Commercial Metals Co (CMC) 2020 Q2 法說會逐字稿

Hello.

And welcome, everyone, to the Second Quarter Fiscal 2020 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 this conference call, the company will make statements that provide information other than historical information and will include expectations regarding economic conditions, the impact of COVID-19, 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 and capital spending.

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

These statements reflect the company's beliefs based on current conditions but are subject to certain risks and uncertainties, including those that are described in the Risk Factors and Forward-Looking Statements Disclaimer sections on 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 vary materially.

All statements are made only as of this date.

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

Some numbers presented are 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 and -- or fiscal quarter.

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

Please go ahead, ma'am.

Good morning.

And thank you for joining the call to review CMC's results for the second quarter of fiscal 2020.

I'll begin the call with highlights for the second quarter and a brief discussion regarding our company's exposure to and actions around the COVID-19 outbreak.

Paul Lawrence will then cover the quarterly financial information in more detail, and I will provide a few closing remarks before opening the call to questions.

Given the heightened level of economic and policy uncertainty caused by the COVID-19 outbreak, we will not be providing any forward-looking earnings commentary.

As announced in our earnings release this morning, we reported fiscal second quarter 2020 earnings from continuing operations of $63.6 million or $0.53 per diluted share on net sales of $1.3 billion.

As there were no charges or credits to call out this quarter, our adjusted earnings from continuing operations was also $63.6 million.

The entire CMC team delivered another great result for the second quarter.

Despite this being our seasonally weakest period, we generated strong results, highlighted best by the achievement of the second highest adjusted EBITDA margin in our company's history.

The transformational actions we have taken over the last several years have realigned our portfolio to earn more on each dollar of sales and generate higher returns on each dollar of capital employed.

Our efforts to date have been further bolstered by a supportive market environment with robust construction activity in both United States and Eastern Europe.

In addition to enhancing our through-the-cycle earnings and cash flow capabilities, our repositioned capital structure provides us flexibility to manage through today's uncertain environment.

I would now like to spend a few moments on some of the strategic initiatives that helped drive our results.

Merchant bar has been an area of focus for us, and we have targeted growth in this market.

The flexibility unlocked through our acquisition of Gerdau's rebar assets has allowed our legacy mills to redirect production toward MBQ products and steadily increase our participation in this market.

There is further runway on this initiative, and we will continue to capitalize on opportunities as they arise in the marketplace.

To further our optimization efforts, we have created a new senior management role to oversee our sales, inventory and operations planning, or SIOP, functions across the Americas.

This position, along with the organization he directs and the participation of all plant operations will allow us to pursue product growth initiatives, optimize our production mix across mills and reduce logistics cost.

We've already captured some optimization benefit through our recent decision to shutter the Rancho Cucamonga melt shop and supply billets from other locations.

We estimate this action alone will save us over $10 million on an annual basis.

Progress on our third rolling mill in Poland continues.

We've now received the required permits and construction is underway.

Our targeted start-up remains at late fiscal 2021.

This expansion will take advantage of excess melting capability or capacity and further expand our value-added portfolio of products.

On the topic of value-added products, our spooled rebar continues to gain ground in the marketplace.

Volumes in the second quarter doubled from a year ago, consistent with the adoption rate we expected when justifying our investments in spooling technology.

As a reminder, spooled rebar is a higher-quality product compared to standard coil that reduces operating cost and waste at fabrication shops.

It is best produced in micro mills, and both our Oklahoma and Arizona micro mills have spooling capability.

In the second quarter, we further reduced our outstanding debt levels and reached our stated leverage target of 2x gross debt to trailing adjusted EBITDA.

The rapid delevering of our balance sheet since the close of our acquisition of Gerdau's rebar assets puts us in excellent position to face -- in the face of the recent market turbulence.

Also, as noted in our press release, the Board of Directors declared a quarterly cash dividend of $0.12 per share of CMC common stock for stockholders of record on April 6, 2020.

The dividend will be paid on April 20, 2020.

This represents CMC's 222nd consecutive quarterly dividend.

Now I'd like to provide a few comments regarding CMC's exposure and response to the COVID-19 outbreak.

First and foremost, ensuring the health and welfare of our workforce and their families is, as always, our top priority.

To that end, we are adhering to the most recent guidelines published from the President, coronavirus guidelines for America.

CMC is designated as a critical infrastructure industry as defined by Department of Homeland Security with a duty to maintain normal operations.

We are also following the governmental guidelines relevant to our Polish operations and other foreign offices.

In keeping with the guidelines, we have suspended air travel, implemented a rotating work from home schedule, wherever possible, and asked our production sites to avoid large gathering.

We have implemented infection control measures at all our work sites.

We are also encouraging all employees to practice good hygiene as well as monitor themselves and their families for virus symptoms, and seek medical attention at the first instance of concern.

This rapidly evolving environment presents unique and unprecedented challenges.

We are managing all the factors within our control.

However, we are subject to the actions of outside parties, particularly government authorities that have the potential to be disruptive to our business.

We have seen no measurable, operating or shipping disruption at this point, but the situation remains dynamic, and we have plans in place to respond to these changes.

Turning back to those aspects of CMC's business that are under our control, our expanded domestic footprint provides us the flexibility to react quickly in the event of a disruption at one of our facilities, and continues serving customers from unaffected locations.

Our new centralized SIOP functions will be instrumental in making these rapid adjustments.

We have also analyzed our supply chain, and we are not facing any imminent shortages of critical parts or inputs.

The situations in the U.S. and Poland are fluid and we are continually monitoring conditions.

Our senior management team is meeting regularly to gather information from across our operational footprint, respond to issues as they arise and provide communications to our employees.

Outside of the COVID-19, turmoil in global oil markets has also weighed on our investor confidence.

CMC has little direct sales exposure to the oil and gas markets.

As I previously mentioned, we will not be providing an earnings outlook, but I would like to offer comments regarding a few key internal metrics.

The volume in our current fabrication backlog is solid by historical standards, and metal margins on that work is at very attractive levels.

Fabrication bidding activity has remained strong.

Our recent bookings rate has also been good.

Metal margins within our Americas Mills segment exited the second quarter at levels above historical cycle averages.

Also, as a reminder, the majority of our business is driven by construction projects that are 6 months or longer in duration and are generally prefunded.

We believe this positions CMC well for the eventual normalization of business activity, once the current crisis abates.

With that as an overview, I will now turn the discussion over to Paul Lawrence, Vice President and Chief Financial Officer, to provide some more comments on the results for the quarter.

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

I would like to begin with a few comments regarding the strength of CMC's balance sheet and liquidity profile.

Our purposeful actions over the last several quarters to reduce debt levels have positioned us well to confidently maneuver through today's uncertain environment.

As Barbara mentioned, at quarter end, gross debt stood at just 2x trailing EBITDA while our net debt ratio was only 1.6x.

In addition, we have also -- we also have a favorable maturity profile, with the shortest dated bond not coming due until 2023.

Looking at our quarter-end liquidity, we had $617 million of availability on our credit and accounts receivable programs as well as $232 million of cash on hand.

In addition to a conservatively structured balance sheet, we believe that our transformed portfolio of operations enhances our earnings and cash flow generation ability compared to past business cycles.

Also, as a reminder, CMC tends to experience cash inflows from working capital in times of declining prices or volumes as inventory and receivables are liquidated.

So to summarize all of those comments, CMC stands ready and able to navigate through today's uncertain marketplace, and be well positioned to take advantage of these opportunities that come in these times.

Turning to the second quarter, we reported earnings from continuing operations of $63.6 million or $0.53 per diluted share compared to earnings from continuing operations of $14.9 million or $0.13 per diluted share in the second quarter of 2019.

Our core EBITDA from continuing operations was $145.3 million for the second quarter of 2020, an increase of 60% compared to $90.9 million reported in the second quarter of 2019.

This does not include the $6 million benefit from the amortization of unfavorable acquired contracts.

Now I will review the results by segment for the second quarter of fiscal 2020.

The Americas Recycling segment recorded adjusted EBITDA of $5.8 million for the second quarter of 2020 compared to adjusted EBITDA of $10.1 million in the same period last year.

Market environment was challenging, with the recycling segment facing the effects of low ferrous pricing as well as lower shipment volumes.

Our average ferrous selling prices declined by 15% from the second quarter of 2019, while total ferrous and nonferrous shipments declined by 8%.

Despite these headwinds, the segment remained EBITDA positive through a focus on rapid inventory turnover, which helped mitigate the impact of the price volatility.

The Americas Mills segment recorded adjusted EBITDA of $125.7 million for the second quarter of 2020 compared to adjusted EBITDA of $112.4 million in the second quarter of 2019.

Shipment volumes increased compared to the second quarter of last year on the strength of rebar consumption and our focus on growing merchant bar sales.

Despite scheduled seasonal maintenance shutdowns, we are able to reduce conversion costs by 6% year-over-year on continued operational improvement, higher production volumes and the decision to curtail melting operations at our California mill.

Metal margins declined to $350 per ton in the second quarter compared to $374 per ton a year ago, but remain at historically high levels.

Over the past 7 quarters, we have managed our metal margins within a $50 band between $350 to $400 per ton.

This stability occurred within an environment of pronounced price volatility in the broader steel market.

As a comparison, during the same time frame, margins over scrap for hot rolled coil, the domestic steel market's largest volume product category, experienced a $250 per ton swing from peak to trough.

The Americas Fabrication segment recorded adjusted EBITDA of $16.1 million in the second quarter of 2020 compared to an adjusted EBITDA loss of $49.6 million in the prior year quarter.

As in the past, these results do not include the benefit from the amortization of the unfavorable acquired contracts.

Financial performance improved as a result of the rising average selling price against declining rebar input costs, which led to significant margin expansion.

Average selling price of $984 per ton increased by $139 compared to the second quarter of 2019.

As higher-priced work booked more recently has replaced lower-priced projects awarded prior to Section 232 tariffs being enacted.

As mentioned by Barbara, margin in our backlog is solid, and we expect material to be profitable when shipped in future quarters.

International Mill segment recorded adjusted EBITDA of $13.5 million for the second quarter of 2020 compared to adjusted EBITDA of $20.5 million in the prior year quarter.

Volume increased by 76,000 tons or 25% compared to the prior year, due largely to the strong demand from the Polish construction sector.

Volumes of merchant products were impacted by tepid Central European industrial demand.

Metal margins were down on both a year-over-year and sequential quarter basis, pressured by the continued overhang of material imported during the calendar third quarter.

European safeguard measures reduced the total volumes of rebar imports in calendar 2019 compared to calendar 2018, but did so in a way that led to significant pricing and margin disruption on a quarter-to-quarter basis.

We hope to move past these effects in the second half of fiscal 2020.

With respect to our consolidated results, our effective tax rate for the quarter was 26.4%, and we continue to anticipate that our effective rate for 2020 will be approximately 25%.

In the second quarter, we generated $107 million of cash from operating activities.

Strong earnings and working capital management allowed us to increase our cash balance sequentially, even while funding $51 million of capital expenditures and reducing long-term debt by a net $35 million.

We continue to estimate capital expenditures for fiscal 2020 will be in the range of $160 million to $185 million.

However, we have demonstrated in prior years how we can reduce capital spend, if necessary.

This concludes my remarks, and now I'll turn it back over to Barbara.

Thank you, Paul.

We're proud of our company's excellent second quarter results.

Our team is working hard through the present uncertainty while maintaining a focus on improving our business for the long term.

As stated earlier, we will continue to monitor the impacts of the COVID-19 outbreak, and will act quickly and in accordance with the best interest of our employees, customers and shareholders.

Thank you.

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

(Operator Instructions) And our first question will come from Seth Rosenfeld of Exane BNP.

If I can, please, I want to focus on your exposure to energy markets.

And Barbara, thank you for commenting earlier, you mentioned a very limited direct exposure to oil and gas.

But can you please give us a sense of what portion of sales are tied to construction projects, either on the side of or directly linked to onshore CapEx in the U.S. oil region?

And perhaps a bit of a reminder, can you go back to the last energy downturn, '15, '16?

Give us a sense of how the company fared in that environment?

And then how you think you might be impacted, should the current low oil price environment sustain going through 2020 and beyond?

And then secondly, please, with regards to conversion costs in Americas Mills, the release commented on the 6% year-over-year reduction in conversion costs.

Can you walk us through some of the drivers of those gains?

And how sustainable they will be in the coming quarters?

Thank you, Seth.

I think I'll take the first half.

And you managed to bundle about 4 questions in there, so good for you.

And then I'll let Paul comment on the conversion cost.

So first of all, in terms of our exposure to energy markets, it -- our fabricating business does have indirect exposure through construction activities in energy-related projects such as LNG facilities.

And I would say that, that exposure is less than 10% of our fabricating volume.

Having said that, what we experienced in the prior cycle is any project that is already authorized and funded and in progress, will continue and will complete, and it will affect -- the effect will be greater on new projects that haven't been initiated or started.

I would also add that if you go back to prior cycles, that's -- the benefit of us having a fabrication backlog, is if we do see pullbacks in the economy, we typically have an interesting backlog that will sustain us for a period of time and buffer the effects of any economic downturn.

And as we enter this period of uncertainty, we have a very strong backlog, both in terms of volume and value.

And again, most of that is prefunded and so that will continue.

And it will provide not only support to the fabrication side of the business, but it will provide support to our mill operations.

With respect to the second half of the question, Seth, on the Americas conversion costs, those -- the cost environment that we're in today is very sustainable.

If we look at the key drivers that we have seen, it's primarily the optimization of the network of facilities and the improvement in some of the cost profiles of the acquired facilities that we recognized through much of last year.

And that's why it gives us confidence that these levels are continuing into the foreseeable -- absent any other impacting factors.

And don't forget to remember that during the -- during this past quarter, we recognized a number of scheduled maintenance outages that we typically take during this normally slower period, and in fact, had a slight increase as a result of those.

But on a year-over-year basis, the costs were down.

Just very quickly with regards to energy exposure.

The 10% exposure within fabrication, would there be a similar figure for your mills business?

Or would we look for something different for direct rebar sales?

So it's less than 10%, Seth.

It's -- I want to put that caveat on it.

And our fab is a smaller portion of our mill output.

So it would be a much, much smaller impact to our mill operations.

And our next question will come from Nick Jarmoszuk of Stifel.

I was hoping you could comment on what you're seeing in terms of scrap flows, scrap availability?

And whether there's any tightness in spread and in prime?

And how you think about -- could we see a reset in scrap going forward?

Or do you think that there's just been a slowness in flows that can help support scrap pricing?

We're not seeing any major dislocations in terms of scrap.

Normally in the winter months, depending on weather patterns, you can see scrap having a more difficult time getting to markets.

But this has not been a particularly difficult winter, certainly not in the areas where we operate.

In terms of going forward, you might expect some softening in scrap prices because there is a correlation to oil prices.

But I don't think that we would necessarily see a negative impact on flows.

In fact, peddlers probably are going to bring more scrap so they can get some cash flow, particularly if some folks are out of work due to this disruption.

Okay.

And then you highlighted in the prepared remarks that the metal margins, generally $350 to $400.

Do you think that's going to be pretty defendable going forward as well?

Yes.

Unlike some other products, steel products, our products generally adjust -- our finished product prices generally adjust with the price of scrap.

And we think this demonstrates the benefits of the consolidation that occurred last year as we integrated these assets.

And so I think there's a strong view that the metal margin can be sustained within a fairly tight range.

Our next question comes from Chris Terry with Deutsche Bank.

Barbara and Paul, a couple of questions from me.

Just a follow-on, just trying to flesh out a little bit more detail on how you look at the demand.

I appreciate you not providing guidance at this stage.

But just wondering on, when you look at the business, where would you expect to see the first data sign of any slowdown?

You mentioned, obviously, you've got the fab business, which is longer term.

Is it new fab orders?

Or is it -- which pocket are you looking for that will give you sort of the canary in the coal mine if that's actually happening?

That's my first question.

Okay.

Thank you, Chris.

So what I can give you is the most recent update from our operations.

And what I can say to you is that our shipment as of yesterday, through March, we have been shipping very heavy.

We are continuing to supply product to job sites.

So not only are we supplying to our own fabricating business, we're generally on the rebar side, shipping into independent fabricators.

A pulse from our teams, again, as of yesterday, and they've had many, many conversations with our customers, and most job sites are open, most -- and the job sites, they want to remain open and continue operations.

However, we're monitoring it.

And I think we're looking closely at actions that are being taken by certain governments in terms of -- there have been some actions to shut down certain highway systems.

There were some actions taken, of course, in Boston.

And then you're aware of the actions, I'm sure, that were taken in San Francisco.

As it relates to those 2 cities, there has not been a dramatic impact on CMC at this stage.

The other thing that we'll monitor is if a job site were to see an outbreak, then obviously, that could cause a disruption, either a prolonged disruption or a temporary disruption to that job site.

And our position is to keep operations and product flowing, and then make adjustments as the input comes back to us.

It's not our intent to run operations and build inventory.

We will make supply side adjustments as necessary, again, based on whatever the market data is coming at us.

But we are seeing very heavy shipments to date.

We're also seeing a continuation of bidding activity.

Our customers are telling us that they're going to continue until they are unable, and they are also suggesting that once the outbreak clears, that there's plenty of good work that will move forward and we'll move forward with haste.

And obviously, everyone will be anxious to restart any operations or any job sites that have been disrupted by this pandemic.

Okay.

I appreciate the color.

And then just related to working capital and I know Paul touched on it before, and I assume the answer is it depends on the situation as to where it goes.

But just wondered if you could frame some of the context in the opportunities that could be there in the event of any downturn.

I think as far as working capital is concerned, I think, really the -- if we do have a downturn, our working capital has historically, as I mentioned, provided tremendous amounts of cash, which further solidifies our balance sheet and provides us the flexibility to maneuver through whatever trouble times are ahead.

I think that's the key to our working capital management.

Without knowing how much it may reduce our shipments, it's hard to put a quantitative number on it.

But historically, in periods of downturn, you liquidate your working capital, you adjust the supply to demand.

And that release of working capital will further shore up our balance sheet, which we think is in outstanding position at the current level.

And our next question will come from Timna Tanners of Bank of America Merrill Lynch.

I hope everyone and your teams are healthy.

Thank you, Timna.

Yes.

Of course.

I just wanted to talk about your balance sheet position.

As you point out, you're in a better position than you have been.

And in the past, you have talked about being interested in having an appetite for acquisitions and being opportunistic.

So I just wanted to sense your appetite, given the market conditions, would you be more in hold?

Or are you looking actively at different options and maybe some divestitures as a result of the current environment?

Let me take the divestiture question first, Timna.

We've done a significant amount of pruning of the portfolio over the last number of years.

So we believe the portfolio that we have is all very productive, and generating nice returns as demonstrated in the significant increase in our return on invested capital over the last 6 or 8 quarters.

I personally think the acquisition environment is placed on hold in the current environment, not only for us, but for others.

And so I think you will see us behave as we have historically, and we are going to protect our balance sheet and be very judicious and prudent in our capital allocation.

And I think we have enormous levers to pull.

We talked about the working capital release.

We've historically been very disciplined in terms of CapEx.

If we see changes in demand, we can move quickly to prioritize our CapEx to those things that are critically important.

So at this point, I think you're going to see us be quite disciplined.

Okay.

Perfect.

That's what I was looking for.

The other question I wanted to ask about was, can you talk a little bit about -- more on the fabrication backlog?

See, I want to make sure I understand this, that 6-month visibility, you made pretty clear that, that looks solid.

But what do we know beyond that?

And what's the ability, if any, for your customers to renegotiate prices?

Can you just remind us of where that stands?

Yes.

And I don't want to say.

Our 6 months -- our backlog is longer than 6 months.

But what we're saying is, many of the projects in there have a duration of beyond 6 months.

So it will carry us for a nice period of time.

And the best example I can relate this to, Timna, is if you go back to '08 and '09, and if you look at -- the fabrication business generated enormous profits and cash flows as they serviced the backlog that was in place prior to that dislocation.

And we're sitting in an equal or better position at this moment with the uncertainty of what lies ahead.

We have a strong, strong backlog, both in terms of volume and in terms of pricing.

And most, if not all, of that work is prefunded.

So it will continue, it will complete.

Again, if I go back historically, we did not see an enormous number of cancellations, we did not have enormous numbers of defaults on jobs.

And we think our contracts are pretty tight and the pricing will be honored.

And our next question will come from Curt Woodworth of Crédit Suisse.

Yes.

I have sort of a similar question around, I guess, duration and maybe more specifically on the mill side.

When you look at your rebar volume exposure, how much of that would you say would be more like shorter cycle construction projects that are 3 to 6 months versus more large size infrastructure construction?

Just to get a sense of, I think, to order really slow, like what is the short-cycle exposure?

Curt, that's a little bit difficult to answer because much of our mill output goes to third-party fabricators, and obviously, we do not have a window into the precise cycle of their backlog.

But again, what I can say in conversations with our third-party customers, they are all sitting on very healthy backlogs.

They're sitting on attractively priced backlogs.

And they will service those jobs in much the same way as we will.

So not only will our existing backlog provide support to our mills, our third party customers' backlogs will provide support to our mills for the foreseeable future.

And everyone will have their own view on the duration of this situation.

My personal view is that it is not going to be anywhere near the long duration that we saw in '08 and '09.

And so we would expect some disruption, no doubt, but then a quick recovery.

I'd further add, most people may not know, but CMC has a small office in China.

We have 6 or 8 individuals, and we are in regular contact.

I can probably support or say that none of our employees in our China office contracted the virus.

They were self quarantined for a period of time.

They worked remotely.

They're safe.

And they are reporting as of recently that they are now able to move about and go into our office.

There are some rules that they have to comply with.

But they are reporting that production activity in China is ramping back up and ramping up in a fast pace.

So if it follows the same pattern, then I think we would see a similar situation here.

No.

I -- makes sense, I agree.

And then I guess, in terms of the balance sheet liquidity and free cash flow profile, it looks extremely healthy.

Could you be opportunistic to do anything on that front, be it share buybacks?

Accelerate debt repayment?

Just curious kind of how you see use of free cash over the next several quarters?

I think we have tremendous flexibility.

We do have some amount left on our existing share repurchase program.

I think we're going to evaluate and be prudent and judicious, and really examine what comes at us over the coming weeks to get a better handle on what dislocations may occur.

But we have good flexibility, and we are going to place a priority on making sure that we have really, really strong balance sheet and we can weather whatever is coming at us.

But once we have better visibility, I think, we have enormous flexibility.

Our next question will come from Phil Gibbs of KeyBanc Capital Markets.

Just had a question on the broader competitive environment and in terms of what you're seeing.

Obviously, some new domestic capacity coming online, but some taken off.

Imports have picked up here to start relative to the last part of 2019.

But just trying to get your pulse on how you're viewing the overall competitive environment for your mill products right now?

Well, I think, Phil, that certainly, the capacity announcements that have -- that affect our products, most of that's largely complete, other than the 2 situations at Nucor, I think they've been quite clear on their intention to lower their cost base and not introduce more product than what is needed in terms of the demand for the product.

I think the situation is more of an issue for the flat rolled side and other products.

It's a question to be asked of those companies that are either -- have those projects underway.

I certainly think, given the current environment, some projects will be reevaluated.

And all those companies will look at CapEx as a lever to get through this situation.

But it's better asked of those individual companies, and we're not seeing a major problem in the products that we participate in.

And -- I appreciate that.

And then in terms of Rancho, you outlined some cost benefit or I think, you said $10 million annualized.

Have you seen or realized that in the numbers to date, any of the quarters?

Certainly, certainly.

We're seeing that.

In our second quarter results, there was a period of ramp up as you can appreciate, once you make a decision like that.

But we're -- that strategy has been fully implemented, so we would expect to see that benefit going forward.

With all the fiscal spending in the -- the bazooka out effectively at this point over the last couple of weeks domestically, is there any chatter that you're getting from the federal government on infrastructure?

At least on a federal level, I think, the state and local spending has been tremendous.

But anything more broadly that you're hearing from Washington?

Or are tax cuts more a priority?

Again, you can listen to the President and analyze.

I think they're trying to deal with the crisis as the immediate concern.

I think infrastructure is something that will come up quickly on the agenda, whether it's immediately following or after the election is settled.

I think it's something that both sides of the aisle understand as a great way to further stimulate the economy.

And it's something that the country needs.

I was in Washington recently with a number of lawmakers, and this is top of mind and top priority.

Having said that, as you indicated, states have taken actions, states have provided for the funding.

And we're seeing it as we've been talking about it the last number of quarters.

And in fact, our backlog is now more heavily weighted to these public projects.

And again, those are funded, and they will continue to move forward.

(Operator Instructions) Our next question will come from Matthew Korn of Goldman Sachs.

I just wanted to ask, the cost performance, very impressive, both in the domestic and national mills.

Can you talk a little bit more to date, whether some of this is due to execution on this network -- the network optimization that you've been planning for rearranging the product mix, putting type and products to their best facility, geographically, reducing transport costs, all those kinds of things?

And then my second question would be regarding cash flows, balance sheet, what would you consider to be kind of the true, true bottom limit for sustaining capital in a crunch, should conditions remain uncertain and kind of frozen up for a year?

Hey, Matt, I'll start off, and Barbara can chime in as necessary.

But if we look at the optimization from a SIOP perspective, we're in our early innings stage, we're in the infancy.

The low-hanging fruit was implementing some of just practices that we had developed, and that was part of the synergy numbers from last year.

But as far as the ongoing opportunities in terms of producing the lowest cost material on the right mills, the logistics savings, those types of things, the bar is being established now in terms of where that -- those opportunities lie.

The easy answer was the high cost of energy and environmental compliance in California, and those are the ones that we executed.

And those are, as Barbara just mentioned, are part of the solid cost that we exhibited in the last quarter.

So I think we're in a place where there's a great deal of opportunity ahead.

But at this stage, we're not ready to put a number on that, given the early stages that we were in.

Yes.

The individual that we've signed to focus on this is going through their relocation as we speak.

So as we can quantify not only the cost benefit, but the working capital opportunity, we'll definitely provide more color on that.

I think the other half of your question was around minimum CapEx.

And I think that my number, Paul might disagree, we could dial that back to around $100 million in really dire situations.

Yes.

A good fact pattern is as we get into the acquired mills, for example, we had assumed that we would need to spend a couple of hundred million over 5 years.

And I think we indicated earlier that we -- as we get into those operations, they don't require the level of CapEx that we originally anticipated.

So we've demonstrated in the past, whether it was during downturns or when we had significant capital projects like the building of the 2 micro mills, how we can throttle back the CapEx.

And the key is we've been maintaining the facilities at very high levels of world-class levels, so that in times we can take short-term measures to reduce our spend and not have any impact.

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

Ms. Smith, I'll turn the call back to you for closing remarks.

Thank you.

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

We look forward to speaking with many of you during our upcoming investor calls.

If you have any other questions, please feel free to get in contact with Paul or Jason or myself, and we'll be happy to help you.

Thank you so much.

Hope everyone stays safe.

This concludes today's Commercial Metals Company's conference call.

You may now disconnect.