Commercial Metals Co (CMC) 2016 Q1 法說會逐字稿

Hello, and welcome, everyone, to today's Commercial Metals Company's first quarter FY16 earnings call.

Today's call is being recorded.

After the Company's remarks, we will have a question-and-answer session and we will have a few instructions at that time.

I would like to remind all participants that during the course of this conference call, the Company will make statements that provide information other than historical information and will include expectations regarding economic conditions, US steel import levels, US construction activity, scrap metal pricing, the Company's future operations, the Company's future results of operations, the impact of FAST legislation, the commissioning of the Company's planned new steel micromill in Oklahoma and capital spending.

These statements are considered forward-looking 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, but are subject to certain risks and uncertainties including those that are described in the Risk Factors section of the Company's latest Annual Report on Form 10-K.

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.

Except as required by law, CMC does not assume any obligation to update these statements in connection with future events, new information, or otherwise.

Some numbers discussed or presented will be non-GAAP financial measures and reconciliations for such numbers can be found in the Company's earnings release or on the Company's website.

And 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.

Please go ahead.

Thank you, Gary.

Good morning, and Happy New Year.

Thank you, everyone, for joining us to review CMC's results for the first quarter of FY16.

To begin, I will cover highlights for the quarter.

Barbara will follow and present further financial details, and I will conclude our prepared comments with an overview of our outlook for the second quarter of FY16, after which we will open the call to questions.

As detailed in our earnings release this morning, we reported first quarter FY16 earnings from continuing operations of $25.6 million, or $0.22 per diluted share.

Adjusted EBITDA from continuing operations for the first quarter of FY16 was $87.7 million, and first quarter FY16 net sales were $1.2 billion.

Further details for the current fiscal quarter will be described by Barbara during the financial update.

Also as noted in our press release on January 4, I am pleased to report that the Board of Directors declared a regular quarterly cash dividend of $0.12 per share of CMC Common Stock for stockholders of record on January 19, 2016.

The dividend will be paid on February 2, 2016.

This cash dividend reflects CMC's 205th consecutive quarterly dividend.

Next I'll cover trends and conditions in the markets in which we operate.

Overall, the first quarter of FY16 was a solid quarter for CMC.

The brightest spot for the quarter was the performance of our Americas Fabrication segment which continued to benefit from strong activity in the non-residential and non-building construction markets.

During the first quarter of FY16, non-residential construction spending improved 20% year-over-year, and non-building construction spending improved 3% year-over-year.

In addition, this segment's metal margins continued to benefit from declining finished steel input pricing shipped against higher priced backlog.

Furthermore, a key leading indicator, the Architecture Billings Index, or the ABI, has reported over 50 for 18 of the last 24 months indicating a construction recovery is still underway.

Regionally, the ABI in the South and West remained well above 50 indicating strength in the markets in which we participate actively.

We've been commenting on the passage, or lack thereof, of a permanent highway bill in the US for a number of years.

We were pleased that the US government agreed on a new spending plan under the Fixing America's Surface Transportation Act, or FAST.

We expect this landmark legislation to provide confidence to states and other governmental entities to expand and repair infrastructure needs around the country.

Over the course of the next five years, FAST moneys are budgeted to be $225.2 billion.

Despite the positive prospective impact of FAST, steel imports continue to pose a threat to the domestic steel industry.

The trend in rebar imports into the US has not changed materially since our last earnings call in October.

The factors driving these imports also have not changed, a strong US dollar and relatively strong US construction activity.

We remain committed to working with the US government to hold foreign producers accountable for participating in unfair trade practices.

China's economic slowdown and unwillingness to adjust steel output to meet current demand impacted steel markets throughout the world with a significant negative impact on global steel pricing.

China's on pace to export 125 million net tons of steel to other markets around the world with a significant portion coming to the US, thereby impacting US production rates.

Domestic mill utilization rates have recently been reported as low as 61%.

In scrap markets, ferrous scrap continued its decline in our first quarter of FY16 before rebounding modestly in December.

While the decline gave us an opportunity to capture some additional margin in our Americas Mills segment, lower pricing on merchants, announced by industry competitors in December, began to erode these margins.

Our Polish operations also continue to be challenged by imports from surrounding countries.

Finally, I would like to report on the progress of our plans to construct a new steel micromill in Durant, Oklahoma.

We expect to receive the air permit in due course.

Major equipment has been inspected and long lead time items are on order.

We expect to break ground weather permitting within the second quarter of FY16.

Plans remain on track as we expect commissioning of this new facility to occur in the fall of 2017.

With that as an overview, 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 first quarter of FY16, we reported earnings from continuing operations of $25.6 million, or $0.22 per diluted share, which compares to earnings from continuing operations of $34.3 million, or $0.29 per diluted share, for the first quarter of FY15.

As described in our earnings release this morning, during the first quarter of FY16, we elected to change our inventory valuation methods, a significant portion of our inventory which was carried using the last-in, first-out LIFO inventory valuation method was changed to a method other than LIFO.

This change was applied retrospectively to all of CMC's historical periods and all current and future periods will be presented under the revised cost statement methodologies.

Looking at our results by segment, for the first quarter of FY16, our Americas Recycling segment recorded adjusted operating loss of $6.5 million for the first quarter of FY16 compared to an adjusted operating loss of $2 million for the first quarter of FY15.

Compared to the prior year quarter, the loss was due to both a 21% decline in ferrous volumes and a 19% compression in average ferrous metal margins.

In our non-ferrous business, the operational metrics were similar as non-ferrous shipments were down 12% and average non-ferrous metal margins declined 22% in each case compared to the prior year quarter.

Our Americas Mills segment recorded adjusted operating profit of $59.1 million for the first quarter of FY16 compared to adjusted operating profit of $72.6 million for the corresponding period in the prior fiscal year.

From a shipments perspective, excluding billets, volumes declined 8% during the first quarter of FY16 compared to the first quarter of FY15, primarily due to the continued surge of imports into the US.

On a positive note, this segment was able to expand average metal margins by 3% compared to the first quarter of FY15 on falling ferrous scrap input costs during the quarter.

As Joe described earlier, our Americas Fabrication segment was a real positive for CMC this quarter, as this segment recorded adjusted operating profit of $21.3 million for the first quarter of FY16 compared to an adjusted operating loss of $4.2 million for the first quarter of FY15.

The $25.5 million turnaround was mainly due to gains in average metal margins which grew 26% in the first quarter of FY16 in comparison to the same period a year ago.

This segment also benefited from a $2.4 million gain on a property sale in the first quarter of FY16.

Our International Mills segment had a solid quarter recording adjusted operating profit of $2.8 million for the first quarter of FY16 compared to adjusted operating profit of $4.2 million for the corresponding period in FY15.

The decline in adjusted operating profit was due to 1% lower shipments of finished products and a squeeze in metal margins of 13% compared to the first quarter of FY15.

Our International Marketing and Distribution segment recorded adjusted operating loss of $2.2 million for the first quarter of FY16 compared to adjusted operating profit of $16.7 million for the same period in the prior fiscal year.

This segment was negatively impacted by the continued global pressure on commodity pricing and demand as these segment volumes and average margins declined 33% and 42%, respectively, compared to the first quarter of FY15.

This segment also recorded a $2.7 million inventory write down in the first quarter of FY16 and a $2.1 million increase in bad debt expense compared to the first quarter of FY15.

Turning to our balance sheet and liquidity.

Our balance sheet remains a key strength for CMC.

As of November 30, 2015 cash and short-term investments totaled $637.2 million and total liquidity was more than $1.2 billion.

For the first quarter of FY16, we had cash flows from operating activities of $219.6 million.

During the first quarter of FY16, under our share repurchase program, we purchased more than 316,000 shares at an average cost of $14.41 per share.

During December 2015, we purchased approximately an additional 534,000 shares for a total of $7.4 million.

We have $46.2 million remaining under the $100 million share repurchase plan approved our Board in October 2014.

For the first quarter of FY16, capital expenditures were $11.2 million.

We estimate that our capital spending for FY16 will be in the range of $220 million to $230 million which includes an estimate of expenditures related to the construction of our new Oklahoma micromill.

This concludes my remarks.

Thank you very much, and I'll now turn it back over to Joe for the outlook.

Thank you, Barbara.

Our second fiscal quarter is historically seasonally slower due to holiday slowdowns and winter weather conditions which slow construction activities.

We expect this year to be no different than past experience.

We believe that ferrous scrap prices are beginning to stabilize and our recycling business should benefit from more stable scrap prices.

As described before, competitors announced lower merchant pricing in the US which will negatively impact our margins until demand improves.

And we believe that the new highway bill will present CMC with meaningful upside from a demand perspective.

Our conservative view is that we do not anticipate the new spending provision will translate into steel orders for 12 months or so.

And while imports into the US remained elevated, our backlogs remain healthy and bidding activity remains strong, although pricing has declined in line with overall depressed finished steel pricing.

This concludes our prepared remarks.

Thank you for your attention and for joining us today.

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

(Operator Instructions)

The first question comes from Paul Luther with Bank of America.

Hi, guys, thanks for taking my questions here.

Happy New Year.

Happy New Year, good morning.

Thanks, wonder if we could start just on the volumes we saw on the domestic mills this quarter in terms of the drop.

Just wondering if we could drill down a little bit more and get more color on if it is predominantly import driven, or if there is some sort of demand discipline that's been out there?

And then if you could maybe help us, remind us, can typical seasonality trends in Q2 versus Q1?

Well, the drop in volumes is definitely related to import volume more than any other factor.

Demand remains good in the markets that we serve.

Being Sun Belt oriented much of the construction activity and strength in construction is South and West oriented.

The Architectural Billings Index is indicative of the sorts of trends that we're seeing, not only in demand but in bidding activity, as well.

And that generally bodes well for us in the second quarter, although even in the South construction is impacted by weather and slowdowns.

So in summary, the activity or the reduced volume that we're seeing is more related to imports than it is to any reduction in demand.

And as I noted in my comments, we're still seeing very strong bidding activity and expect that to continue, albeit, at lower prices.

The second part of the question, could you repeat, Paul?

Seasonality trends.

Seasonality trends.

From a seasonal perspective is -- the fact of the matter is aside from weather, we get impacted even in the South on weather.

Last year, for example, there were power outages in the Carolinas that impacted our East Coast shipment activity.

That's always going to present some problems, but the fact of the matter is we have less number of shipping days because of holidays and whatever time is lost to construction activity.

You might recall second quarter of last year, no, it was the third quarter when we saw the rains in Texas in May.

We had the ice storms.

But we did have ice storms prior to that in the second quarter around the Christmas holiday season last year.

So that's the part of this that's really fluid and unpredictable.

We react as quickly as we can.

We just know that we don't get the same level of shipments or shipping activity; one, because construction activity is planned to be slower, and, two, because of whatever time is lost on account of weather and holidays.

Got it, that's helpful, thanks, then one more, if I could.

Just on the domestic fab business.

You showed nice margin expansion there.

You talked about selling prices holding up as input prices fell on steel.

How sustainable do you think that is, or is there a matter of catch up where those margins will come in a bit?

There's no doubt that there's some catch up that will occur over time, particularly as scrap prices move and/or there's movement in finished goods pricing.

We expect that market and recycling have stabilized and much of the margin expansion, while we attack costs aggressively, some of it is because we've been able to keep that margin in our pocket, the difference between prices of fabricated product and the price of the raw material which is rebar.

But that's a trend that ultimately will reverse itself.

We know that we anticipate that, but we don't see it as there being an immediate and dramatic shift any time soon.

But that's the impetus for us to continue to work on costs which we've done very, very aggressively, not only in North America, but in Poland, as well, where we continue to invest in projects that help us to improve our efficiencies and productivity.

All right, great.

Thanks again.

Thanks, PT.

The next question comes from Brent Thielman with D.A. Davidson.

Hi, good morning.

Good morning, Brent.

Yes, on Poland, understand some of the import pressures there, as well.

It looked as though volumes from a year-over-year comparison had found some stability, though, over the last three quarters, and then it kind of looks like it took a step back this quarter.

So is there anything you'd point to there with respect to seasonal factors or something similar beyond the import pressures that might have weighed on the quarter?

Yes, import pressures no doubt affect volume overall, but we also had a planned shutdown.

You recall that we installed the new electric arc furnace about a year-and-a-half ago in Poland and at the 18-month mark, we took it down for a significant maintenance period, and billet volumes were also off, so that contributed to -- that was a more competitive market so it contributed to a decline in the volume, as well.

Billet sales are more active in Europe for us than they are in North America, so that kind of opportunistic volume really wasn't available to us as readily, so that allowed for good timing of the shutdown and maintenance work.

Got it, okay, that's great.

And then in terms of your comments on the FAST Act and the expectations the orders are probably out a year or more, has that been the experience of the Company in previous legislation to see that sort of lag in demand?

Is there -- any variables with this legislation that look different from the past that bring you to that timing?

We're trying to be reasonable and being very conservative in our estimates.

I have no doubt some projects will come along faster, those that might have been in planning stages.

In addition to the FAST Act legislation, there have been a number of states that have been more aggressive in developing funding mechanisms for infrastructure projects which will allow them to take advantage of federally funded projects that require state participation or matching funds.

So we think these things are lining up very well to position us to take advantage of whatever might come along, sooner rather than later we would hope, but we're trying to be conservative.

And the good news in that too is that will add strength to demand and whatever fall-off there might be in market as a result of declining scrap prices or any other decline in demand could be offset if not superseded by demand for highway construction activity or infrastructure projects.

Okay, thank you.

The next question comes from Phil Gibbs with KeyBanc Capital Markets.

Good morning, Happy New Year.

Good morning, Phil, Happy New Year.

The question was on the IM&D business and the margin profile there moving forward, and maybe some color as to how much of the historical profitability is driven by, call it, more elevated pricing, or better demand and, call it, energy or higher prices in iron ore, how we're to think about the profit drivers and the margins in that business moving forward?

Yes, Phil.

No doubt with the collapse in commodity prices, that's having an impact on the margin available in IM&D, and generally it's a margin over the commodity price.

But the other factor is just ensuring that we don't enter into trades that we're going to take on more risk than we're willing to take on, and so we have been very diligent and conscious in this business to walk away from trades by which the customer is asking us to bear more risk than we're willing to take.

So we would anticipate going forward that we'll continue to see much reduced volumes, clearly much reduced revenue associated with the volume we do take because of lower commodity prices, and we'll just be very selective in the kind of activity that we get involved in.

But we did have a couple of one-time items within the quarter, we would hope that those would not repeat in future quarters and we would see some modest level of profitability going forward.

Hey, Phil, I might add one other thing and this is with regard to the global over capacity situation.

There is significant disintermediation that's taking place today, which is different than in past scenarios, so it's an additional pressure that exists where state-sponsored companies and state-sponsored trading activities will work together to move product at what we would view to be unreasonable, not only margins, but unreasonable risk, so we elect not to participate in that kind of activity.

We don't believe that it's in our best interest or that of our shareholders, and, again, it's part of the overall glut of capacity related to what's going on in China.

Now does all the Chinese export activity impact that business and the ability for you to participate there on the trading side and [mute] margins?

Yes, absolutely, Phil.

It's one of those phenomena that even if they are not shipping directly to the United States, that they're shipping product to other countries which then becomes a finished product that comes to the United States, or bumps product from one foreign shore to the US as an alternative.

It's the old water balloon effect of we can squeeze it, it didn't change the amount of volume in the balloon, but it certainly changes the shape of the balloon and where some of the water moves, and in this case, a lot of the product ends up coming to the United States because it's a good market.

It's a strong market, it's a reliable market, it's a financially sound market with good distribution and transportation.

It's a nice place to do business, particularly when the dollar is strong, and that element of it comes into play for exporters, as well.

Okay, and then just secondarily and I'll jump off.

The outlook for your inventory management, it looks like the receivables had come down with the sales, and that's completely understandable.

But can you help us think through how the inventory levels from just a dollar standpoint will move through the year in terms of working capital just given the fact that you changed accounting methodologies and just trying to understand how we think about that?

Thank you.

Yes, we always tend see a working capital release in the fourth quarter and continuing on into the first quarter, and then we begin to see some working capital build in our fiscal second quarter in preparation for the busy season.

And the other factor that drives inventory build would be in preparation for outages, and we do have a couple of projects where we will be preparing for the outages associated with those projects and building some inventory to allow us to continue to operate without interruption during the outage period.

But we will begin to build some inventory in anticipation of the heavier construction season.

I think the one difference from, let's say, a year ago, a year ago, we had built a fair amount of working capital on the M&D side of the business and based upon the discussion we just had around the challenges in that segment, we're not going to see the same working capital build in M&D, or we are not anticipating the same inventory build in M&D for this year's fiscal second and third quarter as we did last year.

Thank you.

The next question comes from Andrew Lane with Morningstar.

Hi, good morning.

Good morning, Andrew.

Just wanted to ask about the texture of your order book.

What kind of balance are you seeing between large bid projects versus smaller projects?

And then, could you offer any observations as to the geography of where you're seeing strength in your order book?

Are there any particular areas that you're seeing that had clear strength relative to others?

Yes, let me go ahead and take that first.

In terms of what you describe as the texture, we normally break that out between public and private and there had been a trend moving towards more and more private projects as a higher percentage of our total order book, and that trend continues.

It's better than 50% of our bidding activity these days, which is positive, because as we've noted before, private projects are less vulnerable to price lock-ins that make it difficult for us to make margin than some of the public projects.

It will be, we'll monitor this because with the FAST funding there could be a shift towards more public projects, but the nice element of that is when we get into an environment where there's strong non-residential demand, as well as public moneys that are available, it gives us an opportunity to be more discerning about the projects that we take on emphasizing, obviously, the better margin projects.

And as far as geography is concerned, we've talked about this in the past.

Our western region operations, which go into the fab business, as far as the fab business in California remains strong.

Our micromill in Arizona has run full out for better part of its life since we've started operating the mill, and its complemented by a good fab business, and we still see strong demand in California.

Texas markets remain strong and bidding activity and bidding levels are high in the sense of total project volume.

And we're seeing some strength in the southeast, specifically in Georgia, that we really hadn't seen in more recent periods of time.

South Florida and the beltway around Washington D.C. have been strong for -- well, the beltway as long as Texas has remained strong.

And South Florida was kind of the first market to recover as Latin American money came into the Miami/Fort Lauderdale area and construction activity picked up.

And New York has been strong, so when we look at the ABA Index more recently, the average, on a national basis, was just under 50 at 49.3, whereas the indicators in the South were 55.4, and then the West was 54.5, and going back to April of 2015 none of the indices for the South or the West have fallen below 50.

Thanks, all very encouraging going into 2016.

And then, just as a second question, I think you had previously mentioned the Oklahoma micromill would require about $180 million of CapEx in 2016 and 2017.

Is that still your estimate, and could you provide a FY16 CapEx guidance figure?

Yes, Andrew, I'll take that.

The $180 million is still what we anticipate, that's a net number after factoring in the number of incentives available to us, both state, local and federal, and all of that is progressing well.

Our CapEx guidance for the year, as I mentioned, was $220 million to $230 million.

That does include our expectation for the micromill, as well as normal CapEx.

Great, thank you very much.

Thanks, Andrew.

The next question comes from Brian Yu with Citigroup.

Yes, good morning, Joe, Barbara, Happy New Year.

Good morning, Happy New Year, Brian.

I want to circle back on a question earlier just about the fabrication business and some of these higher priced backlogs.

If we hold market prices constant where it is today, can you give us a sense of how long it would take for some of these higher price backlogs to essentially wear off and margins would revert more to what you are bidding into these contracts today?

Yes, so, Brian, the total backlog in the fab business is in the range of 600,000 tons, and if you look at our quarterly shipments, we could argue that's maybe a couple quarters worth of business.

But it's a really dynamic backlog and every day we're shipping product and every day we're booking, and so we'll relieve some of that backlog which might have a higher margin.

So there's no doubt that you'll see continued pressure on margins as we get forced into situations of meeting competitive pricing based on imported product, and so it's really hard to give a hard and fast of when that turns.

The greater pressure could be, and would be, in some regards favorable for our recycling business wouldn't be so favorable for the fab business, which is if we saw dramatic increase in our raw material prices as it works its way through the system.

So I'm trying to answer your question as best I can, but it's hard to pin a number down as to when that backlog changes dramatically from perspective of margin.

It will be something that will continue to creep and that assumes that there isn't any further erosion in scrap markets, and today there is still some differential between what scrap sells for and what iron ore sells for and even though there is historically some correlation between those two, ferrous scrap prices are still fairly high relatively speaking.

Now we've said we believe it's going to stabilize because we've had issues with flow and that will probably cause some spiking from time to time as we saw in December, and that's with operating rates in the mills in the aggregate on the 60% to 65% range, so there hasn't been any pressure on raw material pricing for scrap even from the integrated mill.

So it's an interesting dynamic and flows have been impacted and that's one of the reasons why we view our integration, vertical integration in the scrap business, as being important because it gives us access to raw material.

Okay, great, that's helpful.

And second one, I'm not sure if you covered this earlier, Barbara, but last quarter I think you talked about there being some cash implications resulting for the inventory change.

I'm wondering if now is maybe time to give us a sense of what those cash implications might be?

Would you have an estimate available?

Yes, thank you, Brian, for the question.

So when we made the change, what we will basically do is have an obligation for the taxes on the remaining balance of our LIFO reserve from a tax perspective.

And to put it in perspective, last year we paid $38 million of cash taxes related to the LIFO income that we booked in the year, and if you just consider the decline in scrap in the first quarter, we would be looking at a fairly hefty cash tax number in FY16.

But because we froze that balance, we essentially will spread the tax obligation over four years and it will be around $11 million to $12 million over the next four years.

It's a pretty minimal cash impact.

Okay, that's each year, or in total, the $11 million to $12 million?

Each year.

Okay.

Got it.

All right, thank you.

The next question comes from Charles Bradford with Bradford Research.

Good morning.

Good morning, Chuck.

Hi, just a word of advice, the feel like temperature here this morning was three degrees.

(laughter) So you're telling me I didn't pack enough, Chuck?

I don't know if you've packed yet, but you may have time.

In any case, on a more serious note, I've been hearing about a very large steel price increase in China overnight, as opposed to the kind of tiny increases they've been trying the last couple weeks.

Do you have any color or have you heard anything that might back that up?

No, Chuck.

We prepare for this call and do a kind of around the world conference call yesterday, which would have preceded your overnight report, but we haven't received any reports in that regard.

It would be great to see some improvement in pricing coming out of China because there really isn't any discipline there and it goes back to what I said earlier about disintermediation.

Some of the government-sponsored traders are -- they are driving what prices are, and many of the producers just have to meet that in order to book with those traders.

On the scrap side, are there any particular markets, I know you are not particularly a big exporter of scrap, that have been negatively impacted a lot by Russia or the Ukraine that maybe is backing up from scrap to the US?

No, not so much, Chuck.

We haven't seen any dramatic change in flows other than a significant reduction in exports from the United States.

What we have -- would have been reported and what we have tried to understand and deal with is more, I'll call it blast furnace-based billets moving throughout Southeast Asia and into Europe, including Turkey, and those billets being converted into finished product.

So this is why -- I made the comment about scrap and iron ore, the fact of the matter is if iron ore is cheap enough and there's enough aggressiveness in pricing by the likes of Chinese producers they can move semi-finished product as aggressively as they move finished product to keep at least melt shops running.

And while it may not make economic sense to us, they aren't reacting to the same economic drivers.

And we know that earlier in the year, the Ukrainians and the Russians did the same thing which was move semi-finished product into Turkey based on import statistics and that product was converted and then exported.

Thank you.

Thanks, Chuck.

Thank you, Chuck.

The next question comes from Aldo Mazzaferro with Macquarie.

Please go ahead.

Hi, good morning.

Good morning, Aldo.

Yes, on the FAST Act, Joe, the fix America act there, how do you view the $220 billion that they stated over five years?

Is that a disappointing amount to you?

And if so, do you think there's a possibility that over the next five years with a new administration we might see like a much more significant infrastructure plan?

We would like to have seen more, but we're pleased it was an increase over what prior funding had been.

So that's a positive indication that the governmental authorities recognize the need to start dealing with infrastructure.

There still only remains an $0.18 per gallon federal tax on gasoline which, given the outlook for energy prices in the future, there might be enough [chutzpah] to do something about that to raise funds which would go directly into infrastructure, which, again, cascades into making jobs not only in construction but in the steel industry.

But I guess only time will tell us whether or not any change in administration would be that supportive.

I think it was positive that going into an election year, and that's one of the things we had been counting on that both sides of the aisle were able to come together and close a deal on the funding for FAST, because as you know, for years, it was pushing along for three months at a time.

So the other positive benefit of this is that it does allow states to plan for their spending.

When the transportation bill is pushed or extended three months at a time it's really hard to think about projects beyond that, which means that some of the more major projects aren't undertaken.

And what I commented on earlier, states developing funding mechanisms as we are here in Texas based off of a sales tax ensures that moneys are available to take advantage of matching fund projects that are principally federally based.

Great.

And then as a follow-up, Barbara, could you repeat for us what the stock repurchase activity was in the post quarter close?

And then also what the capital spending was in the quarter?

Was it $11 million, is that what you said?

Yes, the spending was just a little over $11 million, and then we're still projecting the $220 million to $230 million for the year.

And let me get to my notes on the share repurchase, within the quarter, it was around 350,000 shares and following the -- in December, we repurchased 534,000 shares.

Year-to-date number was about $54 million, right?

Yes, year-to-date we've exhausted about $54 million of the $100 million repurchase program.

Great, thank you, Barbara.

The next question comes from Wayne Atwell with Ascendiant.

Good morning.

Good morning, Wayne.

Thank you for taking my call.

The US dollar has been quite strong in the last month or two, now this is nothing new, but it seems to be much stronger than normal.

Can you sort of describe the impact on your business?

Is this having a renewed impact?

Then, do you think it's time for the government to take more action to limit imports or put in tariffs or something?

Well, there's no doubt that the strength of the dollar has a significant impact on all of our activities from recycling to fabrication.

And it's one of the disadvantages of having a stronger dollar, there are a lot of advantages to a strong dollar, but it opens up the door for imports and in an environment where there's global over capacity.

So it's a bit of a magnet to ship product to the United States when there's a stronger dollar.

And so we've seen those pressures, and I think it changes the formulas for calculating what's economically efficient for shipping to the United States.

Transportation costs are down globally, as well, which also makes it more competitive.

And we lobby hard for the interests in the domestic industry and -- along with the Steel Manufacturers Association, as well as directly with legislators, and we continue to promote the notion that it's about fair competition as opposed to just protecting our markets.

We believe that we can compete with anyone on a fair basis, but some of the practices that I described earlier in China that cascade into other markets and cause different behavior creates an unfair flow of trade that we don't get government subsidies that we can't be competitive with, so it's all about fair trade for us, Wayne.

We are a global trader, we know markets are open, but when there's heavy subsidization in markets that causes them to move product throughout the world, that's not good for the global economy or for the home market.

Essentially, in this case the Chinese are exporting their employment problems or unemployment.

And has this become more serious than it was or is this just a continuing problem?

It seems like the dollar has gotten a lot stronger in the last few, month or two.

I haven't noticed it as being perceptibly different or more disadvantageous, but the economics will continue to drive that and a stronger dollar would reduce, would make it more attractive for others to export product to the United States.

So we know we watch it closely, and it's not something that we can impact but we can only react to, and we react along the same lines that we just talked about.

Right, and then a follow-up.

What are your thoughts about repurchase this year?

Are you going to accelerate that, back off, what is your motivation and your thoughts for this year's repurchase policy?

Yes, Wayne.

I think we're going to continue to be prudent in the execution of that program and there's a lot of factors that need to be balanced.

We place a priority on having a strong balance sheet and strong liquidity position.

We've made a commitment with the Arizona mill and we've committed to fund that -- or Oklahoma mill, excuse me -- and we made a commitment to fund that with internal funds, so we're going to look at a whole host of factors in making the decisions on how much and how aggressive and, certainly, our share price will also factor into that.

So it's one tool and we will continue to evaluate it on an ongoing basis.

Wayne, I'd add to that.

We have, the Board of Directors approved $100 million share buyback and we've still got $46 million before that would exhaust itself.

So at the rate we've been doing this it would take awhile to do it.

We really base it on economics more than anything else, so if we need to, if there's an opportunity to do more we'll be assertive, but we have plenty of opportunity within the current approval.

The next question comes from Nick Farwell with Arbor Group.

Good morning.

I just am curious if you have any further downsizing or restructuring projects that you're considering, or have you essentially completed the restructuring over the last three or four years?

Good morning, Nick, thanks for your question, we appreciate it.

We are always evaluating our businesses and more recently one of the downsizings we undertook was in Australia where we sold a majority of the assets that we have there, and we still have one distribution asset that's being marketed.

But we evaluate all our businesses on their ability to generate returns in excess of the cost of capital, so there's always some thinning that's going to be going on.

Some of it can be very small and items that you wouldn't normally note, like fab scrap yards that we've closed.

We've also acquired some small fab yards to complement our recycling business, so there's a little bit of buying and selling that goes on all the time.

But in terms of major, major restructuring and selling assets, I don't envision that, not at this point in time, but things change and we continue to monitor it, and one of the things that I've been very open in saying is that we're not married to the assets that we have, they've got to generate a return that's reasonable and competitive and creates value for our shareholders.

So we always monitor the performance of our businesses and that's how we concluded the decision to sell the assets in Australia.

Right, and that's true of, obviously, other parts of your business.

And I was thinking about, Joe, in a major sense, in terms of restructuring major portions of the business, as you did in the distribution in Australia, the copper mills, et cetera, it's within that context that I'm asking the question, and I'm assuming you've answered it and there's no additional comment?

Yes, I think I've answered it, Nick.

Yes.

After the Oklahoma mill is online, are you currently considering building another greenfield mini-mill, and if so, have you identified certain regions of the country and/or states where that might be appropriate?

Yes, that really wouldn't be appropriate to comment on right now.

We're always looking at the market for opportunity and we think we're pretty good operators of the micromills.

As I noted in my comments earlier, we've been running essentially full, the Arizona micromill since it was built, and that's why we decided to build the micromill in Durant is because of its existing technology, its low risk, if you will, of execution.

We have a market that we believe it will serve quite efficiently, so that was, in our estimation, a sound project to engage in.

So we continue to look, but we don't have anything that I'd comment on specifically otherwise.

The next question comes from David Lipschitz with CLSA.

Good morning.

Good morning, David.

So a couple [quickies.] In terms of where oil prices are and gas prices and things like that, are you seeing impact in the Southwest in your main markets yet in any of your future indicators or anything like that?

For like non-residential construction and infrastructure and all that because of what's going on in the energy market.

This is a question that we've been asked since the beginning of the decline of the rig count last year.

Over the course of the year, we did see a bit of a dip in the Houston market in construction activity, and bidding.

I think it was just caution to what was going on, but that has since recovered, so we're feeling even optimistic about the Houston market.

The other markets didn't really fall off.

We have a diversity of industry in North Texas from automotive to sports complexes to insurance, businesses relocating processing centers here.

And the San Antonio market is not at all an energy market, and Austin has got other influencing factors.

So we've seen really good strength continue with the exception of that dip for a couple of months in the Houston market which has since recovered.

So the biggest impact that we've had in our order book as a result of the decline in oil and gas prices is really related to trading of tubular and SBQ products which is more energy oriented, and so some of our comments and results related to the M&D division relate to products that do serve the energy industry, but it's a small part of the overall portfolio.

Okay, second, I know somebody asked you about tariffs and things like that.

Is there anything else, I know you've talked to the government, is there anything else you guys can actually do at this point in time?

I know they had the case, I think it's last year, but is there anything else you guys can do?

Is there a time period before you can file a new trade case or anything like that or what can you guys do?

Well, David, working with our counsel, we had been pressing for -- through the appeal process -- for a review of the duties that were imposed with respect to Turkey.

So the case has been remanded back to the Department of Commerce, and there's several different matters that the Court of International Trade asked Commerce to relook at, or rethink, and the Department of Commerce has until February 19 or 21 -- 22, to respond to the remand from the Court of International Trade.

So at that time, my understanding is that the Department of Commerce can choose to further clarify their findings, they can choose to reevaluate.

I don't know that doing nothing is an option, but one way or the other they have to respond to the court, and so we'll see what the decision is and what direction it takes.

So we're doing everything that we can with the existing trade case.

Just to follow up with that, does any new data come about within that, meaning like what's gone on over the last whatever time since they've ruled, or is it on the initial ruling and initial data?

I think it's really on the initial ruling and the initial data, and I'm getting a nod that's what it's based on entirely.

Okay.

Okay?

Thank you.

The next question is a follow-up from Phil Gibbs with KeyBanc Capital Markets.

Thanks, real quick here.

Barbara, I saw on the cash flow statement you had a deferred tax headwind of $14 million.

Does that include that $12 million that you're talking about annually for the next four years?

Yes it does, Phil.

So we're effectively done with that for this year?

Awesome, thank you.

Yes.

At this time there appear to be no further questions.

Mr. Alvarado, I'll now turn the call back over to you.

Okay, well, thank you very much, Gary, I appreciate that, and once again, thank you to everyone for joining us on today's conference call.

We appreciate your interest and we look forward to speaking with many of you during our investor visits in the coming days and weeks.

Thank you very much and Happy New Year.

This concludes today's Commercial Metals Company conference call.

You may now disconnect.