Q3 2024 Commercial Metals Company Earnings Call
Speaker Change: [music].
Okay.
Unknown Executive: Hello, and welcome everyone to CMC's third quarter fiscal 2024 earnings call. 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. This call is being recorded.
Speaker Change: Hello, and welcome everyone to the third quarter fiscal 2024 earnings call for C. M C.
Unknown Executive: After the company's remarks, we will have a question and answer session, and we will have a few instructions at that time. I would like to remind all participants that during the course of this conference call, the company will make statements to provide information other than historical information and will include expectations regarding economic conditions, the effects of legislation, U.S. steel import levels, construction activity, demand for finished steel products, the expected capabilities, benefits, and timeline for the construction of new facilities, the company's operations, the company's strategic growth plan, the company's future results of operations, financial measures, and
Speaker Change: Joining me on today's call are Peter Matt CMC, as President and Chief Executive Officer.
Paul Lawrence Senior Vice President and Chief Financial Officer.
Speaker Change: Today's materials, including the press release and supplemental slides that accompany this call can be found on C. O sees investor Relations website.
Speaker Change: Today's call is being recorded.
Speaker Change: After the company's remarks, we will have a question and answer session.
Have a few instructions at that time.
Speaker Change: I would like to remind all participants that during the course of this conference call. The company will make statements to provide information other than historical information.
Speaker Change: Include expectations regarding economic conditions effects of legislation U S steel import levels of construction activity.
Speaker Change: Man for finished steel products, the expected capabilities benefits and timeline for construction of new facilities.
Speaker Change: These operations the company's strategic growth plan, the company's future results of operations financial measures and capital spending.
Unknown Executive: 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 those 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 latest annual report on Form 10-K.
Speaker Change: 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.
Speaker Change: These statements reflect the company's beliefs based on current conditions, but are subject to certain risks and uncertainties, including those described in the risk factors and forward looking statements section of the company's latest filings with the U S Securities Exchange Commission, including the company's latest annual report on Form 10-K.
Unknown Executive: 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 assumes no 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.
Speaker Change: 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.
Speaker Change: All statements are made.
Speaker Change: Only as of this date.
Speaker Change: Sometimes 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.
Speaker Change: Some numbers presented will be non-GAAP financial measures and reconciliations for such numbers can be found in the company's earnings release and supplemental slide presentation or all of the company's website.
Speaker Change: Unless stated otherwise all references all references made to year or quarter, and all references to the company's fiscal year or fiscal quarter.
Unknown Executive: Some numbers presented will be non-GAAP financial measures, and reconciliations for such numbers can be found in the company's earnings release, 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. Now, for opening remarks and introductions, I will turn the call over to Peter.
Speaker Change: And now for opening remarks, and introductions I will turn the call over to Peter.
Peter R. Matt: Thank you, and good morning everyone, and welcome to CMC's third quarter earnings conference call. I would like to start off by thanking our 13,000 employees for delivering another quarter of strong operational and financial performance. I am proud to announce that CMC has been named to the 2024-2025 list of best companies to work for by U.S. News & World Report. Thank you to our dedicated employees for placing us among the best of the best.
Peter R. Matt: Thank you and good morning, everyone and welcome to Cmc's third quarter earnings Conference call.
Peter R. Matt: I would like to start off by thanking our 13000 employees for delivering another quarter of strong operational and financial performance.
Peter R. Matt: I am proud to announce that CMC has been named to the 'twenty 'twenty four 'twenty 25 list of best companies to work for by U S News and World report.
Peter R. Matt: Thank you to our dedicated employees for placing us among the best of the best.
Peter R. Matt: While I am proud of these results, I am even prouder that we have continued to improve our exceptional safety track record with reportable incidents well below the broader domestic steel industry. To that end, I would like to take a moment to recognize the outstanding improvements made at recently acquired facilities within our Emerging Businesses Group. They have been eager adopters of CMC's industry-leading safety culture and practices, which has resulted in higher employee satisfaction, lower turnover, and fewer injuries. At CMC, it all begins with safety, and we won't be satisfied until we reach our goal of zero incidents, ensuring everyone leaves their shift in the same condition they arrived.
Peter R. Matt: While I am proud of these results I'm, even prouder that we have continued to improve our exceptional safety track record with reportable incidents well below the broader domestic steel industry.
Peter R. Matt: To that end I would like to take a moment to recognize the outstanding improvements made at recently acquired facilities within our emerging businesses group.
Peter R. Matt: They have been eager adopters of Cmc's industry, leading safety culture and practices, which has resulted in higher employee satisfaction lower turnover and fewer industry or injuries at CMC. It all begins with safety and we won't be satisfied until we reach our goal of zero incidents ensuring everyone leaves.
Peter R. Matt: Our ship in the same condition they arrived.
Peter R. Matt: This morning, I will provide an overview of CMC's third quarter financial and operating performance, after which I will discuss our view of the current and future market environment, before offering a brief update on key growth projects. Paul will discuss the quarter's financial results in greater detail, and I will conclude with our outlook for the fourth fiscal quarter and beyond. We will then open the call to questions.
Speaker Change: This morning, I will provide an overview of Cmc's third quarter financial and operating performance after which I will discuss our view of the current and future market environment before offering a brief update on key growth projects, Paul will cover the quarter's financial results in greater detail and I.
Speaker Change: I will conclude with our outlook for the fourth fiscal quarter and beyond we will then open the call for questions.
Peter R. 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. As we reported in our press release this morning, The third quarter of fiscal 2024 was another period of strong financial performance. CMC generated Cori Bida, Cori Bida margin, and net earnings for diluted share well above historic average. We continue to believe that our margin and earnings are normalizing at levels sustainably above pre-pandemic levels.
Speaker Change: Additional information regarding the quarter is provided in the supplemental slides that accompany this call which can be found on C. M sees investor Relations website.
Speaker Change: As we reported.
Speaker Change: In our press release this morning.
Speaker Change: The third quarter of fiscal 2024 was another period of strong financial performance.
Speaker Change: The M C generated core EBITDA core EBITDA margin and net earnings per diluted share well above historic averages.
Speaker Change: We continue to believe that our margin and earnings are normalizing out level sustainably above pre pandemic level. This view is based on significant changes that have occurred in C. M CS business and our industry over the last several years. The first change to mention is industry consolidation.
Peter R. Matt: This view is based on significant changes that have occurred in CMC's business and our industry over the last several years. The first change to mention is industry consolidation, in which CMC played a central role with its acquisition of Rebar Assets from Grinnell. From a CMC perspective, this transaction created a much larger company and market leader with increased scale, improved operating flexibility, and an enhanced value-generating asset pool. The second change is an improved trade environment that recognizes the importance of the basic industries that play a vital role in our national economy and provides mechanisms to level the playing field with unfairly traded imports.
Speaker Change: And which she M. C played a central role with its acquisition of rebar assets from Gerdau.
Speaker Change: From a CMC perspective, this transaction created a much larger company and market leader with increased scale improved operating flexibility and an enhanced value generating asset base.
Speaker Change: The second change is an improved trade environment that recognizes the importance of the basic industries that play a vital role in our national economy and provides mechanisms to level, the playing field with unfairly traded imports.
Peter R. Matt: The third change is once-in-a-generation structural demand trends that are reshaping our economy and can be expected to propel construction activity for years to come, providing more visible and longer-duration demand drivers for our business. In summary, this improved business environment should provide a favorable backdrop for our company to continue generating significant value for our shareholders. We believe there is much more to come. As mentioned on our previous earnings call, CMC is developing a compelling strategy to drive the next phase of value-accretive growth. Our aim is threefold.
Speaker Change: The third change is once in a generation structural demand trends that are reshaping our economy and can be expected to propel construction activity for years to come providing more visible and longer duration demand drivers for our business in summary, this improved business environment should provide a.
Speaker Change: Favorable backdrop for our company to continue generating significant value for our shareholders.
Speaker Change: We believe there is much more to come as mentioned on our previous earnings call. The M. C is developing a compelling strategy to drive the next phase of value accretive growth.
Speaker Change: Our aim is threefold.
Peter R. Matt: First, achieving sustainably higher, less volatile through-the-cycle margins that are fortified by our operational and commercial excellence initiatives. Second, execute on attractive organic growth opportunities, and third, in a disciplined manner, pursue inorganic growth opportunities that broaden CMC's commercial portfolio, improve our customer value proposition, and meaningfully extend our growth runway. We are extremely excited about the journey CMC is embarking on and equally excited to share our vision with you in the near future. Returning to our third quarter results, CMC reported net earnings of $119.4 million, or $1.02 for diluted shares, on net sales of $2.1 billion.
Speaker Change: First achieving sustainably higher less volatile through the cycle margins that are fortified by our operational and commercial excellence initiatives.
Speaker Change: Second execute on attractive organic growth opportunities and third in a disciplined manner pursue inorganic growth opportunities that broadens cmc's commercial portfolio improve our customer value proposition and meaningfully extend our growth runway.
Speaker Change: We are extremely excited about the journey C. M. C is embarking on an equally incited excited to share our vision with you in the near future.
Speaker Change: Turning to our third quarter results Cmc's reported net earnings of a $119 4 million or one dollar and two cents per diluted shares on net sales of 2.1 billion, we generated consolidated core EBITDA for the quarter up $256 1 million producing a.
Peter R. Matt: We generated a consolidated core EBITDA for the quarter of $256.1 million, producing a core EBITDA margin of 12.3% and a trailing EBITDA return on invested capital of 11.3%. Results in our North America Steel Group benefited from good underlying market fundamentals that yielded modest sequential margin expansion for steel products, healthy shipment levels of finished steel products, and stability in our downstream backlog volume. Our Europe Steel Group continued a trend of improving financial performance, nearing break-even on an adjusted EBITDA basis. CMC's team in Poland should be commended for the excellent job they have done managing all elements of the business under their control.
Speaker Change: Core EBITDA margin of 12, 3%.
Speaker Change: And a trailing EBITDA return on invested capital of 11, 3% results.
Speaker Change: Results in our North America Steel group benefited from good underlying market fundamentals that yielded modest sequential margin expansion for steel products healthy shipment levels of finished steel products and stability in our downstream backlog volumes.
Speaker Change: Our Europe Steel group continued a trend of improving financial performance nearing breakeven on an adjusted EBITDA basis.
Speaker Change: M CS team in Poland should be commended for the excellent job. They have done managing all elements of the business under their control. They are cost leaders in the European industry and have reached new heights of resourcefulness and flexibility while managing through this challenging environment.
Peter R. Matt: They are cost leaders in the European industry and have reached new heights of resourcefulness and flexibility while managing through this challenging environment. CMC's Emerging Businesses Group generated strong results during the quarter, and its adjusted EBITDA margin returned to a level we believe to be more representative of the segment's potential. Now turning to CMC's markets in North America, construction activity remains healthy, and as I mentioned, fundamentals are broadly supportive. We experienced a typical seasonal uplift in rebar demand as we moved into the spring and summer construction seasons, and regional markets appear to be in good balance from an inventory and import perspective.
Speaker Change: Cmc's emerging businesses group generated strong results during the quarter and its adjusted EBITDA margin returned to a level, we believe to be more representative of the segment's potential.
Speaker Change: Now turning to Cmc's markets in North America construction activity remains healthy and as I mentioned fundamentals are broadly supportive we experienced a typical seasonable seasonal uplift in rebar demand as we moved into the spring and summer construction season.
Speaker Change: And regional markets appear to be in good balance from an inventory and import perspective.
Peter R. Matt: This environment has provided the backdrop for stable to modestly improving steel product margins at well above historic levels. We continue to see a good pipeline of future construction projects coming to the market, as measured by bidding activity within our downstream operations. This view is mirrored by key external forward-looking indicators, such as the Dodge Momentum Index, which remains 40% above pre-pandemic levels.
Speaker Change: This environment has provided the backdrop for stable to modestly improving steel product margins at well above historic levels.
Speaker Change: We continue to see a good pipeline of future construction projects coming to the market as measured by bidding activity within our downstream operations. This view is mirrored by key external forward looking indicators such as the Dodge momentum index, which remains 40% above pre pandemic.
Speaker Change: MC level.
Peter R. Matt: Within this environment, we have been able to maintain seasonably appropriate levels of new contract bookings and a stable downstream backlog. We are also starting to see signs of increased infrastructure activity across several of our geographic areas. As shown on slide 9 of the supplemental presentation, highway construction is the largest and most usage-intensive market for rebar, so it is very encouraging to see growing demand. During the quarter, shipment volumes of fabricated rebar and mill-direct material increased on both a sequential and year-over-year basis.
Speaker Change: Within this environment, we have been able to maintain seasonably seasonally appropriate levels of new contract bookings and a stable downstream backlog.
Speaker Change: We are also starting to see signs of increased infrastructure activity across several of our geographic areas as shown on slide nine of the supplemental presentation Highway construction is the largest and most usage intensive market for rebar. So it is very encouraging to see growing dim.
Man.
Speaker Change: During the quarter shipment volumes of fabricated rebar and mill direct material increased on both a sequential and year over year basis.
Peter R. Matt: Projects that were awarded over the last two years are entering the construction phase and beginning to consume steel. Additionally, there continues to be a solid pipeline of work entering the market for bidding. Texas, in particular, has seen an uptick in activity, with the level of highway leading this spring reaching multi-decade highs.
Speaker Change: Projects that were awarded over the last two years are entering the construction phase and beginning to consume steel.
Additionally, there continues to be a solid pipeline of work entering the market forbidding Texas in particular has seen an uptick in activity with the level of highway Lettings. This spring, reaching multi decade highs.
Peter R. Matt: Based on our current visibility and conversations with customers, we expect momentum in highway construction to build in the coming quarters and years. Leading forecasters anticipate similar trends. The Portland Cement Association expects cement consumption for highways and streets to grow approximately 4% in calendar year 2024 and approximately 5% in 2025. Dodge Analytics expects new highway construction starts to increase by 29% on an inflation-adjusted basis in 2024, following little change in either 2022 or 2023. Beyond highways, we are seeing good year-over-year growth in demand for public works, institutional buildings, and data centers. Construction activity and rebar consumption at manufacturing projects remain well above historic levels.
Speaker Change: <unk> on our current visibility and conversations with customers, we expect momentum in highway construction to build in the coming quarters and years.
Speaker Change: Leading forecasters anticipate similar trends the Portland Cement Association expect cement consumption for highways and streets to grow approximately 4% in calendar year, 'twenty 'twenty, four and approximately 5% in 2025.
Speaker Change: Dodge analytics expects new highway construction starts to increase by 29% on an inflation adjusted basis in 'twenty 'twenty four following little change in either 2022 or 2023.
Speaker Change: Beyond highways, we are seeing good year over year growth in demand for public works institutional buildings and data centers construction activity and rebar consumption at manufacturing projects remain well above historic levels.
Peter R. Matt: That said, shipments have leveled off recently as we wait for the next round of construction to commence at several semiconductor plants. However, we believe this trend is transitory given the recent CHIPS Act funding allocations and public commitments by sponsors to expand facilities. While structural forces are driving activity within infrastructure, reshoring, data centers, and energy projects, the market for interest rate-sensitive construction, such as warehousing, office, and multifamily residential, remains softer. An inflection in interest rates could provide some support, particularly within the residential sector, where a significant shortage of housing units exists. But affordability has restricted construction activity. Several third-party estimates indicate the U.S. is facing a housing shortage of one-and-a-half to three million units, which need to be addressed at some point in the future.
Speaker Change: That said shipments have leveled off recently as we wait for the next round of construction to commence at several semiconductor plant.
Speaker Change: We believe this path. This trend is transitory given the recent chips act funding allocations and public commitments by sponsors to expand facilities.
Speaker Change: While structural forces are driving activity within infrastructure reassuring data centers and energy projects the market for interest interest rate sensitive construction, such as warehousing office and multifamily residential remains softer and inflection in interest rates could provide some support particularly within the.
Speaker Change: The residential sector, where a significant shortage of housing units exists, but for affordability has restricted construction activity.
Speaker Change: Several third party estimates indicate the U S is facing a housing shortage of one and a half to 3 million units, which need to be addressed at some point in the future.
Peter R. Matt: With each new unit consuming 1 to 1.5 tons of rebar, we believe efforts to close the housing supply gap would meaningfully increase consumption. Based on each of the structural trends I just mentioned, we continue to believe that we are entering a once-in-a-generation investment cycle that will power construction activity for years to come. These opportunities should extend well beyond our traditional steel value chain and reach into CMC's other key solution offerings like geogrid, geopier, anchoring systems, and high-performance reinforcing steel.
With each new unit consuming one to one and a half tons of rebar, we believe efforts to close the housing supply gap would meaningfully increase consumption.
Speaker Change: Based on each of the structural trends I just mentioned we continue to believe that we are entering a once in a generation investment cycle that will power construction activity for years to come these opportunities should extend well beyond our traditional steel value chain and reach into C. M sees other key solution.
Speaker Change: Our solution offerings like Geo grid G O P or anchoring systems and high performance reinforcing steel.
Peter R. Matt: In fact, we are seeing signs of this recurring across our Emerging Businesses Group footprint. Interest has been good from large manufacturing projects, including semiconductor facilities and major electric vehicle plants. Activity is also increasing in solar, where the Inflation Reduction Act is driving investment in large-scale installations across several regions of the U.S. CMC's GeoGrid solutions are used to provide access roads that aid initial construction as well as ongoing maintenance. In the future, construction of these solar fields can be expected to also benefit demand for our anchoring systems as new electrical transmission lines and substations are required to connect them to the energy grid.
Speaker Change: In fact, we are seeing signs of this recurring across our emerging businesses group footprint interest has been good from large manufacturing projects, including semiconductor facilities and major electric vehicle plants activity is also increasing in solar where are the inflation reduction act is driving it.
Speaker Change: That's been in large scale installations across several regions of the U S.
Speaker Change: Cmc's G O grid solutions are used to provide access roads that aid initial construction as well as ongoing maintenance in the future construction of the solar fields can be expected to also benefit demand for anchoring systems as new electrical transmission lines and Substations.
Speaker Change: All required to connect them to the energy grid.
Peter R. Matt: Large projects are emerging in infrastructure, particularly for port construction and rehabilitation, which benefits Tensar's business as well as its performance-reinforcing steel offerings of high-strength and corrosion-resistant products. Turning to the Europe Steel Group, the market environment was similar to last quarter, which marked a meaningful improvement from late fiscal 2023 and the first quarter of 2024. However, consumption of long steel products has stabilized but remains well below historic levels
Large projects are emerging in infrastructure, particularly for port construction, and rehabilitation, which benefits 10 towers business as well as it's performance reinforcing steel offerings of high strength and corrosion resistant products.
Speaker Change: Turning to the Europe Steel group the market environment was similar to last quarter, which marked a meaningful improvement from late fiscal 2023, and the first quarter of 2024.
Consumption of long steel products have stabilized, but remains well below historic levels. Polish steelmakers are demonstrating good discipline through significant supply reductions that have facilitated a rebalancing of the market.
Peter R. Matt: Polish steelmakers are demonstrating good discipline through significant supply reductions that have facilitated a rebalancing of the market. However, some of the beneficial impact of lower domestic production has been offset by increased imports from nearby countries, as steelmakers seek alternatives to weak home markets. Absent this dynamic, we believe the Polish long steel market could be further along in its recovery. As it stands today, the current supply and demand... Demand Balance, even with increased imports, has provided a backdrop for greater stability in steel pricing and metal margins.
Speaker Change: Some of the benefit of the beneficial impact of lower domestic production has been offset by increased imports from nearby countries as steelmakers seek alternatives to week home markets.
Speaker Change: Absent this dynamic we believe the Polish long steel market could be further along in its recovery as it stands today. The current supply demand demand balance even with increased imports has provided a backdrop for greater stability in steel pricing and metal margins.
Peter R. Matt: We are seeing increasing or encouraging signs of a macroeconomic inflection in Poland. Inflation has cooled significantly and is now back to more normal levels. The rate of GDP growth is expected to reach nearly 3% in 2024, with both residential construction and government-sponsored investment on the rise.
Speaker Change: We are seeing increasing are encouraging signs of a macroeconomic inflection in Poland inflation has cooled significantly and is now back to more normalized levels. The rate of GDP growth is expected to reach nearly 3% in 2024 with both residential construction and governments.
Speaker Change: Third investment on the rise we are cautiously optimistic that the emerging macro improvement will provide an environment for our Europe steel group to continue moving closer to breakeven during the fourth quarter of fiscal 2024.
Peter R. Matt: We are cautiously optimistic that the emerging macro improvement will provide an environment for our Europe Steel Group to continue moving closer to break-even during the fourth quarter. Now, I would like to provide a brief update on the progress we've made during the quarter on key strategic projects. At our new Arizona micromill, we focused our efforts during the quarter on commissioning Merchant Bar Quality Product, or MBQ. As noted in our last earnings call, this action was intended to address pockets of excess rebar inventory that developed following the historic levels of rainfall in California during the second quarter. This surplus has been largely eliminated through a combination of better seasonal consumption and our market leadership in executing the Temporary Supply Adjustment.
Peter R. Matt: As a result of the third quarter emphasis on MBQ, the AZ2 team has now successfully produced key product sizes in four of the six product families that the plant is designed to make. It has also accelerated our ability to begin supplying the western U.S. with a suite of offerings that will eventually include nearly 200 different SKUs. Given improved inventory levels across the rebar supply chain and progress made in commissioning MBQ, we anticipate moving back to a more standard production schedule with a greater mix of rebar during the fourth quarter.
Speaker Change: Now I would like to provide.
Speaker Change: A brief update on the progress we've made during the quarter on key strategic projects.
Speaker Change: At our new Arizona Micro mill, we focused our efforts during the quarter on commissioning merchant bar quality product or N. B Q as noted in our last earnings call. This action was intended to address pockets of excess rebar inventory that developed following the historic levels of rainfall in California during the second quarter.
Speaker Change: <unk>.
Speaker Change: This surplus has been largely eliminated through a combination of better seasonal consumption and our market leadership and executing the temporary supply adjustments.
Speaker Change: As a result of the third quarter emphasis on N V. Q. The AZ to team has now successfully produce key product sizes in four of the six product families that the plant is designed to make it also accelerated our ability to begin supplying the western U S with a suite of offerings that will eventually.
Speaker Change: They include nearly 200 different skus give.
Speaker Change: Given improved inventory levels across the rebar supply chain and progress made in commissioning N V. Q, we anticipate moving back to a more standard production schedule with a greater mix of rebar during the fourth quarter.
Peter R. Matt: Our current view is that the plant should achieve EBITDA breakeven on a monthly basis in the fourth quarter of fiscal 2024 or early in the first quarter of fiscal 2025. Work at CMC's Steel West Virginia site is progressing well, and we are on plan for start-up in late calendar 2025. Foundations are nearly complete, and we have begun receiving equipment delivered.
Speaker Change: Our current view is that the plant should achieve EBITDA breakeven on a monthly basis in the fourth quarter of fiscal 2024 or early in the first quarter of fiscal 2025.
Speaker Change: Work at Cmc's Steel West, Virginia side is progressing well and we are on plan for startup in late calendar 2025 foundations are nearly complete and we have begun receiving equipment deliveries.
Peter R. Matt: We remain very excited about these key organic growth projects, which we expect, when fully operational, will lower costs to serve our markets, expand our product reach, and unlock meaningful internal synergies within our operational network. With that, I will 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.
Speaker Change: We remain very excited about these key organic growth projects, which we expect when fully operational will lower cost to serve our markets expand our product reach and unlock meaningful internal synergies within our operational network with that I will turn the discussion over to Paul.
Paul: To provide more detail on our financial results. Thank you Peter and good morning to everyone on the call.
Paul J. Lawrence: As noted earlier, we reported fiscal third quarter 2024 net earnings of $119.4 million, or $1.02 per diluted share, compared to prior year levels of $234 million and $1.98, respectively. You will have noticed from our press release this morning that we are no longer adding back Arizona 2 commissioning costs to either Adjusted Earnings or Core EBITDA. This decision was made in light of heightened scrutiny around non-GAAP measures, particularly those involving operational start-up costs.
Paul: As noted earlier, we reported fiscal third quarter 2024, net earnings of $119 4 million or $1.02 per diluted share compared to the prior year levels of 234 million and $1 98, respectively.
Speaker Change: You will have noticed from our press release. This morning that we are no longer adding back Arizona, two commissioning costs to either adjusted earnings or core EBITDA.
Speaker Change: This decision was made in light of heightened scrutiny around non-GAAP measures, particularly those involving operational startup costs.
Paul J. Lawrence: Though these adjustments will no longer be reflected in CMC's non-GAAP measures, we plan to provide quantification of startup costs as we view them as temporary in nature and not representative of our long-term earnings capability. For the third quarter, CMC incurred mill operational commissioning costs of $17.2 million on an after-tax basis; on a pre-tax basis and excluding depreciation, these commissioning costs were $11.8 million.
Speaker Change: No. These adjustments will no longer be reflected in CMC as non-GAAP measures, we plan to provide quantification of startup cost as we view them as temporary in nature and not representative of our long term earnings capability.
Speaker Change: For the third quarter CMC incurred mill operational commissioning costs of $17 $2 million on an after tax basis.
Speaker Change: On a pretax basis and excluding depreciation mill operational commissioning costs were 11 8 million.
Paul J. Lawrence: Consolidated core EBITDA was $256.1 million for the third quarter of 2024, representing a decline from the $384.5 million generated during the prior year period but still a historically strong result. Slide 12 of the supplemental presentation illustrates the year-to-year changes in CMC's quarterly financial performance. Profitability at our North American and steel group in Europe steel groups were negatively impacted by lower margins over scrap, while benefiting from improved controllable cost performance. Justity but was unchanged in CMC's Emerging Business Group.
Speaker Change: Consolidated core EBITDA was $256 1 million for the third quarter of 2024, representing a decline from the $384 5 million generated during the prior year period, but still historically strong result.
Speaker Change: Slide 12 of the supplemental presentation illustrates the year to year changes in CMC is quarterly financial performance.
Speaker Change: Profitability at our North American and steel group and Europe steel groups were negatively impacted by lower margins over scrap while benefiting from improved controllable cost performance.
Adjusted EBITDA was unchanged and CMC is emerging business group.
Paul J. Lawrence: While the consolidated core EBITDA margin of 12.3% remained above average historical levels and compares to 16.4% a year ago, MC's North American Steel Group generated just a dividend of $246.3 million for the quarter, equal to $217 per ton of finished steel ship. Segment-adjusted EBITDA decreased on a year-over-year basis, driven primarily by lower margins over scrap costs on steel and downstream products
Speaker Change: While consolidated core EBITDA margin of 12, 3% remained above average historical levels and compares to 16, 4% a year ago.
Speaker Change: M C.
Speaker Change: With American Steel group generated adjusted EBITDA of $246 3 million for the quarter.
Speaker Change: Equal to $217 per ton of finished steel shipped.
Speaker Change: Segment, adjusted EBITDA decreased on a year over year basis, driven primarily by lower margin over scrap costs on steel and downstream products.
Paul J. Lawrence: This pressure was partially offset by improved controllable costs on a per tonne basis. The adjusted EBITDA margin for the North American Steel Group was 14.7% compared to 20.2% in the prior year period. We protect ourselves against price volatility exposure in the key non-ferrous metals that we process at our recycling facilities. As a result of the historic run-up in copper prices that occurred during the quarter, we incurred an approximate $6 million charge during the quarter related to our open position.
Speaker Change: This pressure was partially offset by improved controllable costs on a per ton basis yeah.
Speaker Change: The adjusted EBITDA margin for the North American Steel group was 14, 7% compared to 22% in the prior year period.
Speaker Change: We protect ourselves against price volatility exposure in the key nonferrous metals that we process at our recycling facilities.
Speaker Change: As a result of the historic run up of copper prices that occurred during the quarter, we incurred an approximate $6 million charge during the quarter related to our open position.
Paul J. Lawrence: As indicated earlier, rebar demand was healthy during the quarter, and we experienced a normal seasonal uptick in volume. Finish Steel shipments increased by 12.3% on a sequential basis, similar performance across all geographies. However, shipment volumes declined modestly on a year-over-year basis.
Speaker Change: As indicated earlier rebar demand was healthy during the quarter and we experienced a normal season uptick in volumes fin.
Speaker Change: Finished steel shipments increased by 12, 3% on a sequential basis with similar performance across all geographies.
Speaker Change: Shipment volumes declined modestly on a year over year basis.
Paul J. Lawrence: And steel product metal margins increased marginally during this quarter and continue to demonstrate stability throughout fiscal 2024. Turning to slide 14 of the supplemental deck, our Europe Steel Group reported an adjusted EBITDA loss of $4.2 million for the third quarter of 2024. This compares to a loss of $8.6 million in the prior quarter and marks a trend of continued improvement from the levels of the fourth quarter of fiscal 2023 and the first quarter of fiscal 2024, during which time quarterly losses averaged $30 million, excluding the impact of energy rebates.
Speaker Change: And steel product metal margins increased marginally during the quarter and continues to demonstrate stability throughout fiscal 2024.
Speaker Change: Turning to slide 14 of the supplemental deck, our Europe Steel group reported an adjusted EBITDA loss of $4 2 million for the third quarter of 2020 for.
Speaker Change: This compares to a loss of $8 6 million in the prior quarter and marked the trend of continued improvement from the levels of the fourth quarter of fiscal 2023, and the first quarter of fiscal 2024 during which time quarterly loss has averaged $30 million, excluding the impact of energy rebates.
Paul J. Lawrence: Sequential improvement was driven by higher margin over scrap cost, increased shipment volumes, and lower controllable costs per ton. Controllable 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 past the bottom, and the national economy is in a recovery mode. The Emerging Business Group's third quarter net sales of $188.6 million and adjusted EBITDA of $38.2 million were unchanged compared to the prior year period.
Speaker Change: The sequential improvement was driven by higher margin over scrap costs increased shipment volumes and lower controllable costs per ton.
Speaker Change: Controllable cost performance improved both sequentially and on and on a year over year basis, as a result of lower energy pricing and operational measures taken across the footprint.
Speaker Change: As Peter mentioned, there have been some encouraging signs that the Polish market is past the bottom.
Speaker Change: The national economy is in a recovery mode.
Speaker Change: The emerging business group third quarter net sales of $188 6 million and adjusted EBITDA of $38 2 million were unchanged compared to the prior year period on a sequential basis net sales increased by 29%, while adjusted EBITDA improved by 113%.
Paul J. Lawrence: On a sequential basis, net sales increased by 20.9 percent, while adjusted EBITDA improved by 113 percent, marking a strong rebound from the second quarter levels that were depressed due to the challenging weather. Activity benefited from improved seasonal demand and the start-up of several European and Middle East projects, as well as strong, Product Specific Demand for our Proprietary Performance Reinforcing Steel. A healthy pipeline of new projects and good success in new contract awards provided for a strong order book as we exited the quarter.
Speaker Change: Marking a strong rebound from the second quarter levels that were depressed due to the challenging weather.
Speaker Change: Activity benefited from improved seasonal demand and the start up of several European and middle East projects as well as strong.
Speaker Change: Product specific demand for our proprietary performance reinforcing steel.
Speaker Change: A healthy pipeline of new projects and good success in new contract awards provide for a strong order book as we exited the quarter.
Paul J. Lawrence: The adjusted EBITDA margin for the emerging business group was 20.3 percent, which was flat compared to a year ago period, but a significant recovery from our second quarter. Margin benefited from a richer mix of CMC's latest and higher-margin geogrid solution as well as our proprietary reinforcing steel. Moving to the balance sheet, as of May 31st, cash and cash equivalents totaled $698.3
Speaker Change: Adjusted EBITDA margin for the emerging business group was 23% was flat compared to a year ago period, but a significant recovery from our second quarter.
Speaker Change: Margin benefited from a richer mix of Cmc's latest in higher margin Geo grid solution as well as our proprietary reinforcing steel.
Speaker Change: Moving to the balance sheet as of May 30, <unk> cash and cash equivalents totaled $698 3 million.
Paul J. Lawrence: In addition, we had approximately $794 million of availability under our credit and accounts receivable facilities, bringing total liquidity to just under $1.5 billion. During the quarter, we generated $197.9 million of cash from operating activities, which included a modest release of cash from working capital. Capital expenditures of $82 million were driven by construction activity principally related to our steel West Virginia micro mill project. DMC's leverage metrics remain attractive and have improved significantly over the last several fiscal years.
Speaker Change: In addition, we had approximately $794 million of availability under our credit and accounts receivable facilities, bringing total liquidity to just under $1 5 billion.
Speaker Change: During the quarter, we generated $197 9 million of cash from operating activities, which included a modest release of cash from working capital.
Speaker Change: Capital expenditures of 82 million were driven by construction activity principally related to our steel West Virginia Micro Mill project.
Speaker Change: D M C met leverage metrics remain attractive and have improved significantly over the last several fiscal years as can be seen on slide 19, our net debt to EBITDA ratio now sits at just 0.5 times, while net debt to capitalization is only 9%.
Paul J. Lawrence: As can be seen on slide 19, our net debt to EBITDA ratio now sits at just 0.5 times. Furthermore, net debt to capitalization is only 9%. We believe our robust balance sheet and overall financial strength provide us the flexibility to finance our strategic organic growth projects and pursue opportunistic M&A while continuing to return cash to shareholders. DMC's effective tax rate was 25.5% in the third quarter.
Speaker Change: We believe our robust balance sheet and overall financial strength provide us the flexibility to finance, our strategic organic growth projects and pursue opportunistic M&A, while continuing to return cash to shareholders.
Speaker Change: <unk> effective tax rate was 25, 5% in the third quarter the year to date figure.
Paul J. Lawrence: The year-to-date figure... through three quarters stands at 24%, and we anticipate the effective full-year tax rate being between 24 and 25%. Turning to CMC's fiscal 2024 capital spending outlook, we are reducing our guidance to a range of between $400 million and $425 million. This is down meaningfully from the outlook we previously shared of $550 to $600 million. The reason for this adjustment is the timing of specific payments related to equipment purchases for Steel West Virginia, which will slip from late fiscal 2024 into early fiscal 2025. This development only reflects recognition of payments and is not expected to impact the construction timeline or the startup for CMC's newest micromanager.
Speaker Change: Through three quarters stands at 24% and we anticipate that the effective full year tax rate of being between 24 and 25%.
Speaker Change: Turning to Cmc's fiscal 'twenty 'twenty four capital spending outlook, we are reducing our guidance to a range of between 400 and 425 million. This is down meaningfully from the outlook. We previously shared a 550 to 600 million.
Speaker Change: The reason for this adjustment is the timing of specific payments related to equipment purchases for steel West, Virginia, which will slipped from late fiscal 'twenty 'twenty four into early fiscal 2025.
Speaker Change: This development only reflects recognition of payments and is not expected to impact the construction timeline or the startup for C. M sees newest micro mill.
Paul J. Lawrence: As outlined in previous calls, CMC targets a prudent and balanced approach to capital allocation. Our first priority... Value accretive growth that furthers our strategic objectives and strengthens our business. Second, we are providing our shareholders with an attractive level of cash distributions in the form of both dividends and share repurchases. To this end, CMC has returned approximately $186 million to our shareholders through the first three quarters of fiscal 2024, equal to 49% of our net earnings. Looking at the third quarter, CMC repurchased approximately 931,000 shares at an average price of $55.64 per share.
As outlined on previous calls CMC targets, a prudent and balanced approach to capital allocation.
Speaker Change: Our first priority.
Speaker Change: Is value accretive growth that furthers, our strategic our strategy and strengthens our business.
Speaker Change: Second is providing our shareholders women attractive level of cash distributions in the form of both dividends and share repurchases.
Speaker Change: To this end CMC has returned approximately 186 million to our shareholders through the first three quarters of fiscal 2024 equal to 49% of our net earnings.
Speaker Change: Looking at the third quarter CMC repurchased approximately 931000 shares at an average price of $55.64 per share.
Speaker Change: As of May 31, we had $458 6 million available for repurchase under our current authorization.
Paul J. Lawrence: As of May 31, we had $458.6 million available for repurchase under our current authorization. With that, that concludes my remarks, and I'll turn it back to Peter for additional comments on CMC's outlook. Thank you, Paul.
Speaker Change: With this that concludes my remarks, and I'll turn it back to Peter for additional comments on CMC as Ive block. Thank you Paul we expect consolidated financial results and our fiscal fourth quarter to be consistent with third quarter levels finished steel shipments within the North America steel group are anticipated to be flat.
Peter R. Matt: We expect consolidated financial results in our fiscal fourth quarter to be consistent with third quarter levels. Finished steel shipments within the North America Steel Group are anticipated to be flat on a sequential basis, while adjusted EBITDA margins should remain relatively stable. Adjusted EBITDA for our Europe Steel Group is likely to continue the trend of quarter-to-quarter improvement despite market conditions that are expected to remain challenging. Financial Results for the Emerging Businesses Group should improve modestly, driven by steady underlying market fundamentals and a healthy order book.
Peter R. Matt: On a sequential basis, while adjusted EBITDA margin should remain relatively stable.
Speaker Change: Adjusted EBITDA for our Europe Steel group is likely to continue the trend of quarter to quarter improvement. Despite market conditions that are expected to remain challenging.
Our financial results for the emerging businesses group.
Should improve modestly driven by steady underlying market fundamentals and a healthy order book.
Peter R. Matt: The spring and summer construction season is off to a good start, and we are seeing encouraging signs of increased infrastructure activity driving demand. We expect this momentum to build over the coming quarters, contributing to an already healthy backdrop in North America, which is being propelled by positive long-term structural trends in manufacturing, reshoring, energy transition, and energy security-related projects. Additionally, an inflection in interest rates has the potential to unlock pent-up demand in several construction sectors, including residential markets where a significant shortage of housing units exists. In Europe, the Polish macroeconomic environment is showing signs of improvement.
Speaker Change: The spring and summer construction season is off to a good start and we are seeing encouraging signs of increased infrastructure activity driving demand. We expect this momentum to build over the coming quarters contributing to an already healthy backdrop in North America, which is being propelled by par.
Positive long term structural trends in manufacturing re shoring energy transition and energy security related projects. Additionally, an inflection in interest rates has the potential to unlock pent up demand in several construction sectors, including residential markets, where a significant shortage of housing units.
Speaker Change: In Europe, the Polish macro economic environment is showing signs of improvement.
Peter R. Matt: Lower inflation and higher rates of economic growth should begin to bolster sentiment in the country and provide greater confidence to build and invest. We are proud of CMC's financial results and the strong industry that we have helped create. We are 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 construction activity for years to come, and CMC is well positioned to benefit.
Speaker Change: Lower inflation and higher rates of economic growth should begin to bolster sentiment in the country and provide greater confidence to build and invest.
Speaker Change: We are proud of Cmc's financial results and the strong industry that we helped create we are 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.
Speaker Change: Should drive construction activity for years to come and CMC is well positioned to benefit.
Peter R. Matt: 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. Thank you. And at this time, we will now open the call to questions. To ask a question, you may press star, then one on your telephone keypad.
Speaker Change: 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.
Unknown Executive: If your question has already been addressed and you would like to withdraw your question, please press star then 2. Once again, that's star than one if you have a question. And today's first question comes from Satish Kasanathan with Bank of America. Please go ahead. Yeah, hi, good morning.
Speaker Change: Thank you.
Speaker Change: This time, we will now open the call to questions.
Speaker Change: So ask the question, even if a star then one on your telephone keypad.
Speaker Change: If your question has already been addressed like to withdraw your question. Please press star them too.
Speaker Change: Once again that started in one of your other question.
Speaker Change: And today's first question comes from cities.
Nathan: So Nathan with Bank of America. Please go ahead.
Unknown Executive: Thanks for taking my questions. So my first question is on North American downstream product pricing, which has been relatively resilient over the past few quarters, based on your order backlog and then the new bids that are being placed right now. Can you talk about the pricing and margin outlook through the end of the year and maybe into next year? Yeah, we expect margins to stay relatively stable over the coming quarter and into next year.
Speaker Change: Yeah, Hi, good morning, Thanks for taking my questions. So my first question is on the North American downstream product pricing, which has been relatively resilient.
Speaker Change: Over the past few quarters based on your order backlog and then the new bids that are being placed right. Now can you talk about your pricing and margin outlook through the end of the year and maybe into next year.
Speaker Change: Yeah, we.
We expect margins to stay relatively stable over the over the coming quarter and into next year, we have remember that in the in the downstream business you're looking at pricing that was put in place a couple of months ago are you know on average nine months ago right. So.
Unknown Executive: We have – remember that in the downstream business, you're looking at pricing that was put in place a couple months ago or, you know, on average, nine months ago, right? So there is likely to be a downward trend in pricing, but we expect the margin should be able to hold relatively stable. Okay, thank you.
Speaker Change: There is likely to be a downward trend in the pricing, but we expect the margin should should be able to hold relatively stable.
Unknown Executive: And then my second question is on CapEx, with some of the spending related to the West Virginia mill now pushed into 2025. So how should we think about the total CapEx for next year? Yeah, Satish, good morning.
Speaker Change: Okay. Thank you and then on my second question is on Capex, a bit somebody spending related to divest Virginia mill now pushed into 2025 so.
Speaker Change: So how should we think about the total capex for next year.
Unknown Executive: You know, obviously, our capex expenditures next year will be far greater than the guidance that we provided for this year. We're in the midst of our planning for 2025 at this stage, but as an initial guidance, we're thinking that the increase will likely be around 600 to 650 million for 2025. And does that, I mean, does it imply that there should be some CapEx left for 2026 also?
Speaker Change: Yes. It tastes good morning, you know.
Speaker Change: Obviously, our our Capex expense expenditures next year will be a it will be far greater than our than the guidance that we provided for this year.
Speaker Change: We're in the midst of our planning for 2025 it at this stage, but as a as an initial guidance, we're thinking that the increase will likely be to around 600 to 650 million for for 2025.
Speaker Change: And does it I mean, it doesn't imply that there should be some capex left for 2026 also.
Unknown Executive: For fiscal 2026, as we finish off the mill, you know, and expect to end and start commissioning late calendar 2025, yes, there will be some smaller CapEx related to West Virginia in fiscal 26 as well. Okay, thank you.
Speaker Change: For fiscal 2026, as we finish off the mill and expecting to end and start commissioning late calendar 2025, yes, there will be some smaller capex related to West Virginia.
Speaker Change: The fiscal 'twenty six as well.
Speaker Change: Thank you.
Stacey: Thank you Stacey.
Unknown Executive: Thank you. Thank you. And our next question comes from Tristan Gresser with BNP Paribas. Please go ahead.
Speaker Change: Thank you and our next question comes from for some grocer with BNP Paribas. Please go ahead.
Unknown Executive: Yes, hi, thank you for taking my question. The first one is on the market situation in the US. You mentioned the healthy start to the construction season, but the pricing indicators we look at don't necessarily indicate that. Usually, we see scrap prices move higher, price hikes on long products, and this time around, we didn't get any of that.
Speaker Change: Yes, hi, Thank you for taking my question.
Speaker Change: The first one is.
Speaker Change: On the market situation in the U S.
Speaker Change: You mentioned the healthy start up the construction season, but the pricing indicators, we look at don't necessarily indicate that usually we see scrap prices move higher price hikes on the products in.
Speaker Change: And this time around we didn't get any of that so.
Unknown Executive: Was there anything different with this construction season that is ongoing, and why does it appear to be weaker than usual? Thank you. Well, I think, you know, when we look at the levels of bidding in the marketplace, they remain very strong. And when we look at the levels of bookings, they look very good, too, on a historical basis. I mean, yes, down year over year, but down 3%, and again, against a very strong backdrop.
Speaker Change: Was there anything different with this construction season that is ongoing and why does it appear a weaker than usual. Thank you well I think you know when we look at the levels of bidding in the marketplace.
They remain very strong when we look at the levels of bookings.
Speaker Change: They look very good to on a historic basis, I mean, yes down year over year, but down 3% and again against a very strong backdrop. So.
Unknown Executive: So we feel very good about where demand is overall. And if you look at margins, what's happened is that while you've seen some erosion of the pricing on a sales price perspective, you've also seen some erosion on the scrap side as well. So our margins have been able to stay relatively stable. When we look at scrap, and it seems like that's maybe what you're kind of pointing to, there are a couple of factors here that I think are important.
Speaker Change: So we feel very good about where demand is overall and if you look at.
Speaker Change: Margins. What's happened is is that while you've seen some erosion of the pricing on our sales price perspective, you've also seen some erosion on the scrap side as well so our margins have been able to stay relatively stable when we look at our scrap and it seems like that's maybe what you're kind of.
Speaker Change: Pointing to there are a couple of factors here that I think are our important one is looking forward. It feels like scrap is getting close to a bottom and I say that because we're starting to see.
Unknown Executive: One thing is, looking forward, it feels like scrap is getting close to a bottom, and I say that because we're starting to see... that there are kind of lighter flows into our yards, which is typically an indication that the people with the scrap are less interested in selling it. Secondly, what we're seeing is that a lot of the outages that we had in the beginning part of the year are now behind us. So demand is resuming.
That there are kind of lighter flows into our yards, which is typically an indication that the the people with the scrap are less interested in selling it secondly, what we're seeing is a lot of the outages that we had in the beginning part of the year are now behind us. So demand is is resumed.
Unknown Executive: And the third thing I'd say is that there is, on the margin, a stronger global bid for scrap. So we have every reason to believe that you should see scrap stabilized and potentially get a little bit stronger here, and then it might resume the trend that you're used to seeing. But I think the overall point is that, in response to your question, margins have been nicely stable through this period. And I would reinforce the point we made in the script, which is that, you know, well above historic levels. Right, that's, that's very helpful. My second question is about guidance.
Speaker Change: And the third thing I'd say is that there is a kind of on the margin a stronger global bid for for scrap. So we have every reason to believe that you should see scrap stabilize to potentially get a little bit stronger here and then it might resume the trend that you're used to seeing.
Speaker Change: But but I think the overall point is that in response to your question is that margins have been nicely stable through this period and I would reinforce the point we made in the script, which is that you know well above historic levels.
Alright, that's that's very helpful.
Speaker Change: My My second question is on the guidance.
Unknown Executive: So, you guide for stable EBITDA, but if Europe improves a bit, the EBG business is up slightly, and you have stable margin volume development in North America, why shouldn't we see some modest improvement quarter-on-quarter? Going back to North America, if we get lower startup costs with ROEs in the 2, and I think in the past quarter you also flagged some lagged impact from low scrap prices, that should also help. So, I'm just trying to square that.
Speaker Change: So you guide for stable EBITDA, but if you know Europe improves a bit.
Speaker Change: E D G business.
Speaker Change: Is ups like be in you have stable margin volume development in North America.
Speaker Change: Why shouldn't we see you know some modest improvement quarter on quarter.
Speaker Change: And going back to North America, if we get you know lower startup costs with ours into two and I think in the past quarter. You also flagged some lagged impact from those scrap prices that should also help so just trying to square that yeah.
Unknown Executive: Yeah, well, look, I mean, it's possible that there's a level of conservatism in this, but I think there's also some risks that we're trying to factor in. And maybe, Alex, since you started with Europe, let me just start with Europe.
Speaker Change: Yeah, well look I mean, it's possible that there's a level of conservatism in this but but I think there's also some risks that we're trying to factor in and maybe Alex since you started with Europe. Let me just start with Europe. It. So you know that the market conditions, there have been very difficult and our team there has done I mean.
Unknown Executive: So, you know, the market conditions there have been very difficult, and our team there has done an incredible job of kind of keeping costs low to break through. And, and so, kind of as we say, or as we target getting to break even, that's not an easy exercise on an operational basis. We think we can do it, but it's, it's, it's not going to be easy. In EBG, you know, we just posted a, I think, a very nice quarter there. And we're confident about what we can do in the fourth quarter.
Credible job of kind of keeping costs low, but the imports that the Polish team is seeing from Germany are really making it difficult.
Speaker Change: To break through and and so kind of as we say our as we target getting to breakeven that's not an easy exercise on an operational basis. We think we can do it but it's it's a it's not going to be easy.
Speaker Change: In E. B G. We just posted a I think a very nice quarter there.
Speaker Change: And we're confident about what we can do in the fourth quarter, but again for the areas outside of the U S affecting their business like tenths or there is some risk in that right and and we've seen that through the course of 'twenty or fiscal 'twenty 'twenty four so we're being a little bit cautious in that regard.
Unknown Executive: But again, you know, for the areas outside of the US affecting a business like Tensar, there is some risk in that, right? And, and we've seen that through the course of our fiscal 2024. So, you know, we're being a little bit cautious in that regard. I think in North America, there are, as we've said, these interest rate segments that are quite sensitive right now and are definitely weaker than, you know, what we'd like to see.
Speaker Change: I think in North America.
Speaker Change: There are.
Speaker Change: As we've said you've got these are interest rate segments that are quite sensitive right now and are definitely weaker than.
Speaker Change: What we'd like to see and so that's another reason why we've got perhaps a little bit of conservatism in our estimate we do believe that North America is going to stay.
Unknown Executive: And so, you know, that's another reason why we've got perhaps a little bit of conservatism in our estimate. We do believe that North America is going to stay, you know, kind of demand is going to stay good overall. All right, that's very clear. Thank you very much.
Speaker Change: The demand is going to stay good overall, but again, if you're talking about moving margins higher I think they are where we're a little cautious about moving margins higher until we see that inflection in rates.
Speaker Change: Alright, that's very clear thank you very much.
Speaker Change: Thank you Tristan.
Unknown Executive: Thank you. Thank you. And our next question today comes from Kurt Woodworth with UBS. Please go ahead.
Speaker Change: Thank you and our next question today comes from Curt Woodworth with UBS. Please go ahead.
Unknown Executive: Yeah, thanks. Good morning, Peter and team. Hi, Kurt.
Curt Woodworth: Yeah. Thanks, good morning, Peter and team.
Unknown Executive: Hey, so, you know, you noted that the rebar market, you know, in terms of supply and demand, seems to be improving in the West, and infrastructure kind of bidding and letting is picking up. So, it would seem to suggest that, you know, Arizona, number two, has room to continue to increase production and be optimized, but then you're also kind of guiding to flat shipments quarter on quarter. So, is the way to think about it that, you know, maybe further optimization in Arizona is being maybe mitigated by, you know, regional weakness or some of the interest rate sensitive parts of the market that you discussed? Yeah, I think there's some fairness to that.
Curt Woodworth: Hey.
You noted that the rebar market you know in terms of supply demand seems to be improving.
In the west and in infrastructure kind of bidding and letting us picking up so.
Curt Woodworth: It would seem to suggest that you know, Arizona number two.
Curt Woodworth: It has room to continue to increase production and being optimized. But then you also kind of guiding to flat shipments quarter on quarter. So is the way to think about it that you know.
Speaker Change: Maybe further optimization in Arizona as being maybe mitigated by regional weakness or some of the interest rate sensitive parts of the market that you discussed.
Unknown Executive: I mean, again, we in Arizona are expecting to be able to increase production as we put more rebar onto the mill. But you're right, we do have some segments that have some weakness. And so we're being, you know, kind of a bit measured in what we think we can do there. But I think that's fair.
Speaker Change: Yeah, I think there's some fairness to that I mean again, so we are in Arizona.
Speaker Change: We are expecting to be able to increase production as we put more rebar onto the mill, but you're right. We do have some of these segments that have some weakness and so we're being kind of a a bit measured in what we think we can do there, but I think that's fair.
Speaker Change: Okay.
Unknown Executive: Okay. And then, I guess just with respect to capital allocation, given the balance sheet and the free cash flow profile, you have, you know, pretty significant bandwidth to, you know, continue to fund organic growth. So I just, you know, can you kind of comment on maybe how the M&A pipeline is looking? And then, you know, just given some of the distressed conditions in Europe, would, you know, would Europe be an area where you would look to, you know, try to grow?
Speaker Change: And then I guess, just with respect to capital allocation.
Speaker Change: Given the balance sheet and the free cash flow profile, yes.
Pretty significant bandwidth to continue to fund organic growth and inorganic growth. So it just.
Speaker Change: Can you kind of comment on maybe how the M&A pipeline is looking and then you know just given some of the distressed conditions in Europe would you know.
Speaker Change: Would Europe be an area, where you would look to try to grow.
Unknown Executive: Okay, thanks, Kurt, for the question. On organic growth, remember, we have some significant organic growth coming our way in the form of the Arizona ramp-up, which we're still getting to EBITDA positive on. That'll be a significant contributor. And following shortly after that, we have West Virginia.
Speaker Change: Okay. Thanks, Kurt for the question so.
Speaker Change: On organic growth.
Speaker Change: Remember, we have some significant organic growth coming our way in the form of the Arizona ramp up which were you know we're still getting to EBITDA positive that'll be a significant contributor and following shortly on from that we've got West Virginia.
Unknown Executive: And then beyond that, we've got a number of kind of, I'd say, much smaller in order of magnitude, but organic projects across the portfolio that are either addressing kind of capacity needs to serve the demand in some of our, you know, kind of higher growth markets and think about, you know, tensile geogrids and so forth, or to address kind of cost opportunities that we have through de-bottlenecking or making our We have a nice pipeline of organic opportunities here.
Speaker Change: And then beyond that we've got a number of you know kind of I'd say much smaller from an order of magnitude, but organic projects across the portfolio that are either addressing kind of capacity needs to serve the demand in some of our higher growth markets and think about tenths or geo grids.
Speaker Change: And so forth.
Speaker Change: Or to address.
Speaker Change: Cost opportunities that we have through debottlenecking, our making our operations more efficient. So we have a nice pipeline of organic opportunities here. The other thing I would say is that you know where we're starting to get our arms around operational and commercial excellence.
Unknown Executive: The other thing I would say is that, you know, we're starting to get our arms around operational and commercial excellence in the company. We've done a lot of work on that, and that is going to provide a nice support for near-term organic growth. So then moving to inorganic growth, you know, we do see opportunities out there, and we are working through precisely where we want to play. What I'll say at this point is we want early-stage construction solutions.
In the company, we've done a lot of work around that and that is going to provide a nice support to near term organic growth. So then moving to inorganic growth.
Speaker Change: We do see opportunities out there.
Speaker Change: And we are working through precisely where we want to play.
Speaker Change: What I'll say at this point is we want early stage construction solutions, we want products that come on to the construction site at the same time that we come on we want products that come ideally through the same channel and have attractive margins.
Unknown Executive: We want products that come onto the construction site at the same time that we come on and, ideally, have a kind of attractive penetration story like Tensar such that, you know, while they may serve some cyclical markets, they have the ability to produce a less volatile result given the, you know, kind of penetration story that they can provide.
Speaker Change: And ideally have a kind of an attractive penetration story like tense are such that you know while they may serve some cyclical markets. They have the ability to produce a less volatile result, given the you know kind of a penetration story that they can provide now what we're doing is.
Unknown Executive: Now what we're doing is we're looking at lots of businesses and, you know, trying to figure out where our sweet spot is and, specifically, where we have a competitive advantage and where we have a right to win and where we as a company bring the capabilities that are going to make us successful there. And so the nice thing is that we have some time because we've got this organic growth that's, you know, in the pipeline already that should fuel some growth in EBITDA over the next, you know, year, you know, periods, while we kind of get our arms around where we want to be specifically.
Speaker Change: We're looking at lots of businesses and you know trying.
Speaker Change: Trying to figure out where our sweet spot is and specifically.
Speaker Change: Where we have competitive advantage and where we have a right to win and where we as a company bring the capabilities that are going to make us successful there.
Speaker Change: And so the nice thing is is that we have some time because we've got this organic growth that's in the pipeline already that should fuel some growth in EBITDA over the next.
Speaker Change: You know periods, while we kind of get our arms around where we want to be specifically and as we do that well.
Unknown Executive: And as we do that, we'll obviously share more color with you on what we're thinking about. But it's, I'd say the second stage where we're refining work on things that we've been looking at and trying to go to the next level of detail on, you know, the businesses themselves. Oh, and I should just say, in Europe, so Europe is, I mean, conditions in Europe are difficult, as we've said on the last several calls.
Speaker Change: We'll obviously share more color with you on what we're thinking about but it's we're really in the I'd say the second stage, where we're refining work on things that we've been looking at and trying to go to the next level of detail on that.
Speaker Change: The businesses themselves.
Speaker Change: Oh, and I should just say on Europe.
Speaker Change: So Europe is up I mean conditions in Europe.
Speaker Change: There are difficult as we've said on the last several calls.
Unknown Executive: We wouldn't preclude growth in Europe, given the, you know, kind of situation that we're facing. But I think given the situation that we're facing, growth in Europe would have to be very compelling now. And we'd have to have a clear pathway to returns that are substantially in excess of our cost of capital because I think the risk profile of that market, as we've seen over the last couple of years, is more challenging. Sorry for the long answer. No, no.
Speaker Change: We wouldnt preclude growth in Europe.
Speaker Change: Given the kind of the situation that we're facing but I think given the situation that we're facing a growth in Europe would have to be very compelling now and we'd have to have a clear pathway to returns that are substantially in excess of our cost of capital because I think the risk profile of that market.
Speaker Change: As we've seen over the last couple of years is more challenging.
Speaker Change: Sorry for the long answer.
Unknown Executive: Very helpful. Thank you, guys. Thank you. And as a reminder, ladies and gentlemen, that's stars and one if you have a question. Our next question comes from Katja Jancic with BMO Capital Markets. Please go ahead. Hi, maybe going back to Arizona, too, and looking to fiscal year 25, how should we think about the ramp-up there, or how much do you think the mill could produce? Good morning, Katja.
Speaker Change: Very helpful. Thank you guys.
Speaker Change: Thank you and as a reminder, ladies and gentlemen that started in one of your other question.
Speaker Change: Next question comes from Concho Jim.
Speaker Change: BMO capital markets. Please go ahead.
Concho Jim: Hi, maybe going back to Arizona, too and looking to fiscal year 'twenty five how should we think about the ramp up there or how much do you think the mill could produce.
Unknown Executive: Yes, you know, we continue to make good progress with respect to the commissioning activities at Arizona, too. And certainly, there's a lot of complex technology that is involved and introduced into that facility that, you know, ultimately, we are very confident that it will give us a real competitive advantage long-term in terms of the, the, the, nature of the production process there. We anticipate that we will, you know, see a good ramp-up of activity in the fourth quarter and then into next year. We're thinking roughly around 75% capacity utilization as an average for the year, starting a little bit below that and ending the year at a much higher rate.
Speaker Change: Good morning catch a yes.
Speaker Change: We continue to make good progress with respect to the the commissioning activities at Arizona to it and certainly there is a lot of complex technology that is involved and introduced in our in that facility that you know ultimately we are very confident that it it.
Speaker Change: That puts us to really benefit from being a competitive advantage long term in terms of the.
Speaker Change: The nature of the production process there.
Speaker Change: We anticipate that.
Speaker Change: We will see good ramp up of activity in the fourth quarter and then into next year, we're thinking roughly around 75% capacity utilization as an average for the year now starting a little bit below that and ending the year at a much higher rate, but overall we're thinking.
Unknown Executive: But overall, we're thinking about a 75% utilization rate, and as a reminder, you know, we anticipate long term that DeMille will have a product mix of roughly 150,000 tons of merchant product and 350,000 tons of rebar. And I think initially it's going to be more rebar focused. And then, I guess, as the year progresses, we could see more of the MBQs.
Speaker Change: [noise] about a 75% utilization rate and as a reminder, you know we anticipate long term that the mill will have a product mix of roughly 150000 tons of merchant product and 350000 tons of rebar.
Speaker Change: And I think initially it's going to be more rebar focused and then I guess as the year progressed, we could see more of the N B Qs.
Unknown Executive: You know, it's a lot easier to produce the rebar since that is consistent. And so that ramp up in commissioning has been very successful in achieving those levels. The commissioning and the slowdown, yes, will continue to be on the merchant side. Okay, and maybe one more on the CAPEX side. So once the current project pipeline is completed, what would be a more normalized CAPEX level?
Speaker Change: You know that it's a lot easier to to produce the rebar since that is consistent and so that that ramp up and commissioning has been very successful in our in achieving those levels.
Speaker Change: The commissioning and the slowdown yes, we will continue to be on the merchant side.
Speaker Change: Okay, and maybe one more on the Capex side. So once the current project pipeline is completed what would be a more normalized capex level.
Unknown Executive: Yeah, Katja, we believe that, you know, our smaller project and maintenance CapEx bucket, so those two together, really being in that $250 million range, will represent the ongoing level of spend. Okay, thank you. Thank you. Thank you. And our next question today comes from Timna Tanners with Wolf Research. Please go ahead.
Speaker Change: Yeah Cacho Lee we believe that you know are our smaller project and maintenance Capex bucket. So those two combined really being in that $250 million range will represent the ongoing.
Speaker Change: Level of spend.
Speaker Change: Okay. Thank you thanks.
Scott: Thanks Scott.
Speaker Change: Thank you and our next question today comes from Timna Tanners with Wolfe Research. Please go ahead.
Unknown Executive: Yeah, thanks, and happy first day of summer. I wanted to ask a little bit more to hone in on the comments around the interest rate sensitive construction component. I mean, I think of most construction as being interest rate sensitive, but I suppose does that refer to non-government or shorter cycle projects?
Timna Beth Tanners: Thanks, and happy birthday of summer I wanted to ask about.
Timna Beth Tanners: A little bit more to hone in on the comments around that.
Timna Beth Tanners: The interest rate sensitive construction component I mean, I think of most construction is being interest rate sensitive, but I suppose is that does that refer to non government or shorter cycle projects and if you could try to give us an idea of your end markets or a beer shipments how much of that would be in that category is interest rate sensitive that could.
Unknown Executive: And if you could try to give us an idea of your end markets or of your shipments, how much of that would be in that category of interest rate sensitive that could potentially benefit from rate cuts? Yeah, so what we've typically said is that about half of our portfolio has some exposure to interest rates, exposure to varying degrees. If we kind of parse it from there, the infrastructure, we do not think it is interest rate sensitive.
Timna Beth Tanners: Potentially benefit from rate cuts.
Timna Beth Tanners: So what we've typically said is that.
Speaker Change: About half of our portfolio has some exposure to interest rates and our exposure in varying degrees.
Unknown Executive: And there, the demand is really strong, and we've said, you know, it's going to continue to grow over the course of the next several years. When we get to non-residential, which is the, you know, kind of next 35% in that stack that we always talk about, there are portions of that market that are interest rate sensitive. And we would point to, you know, warehouses, office buildings, you know, kind of light commercial, some lodging, and I don't maybe that's a third of that mix. That's a bit of a stab, but maybe that's the right number.
Speaker Change: If we kind of parse it from there the infrastructure, we do not think is interest rate sensitive and there. The demand is really strong and we've said it's going to continue to grow over the course of the next several years when.
Speaker Change: When we get to nonresidential, which is the kind of next 35% in that stack that you know that we always talk about there. There are portions of that market that are interest rate sensitive and we would point to.
Our warehouses office buildings.
Speaker Change:
Speaker Change: Kind of light commercial some lodging and although maybe that's oh.
Timna Beth Tanners: A third of that mix something that's a bit of a stab but maybe that's the right number and then on the residential side Timna again, the residential side, we think have some.
Unknown Executive: And then on the residential side, Tim, again, on the residential side, we think we have some, you know, kind of interest rate exposure. And where we're seeing it mostly right now, as we said in the prepared remarks, is on the multifamily side. And so again, if we see an inflection in rates, we do think that you would see some kind of response in terms of incremental demand. What's interesting is that we're not seeing projects canceled. They're just, you know, kind of hanging around.
Timna Beth Tanners: Kind of interest rate exposure and there where we're seeing it mostly right now as we said in the prepared remarks is on the multifamily side.
Timna Beth Tanners: And so again, if we see Uninflated and rates, we do think that you would see some kind of response in terms of incremental demand. What's been interesting is that we're not seeing projects cancelled there just kind of hanging around so and they're being bid and rebid and so forth. So.
Unknown Executive: So, and they're being bid on and rebid and so forth. So, our contention is that we should see some of them come back.
Timna Beth Tanners: So our our contention is is that we should see we should see some of them come back and of course, you know as we said also in the prepared remarks, you've got this kind of backlog of housing demand that needs to be satisfied somehow. So I think that will kind of provide us more likely.
Unknown Executive: And of course, you know, as we said in the prepared remarks, you've got this kind of backlog of housing demand that needs to be satisfied somehow. So I think that will, you know, kind of provide us with more likelihood that that comes to market. Okay, that's helpful.
Likely hood that that comes to market.
Unknown Executive: Thanks. And then my second question is about your backlog. So you talk about the volumes being healthy there, but I was trying to think about the margins in that backlog because depending on the timeframe of when they were contracted, prices were higher, now they're lower, obviously, costs are lower. So I'm just trying to think about how that backlog is looking in terms of the margin profile relative to past or recent quarters.
Speaker Change: That's helpful. Thanks, and then my second question is about your backlog.
Speaker Change: So you talk about the volumes being healthy there, but I was trying to think about the margins in that backlog because.
Depending on the time frame of when they were contracted prices were higher and now they're lower obviously costs are lower so just trying to think about how how that backlog is looking in terms of the margin profile Valentine's curate other pass through of recent quarters.
Unknown Executive: Yeah, Timna, you know, as far as the backlog profile, you know, as you as you know, it really is the fabrication business is usually priced at a margin over and above where rebar pricing is. And as Peter said to an earlier question, you know, on average, it's nine to 12 months in duration from an average perspective.
Timna Beth Tanners: Yeah, Timna as far as the the backlog profile.
Speaker Change: As you know it it really the that the fabrication business is is a usually priced at a margin over and above where rebar pricing is and as Peter said to an earlier question. You know on average it's nine to 12 months in duration from out from an average perspective so.
Unknown Executive: So, one would expect that as rebar pricing has come down a little bit over the last, well, really the first nine months of our fiscal year, that helps solidify some of the margin in the backlog. However, you know, the pricing environment or that margin over and above rebar has been impacted by the lower amount of work that is being contracted today versus, say, 18 to 24 months ago when there was more activity in the space.
One would expect that as rebar pricing has come down a little bit over the last well really the first nine months of our fiscal year that that helps solidify some of the are they the margin in the in the backlog however, the pricing environment or that margin over and above rebar has.
Speaker Change: Impacted by the a the lower amount of work that is being contracted today versus say 18 to 24 months ago. When there was a more.
Speaker Change: More activity in the space and so overall I think we're very encouraged that were well above historic levels in the in the in the backlog.
Unknown Executive: And so overall, I think we're very encouraged that we're well above historic levels in the backlog, but the margins have returned a little bit to a more normalized level from where they were. And when you say margins have returned to more normalized levels, is that also above historical levels but not from the highs, like somewhere in between the two, I guess? Yeah, that's what I was trying to articulate, yeah. Got it, okay, just making sure. All right, thanks for the help.
Speaker Change: But it is the.
Speaker Change: The margins have returned to a little bit to a to a more normalized level from where they were.
Speaker Change: And when you say margins return to more normalized levels that also above historical levels, but not from the highest like somewhere in between the two I guess, that's what I was trying to articulate yes got it okay, just making sure I thinks about thanks. Thank you.
Unknown Executive: Thank you. Thank you. And our next question comes from Alex Hacking with Citi. Please go ahead.
Speaker Change: Thank you and our next question comes from Alex Hakim at Citi. Please go ahead.
Unknown Executive: Yeah, morning, and thanks for the call. I guess on Arizona, I'm not sure, you know, how much you'll disclose on this, but, you know, as we think about Arizona ramping up, moving to profitability, you know, what is the sort of EBITDA per ton uplift? that you get from shifting production, you know, from, from, an older male that's outside the region to New Arizona. Yeah, Alex, if we look back at sort of a historical view of our investment decision, you know, as we acquired the Gerdau assets, partially what they were servicing the Western US market from was their California location. And, you know, the costs associated with doing business from an environmental and energy perspective in California are substantial.
Alexander Nicholas Hacking: Yes, good morning, and thanks for the call.
Speaker Change: I guess on Arizona.
Speaker Change: Sure you know how much you you disclose on this but.
Speaker Change: Just think about Arizona wrapping up moving to profitability.
Speaker Change: What is the sort of EBITDA per ton uplift.
Speaker Change: That you get from shifting production you know from from a from an older male that's outside the region to show to the New Arizona Mill.
Alexander Nicholas Hacking: Yeah, Alex you know if we if we look back to sort of a historical view of of our investment decision you know as we acquired the Gerdau assets are partially what they were servicing they are in the western U S market from was from their California location and.
Alexander Nicholas Hacking: You know the costs associated with doing business, both from an environmental and energy perspective, and in California, where were substantial and so we decided to to build the the Arizona facility and clearly.
Unknown Executive: And so we decided to to build the the Arizona facility. And clearly, the lot of the the benefits of the business case were on the cost reduction that that ensued. You know, as we built the mill, we were continuing to serve the market from our eastern and central facilities and incurring the freight costs in order to continue to seed that market while we constructed the mill, what we will we thought some of the benefit as uh... as we shuttered the uh... the california facility but we will continue to see the benefit as we uh... ramp up and and avoid the freight costs of what we were providing to the uh... to the west coast we continue to uh... expect that there will be a uh... a a margin pickup as as we ramp up the uh... the arizona facility and you know it it should be in line with uh... uh... you know our traditional uh... margins that we uh... we produce on the on the on the rebar side Okay, thanks, Paul.
Alexander Nicholas Hacking: The a lot of the benefits of the business case, where on the cost reduction that that ensued.
Alexander Nicholas Hacking: As we built the mill, we were sort of continuing to serve the market from our eastern and central facilities and incurring.
Alexander Nicholas Hacking: The freight costs in order to continue to see that market. While we are constructed the mill and so what.
Alexander Nicholas Hacking: What we what we saw some of the benefit as a as we shuttered the California facility, but we will continue to see the benefit as we.
Alexander Nicholas Hacking: Ramp up and avoid the freight costs of what we're providing to the to the west coast. So we continue to expect that there will be a a margin pick up is as we ramp up the the Arizona facility.
Alexander Nicholas Hacking: And you know it should be in line with our.
Alexander Nicholas Hacking: You know our traditional margins that we are we produce on there on the on the rebar side.
Unknown Executive: And then on the residential side, you know, I take your point that, longer term, the US may be short of housing units. But if we look at, you know, the most recent data, it's not particularly encouraging, right? I think the data route today starts down, 20% of permits, kind of the lowest in several years.
Speaker Change: Okay. Thanks, Paul and then on the residential side.
I take your point that longer term.
The U S. Maybe short housing units, but if we look at you know the most recent data, it's not particularly encouraging right I think.
Speaker Change: But they are out today starts down.
Speaker Change: When he decided to put them, it's kind of the lowest in several years are you seeing.
Unknown Executive: Are you seeing that kind of weakness in your residential order book, or is it not as bad as some of the headline data would suggest? Yeah, but no.
Speaker Change: That kind of weakness in your residential order book or or is it not as bad as some of the headline data would suggest that yeah, no and I guess, maybe we can talk offline about what data you're looking at but if you look at the Dodge starts estimates for.
Unknown Executive: And I guess maybe we can talk offline about what data you're looking at, but if you look at the Dodge Starts estimates for residential, they're showing kind of substantial upticks in, you know, kind of 2025 and beyond. And I would say our order book is showing, you know, kind of demand that stays at a healthy level and, as we've said on several calls in the past, remains well above the, you know, kind of pre-pandemic levels. So yes, there's some weakness in multifamily.
Speaker Change: Residential, they're showing kind of substantial upticks in kind of 2025 and beyond and I would say our order book is showing kind of demand that stays at a healthy level and is as we've said on several calls in the past remains well above the kind of pre pandemic levels.
Speaker Change: So so yes, there is some weakness in multifamily, but we feel that it's that residential is going to be a good place to be here.
Unknown Executive: But we feel that residential is going to be a good place to be here. Okay, thanks. I was just referring to the US Census Bureau data that was released today. Okay. More than just multifamily. Okay. And then just fine.
Speaker Change: Okay. Thanks, So I was just referring to the U S census Bureau data that was released today.
Speaker Change: Okay.
Unknown Executive: Yeah, sorry. Finally, on tensor, I guess on the emerging business segment. Um, you know, I think when you acquired the business and subsequently, this is expected to be a growth business when we, but if I look at revenue and EBITDA, right, it's effectively the same as it was last year.
Speaker Change: And then just multifamily.
Speaker Change: And then just finally, yes, sorry, finally on tents or I guess on the emerging business segment.
You know I think when you acquired the business and subsequently you know this is expected to be a growth business when we but if I look at revenue and EBITDA.
Speaker Change: Right. It's it's effectively the same as it was last year.
Unknown Executive: You know, is this still a business that we should be expecting to be growing? And I know there were some operating challenges that I created some constraints around growth and, Yeah, absolutely. So, and what I would say is absolutely, it's a business we expect to grow. A couple of things that I think are worth noting. One is that, on the positive side, you're probably aware of the fact that we introduced a new geogrid.
Speaker Change: Yeah.
Speaker Change: Is this still a business that we should be expecting.
Speaker Change: To be growing and I know there was some operating challenges.
I created some constraints around growth.
Speaker Change: In prior quarters, but maybe you could just give us some more color that yeah.
Speaker Change: Yeah, absolutely so and what I would say is absolutely. It's a business we expect to grow.
Speaker Change: A couple of things, but that I think are worth noting one is we said on the on the positive side you probably you are probably aware of the fact that we introduced a new G O grid and one thing that's been interesting about that is that the kind of both the volumes and the margins on that introduction.
Unknown Executive: And one thing that's been interesting about that is that both the volumes and the margins on that introduction have been in excess of what we were expecting, right. So the product continues to have a kind of a very strong reason to be and in a market that is, we believe, under penetrated. I think we've said something like, you know, 15%. And it has applications on every construction site. So it's not on every construction site, but it's got applications on every construction site.
Speaker Change: Have been in excess of what we were expecting right. So the product continues to have a.
Speaker Change: A very strong reason to be and in a market that is a we believe underpenetrated I think we've said something like 15%.
Speaker Change: And it has applications on every construction site. So it's not on every construction site, but its got applications on every construction site.
Unknown Executive: You're right to call out the fact that we've had some operating challenges. And part of this is, honestly, the fact that we bought the asset from private equity; the operating facility, one of the operating facilities, needed some catch-up maintenance, and so we've had to put some extra capex into it, and that's been, you know, kind of challenging to catch up on that, but we're on the way with that.
Speaker Change: We we you're right to call out the fact that we've had some operating challenges.
Speaker Change: Part of this is honestly, it's the fact that we bought the asset from private equity the operating facility, but one of the operating facilities.
Speaker Change: I needed some catch up maintenance and so we've had to put some extra capex into it and that's been kind of challenging to to catch up on that boat, but where I'm away with that we've got we've made all the changes we need to make an end and were you know.
Unknown Executive: We've got, you know, we've made all the changes we need to make, and we're, you know, kind of, I think we're in a good position there, or on the right path there, and we're actually investing in new capacity there to meet the demand side of the equation for geogrid. So I think things are, you know, positive there. I think the other factor that I want to call out is, you know, this business is not only a North American business, and the, what we call the, you know, kind of eastern hemisphere, is, in many instances, quite weak. And so that has been, I don't want to say it's been a drag on growth, but it's certainly muted any growth that we have.
I think we're in a good position there or on the right path there.
Speaker Change: And we're actually investing in new capacity there to meet the demand side of the equation for Geo grid. So I think things are are positive there I think the other factor that I want to call out is.
Speaker Change: You know this business is not only a north American business.
Speaker Change: And the what we call the eastern hemisphere, but it's really the rest of the world business.
Speaker Change: As you know from looking at the kind of the economic conditions in most of the rest of the world have been very varied and in many instances many instances quite weak.
Speaker Change: And so that has been a I don't want to say, it's been a drag on growth, but it's certainly muted any growth that we have and the last thing I'd say about <unk> generally so this is moving away from tense are.
Unknown Executive: And the last thing I'd say about EBG generally, so this is moving away from Tensar, is that we put these businesses in this portfolio because we strongly believe they all have the potential to grow. But one of the things we're doing, just like with our, you know, overall growth strategy, is we're in the process of getting organized around that growth, and that means, you know, bringing people together, and investing together to enable that growth. So you need to give us a little bit of time to kind of post that growth for you, but yeah, we definitely think Tensar is a growth business.
Speaker Change: Is that we put these businesses in this portfolio because we strongly believe they all have the potential to grow.
Speaker Change: But one of the things we're doing just like with our overall growth strategy is where we're in the process of getting organized around that growth and that means you know bring.
Speaker Change: Bringing the people together, bringing the.
Speaker Change: The investment together to enable that growth so.
Speaker Change: You need to give us a little bit of time to to kind of post that growth for you, but yes, we definitely think temper as a growth business. We're super excited about it long term.
Unknown Executive: We're super excited about it long term and EBG generally. All right. Thanks, Peter. Best of luck with everything. Yeah.
Speaker Change: And and E B G generally.
Alexander Nicholas Hacking: Alright, Thanks, Peter that's just luck with everything yeah. Thank you Alex.
Unknown Executive: Thank you, Alex. Thank you.
Peter R. Matt: Thank you, Alec. Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Mr. Matt for any closing remarks. Thank you very much for joining the call today. As I said on the call, we believe that we are in a unique situation where the combination of structural supply and demand trends that we have noted, operational and commercial excellence initiatives to strengthen our through-the-cycle performance, and the value of creative growth opportunities create an exciting opportunity for our company in the future. We're committed to a capital allocation strategy that includes investments in our company's future and a return of capital to our shareholders.
Speaker Change: Thank you. This concludes our question and answer session I would like to turn the conference back over to Mr. Matt for any closing remarks.
Peter Matt: I would like to turn the conference back over to Mr. Matt for the closing remarks. Thank you very much for joining the call today. As I said on the call, we believe that we are in a unique situation where the combination of structural supply and demand trends that we have noted, operational and commercial excellence initiatives to strengthen our through-the-cycle performance and value-accretive growth opportunities, create an exciting opportunity for our company in the future. We're committed to a balanced capital allocation strategy that includes investments in our company's future and a return of capital to our shareholders.
Peter R. Matt: Thank you very much for joining the call today as I said on the on the call. We believe that we are in a unique situation, where the combination of structural supply and demand trends that we have noted operational and commercial excellence initiatives to strengthen our through the cycle performance and.
Peter R. Matt: Value accretive growth opportunities create an exciting opportunity for our company in the future. We're committed to balanced capital allocation strategy that includes investments in our company's future and our return of capital to our shareholders and I want to thank you all for joining us on today's call. We look forward to speaking with many of you during the investor calls them.
Unknown Executive: And I want to thank you all for joining us on today's call. We look forward to speaking with many of you during the investor calls in the coming days and weeks. Thank you very much. Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Unknown Executive: And I want to thank you all for joining us on today's call. We look forward to speaking with many of you during the investor calls in the coming days and weeks.
The coming days and weeks, thank you very much.
Speaker Change: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect. Your lines will have a wonderful day.
Unknown Executive: This concludes today's conference call. We thank you all for attending today's presentation.
Unknown Executive: You may now disconnect your minds and have a wonderful day.
Speaker Change: Yes.
Speaker Change: [noise].