Nucor Corporation

Good day everyone and welcome to the New Corps Corporation's second quarter of 2019 earnings call. As a reminder, today's call is being recorded. Later we'll conduct a question and answer session and instructions will be given at that time. Certain statements made during this conference call will be forward-looking statements that involve risk and uncertainties. The words we expect, believe, anticipate, and variations of such words and similar expressions are intended to identify those forward-looking statements which are based on management's current expectations and information that is currently available. Although New Corps believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. More information about the risk and uncertainties relating to these forward-looking statements may be found in New Corps' latest 10-K and subsequently filed 10-Qs which are available on the SEC's and New Corps' website. The forward-looking statements made in this conference call speak only as of this date and New Corps does not assume any obligation to update them either as a result of new information, future events, or otherwise. For opening remarks and introductions, I'd like to turn the call over to Mr. John Ferriola, Chairman, Chief Executive Officer, and President of New Corps Corporation. Please go ahead, sir.

Good afternoon. Thank you for joining us for our second quarter earnings call and for your interest in New Corps. Other members of New Corps' executive team are also on the call today, including Jim Pryos, our Chief Financial Officer, Craig Feldman, responsible for raw materials, Lad Hall, responsible for sheet products, Ray Napoleon, responsible for engineered bar products, Mary Emily Slate, responsible for tubular products, Dave Szymorski, responsible for merchant bar and rebar products, Leon Topolian, responsible for beam and plate products, and Chad Udomark, responsible for fabricated construction products. My remarks will be brief this afternoon as we covered a lot of this material at our recent Invest Today event. Thank you to everyone who participated, either in person or via the webcast. And for those who could not join us, a recording of the event and the slide presentation are available at newcord.com. Before we discuss our second quarter earnings, I would like to thank our teammates for continued excellent safety performance. Safety is the number one priority for everyone on the New Corps team, and we continue to work to improve at it, identifying and mitigating risks and changing behaviors to achieve our goal of zero incidents at every New Corps facility. Turning now to our performance in this quarter, our financial results were lower than our expectations at the start of the quarter. Unusually wet weather and aggressive supply chain de-stocking impacted mill order rates in the first half of 2019. We have seen lower volumes during the first half of this year, resulting in a more challenging price environment. However, real demand for our products remains strong in key end-use markets. We see healthy conditions in end-use markets that typically account for more than two-thirds of our steel shipments. For this reason, we are cautiously optimistic that pricing has bottomed on most of our products and that volume should be more closely aligned with real end-use demand in the second half of the year. We all know that the steel industry is cyclical, and we have built our business model around that reality with our low and highly variable cost structure and our diversified product portfolio. Our performance in the first half of the year benefited from meaningful -over-year earnings gains in our plate, MBQ, rebar, joist and deck, metal buildings, and pilings distribution businesses, once again highlighting the benefits of our diversified product mix. Our strategy to increase market share in automotive applications also continues to bear fruit. We are currently shipping into this market at an annual rate of about 1.6 million tons. Further, we were recently named Supplier of the Year by General Motors. We are the first EAF-based steel producer to receive this recognition. It's a tremendous testament to our team and further evidence of our success moving up the value chain and gaining market share in many value-added applications. As we have previously discussed, we have several investment projects coming online this year, and I want to update you on their status. In our sheet group, we continue to ramp up production of our new specialty cold steel at Newcore Steel Arkansas, and we have been pleased with the performance. This project will allow us to produce higher-valued products, especially in high-strength steels, and it will differentiate Newcore Steel Arkansas from its competitors. We are currently in trials for value-added applications, and customer acceptance has been excellent to this point. We are targeting to have as much as 20% of the new mill's capacity booked with contract customers by the year end. We expect to continue adding contract volumes at the mill as 2020 progresses. In Kentucky, Newcore Steel Gallatin has begun commissioning its new galvanizing line and test-running coils to verify the functionality of the line. Production of pickled and oiled coils has started this month. We will be followed by production of galvanized coils in August. With 500,000 tons of annual capacity, this 72-inch galvanizing line will be the widest hot-rolled galvanizing facility in North America. Gallatin is now positioned to supply the underserved Midwest heavy-gauge hot-band galvanized market. The new line will enable us to grow our automotive applications to include frames, control arms, supports, and brackets. Our commercial teams are excited to have these new capabilities in our sheet mill group to serve both new and existing customers. The last project in our sheet mill group I would like to mention is our joint venture with JFE Steel in Mexico. We are on track for a startup of the galvanizing line later this year, and we look forward to serving automotive customers in Mexico. In the bar mill group, our Marion, Ohio bar mills new in-line rolling mill is starting up in the third quarter. Marion's new reheat furnace, which we installed last year, is reducing our natural gas consumption by about one-fourth. In late 2019 or early 2020, Marion will also install quench and temper equipment to reduce alloy costs at the melt shop. The upgrades significantly improve Marion's efficiency and strengthens its leadership position in the regional rebar market. Two other projects in our long products group are on track for startups later this year. The merchant bar product expansion at our mill in Illinois and the first of our new rebar micro mills, which is located in Sedalia, Missouri. In all, we have ten significant organic investments in various stages of development, representing a total capital investment of approximately $3.5 billion that will deliver long-term profitable growth to our shareholders. As I have made clear on several occasions, we are not simply adding tons to get bigger. These projects target to find market objectives and opportunities to generate higher profits and reduce volatility through the cycle. They also expand our product portfolio so that we will be able to offer our customers more solutions to meet their toughest challenges. The U.S. steel industry continues to benefit from effective trade enforcement. Through May of 2019, total and finished steel imports declined by 12% and 18% from last year's levels. In the last 12 months, approximately 6 million fewer tons of imported steel have come into the U.S. market. The decrease in imports reflects the cost competitiveness of our domestic steel industry and the success of our industry's ongoing efforts to see that the rules of trade are enforced. Recent findings by the U.S. Department of Commerce provide further evidence that our industry, our government, and our customers understand the importance of acting to keep unfairly traded steel and steel products from distorting the U.S. market. On the second, the U.S. Department of Commerce issued its preliminary circumvention determination on imports of galvanized and co-rolled sheet steel from Vietnam manufactured with hot rolled or co-rolled substrate from South Korea and Taiwan. Commerce found that the steel went through minor modifications in Vietnam to avoid appropriate restrictions that have been imposed on imports from South Korea and Taiwan. Imports of these products from Vietnam must now pay duties of more than 400%. It is vitally important that our government stop these and similar illegal trans shipments meant to avoid trade duties, and we are glad that they have taken such a strong action. On July 8th, the U.S. Department of Commerce also issued a preliminary countervailing duty determination on imports of fabricated structural steel from China and Mexico, and duties have been applied to imports from both countries. This ruling shows that the government is not only concerned about unfair trade practices in raw steel, but also in downstream products. Rules-based trade is a fundamental underpinning to the continued success of our customers, Nucor, and the U.S. economy, and we are pleased that the Department of Commerce continues to take action on individual trade cases. Jim Priaz will now provide more specific detail about our second quarter performance, as well as our outlook for the remainder of this year. Jim?

Thanks, John. Nucor reported second quarter of 2019 earnings of $1.26 per diluted share. Earnings from our steel mill segment were lower due primarily to reduced shipments to our service center customers, reflecting their caution with respect to inventory levels and order rates in a weakening price environment. Earnings from our steel product segment improved in second quarter in line with our expectations. Strong non-residential construction markets, along with increased productivity from our rebar fabrication and metal buildings businesses were the primary factors. Results from our raw material segment were slightly better than we anticipated. It is worth noting that our second quarter results included $20.5 million of pre-operating and started costs related to strategic investment projects, compared with $19.6 million in the first quarter of 2019 and approximately $6 million in the year ago quarter. First half 2019 cash provided from operations was approximately $1.2 billion, up from about $870 million for the year ago period. Inventories and receivables were a source of approximately $400 million in the first half, reflecting consistent working capital management in a declining price environment. Our capital spending accelerated in the second quarter and totaled $650 million so far this year. We received our permits for the Gallatin expansion, so between that and other projects that we have in our pipeline, we expect to increase CapEx further in the second half and approach our budgeted amount of approximately $1.8 billion for the full year. With respect to cash return to shareholders during the second quarter, we paid dividends of $123 million and stock repurchases totaled $125 million. Thus far in 2019, we returned 50% of our net income to our shareholders, while also investing for long-term profitable growth. We ended the quarter with $1.4 billion of cash on hand. New course financial condition remains strong. With total debt outstanding of $4.2 billion, our gross -to-capital ratio was 28% at the end of the second quarter. Our $1.5 billion unsecured revolving credit facility remains undrawn and does not mature until April of 2023. Our next material debt maturity is in 2022 for approximately $600 million. Now turning to the outlook. Earnings in the third quarter of 2019 are expected to be lower than the second quarter. Inventory de-stocking, especially by service center customers, has led to declining results -to-date and our muted expectations for the next quarter. While we are encouraged by recent upturns in the prices for flat-rolled steel products and, as John mentioned, we do continue to see healthy demand for our major end-use markets. We finished the second quarter with much lower margins in sheet and plate steel and believe that margin recovery could take some time. We therefore expect weaker linked quarter performance in the steel mill segment, again, primarily reflecting reduced margins for both sheet and plate steel. However, we do expect that service center customers will resume more normal buying patterns in the third quarter. The steel product segment is expected to achieve further profitability improvement in the third quarter over the second quarter. Non-residential construction activity remains strong and we believe some incremental demand has likely shifted to later in the year due to difficult weather conditions during the first several months of 2019. Recent initiatives to improve the performance of a rebar fabrication and metal buildings businesses are also expected to continue to favorably impact results for the steel product segment. The performance of a raw material segment is expected to decline in the third quarter compared to the second quarter due to further margin pressure at our direct reduced iron or DRI plants. In addition, later this quarter we will begin our planned 65-day outage at Newcore Steel, Louisiana to complete major enhancements to the physical plant. Thank you for your interest in our company. I will now turn the call back over to John. Thanks,

Jim. Before we take your questions, I would like to acknowledge a significant milestone that Newcore Steel has made possible. Newcore Steel is the first steel mill Newcore built. Back in the mid-1960s, our founder, Ken Iverson, decided that Newcore needed to be able to supply its own steel for its choice operations in Florence, South Carolina. Newcore selected EAF technology for Newcore Steel and took the first step in leading the transformation of the domestic steel industry that has occurred over the past 50 years. We celebrated this 50-year run at Darlington on June 26th. Darlington continues to be a strong contributor to Newcore's profitability and a valued member of its community. We look forward to another 50 years of success at Darlington. In closing, I would like to say thank you to our more than 26,000 teammates for the way you execute our strategy and thank you for the work that you do every day to build a safer and more profitable Newcore. I'd also like to say thank you to our customers. We appreciate the trust you place in Newcore and we will continue to do our very best to earn it with every order. And finally, thank you to our investors for entrusting us with your valuable capital. We would now be happy to answer your questions.

Thank you. The question and answer session will be conducted electronically. If you'd like to ask a question, please do so by pressing the star key followed by the digit one on your touchtone telephone. If using a speakerphone, please be sure your mute function is turned off to allow your signal to reach our client. Once again, ladies and gentlemen, please press star one to ask a question. We'll take our first question from Martin Engler with Jeffries.

Hi, good afternoon, everyone. Good afternoon. Within the raw materials, you pointed towards the lower sequential results into 3Q and further margin compression and DRI. Do you expect the overall segment to remain profitable? And could you also talk about your material sourcing strategy, given the upcoming, I think you said it was a 65-day outage,

correct? Can we don't disclose specifically which business units are going to be profitable? But overall, we would expect the raw material segment to be profitable.

I'll address some of the other issues. You mentioned about sourcing. We have several sources. You know that there's some challenges in the iron ore marketplace but we have solid, secured deliveries coming in. We're not worried about that. Pricing is a bit of a challenge right now because of some of the things that are going on. But we feel good about the rest of the year and being able to get what we need when we need it. I think the sourcing question is about us getting something

to replace the

DRI for our melt shops. Oh,

is that what you will put, Martin? Yeah, more along the lines of while you have this outage, have you been pre-building any DRI pellet inventory or are you importing any prime scraps? I guess what's the strategy there?

Yeah, we've built some inventory but we have one of the great things about our raw material strategy overall is the flexibility of it. And we have the DJ Joseph team that's able to go frankly globally to secure any scrap that we need, prime or obsolete. We have great sources of HBI that we can bring in, again through David J. Joseph. And we have great sources of pig iron that we can bring in. So we are not at all concerned about being able to get the virgin iron units that we need to maintain, reducing the ultra high strain steels during this period of outage from the DRI plants.

Okay, excellent. Thanks for the color there. And if I could, one other quick follow-up. There have been several recent flat rolled price increases introduced. Can you discuss how that's been received by the market and any change in the order book since that was introduced?

Well, there's been two that have been introduced. The first one was maybe what, three weeks ago? Three weeks ago and we were able, it's $40 and we were able to get a little 40 of that $40. The second one was just about a week ago and it's really too early to tell too much about how much we'll get of that 40 bucks. But the initial week looks encouraging. We're also encouraged by the fact that as a result of these increases, we've seen an increase in the volume of our orders coming in also for all three of our Hotman, Coldwell and Galvanized products.

Okay, very encouraging. Thank you very much.

And next we'll go to Timna Tanners with Bank of America, Merrill Lynch.

Yeah, hey, good afternoon everyone. So I wanted to ask about some of the capacity coming on in 2020 is replacing some of the domestic supplies specifically if you look at US Steel's Fairfield mill and if you look at JSW's Baytown plate mill. And I was just wondering if you have any thoughts about how that can affect the market and if Nucor is a supplier on any of those, any of those mills on raw materials or semi-finished products.

Okay, let's start with the semi-finished product. Since you asked that question about JSW coming online and US Steel, we have been supplying both of those companies. But as a result of that, we've built a pretty good product line of round billets and blooms that we can sell to the entire market. And we recognize that at least at this point in time, we're being told that we will lose that business in the next couple of years. We have been building a customer base outside of those two and we've been securing contracts with other customers. So we're confident that we'll be able to replace the tons from US Steel and from JSW with other customers as they pull their business away from us.

Okay, that's helpful. Go ahead.

Okay, I'm done.

All right. So the second question I had was regarding the Steel downstream business, so Steel products. You succeeded in having improved profitability there as you had anticipated quarter over quarter. But when I look year over year, it's still below last year's levels. And I'm just confused as to how to think about that. I will I had in mind was that when you have rising steel prices, generally steel products lag. But in a declining steel price environment, one would think that margins can maybe be higher year over year. So this may be if you could correct me if I'm wrong about that or how to think about what the right normal profitability is or how to think about what that trend can be going forward.

When you look at the total downstream, I'm assuming you including tube in that generalization, correct?

Yeah, I'm looking at ebit per segment. So when

you look at tube, that's really been what's pulling down the downstream business. The tubular business right now, our tubular business right now is suffering from some of the same things that we see on the steel side. Loaded inventories in the service centers have resulted in lower orders that of course drives the price down, that of course drives the margins down. So this is a in our opinion, this is a result of a too high of an inventory build during last year and the aggressive de-stocking that you see not only in our steel products but also in tubes. So that's probably the biggest impact on our downstream business not doing as well as we anticipated and not doing as well as we did last year.

So potential for that to still normalize that once inventory levels normalize in those end markets, is that what we should think about or any way to think conceptually about what that looks like normally?

Yeah, I think that you know if this is a question of what's really driving the volume reductions in tubular and in our steel, you know overall we believe that the issue is too much inventory in the system that has to work its way through and that at the time that it goes through, you got to remember when you talk about tubular, 80% of the tubulars are sold through service centers so this really impacts, this issue of inventory really impacts the tubular business. But it's also true of our steel business as we've talked about many times in the past. Inventories do not necessarily, in this end service center shipments do not necessarily indicate what's happening with true end use demand. We believe that end use demand is still very strong. We see that in our order entry weight for OEMs versus our order entry weight for service centers. When you look at our order entry weight for OEMs, we're actually up in the first half by about 4% compared to the three-year average. Whereas if you look at order entry for service centers, we're down 14% compared to the three-year average. So that's a pretty good indicator to us that end demand is still pretty strong. Of course we talk to our customers who are basically telling us the same thing and I'm speaking in general now both of steel but tubular products also.

Okay, thank you.

And next we'll go to Chris Terry with Deutsche Bank.

John and Jim, a couple questions for me. Just in terms of the volume, you mentioned that second half volumes will be more in line with real demand. Have you seen any marked pickup I guess in July in the service center buying and how do we think about maybe second half on first half of this year and maybe second half on second half of last year? Thanks.

I'll start with just general comments and Jim you can comment on the quarter of the year or the year performance, half over half performance. You know I mentioned earlier that after the first $40 a ton increase in sheet pricing we did see a pickup in orders for our sheet products and that came from both our OEM customers but also from our service centers. And we meet with our service centers and we talk about what they think is going to happen in the second half. They feel that the demand, the end demand for their products will be steady. It's still strong. They talk about the need for making sure that they get their inventories completely down which is what they're striving to accomplish. But one of the things that we're seeing also that should be a good indicator of moving in and it's early in the game so I don't want to be too overconfident here but we are cautiously optimistic that we've hit the bottom on pricing and on volumes. We see our lead times are beginning to stretch out a little bit. Whenever that starts to happen that encourages the service centers to come back into the market. With the OEMs it's more of a steady state situation. So after the $40 ton increase we believe that that represented the bottom of the market, service centers. Whenever you see pricing start to go up they come back into the market. So we think that that bodes well for the second half of the year and we'll see how it plays out.

And in relative to your question about the second half of this year versus last year, obviously we don't give guidance for the half year. We're saying third quarter is going to be down just because of where Martins are at having bottomed recently and what we see going forward. But from a volume perspective we certainly saw de-stocking begin in the second half of last year and then carry into 2019. And there will always be a seasonal slowdown in the fourth quarter but we would expect right now, and this is a long shot guess, that volumes in the fourth quarter this year should be better than last year because we don't expect to see the de-stocking component in the fourth quarter. We'll just see the normal seasonal slowdown that we would expect.

I think that I can just build on that for a minute because I think it's important to think about what took place in 2018 as it was related to the 232 and everything that was going on. First of all if you go all the way back to 2017, you know with tax reform and deregulation, there was really a shot in the arm for manufacturing. And frankly the order of entry rate picked up, demand for steel picked up, and it was growing all through 2017. Towards the end of 2017 but particularly in the beginning of 2018, a lot of our customers were reading about the fact that when the tariffs came into effect, they would not be able to get the steel that they needed to fill their customers' orders. That created somewhat of a panic both with OEM and with our service center customers. They were convinced that the domestic capacity would not be enough to supply all the needs that they had to keep their customers happy. Well as it played out, 232 came into effect, the imports did go down, and domestic capacity was in fact able to start up again and fill the need. But during that time when they were afraid of not being able to get the steel, they built their inventories to very high levels. Then of course domestic capacity came on, everything settled down, their order rate and pricing returned to more normalized levels, but they maintained this high inventory. At the end of the year, they wanted to get rid of that overblown inventory, and they began to aggressively de-stock. So what happens then? They de-stocked, the volumes coming into the mills go down, pricing results as a result goes down, and the next thing you know, we get into this spiral. In fact, the aggressive de-stocking was so intense that towards the end of last year and into the first half of this year, we had service centers selling to other service centers. So it became a very difficult situation, and as always happens in our business, we overshoot things. Now we think that we're getting to the point where the inventories are down to more normal levels, and we expect to see more normalized ordering rates in the next quarter.

Thanks, Luke. Just one quick follow-up. In terms of the end markets, you talked about the two-thirds that you're cautiously optimistic around. The other third, I assume that, is that related to autos, or what is that market, or which markets are those specifically that you're still working out? Thanks.

Yeah, we think that automotive is going to be down about 2%, so that's one of the markets that we would say is weakening as we go into the second half of 2019. That said, our market share within automotive continues to grow, so there'll be a smaller pie, but we'll have a larger piece of that smaller pie. So the impact will be less felt by Nucola and others in our space. Another one that I remember looking from the chart that was down would be power transmission. There was a whole bunch of power transmission projects that were wrapped up at the end of 2018, so power transmission is an industry that we expect to be down. Also, agriculture will be down a little bit as we see it going forward into the second half of this year also.

Thank you. Next we'll go to Matt Corn with Goldman Sachs.

Good afternoon, everyone. So earlier this week, the White House announced some revisions to these bi-American requirements. I was wondering how much, if any, potential incremental effect do you see from these changes? I ask because our understanding has been that many of these public projects already had very high thresholds for melted and poured U.S. steel, but the administration appears to believe that there were loopholes that limited the effectiveness of those rules. So I'm wondering what your view is.

Well, there were some loopholes in there. We're pleased to see those loopholes being closed. And you're right, a lot of the regulations already were in place that it was bi-American, and we wanted to make sure we did stress the point that this was bi-American meant melted, poured, and rolled in the United States. So we took a little bit of a loophole away from that that was existing. So in general, we'll see some impact. We do supply to the military, particularly out of our plate group and out of our SBQ group. So it's a positive impact to us, but it is not a major impact.

All right, thanks. And then to continue as you kind of go around the product groups here, there's been a lot of focus on hot roll coils, smoke is on downstream. What's happening in the plate market in your view? Your volumes are off, prices there are off, they've dropped to the $750 level. Is that too a function of pronounced de-stocking or is there true demand challenges occurring for that particular product?

There's two impacts that have occurred there on plate. First of all, you need to think about the weather conditions that we endured during the first half of this year, particularly in the first quarter. A lot of plate products go into bridges and so forth, projects that you have to have good weather in order to be able to proceed. So there's a lot of projects that are on the books, but we haven't been able to move forward with them simply because of the extreme weather conditions. The other impact is, as you mentioned, aggressive de-stocking. Just as we said with the products earlier with Tubular and with Sheet products, the same occurred with plate. Inventory levels got way too high at the end of 2018 and they began this de-stocking program. And there's a little bit of a time delay on that one simply because of plate tends to trail hot band by about two months, three months in terms of both volumes and pricing. So it was a little bit of a time delay, but basically the same scenario played out in plate that we described earlier.

Thank you very much. Next we'll go to Phil Gibbs with KeyBank Capital Markets.

Hey, good afternoon.

Good afternoon.

I was reading last night that one of your mill competitors in the North American Sheet Market Overshore has formally asked its U.S. mill suppliers for concessions and price cuts. The question is, are you either seeking pricing concessions from your mill suppliers or seeing any softness and inputs like electrodes and refractories, alloys, or mill services?

Well, electrodes we can talk about in a minute because that's a more specific issue. And we do see actually price going down in electrodes a little bit, about a 7% issue over the last year. But that's a very specific issue. There was a run-up in electrodes over the last couple of years that was unsustainable and we're seeing it start to work its way down. But in general, I'll respond to your question. First of all, Nucor is a high integrity company. We honor all the contracts that we have and we will not go out and demand any price reductions on contracts that we have signed and the firm numbers are in place. That said, if our suppliers do in fact offer our competitors better pricing, we will go and talk to them about that. We will not demand it, but we will remind them that as the largest steel producer in the United States, we buy a whole lot more of everything than anyone else. And if they treat us any differently than our competition, we'll remember that when those contracts that we have come to an end and we talk about who we're going to do business with in 2020. Does that answer your question?

Yes, absolutely. And in terms of some of the stuff that was more, the other things that were impacted by, I think, the China supply side issues like refractories and alloys, what are you seeing there?

Refractories, they're still pretty high. We haven't seen much of a reduction in that. Alloys are still running pretty high, not quite up to the 2018 levels because just like everything else, with steel, the less steel that we're producing, the less alloys we need, the less refractory needs to be replaced. So, you know, the volumes go down, the pricing comes down a little bit. That's more volume related than anything else.

And, John, I think at your investor day, you talked about the 17 growing markets and seven were either flat or declining. Is that mix still the same now or has it changed?

It's pretty much the same.

If I could sneak in one more, just in terms of the... Okay, one more. Just in terms, it should be a short one, just in terms of your outlook for scrap in August. Thanks.

Well, I'll speak to... How about if I speak to the outlook for scrap over the entire third quarter because it's pretty tough to get definitive into one given month. As we see the third quarter scrap pricing, we see it up 20 to 30 dollars somewhere in that neighborhood. We don't think it's going to skyrocket out of control, but we do think over the quarter it will be up 20 to 30 dollars. We think that the Pig Ion will probably be up somewhere in the neighborhood of 10 to 15 dollars. We're seeing some of that price reflected in the latest offers that we're getting. So 20 to 30 dollars for scrap and somewhere maybe 10 to 15 dollars on Pig Ion.

Thanks so

much. And next we'll go to David Gagliano with BMO Capital Markets.

Hi, thanks for taking my questions. A lot of them have already been answered. I just have two follow-ups or clarifications. First of all, on the volumes for the third quarter, I'm still a little confused. Do you expect volumes overall in the third quarter to be up or down sequentially?

You know, it's hard to reject. Right now, as we mentioned a couple of times, we're in the transition. We're in the cusp of a transition from a situation of severe down the stocking to a more normalized order entry weight from our service centers. Not being a service center ourselves, we don't know just exactly where those imputuaries are. Rather than say we know exactly what's going to happen with volumes going into the third quarter, I would say that we're in a transition. How quickly it ramps back up will determine how our third quarter volumes look relative to our second quarter. I think the important point to remember is this. We are seeing the transition and it's going back up. We see lead times expanding. And we see a really important point here that allows me to sleep easily at night is that our end demand is still very strong. End user demand remains very strong. If we didn't see that through our OEM customers, I'd be a whole lot more worried about what the rest of the year was going to look like than I am right now.

Okay, that's helpful. Thank you. And then just to follow up, flagged about $21 million, I think, of startup costs that were in the second quarter numbers. My question is what are the expectations moving forward for startup costs?

We think it's going to be the $25 million range in Q3.

And any big difference in Q4?

It's hard to say. Probably not too much.

Okay. Thank you very much.

And that concludes today's question and answer session. I would now like to turn the call back over to John Ferriola for any additional or closing remarks.

Thank you, David. Well, I'll close by signing off by saying again I want to express our appreciation to our shareholders. We value your contribution and capital investment in our company and we will treat it with great care. I want to say thank you to our customers for building our capabilities to better serve you. We believe that together we can build powerful partnerships and powerful results. And finally, to my Newcore teammates, thank you for what you're doing for Newcore every day. And most importantly, thank you for doing it safely. Thanks for your interest in Newcore. Have a great day.

And that concludes today's conference. We thank you for your participation. You may now disconnect.