Commercial Metals Co (CMC) 2019 Q2 法說會逐字稿

Hello, and welcome, everyone, to the Second Quarter Fiscal 2019 Earnings Call for Commercial Metals Company.

Today's call is being recorded.

(Operator Instructions)

I would like to remind all participants that during the course of today's conference call, the company will make statements that provide information other than historical information and will include expectations regarding economic conditions, effects of legislation, U.S. steel import levels, U.S. construction activity, demand for finished steel products, the company's future operations, the company's future results of operations, the ability to realize the anticipated benefits of our acquisition of certain rebar assets from Gerdau S.A. and the investment in our new micro mill in Durant, Oklahoma and capital spending.

These and other similar 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 on the company's beliefs based on current conditions but are subject to risks and uncertainties, including those that are described in the Risk Factors section of the company's latest annual report on Form 10-K and subsequent quarterly reports on Form 10-Q.

Although these statements are based on management's current expectations and beliefs, CMC offers no assurance that these expectations or beliefs will prove to be correct, and actual results may differ materially.

All statements that are made 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 or -- of anticipated or unanticipated events, new information or circumstances or otherwise.

Some numbers 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 quarter-end are references to the company's fiscal year or fiscal quarter.

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

Good morning, and thank you for joining the call to review CMC's results for the second quarter of fiscal 2019.

I will begin the call with highlights for the second quarter.

Mary Lindsey will then cover the quarter financial information in more detail, and I will conclude our prepared remarks with a discussion of our outlook for the second half of fiscal 2019.

After which, we will open the call to questions.

As announced in our earnings release this morning, we recorded fiscal second quarter 2019 earnings from continuing operations of $14.9 million or $0.13 per diluted share on net sales of $1.4 billion.

Excluding the impact of the nonoperational items, such as certain integration costs, inventory step-up charges and adjustments related to new guidance associated with the Tax Cuts and Jobs Act, our adjusted earnings from continuing operations were $35 million or $0.29 per diluted share.

The adjusted earnings were a strong result given normal seasonality and the significant effect of weather, which had a dramatic impact on shipments for the quarter.

Also, as noted in our press release from yesterday, I'm pleased to report that the Board of Directors declared a quarterly cash dividend of $0.12 per share of CMC common stock for stockholders of record on April 5, 2019.

The dividend will be paid on April 18, 2019.

This represents CMC's 218th consecutive quarterly dividend.

At CMC, we pride ourselves on leading the industry in customer service and product and process innovation supported by a team of professionals that are always looking for ways to provide value to our customers and all stakeholders.

Some examples of our leadership in service and innovation include third-party industry surveys completed by Jacobson, where our facilities are regularly rated in the top position.

CMC pioneered what is known as the micro mill with the construction of the first micro mill in the world located in Mesa, Arizona, which began operating in 2009.

Through our own innovation in process improvement, the Arizona mill can produce 50% more steel today than the original equipment nameplate capacity.

More recently, in Oklahoma, CMC built a second micro mill in the United States with additional increased capacity to produce hot spooled rebar, providing enhanced product characteristics for our internal fabricating operations as well as our third-party fabricating customers.

The Oklahoma mill is the first mill in the world to produce hot spooled rebar in a continuous, continuous fashion.

And a series of incremental investments made in our Polish operations, which over time have proven that CMC Poland is a world-class facility.

This has provided an industry-leading cost position and increased product diversity, leading to significant margin enhancement.

This is a small representation of the many product and process leadership positions CMC holds in the industry.

This foundation of customer and manufacturing excellence gives us great confidence that we will be able to deliver strong returns from our recent acquisition of -- in excess of 2 million tons of rebar capacity and 800,000 tons of fabricated steel capacity.

The transaction allows us to improve our ability to serve an expanded coast-to-coast customer base while also leveraging our proven customer service approach.

We have made substantial progress integrating these facilities over the past 4 months since the transaction closed.

Following items are list of major milestones achieved to date.

We've rolled out an organizational structure that is aligned with our commercial approach and supports our customer-centric culture.

We have implemented consistent commercial policies across our platform of operations.

We have started to leverage the larger network of facilities to better service our customers at a lower cost, and we have completed the migration of the major IT system platform to CMC's system.

Many of these integration activities are aided by an -- by operating on a common IT system.

Operating the combined operations on a common IT platform prior to the busy construction season allows us to more efficiently serve our customers and capture the benefits of the newly combined organization.

Overall, we are very proud of the pace of our accomplishments today and are confident that the expected synergies from the transactions will be fully realized.

While some of the synergies will take additional time to implement, we have already developed execution plans to deliver synergies with an annual run rate of almost $30 million with expectations to exceed our original goal of $40 million.

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

Both the Architecture Billings Index and the Dodge Momentum Index indicate healthy commercial and institutional construction activity continuing for the foreseeable future.

In fact, the ABI was 55.3 in January, the strongest reported number since December 2016.

In addition, many states forecast to release construction projects, which represent a significant increase in value compared to prior years as they've shored up funding and obtained federal funding through the FAST Act.

Nonresidential construction spend has increased approximately 3.5% in comparison to the prior year, while import levels remain relatively muted, and the small amount of foreign material coming into our markets is generally priced in line with domestic rebar prices.

In our Polish market, Poland's GDP growth reached 5.1% in 2018, the fastest growth rate since 2007.

Growth was mainly driven by domestic demand, especially strong private and public consumption.

Public investment growth is expected to remain strong in 2019 with the support of Euro-Funding.

Private growth is forecast to be focused on machinery and equipment investment, which consumes our merchant and wire rod products.

These factors result in a GDP forecast of 3.5% for 2019, continuing to be one of the strongest growth markets in Europe.

In addition, in early February, the European Commission announced the definitive safeguard measures to protect the European market from unfairly priced import.

The final measures, which are a tariff rate quota system, are scheduled to remain in place through July 2021.

With that as an overview, I'll 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 the second quarter, we reported earnings from continuing operations of $14.9 million or $0.13 per diluted share compared to earnings from continuing operations of $9.8 million or $0.08 per diluted share in the second quarter of 2018.

Second quarter 2019 results include after-tax cost of $20 million related to the acquisition that follows adjustments related to the Tax Cuts and Jobs Act.

Excluding these expenses, adjusted earnings from continuing operations were $35 million or $0.29 per diluted share.

As you know, this was the first full quarter in which we own the assets we acquired from Gerdau on November 5, 2018.

The acquired mills generated $22.7 million of EBITDA, which includes a charge of $10.3 million related to the purchase accounting fair value step-up related to inventory we acquired at closing.

Excluding this impact, the acquired mills would have earned $33 million on shipments of 391,000 tons.

It should be noted that the product mix of rebar and wire rod of the acquired facilities resulted in a lower metal margin than our existing mills as our existing mills also produce higher-margin merchant bar products.

This metal margin difference is approximately $10 to $15 per ton.

In addition, the EBITDA per ton for the acquired mills is further reduced by $20 to $30 per ton compared to our existing facilities due to the higher energy cost and lower utilization rates.

We plan to reduce this gap over time.

The acquired fabrication facilities had an EBITDA loss of $12.7 million.

This loss was driven by a backlog of fixed price contracts that originated prior to the acquisition and before the sharp rise in rebar prices that occurred last year.

This loss does not include amortization of contracts shipped in the quarter, which were $23.5 million.

These acquired facilities had shipments of 162,000 tons during the quarter.

We believe that a better reflection of through-the-cycle earnings would include the benefit of the unfavorable contract amortization as current contracts are forecast to be profitable based on today's rebar prices.

During the quarter, the ongoing balance sheet value of acquired unfavorable contract was adjusted from the preliminary estimate of $134 million to $110 million.

After the amortization recorded this quarter, the remaining balance is $75.4 million, which we anticipate will be amortized over the coming 9 to 12 months.

During the quarter, we incurred integration costs, primarily IT related, of $5.5 million.

We expect to continue to incur these costs for the balance of the year but at a lower rate.

Overall, the acquisition was accretive to our second quarter results.

Now turning to our overall results.

As reflected in the earnings release issued earlier today, core EBITDA from continuing operations was $90.9 million for the second quarter of 2019 in comparison to $85.9 million for the second quarter of 2018.

However, as mentioned earlier, our 2019 results do not include the $23.5 million benefit from the amortization of the unfavorable contract reserve, which is largely a noncash item.

Construction activity in the second quarter was impacted by typical seasonal factors as well as unprecedented rainfall levels in many of our markets.

This delayed many projects due to flooded construction sites, which required the ground to dry before steel can be placed or concrete can be poured.

However, as Barbara mentioned, the underlying market conditions remain very positive supported by continued growth in construction spend and strong metal margins.

Turning to segment results for the second quarter of 2019.

The Americas Recycling segment recorded adjusted EBITDA of $10.1 million for the second quarter of 2019 compared to adjusted EBITDA of $17.2 million in the same period last year.

Historically, ferrous prices have risen during the winter months as availability of scrap is lower.

However, this year, we saw an unusual $30 to $40 decrease in January, driven primarily by a lack of export volume.

Our shipment volumes were relatively consistent with the prior year, but price declines pressured margins.

Importantly, Recycling remained profitable through the period due to actions taken to reduce our cost structure in this business.

In addition, the Recycling team did a good job of managing the business in a declining price environment and reducing our incoming material costs.

The export markets have returned in February, and we have seen scrap prices trend upwards in the last few weeks.

The Americas Mills segment recorded adjusted EBITDA of $112.4 million for the second quarter of 2019 compared to adjusted EBITDA of $50.2 million for the second quarter of 2018.

This quarter results include $10.3 million of inventory step-up, as previously noted.

Shipment volumes increased compared to the second quarter of last year, primarily driven by the 391,000 tons shipped from the acquired location.

We estimate that weather-related issues impacted our consolidated shipment volume by approximately 100,000 tons this quarter.

Excluding the mix issue associated with the acquired assets, as discussed earlier, metal margins have improved by $98 per ton since the second quarter of fiscal 2018 and have improved further compared to the first quarter of this year.

Metal margin improvement was partially offset by a 28% increase in cost compared to the same period of the prior year.

These additional costs include inflationary increases in alloy and electrodes prices and elevated labor cost, as discussed in prior calls.

In addition, low production levels reduced cost absorption.

Reduction was also affected by several unplanned outages, including in Knoxville, Tennessee, where there was a disruption in the gas line that services our Tennessee mill; as well as extended holiday break taken by construction sites; extreme levels of rainfall; and customers waiting on the impact of scrap decreases.

We expect our cost to decrease from these current Q2 levels approximately 5% to 8% for the balance of the year.

The Americas Fabrication segment recorded an adjusted EBITDA loss of $49.6 million in the second quarter of 2019 compared to an adjusted EBITDA loss of $8.6 million in the prior year quarter.

These results include a $12.7 million EBITDA loss on shipments of 162,000 tons from the acquired facility.

As mentioned previously, this does not include the benefit from amortization of the unfavorable contract loss reserve.

Volumes in this segment were impacted by the historically wet weather affecting construction activity, which slowed shipments during the quarter.

As a reminder, this segment enters into long-term fixed price contracts supporting the construction industry, typically priced at a spread above rebar prices at the time of initial contract bidding.

With the price of rebar increase last year, this segment saw its margins erode as we shipped on contracts entered into prior to the implementation of Section 232 tariff.

In addition, the current quarter results include losses recorded on certain specific contracts.

The lowest-priced work in our backlog is now behind us, and new work booked in the first 6 months of this year is averaging over $1,000 per ton.

Barring any significant increase in rebar prices, we are confident that losses in our existing rebar fabrication facilities will significantly decrease in future quarters.

Losses from the acquired facilities backlog will take slightly longer to abate due to their lower pricing level.

Going forward, we have aligned our pricing approach, and all new work is profitable at today's costs.

It's important to recognize that as a result of our vertical integration model, when we combine the consolidated margins earned from the recycling operation to the mill operation and to the fabrication segment, that fabricated tons we ship are profitable for CMC despite the segment loss.

The International Mill segment recorded adjusted EBITDA of $20.5 million for the second quarter of 2019, a decrease from $32.1 million from the same period last year.

Importantly, this was the third best second quarter ever achieved by Poland.

In addition to the seasonal weather impact, volumes were impacted by a number of factors.

The holiday season reduced shipments for nearly half of December; falling scrap prices kept some customers on the stock line, with some also waiting for a final disposition of trade safeguards, which were announced on February 1. Despite the decline in volume, margins remained strong.

As Barbara mentioned, we expect the volumes will increase back to normalized levels for the upcoming construction season.

Costs in the Corporate and Other segment decreased by approximately $2.1 million from the same period of 2018.

The results this quarter include $5.5 million of acquisitions and integration-related costs.

Turning to our balance sheet and liquidity.

As of February 28, 2019, cash and cash equivalents totaled $66.7 million, and we had availability under our credit and accounts receivable facilities of approximately $544.1 million.

During the quarter, we drew advances on our accounts receivable facilities of $59.5 million as we increased inventory levels ahead of the coming construction season.

We expect that we will reduce working capital balances over the remainder of the year and anticipate that we will repay the borrowings under our accounts receivables program and reduce the amount outstanding under our term loans.

For the second quarter, capital expenditures were $67.5 million.

We estimate that our capital spending for fiscal 2019 will be in the range of $170 million to $225 million, which includes costs related to the acquired assets.

This concludes my remarks.

Thank you very much.

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

Thank you, Mary.

Our third quarter is typically a strong shipment quarter due to ramp-up of construction activity across our markets.

Customer sentiment is very bullish in both Poland and the U.S., which is supported by our own healthy internal backlog.

We expect strong and relatively stable metal margins to remain in place for the balance of the fiscal year.

On the manufacturing costs side, we do not anticipate significant inflationary pressures from the current levels and expect higher production levels in the coming months will help decrease our costs.

We are also confident that we have cycled through much of our older fixed price fabricating backlog and anticipate the fabrication segment showing substantial improvement in their results during our fiscal third and fourth quarters.

During the second half of the year, we will be focused on continuing to leverage our expanded platform of steelmaking and fabrication assets and delivering on our synergy expectations.

I look forward to updating you next quarter on our progress.

I'd like to close my remarks by saying that we are confident in our outlook and the ability to create value for our shareholders.

Our team of employees have successfully executed many facets of our strategic plan.

We believe our leading customer service approach, coupled with our strong market position and investments made in bringing innovative solutions to our business, have positioned the company for continued success.

Thank you.

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

(Operator Instructions) And today's first questioner will be Matthew Korn with Goldman Sachs.

So Barbara, there at the end, you offered something like a pretty optimistic view in anticipation of volumes into the next quarter.

Can you quantify that in any way?

Should legacy shipments look more like last year plus Durant?

Should we still continue a continued ramp-up at the GDP mills for the remainder of the year?

Yes.

We're early in the quarter, but according to our forecast, I think you're looking at it from the right perspective, Matthew.

I think we will certainly see shipments be higher than this previous quarter, which, of course, was affected by weather and holidays.

And then we look forward to our newly acquired assets seeing a normal seasonal pickup as well.

Over in Poland, how have the oil rates looked for you now that we've got the safeguards in place?

Have you seen some measurable improvement there?

Yes.

I think things have firmed up there.

They're looking forward to a strong back half of the year, just like we're expecting here in the U.S.

And then last for you, Mary.

I believe I heard you say that you expect costs on the mill segment to fall from the 2Q levels by about 5% to 8% during the year.

Correct me if I'm wrong.

Or I know...

Correct.

Okay.

Should I understand that to mean essentially per ton costs ex scrap should fall by that amount?

Yes.

Are you talking -- okay.

And so is that America Mills only?

Or will Poland, do you believe, follow a similar trend as the volumes ramp there, too?

Yes.

I would also expect a similar improved cost absorption in Poland as their volumes increase, Matthew.

And our next questioner today will be Martin Englert with Jefferies.

Any implications in the fiscal 3Q given the poor weather?

Is this resulting in any pent-up demand that's being pushed into the quarter?

Or conversely, do you think it may inhibit the volume for mills and fabrication?

At this point, we don't see it inhibiting volumes.

I think we'll see how the weather evolves.

I know that -- I spoke to someone yesterday, and they said New York had not decided that it was spring yet.

We'll be going up there shortly, so I think we're at the end of the winter weather.

And assuming sunny days like we're having here this week in the Texas region, we expect nice shipment levels.

It's hard to see a substantial increase or, I'll call it, pick-up in that volume.

You'll see a little bit, but there's only a certain pace that they can place the steel.

But given the fact that it's been so wet, everybody's going to be anxious to keep these projects moving when the weather is nice.

Okay.

And then looking at the fabrication results and the deterioration quarter-on-quarter, can you talk about any anticipated EBITDA losses into the third quarter here, help frame it up a little bit better, and then if we would be expecting positive EBITDA in the fiscal 4Q?

Yes, Martin, I would note that there were -- the second quarter was a particularly difficult quarter for fabrication, and I know we've said that in a few -- more recent prior quarters.

But as I alluded to in my scripted comments, in addition to the fact that we continue to run out this very, very low price backlog, we did have an opportunity in the second quarter to resolve some particularly difficult and troublesome jobs in the fabrication business.

These were onetime adjustments related to some very difficult jobs.

And as we move forward into the third quarter and fourth quarter, we are quite confident that we are going to return to breakeven in the third quarter and to profitability as we move into the fourth quarter.

And I would caution that, that is related to the CMC historic operations.

The pricing levels in the Gerdau operations were lower than CMC, and so we're going to continue to kind of run that out through the balance of the next 3 quarters, of course, offset by the amortization of the liability that we booked as part of the purchase accounting.

And if I could further add to Mary's commentary just as a reminder, I mean, we're really talking about backlog that was contracted pre-232.

And as everyone knows that there were substantial raw material price increases from about January, February last year through May.

It was really unprecedented, and we had to meet our obligations under these pre-232 fab contracts.

But overall, it's been a really positive thing for the business.

Now we're going to be moving into a period where we're going to be executing on contracts that are, what I'll term, post-232 fabrication contracts.

And so we should see substantial improvement going forward, assuming relatively stable rebar prices.

Okay.

So what it sounds like at a segment level for the fabrication group was legacy CMC and Gerdau assets is likely some type of modest ongoing office in fiscal 3Q and then something breakeven or better in fiscal 4Q.

That's correct.

And the next questioner today will be Chris Terry with Deutsche Bank.

The first one just relates to the Gerdau acquisitions and the timing, I guess, to close the gap on the margin.

So I think it was around $40 for short-term difference on EBITDA per ton level between your existing assets and Gerdau.

You mentioned some of the factors, though, in your prepared remarks, but just wondering on the timing and how you go about closing that gap and whether you think you can get that back in line with your existing assets.

Yes.

I think as I commented when I made my remarks around the synergies, we've already identified $30 million of the $40 million, and we are executing on capturing that.

Now it's going to trickle in over time.

Some won't actually hit the bottom line until, say, fiscal 2020.

But we have a line of sight, and we're executing on that.

And based on our early work, we're highly confident in the $40 million.

And we believe we can, in time, exceed that.

The other benefit of the combination is some additional CapEx investments in these facilities, where the investment over the last period of time has been rather anemic.

Again, we've started those activities as well, and that will carry on for the balance certainly of this fiscal year, and then we'll reevaluate projects that make sense going forward to bring those operations up to our standard.

Having said all that, we have a mix of mills.

There are geographic differences in things like energy rates.

We also, in our mix of operations, have 2 state-of-the-art micro mills, and it will be difficult to bring even our existing operations to that state-of-the-art level.

But the combined mix of our operations, we're highly confident that we can close most of that gap.

And our objective is to make profits, and we're about getting after that.

Overhead is another area that we will get a benefit, and we saw a little bit of that in this past quarter.

This was a carve-out type of acquisition, and we did not acquire a lot of overhead, and we're absorbing most of the activity with our existing base of overhead structure.

So...

One other thing I would mention that was really an important accomplishment in the second quarter is that we have now put all of the Gerdau assets onto our SAP system.

And this was accomplished, frankly, several -- a couple of quarters ahead of schedule, and this allows the operators and the people in the business responsible for balancing production and shipments to see all of their assets now on one system.

And this was a really good accomplishment and will certainly help them going forward with the important work of integrating these mills into the existing CMC environment.

Okay.

And my next question just relates to the pricing environment.

You've announced a $20 per ton price increase.

How has that been accepted?

Is that price sticking?

Are customers now paying that price?

We generally would not make specific comments around pricing.

I don't think that would be appropriate.

I think what I would say is, as all of you know, the hot roll side of the steel industry has seen some margin erosion in the more recent period, and we're frankly not seeing that as reflected in our metal margins quarter-to-quarter.

And even in face of lighter shipments and declining scrap prices in January, we saw the margins hold firm.

And so we think that there are different dynamics between the flat rolled markets and the long products markets, and we think that's a really strong indicator going forward for the back half of the year.

Okay.

And the last one for me just relates to CapEx.

First half, you spent a little under $70 million.

I think I heard the new guidance for CapEx at $170 million to $225 million.

So heavier spending on the second half, too.

Can you just talk through the projects?

Any key projects other than the Poland expansion?

That's probably the one that stands out, and the spending on that has not evolved as quickly as we originally saw it in the original -- in our first half.

We, as a reminder, do have a second spooler that will be coming online in Arizona.

We'll be commissioning that shortly.

So that was another major project for this fiscal year.

And as I've said, it's going to begin commissioning.

So a lot of that activity is behind us.

But don't forget, we are now starting to implement our plans -- our capital plans as it relates to the newly acquired facilities.

So that's another reason why you're going to see higher spending levels in the back half of the year.

And the next questioner today will be Timna Tanners with Bank of America Merrill Lynch.

I just wanted to follow up on the pricing mechanism for the fab business.

I'm just trying to understand, so when the next contracts are being negotiated as these ones roll off and more attractive ones can be negotiated, do they just take the prevailing rebar price and have like a fixed increase to that irrespective of what happened to the underlying rebar price over the duration of the contract?

Like if Section 232 were to change or be adjusted somehow, whether that be Turkey or overall, would they still be locked into a fixed price off of the prevailing price when they negotiate the contract?

Yes.

Historically -- there are many, many different pricing mechanisms depending on the type of projects.

And there are many, many different types of projects from DOT work to commercial buildings to industrial types of construction sites.

So there is no one specific formula, Timna.

But generally speaking, the owner of a project, they want to have a pretty firm idea of what their total construction cost is going to be.

And that's generally entered into at the time that the contract is signed, and then you perform against that.

And so you're talking about a whole portfolio of projects all with different duration, anywhere from 3 months to 6 months to 3 years, with many different pricing mechanisms.

There are, in some cases, escalators and other provisions for inflationary types of pressures that we all see.

But generally, there is a known amount that is for the duration of the project, and then you deal with the exceptions whether it's through change orders that are design changes to the projects or these other mechanisms.

I was wondering if both sides might want to adjust the contract terms to have a little more variability, in your case, because of your recent experience with the change in underlying price and then the customers' version, maybe they want to make sure that they're protected in case prices fall.

But you're saying there is a bias toward having a fixed price generally, and that probably doesn't change, you think?

Yes.

I think generally speaking, that's been the norm in the industry.

And keep in mind, Timna, that the steel component of the project is generally less than 10% of the overall cost of the project.

And while as we know, there can be significant fluctuation in the raw material price on delivering that.

So like I said, the owners are more interested in knowing what's my total costs going to be, and they are not as sensitive to -- if rebar is at $700 a ton or at a lower level.

Okay.

That's super helpful.

And then just my other question was -- and I apologize if I missed it when Mary was going through it.

But on the SG&A decline, is that a good run rate?

Or is there a reason for that?

And then also, did you qualify the impact you think weather had on the quarter, just to get a sense of that?

The Corporate run rate, I would suggest it's going to be roughly $24 million a quarter, and that does include some integration and acquisition costs that we will continue to call out as we go through the remaining couple of quarters of the year, but I think that is a good run rate.

And what was the other question?

The weather.

I was actually asking about SG&A, but that was really helpful as well.

And then I -- if you quantify the weather, yes.

I think we indicated in the opening remarks, about 100,000 tons within the quarter.

And our next questioner today will be Chris Olin with Longbow Research.

Just a question.

I'm not sure if you mentioned it during the presentations, but how do we think about the flooding in the Mississippi River and some of the issues with the barge?

Does that impact your thinking at all?

It's going to impact others more so than us.

It's really not going to have much impact to us.

Okay.

I guess I wanted to get your thoughts, too, in terms of the uncertainty with the new NAFTA trade agreement.

And I guess, are you seeing any type of customer hesitancy to purchase materials or build inventories until we see whether or not the final agreement contains changes to the tariff structure with Canada and Mexico?

And then tying to that, do you have any views on how this will all play out?

Well, we don't see any pattern changes from our customers.

They tend to be more sensitive to looking at raw material price changes, and so we haven't really seen anything in that regard.

I wouldn't want to make predictions on how this plays out or the timing.

Obviously, we follow it carefully, and we're tangentially involved in providing input into the process.

But it's been going on a long time, and I wouldn't want to make any prediction.

What about in terms of just what you would like to see happen?

If it was a volume kind of quota system instead, would you see that as a positive, negative?

Any thoughts there?

Well, certainly, we're supportive of a resolution here.

And I think that from our perspective, we'd like to see some sort of quota associated with it.

If you had to choose between quotas or tariffs, though, is there a preference?

I -- look, I'm not going to comment any further.

It's complicated, I think.

There are a number of different ways to solve, but we just want a fair and level playing field.

We know we're low cost, and we can compete if we have a fair and level playing field, and I think that's consistent with the objectives of this administration.

(Operator Instructions) And the next questioner will be Curt Woodworth with Crédit Suisse.

Barbara, I was wondering if you could talk to the planned capital investments that you're looking at making into Gerdau over the next, say, this year and into next year and what you would view as normalized maintenance CapEx for the new company?

Yes.

I think we've been consistently saying that we would spend about $200 million, $250 million over the next 5 years, and our view really hasn't changed after 4 months of ownership.

I'm not -- I wouldn't, for proprietary reasons, get into the details of those improvement projects.

There is not, I would call it, a major maintenance need until 4 or 5 years out.

When I say major maintenance need, it would be a rebuild of a major component of one of these operations.

But there are a whole host of just smaller improvement projects that will yield some nice dividends to each of these operations.

We're moving forward with those.

But if you look at the amount of capacity that we acquired, that level of investment is probably a good sustaining level.

And as we know more about any sort of major maintenance that may be needed, we always alert the market if there is a furnace rebuild or something like that coming up, but we don't see anything in the near term.

Okay.

And then did you comment on, I missed the first part of the call, on what the micro mill volumes were this quarter from Durant?

Did not.

And again, for proprietary reasons, we would prefer not to.

Yes, maybe I'll further add on Oklahoma.

I mean, it is ramping up exactly according to our expectation.

I'm not withholding that information to suggest that there's anything different than what we originally indicated to the market when we began that project.

I would further say that our hot spooled rebar has received great receptivity in the marketplace, and we've had a really nice ramp-up of that product at Oklahoma as well.

And at this time, there appear to be no further questions.

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

Thank you, William.

Thank you all for joining us today on today's second quarter fiscal 2019 conference call, and we look forward to speaking with many of you during our investor visits in the coming weeks.

And this will conclude today's Commercial Metals Company conference call.

You may now disconnect your lines.