CMC
#Yes, we always tend see a working capital release in the fourth quarter and continuing on into the first quarter, and then we begin to see some working capital build in our fiscal second quarter in preparation for the busy season.
And the other factor that drives inventory build would be in preparation for outages, and we do have a couple of projects where we will be preparing for the outages associated with those projects and building some inventory to allow us to continue to operate without interruption during the outage period.
But we will begin to build some inventory in anticipation of the heavier construction season.
I think the one difference from, let's say, a year ago, a year ago, we had built a fair amount of working capital on the M&D side of the business and based upon the discussion we just had around the challenges in that segment, we're not going to see the same working capital build in M&D, or we are not anticipating the same inventory build in M&D for this year's fiscal second and third quarter as we did last year.
Good morning, <UNK>.
Yes, let me go ahead and take that first.
In terms of what you describe as the texture, we normally break that out between public and private and there had been a trend moving towards more and more private projects as a higher percentage of our total order book, and that trend continues.
It's better than 50% of our bidding activity these days, which is positive, because as we've noted before, private projects are less vulnerable to price lock-ins that make it difficult for us to make margin than some of the public projects.
It will be, we'll monitor this because with the FAST funding there could be a shift towards more public projects, but the nice element of that is when we get into an environment where there's strong non-residential demand, as well as public moneys that are available, it gives us an opportunity to be more discerning about the projects that we take on emphasizing, obviously, the better margin projects.
And as far as geography is concerned, we've talked about this in the past.
Our western region operations, which go into the fab business, as far as the fab business in California remains strong.
Our micromill in Arizona has run full out for better part of its life since we've started operating the mill, and its complemented by a good fab business, and we still see strong demand in California.
Texas markets remain strong and bidding activity and bidding levels are high in the sense of total project volume.
And we're seeing some strength in the southeast, specifically in Georgia, that we really hadn't seen in more recent periods of time.
South Florida and the beltway around Washington D.
C.
have been strong for ---+ well, the beltway as long as Texas has remained strong.
And South Florida was kind of the first market to recover as Latin American money came into the Miami/Fort Lauderdale area and construction activity picked up.
And New York has been strong, so when we look at the ABA Index more recently, the average, on a national basis, was just under 50 at 49.3, whereas the indicators in the South were 55.4, and then the West was 54.5, and going back to April of 2015 none of the indices for the South or the West have fallen below 50.
Yes, <UNK>, I'll take that.
The $180 million is still what we anticipate, that's a net number after factoring in the number of incentives available to us, both state, local and federal, and all of that is progressing well.
Our CapEx guidance for the year, as I mentioned, was $220 million to $230 million.
That does include our expectation for the micromill, as well as normal CapEx.
Thanks, <UNK>.
Good morning, Happy New Year, <UNK>.
Yes, so, <UNK>, the total backlog in the fab business is in the range of 600,000 tons, and if you look at our quarterly shipments, we could argue that's maybe a couple quarters worth of business.
But it's a really dynamic backlog and every day we're shipping product and every day we're booking, and so we'll relieve some of that backlog which might have a higher margin.
So there's no doubt that you'll see continued pressure on margins as we get forced into situations of meeting competitive pricing based on imported product, and so it's really hard to give a hard and fast of when that turns.
The greater pressure could be, and would be, in some regards favorable for our recycling business wouldn't be so favorable for the fab business, which is if we saw dramatic increase in our raw material prices as it works its way through the system.
So I'm trying to answer your question as best I can, but it's hard to pin a number down as to when that backlog changes dramatically from perspective of margin.
It will be something that will continue to creep and that assumes that there isn't any further erosion in scrap markets, and today there is still some differential between what scrap sells for and what iron ore sells for and even though there is historically some correlation between those two, ferrous scrap prices are still fairly high relatively speaking.
Now we've said we believe it's going to stabilize because we've had issues with flow and that will probably cause some spiking from time to time as we saw in December, and that's with operating rates in the mills in the aggregate on the 60% to 65% range, so there hasn't been any pressure on raw material pricing for scrap even from the integrated mill.
So it's an interesting dynamic and flows have been impacted and that's one of the reasons why we view our integration, vertical integration in the scrap business, as being important because it gives us access to raw material.
Yes, thank you, <UNK>, for the question.
So when we made the change, what we will basically do is have an obligation for the taxes on the remaining balance of our LIFO reserve from a tax perspective.
And to put it in perspective, last year we paid $38 million of cash taxes related to the LIFO income that we booked in the year, and if you just consider the decline in scrap in the first quarter, we would be looking at a fairly hefty cash tax number in FY16.
But because we froze that balance, we essentially will spread the tax obligation over four years and it will be around $11 million to $12 million over the next four years.
It's a pretty minimal cash impact.
Each year.
Good morning, Chuck.
(laughter) So you're telling me I didn't pack enough, Chuck.
No, Chuck.
We prepare for this call and do a kind of around the world conference call yesterday, which would have preceded your overnight report, but we haven't received any reports in that regard.
It would be great to see some improvement in pricing coming out of China because there really isn't any discipline there and it goes back to what I said earlier about disintermediation.
Some of the government-sponsored traders are ---+ they are driving what prices are, and many of the producers just have to meet that in order to book with those traders.
No, not so much, Chuck.
We haven't seen any dramatic change in flows other than a significant reduction in exports from the United States.
What we have ---+ would have been reported and what we have tried to understand and deal with is more, I'll call it blast furnace-based billets moving throughout Southeast Asia and into Europe, including Turkey, and those billets being converted into finished product.
So this is why ---+ I made the comment about scrap and iron ore, the fact of the matter is if iron ore is cheap enough and there's enough aggressiveness in pricing by the likes of Chinese producers they can move semi-finished product as aggressively as they move finished product to keep at least melt shops running.
And while it may not make economic sense to us, they aren't reacting to the same economic drivers.
And we know that earlier in the year, the Ukrainians and the Russians did the same thing which was move semi-finished product into Turkey based on import statistics and that product was converted and then exported.
Thanks, Chuck.
Thank you, Chuck.
Good morning, <UNK>.
We would like to have seen more, but we're pleased it was an increase over what prior funding had been.
So that's a positive indication that the governmental authorities recognize the need to start dealing with infrastructure.
There still only remains an $0.18 per gallon federal tax on gasoline which, given the outlook for energy prices in the future, there might be enough [chutzpah] to do something about that to raise funds which would go directly into infrastructure, which, again, cascades into making jobs not only in construction but in the steel industry.
But I guess only time will tell us whether or not any change in administration would be that supportive.
I think it was positive that going into an election year, and that's one of the things we had been counting on that both sides of the aisle were able to come together and close a deal on the funding for FAST, because as you know, for years, it was pushing along for three months at a time.
So the other positive benefit of this is that it does allow states to plan for their spending.
When the transportation bill is pushed or extended three months at a time it's really hard to think about projects beyond that, which means that some of the more major projects aren't undertaken.
And what I commented on earlier, states developing funding mechanisms as we are here in Texas based off of a sales tax ensures that moneys are available to take advantage of matching fund projects that are principally federally based.
Yes, the spending was just a little over $11 million, and then we're still projecting the $220 million to $230 million for the year.
And let me get to my notes on the share repurchase, within the quarter, it was around 350,000 shares and following the ---+ in December, we repurchased 534,000 shares.
Year-to-date number was about $54 million, right.
Yes, year-to-date we've exhausted about $54 million of the $100 million repurchase program.
Good morning, <UNK>.
Well, there's no doubt that the strength of the dollar has a significant impact on all of our activities from recycling to fabrication.
And it's one of the disadvantages of having a stronger dollar, there are a lot of advantages to a strong dollar, but it opens up the door for imports and in an environment where there's global over capacity.
So it's a bit of a magnet to ship product to the United States when there's a stronger dollar.
And so we've seen those pressures, and I think it changes the formulas for calculating what's economically efficient for shipping to the United States.
Transportation costs are down globally, as well, which also makes it more competitive.
And we lobby hard for the interests in the domestic industry and ---+ along with the Steel Manufacturers Association, as well as directly with legislators, and we continue to promote the notion that it's about fair competition as opposed to just protecting our markets.
We believe that we can compete with anyone on a fair basis, but some of the practices that I described earlier in China that cascade into other markets and cause different behavior creates an unfair flow of trade that we don't get government subsidies that we can't be competitive with, so it's all about fair trade for us, <UNK>.
We are a global trader, we know markets are open, but when there's heavy subsidization in markets that causes them to move product throughout the world, that's not good for the global economy or for the home market.
Essentially, in this case the Chinese are exporting their employment problems or unemployment.
I haven't noticed it as being perceptibly different or more disadvantageous, but the economics will continue to drive that and a stronger dollar would reduce, would make it more attractive for others to export product to the United States.
So we know we watch it closely, and it's not something that we can impact but we can only react to, and we react along the same lines that we just talked about.
Yes, <UNK>.
I think we're going to continue to be prudent in the execution of that program and there's a lot of factors that need to be balanced.
We place a priority on having a strong balance sheet and strong liquidity position.
We've made a commitment with the Arizona mill and we've committed to fund that ---+ or Oklahoma mill, excuse me ---+ and we made a commitment to fund that with internal funds, so we're going to look at a whole host of factors in making the decisions on how much and how aggressive and, certainly, our share price will also factor into that.
So it's one tool and we will continue to evaluate it on an ongoing basis.
<UNK>, I'd add to that.
We have, the Board of Directors approved $100 million share buyback and we've still got $46 million before that would exhaust itself.
So at the rate we've been doing this it would take awhile to do it.
We really base it on economics more than anything else, so if we need to, if there's an opportunity to do more we'll be assertive, but we have plenty of opportunity within the current approval.
Good morning, <UNK>, thanks for your question, we appreciate it.
We are always evaluating our businesses and more recently one of the downsizings we undertook was in Australia where we sold a majority of the assets that we have there, and we still have one distribution asset that's being marketed.
But we evaluate all our businesses on their ability to generate returns in excess of the cost of capital, so there's always some thinning that's going to be going on.
Some of it can be very small and items that you wouldn't normally note, like fab scrap yards that we've closed.
We've also acquired some small fab yards to complement our recycling business, so there's a little bit of buying and selling that goes on all the time.
But in terms of major, major restructuring and selling assets, I don't envision that, not at this point in time, but things change and we continue to monitor it, and one of the things that I've been very open in saying is that we're not married to the assets that we have, they've got to generate a return that's reasonable and competitive and creates value for our shareholders.
So we always monitor the performance of our businesses and that's how we concluded the decision to sell the assets in Australia.
Yes, I think I've answered it, <UNK>.
Yes, that really wouldn't be appropriate to comment on right now.
We're always looking at the market for opportunity and we think we're pretty good operators of the micromills.
As I noted in my comments earlier, we've been running essentially full, the Arizona micromill since it was built, and that's why we decided to build the micromill in Durant is because of its existing technology, its low risk, if you will, of execution.
We have a market that we believe it will serve quite efficiently, so that was, in our estimation, a sound project to engage in.
So we continue to look, but we don't have anything that I'd comment on specifically otherwise.
Good morning, <UNK>.
This is a question that we've been asked since the beginning of the decline of the rig count last year.
Over the course of the year, we did see a bit of a dip in the Houston market in construction activity, and bidding.
I think it was just caution to what was going on, but that has since recovered, so we're feeling even optimistic about the Houston market.
The other markets didn't really fall off.
We have a diversity of industry in North Texas from automotive to sports complexes to insurance, businesses relocating processing centers here.
And the San Antonio market is not at all an energy market, and Austin has got other influencing factors.
So we've seen really good strength continue with the exception of that dip for a couple of months in the Houston market which has since recovered.
So the biggest impact that we've had in our order book as a result of the decline in oil and gas prices is really related to trading of tubular and SBQ products which is more energy oriented, and so some of our comments and results related to the M&D division relate to products that do serve the energy industry, but it's a small part of the overall portfolio.
Well, <UNK>, working with our counsel, we had been pressing for ---+ through the appeal process ---+ for a review of the duties that were imposed with respect to Turkey.
So the case has been remanded back to the Department of Commerce, and there's several different matters that the Court of International Trade asked Commerce to relook at, or rethink, and the Department of Commerce has until February 19 or 21 ---+ 22, to respond to the remand from the Court of International Trade.
So at that time, my understanding is that the Department of Commerce can choose to further clarify their findings, they can choose to reevaluate.
I don't know that doing nothing is an option, but one way or the other they have to respond to the court, and so we'll see what the decision is and what direction it takes.
So we're doing everything that we can with the existing trade case.
I think it's really on the initial ruling and the initial data, and I'm getting a nod that's what it's based on entirely.
Okay.
Yes it does, <UNK>.
Yes.
Okay, well, thank you very much, Gary, I appreciate that, and once again, thank you to everyone for joining us on today's conference call.
We appreciate your interest and we look forward to speaking with many of you during our investor visits in the coming days and weeks.
Thank you very much and Happy New Year.
