comes because the funds are co mingled with state monies, but we do believe we're starting to see that and we believe that's going to grow over the course of 2024.
And one thing that I'd also point out on Iga is remember the way the program is structured.
Speaker Change: Every year, there's a grant, but it doesn't necessarily mean that the spend in that year is the same. So, over the course of the program, we believe you're going to see kind of an escalating level of spending. So, we continue to be very bullish on what infrastructure means for our business and the demand for rebar.
Every year Theres, a grant, but it doesn't necessarily mean that the spend in that year is the same so over the course of the program. We believe youre going to see kind of an escalating level of spending so we continue to be very bullish on.
Infrastructure means for our business and the demand for rebar.
Speaker Change: Thank you. As a reminder, to ask a question, you may press star then one.
Thank you as a reminder to ask a question you May Press Star then one.
Speaker Change: The next question comes from Alex Hacking with Citi. Please go ahead.
The next question comes from Alex Hacking with Citi. Please go ahead.
Yes, hi, good morning on the emerging business.
Alex Hacking: Yeah, hi, good morning. On the emerging business group, which you've
Group, which you've highlighted.
Alex Hacking: that you see that growing faster than everything else. Are there any long-term targets there for how big you want that business to ultimately get, either in absolute terms or as a percentage of the total company? Thanks.
You see that growing faster than everything else is there any long term target set for how big you want that business to ultimately get either in absolute terms or as a percentage of the total company.
Speaker Change: Yeah, thanks, Alex. Good, good question. Um, we're very excited about the potential of the emerging businesses group. I think it's premature at this point to kind of articulate a specific target for where we think it will be. What we like about that business, as we said, is
Yes, Thanks, Alex good good question.
We're very excited about the potential of the emerging businesses group I think it's premature at this point to kind of articulate a specific target for where we think it will be what we like about that business as we said is <unk>.
I turn the businesses in there tend to have solid organic growth rates. They tend to have higher margins and they tend to have less volatility all of which will be kind of helpful. In the overall financial profile for our company. So it's an area that we intend to grow we want to grow but coming back to <unk>.
Speaker Change: The businesses in there tend to have solid organic growth rates.
Speaker Change: they tend to have higher margins, and they tend to have less volatility, all of which will be, you know, kind of helpful in the overall financial profile for our company. So it's an area that we intend to grow, we want to grow, but coming back to my comment on M&A, we got to be disciplined about how we grow, and that means that, you know, we got to be comfortable that we can generate returns in excess of our cost of capital in the moves that we're making in that space.
My comment on M&A, we got to be disciplined about how we grow.
And that means that we got to be comfortable that we can generate returns in excess of our cost of capital in.
In the moves that we're making in that space.
Speaker Change: We are very optimistic that we can do that.
We're very optimistic that we can do that.
So we're confident that youre going to see some nice growth in that segment, but it's a little bit premature to to.
Speaker Change: So we're confident that you're going to see some nice growth in that segment. But it's a little bit premature to call it specifically. What I would say is that our expectation is that it will be a significant contributor to our earnings and cash flow if you look out, you know, kind of three, five years.
Call. It specifically, what I would say is that our expectation is that it will be a significant contributor to our earnings and cash flow. If you look out kind of three five years.
Okay. Thanks, and then something a bit more discrete the European.
Speaker Change: Okay, thanks. And then something a bit more discreet, the European cost rebates, energy rebates, given where energy prices are today, do you have any estimate of?
Cost rebates energy rebates, given where energy prices are today.
Do you have any estimate of.
Speaker Change: what kind of rebate you would expect at the end of this year. Thanks.
What kind of rebate you would expect at the end of this year.
Speaker Change: Yeah, Alex, it's a good question. So there's two separate programs, as I outlined, that we were seeing.
Yeah, Alex it's it's.
Good question. So there's two separate programs as I outlined that we received the first relates to the cost of Sidoti credits, that's embedded in the underlying energy cost at the operation pays and that is most closely tied to the Sidoti.
Speaker Change: The first relates to the cost of CO2 credits that's embedded in the underlying energy costs that the operation pays, and that is most closely tied to the CO2 credit costs themselves.
Credit costs themselves and given that the demand over time is expected to continue to increase for those credits we expect that that.
Speaker Change: And given that the demand over time is expected to continue to increase for those credits, we expect that that credit is likely to, you know, remain at the level it is today or increase.
Credit is likely to.
We remain at the level it is today or increase.
The other credit was in relation specifically to higher cost energy.
Speaker Change: The other credit was in relation specifically to higher cost energy, and you're correct as you state that energy costs have come down from their peak. They're still elevated.
And you are correct as you state that energy costs have come down.
From their peak they are still elevated and so while the program itself was simply for 2023.
Speaker Change: And so while the program itself was simply for 2023 and we've received the full amount of that, it
We have received the full amount of that.
Speaker Change: It could be that the new government that comes in place puts a further program in place should the energy costs continue to remain elevated and uncompetitive with other geographic jurisdictions.
It could be that the new government that comes in place puts a further program in place should they energy costs continue to remain elevated and uncompetitive with other geographic jurisdictions.
Okay. Thanks, sorry, just to clarify the Sidoti program, it's still in place and it's sort of linked to the market price of two credits in the energy rebate program is now.
Speaker Change: Okay, thanks. So just to clarify, the CO2 program is still in place and is sort of linked to the market price of CO2 credits and the energy rebate program is now gone but potentially could be replaced? That's correct. The CO2 is in place through 2030.
Sean but potentially could be replaced that's that's correct. The the <unk> is in place through 2030, okay.
Okay perfect. Thank you.
Thank you. The next question is a follow up from Phil Gibbs with Keybanc capital markets. Please go ahead.
Speaker Change: Thank you. The next question is a follow-up from Phil Gibbs with KeyBent Capital Markets. Please go ahead.
Hey, Thank you.
Phil Gibbs: the what's what's the length of your fabrication backlog right now if you think about it in terms of months or quarters
What's what's the length of your fabrication backlog right now if you think about it in terms of months or quarters.
Yes, I mean, the fabrication backlog tends to run with.
Speaker Change: Yeah, I mean, the fabrication backlog tends to run with a duration of about 12 months. And we're, you know, kind of, that's a, you know, weighted average duration. That's, I think, a good level for where it is today.
With a duration of about 12 months.
And we're kind of.
Our weighted average duration, that's I think the.
Good level for where it is today.
And then as you talk about the typical.
Or or normal seasonality associated with the second quarter versus the first quarter what is that.
What is that in your mind.
The 5% does that more or less yes.
Speaker Change: Yeah, Phil, typically because of the weather and the slowdown in construction activity that occurs, usually it's between 5 and 10 percent of a reduction in volume. The volumes in the first quarter were relatively strong in relation to other seasonal impacts, so we would expect somewhere in the middle there, around the 7 percent reduction.
Yes, Phil typically because of the weather and the slowdown in construction activity that occurs.
Usually its between five and 10% of our reduction in volume the volumes in the first quarter.
We're we're relatively strong in relation to the other seasonal impact. So we would expect somewhere in the middle there. They ran the seven 7% reduction in volume now that all depends on what weather occurs so far.
Speaker Change: in volume. Now that all depends on what weather occurs. So far the summer was
There was.
Speaker Change: very strong month from a construction activity despite the holidays. However, I think there's an Arctic blast coming through affecting much of the U.S. this week, and so we'll see what happens over the remainder part of the quarter.
It was a very strong month from a from a construction activity despite the holidays.
However, I think there's an arctic blast coming through affecting much of the U S. This week and so we'll see what happens over the remainder part of the quarter.
And when you talk about this 5% to 10% is that for U S Mills and U S fabrication.
Speaker Change: And when you talk about this 5 to 10 percent, is that for U.S. mills and U.S. fabrication?
Speaker Change: correct there yes as well as the uh... the ebg businesses which uh... are construction oriented
<unk>, Okay, yes, as well as the <unk> businesses, which are construction oriented.
And then lastly.
Speaker Change: Depreciation, as you guys noted and carved out, stopped up pretty solidly. I would think, based on your disclosure, that it was largely for AIDS.
Depreciation as you guys noted and carve out stepped up pretty pretty solidly I I would think based on your disclosure that it was largely.
For <unk> two.
Speaker Change: But is that a good level to be using moving forward, that stepped up rate that we saw in Q1?
But.
Is that a good level to be using moving forward that stepped up rate.
That we saw in Q1.
Speaker Change: Yes, that reflects both the AZ-2 depreciation as well as the acquisitions that we did throughout 2023.
Yes that that that reflects both the AZ to depreciation as well as the acquisitions that we did throughout.
2023.
Thank you.
Thank you.
At this time there appears to be no further question Mr. Matt ill now turn the call back over to you.
Speaker Change: At this time there appears to be no further questions. Mr. Matt, I'll now turn the call back over to you.
Okay, well, thank you for joining us on today's conference call.
Peter Matt: Okay, well thank you for joining us on today's conference call. I just want to say in conclusion, CMC has positioned itself to take advantage of the wave of construction spending underway and in this environment we're confident in our ability to drive higher through the cycle margins and generate excess returns from our growth initiatives. We look forward to speaking with many of you during our investor calls in the coming days and weeks. Thank you very much.
Just wanted to say in conclusion CMC has positioned itself to take advantage of the wave of construction spending underway and in this environment. We are confident in our ability to drive higher through the cycle margins and generate excess returns from our growth initiatives. We look forward to speaking with many of you during our investor calls in the coming.
Days and weeks, thank you very much.
Speaker Change: This concludes today's CMC conference call. You may now disconnect your line.
This concludes today's TMC conference call you may now disconnect your lines.
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Speaker Change: ♪♪ ♪♪ ♪♪ ♪♪
Speaker Change: ?
Hum.
[music].
Speaker Change: ?
Okay.
Yes.
[music].
Speaker Change: ?