Commercial Metals Company

Q1 2022 Earnings Conference Call

1/10/2022

spk_0: how come every one of the first quarter of fiscal twenty twenty two earnings call for commercial medals company today's materials including the press release and supplemental slights that accompanied the called can be found on n fees and mr relations that applies to this call it being recorded all participants will be and less and on the most should you need assistance the signal a concert specialist by pressing start than feel after the companies your marks the we will have a question and answer session to ask a question the my first star than one on a touchstone phones to withdraw your question please press start dating i would like to remind all participants said during the course of this conference call the company will make statements that provide information other than historical information and moon included a decent regarding economic conditions ethics of legislation us to import level you it's construction activity demand for finished products data that the capabilities and benefits of me facilities the company's future operations timeline for execution of the companies growth line the company's future results of operations financial measures and capital spending these and other similar statements are considered forward looking and when it involves certain assumptions and speculation and are subject to risks and uncertainties that could cause actual results to differ materially from these expectations the statement have fled the company's believe based on current conditions but are subject to certain risks and uncertainties including those that are described in the risk factors and forward looking statements sections other companies latest annual report on farmed and case although these statements are based on management current expectations and believe cmc offers no assurance that these expectations of the be the truth to be correct an actual results may vary materials all statements are made only as of the state except as required by law seems he does not as the on any obligation to update amend or clarified a statement in connection with the future events changes and assumption of kinds of anticipated or unanticipated events new information or circumstances or otherwise some numbers percentage will be non gap financial measures and reconciliation for such numbers can be found in the company on any money supplement good slide presentation are on the company's website unless stated otherwise all references me to your a quarter and are references to the companies that scalia or fiscal quarter and now for opening remarks and introduction i will turn the call over to chairman of the board president and chief executive officer of commercial medals company with barbara
spk_1: mitt to go ahead
spk_2: good morning everyone and thank you for joining cmc first quarter earnings conference call of wage of you had a wonderful holiday season as we reported in our press release issued this morning the first quarter of fiscal twenty twenty two was another outstanding period with record consolidated and segment results i like to thank cmc is eleven thousand employees for their continued hard work focused efforts on behalf of our customers and stakeholders and we take our customers for their teaching you trust and partnership with fiancee i will begin today's call with a few highlights from the quarter and commentary on c a strategic growth projects or lawrence would uncover the quarters financial information in more detail and i will conclude with the discussion of the current market environment and our outlook for the second quarter of fiscal twenty twenty two after which we will open the call to question before starting my prepared remarks i'd like to direct listeners to the supplemental five that accompanies as call the presentation can be found on fancies sir relations website i'm pleased to report that cmc first quarter of fiscal twenty twenty two where the best and our companies are hundred and six year history earnings from continuing operations were two hundred and thirty two point nine million or a giant dollar ninety per diluted share on that cells of two billion excluding the impact of a tax benefit related to an international reorganization adjusted earnings from continuing operations were a hundred and ninety nine point two million or a dollar sixty two per diluted share bmc generated court either die a three hundred and twenty six point eight million an increase of one hundred nine percent from the year ago period and an improvement of twenty eight percent from the prior quarter this was the third consecutive quarter in which our company has reported records bottom line earnings korea but off and segment level eat at all these achievements are result of the execution of our strategic plans for them to shareholders during our virtual investor day in august of twenty twenty as noted in the press release that very strong first quarter performance bring the cmc is trailing twelve month korea but our to nearly one billion and return on invested capital to eighteen point three percent strong market conditions as strong margins across several product lines certainly contributed to the is exceptional results however to put this performance into context during the fiscal two thousand and fourteen and two thousand and fifteen time period we experienced similar wrote market conditions to what we enjoy today and are twelve months he that all with between three hundred and seventy five and four hundred million with return on invested capital single digits the significant improvement over the past six years underscores the against earnings power a cnc today and it is our objective to produce better returns with higher highs lows through the economic cycle the back the sabres cnc achieved an annualized return on invested capital of twenty five point one percent during the first quarter and an annualized return on equity thirty five point six percent our team members continued it's highly managed controllable cause reflecting changes to cause on a per unit faces better than most industries and macro benchmark flee track we are certainly proud of cmc his record financial results delivered by strong execution of our strategic initiatives as well as solid market fundamentals oh we are proud of the performance today let me take a moment to explain why i believe cmc his best days are still had of us i'll start with sustainability before we can responsibly talk about growth we need to be certain that what we are growing a sustainable fancy was founded a hundred and six years ago as a metals recycler and we carry on that legacy today operating possibly the cleanest portfolio steel mills in the world are also committed to further improvements as we make significant progress towards our twenty thirty environmental goals the and see a scope one and two emissions are already well under the twenty forty paris accord target and our emissions has improved by six point two percent per ton of feel produced compared to our fiscal two thousand and nineteen baseline this to your improvements stands in stark contrast to the global industry which increased his emissions intensity over the same timeframe that's fiscal two thousand and nineteen we've also improved our energy efficiency by seven point eight percent while the global industries performance has deteriorated by nearly six percent we are so we're seeing more renewable energy than ever before and the proportion of green energy within our overall consumption has risen by roughly three percentage points over the last two years and we continue to work every angle to move this figure higher our commitment to renewable sources as demonstrated by the design of our future arizona to micro mill now under construction in mesa this exciting new plants will be capable of directly connected to an onside solar field making smart mill steelmaking the world's cleaner steelmaking time technology even cleaner in our industry sustainability also means treating are people with the right way and keeping them safe on the job pm season mission is that each day every one of our employees finishes their shift in the same condition they started we have developed a unique safety culture that leans on innovative thinking emphasize the shared accountability and aimed toward an ultimate goal of zero incidents through this approach cnc as achieve several consecutive years as improvements in our incident race including dramatic improvements and acquire facilities where we have instilled are cnc culture across each line of business we focus extensively at keeping our people safe and healthy the right thing to do that over the long term effects the care we have our employees will lead to long term retention of are exceptional workforce and make cnc and employer of choice within our industry i touched on only a few highlights of our he has she commitments which is details in our sustainability report published in december twenty twenty one and i encourage you to read the report i'm not i would say that cnc is not just sustainable that of sustainability leader been a leader means always pushing further and never standing still in the years ahead we will do just that and clearly sustainable are clearly sustainable platform gives us a solid foundation on which to grow i like to now discuss got some of our exciting initiative which are a result of the discipline to deliver it execution a cnc strategic plan these projects strength that reinforce our organizations core capabilities while extending fiancees growth runway into markets customer groups and applications we already know well recently announced a series of exciting growth initiative which have been under consideration for some time i'd like to emphasize that we have been disciplined in knowing the strategic direction and goals that most benefit our shareholders disciplined and taking the next step in identifying opportunities that move our organization towards these goals and then acting decisively when these opportunities arise and the tiny is right let me begin with an update on c third micro mill currently under construction in mesa arizona this plan will be the first micro in the world capable of producing merchant bar and as i mentioned earlier will be among the greatest in the world arizona to as we are calling it provides significant strategic value to see and see it will replace the much higher cost and inefficient rebar capacity of the former still california operation the sale of which will fund over half the cost of our new plan arizona to will also get fancy a coast to coast merchant bar said footprint and serve several customers we already know well through our and bq operations in alabama south carolina and texas importantly arizona to will help further optimize cmc is operational network and enhance customer service they are equally excited about cncs fourth micro male announced this morning the new male judged mm for will augment are operational footprints in the eastern united states and enhance our ability to serve markets in the northeast mid atlantic and midwest we expect significant internal synergies from this investment including enhanced production flexibility among our eastern us know network improve customer service capabilities as well as enhanced delivery time and logistical efficiencies and getting feel to its destination mm for the project we have study for several years and now feel the time is right to execute mm for will be rebar centric with additional capabilities under consideration as stated in the press release the competitive site selection process is now under way we will provide an update when the search is finalized this investment further demonstrates our commitment to a sustainable future for cnc both know project stand to benefit directly from the largest infrastructure package to be enacted in the us and several decades the infrastructure investment and jobs act signed last november will provide one point two trillion in funding over five years and stimulate an estimated one two and a half million tons of incremental annual rebar demand at for run right this would add roughly fifteen percent to current domestic consumption of around a half million times we expect the time between the bills an accident in the comments in a significant construction activity to be in the range of eighteen to twenty four months which lines of very well with scheduled future commissioning of arizona to we further interstate a lake calendar twenty twenty four early twenty twenty five started as mm for in this would coincide with infrastructure related to me and nearing for race nothing beyond mill investments cmc is agreement to acquire chance or corporation announced last month we'll add additional products and capabilities which will make and a unique provider of value added reinforcement solution for the domestic and international construction market this transaction represents the and seasons entry into an adjacent and complimentary products face through the purchase of they proven markets and innovation leader the acquisition meaningfully extend she's growth runway and provides a platform for further expansion into high margins hi customer service engineered solution as we just got center call in december ten sars offerings provide best in class value propositions to customers particularly against competing traditional reinforcing solution but are under penetrated in the marketplace they believe this combination of attractiveness to customers and large potential market opportunity will support significant organic growth attempts are in the years ahead and far as already very well managed with a strong reputation and proven innovation and operational capability we believe these factors great really reduce the execution risk as as transaction while providing cnc with solid commercial synergy opportunities out of the game currently we expect to close on the tram the acquisition during the fiscal third quarter the to us know expansions plus a tense or acquisition combined with our recently commissioned rolling line in europe should provide cnc with at least two hundred million a sustainable through the cycle either dog one fully operational my belief that cmc his best days are ahead as days notches on our announced strategic investments
spk_3: but several other factors as well
spk_2: including the quality of our people but not discuss this topic much in the past but it's vitally important to the future a cnc with a longer term impact craters and any new capital projects as we sit here today i'm very confident regarding the new generation of leaders that are developing at every level of our organization our bench strength has never been better fancy it's transformational growth projects over the last several years have expanded our north american business by nearly fifty percent ss attaining organizational adjustment to accommodate such rapid growth employees were provided with opportunities to take on new responsibilities and new roles across the company giving each and a perspective a cnc business and valuable experience managing through change additionally the last two years has involved unprecedented challenges first related complications due to the pandemic followed by high inflation logistical issues and labor shortages our team has responded exceptionally well to the series of challenges we have all seen the outcome a stronger company generating record financial results with hindsight it's clear the isn't for the last several years has created an innovative adaptable stress tested roster of current the future key leaders had c and c lastly and well this is outside cncs control and confident about the future of our core geographical markets fancy as exposure to the most economically virus rapidly growing regions in both us and europe for more than a decade population growth within cncs key us markets have outpaced a broader united states this trend is picked up a is considerably since early twenty twenty and have been reflected in new community formation and relocation of businesses ultimately population drive construction over the long term and cnc is well positioned to benefit finally as stated in our press release the board of directors declared a quarterly cash dividend of fourteen cents per share a cnc comstock for stockholders of record on january twentieth twenty twenty two the dividend will be paid on february third twenty twenty two this represents fiancee is two hundred and twenty ninth consecutive quarterly dividend with the amount paid per share increasing seventeen percent from a year ago as we announced last quarter we are also committed to returning capital shareholders through our share repurchase program and poll give you an update on our activities as task quarter without isn't over feel now turn the discussion over to paul's or and senior vice president and chief financial officer to provide some more comments on the results for the quarter
spk_4: like a barbara and good morning to everyone on the calls today a barbara noted we reported record fiscal first quarter twenty twenty two earnings from continuing operations of two hundred and thirty two point nine million for a dollar ninety per diluted share more than triple prior year levels of sixty three point nine million and fifty three so respectively
spk_3: results with quarter include a nap after tax benefit of thirty three point seven million primarily related to a tax capital loss recognition on an international tax restructuring transaction which took place in the quarter excluding the impact of this item the adjusted earnings from continuing operations were one hundred and ninety nine point two million or dollars sixty two per diluted share core even the from continuing operations was two hundred and thirty three hundred and twenty six point eight million for the first quarter of twenty twenty two more than double the hundred and fifty six point six million generated during the primary pure year period
spk_4: by nine of the supplemental presentation illustrates the strength of cmc his quarterly results both are north america and europe segments contributed significantly to year over year earnings growth while court even da per ton of finished steel reached a record level of two hundred and thirty three dollars per ton
spk_3: the first quarter mark the eleventh consecutive quarter in which the m c generate and analyze return on invested capital at or above ten percent which is in excess of our cost of capital
spk_4: now i will review our results by segments for the first quarter of fiscal twenty two the north american segments recorded adjusted a dove two hundred and sixty eight point five million for the quarter and all time high this compares to adjusted ebitda dove one hundred and fifty five point six million in the same period last year largest driver of the seventy three percent improvement was a significant increase in margins on steel products and raw materials partially offsetting a benefit for higher controllable costs on a per ton of finished steal bases due primarily to increased unit pricing for free energy and alloys
spk_3: selling prices for steel products for our mills increased by three hundred and sixty four dollars per ton on a year over year basis and seventy six dollars per tonne sequentially margin over scrap on steel products increased two hundred and two dollars per tonne from year ago and eighty two dollars per tonne sequentially
spk_4: the average selling price of downstream products increased by a hundred and fifty eight dollars per tonne from the prior year reaching one thousand and ninety two dollars this increase was consistent with the rise in underlying scrap costs resulting in unchanged margins over scrap relatives to the prior period during our fourth quarter earnings call i indicated that cmc downstream backlog was expected to reprice higher through fiscal twenty twenty two has new higher price worth replaces older of lower price work
spk_3: three the first four months of the fiscal year we are seeing the anticipated rate of reprising players
spk_4: we continue to expect forward further upward movement and cmc the average backlog price to the remainder the fiscal year
spk_3: particularly in light of strong market demand and bed volume which we are experiencing in our downstream geography is shipments of finished product in the first quarter were essentially flat from a year ago and market demand for our milk products remain strong this are supported by our own shipment volume and industrywide data we track regarding consumption of rebar merchant bar and why iran downstream product shipments increased by nearly eight percent from the prior period driven by the beneficial impact of are growing construction backlog burning to flight eleven of the supplemental deck or europe segment generated record adjusted even of seventy nine point eight million for the first quarter of twenty twenty two compared to adjusted even though fourteen point five million in the prior year period this improvement was driven by expanded margins over scrap the receipt of a fifteen point five million energy credits and strong profit contributions from our new role in line higher costs for energy and milk consumable partially offset these positive factors
spk_4: energy use credit received was for calendar twenty twenty legislation is currently before the polish parliament to extend this credit further argent over scrappy increased two hundred thirty six dollars per ton on a year over year basis and were up one hundred and twenty dollars per tonne from the prior quarter type market conditions provided the backdrop to achieve the segments highest average selling price and more than a decade reaching eight hundred and sixty nine dollars per tonne during the first quarter
spk_3: this level represented an increase of four hundred and eight dollars per tonne compared to a year ago and one hundred and six dollars per tonne sequentially europe volumes declined a percent compared to the prior year as a result of extensive planned maintenance performed at our rebar rolling line shipments of merchants and other products were relatively unchanged the sales of higher margin finished products replace sales of semifinished village
spk_4: demand conditions within central europe remain strong
spk_3: the polish construction market continues to grow at a robust rate of particular strengthen the residential and infrastructures suspect sectors
spk_4: strachan of our merchants and why rod consumption of our merchants and wire rod product has been supported by expanding manufacturing activity as highlighted by several key macro economic indicators including the polish and german pm my reading and polish new industrial orders the combination of good demand and strong pricing as provides an ideal backdrop for the start of our third rolling line this new asset is significantly outperforming the original investment case burning to capital allocation balance sheet and liquidity as of november thirtieth twenty twenty one cash and cash equivalents total foreign and fifteen million in addition we had approximately six hundred and fifty million of availability under a credit and accounts receivable programs bringing total liquidity to nearly one point one billion
spk_3: addition as we announced last week in late december we closed on the sale of our rancho cucamonga california flight and receive gross proceeds to three hundred thirteen million
spk_4: proceeds received represent approximately forty five percent of the entire purchase price of the rebar acquisition we completed and twenty nineteen during the second quarter will record a pretax gain of approximately two hundred and seventy five million related to this transaction during the quarter regenerated twenty six million of cash from operating activities despite a two hundred and fifty two million dollar increase in working capital the rise and working capital was driven by the increase in average selling prices looking beyond priced factors are days of working capital of decrease from year ago
spk_3: over the course of the passport for cmc as invested roughly five hundred million dollars in working capital or leverage metrics remain attractive and have improved significantly over the last two fiscal years as can be seen on flights fifteen or net debt to eat at though ratio now said said just point seven times while our net debt to capitalization is eighteen percent we believe are robust balanchine overall financial strength provides us the flexibility to finance or strategic organic growth projects and complete the acquisition of cancer while continuing to return cash to shareholders mc is effective tax rate was eleven percent which was driven sharply below are typical statutory rape by the international reorganization perform during the quarter absent the nachman have any corporate tax legislation that would impact fiscal twenty twenty two we forecast or tax rates to be approximately twenty five to twenty six percent for the balance of the year
spk_4: with respect to see him sees fiscal twenty twenty two capital spending a lot we currently expect to invest four hundred and seventy five to five hundred and twenty five million the here
spk_3: roughly half of which will be attributable to arizona to
spk_4: lastly after approving the program and mid october cmc repurchased one hundred and fifty nine thousand five hundred shares during the first fiscal quarter and of twenty twenty two at an average price of thirty three twenty eight per share these transactions amounted to approximately five point three
spk_3: lillian leaving three hundred forty four million remaining under the current authorization we expect share buyback activity to increase in the second half of the year with as this concludes my remarks and i'll turn it back to barber for her comments on the of look for the of balance of the year
spk_2: thank you paul turning now the market conditions first in north america we're seeing strong activity within nearly all of our and market has to know level demand for rebar merchant bar and wire rods remains robust with total domestic consumption for each of these products growing on a year over year basis during and sees disco first quarter ribeiro why rod in particular are being supported by continued construction growth and fifth first quarter total domestic construction spending increased roughly ten percent from the prior year according to the us census bureau driven by growth in both residential and private nonresidential category while national spending was largely unchanged for infrastructure activity within cmc his core geography is outperform the national average during the first quarter driven by help here state level budgets and the need to accommodate growing populations with expanded infrastructure networks strength in construction activity has also benefited our merchant bar product lines which are used in various applications including feeling joyce industrial stairs and railings and warehouse wracking the industrial markets served by cmc is merchant products are healthy we're seeing particular strength among machinery and equipment manufacturers as you know construction is by far cncs largest and market and our best leading indicator is our volume of downstream project is activity levels have been very strong for the last three quarters driven by a good blend of private and public sector work project owners are also sorting high volumes of newark which has allowed cnc to grow or downstream backlog on a year over year basis for two consecutive quarters work is entering our backlog it's very attractive average price levels which we expect to drive profitability when shift in future quarters the picture is equally positive in europe construction activity is strong with new residential construction permits increasing by double digit percentages on a year of a year basis the central european industrial sector continues to grow as reflected in the current eighteen month trend of expansionary pm my readings for both poland and germany with production from our new rolling line which allows or polish operations for these each of our three major product group simultaneously fiancee is now it's and better position to capitalize on this growth in addition supply congestion in central europe are tight which has given has driven margins sharply of worse from the historical those of fiscal twenty twenty and early fiscal twenty twenty one regarding our outlets for fiscal twenty twenty two we remain confident they don't argue of the marketplace and our internal indicators we anticipate continued strong financial performance signs point to robots demand and are key and markets and we expect supply and demand commission conditions to remain favorable supporting healthy margin level a positive town of our outlook is backed up by several key external construction forecasts and indicators the portland cement association once again increased his expectations for cement consumption growth in twenty twenty two and now inches taste an increase of two and a half percent on a year over year basis the architectural feeling index continues to point toward expansion in the year ahead particularly within our core southern us footprint additionally the dodge momentum index which measures the value of non residential projects entering the planning phase remains near a fourteen year high and show strength in both it's commercial and institutional components for near term in the second quarter of fiscal twenty twenty two we expect shipments to follow a typical seasonal trend which has historically equated to a modest declined from que one level margins on still products as well as controllable cost per tonne should be generally consistent on a quarter over quarter basis once again i'd like to thank all of cnc employees for delivering yet another quarter of outstanding performance
spk_5: thank you enough this time we will now open the called the question
spk_0: we will now begin the question and answer session
spk_6: to ask a question me
spk_0: in one on your touched on phone if you're using the speaker phone case pick up your hands as if i'm facing the key
spk_7: he said anything your question has been after
spk_0: like to withdraw your question
spk_8: i tend to
spk_0: you can we just have to one question in one follow up if you have further questions he movie into the session you at this time legal costs money to need to as i'm laura
spk_6: my first question concerns each discussing adding that try to back east
spk_9: the hi how can you add and know thanks for taking my questions are my first question is on the announced a new micro made are you mentioned that the dvd box and click on that you are looking to i got and become capability but can you provide a new rough estimate on the size and get picked for the man
spk_2: yeah cities as i think until we conclude are all of our analysis and our site selection we're not we're not prepared to is further specifics on that said i think if you look at our track record with sars or on other micro mills you know we will will be very disciplined in the way we look at the market and will come back to you as soon as we can with more specific around
spk_10: the catholic needs
spk_11: okay thanks for the color ah
spk_9: and my second question is on the funding for defense that i can with acquisition now that you had a little more time they exploded options and initial thoughts on what the mix of data cache would be
spk_4: yeah gotta get morning cities
spk_3: you know we we benefit from the very strong balance sheet that we that we have and so as we work towards closing which barbara line or be likely and the as a third fiscal quarter we will lead take stock and and leverage that strength of the balance sheet to to make sure we fund other their growth project in a in an efficient manner
spk_4: so at this stage we have not determined exactly what that will be but we have a lot of tools in the toolbox to or to get that done well
spk_9: okay of congrats on a great weather think it's xd thank you
spk_0: oh next question comes from within ten years with some sense to school
spk_12: yeah a happy new year everyone have been here since i'm a different asked two questions on one as on the new mail on the past is really flagged the importance of your southern be and the specific growth and that regions a little more color on why they're coaster midwest damned if you're concerned about any greater station and point that i'm and a second question is just about volumes and acquire i thought they were a bit late as one to understand that and that still implies a define and said i said corner as per traditional thanks
spk_13: thank you to know
spk_5: you know a couple comments on and on the new now i think
spk_2: we have had a traditional southern primarily southern exposure but following the the acquisition of a few years ago that really rounded out our our footprint and opened a third to take advantage of a very very high concealing rebar market in in the northeast and
spk_14: as as you know well
spk_3: infrastructure bill that that was passed something that is
spk_2: you know talked about for probably the last ten years that i've been here as cnc is going to create an enormous amount of additional demand and in a we think the timing of this is his perfect to take advantage of that in addition to all the other benefits that come with upgrading the technology we clearly have a commencement to green technologies as the micro mill technologies the most efficient in the world in is in with it comes all kinds of quality and customer benefits so it's this is very consistent with his
spk_3: you know our long term strategy to make sure that we have we employs a the latest technology in the industry which happens also says the green technology and the world and you know the infrastructure bills this is coming is gonna fully support see the off
spk_15: as as investment
spk_2: oh and then you've had a cluster of i take that one part yes are so similar with respect to to volumes
spk_4: i'll start with with with europe as far as i mentioned europe had a significant outage and in one of it's mills that was a plan maintenance outage home and that drove much of the earth the the reduction in in volume so we do expect said yeah quarter over quarter sequentially we will not follow the than normal seasonal trend of of lowest shipments in the in the fiscal second quarter been in fact the see a modest object to to volumes in the in the second quarter in in poland in north america
spk_16: the as a total finished volumes if we add both the steel product volumes as well as downstream products were essentially flat to a year ago period there was a shift between
spk_4: mill steel product shipments to to downstream as we enhanced are our backlog and shift more internally but overall volume was essentially flat to where we were a year ago and and somewhat impacted by the as a holiday sees the beginning of the holiday season as well as a maintenance outages that we had during the during the quarter with respect to north america we do expect the traditional
spk_16: seasonal down downswing in in volumes
spk_4: of the total feel product and downstream groupings into the to the second quarter aligned to normal and and i would be generally are down around five percent from where we were in the in the first quarter and that's just primarily related to
spk_16: the the extended holidays over the christmas period
spk_12: gotcha and then i'm sam i am a question on the midwest and that or the east coast now i'd snuck in a question about is that little bunch of that more important as that's a concern would you mind and anson apparently
spk_2: yeah to nurse earning your well aware of where the major importing locations are in i think
spk_3: we are assesses we're going to enjoy a pre save bowl import environment even with the excesses that isn't and made
spk_14: you know to the the european situation
spk_3: it's it's always a risk but we
spk_2: monitor that carefully and ghana point back to our track record of introducing the micro mills's of the benefits of that
spk_14: technology and quality cause
spk_2: every time we've we've built a new know it is started up and then then fall so between the infrastructure plan to benefits of the technology if we don't see a major factor there and factors
spk_3: i think we're going to enjoy a favorable import environment
spk_17: foreseeable future
spk_12: thanks by american public health soft yep
spk_18: fluidly i think you think you to tim
spk_19: i don't mind if you got a consensus
spk_0: thousand one to be joined the the key
spk_20: i'm not getting confirmed
spk_21: to the phone with
spk_22: people get to them and things take your question today
spk_2: like that's not a question please with the new east coast know you touched on earlier potential for some synergies and operating efficiencies able to give us any a tangible examples of what you're looking you're on the operating system he sighed subsequent find the scale of synergies that would make the investment should they tracked diversity seen on a standalone clean go after the past please accept them
spk_23: thank you
spk_2: yeah so happy new year of
spk_5: if you're doing well
spk_2: you know i think again i i just went back to our track record and you know we're always evaluating the long term capital knees
spk_5: existing capacity balanced with
spk_2: you know upgrading to a more current and new technology
spk_5: and if you look at when we did when we did the analysis it was it was economically more attractive
spk_3: to go ahead and invest in
spk_2: this new technology that's going to be lot more efficient cost effective higher quality lower environmental impact than reinvesting the older legacy technology the other factor we always evaluate his market demand and you know as a a indicated earlier the demand for day is is very robust and you know the markets are i will say and a sold out condition and when you lay on the industrial investment that's going to be made over the coming i've seven ten years
spk_3: it is between the market analysis
spk_22: and economic equation and that makes his project very attractive
spk_3: thank you like a simple question threads a fabrication pricing i believe in your furthermore cucumber to the backlog prices to increase that the coming fiscal year i give that if you get past that writings have been set can with reference to steal cost you that comment a sign of competence at spa free bar places could continue increasing rather called unique can a man dynamic for fab itself improving the pricing for fabrication please
spk_4: but i'll i'll start and then barber can add some some comments and you know as he as you
spk_24: are aware and know our business well you know essentially the fab pricing is is is based when the when they are the contract is awarded that a price over and above
spk_3: typical rebar pricing and as we look throughout last year and rebar pricing increased
spk_4: you know north of of three hundred dollars a a time and while we saw a nice repricing of the of the backlog during the other desert the first quarter we're we're still lagging the overall increase in in what were
spk_16: shipping
spk_22: because of the older or their contracts that remain in in our backlog so we do anticipate that the based on the of that activity that we're seeing today which is very strong that will continue to
spk_25: see strong rebar pricing and and as a result continue to see new work going into our backlog that is reflective of these these higher priced contracts that
spk_0: that we're seeing today great thank you very much
spk_26: he kisses next question comes from and falcon he been placed on thank you very much hope you're all a safe happy new year just too quick questions for me
spk_27: didn't you just give us a little clarity on how you look at the overall cost outlook for twenty twenty two august the on the scrap side maybe also on the the two sides obviously they always some voices in the in the market talking about hi a scrap prices for long gone and and always obviously there's a loaded with energy punch going on so you know to what extent if at all you are
spk_5: are impacted by any of this how you kind of looking at twenty twenty two is my first question and my second question i'm assuming for a moment it's it's gonna be another still a year year for you guys on the margin side and to do you have a preference for buybacks over dividends how how should we think about that from of capital allocation the point of view
spk_2: thank you very much those are the two questions thank you i'll begin and then can and maybe get a little more guidance if if you're looking for a modeling question you know clearly there's all sources inflationary pressures out there
spk_14: you know what what i would say it's the market is absorbing those inflationary pressures and at the same time we're trying to manage our own costs structure to with an object is to
spk_2: his have our inflation be less than what you would look out in terms of an overall market inflation number and i think our our results with barrels that we've done a really good job of you know using productivity to offset some of those inflationary pressures that the strong market is allowing does the inflation of he passed through and i would remind you know that that the pressures that were seas are not not any two different than than everyone else in the marketplace if you get down to individual line items and and probably turn the turn this over to fall to get specific
spk_28: you know there are some components of the cost structure where the inflation seems to be moderating and then there's other elements of the construction where are we may see some continued pressure on inflation
spk_2: you know as it relates to scratch scrap as inflows throughout the year you know market demand and tightness and whether or not scrap of living off shore and not unlike you know a lot of other seal products other than ourselves as far as you know we really are in the market on a spot bases and so our products are able to
spk_3: absorb those fluctuations
spk_2: and we see below to continue strengthen in demand is as the primary factor that's going to help preserve arm are metal margins going forward
spk_4: from my perspective as it relates to capital allocation i think we're fairly clear in october
spk_3: you know when we took action on increasing both the dividend and reinitiate in or share repurchase program you know that was a very healthy increase in the dividend and as a meaningful repurchase program that was put in place and are board you know evaluate sad on and on
spk_4: going basis and right now will execute on that and and i'm sure as has the right moment will reevaluated see where we go from here
spk_3: variable just add to your question with respect to energy specifically you know in in europe
spk_4: well you know the latter half of of december we certainly far energy levels come back down and and as a result i think we're we're through the period of of of the feet that we saw three have much of the other of the fourth quarter of twenty twenty one pounds and you know the there should be a lower lower costs ahead now we were sheltered from much of of that increase in the spot pricing due to a way you know operating in poland has significantly lower cost energy them than most other countries within europe as well have a as as a result of our of our hedging arrangements and i guess to adult over the color to to to barbarism point you know if you look at where costs have had the the most impact to us is energy is frayed and it some of the long term consumable that we we we use and our business you know energy as we've seen him in in in their polish operations for hedging and activity that we have their to mitigate some of these price spike certainly of health
spk_3: we have a fairly significant fleet of of our own frail and and tractor trailers that help with respect to some of the challenges on the logistics friends here in the in in the us
spk_4: and so that helps with some of the inflation that we're seeing their and and finally with respect to some of the consumable we pride ourselves with with contracts that we have in place with
spk_26: with our suppliers which again allow us to manage those costs and
spk_29: ultimately have greater visibility to to those costs and certainly you know as as some of the the industry principally a the hot roles
spk_20: sort of slows down it's production rates we would expect to see some of those rates to or to dissipate and me in the alloway area so overall comparatively speaking i think we're we're in in in good shape with respect to the key areas that have seen inflation the fear
spk_30: but service that's very clear appreciate the year the teacher lancer sanctuary much stay safe
spk_31: yeah thank you very well
spk_32: i'm cooking come from
spk_33: keep on capital masses good morning for shallow the the tensor acquisition expect to the clothes and your third fiscal quarter that's gonna be i think the biggest acquisition
spk_2: after you after that are now on and and and pretty sizable in terms of your the platform they're more
spk_3: i am in a third that you have your your eyes on as you you grow the company
spk_2: and thank you so as as you know been around a long time in a we're not going to give any specifics as it relates to potential targets hi we've worked hard to reposition the portfolio and to have a balance sheet that is and taxable and allows us a lot of flexibility and clearly least we believe that the addition of tents are also have the opportunities to think about some some other things and so we would look at is another avenue for for growth our first objective is to to get the acquisition
spk_5: and enclosed and fully integrated and choose to reap the benefits of of
spk_3: the acquisition guys already we are to the extent we can interacting with the team as we await the regulatory approval
spk_14: we are finding more and more situations where we we both are working on the same job sites and where we have worked together and the pass on on projects and so we're just really excited to get across the finish line
spk_2: and get it close the weekend really dig into the as commercial opportunities says that will no doubt exists and the timing will the really attractive
spk_3: well as i indicated earlier with the with the infrastructure bill
spk_33: we think there will be you know just said a great time for us to be taking this on and
spk_34: we really look forward to where we can go from there but were always greeting things and we you we we see a lot as as opportunity on the horizon
spk_5: yeah i know the deal has been closed yeah but regarding tons are there their likelihood that you're going to
spk_2: we have to put more capital into that business as you as you grow it or or as you see fit with with infrastructure and the capacity
spk_10: tom yards on top of the
spk_3: the the amount of capital that years i gotta buy the business
spk_2: yeah interestingly enough so one one the things said was attractive about that and business to us is the the higher margins available because it is more of an engineer solution and there is a heavy technology or indeed component to it such secondarily the lower capital intensity we believe the third printers
spk_22: exists within ten sar has he has sufficient ability to expand and increase the output to need does he know the demand in the foreseeable future
spk_35: but he is the demand exceeds he than our expectations three is as needed to add manufacturing
spk_0: is order of magnitude less on an initial investment than
spk_2: you know what you think of in our in our a traditional filmmaking surprise thanks so much i look forward to while learning more about the business a time machine
spk_3: thank you so
spk_0: at this time there appear to be more focused on my my not on the call back over to me
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