Q2 2024 Commercial Metals Co Earnings Call
Hello, and welcome everyone to the second quarter fiscal 'twenty 'twenty four earnings call for C. M C. Joining me today.
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 slides that accompany this call can be found on C. M sees investor Relations website today's call will be.
<unk> recorded after the company's remarks, we will have a question and answer session and we will have a few instructions at that time IRA.
I'd 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, the expected capabilities benefits and timeline for construction of new facilities.
The company's future operations the <unk>.
Time line for execution of the company's growth plan, the company's future results of operation 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 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 section of the company's latest filings with the U S Securities and Exchange Commission, including the company's law.
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 all statements are made only as of this.
State.
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 supplemental slides 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 and now for opening remarks and introductions I would like to turn the conference over to Peter Matt President and Chief Fun, Chief Executive Officer.
Peter R. Matt: Good morning, everyone and thank you for joining Cmc's second quarter earnings Conference call.
Peter R. Matt: I would like to begin this morning's discussion by congratulating.
The CMC team for setting a new standard in safety performance for our company and they brought our total recordable injury incident rate to less than one significantly better than the U S steel industry as a whole at C. M. C. It all begins with safety and our goal is to ensure everyone leaves their shift in the sea.
I'm condition they arrived.
I am particularly proud.
I'll be improvements made at recently acquired locations within our engineering business engineering emerging businesses grow.
An important part of our integration processes and instilling Sam sees industry, leading safety culture and practices, which employees had acquired businesses have been eager to adopt compared to a year ago. The recordable incident rate for E. B G has been cut in half, which equates to several injuries avoiding.
And better outcomes for all stakeholders.
The data for E B G and for all our operations can be seen on slide four of our earnings presentation, and we are committed to further improving this strong record.
This morning, I will provide an overview of CMC second quarter financial and operating performance after which I will share an update on the company's strategic outlook and growth project.
And then discuss our view of current and future market environment, Paul will cover the quarter's financial results in greater detail and I will conclude with our outlook for the third fiscal quarter and beyond we will then open the call for questions.
Additional information regarding the quarter is provided in the supplemental slides that accompany this call, which can be found on <unk> investor Relations website.
Before reviewing our financial results I want to call your attention to yesterday's announcement of a 13% increase in C M six quarterly dividend dividend.
The 18 cents per share quarterly payout represents growth of 50% since the end of 2021 the dividend increase together with January it's 500 million increase in Cmc's share repurchase authorization shows the cash generative power of Cmc's business Ann.
And demonstrates our commitment to returning that cash to our shareholders.
Sam see strong financial position and balanced capital allocation strategy allows us to prioritize returning cash to investors, while simultaneously executing our growth plan.
As we reported.
In our press release issued this morning.
The second quarter of fiscal 2024 was another strong period of financial performance CMC generated core EBITDA and core EBITDA margin well above historic averages despite seasonal slowness and weather disruptions across much of our operational footprint, we continue to demonstrate.
The enhanced earnings and cash flow capabilities that were enabled by our recent strategic transformation and ongoing execution.
CMC produced net earnings for the second quarter up $85 8 million or 73 cents per diluted share on net sales of $1 8 billion.
Excluding the impact of non operational items, which Paul will cover in more detail adjusted earnings were $103 1 million or 88 cents per diluted share.
CMC generated consolidated core EBITDA for the quarter up $224 4 million producing a core EBITDA margin of 12, 1% and a trailing 12 month return on invested capital of 14.5%.
Results in our North American steel group were impacted by challenging weather conditions, and some metal margin compression on steel products.
Digging beneath the reported metal margin figure, we actually experienced sequential monthly increases from December onwards.
And exited the quarter at a high point Finney.
Financial performance in our Europe Steel group segment improved from recent quarters, excluding energy rebates the market for long steel products has come into better balance, which has allowed selling price and metal margin to increase modestly. This combined with excellent cost performance has set us on a path.
South toward breakeven results in the near term.
Activity levels are emerging in our emerging businesses group were hampered by weather disruptions of delayed Geo grid and G O P or project starts and hit our Texas focused CMT construction services, particularly hard.
Outside the U S. Several projects were also delayed during the quarter. We believe these issues are temporary and we expect a strong rebound in sales and profitability heading into the spring and summer construction season.
I would like to I would next like to discuss Cmc's strategic outlook as we plot cmc's future path. We are starting from a position of great strength with leading presence in each of our major products and solutions, a strong company culture, a healthy balance sheet and excellent customer relationships.
From their starting point, our primary strategic focus will be two fold to Mac to maximize value creation in our current businesses and to accelerate growth across multiple platforms. Our ultimate goal is to create an organization that has higher and less volatile through the cycle.
Margins and that fully leverages, the enhanced margin profile by organically and Inorganically expanding revenues, we laid the groundwork for these efforts with our recent reporting structure changes, which greatly enhanced visibility into our key value drivers and helped us better focus our decision.
But this decision making.
In our planning we are looking at how CMC can push our existing businesses to their full potential. It all begins with our most critical resource our people keeping them safe and providing ample opportunities for development as I noted earlier CMC has built a tremendous safe.
<unk> track record, but there is more that can be done to reach world class and we are working diligently on this.
We are also expanding our talent development programs across a range of critical skills to ensure we have a deep bench to power cmc's future.
A key driver of our companies our company wide margin enhancement efforts, our efforts in operational and commercial optimization, which span the entire organization and build on a core part of our company's DNA.
To that end, we have created a commercial and operational excellence group tasked with working closely with Cmc's business units to identify benchmark quantify and realized margin enhancement opportunities. Our optimization efforts are still in the early stages, but already.
Many concrete opportunities had been found both at individual businesses and across the enterprise.
I can offer a few examples first there is significant opportunity to optimize logistics and shortened freight lanes between our mills and final shipping points, which will lower costs and improve customer service.
We also see achievable operational improvements through enhanced internal benchmarking and best practice sharing which can lead to increased productivity and reduce costs and unplanned downtime on.
On the commercial side, we are creating a unified platform that we believe will enable information sharing our cross sales group unlocking opportunities for customer cross selling lead sharing and bundling up solutions.
These efforts are targeted towards increasing CMC share of wallet and service capabilities, representing a low capital cost Avenue to grow revenues.
In concert with our initiatives to maximize margins and create value and CMC as existing businesses. We are focused on prudently accelerating our growth trajectory through both organic and inorganic investment.
As you know there are large organic projects already underway, including Arizona, two and steel West, Virginia that will meaningfully add to CMC as earnings and cash flow capabilities.
Beyond needs, we see several opportunities.
For organic expansion in existing product lines that Intel only modest capital outlays Mauro.
Moreover, as we have indicated previously CMC has a strong platform and a significant and significant financial dry powder to achieve value accretive growth through acquisitions.
We will seek to build outs amc's portfolio of early stage construction materials and solutions in a way that strengthens our core improves customer our customer value proposition leverages, our end market expertise.
And enhances our margins.
As we execute our strategic plan, we are extremely excited about the benefits. These initiatives will bring to CMC and our shareholders. We run a great business today, but believe there is tremendous additional value to be unlocked by pursuing the next level of excellence and leveraging that excellence as we grow.
Planned development is ongoing and we look forward to sharing more details regarding cmc's strategic vision later this year.
Now I would like to provide a brief update on the progress we've made during the quarter on Cmc's key strategic projects.
As we noted in our press release Cmc's, Arizona, two plant set a new milestone by becoming the first micro mill in the world to produce merchant product merchant bar quality products or M. B que.
We began commissioning M b Q in January and have successfully produced and sold a variety of profiles in grades I would like to congratulate the operations team on this exciting achievement.
During the quarter.
California, and important end market for AZ to experienced an historic amount of rainfall that led to a large number of lost days at construction sites across the state.
The outcome has been a temporary excess of rebar inventory on the west coast.
Peter R. Matt: We can address this condition and help balance the market by altering our plan to ramp up schedule over the next several months.
Given the realities on the ground. We believe the prudent approach is to continue to focus on commissioning efforts on our <unk> production capabilities and returned to rebar when the market is in better balance.
Despite the deviation from our original schedule, we don't expect any push out in the total time frame to complete the final commissioning of all products that Arizona. Two is capable of producing this change does however impact our ability to provide a volume forecast for fiscal 'twenty 'twenty four.
Given the fluid nature of how the west coast rebar market will evolve over the next several months that said, we do not we do anticipate reaching our monthly EBITDA breakeven during the fourth fiscal quarter.
Work at Cmc's future Steel West, Virginia site is progressing well and we are on plan for startup in late calendar 2025.
Site improvements are nearly complete and we have scheduled the initial equipment deliveries for the spring and early summer.
Turning now to see them seize markets in North America construction activity remains healthy as we exit the slowest period of the year and head into the busy spring and summer seasons, we continue to hear encouraging signs from our customers who indicate their backlogs are in good shape and that.
They see a strong pipeline ahead.
This matches our own internal view, particularly following C. M sees best quarter for downstream contract awards since mid 'twenty, two and it's second and its best second quarter on record.
The sharp rebound in new bookings drove an 11% sequential increase in construction backlog volumes and was broad based across a number of project types. We.
We saw particular strength in new awards for manufacturing facilities institutional buildings wind energy and residential structures. Additionally, CMC added to its backlog the highest value contract in its history of department of Defense project in Hawaii.
Looking ahead, we anticipate our construction pipeline will remain healthy with several key areas driving activity both in the near term and over a multiyear period.
The first.
Is infrastructure.
We expect steel consumption for highways bridges and other public works to increase in the second half of fiscal 'twenty 'twenty four and onward as projects awarded in previous years begin to mature new projects are also coming to the market at a healthy rate as states execute against.
There are expanded transportation and infrastructure budgets several of our key states are expected to release significant project for bidding over the next few months.
Leading the pack will be Texas, which to date has only awarded about a quarter of its transportation budget for 2024.
We are also seeing infrastructure the infrastructure investment and jobs Act impact on the ground activity across many of the geographical markets with CMC serves.
We continue continue to estimate that once at full run rate the program will generate incremental rebar consumption of roughly one 5 million tons annually as well as provide a tailwind to <unk> broad portfolio of reinforcement solutions.
As we have discussed previously beyond infrastructure notable sources of structural demand growth include manufacturing and renewable energy. The project pipeline in these areas remains robust with the last few months seeing particular strength for new wind Energy Awards.
More recently, we are seeing the emergence of data centers as a driver of activity. The number of projects in the bid stage has grown substantially over the last few quarters and we expect several dozen additional opportunities will reach the market in the months ahead.
Investment pouring into data center development is very significant and the facilities can't be built fast enough to meet demand. We currently estimate that the projects in the planning phase or under construction represent 250000 to 350000 tons of total rebar consumption.
We believe that these structural trends form a once in a generation investment cycle that aims to reinvigorate our nation's infrastructure hardened supply chains drive transition to cleaner energy sources and harness the possibilities are big data and artificial intelligence we were.
<unk> confident that this long duration investment cycle will power construction activity for years to come and its benefits will reach beyond rebar into cmc's. Other key product offerings like G. O grid G O P or anchoring systems high and high performance reinforcing steel.
Turning to steel product margins in North America, the environment improve throughout the second quarter and as I mentioned.
Monthly levels increased from December onward.
Import pressures that influence the domestic market in late late in fiscal 2023, and early fiscal 'twenty 'twenty four have largely abated and current import offers in volume terms remain fairly limited. This should set the stage for a metal margins to be driven by domestic market.
Fundamentals heading into the third quarter, we see a combination of seasonal volume recovery, good underlying demand and limited import participation, providing a favorable backdrop for some margin expansion during the spring and summer construction season.
The market environment for our Europe Steel group improved during the second quarter, largely due to better supply and demand balance.
Consumption levels remain subdued but in recent months producers have responded with significant supply rationalizations, while inventories at intermediaries have sharply reduce driving some pricing and margin recovery.
Looking ahead, we expect demand in most of our markets to remain fairly stable with the exception of a residential construction, which appears poised for a return to growth.
The response to the Polish government program to support first time homebuyers has been significant leading to record levels of new mortgage originations and a sizable increase and new building permits as we head into the spring our team in Poland is seeing Hyder higher order rates related to residential.
<unk>.
In the near term and improve market backdrop, combined with strong cost management efforts should drive our operations to break to towards breakeven profitability longer term, we see the potential for strong market fundamentals to emerge as central European industrial production recovers too.
From an or from the energy crisis, and Covid relief funds from 65 billion euros are injected into the Polish economy.
With that I will now turn the discussion over to Paul to provide more detail on our financial results.
Thank you Peter and good morning to everyone on the call.
As noted earlier, we reported fiscal second quarter 2024, net earnings of $85 8 million or <unk> 73 per diluted share compared compared to prior year levels of $179 8 million and $1 51 per share respectively.
Results. This quarter included net after tax charges of $17 2 million related to the ongoing commissioning efforts of Arizona too.
Excluding these items adjusted earnings were $103 1 million or 88 cents per diluted share in comparison to adjusted earnings of $171 3 million or $1 44 per diluted share during the prior year period.
Core EBITDA was $224 4 million for the second quarter of 2024, representing a 26% decline from the $302 8 million generated during the prior year period, but it is still at historically strong result.
Slide 10 of the supplemental presentation illustrates a year to year changes in Cmc's quarterly financial performance.
Profitability at our North American and Europe steel groups were impacted by lower margins over scrap while benefiting from strong controllable cost performance.
Adjusted EBITDA also declined in CMC is emerging business group due primarily to difficult weather conditions in the U S and project delays outside of the U S.
Consolidated core EBITDA margin of 12, 1% remained above average historical levels and compares to approximately 15% a year ago.
I will now review the results of our segments to the second quarter of 2024.
<unk> North American Steel group generated adjusted EBITDA of $222 3 million for the quarter equal that $220 per ton of finished steel shipped SAP.
Adjusted EBITDA decreased 19% on a year over year basis, driven primarily by lower margin over scrap cost on steel and downstream products.
This pressure was partially offset by the improved controllable cost levels per ton.
The adjusted EBITDA margin for the North American Steel group of 15% compares to 18, 2% in the prior year period.
As you have no doubt read scrap markets have softened over the last few weeks within this environment, we expect to achieve modest metal margin expansion on <unk> products during the third quarter as scrap costs decrease it should be noted that although metal margins as reported in our press release are expected to them.
Prove sequentially in the third quarter, the positive earnings impact will likely not hit until late in the period or early in the fourth quarter. This is due to the normal flow of inventory costs through our mill operations much of the scrap costs don't Cmc's P&L during the third quarter will reflect the second quarter.
Crap cost levels that we have in inventory today.
This factor lies beneath our third quarter guidance for stable adjusted EBITDA margin within our North American Steel group.
Turning to slide 12 of the supplemental deck, our Europe Steel group reported an adjusted EBITDA loss of $8 6 million for the second quarter of 2024.
This marks a more than $20 million improvement from the average losses of $30 million included in each of the prior two quarters when the impact of the energy rebates is excluded.
The sequential improvement was driven by higher margin over scrap costs, and lower controllable costs per ton, which more than offset a 20% quarter over quarter decline in shipments.
<unk> cost performance improved both sequentially and on a year over year basis, as a result of lower energy pricing and operational measures taken across the footprint.
As Peter mentioned, there have been some encouraging signs that the Polish market is at least that past the bottom and that supply and demand are moving into better balance.
The emerging business group second quarter net sales of 156 million increased one 6% from the prior year period, driven largely by the addition of CMC anchoring systems.
Underlying demand conditions were generally positive during the quarter, but activity levels within several units were impacted by weather related to shipment delays in the United States and project delays in <unk>, Europe and Middle East markets.
Despite weather issues customer order rates in inquiries were strong across north American footprint, pointing toward good market momentum and a robust upcoming construction season.
We also expect the delayed tenths or projects in the global markets to begin in Q3.
Adjusted EBITDA for the emerging business group of $17 9 million were down from $26 6 million in the prior year period. The adjusted EBITDA margin of 11, 5% represented a decline from a year ago as the positive impacts of the addition of CMC Ann.
<unk> systems, and our strong profitability from our heat treating operations were more than offset by the market factors already mentioned.
As Peter noted, we expect profitability in this business to recover meaningfully in the third quarter.
Turning to the balance sheet liquidity and capital allocation.
As of February 29, cash and cash equivalents totaled $638 3 million. In addition, we had approximately $820 million of availability under our credit and accounts receivable facilities, bringing total liquidity to just under $1 5 billion.
During the quarter, we generated $89 million of cash from operating activities, Despite a $62 million.
Use of cash for working capital.
Capital expenditure of $93 8 million was driven by equipment purchases principally from our investments in steel West Virginia.
The MSA as leverage metrics remained attractive and have improved significantly over the last several fiscal years.
As can be seen on slide 17, our net debt to EBITDA ratio now sits at just 0.4 times.
While net debt to capitalization is only 10%.
We believe our robust balance sheet and overall financial strength provide us the flexibility to finance, our strategic organic growth projects and pursue M&A, while continuing to return cash to shareholders.
<unk> effective tax rate was 26, 6% in the second quarter, which was slightly above our expected full year rate due to the lower earnings levels, our effective tax rate through to quarter stands at 23, 3% and looking ahead for fiscal 'twenty four we currently anticipate the and in fact in <unk>.
<unk> tax rate of between 24 and 25%.
Turning to Cmc's fiscal 2020 for our capital spending outlook, we reiterate our previous guidance of between 550 and $600 million in total.
Outside of normal sustaining investments anticipated expenditure in fiscal 'twenty four includes substantial capital dollars for the construction of steel West Virginia of approximately $250 million.
AMC has taken two meaningful steps since the prior earnings call to further our commitment of providing competitive cash returns to shareholders.
As Peter mentioned, returning cash to our investors as a core tenant of Cmc's approach to capital allocation.
To that end our board of directors approved a 13% increase to the quarterly dividend payout.
This follows the announcement in early January of a 500 million dollar increase to CMC is share repurchase authorization.
We seek to utilize both avenues to distribute an attractive portion of our free cash flow to shareholders.
The execution of our buyback program accelerated during the second quarter with the repurchase of approximately 945000 shares at an average price of $50 72 per share.
Transactions during the quarter totaled $47 9 million.
And as of February 29th we had approximately $510 4 million available for repurchases under our current authorization.
This concludes my remarks, and I'll turn it back to Peter for additional comments on our outlook.
Peter: Thank you Paul we expect shipment volumes within our North America Steel group to follow a typical seasonal pattern during the third quarter, while our EBITDA margin for the segment should be largely stable on a sequential basis conditions in Europe are expected to remain challenging but adjusted EBITDA is anticipate.
To approach breakeven levels during the third quarter.
Financial results for our emerging businesses group should improve meaningfully driven by the normal seasonal uptick in demand strong underlying market fundamentals and a healthy order book.
We continue to expect robust spring and summer construction activity driven by increased infrastructure investments, which we anticipate will support an already strong demand backdrop in both the North America steel group and the emerging businesses group.
<unk> conditions for our Europe steel group are slowly improving.
And should further benefit from increased residential construction activity as a government program aimed at first time buyers and other government sponsored investment programs begin to impact steel demand.
We are proud of Cmc's financial results and the transformation that made them possible. We're even more excited about our potential to reach new heights in the future as we execute our key strategic priorities and deliver significant value for our shareholders powerful structural trends in North America should drive.
Instruction activity for years to come and CMC has positioned itself as a key beneficiary.
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.
Okay.
Thank you and maybe at this time, let's open it to questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
Using a speaker phone please pick up your handset before pressing the keys.
Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star and then two.
Also please limit yourself to one question and one follow up re queue to ask additional questions.
Our first question comes from Timna Tanners with Wolfe Research. Please go ahead.
Yeah, Hey, good morning.
I wanted to probe the guidance on the flat margins in North America, if we cut a little bit I think you did some and some of the explanation it sounds like it relates to the timing of scrap prices stabilizing after the recent drop maybe in the inventory as you mentioned, but typically it's pretty calm in the last two years have seen a really big bump and I was thinking maybe you'd have.
Fixed cost absorption as volumes improve and there was a big weather hit in Q2, I thought so just would like a little bit more color about why the margin guidance, if there's anything else to read into there and what's driving that outlet to thanks.
Yeah, Timna I think you know as it relates to the impact of the the scrap reduction scrap costs came off fairly significantly here in that in March and so that that hang in terms of the impact of what we'll actually realize through the P&L is.
More significant than in other periods.
With respect to the comment on the fixed cost you know we've we've continued to operate our facilities at a very high utilization rate and so despite the shipments being impacted by a slightly lower level in in our seasonally slow Q2, we've maintained the.
The production rate. So we don't really typically see a big bump in terms of the cost performance as we enter into the summer because we're continuing to operate the mills at a consistent level of utilization. So you know that those are the principal reasons.
Our reasons for yes, the metal margins statistic that we provide to your point will that we'll see an improvement but the margins are that we actually realized will be pretty consistent and really the the increase in earnings is anticipated to really be the the growth in.
And the volumes, which we expect to be on the high end of the normal seasonal pickup that we are we have historically seen between Q2 and Q3.
Got it Okay. That's helpful. Thanks, and then my second question is if you could please address a little bit more on some of the hot topics you mentioned data centers and the 250 350000 tons of totally back consumption can you put that in context of what it was in the past.
Last year's and also is that in the context of a like a $9 million U S. Market are roughly are those the right numbers and then on infrastructure any any comments there on the cadence of that would be helpful. Thank you yeah. So on data centers. It is in the context of the 9 million ton rebar market.
And what I don't have that information right in front of me to comment on where it was in the past, but what I can tell you is much lower and today. There are the number is something like 120 million square feet of need in data centers. So there's been a dramatic increase in the.
And the need on the datacenter side.
On the infrastructure side.
Again, we are definitely seeing the spending come through we said that last quarter or two we are starting to see it come through but now all the data all the kind of key indicators, whether it be the Dodge momentum index or whether it would be kind of the state budgets, they're all continuing to show very.
Strong increases on a year over year basis.
And through some anecdotal conversations that we've had with D O Ts we.
We have understood that they are absolutely seeing a kind of I J, a money coming through and the spending is increasing as a consequence of that.
Also important to know that.
They all indicate that and we've said this in the past too that the spending should escalate over the duration of the program. So.
We don't start out it will grow through 2024 and then.
2025 should be at a higher level than 2024, and 2026 should be at a higher level than 2025 and again just.
Just to come back to your question on incremental tonnes.
As we've said in the past, we think that's a $1 5 million incremental tons per year again on that 9 million ton number.
Timna.
Just to add a little color to that too Keating key leading indicators that we look at in this area. If we look at you know the Dodge construction starts specifically for infrastructure and again more specifically for highway they've got at their.
Their projection is an increase in starts this year versus 2023 of 25, 6% now that is an incredible number but then again, that's our starts number and it really reiterate the long term nature of our.
Of how long this tailwind will be with us.
Because these projects will not be completed this year there'll be as Peter said completed over the next few years contrast that to the PCA data, which is really based on cement consumption. In 2024 that is anticipated to be up five 5%. Another 4% next year and then really continue that into two.
2025, and so that sort of is more the steel in the ground.
But we will evolve over that period of time, but it's very impressive to see the the Dodge starts our forecast for the current year.
Got it okay. Thanks again, thanks Timna.
The next question comes from Ken <unk> with BMO capital markets. Please go ahead.
Hi, Thank you for taking my questions first can you just remind us what the seasonality typically is on volumes in North America.
Typically.
Catch it it's usually between a five and 10% from Q2 to Q3, we're going to be on the high end of our of that this this time given the more.
Dramatic weather conditions. We are we saw so that's sort of that normal range, we anticipate.
Okay, and then maybe on the emerging business group when I I know you said, it's going to be up meaningfully sequentially now when I look at last year. It was around 38 million and EBITDA, how should we think about that segment relative to last year.
Yeah.
We expect that the.
The emerging business group is going to return to an on trend performance. So again in the quarter as we said we had some <unk>.
Conditions, including weather and also some delays in shipments outside the U S that that impacted us but as.
As we look at that business going forward, it should be and should be kind of 15% to 20% EBITDA margin and it should grow organically.
And we would expect it to return to something that was.
Kind of a little bit better than what we did last year.
Okay. Thank you very much yeah, absolutely. Thank you the next.
Question comes from Tristan.
A question with BNP Paribas.
Please go ahead.
Yes I.
Thank you for taking my questions I have two the first one is on Mexico.
<unk>.
I mean, when we look at the products or the imports coming from Mexico. That's rebar is probably the one that search the most over the last couple of years, there's been a lot of noise.
I believe that senators and put a deal.
Two two to return to terrorism on imports from Mexico. So can you discuss a bit the situation there what happened and we'll see how likely do you think we are going to get some some trade actions.
There.
My first question. Thank you yeah, absolutely so.
Youre right. There was a bill recently introduced by Senators Brown and cotton.
And the objective of the bill is to restore tariffs too.
Levels that are kind of along the lines of the section 203, two exemption and the U S. MCA.
It's early days to see.
You know kind of what happens there. So we'll continue to monitor that but.
But.
Yes, it would be it would have an impact because there have there have been an increase in both.
Rebar and merchant bar shipments into the U S.
But it's early days and we'll have to watch that one.
Alright, but you you have noticed our behavior from Mexican producer ramping up production being more aggressive on price. It has it has it been an issue.
For you anywhere in the market you operate.
We are definitely we are aware of them, but remember at the same time, we've had a decline in some of the imports from the other areas right. So I would say in general.
No.
<unk> have been less of a factor in the quarter and we expect them to be lots of a factor.
You know kind of in the coming quarter. So yes.
Yes, we can see it.
But again, it's hard to say, what the ultimate impact or what the ultimate outcome of that will be.
Alright, that's it that's helpful. Maybe just another one on infrastructure and at.
At the risk of sounding a bit like a broken record.
I mean, we were talking about infrastructure I think a year ago would have been consistent.
Days and.
I was wondering if you touch a little bit I think the delays will also driven a little bit by the political situations. So now as we're getting close to a unit U S election could this again with the change or no change of administration.
<unk> added a bit more delays and if that's the case I mean 2025, if we look at the supply situation. If you could share. Some some so if you. If you think there could be a mismatch because we see quite some capacity ramping up during that year, it's true towards the end of the year, but steel.
Looking at the political situations of supply growth in 2025 that we could see a mismatch between between supply and demand essentially.
I would like to hear your thoughts. Thank you Tricia and thank you for the question.
And we're not concerned about.
About the.
Delays and.
If you think about what we've said over the last several quarters.
There is a whole pre design phase there's a design phase that these projects have to go through until they get to the spend period.
In our conversations with some of the Dot's, what we've been led to believe and told us that they.
Sometimes these pre design phases can take a year.
Years, right and so.
It was probably we were probably over ambitious in our initial timing of when we thought we were going to see this coming through but today, we are seeing it come through as I referenced in my response to one of the earlier questions and so so we are seeing the spending come through and the other thing that I.
I would say is that as we look at the kind of political situation. We believe that both parties are supportive of that.
Current infrastructure spending it was a bipartisan bill when it was approved and we have not seen any wavering from that on either the Republican or Democratic side. So we remain bullish on that and just maybe to pick up on your point on capacity yes.
Yes, there is some capacity coming.
But.
We believe that the capacity that will there's a difference between the capacity that is.
As announced or indicated and the capacity, that's actually going to get built and we're very comfortable.
With our estimates on how much capacity actually gets built that the market can kind of manage that capacity. So overall, we remain very bullish the.
The demand backdrop is as I said in my prepared remarks, it's a.
Kind of a generational change from what it's been and it's a multi year spend that is going to put us in a good position for I think years to come.
Interest and I'll just add with respect here at your comment that we will see some capacity come online in 2025.
I don't think that's necessarily a correct I think if we look at the timeline associated to our to our projects and others and you look at the time associated with ramp up of commissioning the mills I think from a from a true product into the to the market place we're looking <unk>.
<unk> 25 at a at this stage for any of the new capacity to come online.
Alright. Thank you for your answers appreciate it thank you.
The next question comes from Phil Gibbs with Keybanc capital markets. Please go ahead.
Hey, good morning, Hey, Phil.
I'm just curious on Capex cadence for the second half in fiscal 'twenty five as you complete some of these projects.
Generally.
Our our Capex process is pretty consistent year after year, we sort of start the year relatively slow and then ramp up over the over the summer months and we anticipate that our as we complete the civil construction work at at West Virginia, where.
Going to continue to see increased spend at the at that site, which is driving most of our capex into Q3 and into Q4, so given where we are year to date.
We anticipate that the Q3 and Q4 will we will achieve our guidance pretty evenly between those two months.
And as you're looking at 25 to complete those projects how should we think about that.
Yes, there should be.
Probably equal spend left on west Virginia to that $250 million that we anticipate for this year.
And then just on the startup cost at the mill I know you said you used.
You've gotten through some of the the initial teething issues on M <unk>, which is great.
And rebar sounds like you're you're maybe being a little bit more measure here in the short term how should we think about you.
Your startup costs and in Q3 and Q4.
Well so on rebar, we've largely cross the bridge in terms of a commissioning I mean, we're in good shape on rebar. So I think this is really about continuing to kind of develop product families on the <unk> side. We've had good success already and we'll just continue to kind of grow that.
As we indicated in our prepared remarks, we are still expecting to be profitable there to be breakeven on the EBITDA front in our fourth fiscal quarter.
So I think Youll see those trail off and this will be kind of just ongoing.
Emissions cost says, we but it's going to be much smaller numbers, because we'll be enter into profitability.
So the this quarter's probably peak startup and commissioning costs for you all.
Yes that that I would say that that we can say confidently that.
Q2 of this year is the peak and things will will tail from here.
Peter: Okay.
And just on your you're not working capital outlook for the balance of the year I think.
First half might've been a little bit heavier than I expected, but you you probably have some build that youre letting in the back half as shipments increase in scrap scrap has also gone down.
So you got a couple of those things working in your favor, but you also have higher levels of business activity. So how should we think about the working capital side.
Speaker Change: Yeah, Phil the working capital should we invested as I as I mentioned in my comments around $60 million of working capital that was strictly.
<unk> driven from the scrap cost increase that occurred during the during the second quarter as as our scrap has come off.
In the are in the third quarter, we do anticipate most of that coming back.
And the offset to two other factors is yes, we did build a few a little bit of quantity of inventory and two in the second quarter for the the the upcoming construction season and that should.
Really.
Off the <unk>.
Growth, we anticipate in accounts receivable. So I think those two will net and so we should be in a working capital generation here as we are as we.
Complete the year and certainly Q3 would would start that.
Thank you.
Thanks, Phil.
At this time there appears to be no further questions.
Peter Matt.
Now I'll turn the call back over to you.
Okay well.
I'd like to just thank everyone for joining the call today.
Really pleased with the results that we've been able to generate.
And we are continuing to feel really strongly about the construction outlook for <unk> and the demand for our products that results from that so thank you very much for your interest in CMC and we'll look forward to talking to you in the future.
Thank you for joining us on today's conference call. We look forward to speaking with many of you during our investor calls in the coming days and weeks. This concludes today's TMC conference call you may now disconnect.