Commercial Metals Co (CMC) 2016 Q2 法說會逐字稿

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

Today's call is being recorded.

After the Company's remarks, we'll have a question-and-answer session, and we'll 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, demand for finished steel products, the Company's future operations, the Company's future results of operations, the commissioning of the Company's planned new steel micro mill 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 those 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'll turn the conference call over to the Chairman of the Board, President and Chief Executive Officer of Commercial Metals Company, Mr. Joe Alvarado.

Good morning, and welcome to everyone joining us this morning to review CMC's results for the second quarter of FY16.

I will first cover highlights from the second quarter, and I will be followed by Mary Lindsey, who will provide further financial details.

After Mary finishes her comments, I will conclude our prepared remarks with a discussion on our outlook for the third quarter of FY16, after which we will open the call to questions.

As described in our earnings release this morning, we reported net sales of $1 billion for the second quarter of FY16, compared to $1.4 billion for the second quarter of FY15.

Earnings from continuing operations for our FY16 second quarter were $10.8 million or $0.09 per diluted share, a decrease of $0.02 per diluted share when compared to the same quarter in our prior fiscal year.

Results from continuing operations for the second quarter include an after-tax impact of debt extinguishment cost of $7.4 million or $0.06 per diluted share.

Also as noted in our press release on March 23, I am pleased to report that the Board of Directors declared a dividend of $0.12 per share for stockholders of record on April 6, 2016.

The dividend will be paid on April 21, 2016.

The cash dividend reflects CMC's 206th consecutive quarterly dividend.

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

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

Our Americas Fabrication segment achieved its best second-quarter adjusted operating profit since second quarter of FY09.

This segment benefited from reduced raw material input costs, resulting in expanded metal margins compared to the second quarter of FY15.

I'm pleased to report that we received the air permit for construction of our new steel micro mill in Durant, Oklahoma.

We've begun site preparation prior to construction and for the groundbreaking.

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

Capital expenditures for our Oklahoma micro mill were approximately $23 million as of our second fiscal quarter.

We are encouraged by the improvement in non-residential and non-building construction spending in the US, although we have continued to see pricing pressure as a result of elevated import activity.

A strong US dollar and relatively strong US construction demand continued to attract foreign-produced steel.

We continue to work with the US government to reinstate a level playing field related to these unfair trade practices.

In that regard, there was a voluntary remand request by the Department of Commerce following the International Trade Court ruling that US rebar producers were materially injured by both Mexican and Turkish imports.

On March 18, the Department of Commerce issued a preliminary dumping margin on Turkish imports of 3.64%.

The final ruling is set for April 7, 2016.

The import issue is amplified by China's economic slowdown, excess steel capacity and unwillingness to adjust steel output to meet current market demand.

Which is impacting steel markets throughout the world, with significant negative impacts on global steel pricing.

With that as an overview, I will now turn the discussion over to Mary Lindsey, Vice President and Chief Financial Officer.

Mary?

Thank you, Joe, and good morning, everyone.

As Joe mentioned, for the second quarter of FY16, we reported earnings from continuing operations of $10.8 million or $0.09 per diluted share.

Which compares to earnings from continuing operations of $13.5 million or $0.11 per diluted share for the second quarter of the prior year.

Results from continuing operations for this year's second quarter included an after-tax impact of debt extinguishment costs of $7.4 million or $0.06 per diluted share associated with the tender offers for senior notes completed on February 17, 2016.

Looking at our results by segment, our Americas Recycling segment recorded adjusted operating loss of $7.6 million for the second quarter of FY16, compared to adjusted operating loss of $9.7 million for the second quarter of FY15.

Compared to the prior-year quarter, improved results were due to a per-ton margin expansion of 9% on ferrous shipments and 7% on non-ferrous shipments.

However, ferrous tons shipped decreased 16%, and non-ferrous tons shipped decreased 14% compared to the second quarter of FY15.

Our Americas Mills segment recorded adjusted operating profit of $50.7 million for the second quarter of FY16, compared to adjusted operating profit of $59.5 million for the same period in 2015.

During the second quarter of FY16, metal margins compressed by 8% on flat volumes compared to the second quarter of FY15.

Improvements in mill conversion costs partially offset metal margin pressure.

Our Americas Fabrication segment recorded adjusted operating profit of $14.8 million for the second quarter of FY16, which represents this segment's best second quarter since the second quarter of FY09.

This compares to adjusted operating loss of $5.8 million for the second quarter of FY15.

The $20.6 million improvement in adjusted operating profit was primarily due to a 15% per short-ton increase in the average composite metal margin, coupled with a 5% increase in volumes compared to the same period in FY15.

Our International Mill segment recorded adjusted operating profit of $2 million for the second quarter of FY16, compared to adjusted operating profit of $800,000 for the same period in 2015.

Compared to the second quarter of FY15, the improvement in adjusting operating profit was a result of a $1.8 million decrease in utilities expense and a 4% increase in tons shipped, partially offset by a 10% per short-ton decline in the average metal margin.

Our International Marketing and Distribution segment recorded adjusted operating loss of $2.3 million for the second quarter of FY16, compared to adjusted operating profit of $7.4 million for the same period in the prior fiscal year.

The decline in adjusted operating profit for the second quarter of FY16 compared to the second quarter of FY15 was due to a decrease in volumes and margins for our steel trading business, both in the US and Europe.

Additionally, declines in the average margins for our raw materials business headquartered in the US, and our Australian and Asian operations, outweighed increases in volumes for these operations.

This segment also recorded inventory impairments of $5.3 million during the second quarter of FY16, compared to $1.3 million during the same period in FY15.

Turning to our balance sheet and liquidity, our balance sheet remains a key strength for CMC.

As of February 29, 2016, cash and short-term investments totaled $381.7 million, and total liquidity was in excess of $900 million.

During the second quarter of 2016, we had cash flows from operations of $113.2 million.

We purchased more than 1.9 million shares of our common stock at an average cost of $13.43 per share during the second quarter of FY16, pursuant to our share repurchase program.

We have $27.6 million remaining under the $100 million plan approved by our Board in October of 2014.

In mid February, we successfully tendered for 200.2 million senior notes for before-tax costs of $11.4 million.

This transaction de-levers our capital structure by $200.2 million, in addition to reducing our annualized interest expense by approximately $14 million.

It also provides us more flexibility regarding our 2017 and 2018 maturities.

Capital expenditures were $51.2 million for the second quarter of FY16, compared to $27 million in the prior-year second quarter.

We estimate that our capital spending for FY16 will be in the range of $200 million to $210 million, which includes an estimate of expenditures related to the construction of our new Oklahoma micro mill.

Thank you very much.

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

Thank you, Mary.

As is normally the case, we expect demand for our finished steel products to improve heading into our fiscal third quarter, as construction demand ramps up.

Non-residential construction spending, which is our primary end-use market in the US, was up 11% year over year in February.

Furthermore, from a US perspective, we are encouraged by the strength of the Architecture Billings Index, posting above 50 for 21 of the last 24 months, which has historically been a good leading indicator of improved non-residential construction.

Volumes in our backlog remain strong, and although selling prices are down, our margins remain strong as well.

While we expect to continue to be challenged globally by compression and commodity prices, steel over-capacity in China, imports into the US and Poland, and a strong US dollar, we also believe we are well-positioned to serve growing seasonal demand from construction markets in Poland and in the United States.

Thank you for your attention.

This concludes our prepared remarks.

We will now open the call to questions.

(Operator Instructions)

Our first question comes from Curt Woodworth from Credit Suisse.

Hi, good morning.

Good morning, Curt.

You know, Joe, can you talk about what you're seeing in the international markets right now?

So Metal Bulletin had a report out earlier this week that Turkish rebar pricing is up about $75 a ton in the past two weeks.

So they think the landed price right now in the US is somewhere around $360 a short ton.

Which, based on the numbers I'm looking at, would be about a 1.20 to 1.30 premium versus where the US market is trading.

So down a lot from the 1.80, 1.90 we've seen.

But I think, historically, the 1.20 number has been about average.

So I'm just curious to see, A, maybe what you think the normal premium should be in this type of market?

And how do you think the US market will react to what we're seeing in the Turkish market right now?

So Curt, two weeks ago when iron ore prices spiked suddenly about 20%, there was clearly some adjusting that was going on, really emanating from China, in the way of fulfillment of contracts and obligations.

And so that started putting some pressure on pricing globally.

Some had anticipated that it would subside pretty quickly.

And while it fell more recently, iron ore prices are up.

And as a result, that will put pressure on other commodity prices.

We've seen increased scrap costs this month, but we've also announced a price increase.

So it's really hard to comment on what the premium should be of domestic-to-foreign product.

But clearly there's some adjusting that's going on in the marketplace.

And that's normal, given that raw material costs have shifted pretty significantly.

And there's always been a strong correlation over time between iron ore pricing and scrap pricing.

I think we're a little bit faster to respond on scrap-price changes, both up and down, in the United States.

And that's part of what evolves from our flexibility in electric arc furnace manufacturing.

Okay, thanks.

And just as a follow-up -- it's a more technical question on -- so we're thinking about flow-through of scrap costs through the income statement.

Given the shift to an average-cost inventory model, how should we think about, for example, if April mid-week for scrap is up $30 a ton [of a trace] what you're seeing there.

But when would that translate into flowing through your cost of goods sold?

Is it kind of consistent with -- I think historically, it had been anywhere from five to six weeks lag time?

I think as a result of the change, our scrap inventory turns over pretty quickly.

And so I don't really think there's going to be a significant difference in how you see scrap prices flowing through the income statement.

I think it should be pretty consistent with what we've seen previously, because of the quick turnaround.

Okay, thank you very much.

You're welcome.

Our next question comes from Phil Gibbs from KeyBanc Capital Markets.

Good morning.

Good morning, Phil.

I had a question on the US mills backlog and how that stands right now relative to last year?

The backlog in the US mills compared to a year ago is pretty flat.

I think it's down 2%, Phil, overall, but it's at a higher level than we saw at the end of the first or the second quarter.

So there's been some build in the backlog, though not to the exact number.

But pretty flat on a year-on-year basis.

Okay.

And then, if you could (multiple speakers).

Go ahead, sorry.

And that's normal.

There's a building backlog over the course of the winter, into the spring, and we expect that to continue.

Okay.

And Joe, can you comment on demand in Texas?

And then also on the other side of the pond, what you're seeing in Poland?

Yes, so I'll start with -- I'll say Texas, but it's the Sun Belt, and I'll make some comments specific to Texas.

Demand remains good and strong, really across the board.

And there had been some anticipation that we would see weakness in the Houston markets.

And while there have been some adjustments, we still see strong demand there as well.

We also are encouraged by not only the private spend, but the potential for additional public spend.

The data that's been shared with us is that infrastructure spending in Texas will almost double over a three-year period, from less than $3 billion to almost $6 billion incrementally, year by year.

So for us that bodes well, not only for our existing business, but for opportunities related to the Durant mill when it comes up in the fall of 2017.

So we're seeing good strong order demand in Texas, and see good potential for incremental business.

The same is true across the Sun Belt in markets that we serve, in particular, as compared to northern markets.

There's a good, solid order book and a stronger backlog in Sun Belt markets than there is in northern markets.

So we're encouraged that construction demand activity will continue in each of the markets that we serve.

Including Poland, where our biggest issue has not been demand-related, Phil, it's been more imports.

There have been some trade actions that have been initiated in Europe against Belarus.

The [La Pias] mill that used to be a problem for us, and creating some bad issues, has been idled.

And so we're seeing better demand in our construction markets in Poland.

Though when I say it's better demand, it's along with along better overall environment.

Okay, I appreciate that color.

And lastly, and I'll jump off -- how are you seeing current metal spreads in the US business relative to the average in the second quarter?

And that's all I got.

Have a great holiday.

Okay, thanks, Phil.

Our metal spreads, as you can see, year on year, are down a little bit; on a quarter-to-quarter basis, also down.

And that reflects the pressure that we're seeing because of imports.

It will continue to pressure margins.

And we work through that.

And that's why I'm encouraged by some of the results from our operations in the Americas in reducing their overall costs and improving their cost-competitiveness, but reducing -- conversion cost has helped to offset some of the price pressure that we've seen.

And the recent price increase will have an impact on margins as well.

And so it's hard to give you exact figures at this point in time, but we still see strong demand and good metal margins with pressure, as a result of some of the things we've been talking about already on imports and pricing.

Fair enough.

Thanks, Joe.

All right, thank you, Phil.

Our next question comes from Paul Luther from Bank of America Merrill Lynch.

Hi Joe and Mary.

Thanks for taking my questions.

Good morning.

Good morning.

On fab metal margins, can you talk a little bit about the sustainability there with capturing some margin boost from a higher-priced backlog?

And if you have a sense of when that higher-priced backlog is going to start to roll off and get to better -- lack of better word -- more normalized margins in that business?

Well, Barbara has joined us for this call, and so I'm going to ask her to address that question for you, Paul.

Good morning, Paul.

Great question.

And as you know, rebar prices have been falling for a number of quarters now.

And that allowed the opportunity for our fab margins to expand.

Because our backlog, of course, was created, on a historical basis, at higher pricing levels for their input costs.

So as we cycle through the backlog for the balance of this year, we do anticipate that our fab margins will compress, because we're now moving into shipping some of the more recently priced fab jobs.

We do expect to retain good profitability in the fab segment, however, through the balance of our fiscal year.

But it certainly -- you could expect this current fiscal quarter that we're reporting today as somewhat of the peak to that fab earning potential.

Okay, thanks, Barbara, that's helpful.

And if I could quickly shift gears to International M&D, are you seeing any sort of recent improvement there, given some uptick in commodity prices and the US dollar is off a little bit from recent peaks?

Are you seeing any change there?

Yes, so whenever there's a sudden change in pricing -- and I'm referring to the iron ore pricing and the impact it had on orders in not only in Southeast Asia, but really, across the globe.

Most of that pricing movement is upward because of the raw material cost pressure.

Those contracts will all be settled and many of them renegotiated as a result of the increased pressure.

But overall, the overhang of excess capacity still weighs on the market.

I wish I could say that we see dramatic differences in our steel trading activity, but I'm not anticipating that.

Raw material trading activities -- we expect some improvement.

And our International Mill operations -- back to the question that we answered earlier about demand overall -- demand is good in Poland.

GDP is strong in Poland.

And seasonally adjusted, we always see higher shipments, and we expect that to be realized in the second and third quarter in Poland as well.

And Paul, I would just add further that we're very encouraged by the improved results in the Polish operations year over year.

And that's really reflective of them working on things within their control and really managing their costs very effectively.

And we've made some investments there, as you know -- in particular, the new furnace.

And that's definitely yielding dividends.

We do have a second project, our caster project that is underway, and we will have an outage in the coming quarter to complete that project.

And then we would expect to see dividends from that going forward into our next fiscal year.

But the Polish operations have done a great job in working on things within their control and lowering their cost.

Great.

Thanks, Barbara and Joe.

Appreciate it.

Our next question comes from Aldo Mazzaferro from Macquarie.

On the steel pricing, on the rebar pricing, I'm wondering about the potential for the market to react positively even if you don't get the higher 3.6% tariff on the Turkish material?

Well, that clearly is a factor, and we've heard reports that there's already been a reaction.

I think the reaction on imported product is a combination of raw material costs -- there might be some influence of potential duties, but more would be the raw material costs.

I haven't checked transportation costs.

I don't think those have subsided in any way.

But clearly everyone will want to cover their costs as best they can when raw material costs spike.

And that clearly has happened, and whether it's iron ore or whether it's scrap-based production.

And some of the imports that we see from Turkey have both origins -- in other words, billets that have been purchased, versus scrap.

And there's probably some adjusting that's going on in the mix of sourcing to be either scrap- or billet purchase-based.

Great.

It's actually a fairly small tariff either way, right?

And you're -- compared to the premium you have on the Turks right now, I don't think it's a big risk, it seems to me.

But I was just wondering about the pricing.

Second question is on the scrap market -- do you think there's a chance you'd be profitable in scrap in the next quarter or two?

Well, we're always aiming to be profitable, Aldo.

And you know, it really is a little early in the quarter to know how this is going to play out through the balance of the quarter.

Early signs are that scrap is moving up, and that will create a better set of conditions for the recycling operations to improve profitability.

And then we're always working on the cost side and finding ways to restructure the operations to produce a profit.

Clearly, with the trade cases on the flat roll side, that may increase the demand for scrap overall, which could affect flows and put some upward pressure on scrap prices.

So again, it's a little early in the quarter, but stable-to-rising scrap prices will create a better condition for our recycling operation.

Great.

All right, thank you.

I'll pass it on.

Thank you, Aldo.

Our next question comes from John Tumazos from Very Independent Research.

Thank you.

Hey, John, we know who it is.

It's John Tumazos, thank you.

We got that right -- we got it right.

So could you explain the marketing plan for the Durant, Oklahoma new product?

And give us an update as to which of your steel-producing mills ship mostly to your own fabricating system, and which ones ship mostly for third-party product?

And if those integrations or competitive conditions changed over the years after that company Nucor bought Harris Steel and decided they wanted to fabricate rebar just like CMC?

Boy, John, that's a long question to answer.

But let me just try and give you a bit of an overview.

The Durant facility will produce rebar much in the same way that our Arizona facility produces rebar -- almost 100%.

We have the ability to make some rebar.

But just think of it as being another rolling mill, if you will, or line trust, producing rebar into the North Texas market, where freight costs are less, and where we can feed into our own scrap fabrication facilities, and we can utilize existing scrap yards.

What it does in the aggregate is allows us some flexibility in our other operations -- like Sequin -- to make rebar or merchant product.

And of course, we are always working on developing and improving our product line, so there will be some shifting of loads between the mills in terms of the total overall productive capacity.

But on-surface, we'll have 350,000 tons more of rolling capacity.

As for the fab shops that we go into -- generally speaking, across the board, we sell to independent third parties, as well as to our own fab shops.

And presently and for longest period of time, the majority of what our fab shops buy is -- about 75%, 80% comes from our own production capabilities.

And conversely, about 60% -- correct me if I'm wrong -- of the total rebar construction goes into our own fab shops.

So I was hearing, Joe -- the other question is about trade and Turkey, and this and that.

And I was wondering which of your mills sell mostly to CMC and aren't really in the firing lines of all that?

John, we're all in the firing lines.

Because whether it's a CMC sale or not, we're competing for projects for fabricated rebar.

So the driver of all of our pricing is the base product that's imported.

And it puts pressure on our fab business regardless of where the sourcing comes from, because they are trying to secure business.

And what we believe has helped our margins is, we're going after business for which we can provide value and added services, and improve and enhance our bottom line.

Because there's some projects that are going to be strictly done on price, and in those instances, it can often be difficult to meet the imported price.

Our next question comes from Evan Kurtz from Morgan Stanley.

Hey, good morning, Joe and Barbara.

I hope you're doing well.

Good morning, Evan.

I had a question on the remand order in the Turkish case here.

Maybe disagree with me, but it seems like the 3.64% is fairly modest, will have a fairly modest impact on the market.

How do you think about what can change between the preliminary 3.64% number that they put out and what they might say on April 7 when they come out with the final determination?

Do you have an ability to influence that in any way, adding any data to the case, or strengthen it where you can see some sort of a lift in that number?

And then also on that subject, once that final determination is set, is that the end of the ability to appeal the Turkish rebar product?

And are you kind of out of the trade case business for a little while?

Yes, so let's start with the number itself.

Both you and Aldo have raised the question about 3.64% being light or maybe not significant.

I guess I would consider anything in the single-digit category to be light.

But it does add costs, and concerns for additional potential dumping if those costs aren't covered, and including the margin.

So longer term, to have some impact; shorter term, I don't expect much significant impact.

We've assumed all along that the Turks will continue to shift to this market until such time as their home markets are stronger.

This is a good market for the Turks, and they have a presence here.

They've purchased scrap in the past, and that helps with their freight costs on backhauls.

So we don't expect a dramatic change as a result of the remand order.

As for the order itself, while we have a final determination date, it is still subject to appeal.

That appeal process could take several months -- up to a year, depending on the backlog at the CIT.

So in many regards, it's somewhat business as usual, with just a higher potential margin, a margin which would not be imposed until there's a final determination.

Got it, thanks.

And one question on scrap.

With scrap pricing now kind of pushing beyond the $200-a-ton mark for the first time in awhile, are you starting to see a pick-up in flows of some of these peddlers that might have gone and done other things?

Are they coming back into the market again?

And what do you think that means for volumes in the remainder of the year?

I would expect that flows have picked up and will continue to pick up in anticipation of higher prices.

But you know, scrap pricing is a month-to-month thing, Evan.

And as quickly as prices go up, they can go down, depending on other factors.

Now the fact that iron ore has sustained itself well-above $50 a ton is good for scrap markets.

But I wouldn't count on flows changing dramatically for a $20-a-ton [show].

There's enough flow that we can run our yards.

We've made adjustments in our yards and our staffing.

Barbara's point earlier about continuing to manage costs -- we've taken staffing reductions, and cut back operations at yards.

So would I expect an uptick in the third quarter?

Yes, if for no other reason, we need the scrap for our own production.

But I wouldn't attribute it necessarily to stronger longer-term scrap pricing, at least not yet.

Okay, great.

Thanks, guys.

Thanks, Evan.

And our next question comes from Charles Bradford from Bradford Research.

Good morning.

Good morning, Chuck.

Could we talk a little bit about some of the other costs that might have changed somewhat -- for example, electricity and electrodes?

What are you seeing with the switch to natural gas by a lot of utilities, and so on?

Do you want to take it?

Go ahead.

Yes, Chuck.

I think overall, we've seen, of course, a number of costs that have gone down over the last period of time, driven by all of the various commodity prices coming down.

Our energy cost was good in this past quarter, a good bit of that due to the weather and not facing as severe weather conditions across our operations as we might have seen a year ago.

A year ago, we had bad weather in Texas, and a lot of days in the Southeast that were very cold, and a lot of peak power rates.

We just didn't experience as many days this year, in this past quarter.

Clearly we are benefiting from lower natural gas prices, but that's not a huge component of our overall cost, as you know.

Definitely power is a major factor in Poland, because they have much higher energy rates in Poland, as compared to our rates here in the US.

But our leader there, Zawiercie, in Poland, has been working hard in this regard.

They work hard not only on their consumption, but also to try to get a level playing field for us to not be the sole supporter of all of the green energy initiatives in that region.

And he's made some good progress in that regard.

Hey, Chuck, I think I'd only add that, as there's a continued shift to more use of natural gas, we haven't seen any dramatic change in the utility pricing.

But many of the arrangements that we have are on a contractual basis.

Whenever there's an opportunity to renegotiate those contracts, we'll do the best we can to reduce our costs.

We focus on, again, the things that we can control.

And when there's contract renegotiation, we certainly do everything we can to leverage our buy.

But in the meantime, we work on the utilization rates, the costs and manufacturing -- including electrode costs.

And it's one component of many components that make up our total costs.

So Barbara's point of where we've seen the best gains were in Poland, where we had an opportunity to challenge some of the pricing -- particularly as it related to green energy component of our pricing structure here.

Thank you very much.

Thanks, Chuck.

(Operator Instructions)

Our next question comes from Phil Gibbs from KeyBanc Capital Markets, as a follow-up.

Thank you.

The SG&A at $94 million really was aggressively lower quarter on quarter and year on year.

Just wondering how much of that is structural, given some of the moves that you've made, and how much of that may be some temporary or seasonal SG&A reduction?

Thanks, Phil.

Yes, I would not regard it as something that's truly structural.

Some of it was related to compensation costs, fluctuations that we had for some particular reasons.

And we also have a benefit replacement program that had some gains in this particular quarter.

So I think that the 100 number is a better number for you to think about on a going-forward basis.

Okay, that's helpful.

And I know that the tax rate has been all over the place, and even on an adjusted basis, it was -- at least in our model -- somewhere between 26% and 28%.

So what do we think about the tax piece moving forward?

So I think for the full year, we're anticipating a tax rate of about 29%.

This quarter, you did see a very low tax rate because of a one-time settlement with the Internal Revenue Service.

But if you model 29% for the full year, you should be pretty close.

Model 29% in terms of the back half, and then also on a run rate basis moving forward?

I would say, look at the full year, and considering what we've already booked in the first two quarters, we're expecting 29% for the full year.

On a GAAP basis?

On a GAAP basis, right.

Okay.

And is that a good rate to use on the out years as well?

Right now, I would say that's a good rate, yes.

Okay.

Well, good work.

Have a good weekend.

You too, Phil.

Our next question is also a follow-up, from Paul Luther from Bank of America Merrill Lynch.

Hi, thanks.

Just wanted to check in on working capital trends.

Q2, I think, was a source, but bucked the seasonal trend, I thought.

Could you give us a sense for what you anticipate for working capital for the second half?

Yes, the working capital was down quite a bit in the second quarter, some of it due to inventory management, but a lot of it due to just lower commodity prices flowing into our inventory levels and our payables.

So you know, it was quite a drop.

But I think as we go into the third quarter, the strong construction period -- and also, Barbara mentioned an outage in Poland associated with the caster coming online -- that you are going to see the inventory increasing to some degree.

And that's seasonal, and it happens every year.

And as we approach the end of the year, some of the inventory will start to bleed out again.

But I think you'll see it creep up in the inventory in the third quarter.

Okay, great.

Thank you.

Thank you.

Ladies and gentlemen, at this time, we've reached the end of today's question-and-answer session.

At this time, I'd like to turn the conference call back over to Mr. Alvarado for any closing remarks.

So thank you again, everyone, for joining us.

We felt we had a good quarter, and we look forward to increased shipments and demand in the third and fourth quarter because of seasonality, construction markets.

And we look forward to reviewing those results with you in just a few months.

In the meantime, thank you for joining us on today's conference call.

We look forward to seeing you and speaking with many of you during our investor visits in the coming months.

Thank you very much.

Ladies and gentlemen, that does conclude today's Commercial Metals Company conference call.

We thank you for attending.

You may now disconnect your telephone lines.