Nucor Corp (NUE) 2019 Q2 法說會逐字稿

Good day, everyone, and welcome to the Nucor Corporation Second Quarter of 2019 Earnings Call. As a reminder, today's call is being recorded. (Operator Instructions)

Certain statements made during this conference call will be forward-looking statements that involve risks and uncertainties. The words we expect, believe, anticipate and variations of such words and similar expressions are intended to identify those forward-looking statements, which are based on management's current expectations and information that is currently available.

Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. More information about the risks and uncertainties relating to these forward-looking statements may be found in Nucor's latest 10-K and subsequently filed 10-Qs, which are available on the SEC's and Nucor's websites. The forward-looking statements made in this conference call speak only as of this date, and Nucor does not assume any obligation to update them, either as a result of new information, future events or otherwise.

For opening remarks and introductions, I'd like to turn the call over to Mr. John Ferriola, Chairman, Chief Executive Officer and President of Nucor Corporation. Please go ahead, sir.

Good afternoon. Thank you for joining us for our second quarter earnings call and for your interest in Nucor. Other members of Nucor's executive team are also on the call today, including Jim Frias, our Chief Financial Officer; Craig Feldman, responsible for Raw Materials; Ladd Hall, responsible for Sheet Products; Ray Napolitan, responsible for Engineered Bar Products; MaryEmily Slate, responsible for Tubular Products; Dave Sumoski, responsible for Merchant Bar and Rebar Products; Leon Topalian, responsible for Beam and Plate Products; and Chad Utermark, responsible for Fabricated Construction Products.

My remarks will be brief this afternoon as we covered a lot of this material at our recent Investor Day event. Thank you to everyone who participated either in person or via the webcast. And for those who could not join us, the recording of the event and the slide presentation are available at nucor.com.

Before we discuss our second quarter earnings, I would like to thank our teammates for continued excellent safety performance. Safety is the #1 priority for everyone on the Nucor team, and we continue to work to improve at it, identifying and mitigating risks and changing behaviors to achieve our goal of 0 incidents at every Nucor facility.

Turning now to our performance in this quarter. Our financial results were lower than our expectations at the start of the quarter. Unusually wet weather and aggressive supply chain destocking impacted mill order rates in the first half of 2019.

We have seen lower volumes during the first half of this year, resulting in a more challenging price environment. However, real demand for our products remains strong in key end-use markets. We see healthy conditions in end-use markets that typically account for more than 2/3 of our steel shipments. For this reason, we are cautiously optimistic that pricing has bottomed on most of our products and that volumes should be more closely aligned with real end-use demand in the second half of the year.

We all know that the steel industry is cyclical, and we have built our business model around that reality with our low and highly variable cost structure and our diversified product portfolio.

Our performance in the first half of the year benefited from meaningful year-over-year earnings gains in our plate, MBQ, rebar, joist and deck, metal buildings and pilings distribution businesses, once again highlighting the benefits of our diversified product mix.

Our strategy to increase market share in automotive applications also continues to bear fruit. We are currently shipping into this market at an annual rate of about 1.6 million tons.

Further, we were recently named Supplier of the Year by General Motors. We are the first EAF-based steel producer to receive this recognition. It's a tremendous testament to our team and further evidence of our success moving up the value chain and gaining market share in many value-added applications.

As we have previously discussed, we have several investment projects coming online this year, and I want to update you on their status. In our Sheet Group, we continued to ramp up production of our new Specialty Cold Mill at Nucor Steel Arkansas, and we have been pleased with the performance. This project will allow us to produce higher-valued products, especially in high-strength steels, and it will differentiate Nucor Steel Arkansas from its competitors. We are currently in trials for value-added applications, and customer acceptance has been excellent to this point.

We are targeting to have as much as 20% of the new mill's capacity booked with contract customers by the year-end. We expect to continue adding contract volumes at the mill as 2020 progresses.

In Kentucky, Nucor Steel Gallatin has begun commissioning its new galvanizing line and test running coils to verify the functionality of the line. Production of pickled and oiled coils have started this month and will be followed by production of galvanized coils in August. With 500,000 tons of annual capacity, this 72-inch galvanizing line will be the widest hot-rolled galvanizing facility in North America. Gallatin is now positioned to supply the underserved Midwest heavy-gauge, hot-band galvanized market. The new line will enable us to grow our automotive applications to include frames, control arms, supports and brackets. Our commercial teams are excited to have these new capabilities in our Sheet Mill Group to serve both new and existing customers.

The last project in our Sheet Mill Group I would like to mention is our joint venture with JFE Steel in Mexico. We are on track for a start-up of the galvanizing line later this year, and we look forward to serving automotive customers in Mexico.

In the Bar Mill Group, our Marion, Ohio bar mill's new in-line rolling mill is starting up in the third quarter. Marion's new reheat furnace, which we installed last year, is reducing our natural gas consumption by about 1/4. In late 2019 or early 2020, Marion will also install quench and temper equipment to reduce alloy costs at the melt shop. The upgrades significantly improve Marion's efficiency and strengthens its leadership position in the regional rebar market.

Two other projects in our long products group are on track for start-ups later this year: the merchant bar product expansion at our mill in Illinois and the first of our new rebar micromills, which is located in Sedalia, Missouri. In all, we have 10 significant organic investments in various stages of development, representing a total capital investment of approximately $3.5 billion that will deliver long-term profitable growth to our shareholders.

As I have made clear on several occasions, we are not simply adding tons to get bigger. These projects target defined market objectives and opportunities to generate higher profits and reduce volatility through the cycle. They also expand our product portfolio so that we will be able to offer our customers more solutions to meet their toughest challenges.

The U.S. steel industry continues to benefit from effective trade enforcement. Through May of 2019, total and finished steel imports declined by 12% and 18% from last year's levels. In the last 12 months, approximately 6 million fewer tons of imported steel have come in to the U.S. market. The decrease in imports reflects the cost competitiveness of our domestic steel industry and the success of our industry's ongoing efforts to see that the rules of trade are enforced.

Recent findings by the U.S. Department of Commerce provide further evidence that our industry, our government and our customers understand the importance of acting to keep unfairly traded steel and steel products from distorting the U.S. market.

On July 2, the U.S. Department of Commerce issued its preliminary circumvention determination on imports of galvanized and cold-rolled sheet steel from Vietnam manufactured with hot-rolled or cold-rolled substrate from South Korea and Taiwan. Congress found that the steel went through minor modifications in Vietnam to avoid appropriate restrictions that have been imposed on imports from South Korea and Taiwan. The imports of these products from Vietnam must now pay duties of more than 400%. It is vitally important that our government stop these and similar illegal trans-shipments meant to avoid trade duties, and we are glad that they have taken such a strong action.

On July 8, the U.S. Department of Commerce also issued a preliminary countervailing duty determination on imports of fabricated structural steel from China and Mexico, and duties have been applied to imports from both countries. This ruling shows that the government is not only concerned about unfair trade practices in raw steel but also in downstream products. Rules-based trade is a critical underpinning to the continued success of our customers, Nucor and the U.S. economy, and we are pleased that the Department of Commerce continues to take action on individual trade cases.

Jim Frias will now provide more specific detail about our second quarter performance as well as our outlook for the remainder of this year. Jim?

Thanks, John. Nucor reported second quarter of 2019 earnings of $1.26 per diluted share. Earnings from our steel mills segment were lower due primarily to reduced shipments to our service center customers, reflecting their caution with respect to inventory levels and order rates in a weakening price environment. Earnings from our steel products segment improved in the second quarter, in line with our expectations. Strong nonresidential construction markets, along with increased productivity from our rebar fabrication and metal buildings businesses, were the primary factors. Results from our raw materials segment were slightly better than we anticipated.

It is worth noting that our second quarter results included $20.5 million of pre-operating and start-up costs related to strategic investment projects compared with $19.6 million in the first quarter of 2019 and approximately $6 million in the year ago quarter.

First half 2019 cash provided from operations was approximately $1.2 billion, up from about $870 million for the year ago period. Inventories and receivables were a source of approximately $400 million in the first half, reflecting consistent working capital management in a declining price environment.

Our capital spending accelerated in the second quarter and totaled $650 million so far this year. We have received our permits for the Gallatin expansion, so between that and other projects that we have in our pipeline, we expect to increase CapEx further in the second half and approach our budgeted amount of approximately $1.8 billion for the full year.

With respect to cash returned to shareholders during the second quarter, we paid dividends of $123 million and stock repurchases totaled $125 million. Thus far, in 2019, we returned 50% of our net income to our shareholders while also investing for long-term profitable growth. We ended the quarter with $1.4 billion of cash on hand.

Nucor's financial condition remains strong. With total debt outstanding of $4.2 billion, our gross debt-to-capital ratio was 28% at the end of the second quarter. Our $1.5 billion unsecured revolving credit facility remains undrawn and does not mature until April of 2023. Our next material debt maturity is in 2022 for approximately $600 million.

Now turning to the outlook. Earnings for the third quarter of 2019 are expected to be lower than the second quarter. Inventory destocking, especially by service center customers, has led to declining results year-to-date and our muted expectations for the next quarter. While we are encouraged by recent upturns in the prices for flat-rolled steel products and, as John mentioned, we do continue to see healthy demand for our major end-use markets, we finished the second quarter with much lower margins in sheet and plate steel and believe that margin recovery could take some time. We therefore expect weaker linked-quarter performance in the steel mills segment again, primarily reflecting reduced margins for both sheet and plate steel. However, we do expect that service center customers will resume more normal buying patterns in the third quarter.

The steel products segment is expected to achieve further profitability improvement in the third quarter over the second quarter. Nonresidential construction activity remains strong, and we believe some incremental demand has likely shifted to later in the year due to difficult weather conditions during the first several months of 2019. Recent initiatives to improve the performance of our rebar fabrication and metal building businesses are also expected to continue to favorably impact results for the steel products segment. The performance of our raw materials segment is expected to decline in the third quarter compared to the second quarter due to further margin pressure at our direct reduced iron ore DRI plants.

In addition, later this quarter, we will begin our planned 65-day outage at Nucor Steel Louisiana to complete major enhancements to the physical plant.

Thank you for your interest in our company. I will now turn the call back over to John.

Thanks, Jim. Before we take your questions, I would like to acknowledge a significant milestone that Nucor teammates at our Darlington, South Carolina bar mill recently celebrated. As many of you know, Darlington is the first steel mill Nucor built. Back in the mid-1960s, our founder, Ken Iverson, decided that Nucor needed to be able to supply its own steel for its joist operations in Florence, South Carolina.

Nucor selected EAF technology for Darlington and took the first step in leading the transformation of the domestic steel industry that has occurred over the past 50 years. We celebrated this 50-year run at Darlington on June 26.

Darlington continues to be a strong contributor to Nucor's profitability and a valued member of its community. We look forward to another 50 years of success at Darlington.

In closing, I would like to say thank you to our more than 26,000 teammates for the way you execute our strategy, and thank you for the work that you do every day to build a safer and more profitable Nucor. I'd also like to say thank you to our customers. We appreciate the trust you place in Nucor, and we will continue to do our very best to earn it with every order. And finally, thank you to our investors for entrusting us with your valuable capital.

We would now be happy to answer your questions. Operator?

(Operator Instructions) We'll take our first question from Martin Englert with Jefferies.

Within the raw materials, you pointed towards the lower sequential results in the 3Q and further margin compression in DRI. Do you expect the overall segment to remain profitable? And could you also talk about your material sourcing strategy given the upcoming -- I think you said it was a 65-day outage, correct?

We don't disclose specifically which business units are going to be profitable, but overall, we would expect the raw materials segment to be profitable.

Yes. I'll address some of the other issues. You mentioned about sourcing. We have several sources. You know that there's some challenges in the iron ore marketplace right now, but we have solid secured deliveries coming in. We're not worried about that. Pricing is a bit of a challenge right now because of some of the things that are going on, and -- but we feel good about the rest of the year and being able to get what we need when we need it.

I think the sourcing question is about us getting something to replace the DRI for our melt shops.

Is that what you're looking for, Martin?

Yes. More along the lines that while you have this outage of even prebuilding any DRI pellet inventory or you importing any prime scraps, I guess what's the strategy there?

We built some inventory, but we have -- one of the great things about our raw materials strategy overall is the flexibility of it. And we have the DJ Joseph team that's been able to go, frankly, globally to secure any scrap that we need, prime or obsolete. We have great sources of HBI that we can bring in, again through David J. Joseph. And we have great sources of pig iron that we can bring in. So we are not at all concerned about being able to get the virgin iron units that we need to maintain producing the ultrahigh-strength steels during this period of outage from the DRI plants.

Okay. Excellent. And if I could, one other quick follow-up. There have been several recent flat-rolled price increases introduced. Can you discuss how that's been received by the market, and any change in the order books since that was introduced?

Well, there's been 2 that have been introduced. So the first one was maybe, what, 3 weeks ago, about 3 weeks ago, and we were able -- it's $40. And we were able to get all $40 of that $40. The second one was just about a week ago, and it's really too early to tell too much about how much we'll get of that $40, but the initial week looks encouraging. We're also encouraged by the fact that as a result of these increases, we've seen an increase in the volume of our orders coming in also, for all 3 of our hot-band, cold-rolled and galvanized products.

And next, we'll go to Timna Tanners with Bank of America Merrill Lynch.

So I wanted to ask about some of the capacity coming on in 2020 is replacing some of the domestic supply, specifically if you look at U.S. Steel's Fairfield mill and if you look at JSW's Baytown plate mill. Now I was just wondering if you have any thoughts about how that can affect the market and if Nucor is a supplier on any of those -- to any of those mills on raw materials or semi-finished products.

Okay. Let's start with the semi-finished product since you asked that question about JSW coming online and U.S. Steel. We have been supplying both of those companies. But as a result of that, we built a pretty good product line of round billets and blooms that we can sell to the entire market. And we recognize that at least at this point in time, we're being told that we will lose that business in the next couple of years. We have been building a customer base outside of those 2, and we've been securing contracts with other customers. So we're confident that we'll be able to replace the tons from U.S. Steel and from JSW with other customers as they pull their business away from us.

Okay. That's helpful. All right. So the second question I had was regarding the steel downstream business, so steel products. You succeeded in having improved profitability there as you had anticipated quarter-over-quarter, but when I look year-over-year, it's still below last year's levels and I'm just confused as to how to think about that. I -- rule of thumb I had in mind was that when you have rising steel prices, generally, steel products lag. But in a declining steel price environment, one would think that margins can maybe be higher year-over-year. So just maybe if you could correct me if I'm wrong about that or how to think about what the right normal profitability is or how to think about what that trend can be going forward.

When you look at the total downstream where -- I'm assuming you're including tube in that generalization, correct?

Yes. I'm just looking at EBIT per ton of the segment.

Yes. Tubing is in that segment.

Yes. So when you look at tube, that's really been what's pulling down the downstream business. The tubular business right now -- our tubular business right now is suffering from some of the same things that we see on the steel side, bloated inventories in the service centers that resulted in lower orders that, of course, drives the price down, that, of course, drives the margins down. So this is a -- in our opinion, this is the result of too high of an inventory build during last year and the aggressive destocking that you see, not only in our steel products, but also in tubes. So that's probably the biggest impact on our downstream business not doing as well as we anticipated and not doing as well as we did last year.

So potential for that to still normalize at -- once inventory levels normalize in those end markets, is that what we should think about, or any way to think conceptually about what that looks like normally?

Yes. I think that this is a question of what's really driving the buying reductions in tubular and in our steel. Now overall, we believe that the issue is too much inventory in the system that has to work its way through and at the time that it goes through. You have to remember, when you talk about tubular, 80% of the tubulars are sold through service centers. So this really impacts -- this issue of inventory really impacts the tubular business. But it's also true of our steel business, as we talked about many times in the past. The inventories do not necessarily -- service center shipments do not necessarily indicate what's happening with true end-use demand. We believe that end-use demand is still very strong. We see that in our order entry rate for OEMs versus our order entry rate for service centers. When you look at our order entry rate for OEMs, we're actually up in the first half by about 4% compared to the 3-year average. Whereas if you look at order entry for service centers, we're down 14% compared to the 3-year average. So that's a pretty good indicator to us that end demand is still pretty strong. Of course, we talk to our customers who are basically telling us the same thing, and I'm speaking in general now both of steel and our tubular products also.

And next, we'll go to Chris Terry with Deutsche Bank.

John and Jim, a couple of questions from me. Just in terms of the volume, you mentioned that second half volumes will be more in line with real demand. Have you seen any marked pickup, I guess, in July in the service center buying? And how do we think about maybe second half on first half of this year and maybe second half on second half of last year?

I'll start with the -- with just general comments, and Jim, you can comment on the year-over-year performance and half-over-half performance. I mentioned earlier that after the first $40-a-ton increase in sheet pricing, we did see a pickup in orders for our sheet products, and that came from both our OEM customers, but also from our service centers. When we meet with our service centers, we talk about what they think is going to happen in the second half. They feel that the demand, the end demand for their products will be steady. It's still strong. They talk about the need for making sure that they get their inventories completely down, which is what they are striving to accomplish. But one of the things that we're seeing also, that should be a good indicator of moving in -- and it's early in the game so I don't want to be too overconfident here, but we are cautiously optimistic that we've hit the bottom on pricing and on volumes. We see our lead times are beginning to stretch out a little bit. Whenever that starts to happen, that encourages the service centers to come back into the market. Now with the OEMs, it's more of a steady-state situation. So after the $40-a-ton increase, we believe that, that represented the bottom of the market. Service centers, whenever you see pricing start to go up, they come back into the market. So we think that, that bodes well for the second half of the year, and we'll see how it plays out.

And relative to your question about the second half of this year versus last year, obviously, we don't give guidance for the half year. We're saying third quarter is going to be down just because of where margins are at, having bottomed recently, and what we see going forward. But from a volume perspective, we certainly saw destocking begin in the second half of last year and then carry into 2019. And there will always be a seasonal slowdown in the fourth quarter, but we would be -- we would expect right now, and this is a long-shot guess, that volumes in the fourth quarter of this year should be better than last year because we don't expect to see the destocking component in the fourth quarter, we'll just see the normal seasonal slowdown that we'd expect.

I think if I can just build on that for a minute because I think it's important to think about what took place in 2018 as it related to the 232 and everything that was going on. First of all, if you go all the way back to 2017, with tax reform and deregulation, that was really a shot in the arm for manufacturing. And frankly, the order entry rate picked up, demand for steel picked up, and it was growing all through 2017. Towards the end of '17, but particularly in the beginning of '18, a lot of our customers were reading about the fact that when the tariffs came into effect, we would not -- they would not be able to get the steel that they needed to fill their customers' orders. That created somewhat of a panic, both with the OEM and with our service center customers. They were convinced that the domestic capacity would not be enough to supply all the needs that they had to keep their customers happy.

But as it played out, 232 came into effect, the imports did go down, and domestic capacity was enabled, was, in fact, able to start up again and fill the need. But during that time when they were afraid of getting -- not being able to get the steel, they built their inventories to very high levels. And of course, domestic capacity came on, everything settled down, the order rate and pricing returned to more normalized levels, but they've maintained this high inventory. At the end of the year, they wanted to get rid of that overblown inventory and they began to aggressively destock. So what happens then, okay, they destock volume. All the volumes coming into the mills go down. Pricing results, as a result, goes down. And the next thing you know, we get into this spiral of -- in fact, the aggressive destocking was so intense that towards the end of last year and into the first half of this year, we had service centers selling to other service centers. So it became a very difficult situation. And as always happens in our business, we overshoot things. Now we think that we're getting to the point where the inventories are down to more normal levels, and we expect to see more normalized ordering rates in the next quarter.

Just one quick follow-up. In terms of the end markets, you talked about the 2/3 that you're cautiously optimistic around. The other 1/3, I assume that -- is that related to autos, or what is that market or which markets are those specifically that you're still working out?

We think that automotive is going to be down about 2%, so that's one of the markets that we would say is weakening as we go into the second half of 2019. That said, our market share within automotive continues to grow. So there'll be a small pie, and we'll have a larger piece of that small pie. So the impact will be less felt by Nucor than others in our space.

Another one that I remember being -- looking from the chart that was down would be power transmission. There was a whole bunch of power transmission projects that were wrapped up at the end of 2018. So power transmission is an industry that we expect to be down also. Agriculture will be down a little bit as we see it going forward into the second half of this year also.

And next, we'll go to Matt Korn with Goldman Sachs.

So earlier this week, the White House announced a revision to these "Buy American" requirements. I was wondering how much, if any, potential incremental effect do you see from these changes. I ask because our understanding had been that many of these public projects already had very high thresholds for melted and poured U.S. steel, but the administration appears to believe that there were loopholes that limited the effectiveness of those rules. So I'm wondering what your view is.

Well, there were some loopholes in there. We're pleased to see those loopholes being closed. And you're right, a lot of new regulations already were in place, that it was "Buy American." And we wanted to make sure we did stress the point that this was [what] "Buy American" meant: melted, poured and rolled in the United States. So we made -- we took a little bit of the loophole away from that, that was existing. So in general, we'll see some impact. We do supply to the militaries, particularly out of our plate group and out of our SBQ group. So it's a positive impact to us, but it is not a major impact.

Got it. And then to continue as we kind of go around the product groups here. There's been a lot of focus on hot-rolled coil, some focus on downstream. What's happening in the plate market, in your view? Your volumes are off, the prices there are off, they've dropped to the 7 50 level. Is that 2-way function pronounced destocking? Or is there true demand challenges occurring for that particular product?

There's 2 impacts that have occurred there on plate. First of all, you need to think about the weather conditions that we endured during the first half of this year, particularly in the first quarter, a lot of plate products that went into bridges and so forth, projects that you have to have good weather in order to be able to proceed. So there's a lot of projects that are on the books, but we haven't been able to move forward with them simply because of the extreme weather conditions.

The other impact is, as you mentioned, aggressive destocking. Just as we said with the products earlier with tubular and with sheet products, the same occurred with plates. The inventory levels got way too high at the end of 2018 and we began the destocking program. And a little bit of a time delay on that one simply because of -- the plate tends to trail hot band by about 2 months, 3 months, in terms of both volumes and pricing. So there was a little bit of a time delay, but basically, the same scenario played out in plate that we described earlier.

And next, we'll go to Phil Gibbs with KeyBanc Capital Markets.

I was reading last night that one of your mill competitors in the North American sheet market, Arcelor, has formally asked its U.S. mill suppliers for concessions and price cuts. Question is are you either seeking pricing concessions from your mill suppliers or seeing any softness in inputs like electrodes and refractories, alloys or mill services?

Well, electrodes, we can talk about in a minute because that's a more specific issue, and we do see actually price going down in electrodes a little bit, about 7% this year over last year, but that's a very specific issue. There was a run-up in electrodes over the last couple of years that was unsustainable, and we're seeing it start to work its way down. But in general, I'll respond to your question. First of all, Nucor is a high-integrity company, we honor all the contracts that we have, and we will not go out and demand any price reductions on contracts that we have signed, and the current numbers are in place.

That said, if our suppliers do, in fact, offer our competitors better pricing, we will go and talk to them about that. We will not demand it, but we'll remind them that as the largest steel producer in the United States, we buy a whole lot more of everything than anyone else. And if they treat us any differently than our competition, we'll remember that when those contracts that we have come to an end and we go talk about who we're going to do business with in 2020. Does that answer your question?

Yes. Absolutely. And in terms of some of the stuff that was more -- the other things that were impacted by, I think, the China supply-side issues like refractories and alloys, what are you seeing there?

Refractories, they're still pretty high. We haven't seen much of a reduction in that. Alloys are still running pretty high, not quite up to the 2018 levels because just like everything else with steel, the less steel that we're producing, the less alloys we need, the less refractory needs to be replaced. So the volumes go down and pricing comes down a little bit, but that's more volume-related than anything else.

And John, I think at your Investor Day, you talked about 17 growing markets and 7 were either flat or declining. Is that mix still the same now or has it changed?

It's pretty much the same.

And if I could sneak in one more.

Okay. One more.

Just in terms of the -- should be a short one. Just in terms of your outlook for scrap in August.

Well, I'll speak to -- how about if I speak to the outlook for scrap over the entire third quarter, because it's pretty tough to get definitive into 1 given month. But as we see the third quarter with scrap pricing, we see it up $20 to $30, somewhere in that neighborhood, and we don't think it's going to skyrocket out of control. But we do think, over the quarter, we'll be up $20 to $30. We think that the pig iron will probably be up somewhere in the neighborhood of $10 to $15. We're seeing some of that price reflected in the latest offers that we're getting. So $20 to $30 for scrap and somewhere maybe $10 to $15 on pig iron.

And next, we'll go to David Gagliano with BMO Capital Markets.

A lot of them have already been answered. I just have 2 follow-ups or clarifications. First of all, on the volumes for the third quarter, I'm still a little confused. Did you expect volumes overall in the third quarter to be up or down sequentially?

It's hard to project when you -- right now, as we mentioned a couple of times, we are in a transition. We're in the cusp of a transition from a situation of severe down -- destocking, to a more normalized order entry rate from our service centers. Not being a service center ourselves, we don't know just exactly where those inventories are. Rather than say we know exactly what's going to happen with volumes going into the third quarter, I would say that we're going to transition. How quickly it ramps back up will determine how our third quarter volumes look relative to our second quarter.

I think the important point to remember is this: We are seeing the transition and it's going back up. We see lead times expanding, and we see -- and a really important point here that allows me to sleep easily at night is that our end demand, our end demand is still very strong and user demand remains very strong. If we didn't see that through our OEM customers, I'd be a whole lot more worried about what the rest of the year was going to look like than I am right now.

Okay. That's helpful. And then just a follow-up. Flagged about $21 million, I think, of startup costs that were in the second quarter numbers. My question is what are the expectations moving forward on -- for start-up costs?

We think it's going to be in the $25 million range in Q3.

And any big difference in Q4?

It's hard to say. Probably not too much.

And that concludes today's question-and-answer session. I would now like to turn the call back over to John Ferriola for any additional or closing remarks.

Thank you, David. Well, I'll close by signing off by saying, again, I want to express our appreciation to our shareholders. We value your contribution and capital investment in our company, and we will treat it with great care. I want to say thank you to our customers. We're building our capabilities to better serve you, and we believe that together, we can build powerful partnerships with powerful results. And finally, to my Nucor teammates, thank you for what you're doing for Nucor every day. And most importantly, thank you for doing it safely.

Thanks for your interest in Nucor. Have a great day.

And that concludes today's conference. We thank you for your participation. You may now disconnect.