Commercial Metals Co (CMC) 2014 Q4 法說會逐字稿

Hello, and welcome, everyone, to today's Commercial Metals Company fourth-quarter and full-year 2014 earnings call.

Today's call is being recorded.

(Operator Instructions)

I would like to remind all participants that during the course of this conference call, the Company will make statements that provide information other than historical information, and will include expectations regarding federal legislation, the Company strategy, economic conditions, the effects of raising capital investments made and other actions taken by the Company, the Company's capital budget, and the Company's future results.

These are forward-looking statements and may involve speculation and are subject to risks and uncertainties that could cause actual results to differ materially from these expectations.

These statements reflect the Company's beliefs based on current conditions that are subject to certain risks and uncertainties, including those listed in the Company's press release and described in the Company's latest 10-K and 10-Qs.

Although these statements are based on Management's current expectations and assumptions, CMC offers no assurance that events or facts will happen as expected.

All statements are made only as of this date.

CMC does not assume any obligation to update them in connection with future events, new information, or otherwise.

Some numbers presented will be non-GAAP financial measures, and reconciliations can be found on the Company's press release or on the Company's website.

Now, for opening remarks and introductions, I will turn the call over to the Chairman of the Board, President, and Chief Executive Officer of Commercial Metals Company, Mr. Joe Alvarado.

The floor is yours, sir.

Good morning.

Thank you for joining us to review CMC's fiscal fourth-quarter and full-year 2014 results.

I will begin with highlights and Barbara will then provide further financial details.

I will then close out with comments on our outlook for the first quarter of FY15 after which we will open the call to questions.

As detailed in our earnings release this morning, we reported net sales of $1.9 billion for our FY14 fourth quarter, an increase of 12% from net sales of $1.7 billion for the fourth quarter of 2013.

We reported net earnings of $34.9 million or $0.29 per diluted share for our fourth fiscal quarter of 2014.

This performance marks a significant improvement over the same quarter in the prior year of $30.9 million for an increase of $0.26 per diluted share.

For the full FY14, we reported net earnings of $115.6 million or $0.97 per diluted share, an increase of $38.2 million or $0.31 per diluted share over FY13.

Net sales were $7 billion in FY14 compared to $6.9 billion in FY13.

On a FIFO basis, net earnings for FY14 more than tripled over FY13.

As indicated in the earnings release, our Board of Directors declared a quarterly dividend of $0.12 per share for shareholders of record on November 12, 2014.

The dividend will be paid on November 25, 2014.

In addition yesterday, the Board of Directors authorized a new share repurchase program under which the Company may repurchase up to 100 million of CMC's outstanding common stock.

The authorization of this share repurchase program underscores the confidence our Board and Management team have in our strategy and our ability to continue to invest in our business and drive long-term profitability while returning capital to stockholders.

I will now highlight current trends and conditions in the strategic markets in which we operate as well as provide an update on key initiatives accomplished during our fiscal fourth quarter.

Many of the US economic indicators that are relevant to our businesses are encouraging.

Nonresidential construction spending was up 6% year over year.

Private sector spending was -- led the way increasing 9.4% year on year.

Industrial production was also trending higher and apparent steel consumption in our product range was up 8.4% year on year.

At our fiscal year end, the backlog for our fabrication operations was up approximately 38,000 tons over the prior year.

There are also signs that the US economy continues to move forward with accelerated hiring in the private sector and positive job growth.

These positive indicators contributed to the increase in shipments and provide a positive indicator for the future.

Since our last update, the US Commerce Department has issued final rulings on the anti-dumping and countervailing cases against Turkey and Mexico related to reinforcing bar.

These rulings were unanimously upheld by the International Trade Commission in a 6 to 0 vote.

Substantial duties were instituted for Mexican companies while income sequential duties were issued for Turkish importers.

We are pleased with the unanimous decision by the International Trade Commission and the duties that will apply to Mexican rebar imports.

As part of our commitment to increase shareholder value by optimizing our portfolio, in the fourth quarter of FY14, we made the decision to exit our steel trading business headquartered in Zug, Switzerland, but in the next several months, we will wind down the order book.

Furthermore, in September 2014, we made the decision to exit our steel distribution business in Australia.

Despite focused efforts and substantial progress to stabilize and improve the results of this business, we've determined that achieving acceptable financial returns would take unacceptably additional time and investment.

Early in our fiscal fourth quarter, we completed the purchase of substantially all the assets of a recycling facility in San Antonio, Texas.

This bolt-on acquisition will ensure that we can secure a reliable, low-cost source of raw material for our Texas steel mill operation.

Included in our acquisition facility, we purchased a new uninstalled shredder, which we're strategically evaluating alternatives for the location of this shredder.

Commercially, our four mills continue to be ranked in the top 10 in overall customer service, as rated by the Jacobson & Associates steel customer satisfaction reports.

We take pride not only in the overall rankings, but our continued improvement over time.

Shifting to our international markets, in our 2014 fiscal third quarter, we commissioned a new electric arc furnace in Poland.

Thus far, the new equipment has met the name plate expectations.

While we realize a small portion of the expected operational improvements in FY14, we expect to realize the full benefits of this new installation in our FY15.

Poland's GDP has continued to exceed many other European union countries, with a calendar year 2014 estimate of 3.3% growth.

While GDP growth is a positive, the political turmoil in both the Ukraine and the Middle East remain on our watchlist for potential impacts to our business.

With that backdrop, we believe that consistent quarterly earnings for the last three fiscal years a representative of our commitment to improve our performance.

We have continued and we plan to continue to invest in the business, optimized portfolio, and reduce cost appropriately.

The positive market indicators previously discussed should translate into both volume and margin for CMC.

At this point, I will now turn the discussion over to Barbara Smith, Senior Vice President and Chief Financial Officer.

Barbara?

Thank you, Joe, and good morning, everyone.

As Joe mentioned for the fourth quarter of 2014, we reported net earnings of $34.9 million or $0.29 per diluted share, which compares to net earnings from operations of $4.1 million or $0.03 per diluted share for the fourth quarter of the prior year.

Continuing operations for this year's fourth quarter includes after-tax LIFO income of $1 million or $0.01 per diluted share compared with LIFO income from continuing operations of $10.3 million or $0.09 per share during last year's fourth quarter.

Net earnings for the year ended August 31, 2014, for $115 million -- $115.6 million or $0.97 per diluted share on net sales of $7 billion, as compared to the full-year 2013, when we reported net earnings of $77.3 million or $0.66 per diluted share on net sales of $6.9 billion.

For the year ended August 31, 2014, after-tax LIFO expense from continuing operations was $8.8 million or $0.07 per diluted share compared with after-tax LIFO income from continuing operations of $34.4 million or $0.29 per diluted share for the same period last year.

Turning to our results by segment, our Americas recycling segment recorded an adjusted operating loss of $2.1 million for the fourth quarter of this fiscal year compared with an adjusted operating loss of $6.7 million in prior year's fourth quarter.

While reporting a loss, we are encouraged by increased ferrous and nonferrous shipments of 2% and 6% respectively during the quarter while average selling prices were stable when compared to the fourth quarter of FY13.

This increase in net sales coupled with the 2% decrease in average material cost for both ferrous and nonferrous material resulted in improvement in adjusted operating profit for the fourth quarter of fiscal 2014 when compared to the fourth quarter of FY13.

This increase in net sales coupled with a 2% decrease in average material costs for both ferrous and nonferrous material resulted in the improvement in adjusted operating profit for the fourth quarter of FY14 when compared to the fourth quarter of FY13.

Our Americas Mill segment recorded an adjusted operating profit of $63.8 million for the fourth quarter of fiscal 2014 compared with an adjusted operating profit of $58.4 million in the fourth quarter of fiscal 2013.

The increase in adjusted operating profit for the fourth quarter of FY14 was due to a 12% increase in total shipments compared to the fourth quarter of FY13.

The increase in total shipments was driven by a 9% increase in shipments of our higher-margin finished products including rebar and merchants compared with the fourth quarter of FY13.

In addition, compared to the fourth quarter of FY13, our average metal margin expanded by 5% for the fourth quarter of FY14.

The increases in shipments and metal margin in the fourth quarter of FY14 were offset by a $13.5 million unfavorable change in pre-tax LIFO income of $7.4 million in the fourth quarter of fiscal 2013 to pre-tax LIFO expense of $6.1 million in the fourth quarter of FY14.

Our Americas Fabrication segment recorded an adjusted operating profit of $8.1 million for the fourth quarter of FY14 compared with an adjusted operating profit of $8.2 million in the fourth quarter of FY13.

Shipments in the fourth quarter of FY14 were strong, increasing 17% compared to the fourth quarter of FY13.

However, a $5 per short ton decrease in average selling prices, coupled with an increase in input cost, resulted in an 8% decline in metal margin for the fourth quarter of FY14.

This decline in metal margin in the fourth quarter of FY14 was offset by a $3.1 million increase in pre-tax LIFO income, resulting in a flat adjusted operating profit compared to the fourth quarter of FY13.

This segment entered FY15 with a stronger backlog when compared to a year ago.

Our International Mill segment recorded an adjusted operating profit of $5 million for the fourth quarter of FY14 compared with an adjusted operating profit of $8 million in the prior year's fourth quarter.

Average selling prices increased $14 per ton and outpaced a 1% increase in the average material cost.

However, an 11% decrease in total shipments for the fourth quarter of FY14 drove the $3 million decline in adjusted operating profit compared to the fourth quarter of FY13.

Our International Marketing and Distribution segment recorded an adjusted operating profit of $13.2 million for the fourth quarter of FY14, a significant turnaround compared with an adjusted operating loss of $16.2 million in the prior year's fourth quarter.

The $29.4 million improvement in adjusted operating profit in the fourth quarter of FY14 was primarily the result of charges recorded in the fourth quarter of FY13 for goodwill and other asset impairments as well as one-time exit costs to close unprofitable locations.

Our marketing distribution divisions headquartered in the United States reported an improved -- reported improved results for the fourth quarter of FY14 when compared to the prior year's fourth quarter.

However, our European trading division continued to suffer weakened results in response to continued weakness in the region.

During the fourth quarter of FY14 we amended the terms of our US revolving credit agreement with increased -- which increased the capacity under this agreement to $350 million and extended the maturity date to June 2019.

The amended agreement also contains more favorable covenant terms.

In addition, we amended the terms of our $200 million US sales of accounts receivable program.

This amendment extended the term of the agreement to August 2017.

Previously, this agreement was set to expire in December 2014.

Our balance sheet remained strong.

Cash and short-term investments totaled $434.9 million as of August 31, 2014, which is an improvement of $56.2 million over the end of the prior year.

Our available liquidity, including our $350 million revolver and other credit lines, is in excess of $1 billion.

This liquidity position gives us flexibility to act as market opportunities become available.

Capital expenditures for 2014 were approximately $101.7 million.

We are estimating our 2015 capital budget to be between $140 million and $180 million.

Any of these projects aim to address unlocking additional efficiencies and production capabilities at many of our facilities.

Thank you very much.

I'll now turn it back over to Joe for the outlook.

Thank you, Barbara.

FY14 was another strong year.

We took great strides towards both our short-term and long-term goals.

Review again our key highlights for the quarter and year in line with our long-term goals in 2014, we continue to focus on improving our overall cost position, improving or rationalizing underperforming assets, and investing to grow the business.

Consolidated FY14 adjusted EBITDA was the highest since FY08.

We divested our copper tube manufacturing operation, Howell Metal, in the first quarter of 2014.

In August, we took action to exit our steel trading operation in Zug, Switzerland, and we also took decisive action to exit our Australian distribution business.

We completed the installation and commissioning of a new modern electric arc furnace at our Polish steel mill operations, and the plant now operates with only one electric arc furnace.

We completed the acquisition of Newell Recycling, securing an additional source of low-cost raw material for our Texas operation.

We invested over $100 million in CapEx throughout our operations and we are planning for even higher levels of CapEx in 2015 and beyond to organically could grow our business.

Our balance sheet remained strong with liquidity in excess of $1 billion and we are committed to returning capital to our shareholders in addition to investing in our business as evidenced by our newly authorized share repurchase program.

With respect to our FY15 outlook, many of our key market indicators have shown strength in recent months.

For example, the Architecture Billings Index was 53 for the month of August following 55.8 in July, which was the highest mark since 2007.

The euro zone economy is growing gradually with rising construction activity, while macroeconomic and geopolitical concerns remain, all indications suggest continued market growth in FY15.

As a reminder, our fiscal first quarter historically has seen some seasonal slowing as we approach the upcoming holidays and winter weather in the US, as well as Poland and the markets we serve in northern Europe.

Thank you for your attention.

At this time, we will now open the call up to questions.

(Operator Instructions)

Luke Folta, Jefferies.

Good morning.

Hello, Luke.

A lot of questions here but I guess I will try to limit.

First thing, International M&D profitability really stepped up a lot here this past quarter.

I would assume some of that probably has to do with the US importing business?

But just was hoping to get some more color on what drove that.

There are two elements to the improved performance, Luke.

Most of it is US based and it is not only steel trading activities but raw material trading activities as well.

We already mentioned in our comments that we closed our Zug office because it is a more difficult environment but the US remains a strong market for trading activities and we are able to capitalize on that.

Okay, but there wasn't anything in the number that would be sort of a gain on the sale of something or shredding something down somewhere?

This is all genuinely is just better activity in the US?

Yes.

Operating results based.

Luke, there were no unusual items in that segment.

Okay.

And then on the Polish business, you noted in your comments that shipments were down 11% there.

But you didn't give much color in terms of what the driver of that was.

Was that more market demand based or did that have something to do with just lingering effects of the new EAF switchover?

Nothing to do whatsoever with the EAF.

It's more market.

The Polish market has been pretty volatile from a margin and pricing perspective, in particular, and there have been a couple periods during the year where we've reacted to a market situations, and in some instances we'll not participate in what we believe are practices that just don't make good economic sense.

There's always a prevailing pressure, too, however that economic uncertainty in the region has an impact.

For example, a significant portion of what we ship as merchant product goes into the German market, and the German market has been impacted somewhat by Russia more so than Poland.

And activity with Russia and so that just creates more available supply and more competitive margins and would preclude us from participating in some of those shipments during the quarter.

So there's some volatility that's natural with construction in addition to all that.

All right.

Okay.

I will get back in line, thank you.

Okay, thanks, Luke.

Michael Gambardella, JPMorgan.

Good morning.

Good morning, Mike.

Just maybe a question again on this International Marketing Distribution $13.2 million profit.

Is there any way you can give us any more detail on that?

Is that -- that doesn't seem like something that's a repeatable occurrence or can you give us anything that we can understand what that represents?

We generally don't break it down by the various segments within the International Marketing and Distribution segment but I would say we've been working hard to improve the results in Australia.

However, Australia was still a negative contributor within the quarter and we've made a decision to exit the Australian distribution business so we'll be evaluating whether we can drop that down to discontinued operations in the coming quarter and that should make the M&D segment a little cleaner and clearer for you.

The cometals business, raw material business in the US, and the steel business in the US were stronger this quarter and it's reflective of the results.

Mike, I guess I would add to that that the activity in Southeast Asia, in particular volume.

A lot of movement of volume, not necessarily high margin but our volumes were up pretty significantly.

In Asia or moving product from Asia to the US?

Not to the US necessarily.

Mostly inter-Asia, inter-APAC region trading.

Would you say the $13 million is a repeatable number?

Yes.

It's repeatable across the board between our raw materials and steel trading activities.

Okay.

Thank you.

Timna Tanners, Merrill Lynch.

Good morning, guys.

Good morning, Timna.

I'm going to continue with the same theme.

I think we're all trying to get a handle on how to think about your 2015 and you have these five separate segments.

So if I could, it looks like if we continue to believe non-res improves, which is I think a fair assumption, we are going to have better mills performance ideally and more fabrication.

But I think the confusion is still on how to think about it as you've been here in the fabrication distribution.

You've addressed that a little bit but can you give us some more thoughts on the recycling business and fabrication distribution has been kind of up and down.

So just along the same lines, if we assume that demand is improving for non-res but that challenging conditions continue in recycling, are there things that you are doing structurally to improve that in recycling and there are things that could sway fabrication distribution beyond normal demand improvement?

That was one question, right, Timna?

No, that's all my questions all at once.

(laughter)

Let me try and answer a lot of them as best I can.

So for starting with the M&D business.

There's a significant amount of volatility associated with our raw materials and steel trading business.

So while the number is repeatable, there are going to be times when shipments are delayed or deliveries are delayed and can have an impact on a quarter-to-quarter basis, but there's some smoothing that accrues over the normal cycle of business and M&D and those trading activities.

As regards the recycling business, the recycling business, as you know, very tough, very competitive business these days and certainly there is pressure on scrap pricing as result of what's going on globally with iron ore pricing.

And I think that's probably most logically manifested in the level of exports from the United States to foreign shores, whether in Europe or from the West Coast to the Pacific region in Asia.

So as result, that's put downward pressure on prices, and we continue to work hard to improve operating efficiencies and performance.

There isn't as much room in conversion costs in recycling operation as there is a mill operation.

But we are very aggressive about that, and there's no doubt that we benefit from strengthening in prices and it's going to be a tough road for us and for all recyclers in the future.

So an important element of our recycling businesses is that it is our raw material sourcing for our steel making business.

So unlike some of our competitors, we aren't looking at it only as a retail business.

And where fabrication is concerned, which is the third question that you asked me to comment on, and our fabrication business remains active, a slight increase in the backlog and better strength all around at least in terms of bidding activity.

But there too, we are under pressure from -- on margins from imports.

I mentioned that we're pleased with the results from the ITC decision on Mexico, but the Turkish imports are barely touched with nearly de minimis duties associated with imported Turkish product.

And they remain a force, particularly in the Gulf Coast region which has a tendency to make that business very, very competitive.

What we're doing is being more discerning in markets that are stronger for us where we can be -- where we can differentiate and creating value for our customers and we prefer that type of business to the business that's strictly based on price.

If you can indulge me a follow-up and thank you for all that detail.

If you could just talk about demand in non-res since I gave it as a premise that it's getting better but are you seeing anything on the energy side given your Texas presence of weakness on the price?

And are you more or less enthusiastic about non-res recovery from last time we spoke to you?

We are more confident about our non-res recovery.

The numbers keep aiming upwards and the ABI's an index for future demand.

It has some positive correlation, and I think what we're seeing is some of the benefit of several months of higher than 50 ABI projections.

So that plus the fact that we are in Texas and Texas is a big part of our portfolio.

All the Southeast is, and construction activity is strong here and it's improved in Houston but it is more isolated to Texas and our central region than it is anywhere else.

In the East, it is more isolated to the Beltway and South Florida.

And in our West region, it's more the coast than the desert states.

So the pockets of demand are strong in certain -- stronger in certain regions than other, but we are seeing improved bidding activity across the board.

There's difference between bidding and getting a job awarded but that activity itself is encouraging.

And as far as energy prices are concerned, there's been a lot of speculation about oil at $80 a barrel or below and what that does to drilling activity.

I don't think anyone projected that oil prices would be where they are today a month ago, and I'm not sure that anyone can project where they'll be a month from now.

But certainly, the increased shale drilling has had a positive impact on energy pricing and availability.

But ultimately, if it goes too low, that will slow that drilling activity.

We are not seeing a strong correlation between oil prices and construction activity.

Okay, super.

Thanks, again.

Thanks, Timna.

Brian Yu, Citi.

Great, thanks, and congrats on the good [paid].

I want to drill down on the International M&D Q. Barbara, I think you had mentioned earlier that it was really lose money.

Can you give us a sense of what kind of headwind that was in the quarter so that we can think about what the impact is as you guys start stripping it out?

Since we are in the process of marketing that business and we haven't historically given the breakdown by the various lines, I would prefer not to go into that much depth.

Okay.

Does this mean that I still have two questions left?

(laughter) All right.

Yes.

Go ahead, Brian.

On the steel imports, obviously that had some benefit the international and then the other things that we've been hearing is just from a logistics standpoint, rail, warehousing, or other, that there's going to be a limit to how much steel the US could support.

I was wondering what your thoughts on it or any feedback you've heard from your customers given that you're in this business.

Brian, I will try and take that question, and remember that there are significantly lead times on imported product no matter where they might be coming from.

This whole logistics of entering an order, financing an order, getting it shipped, and getting it to someone's warehouse where takes a long time.

And you might recall going back three or four months that there was a significant discrepancy between US pricing and pricing in global markets.

So it is kind of natural that import activity would pick up over time and as prices declined, I'll use flat-rolled and talk about flat-rolled, which is a more broadly discussed topic.

As prices decline, that's going to squeeze importers and margins to the point where it becomes less problem in the market.

But you have to watch it over time and imports are up and pricing will determine more than anything else the ability of the economy to absorb and for people to speculate on purchasing steel inventories, which obviously has its cascading effect on the production levels.

Production levels overall still remain fairly flat on a national basis, below 80% of effective capacity.

That number hasn't moved too much despite the gyrations of imports in and out of the market.

I'm not sure I really answered your question but I just tried to explain that there's going to be volatility

Yes.

I guess the question is more pertaining to just the logistics.

Is there a limit to how we reach that limit in terms of the steel that we could bring in here given the rail, [on action], keep hearing about the warehouses along the Gulf and other areas that are full and just can't really take much but I don't really have eyes on the ground.

To answer that question, we're concerned about logistics in the US.

Recent legislation or enactment of laws that make it more difficult for us to secure truck traffic or trailer traffic and time has had an impact.

It's caused our cost to go up.

Rails have been more dominated by energy shipments than they have been by other commodities and that continues.

There's a significant -- a dramatically significant increase in the amount of railcars that are being used to transport crude in lieu of the availability of pipeline.

So that puts pressure on availability.

Ocean going vessels, there's ample supply.

That's not the issue.

So I understood what you're saying and it'll have an impact.

It has an impact on all of our costs, whether domestically manufactured or imported.

Okay.

And then maybe switching topics.

I know this hasn't been talked about much lately.

It's just you guys are kind of you are running somewhat out of capacity and I was wondering as you look at opportunities, is the -- would you be looking at another replica of the Arizona micro mill and maybe try to find pockets where you could try to grow your production?

As I said, Texas is a really strong market for us and a micro mill or any mill, for that matter, has a couple year lead time, so we look at that and try to evaluate where we see growth opportunities throughout North America.

And I would say the strongest demand for product is in the Gulf Coast and Texas, in particular.

And that's why we see such a high level of imports into the Gulf Coast region and with Mexico out of the picture from an export of rebar perspective, that perhaps creates some opportunities for us.

But a micro mill or a conventional mill doesn't matter.

There's a long lead time.

It's a 24- or 30-month time period and we don't see out that far just yet.

All right, thanks.

Brent Thielman, D.A. Davidson.

Good morning.

The quarter-over-quarter against Q4 versus Q3 decline in margin in Americas Mills, are you saying that's principally related to imports?

I'm sorry, could you repeat your question?

If I look at Americas Mills, your volume is relatively similar to Q3, your metal margin is up a bit.

I'm just trying to reconcile why margin came in there?

It was purely the LIFO.

Okay.

Great.

In fabrication, did you see metal spreads increase from beginning to end of quarter and is the competitive bidding environment there allowing you to move a little faster around fluctuating input costs?

It's really spotty.

I have to be really honest with you, Brent.

In some regions, margins are improving or the spreads are improving.

In others, we'll find pockets of aggressive bidding on projects that just don't make any sense to us, and that's why I highlighted the point earlier that we are managing our business for value creation.

We don't just want to be price competitors.

We feel we have a lot more to offer in the way of services to our customers and we try to emphasize that in our bidding activity, so it's really spotty.

It changes or varies from market to market.

Okay, and then just the uptick in fabrication backlog.

Is that more private or public construction driving that?

Certainly more private.

We are seeing a significant continued shift towards private activity, which is good.

We like that.

Sure.

Great.

Thank you.

Phil Gibbs, Keybanc Capital Markets.

Good morning.

Good morning, Phil.

I had a question on your CapEx program for FY15 and some of the things we may think about there as far as opportunities.

Yes, our increase in CapEx is really a whole host of projects.

We do have a number of attractive projects that can allow us to do some debottlenecking or improve efficiency and increase throughput.

We have some also attractive cost reduction type projects that we expect to deploy in the coming year.

We have some rebuild projects also that are normal course of things that need to be rebuilt over a period of time.

Okay.

And the sale or wind down process of the Australian distribution assets, how do we think about that ideally moving forward?

Is that a process where inventories are essentially going to come down over a period of time or are you still -- or is it a tough question to answer because you still may or may not be canvassing the assets?

Well, we will continue to work to improve the overall cost structure and improve the business, but at this time we're also preparing it for sale as a going concern.

It's a little too difficult at this early stage to predict the timing or outcome.

Okay.

Then just as far as housekeeping, where does the impairment, I think it was a little over $2 million, where does that flow through on a segment basis?

Then also, if you have the LIFO -- the pre-tax LIFO by segment, that would be helpful.

Thank you.

The impairment, most of it hit the recycling segment.

If you recall earlier, we made a decision to idle our El Paso shredder so we took another decision that we would not be restarting that and so we took an asset write-down of around $1.6 million that would've hit the recycling segment.

And then there was about $0.5 million related to remaining book value on the old furnace in Poland so that would have hit the International Mill segment.

In terms of LIFO for the quarter, recycling was an income of $275,000.

The Mills were an expense of $6 million, $6.1 million.

Fab was LIFO income of $3.8 million, and International M&D was LIFO income of $3.5 million.

Thanks so much.

Thank you, Phil.

Aldo Mazzaferro, Macquarie.

Hello, there, Joe and Barbara.

How are you?

On your scrap business, if we look out and say the dollar is going to stay stronger and Turkey is getting bullish and it remains soft.

Let's say that.

I'm wondering how your steel mills are able to take advantage of that.

Can you say roughly how much the US mills purchase from Commercial Metals scrap operations?

Roughly?

As a percent?

You mean our competitors or own operations?

How much of the scrap that your mills consume comes from Commercial Metals scrap yards?

About 45%.

I'd say 40%, 45% comes directly from our own yards, the rest from third party.

And as you know, we all sell to one another and try to manage our freight and logistics and keeping our costs low.

The nice thing about having control of the raw material is the ability to expand in periods of tightness to above that 40%, 45% level as required.

Securing the supply is important but we're also very mindful of this scrap grades that we're processing and what we need for our furnaces and the benefits of selling to third party as an alternative.

Great.

And so if you balance yourself out then and you say as a mill with a scrap company, are you right the middle in terms of net long, net short scrap or would you say you lean one way or the other?

I feel pretty good about our position and our ability to flex.

In Poland, the numbers are about the same in the 40%, 45% range and the rest of third party.

So we don't have the same level of scrap processing capability.

And bearing in mind that nearly all of our scrap processing capability is in close proximity to our mill.

We don't have recycling yards or shredders or any sorts of yards in the Midwest or the Northeast or the Pacific Northwest because those would be strictly retail for us.

And so we are more attuned with a model that allows us to flex closer to our mills with sourcing and then selling the remainder as third party as retail.

And those third-party shipments, not much of that is exported I would bet, right or would you say a lot is exported?

No, not much is exported.

We export more nonferrous as a percentage of our total business in ferrous.

Ferrous is very small to nonexistent.

And we don't have a [deep sea port so that creates a competitive disadvantage for export and export prices are pretty tough these days, as you already noted.

We are getting reports that billets are being used in lieu of scrap in a lot of foreign locations because of the cheap availability of billets.

That's right.

Thanks, Joe.

We will see you in New York.

Okay, look forward to it.

(Operator Instructions)

Barry Vogel, Barry Vogel & Associates.

Good morning, ladies and gentlemen.

Good morning, Barry.

First question for Barbara.

Can you tell us the operating rate in your steels mills in the fourth quarter and in FY14?

You are talking about capacity utilization?

Steel mills.

Yes, Barry, we haven't been disclosing exact figures, but I think you know the industry as a whole has been running in the high 70%s and because, as Joe mentioned earlier, of our position in Texas and some of the stronger regions and US, we do run a bit above that.

A bit above the high 70%s?

Yes.

Let's call it 80% give or take.

Joe, I have a question for you.

What is your opinion of the significant pickup in consolidations domestically over the last several months and how do you think it might affect your steel business?

So Barry, I would differentiate between flat and long products and consolidation in long product segment to place a long time ago.

And I think that there are been some positive benefits in terms of discipline in the market that's a result of more consolidated capacity and direction.

I guess what I would say is I see the same thing happening on the flat-rolled side wherein basically three different commercial organizations have been taken off the street and replaced by existing domestic.

That consolidation I would expect would help in moderating behaviors such that we wouldn't see some of the wild swings that certainly have been experienced even more so on the flat-rolled side than on the long product side.

So net consolidation I think is good, both for the consumers as well as for the producers.

As far as the nonresidential end-user markets, obviously there are a lot of questions on this call as to what extent, is it happening, and every company has different situations.

Could you give us some idea of the impact for the American Mills segment in FY15 if the trend continues to improve in terms of the operating leverage you think you have there?

Nonresidential construction specifically, construction spending dollars year on year is up about 6%.

That's a significant increase in demand activity.

I think the more significant element for us is referring to an earlier question about the mix is the shift towards private from public.

Public normally requiring longer lead time and longer exposure to fixed-price contracts and the private sector being a little bit shorter lead time and less exposure to fixed-price contracts.

So the overall benefit is more significant in my view in the shift towards more private investment, which is the non-res away from the public than it is in the overall spend, particularly in markets that we are serving.

Andrew Lane, MorningStar.

Hi, thank you.

Just to piggyback on the last couple questions here, but more from the raw materials side.

The texture and landscape of the steel industry in the southern United States is undergoing some changes considering Big River Steel's market entry, the acquisition of Severstal's Columbus mill, the impact of Nucor's DRI project, and down the road, US Steel's changeover to an EAF at Fairfield.

So even though you might not necessarily serve the same end markets as these other mills, how do anticipate these changes will impact your business model with regard to ferrous scrap flows and metal margins?

We are speculating on a lot of things that haven't been authorized yet or approved.

I guess I'd refer to US Steel moving to an electric furnace and the Big River project is still some period way.

They'll no doubt will have an impact on supply and demand and availability.

What I would anticipate is a lot more freight dollars will be spent in the southern states to support the appetite for the electric arc furnaces that are going to be built.

There's certainly ample supply available on a national basis, and then it becomes a function of competing with offshore sources that at least this year have declined in their overall demand, and partly that's because of availability of products from Asia in particular, using the example we discussed -- commented on with Aldo of Chinese billets being available at very attractive prices even below the cost to melt in some countries.

So there's no doubt that if all that capacity comes on stream or when it all comes on stream, it'll tighten up supply and cause more freight cost to be associated with moving scrap to get it to the mouth of the furnace.

Hence our desire to be as self dependent as possible in the Newell acquisition fits perfectly with protecting our source of raw material for our [Sagine] operation.

Right.

I certainly agree.

Thank you.

At this time, there appear to be no more questions.

Mr. Alvarado, I will turn the call back over to you for any closing remarks, sir.

Thank you very much for moderating for us, and thank you, everyone that listened in on the call today.

We appreciate your questions and your insight, your desire to learn more about this.

And we look forward to meeting with many of you in meetings that we will be holding over the next couple of weeks.

Thank you very much.

We thank you, sir, and also to Ms. Smith for your time today.

The conference call is now concluded.

At this time, you may disconnect your lines.

Thank you, and have a great day, everyone.