Steel Dynamics Inc (STLD) 2013 Q1 法說會逐字稿

Good day and welcome to the Steel Dynamics first-quarter 2013 earnings conference call.

At this time, all participants are in a listen-only mode.

After Management's remarks, we will conduct a question-and-answer session and instructions will follow at that time.

Please be advised, this call is being recorded today, April 18, 2013, and your participation implies consent to our recording this call.

If you do not you agree to these terms, simply disconnect.

At this time, I would like to turn the conference over to Marlene Owen, Director, Investor Relations.

Please go ahead.

Thank you, Brenda.

Good morning, everyone, and welcome to Steel Dynamics first-quarter 2013 earnings conference call.

As a reminder, today's conference is being recorded and will be available on the Company's website for replay later today.

Leading today's call are Mark Millett, President and Chief Executive Officer of Steel Dynamics; and Theresa Wagler, Executive Vice President and Chief Financial Officer.

We also have the Executive Vice Presidents for the Company's operating platforms, including Dick Teets, President and Chief Operating Officer for Steel operations; Russ Rinn, President and Chief Operating Officer for our Metals Recycling operations; and Gary Heasley, Business Development and President of our Fabrications operations.

Please be advised that certain comments made today may involve forward-looking statements that by their nature are predictive.

These are intended to be covered by the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995.

Such statements, however, speak only as of this date, today, April 18, 2013, and involve risks and uncertainties related to our metals business or to general business and economic conditions which may cause actual results to turn out differently.

More detailed information about such risks and uncertainties may be found at the Investor Center Advisory Information tab on our Steel Dynamics website, in our Form 10-K annual report under the captions Forward-Looking Statements and Risk Factors or as applicable in subsequently filed Forms 10-Q filed with the Security Exchange Commission.

For opening remarks, I'm pleased to turn the call over to Mark.

Super.

Thanks, Marlene.

And good morning, everyone.

And again, thanks for joining us to discuss our first-quarter results and to hear our view of the steel industry and the opportunities that lay ahead for SDI that will further differentiate ourselves from our peers and continue to grow shareholder value.

But to change up a little bit, before I do, I'd like to turn the call over to Theresa for comments regarding our financial results for the quarter.

Theresa?

Thank you, Mark.

Good morning, everyone.

For the first quarter of 2013, our net income was $48 million or $0.21 per diluted share.

This was at the upper range of our earnings guidance of between $0.17 and $0.21.

Our first quarter effective tax rate included a favorable adjustment related to 2012 research and development tax credits that were approved by Congress in January.

This benefited the first quarter results by $0.01 per diluted share.

However, this benefit was entirely offset by charges related to our refinancing activities during March, which decreased our earnings by that same $0.01 per diluted share.

In comparison, fourth-quarter results were $0.27 per diluted share, which included a tax benefit of $0.07.

Excluding this benefit, first quarter results were very comparable to the sequential quarter.

Compared to last quarter, volumes improved for all of our operating platforms, as did average sales pricing excluding Fabrication.

This resulted in sales of $1.8 billion, an increase of 5% over fourth-quarter revenues of $1.7 billion.

Despite higher volumes and revenues, our gross margin percentage declined 49 basis points in the quarter, excluding the inventory write-down we mentioned in Minnesota, as margins compressed in Metals Recycling and were basically flat in Fabrications.

Ferrous and non-ferrous recycled metals spreads declined 14% and 4% respectively.

In contrast, even though the average steel price per ton shipped increased less than the cost of our scrap for our Steel operations, gross margin actually expanded slightly as a result of incremental cost compression related to the increased steel mill utilization rates.

Operating income improved to $96 million, as SG&A was at a more normalized level as a percentage of sales, and operating income per ton shipped for our Steel Operations improved 3%.

Conversely, our consolidated pretax income actually declined marginally due to refinancing costs of $2 million that are recorded as Other Expense in the income statement.

We also saw a change in our unrealized hedging positions within our Metals Recycling operations, which resulted in a $1 million gain in the first quarter, compared to a $10 million gain in the fourth quarter.

Gross interest expense for the first quarter of 2013 and the fourth quarter of 2012 was $35 million, compared to $41 million for the first quarter of 2012.

This is over a 14% reduction as a result of the refinancing activities we've been engaged in over the last nine months.

We're very pleased with the execution of these initiatives, which were completed in the fall of '12 and more recently in March and April this year.

Beginning in March and concluding in April, we issued a new $400 million 10-year senior note at 5.25% and repaid a $500 million 6.75% senior note maturing in two years.

We used the net proceeds from the new issue and available cash to repay the note.

Due to timing and crossing over the end of the quarter, our March balance sheet actually depicts increased debt levels.

However, effective at the closing on April 9, with the final payment of the entire $500 million, we've actually decreased our total debt again this year by $100 million.

Our capital structure is very strong.

Within the last nine months, we have refinanced over $1.4 billion of our debt, well over 50% of our outstanding balances, and repaid $278 million of debt with available cash, effectively extending and laddering out our maturities while meaningfully reducing our overall effective interest rate.

We reduced our interest burden from 7.5% at the end of 2011 to a pro-forma rate of 6.2% at the end of March 2013, over 130 basis point improvement.

Based on our refinanced capital structure and prevailing interest rates, we currently expect 2013 interest expense to decrease more than $45 million when compared to the full year of 2011.

Near term maturities are also very manageable.

We have only $30 million due in 2013 and a little over $300 million due in 2014.

We've really been able to create a very -- a greater long-term strength and flexibility in our capital structure through the repayment of a portion of our debt, which we said we would do last year and this year, and through the extension of our debt maturity profile.

Cash flows from operations provided $30 million of funding during the first quarter of 2013, comparable to the first quarter of last year but much less than the sequential fourth quarter.

As customer receivables rebuilt from lower levels at the end of the year, working capital required $81 million during the first quarter.

Capital investments during the quarter were $45 million and depreciation was $47 million.

You may have noticed other investing activities which seem to have contributed $34 million during the quarter.

This was merely a movement of cash from investments in short-term commercial paper to cash and equivalents.

After giving effect to the April debt repayment, we have liquidity of $1.4 billion, which includes the full benefit of our $1.1 billion revolving credit facility which has no outstanding borrowings.

Our credit metrics remain strong.

After giving effect to the April debt repayment, total debt is $2.1 billion, with minimal secured borrowings, actually less than 15%.

Our net debt was $1.8 billion resulting in net debt-to-trailing adjusted EBITDA of 3 times, and if you actually include all of the refinancing costs on a trailing EBITDA basis, it would be about $25 million, our net leverage would be 2.9 times which is, again, underneath our long-term preference of 3 times on a leveraged basis.

Our current estimates for 2013 capital investments remain in the range of $200 million to $225 million for the full year.

We consider over 70% of these projects to be growth-oriented, or projects that are intended to increase capacity, efficiency and margin in future periods.

The strength of the balance sheet is derived from our low-cost, highly-variable operating platforms which provide strong cash flow generation.

Our strong, resilient capital structure has a flexibility to not only sustain our current operations but to support our future growth as well.

Thank you.

Mark?

Super.

Thanks, Theresa.

And to begin, I'd like to commend our team for their continued safety improvement.

Our performance has consistently been better than industry standards but we strive toward zero incidents.

We made significant progress towards that goal last year and things continued to improve this past quarter.

Roughly 85% or some 90 of our 114 operating and transportation units worked the entire quarter without a single incident.

All thanks to the dedication of each and every one of our employees.

Their safety and welfare are our highest priorities and I'd like to congratulate the team for again operating at the top of our peer group and doing it very, very safely.

I also want to congratulate everyone at our Superior Aluminum Alloy division for being chosen as a General Motors Supplier of the Year for 2012.

This is an excellent example of the customer partnership we drive and strive toward.

So great job for the whole team there.

Relative to the economy, from our perspective, the domestic economy continues to experience constrained growth.

GDP remains weaker than we need to see.

Sequestration and high unemployment is sapping consumer confidence and concerns regarding China's growth profile continue to impact the broader market.

Unfortunately, and despite incremental demand growth through the first quarter, consumer sentiment appears to be waning.

Consumers are keeping the inventories tight while taking advantage of short mill lead times and continue to be very watchful on steel mill raw material input costs as a leading indicator for finished steel pricing.

We saw some softening of order input rate later in March as many customers expected product pricing to decrease in sympathy with ferrous scrap pricing.

This procurement mentality will continue to drive price volatility while underlying demand incrementally expands.

Positively, although global over-capacity persists, pricing parity between domestic and global pricing is preventing meaningful inflow pressure today.

That being said, macro drivers predicting steel consumption would suggest there is reason for optimism in 2013 and certainly in the years ahead.

Automotive, although its growth momentum appears to have abated to a small degree, remains very strong, with recent forecasts still calling for 16 million unit build rate for 2013.

Residential construction appears to have sustainability, with housing starts out at up 7% to the highest level since 2008.

This bodes well for future nonresidential construction activity as well, supporting our thesis.

The overall ABI Index reported its eighth consecutive month above 50, again reaching its highest level since 2008.

Seasonally adjusted annual construction spending increased slightly in February and was 8% higher than a year ago.

So all these macro drivers we view as positive going forward.

In addition, there's still many companies with significant cash positions to be invested, and when coupled with the current low interest rate climate, will eventually lead to fixed-asset investment.

Believe companies are also recognizing the effectiveness and efficiency of the American workplace and companies continue to re-shore manufacturing.

And most importantly, over the longer term, inexpensive shale gas has the potential to make the US energy long, providing a tremendous incentive for investment and associated job growth.

We will be the beneficiaries of the associated economic growth and recovery of the construction markets.

Since 2008, we have added capacity and though we've been shipping at record levels these past two years, market positions have prevented us from leveraging our latent capacity.

As nonresidential construction demand strengthens, all of our operating platforms can benefit.

2012, we had approximately 1.5 million tons of steel capacity that was underutilized due to the market conditions.

Of that amount, about 55% of those tons have a high or very high correlation to the nonresidential construction market.

As domestic steel utilization improves, demand for ferrous scrap will also increase, benefiting our Metals Recycling operations.

And similarly, in 2012, we had excess Fabrication capacity, which is directly tied to nonresidential construction demand.

Looking to Steel, for the Steel platform, in spite of a challenging market, our diversified product portfolio had a first-quarter steel utilization rate of 89%, 9% higher than the fourth quarter, as production utilization in all our steel mills improved, especially at the Engineered Bar and Steel, by Engineered Bar Products and also in Pittsboro and Steel West Virginia locations.

We also achieved record quarterly production of Rail and Flat Roll Division operated at an annualized rate of over 3.1 million tons, a record high for the team, and a phenomenal accomplishment.

The domestic metals recycling industry experienced another volatile quarter driven by low export activity, continued slow US growth and inclement weather.

We indicated last quarter that we believe the typical market strength of January would be challenged and indeed that was the case.

In further strong upward ferrous price movement traditionally seen, steel mills' appetite for scrap was tepid, as was the export market, causing prices to move down early in the quarter, and contracting metal spreads.

This trend reversed as stronger mill import order input bolstered demand and pricing appreciated later in the quarter, in March.

The general decline in nonferrous commodity pricing also contracted margins in our copper and aluminum businesses.

We continue to believe the volatility in the Metals Recycling business is unlikely to subside in a meaningful way during 2013.

We are again pleased to report our Fabrication business delivered its fourth consecutive profitable quarter.

During the quarter, production at the new deck line in Arkansas began to ramp up and that has gone well.

Production rates have been steadily improving, lowering our costs.

We continue to see improvements in that business as we focus on the right market opportunities, gain market share, and improve operating efficiency at our newer locations.

¶ Moving north, our pioneering efforts in Minnesota continue to make steady progress.

Operations in the iron concentrate facility are proceeding well.

And in March, we operated at 75% design capacity at a cash cost below $50 per metric ton.

This material will be the principal input concentrate for our iron nugget production on a go-forward basis.

That team has done a fantastic job without a single safety incident this year.

At the iron nugget facility, production was improved during the first quarter.

Prior to shutting down for the April outage, the plant ran for a 31-day period at an equivalent time of 88%, producing 25,000 metric tons.

Shipments for the quarter totaled approximately 58,000 metric tons.

Financial losses during the quarter, though, were higher due to two primary causes.

We used higher-cost iron concentrate inventory in the production process and we agreed to sell some high-cost excess iron concentrate inventory at an after-tax loss of $2 million.

During the fourth quarter call, we indicated that upgrades would be made to increase production at the iron nugget facility during the second quarter and, as planned, we are installing the remaining oxygen enrichment equipment for the furnace this month.

We will ramp up slowly through June to make any necessary adjustments and expect to commence the increased production levels in the second half of the year once the oxygen generation plant, which will feed the oxygen burners, is commissioned in July.

Due to the outage at the nugget facility in April, we anticipate that losses associated with our Minnesota operations for the second quarter of 2013 could be similar to those recorded in the fourth quarter of 2012.

If production ramps up throughout the year as anticipated, we expect losses to decrease and we believe we could be at monthly breakeven run rate by year-end.

So our expectations have not changed there.

Production of iron from both Minnesota and Iron Dynamics has given us iron self-sufficiency as intended by the investment premise originally and, of note, the team at Iron Dynamics achieved another liquid iron production record of almost 24,000 metric tons in March.

They are a significant contributor in helping the Flat Roll Division achieve their record production levels, and again, congratulations to the team there.

With a reflection of our entrepreneurial culture, we continuously work to create opportunities rather than just wait for market dynamics to improve.

Several organic growth projects have been implemented in 2013, and will provide increased in earnings potential specific to Steel Dynamics.

Engineered Bar Products is undergoing a mill expansion that will add 325,000 tons of smaller diameter bars.

This project will make our facility the largest single-site supplier of engineered and SBQ bars in North America with an annual production capacity of 950,000 tons.

The project is on schedule and on budget and is expected to be commissioned in fourth quarter of this year, with no material interruption of current operations.

At capacity there, the potential 200,000 tons of semi-finished blooms could be supplied by our Structural and Rail Division, thereby effectively diversifying their product mix and increasing through-cycle utilization for them.

We're also excited about the addition of premium rail production capability at our Structural and Rail Division, an additional avenue to increase the mill's through-cycle utilization and to further diversify our markets with value-added products.

Construction has also started on this project.

It too is on budget and on schedule for commissioning close to the end of this year.

We plan to eventually produce up to 300,000 or some tons of standard strength and premium rail for the North America's railroad industry.

Test material has already been approved by several of the major domestic railroads.

The new rail capabilities will position us to become North America's preeminent rail manufacturer for rail quality and straightness and dimensional control.

Furthermore, the product will provide exceptional customer value, having the capability of 320-foot road lengths that can be further welded into 1600-foot strings.

This significantly reduces installation time and track maintenance cost for the rail customer.

Another project of the Flat Roll Division, the new shape correction line is on schedule to start up early in the fourth quarter this year.

Shape correction of master coils will provide a value-added opportunity and should facilitate increased market share, a particular benefit to us as the team has ratcheted up mill productivity, bringing additional hot rolled coil to market.

In recycling, two high-tech non-ferrous recovery systems have just started operating.

The systems have the capability to recover a greater amount of value of nonferrous material from the shredder waste stream thereby enhancing margins.

The facilities are located in the Midwest, one in Ohio and the other in Central Indiana, and will be fully capable of processing all the waste from our four Midwest shredders.

The Company continues to drive towards maximizing opportunities to effectively and efficiently perform through the cycle, to maintain a sustainable differentiation from our peers.

Our operating and EBITDA margins continue to be best-in-class and have allowed us to further solidify our balance sheet in recent months.

We're also able to increase our first quarter cash dividend by 10%.

We are pleased that our Board of Directors took this action based largely on their confidence in the strength of our cash flow generation capability and our financial position.

We believe this action further reflects our continued optimism and confidence in our future prospects.

We believe our superior operating and financial performance clearly demonstrates the sustainability of our business model in good and in challenging times.

In keeping with the entrepreneurial spirit that flows throughout the Company, we will continue to assess the opportunities for growth whether in new products, new technologies, or new business lines.

The focus is toward not only top-level revenue growth, but growth that will enhance and provide consistency to our margins and provide our shareholders with returns that demonstrate our commitment to making Steel Dynamics the preferred investment decision.

I'm proud of the strong character and the fortitude of our employees have demonstrated through challenging times.

It is their passion and spirit that drives us to excellence and to outperform our peers, both operationally and financially, while maintaining our low-cost, highly-competitive position.

I'd like to thank each and every one of them for their continued hard work and dedication, and to remind them as always to be safe, both at work and at home.

So now Brenda, I'd like to open the call up for any questions that everyone has for either myself or for the rest of the Leadership team.

(Operator Instructions)

Shneur Gershuni, UBS Securities

I had a quick question.

You'd -- in your prepared remarks and also in the press release you talked about a cautious optimism with respect to nonresidential construction and so forth.

But you also highlighted some sales of wide-flange beams, for example, as a trend to zero-in on as well, too.

Is this tracking the typical moods or the usual lag that we see with a pick-up in residential housing and the lag that we typically see in the nonresidential housing?

Is this a little slower?

Or I was wondering if you can give us a little bit of color as to how it's tracking to usual trends?

Well, I think as we suggested, it is incremental and one -- it's difficult for us to figure out whether that is truly the market or whether we're picking up market share.

If it was a much larger increase, then I could say, yes, the market is changing dramatically.

But if you combine just the incremental increase in wide-flange and you combine the positive nature of our performance at New Millennium, our Fabrications divisions, we just see that as a positive, optimistic side.

From an SDI perspective, you're exactly right, Mark.

But the numbers from -- at least from the SMA for the first quarter for beam shipments show it's down and so, therefore, again, I would think there's -- it's still a little bit optimistic.

So there's still a little bit more of a lag, so -- but we're benefiting slightly.

Most of our optimism, I would suggest, comes from residential.

We are certainly beyond just the indices and the rhetoric and the metrics out there, we're actually seeing that come through in the order book.

And that obviously, in my humble opinion anyway, drives the whole economy for us in the steel industry.

Okay.

You highlighted in the prepared remarks about all the projects that you're embracing.

A lot of them are to unlock latent capacity as well as to bring in higher value-add, higher margin opportunities.

How should we think about the cost structure at SDI on a go-forward basis?

As you enter these new areas, should we see an increase in cost as well too, but there should be a net effect in margin?

I was just wondering if the mix is going to change the cost structure on a go-forward basis?

Shneur, this is Theresa.

No, it shouldn't.

The capacity that we're putting in is very effective from a cost perspective.

The SBQ is a great example.

We're adding very little additional overhead to put in that additional rolling line.

So that cost structure should stay very low, not incrementally higher at all.

The same is true for the addition of premium rail because we're just adding equipment of about $26 million and the rest of the process stays basically the same, so there's not incremental cost there either.

So really we're looking at truly adding value-added products with very little additional cost.

Okay, and one final question, if I may, as you think about the next 90 days versus the next year or so, metal spreads a little tough at this point right now.

Do you see your volume and your capacity utilization offsetting that?

Especially given the fact that you have an expected outage as well too?

Or is it going to be much of the same as what we've seen the first quarter?

Well, I'd say it's incredibly difficult to predict because it's -- obviously the markets both on the steel side and on the raw materials side are incredibly volatile.

We've seen slight moderation in pricing in the last two or three weeks.

Yet, Dick was just telling me -- I didn't actually see the release -- but there's a mill suggesting upward movement in pricing just this morning.

It remains, I would tell you, a very, very fickle market.

And it's difficult to tell.

But our spreads should remain intact to some degree.

Okay.

Great.

Thank you very much.

Brian Yu, Citi.

Hello, good morning.

This is actually [Jon] Sullivan filling in for Brian.

I had -- one question I had with respect to the utilization rates which rose to 89%, I was wondering if you could comment on any apparent market share gains, given the relatively lower growth in the industry utilization rate.

And secondly, on Mesabi Nugget, given that it seems most of the capital investment is taking place in 2Q, I was wondering what are the improvements that will happen over the course of 3Q and 4Q to get to breakeven by -- on a run rate basis by year-end?

Thanks.

To address the utilization rate versus the market share, a large part of the utilization rate came in two areas -- one being the SBQ facility and the other being at the Flat Roll facility.

At the SBQ facility, we were running at a substantially lower rate and we have improved, not fully, but it appears -- the change is what we're looking at from an improved utilization rate and so, therefore, it's not a false signal.

It is a factual signal.

But it's not necessarily going out and taking new market share.

It's a recovery of a market.

So it is -- maybe it's the exact same orders, exact same percentage as everybody else maintains.

So I'm not going to tell you that there's any market share appreciably won.

In Butler, again, we've made some improvements there and the team is running at tremendous rates but that's such a large market in the Flat Roll world that our greater performance there as a percentage is almost insignificant in the total Flat Roll market.

So you couldn't discern on a quarter-to-quarter basis that you appreciably won market share in my opinion.

So I don't believe it's -- that you could identify a number in either of those cases.

Turning to Mesabi Nugget, again, we put a plan together back in August, actually of last year, and from the standpoint of maintenance outages and what the changes we would like to make and I would tell you, even though the results may be frustrating, the team has accomplished to date every single one of those planned activities.

The current shutdown is to install additional oxygen enrichment burners and systems.

Unfortunately, that shutdown will impact the second-quarter earnings, as suggested, and so second-quarter earnings or losses there will be anticipated to be somewhat similar to the fourth quarter of last year, an improvement over the first quarter, for sure.

Overall, profitability though, will be impacted most in the second half.

The oxygen equipment will there for trials and so we'll be ramping up and adjusting the process through July, at which point in time, the oxygen generation plant, the facility that will supply inexpensive bulk oxygen, gaseous oxygen, will be commissioned.

So we anticipate seeing decrease in -- sorry about that -- decrease in our losses through the rest or the second half of the year.

Our expectation is no different.

It remains unchanged, with a breakeven position expected on a monthly basis come the end of fourth quarter.

That, as we've already suggested over the last calls, anticipates production ramp up to roughly 30,000 tons, 35,000 tons a month, with an associated drop in the cost structure.

It anticipates the lower-cost iron concentrate inventory, which we are successfully producing and transferring and that material has gone through the nugget process without difficulty.

And it also obviously depends somewhat on transfer pricing and if pig iron, which is the basis of that transfer pricing, hangs in the [$440, $450] range, breakeven is expected.

Great.

Thank you very much.

Evan Kurtz, Morgan Stanley.

Hello.

Good morning, Mark, Theresa, and Dick.

Maybe thought I'd start off with some of your comments you had on just the overall macro conditions going into the year here.

You highlighted that things actually seem to be trending positively, at least in some of the key end markets like auto and non-res, albeit it off a low level, seems to be picking up.

So very surprised to see, just in the industry data, metal service center shipments down a little over 5% and you have AISI parent supply tracking down a little over 6% this year.

And just curious to hear your thoughts on how you might explain the differential in the macro data versus the steel numbers?

Well, there's certainly a dichotomy there, I would agree.

But I remain convinced that for the last 18 months or so, there has been continued demand growth, albeit very incremental, and that the pricing volatility is more related to procurement mentality, changes in immediate inventory and the relationship, as I already explained, that the customer is so watchful of the raw material input cost direction that, that is driving a lot of that volatility.

If they see, as they did later in March, that scrap is going to be off, they literally take their foot off the order book.

And similarly, when they anticipate an upward trend, all of a sudden you'll take a substantial amount of orders in a very short period of time.

And it's that up and down volume procurement activity that's driving the volatility more in my mind than underlying demand.

The macro, and that has probably impacted the MSCI data as you suggested --daily shipments dropped off a little bit in March, which is disappointing, particularly traditionally that tends to be a month that is seasonal gain.

But nonetheless, automotive remains strong.

16 million units is a very, very strong rate.

Manufacturing remains very, very strong.

And generally if you look at our utilization this past quarter, we're doing okay, at least at SDI.

I can't speak for everyone else.

That's helpful.

Thanks.

And maybe just a follow-up on that, talking about raw material prices and what's your latest view for scrap going into May and maybe just specifically on OmniSource, you mentioned that weather was a big issue in the first quarter as far as flows go.

How do you see that shaping up for the second quarter?

Could we see a little bit of an improvement there, just from the weather point of view?

This is Russ.

Certainly the flows as the weather breaks are going to improve.

But again, our business depends on our customers and the export markets have not been robust, at least in 2013, as of yet.

Whether that comes back -- if that comes back that will certainly have a meaningful effect on our part of the business.

But again, in the end game, it's what our customers, the mills and those smelters, what their order books look like is going to determine what happens in our side of the business.

Pricing, as Mark adequately described it earlier, is extremely volatile.

In the past, I don't know how many years, January, February has always been an up market, and this year it was a down market.

We saw that turn around in March and it turned back around in April.

I could make a case that it's going to go down in May.

I could make a case it's going to go up in May.

So it's just always going to depend upon the utilization rates of those customers in the process.

Okay, thanks.

I would add, Evan, that the supply line, the supply -- the inventory levels throughout the system still remain very tight.

So any uptick in utilization or downtick in utilization, again obviously, gets exasperated and contributes to that volatility.

Mike Parr, KeyBanc Capital Markets.

Hello, guys, it's Mark Parr.

The sun is shining in Cleveland.

Yay.

Sun is shining here and it's headed your way, mate.

So, sustainability, just our [rhymes].

That's good.

It's always good in the springtime.

But -- I think you've already been asked this question but Nucor is out talking about better earnings in the second quarter.

You're going to have a lower loss at Mesabi.

That's going to help you $0.02.

Do you think that you've got enough momentum going in beams and SBQ and at Steel of West Virginia to maybe have a sequential uptick, with the wild card being what happens on the Flat Rolled side?

Flat Roll is a little bit of a wild card.

We're seeing perhaps a little more consistency in our other Steel platforms or divisions and, as Russ said, who knows what may or may not happen in our Recycling business.

But we've got 3 months -- well, 2.5 months left to go, so I would prefer to punt and we'll give you guidance later in the quarter.

Okay.

All right, well that's fair.

But you did have what looked like a fairly solid quarter, given the current state of the economy.

So congratulations on that.

I was also wondering, Theresa, you gave a really great summary of all the refinancing that has unfolded and your team has probably worked incredibly hard here over the last couple of months.

Could you just to repeat, give us some sense of the progression in interest expense, did you say you expect interest to be down $45 million from '11 or from '12?

I couldn't -- I missed -- I think I missed your comment there?

First of all, thank you very much.

The team here did a fantastic job, so I appreciate that.

But yes, that was actually -- the reason we compared it to 2011 was so that we could really incorporate the changes that we made in 2012 as well.

But what we just did in the first quarter of this year, if you're looking quarter-over-quarter, really should improve interest expense by about $13 million.

Okay.

All right.

So that's really terrific.

And also, just for bookkeeping purposes, could you give us the breakdown of the Flat Roll business in the quarter?

Sure.

I'm sorry about that.

I have them right here.

The hot rolled shipments were 281,000; pickled and oiled, 118,000; cold-rolled, 38,000; hot-rolled/galvanized, 100,000; cold-rolled/galvanized, 58,000; our painted products were 89,000; and Galvalume was 20,000.

Should be a total of 704,000 tons.

Yes, that's amazing.

Just if I could ask one last question, Mark or maybe Dick wants to take this.

At least for where we looked at April scrap was probably down about $20.

Have you been able to hold pricing to less than a $20 decline, based on the April scrap buy?

Well, we don't -- since we don't publish a number, we look at every sale as an opportunity to hold the price and raise the price.

And so I would just tell you that we are always out to do our very best.

That goes without saying.

Nice punt, Dick.

(laughter)

Well, that's what I'm paid for.

But Mark, the team demonstrates it, though, month in, month out.

And you suggested that our earnings are pretty steady in a very fickle market here.

And if you take out maybe the tax adjustments and things, the unique items, our earnings for the last three quarters have been in a quarter-over --first quarter last year, they are incredibly, incredibly consistent.

And it's allowed us to do great things.

We've been reducing debt.

We've got great liquidity.

We're in great shape to take advantaged of opportunities that I truly think avail themselves here in the next 6 months, 6 to 8, 12 months, as some other folks struggle a little bit.

Mark, more on the serious side, I would say that of course what I said was true, but every transaction also is taking into account our relationship with our customers, what the other opportunities are, where the market is going, and the trends and so forth.

So it is more than just, you throw a number out and try to get the highest.

It's -- we are always trying to do our very best for both the customer as well as ourselves.

Yes, okay.

Well, anyway, good luck on the second quarter, guys, and congratulations.

Chris Haberlin, Davenport Securities.

Maybe to start, and I apologize for beating the dead horse here on utilization rates.

But trying to understand the utilization rate increase 9% quarter-over-quarter but shipments were relatively flat versus Q4.

Just trying to understand, did you all build inventory levels here and is that in expectation of an uptick in demand over the next quarter or two?

Well, it's a correct observation and I would tell you that the reason why we did it was in anticipation of what we are experiencing currently in the quarter.

Our Flat Roll Division is currently shut down for a maintenance outage.

It's a five- to six-day outage on hot mill and on the cold mill.

We built a large inventory ahead of the pickle line because the pickle line only went down for one day and the repairs were made and now it's been back up and running for four of them.

And, therefore, we built the inventory in pickled and oiled goods, and so we are doing shipments again on a steady basis.

And so that inventory is being drawn down as we speak.

We also built an inventory in Pittsboro, not because we have a -- we do have a maintenance outage coming for about five days in May.

But there, as we started -- we built inventory because we were running orders ahead of time because we wanted to -- we have a belief that the market is improving and we wanted to be available to take every order as it became available.

We didn't want to have -- we didn't want to be delaying the production of any orders and then have to turn some opportunities away.

So we ran some orders early, especially the ones that had additional bar-finishing requirements and heat-treating requirements.

So the inventories at Pittsboro also grew in the work-in-process inventories and a little bit of the finished goods inventories.

And again, our Steel West Virginia, we put in a new stacker in our number-two line and the production has really gone quite well and we've built some inventory -- finished goods inventory -- there, just because how well it's performed and now we will be readjusting our rolling schedules there.

And then earlier in the prepared remarks, Mark, you had mentioned that you saw weaker order input rates later in March.

Was that specific to the Flat Roll Division or the Flat Roll and The Techs?

And can you maybe talk about what you've seen from those divisions, just how those orders trended through the first quarter?

My comment was principally the sheet mill, I would say.

The other mills tend to have been steady relatively through the quarter.

Okay.

And then just last one from me.

On Mesabi Nugget, you all had guided to a net loss of around $10 million and it came out at $14 million, and I understand the $2 million related to the concentrate sales.

But that incremental $2 million, just surprised, given a 66% increase quarter-over-quarter in production there.

I understand there's a lot of moving parts while you're operating at sub-optimal levels.

But can you just talk about what drove the larger-than-expected loss?

A couple things.

Well, principally, as we suggested, you've got $2 million there or so of the agreed upon sale of the higher-price concentrate and then through the quarter we consumed a lot of additional high-cost concentrate as well.

The mining resources start-up has gone incredibly well, and with the volume there and with the inventory, we were getting to a position where we would never have reduced that overall inventory with time.

And hence, sold off roughly -- it was 100,000 tons or thereabouts.

But principally it was the high-cost concentrate that we used and the input or the consumption per ton of nugget produced did climb just a little bit.

Chris, just for those on the phone and for others, mining resources, we typically don't use those phrases, it's actually iron concentrate facility.

Okay.

All right.

Thanks very much.

Sam Dubinsky, Wells Fargo Securities.

Thanks for taking my question.

Just a couple quick ones.

Some of your competitors have discussed moving off a CRU-based pricing.

What are your thoughts on this trend and implications for the industry?

It's -- a discount of CRU is something that we have resisted and have been reluctant to exercise on a broad basis.

I recognize that our peers certainly adopted that here, of late, last 6, 8 months or so, 12 months.

[Yes, sir.]

And so it's something that we've only participated in on a very, very limited basis.

But for the industry in general, it's a very positive sign.

Okay.

Great.

And then on domestic pricing today, it's been so weak that it's helping imports moderate at least for flat products.

Do you think there is room for domestic prices to increase in any product verticals while still keeping imports out of the market?

There is a possibility there.

There is somewhat of a parity right now between global and domestic pricing and if you look at the discount that the consumer now looks for, from imports, that discount has increased dramatically over the older days where if imports were $40, $50 a ton lower than domestic pricing you saw a lot of import activity.

Today, that level has increased dramatically and it has to be up around $100 -- about $150 a ton due to the volatility of pricing that attracts that import business.

So that being said, I'd suggest there is room there for improved pricing.

Okay.

And then just my last question is obviously order books were soft for March.

It's very early in April.

But how do order books look of so far in April, compared to this time frame in March?

This time in -- you mean compared to early March to now?

Yes.

They're about steady.

They're about the same.

Yes.

Okay, great.

Again, we're -- if you looked at it, they will probably be a little bit better because we're taking our maintenance outages.

So if you looked at it from a number of days that you need to have available, it might look a little better.

But from a tonnage, it's probably equal.

Okay.

Great.

Thank you very much.

Martin Englert, Jefferies.

Wanted to see how the backlogs look for downstream products on a year-over-year basis, if you can comment there?

When you say downstream, Fabrication?

Yes, correct.

Fabrication, and Gary's on the line, he can actually comment, but I think they're up.

And in fact, we had the -- I think the highest order input rate in Fabrication in March that we've had for many years.

Gary, are you still on the line?

I am and that's true, Mark.

Our backlogs are better and it's really been driven by two things.

One is a little bit more market share, which is being driven in part by penetration of new markets.

It's hard to say right now whether those backlog increases are driven by overall growth in demand but we've got some pretty positive signals that would indicate that the market is strengthening a little bit.

Thank you.

That's helpful.

And then regarding the oversupply in the galvanized market that was mentioned in the prepared remarks, in the release there, is there any indication that, that's abated to any extent and see more normalized volumes from The Techs?

I would tell you no.

That's where, again, when we talk about the nonresidential construction, to me that's beneficial because of not necessarily -- the residential construction is beneficial because of appliances and duct work, and so forth that go along with it.

So it's not just the nonresidential that lags from it.

In addition to that, what I would tell you is we are focusing on other products and expanding on the Galvalume capability down at the Jeffersonville, and we've also been running trials, we've now run Galfan on all three of The Techs lines and continue to garner more orders and longer runs at those three lines in the Galfan product.

So we're not just sitting around waiting for the galvanized market to recover.

Thank you.

That's helpful.

And if I could, one more question.

Within the prepared remarks as well you had commented on manufacturing and seemed relatively optimistic that some of the fundamentals were improving there.

Can you talk about what areas of manufacturing you're seeing improvements and then maybe what areas are still lagging behind, if there's any continued inventory corrections going on among the consumers out there?

Probably the only inventory correction issue still remains in Engineered Bar Products and SBQ.

And principally the off-road equipment folks tend to be a little slower.

Other than that, we have at Pittsboro, a pretty broad -- or the order profile is across the spectrum of our customers.

Thank you.

That's helpful and good luck.

Dave Katz, JPMorgan and Chase.

Hello.

I may have missed it earlier but could you talk about what you guys are seeing in terms of exports?

Sorry, exports?

Yes.

So why don't I -- that's not an arena we play in and -- or follow to be honest to any great degree.

No, I understand that but I was curious -- obviously you look at the industry overall and how that impacts your pricing ability and one would think that, that would play.

So just curious, given your better view of the industry from where you sit, what have you seen in terms of exports and how do you think that's impacting your ability to push through price increases?

So Dave, the only place where we've really got a major impact on the export side is on the scrap side and those exports have been a little bit tepid during the first quarter of the year.

Again, at what point that the Turks and the Southeast Asians and those folks start taking more product, that will certainly have an impact on it, but at current rate, it's really not a factor on us.

And maybe from the other perspective, that maybe you're asking about, from the reports I've read that the steel exports are down in general from the United States and, therefore, with less steel being exported there is capacity available domestically then for increased sales and competition.

It just goes without saying.

So there's needless to say, therefore, a little bit more pressure downward on domestic pricing.

And it just has to be dealt with.

Okay and then coming back to the Turks in particular, given that they've largely been a swing factor over the last couple of years, do you have any view on what it would take to get them back in the market in a greater capacity?

On the real issue with the Turks is going to be whether Europe -- whether the strength of the euro, because their consumption has remained very consistent.

But they play the US and Europe off of each other, depending on the exchange rates and the availability.

And also, from a product perspective, they export a dramatic amount into Europe and so as the European economy continues to sputter, their order rate I would imagine is off, too.

Okay.

Thank you.

Okay.

That concludes our question-and-answer session.

I'd like to turn the call back over to Mr. Millet for any final and closing remarks.

Well, thank you, Brenda.

Thank you, everyone.

I just want to reiterate that we are squarely focused on positioning the Company for long-term growth and sustainability and not just three months or six months out, but we continue to look 3, 5, 10 years out for our Company.

Some of the changes will take longer to implement but those will be strong catalysts for our continued success, the ones that we've mentioned already.

So thank you for your time today.

To our shareholders and to our customers, thank you for your support.

Our employees, be great, be safe, and continue to do a phenomenal job.

Thanks.

Have a great day.

Once again, ladies and gentlemen, that concludes today's call.

Thank you for your participation and have a great day.