Commercial Metals Co (CMC) 2018 Q1 法說會逐字稿

Hello, and welcome everyone to today's Commercial Metals Company First Fiscal Quarter of 2018 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 key macroeconomic drivers that impact our business, our margins, refinancing plans, the exit from our International Marketing and Distribution segment, the company's future operations, the company's planned new steel mill in Oklahoma, capital spending and the company's planned acquisition of certain U.S. rebar assets of Gerdau S.A. These statements generally can be identified by phrases such as we, the company, CMC, or management, expects, anticipates, believes, estimates, intends, plans to, ought, could, will, should, likely, appears, potential, outlook or other similar words or phrases.

These and other similar statements are considered forward-looking within the meaning of federal securities laws 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 expectations and 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 beliefs, and the company believes that such expectations and beliefs are reasonable, CMC offers no assurance that events or facts will happen as expected, and we caution those listening to this call to not place undue reliance on any forward-looking statements.

All statements are made only as of this date.

Except as required by law, CMC does not assume any obligation to update, amend or clarify these statements in connection with future events, changes in assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances 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.

Unless stated otherwise, all references made to year or first quarter are references to the company's fiscal year or first fiscal quarter, respectively.

And now for opening remarks and introductions, I will turn the call over to the President and Chief Executive Officer of Commercial Metals Company, Ms. Barbara Smith.

Thank you.

Good morning, and welcome to everyone joining us to review the results of our first quarter 2018.

Today, I'm joined by Mary Lindsey, Senior Vice President and Chief Financial Officer.

I will review highlights from the quarter and then Mary will cover the quarter financial information in more detail.

Afterwards, I will conclude our prepared remarks with some comments on our outlook for our 2018 second quarter after which we will open the call to questions.

Before covering the results for the quarter, I want to acknowledge that our fiscal year began with a number of natural disasters, which not only impacted our business but our employees, the devastating impact of Hurricane Harvey, followed by Hurricane Irma and more recently, the wildfires in California.

While the business impact was some lost time and minimal property damage, our employees were not as lucky.

I would like to acknowledge every CMC employee who was impacted by those events and who are still suffering.

We continue to assist employees where we can until they have fully recovered from their loss.

Turning to the results as announced in our earnings release this morning.

We reported net sales of $1.2 billion for our first fiscal quarter 2018 and our net earnings were $36.8 million or $0.31 per diluted share.

I'm very pleased with these results and in fact, our continuing operations posted our best quarterly performance since the first quarter of 2012.

Also as noted in our press release on January 2, our Board of Directors declared a regular quarterly cash dividend of $0.12 per share of CMC common stock for stockholders of record on January 16, 2018.

The dividend will be paid on January 31, 2018.

This cash dividend reflects CMC's 213th consecutive quarterly dividend.

Now I will cover current trends and conditions in the markets in which we operate.

Continued optimism of growth in our markets led by strong results in our first fiscal quarter of 2018.

Both advanced and developing economies are exhibiting strong economic momentum and confidence, and investment sentiments are driving a 3% growth forecast in global steel consumption for 2018.

In the U.S., as of November 2017, calendar year-to-date nonresidential construction starts have increased almost 12% in comparison to the prior year.

Additionally, the Architectural Billings Index, a leading indicator of construction activity, has been above 50 for 8 of the past 9 months, providing confidence that construction growth should continue.

Original equipment manufacturers of farm equipment, industrial and construction equipment and energy products are also seeing growth in their markets supporting continued strength of the merchant business.

Specifically looking in our U.S. market, Texas is the #1 construction market as measured by the 2018 nonresidential construction starts forecast.

We recognize the strength of this market when we chose to ramp Oklahoma as the location for our micro mill, in part to serve the North Texas market.

I'm pleased to report that commissioning of the Durant facility is going extremely well.

We've completed all of the major commissioning activities, and very soon we will be starting the ramp up of production at this facility.

In addition, we look to commission the production of spooled rebar during the spring of this year.

This quarter, we also announced our intention to invest in a second spooler at our micro mill in Mesa, Arizona, which will provide additional high-quality spooled rebar to serve the Southwestern United States beginning in 2019.

Turning to the European markets.

The Polish market is also experiencing significant growth.

In comparison to the prior year, building construction has increased by 19%, housing construction by 13% and industrial products by 10%.

With the capital that we've invested in our facility over the past few years, combined with our very successful team, we have significantly improved our capabilities and cost structure at our Polish operations and are producing fantastic results.

Although it was relatively small, the acquisition of the assets of MMFX Technologies demonstrates our commitment to bringing innovative solutions to the concrete reinforcement industry.

The ChromX line of high-strength, corrosion-resistant rebar offers our customers an additional range of products and cost-effective solutions to suit their specific building requirements.

We believe that CMC's coast-to-coast production capability and distribution network will greatly enhance the growth of the MMFX product line.

In addition to the ChromX line, we've also introduced CryoSTEEL rebar.

This product is generally for the use in extremely low temperature, concrete reinforcing solution applications and further adds to our portfolio of customer offerings.

We have recently secured our first order for this product and are discussing its potential use with other customers with various applications around the world.

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

Thank you, Barbara, and good morning to everyone joining us on the call.

As Barbara mentioned, for our 2018 first quarter, we reported net earnings of $36.8 million or $0.31 per diluted share, which compares to net earnings of $6.3 million or $0.05 per diluted share for the first quarter of the prior year.

Included in the results is a net after-tax benefit of $1.8 million related to the exit of the International Marketing and Distribution business.

This resulted primarily from the liquidation of inventory for values in excess of their carrying values.

Summarizing our results by segment, the 2018 first quarter Americas Recycling segment results were very strong, resulting in $9.9 million of adjusted operating profit for the quarter in this segment.

This is the highest quarterly profit in this segment in 5 years and was supported by strong demand for ferrous scrap and the continued increasing -- increases in nonferrous pricing.

Since the same period of the prior year, nonferrous prices have increased approximately 22%.

Ferrous prices have been relatively stable during the past 12 months.

However, we are beginning to see prices trend upwards.

A combination of higher domestic steel manufacturing utilization rates and the acquisition of yards during fiscal 2017 led to shipments increasing by 44% compared to the same period of the prior fiscal year.

Our Americas Mills segment recorded adjusted operating profit of $40.8 million for our first quarter 2018 compared to adjusted operating profit of $36.9 million for the same period in fiscal 2017.

As Barbara previously mentioned, strong end market demand resulted in shipment volume increasing by almost 7% when compared to the same period of the prior year.

After decreasing throughout fiscal 2017, metal margins returned to a level that was essentially flat for the first quarter of the prior year.

Our Americas Fabrication segment recorded an adjusted operating loss of $4.8 million for first quarter of fiscal 2018.

This compares to adjusted operating profit of $6.7 million for the first quarter of fiscal 2017.

The decrease in adjusted operating profit was primarily due to the margin compression caused by increases in the cost of raw materials used by this segment, combined with selling prices, slightly decreasing the comparison to the first quarter of fiscal 2017.

Strong competitive pressures and the availability of low-cost import material have not provided a market dynamic for these increased costs to be passed unto customers in the form of increased selling prices.

Bidding activity for new jobs remained strong, supporting our optimism for continued strength for steel demand in the United States.

As Barbara mentioned, we had another strong quarter in our International Mill segment with first quarter 2018 adjusted operating profit of $23.4 million, versus the adjusted operating profit of $10 million for the first quarter of 2017.

This approximately $13.4 million improvement in adjusted operating profit was primarily due to an increase in volume of over 25% in comparison to the prior year and higher metal margins driven by more merchant product and the strong demand for construction steel.

We continue to make good progress on the wind down of the International Marketing and Distribution segment.

As you are aware, we completed the sale of our raw materials trading division, CMC Cometals, in August of 2017.

We have wound down most of the operations in Southeast Asia and have made considerable progress winding down or selling portions of the U.S. steel trading business, Cometals steel.

In Australia, we are continuing to market for sale the remaining steel trading business.

Turning to the balance sheet and liquidity.

As anticipated, we consumed approximately $120 million of cash during the quarter, primarily related to repayments of advances received from our accounts receivable securitization program.

These funds were utilized at year-end to bridge the receipt of the CMC Cometals sale proceeds to allow us to accommodate the delevering we accomplished last year.

Our balance sheet remains healthy and provides a significant optionality.

As of November 30, 2017, cash and cash equivalents totaled $130.2 million and availability under our credit and accounts receivable sales facilities totaled approximately $617 million.

As a result of the refinancing, which we accomplished last year and capitalized interest related to the Durant mill, you will note that our interest costs were less than half of the prior year.

Capital expenditures were $59.7 million for our first quarter 2018 compared to $43 million in the prior year's first quarter.

We estimate that our capital spending for 2018 will be in the range of $150 million to $250 million, which include some expenditures related to the construction of our new Oklahoma mill.

Finally, I would like to make a comment on the recently signed tax reform legislation.

We believe that the lower corporate rate in the U.S. will be beneficial to Commercial Metals on a go-forward basis.

However, we expect some impact as the net tax liabilities are revalued at the reduced rates and the impact of the cash repatriation costs are determined.

At this time, it is too early to know how much this will be.

Thank you very much.

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

Thank you, Mary.

Our second quarter is typically a weaker shipping quarter due to the holidays and the potential for winter conditions to slow construction activity.

However, leading indicators of our key end markets points towards the continued fundamental strength of our end markets as we enter 2018 in both the U.S. and Poland.

As Mary mentioned, the recently signed tax reform legislation should provide a modest improvement to our results, but more importantly, provide support for the continued growth of the U.S. economy.

In addition, with the tax reform in place, we are encouraged that this will provide the foundation for the administration in the U.S. to address a badly needed infrastructure regeneration program.

This is a very exciting time for Commercial Metals Company.

Demand in all segments in our business is strong, margins are recovering from the historical lows we experienced during our fiscal year of 2017.

And as we announced yesterday, we have signed a definitive agreement to acquire certain U.S. rebar focused assets of Gerdau S.A. We are committed to being a supplier of choice in the concrete reinforcing steel and merchant bar markets, leveraging our technical, innovative and commercial strength.

I would like to conclude by thanking our customers and suppliers for their continued loyalty and the commitment and dedication of all our employees and wish everyone on the call a happy and prosperous new year.

(Operator Instructions) The first question comes from Chris Terry with Deutsche Bank.

Just a first question on the Polish division.

The prices obviously moved up nicely during the quarter.

But against some of the, I guess, consultant numbers that we saw, the price was slightly less.

Is that a lag effect or do we think about that as a mixed effect?

And I guess how do you see that market developing over the course of the rest of 2018?

Yes.

Chris, I'm not sure what references that you're referring to.

We do have -- I don't know the specifics off my top of my head of our mix within the quarter, but in general, we've seen improvement in our margins related both to strong demand as well as just the mix of merchant to construction steel.

So I guess I would just -- I don't know what references you're pointing to.

Just some of the consultant data that we get over that period just indicated that it was a little higher than what the results were.

They obviously moved up well.

Okay.

So do you see that sort of continuing throughout '18?

Or what's the outlook for that division in terms of the pricing?

Well, we don't give pricing -- specific pricing projections nor do we give specific guidance, but we see very strong demand.

We're very optimistic for our Polish operations that they will continue to have a very strong year.

Obviously, seasonally, we do battle winter weather at this point in our fiscal year.

And so while we continue to see good demand and good shipments, it could be disrupted a little bit by winter weather, but we're quite optimistic for the Polish economy and demand in general in Poland for the next several years.

The next question comes from Seth Rosenfeld with Jefferies.

A follow-up question on the Polish International Mill segment.

In that division, it seems like you've significantly exceeded the nameplate rolling capacity for 2 consecutive quarters.

When you look at that business, was there a significant amount of material being shipped out of inventories or built previously?

Or was there again kind of a mixed effect there?

Or alternatively, is this in line with where you're seeing production from those assets today?

I think it's in line with what we're seeing -- production in those assets.

Any good steelmaker is always looking at ways that they can further debottleneck and improve the efficiency and the productivity of the asset.

And we have a fabulous team in Poland and they're constantly testing the limits of the equipment.

Just to remind you, the stated capacity in Poland is around 1.3 million tons.

But other than that, there's nothing particularly unusual going on.

Okay.

And just a follow-up question, looking over the Americas Mills segment, can you just give us a little bit more color on your outlook for conversion costs in that division?

Remember last quarter there was some confusion over the impact of realized scrap costs and how the reported figures kind of made the conversion costs look a bit elevated.

For this last quarter and for expectations going into calendar '18, where do you see your realized conversion costs lying?

I think the conversion costs remain quite consistent from quarter-to-quarter.

So the scrap noise that we experienced during the fourth quarter is not -- should not affect your calculations regarding conversion for the next quarter.

Okay.

So we should look at this most recent run rate -- looks pretty stable Q-over-Q as being realistic going into the next couple of quarters?

Yes, I would say so.

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

Question is on the IM&D business and where you think you stand on timing of the unwind of the net working capital, whether or not we got any of that yet and what to expect in the second quarter.

And then also, when should we expect some of the revenues to move off the roll as well given the fact that you obviously had a very strong quarter in that business?

Yes.

So thanks, Phil.

We have realized some of the monetization of the working capital from that business, about $30 million in the first quarter.

And we've got probably another $100 million to $125 million left to go.

And in terms of when we're going to see that completed, we would certainly be very hopeful that we see that completed by the third quarter of our fiscal year.

And we've had better success frankly than we thought we we're going to, so things seemed to be going relatively well.

And on the results in the quarter, clearly, it was one of your best -- better quarters or best quarters you've had in a while.

And curious what the cause of that was, and whether or not we should expect that adjusted result to continue into Q2.

Well, yes, so if you remember in the fourth quarter of last year, we had a relatively significant charge associated with the -- making the announcement to exit IM&D.

And one of those -- a significant portion of that charge was the mark-to-market of the Cometals steel inventory.

And so that got mark-to-market at the then market price.

And we are, as I mentioned, we're having pretty good success liquidating the inventory.

And the liquidation values are higher than that markdown price.

So it's -- I think about $1.8 million of benefit running through the net earnings for this quarter.

That's about $5 million at EBITDA level.

And assuming we continue to have good success, liquidate the inventory, we could probably assume a similar ratio of gain as we continue in the second and third quarters.

Okay.

I appreciate that.

And from a housekeeping perspective, the interest expense has been pulled back nicely, as you noted.

Is the $6.5 million a good rate to use moving forward?

It's a little bit low, frankly, because of a couple of things.

We've got some capitalized interest expense in that number associated with Durant.

So once we take -- once Durant gets up and running and that expense begins to run through the P&L, we're seeing about $36 million of interest expense for the full year of 2018.

Okay.

And then, Barbara, last question is on fabrication.

Starting to move in the right direction, slowly as you noted yesterday and we see today.

When would you anticipate that based on your backlog visibility getting back into the black?

Yes.

So that's a little bit difficult to predict.

It depends on where raw material prices go from here.

And so the good news is that fab pricing has stabilized and it is starting to adjust with raw material pricing, but it's chasing the curve up.

And as you know, rebar prices had been moving up the last several months commensurate with raw material price changes.

So the fab business, it'll take some time, I would say, several quarters to replenish the backlog with the projects that have some margin built into them.

Sorry, I can't give a better prediction because there's just so many moving parts right now, but it's going to take some time to rebuild that backlog with some margin in it.

The next question comes from Charles Bradford with Bradford Research.

Could you come up with maybe a final figure for the cost of building Durant?

You talking about the capital cost?

Yes, capital cost.

Yes.

I think we originally announced at $250 million for the mill.

We had some subsequent projects that we added, if you recall the spooler and the automated post shop, which would be separate from that.

But the mill is coming -- it's coming in around that $250 million number.

And one other area, as I mentioned yesterday, which is scrap, what are your scrap supplies look like with the new Gerdau facilities?

I think you mentioned only Fort Lauderdale had its own scrap.

Are you going to be able to pick up scrap supplies from your existing to supply these other mills?

Or what's the plan?

Yes.

So Chuck, first of all, we don't see that we will have any issue with sourcing scrap to these facilities.

There are any number of supplier arrangements in place today that Gerdau uses to supply raw material to their facilities.

Obviously, over time, we will examine our own recycling strategy and whether or not we will want to pursue any additional recycling assets to support this new mill footprint.

But I think first order of business is to move through the regulatory process and complete the transaction and close it, and get in and begin to operate these operations and then determine what additional strategic moves we might make in order to increase our captive scrap supply.

Do you have any update or know anything about what's happening in regard to Gerdau and its -- and the investigation?

And would that have any impact on your ability to close the deal?

It would be really inappropriate for me to comment on a topic related to Gerdau.

We don't see anything other than the normal regulatory and customary closing requirements.

We don't see anything additional that would prevent us from completing the transaction.

The next question comes from Matthew Korn with Goldman Sachs.

So a question regarding the recycling segment, very, very good results.

I'm wondering, can conditions really get much better when you have scrap prices that are healthy, they're upward trending, weather seemingly hasn't hampered any flows, although maybe this deep freeze has bite a bit.

So is this as good as it gets?

Or do you think we could see a 4%, 5% through the -- your operating margin as something achievable for this kind of -- as part of the business?

Well, certainly, our objective is to generate profits in this segment.

And clearly, as Mary indicated in her remarks, that scrap pricing has been trending up and that's always an environment that is conducive to better results in the recycling segment.

I think the other big factor are nonferrous pricing and we take a lot of care and effort in extracting every amount of nonferrous content that comes into our recycling yards and we sell that for value.

And so the fact that nonferrous prices have then moving up, really commensurate with better economies around the globe and a lot of commodity prices have been recovering off of multiyear lows.

Those are opportunities for us to improve the profitably in the recycling segment.

And so I would say the nonferrous pricing, I don't see anything that would indicate that those prices are going to move lower in the near term.

So I think that's a good indicator of continuous good results in the segment.

Got it.

And let me follow up also on Durant.

It sounds like we're into commissioning, things are going well, contribution by 2Q.

So with market conditions there, it's seemingly getting better, imports falling, order rate strong, everything else you're talking about in terms of nonres, what kind of volume ramp are you aiming for from Durant over the next couple of years?

Yes.

Thank you for the question on Durant.

We just could not be more pleased with how the commissioning activities are moving forward, and I want to give a shout out to the team up there who have been working tirelessly, both the construction team and the operating team, to bring these assets online.

Our very first heat was commercially salable product, which is quite unusual in the commissioning of a brand-new steel mill.

But like, if I use the analogy of a fine sports car, when you drive if off the lot with 10 miles on the odometer, you're cautioned to warm up that engine or to bring that engine up to speed slowly.

So we're going to continue over the next few weeks to work through these commissioning and test the limits of the equipment in a very controlled way.

But having said that, we expect a strong ramp and we should be up to, I would say, around 25,000 tons per month by the May-June time frame.

We had indicated, I think earlier that we will be staffing up to 3 crews, and then market demand will determine when we would add that fourth crew.

And the fourth crew would allow us to get to, I would call it the nameplate number that we indicated, 350,000 tons per year.

But at this time, we're prepared to say that we would expect to ramp to around that 25,000 tons per month by the May-June time frame.

(Operator Instructions) The next question comes from David Lipschitz with Macquarie.

A quick question on scrap.

You had a really good scrap number, I felt, in your first quarter.

But you said that scrap prices are going up.

Should we expect in the next quarter or 2, your scrap realization to move up in the -- both for Americas and Poland?

Yes, Dave.

Well, I think that there are market trade organizations that are giving some pricing indications for scrap.

But I would say, scrap is going to trade in -- for January this week, so it's really too early to determine what's going to happen for scrap that's traded for the month of January.

Generally, the market has been supportive of some price movement in scrap, as we've indicated.

Winter conditions can affect the ability for scrap to make its way to the market, which can be another factor that weighs into things.

But I think everybody should also continue to monitor the ratio of iron ore to scrap that tends to be a good indicator of where scrap prices are going.

And a quick follow-up, in terms of the marketing business, how can that -- discontinued ops?

I'm sorry, your question?

So the market -- the marketing, international marketing business, like you said, you did a nice job in the quarter, $10 million of operating profit.

I'm just wondering how come that's not in discontinued operations when you talked about getting -- selling it or winding it down.

Well, the rule for -- the rules, the accounting rules for putting something into held for sale or discontinuing ops have changed.

So the only part of our business, International Marketing and Trading that qualified for the treatment was Cometals trading, which we actually sold at the end of August.

And with regard to the remaining pieces of International Marketing and Trading, those will go into discontinued ops when they're actually at the end of their wind-down period.

The next question comes from Aldo Mazzaferro with Mazzaferro Research.

I got 2 questions.

I was wondering about President Trump's plans now to come back with infrastructure seemed to be more likely now that the tax is behind us.

And I'm wondering, I can see how that would affect the rebar market quite positively, especially now that you're -- you've added some capacity that could be ramped up.

But I'm wondering about the fabrication side, I can see how it might raise the cost of rebar further and I'm wondering whether do you think the demand side might overwhelm that issue, and maybe allow you to raise on price on fabrication as well.

How do you see that?

Yes.

Aldo, again, we're not going to comment on where prices are going in terms of fab or mill.

I think that would be speculating at best right now.

I think -- what I would say is we're highly encouraged that tax reform was passed, and that the President is indicating that the next item or one of the next items up on his agenda is to look at a comprehensive infrastructure plan.

As we've talked about for a number of years now, there is overwhelming evidence that we need that across the U.S., and so we're very encouraged that that's moving up on the agenda.

And we're hopeful that both sides of the aisle have a common goal here and that they can get something accomplished.

I think that it would be just excellent from a demand perspective going forward and something that would be really helpful for the country and job creation.

I can say on the fabrication side, there's plenty of opportunity to increase throughput in those operations.

Generally, they're not running 24/7, and so there's plenty of flexibility to meet increased demand, and we would welcome that increased demand.

Great.

And if I could ask another question on the current topic, the Section 232 that we're expecting some time around the middle of January, do you see a role or a characterization of rebar included in that, do you think?

Is there a possibility that rebar becomes a product that gets singled out as potentially more significant of national interest?

Aldo, I think that there -- the only thing that I can say is what you've read, and that is that the report will be delivered to the President, and I think there's a statutory deadline coming up shortly that Wilbur Ross will need to provide that report to the President, and then the President will have some time to make a decision around that case.

Beyond that, I think I just really would not be able to make any predictions.

This thing has ebbed and flowed and gone on for a long period of time.

So it would be difficult to make any predictions at this juncture.

Great.

And then finally, Barbara, congratulations on the price that you paid for the assets of Gerdau's mills.

I really was surprised that they were able to be acquired at that low price.

And the way I'm looking at the numbers, if you strip off the working capital, you paid about $130 a ton and I think you're spending something like 3x that at Durant for admittedly very, very high technology.

I just think it's a very, very good use of capital.

Thank you, Aldo.

I think we look forward to getting through the process and getting to a closing and welcoming those employees into Commercial Metals.

And so we're very excited about the possibilities.

Thank you.

The next question comes from [Brett Levin] with [Arcelus & Company].

Most of my questions have been asked.

In terms of -- we had a period of time where the number of shredders in the country increased by about 3 times.

In terms of supply and demand, where do you see the scrap market right now going forward?

Well, assuming a continued improving demand environment, I think that's good for the -- any recycler, our own recycling business as well as any independent recycling business.

So I think the fact that you see economies improving really globally, I think that's going to create an environment for strong demand for raw materials globally and as well as domestically.

And so that excess capacity that you referred to should be able to have a higher utilization rate and realization, which is good overall for the industry.

And the follow-up is, where is your utilization on the recycling side?

And where do you see it going by the end of 2018?

We don't publish specific recycling utilization rates.

Again, it's similar to fab, you have plenty of opportunity to increase the throughput in the capacity, if you will, of our own internal recycling yard.

But again, we see a good demand environment and we think that's good for our recycling portion of our portfolio.

The next question comes from Wayne Atwell with Ascendiant.

I have a question.

Unfortunately, we had 2 very serious storms, actually 3, I guess, Florida, Texas and Puerto Rico last year.

What's the impact on your business?

It's unfortunate, but I'm guessing there's going to have to be a lot of rebuilding in those communities.

Has that gotten underway yet?

Is that down the road?

Is it important, not important?

Can you sort of give us your thoughts on it?

Yes.

So those storms were devastating, and probably Puerto Rico more so than some of the devastation here in the U.S. But the first impact was an increase in flows to our recycling yards of material that was scrapped from the storms.

And we've seen that and probably have received the lion's share of the material that was damaged by the storm.

The rebuilding process, which will go on could be multiyear, rebuilding process.

It'll just flow into slightly higher demand across those regions where there was devastation.

I don't know that it's going to be enough to be a meaningful change in demand, but having personally owned oceanfront property and lived through several hurricanes, in some areas, the recovery is fairly quick; in some areas, it can take 2 to 3 years.

So again, it will be some increase in demand, but it'll be spread across a larger pool of demand.

So it sounds like it's not going to have a terribly meaningful impact in any onetime period?

Not on a new rebar demand, no, or new construction steel demand.

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

I've got a question on the start-up costs on Durant and where they may have been realized in the P&L this quarter, whether in this segment or corporate, and then what those may have been.

Yes.

So they -- I'm sorry, maybe I should let Mary answer the question.

I'll let her give the specifics.

So that's still showing up in SG&A, and probably will flip over in fiscal 2Q or 3Q.

But do you have the amount that went into SG&A?

Yes.

So this quarter, Phil, it was a little higher than the run rate.

It was about $5.6 million for the quarter.

But as Barbara mentioned, in the second or third quarter, that will flip into mix of cost of goods sold and SG&A.

And that run rate, that 5.7 is not a run rate, that's a high number for some extraordinary items that occurred during the quarter.

And was that captured in the Americas Mills segment?

Yes, Americas Mills.

Exactly.

The next question comes from Sean Wondrack with Deutsche Bank.

Can you talk a little bit about what you've been seeing on the import side, particularly out of Turkey and kind of what your outlook is there?

So imports have been quiet of late.

I would -- the best way to characterize it, really across-the-board and I think import pricing is still a bit above domestic pricing.

I think there are any number of factors, their raw material costs.

As I have mentioned several times on this call, we're seeing the economies around the globe recovering.

And so the natural thing, if you have better economies elsewhere, a country like Turkey is going to keep that in their natural home markets rather than importing and paying extra costs associated with transporting products longer distances.

So I think you're seeing some effect of just general improving economies around the globe and products staying closer to its natural home market.

But those numbers can change quickly and we just continue to monitor them on an ongoing basis and respond accordingly.

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

Ms. Smith, I'll turn the call back over to you.

Thank you, Gary.

Thank you all for joining us on today's conference call.

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

Thank you.

This concludes today's Commercial Metals Company conference call.

You may now disconnect.