Olympic Steel Inc (ZEUS) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Olympic Steel 2017 First Quarter Results Conference Call.

Some statements made on today's call will be predictive and are intended to be made as forward-looking within the safe harbor protection of the Private Securities Litigation Reform Act of 1995 and may not reflect actual results.

The company does not undertake to update such statements, changes in assumptions or changes in the factors affecting such forward-looking statements.

Important assumptions, risks, uncertainties and other factors that could cause actual results to differ materially are set forth in the company's reports on Forms 10-K and 10-Q and press releases filed with the Securities and Exchange Commission.

Today's live broadcast will be archived and available for replay on Olympic Steel's website.

At this time, I'd like to introduce your host for today's call, Olympic Steel's Chairman and Chief Executive Officer, Michael Siegal.

Please go ahead, Mr. Siegal.

Thank you, operator.

Good morning, and thank you all for joining us to discuss Olympic Steel's improved first quarter 2017 results.

On the call with me this morning are Olympic Steel's President, David Wolfort; Chief Financial Officer, Rick Marabito, President of our Chicago Tube & Iron business, Don McNeeley; and Executive Vice President and Chief Operating Officer, Andrew Greiff.

As we now know, sustained price increases began in late fourth quarter and accelerated through the first quarter of 2017, as important, various end markets and products began seasonal demand improvements.

Olympic Steel, which is very much aligned with the GDP growth of the United States, particularly in markets related to food, energy, infrastructure and housing, accelerated beyond the norm, demonstrating the earnings power we can generate when all 3 of our business segments, carbon, specialty and tubing perform well.

We are optimistic that these demand conditions continue and will remain strong into the second quarter.

In addition, continued low inventories in the supply channel allow significant opportunities to take advantage of an increased spot market.

The Metal Service Center Institute data indicates that Olympic Steel is growing market share in nearly all of the products in our portfolio, and certainly strong overall.

Our strong customer focus with a commitment to ongoing direct representative sales to the market is harvesting the relationship capital that we have built during the last recessionary industrial cycle.

Along with our strong on-time delivery and quality performance metrics, we are confident that the positive financial performance can and will carry forward.

We have the people and the capital and the commitment to drive sustained growth as we move through the year.

For the last 8 years, many of our customers and their businesses faced repressive regulatory and uncertain tax and trade policies that diminished their ability to compete, and more importantly, expand in the United States market.

We have built Olympic Steel for growth and strategically aligned ourselves with the U.S.-based industrial manufacturing and equipment manufacturers and with fabricators whose business correlate with the GDP-style growth.

Many of these industrial sectors have been at low production levels in recent years, hampering sales of carbon flat products.

For too long, U.S. businesses have tolerated no tax reform, our country should have a tax policy that actually encourages capital spending.

We had no infrastructure investment that is obviously sadly insufficient.

We've had uncertain trade policies that were either not enforced nor duties collected or did not level the playing field for our shores, and that we certainly had an overzealous EPA, just to name the few of the conditions we've dealt with over the last decade.

The reason anyone or more of these areas can propel growth for our customers and in turn Olympic Steel.

We have plenty of working capital and operating capacity at our disposal to efficiently flex operations to meet higher demand.

And before we move on from this topic, we wholeheartedly support the self-initiated Section 232 investigation launched last week by the U.S. Department of Commerce, a healthy, domestic steel industry is without a doubt a vital component of national security.

We applaud the proactive position of the current administration.

This afternoon or this morning, we also announced that the Board of Directors approved a regular, quarterly cash dividend of $0.02 per share, payable on June 15 to shareholders of record on June 1.

And lastly, before I turn the call over to Rick, I hope to see some of you at our Annual Shareholder Meeting taking place this morning here at beautiful Cleveland, Ohio.

And so with that, I will turn the call to Rick.

Thank you, Michael, and good morning, everyone.

Strong shipments powered our best earnings quarter in 5 years.

Higher volume in combination with higher prices resulted in a 30% increase in net sales during the first quarter and a rise in earnings for all 3 of our segments.

First quarter tons sold improved 14% year-over-year in carbon flat product segment to 303,000 tons.

According to the MSCI's Metals Activity Report, industry-wide shipments from U.S. service centers rose 5.9% over last year's first quarter, indicating we grew more than twice as fast as the market during the quarter.

Recovering industrial demand and our continued investment in direct sales representation contributed to the strong carbon flat sales volume.

Average selling prices were up 18% in the carbon flat products segment.

Our Specialty Metals volume increased 17% to a record 23,000 tons in the first quarter.

This resulted in a further increase in our share of the stainless steel flat sheet and coil market.

Average selling prices in the segment were up 8% over the first quarter of last year.

As a reminder, we don't report tonnage for our pipe and tube segment because volume is not a meaningful metric for that segment.

As I previously indicated, consolidated net sales rose by 30% to $335 million in the quarter.

Quarterly net sales were up significantly in all 3 of our reporting segments compared with both last year and sequentially versus the fourth quarter.

The largest revenue increase within our carbon flat products segment, which was up 34% to $217 million compared with $161 million last year.

We are encouraged by the improving industrial demand scenario for carbon flat products.

Net sales increased 26% in our Specialty Metals segment to $58 million, that's up from $46 million in the first quarter of last year.

Higher shipping volume provided 17% of the increase, while higher pricing provided 8% of the increase.

Pipe and tube sales increased 17% to $60 million in the first quarter of the year, that's compared with $51 million last year.

Consolidated gross margin as a percentage of sales improved to 22.8% in the first quarter, that's compared with 22.7% last year and 20.2% in the fourth quarter.

We recorded $375,000 of LIFO expense this year, while there was no LIFO impact recorded in last year's first quarter.

Gross margin in the carbon segment increased to 22% of sales in the first quarter compared to 21.6% last year.

Specialty Metals gross margin expanded to 16.7% of sales in the quarter, that's compared to 14.5% last year.

This improvement is a testament to the success of our operating team achieved in appropriately managing inventory and maintaining price discipline while simultaneously achieving record market share.

On a per-ton basis, gross margin on carbon flat products was up 20% in the first quarter to $157 per ton compared to $131 per ton last year.

Specialty Metals gross margin per ton was $417 in the first quarter and that is up 24% from $335 in the first quarter last year.

Gross margin in pipe and tube products was still our strongest segment at 31.7% of sales, that's compared to 33.3% in 2016's first quarter.

Traditionally, a lag does exist for pricing changes to occur in pipe and tube products when compared to carbon flat product price changes.

We are optimistic about the outlook for pipe and tube moving forward, as the 17% increase in net sales led to a year-over-year 11% increase in first quarter operating income.

Operating income in the first quarter improved substantially to $11.1 million, that's up from breakeven last year and again that marks our highest earnings quarter since the first quarter of 2012.

Over the past 2 years, we have made sustainable operating enhancements in all 3 of our segments which helped us produce positive leverage with operating expenses increasing less than shipping volume.

Interest expense of $1.6 million was $300,000 higher compared with the first quarter of last year, that is due to higher LIBOR rate in 2017 and higher average borrowings to fund working capital requirement related to increased pricing and shipping activity.

Our income tax provision was reduced in the quarter by $1.9 million out-of-period income tax adjustment.

We recorded a tax asset related to the future deductibility of certain distributions from one of our retirement plan.

Moving forward, we still expect our normalized effective income tax rate to be in our historical range of 38% to 40%.

Net income improved to $7.7 million or $0.68 per diluted share in the first quarter compared with a loss of $800,000 or $0.07 per share last year.

The income tax adjustment I just discussed increased net income by $1.9 million or $0.17 per share in the first quarter of 2017.

Now let's turn to the balance sheet.

Working capital increased to support the higher sales activity in the quarter.

At the end of March, accounts receivable increased to $140 million compared with $102 million at the end of December.

Days sales outstanding averaged less than 40 days in the first quarter.

This not only demonstrates the financial health of our customer base, but also the hard work of our credit team.

Consolidated inventory was $263 million at quarter end compared to $255 million at the end of the year.

The increase was due to higher prices as we averaged 4.6 turns for flat products segments in the first quarter.

Our total debt increased to $195 million, that's up $28 million during the quarter.

Despite the increased borrowings, availability under our asset-based lending agreement grew from $94 million to $109 million during the first quarter, and that's due to the strong management of working capital I just discussed.

Shareholders' equity increased to $262 million or $23.86 per share at the end of the first quarter, and our tangible book value was $21.70 per share.

We plan to file our 10-Q this afternoon, which will have additional financial details on the quarter.

Now I will turn the call over to David for his operating review.

Thank you, Rick.

As both Mike and Rick described, we are pleased, actually thrilled with this quarter's improved financial results and our quick recognition of changing market conditions late last year and the strong operating execution during the quarter.

Our market positioning and the improving demand outlook for each of our 3 business segments, as Rick described, is even more satisfying.

The validation of the heavy lifting and the major capital investments we've made over the last few years, since the recession, to expand our portfolio of products and processing servicing -- services is indeed paying dividends today.

Between 2010 and 2014, we diversified our product portfolio by adding pipe and tube and Specialty Metals, while expanding our geographic reach through acquisitions and organic investments in new facilities, significant investments indeed.

Since then, we are -- we have been commercially integrating our selling efforts and servicing customers that consume carbon flat products, tubular and pipe products and specialty metals.

We have also internally developed sales and management talent and effectively recruited successful seasoned industry veterans as we continue to grow market share.

In addition to developing and enhancing our local management teams, we have focused on optimizing asset utilization.

We continued to integrate, we continued to repurpose and to invest in our ongoing facilities.

Additionally, we focused on other operating enhancements such as scrap and yield improvements, rate optimization and labor efficiencies.

These initiatives have quietly been occurring and are now manifesting themselves in the financial results.

Our strategy and vision for Olympic Steel has remained consistent despite protracted market challenges in the past year -- past years.

Metal price volatility will always influence the service center business, however, with U.S. industrial demand on the rise, we are well positioned to do even more -- even have greater growth.

We are confident that our customer service focus and commitment to direct sales representation, together with our strong balance sheet will continue to drive sustained success for Olympic Steel.

With that operator, let's open the call for questions.

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

Can you discuss a little bit more in detail about the market share gains?

What contributed to these?

And was this more spot business or did you have some contractual wins?

The answer is yes, to both.

Certainly, as we've seen low inventories and the sustained low levels of inventory, we've seen a significant increase in our spot business.

And the spot business will be fine mostly to other service centers.

We've probably seen a 20-plus percent increase year-over-year based on the numbers that we have on spot.

On the contract stuff, the answer is yes, same kind of scenarios.

I think we all emphasize the aspect that we are committed to direct sales representation.

We think that is a strategic advantage, and getting to know your customer well and their needs is really important to sustainability of your relationships.

So I think we're gaining market share on the contract side of our business because of our ability to perform and our commitment to try to understand their concerns in their markets.

So we're seeing significant growth across both sides of the 2 that you mentioned, both contract and spot, and we're seeing it in all 3 segments of our business.

Any idea for the carbon segment what the overall spot mix looks like, percentage of tons versus the contract?

Martin, we give you loose figures here of about 50% in each category, may be tilting a little bit heavier on the contract side with larger OEMs.

But by and large, our market growth has resonated because of the investments we've made over the past 6, 7 years, greater geographical footprint, more product diversification and as Michael has well commented, direct sales relationships with our customers.

I would imagine purchasing power with the mills probably give you some advantage as well.

Doesn't hurt.

Chicken soup, it doesn't hurt.

And then last quarter you had flagged that you had built up some inventory in anticipation of improving prices as well as demand heading into 1Q.

What you think the estimated impact was from the favorable inventory costs based on 1Q results?

Martin, we did talk about that.

I think obviously as the prices moved up and you look at our margins, part of that margin enhancement is certainly due to strengthening price.

I can't really quantify exactly how much that is.

What I would tell you though is this, we talked about purchasing a little bit heavier in the fourth quarter and really based upon our inventory turns, you see that it was pretty well matched up with the sales volume that we had in the first quarter.

Okay.

So would it be a fair assessment with that matching on the sales volume in the 1Q in that inventory build, I guess, most of the tons out the door were associated with purchases prior to 1Q, is that how should I understand it?

Well, that would always be the case.

We are always going to buy before we thought.

But I think when you're looking at what we said, which was we built in front of the market price increases.

When you look again, I want to really reiterate it what Rick said, I mean, the reality is, the demand of our customers exceeded maybe what we thought it was going to be in the first quarter.

And therefore, that buildup after you just match the actual demand and there is very little impact on the fact that we were heavy.

Martin, Dave Wolfort here.

Let me just add a little bit of color to Michael's comments.

We turn our inventory at 4.6 turns.

And so obviously, we're buying into '17 as our marketplace is growing.

As Michael had indicated earlier in his comments as we opened up the call, we thoroughly embrace the direction of the current administration from the onset of the election.

And that compelled us to lever up our inventory, recognizing that our customers -- the bias had changed dramatically and was quite positive, that has really enabled us to move more product through the system, that drives our earnings today.

It's the velocity of tons moving through and our ability with Rick's borrowing capabilities to grow that inventory, and recognize all the efforts that we've had over the last few years of growing the geographic footprint and adding Chicago Tube & Iron and growing the Specialty Metals.

Excellent.

And one more if I could.

Within the SG&A items, it seems like there is some sequential pickup there, warehouse cost was up about $5.5 million quarter-on-quarter, admin up about $3.2 million, I think, in aggregate, booked around like $61 million.

I guess, can you speak to some of those increases whether we should, I guess, assume that those are largely fixed through the course of this year and if like, on the similar sales volume at $60 million, $61 million SG&A is the correct kind of run rate going forward?

Yes.

And so I'll answer in reverse order, Martin.

This is Rick.

Yes, I would use the first quarter as a good proxy for future quarters with similar volume.

To speak to the increases, part of the increase, obviously, as we had a very good earnings quarter.

Certain performance-based compensation is higher year-over-year.

In terms of the warehouse what we've really done is try to match up our labor in terms of flexing with the increased volume without really adding headcounts.

So we're pretty successful at that.

And so the distribution costs, the warehouse costs are primarily variable and driven off of the tons sold.

The admin is primarily driven off of, and the selling cost as well, are primarily driven off of increased compensation around performance.

Okay.

And the warehouse costs when we see delta is like that, you noted that variable.

So that's not something that would be, like allocated to rent or something, but it would be employees staffing up to support the higher tons sold as opposed to like a step-up in, like a lease or something like that, right?

Correct, correct.

It was -- it's labor and it would be the product support costs, strapping lumber, those types of things that go with the volume.

And moving on, we'll take our next question from Phil Gibbs with KeyBanc.

The outlook for the Specialty products business, is that a bit different than maybe the outlook for the flat-rolled business.

I'm not talking about near term, I'm talking about longer-term aspirations in terms of growing that footprint.

You obviously had a really good quarter, strong growth.

Where can that go given how underpenetrated you are, relative to maybe where you were 5 years ago?

And just remind us on what aspirations you have there to grow the business?

So Phil, Dave Wolfort here.

Let's -- well, let Andrew Greiff comment on that since he's the chief architect of the growth early on, and of course has assumed the new role of Executive Vice President, Chief Operating Officer, for the corporation back in August of last year.

And our Specialty Metals is now run by Andy Markowitz, but Andrew Greiff will comment on your question.

So Phil, we think in line with carbon that there is enormous potential.

So Specialty Metals, we certainly think we can double what we're doing and go beyond.

We look at couple of industries that we have penetrated and we have had great success, transportation, automotive, we've done, very well in, and we'll continue to penetrate the automotive, in particular, as aluminum has become a much stronger part of automotive sales.

The restaurant, food equipment industry is still very important to us, and will continue to be.

And as we continue to expand we'll do more with the tank business as well.

That doesn't preclude the fact that we intend to grow concurrent in the carbon side of the business, as we concentrate more asset product deployment towards the Specialty Metal group.

So we had no strategy to lower our desire to take more market share in carbon.

And you talked about the potential to double sales or long-term aspirations to double sales or double volume in that business.

Do you have to add any -- just add any capability or capacity or assets to do that or do you have the existing footprint and assets for you to do that?

The footprint, we probably have.

Assets, we'll continue to invest in.

Okay, perfect.

And then Rick, as we look into the second quarter, I sense here that spot margins were pretty high in Q1 for obvious reasons, but you also have decent part of the business on lagging contracts, which I would imagine should move higher as well.

How do we think about that interplay in Q2 versus Q1 as it may be related to the gross margin momentum?

Phil, yes, you are correct.

April 1, we have pricing resets on a good portion of our business.

I've been thinking about the gross margin first looking at the sell price side, we'll have higher pricing points in the second quarter than the first quarter, across-the-board, both on the pricing resets for the quarterly fixed pricing as well as spot.

Obviously, the cost of our inventory will rise in relation to whatever is in the marketplace.

So I would envision a slight -- maybe a slight decline in gross margin in the second quarter.

But we're pretty optimistic that the second quarter, at this point, looks a lot like the first quarter.

Perfect.

Appreciate that.

And then on the inventory side, how do you imagine that as you move through the year based on how you see things right now?

I think the number was $263 million, should we think that, that should be around the number as you end the year?

Assuming prices are where they are today or is that a number that will migrate down?

Phil, it's Michael.

I would just, look, we concentrate on working capital turnover.

So we're looking at 4.6 today.

We kind of target to get to 5. My guess is whatever the level of business is from a shipment level at the end of the quarter, you'll see a commensurate inventory level to meet that inventory turn desire.

So think about the turnover basically is what your -- what you're saying here?

Yes, that's what we think about.

Yes, it's not a net number, it's not how many tons, it's not what are the dollars in the inventory, it's really about the velocity of working capital turnover.

And so if our business accelerates, great, and we'll have more inventory, and if we start to believe that the sales -- the velocity is moving down, you will see the commensurate adjustment in the inventory level.

And then last one from me is, what fiscal policy signpost do you think customers need to see moving forward to sort of maintain the good volumes in terms of demand?

What are they looking for, in particular, to sort of satisfy the earlier expectations that all of us had in terms of optimism?

Well, each one of us might have a different answer on that, when I would say tax policy.

I think when you look backwards in the past, the uncertainty of tax policy under the Obama regime, basically retarded capital investment.

There wasn't a question of what the tax policy was, it was what, what the direction of tax policy going.

And then I don't think anybody believe the tax policy wasn't going to go up.

Therefore, if you're going to increase taxes, you're going to decrease capital deployment.

So what I would say is the benchmark of what people are expecting is, anyway which the tax policy is either stable or better is a good signpost, or if anybody else wants to comment?

The only thing I piggyback, Michael, this is Don McNeeley.

The pipe and tube segment is regulatory mitigation.

At the end of the year, the data point is the nation gains jobs and loses jobs.

There's typically a net gain of 3 million jobs.

About 100% of those were employers with 500 employees or less and this regulatory compliance burden on them is about 30% more onerous than a large company, because, of course, they don’t have departments to facilitate this.

So I think the other milepost, Michael, is going to be some mitigation in regulatory obligation.

(Operator Instructions) And we'll take our next question from Aldo Mazzaferro with Macquarie.

I had a question on the demand side.

I'm looking at general steel consumption numbers, and they seem to be starting to pick up after 2 years or so of slow trends.

And I'm -- looking at the upside, to get back to where it were the old highs, you could see a steel consumption pick up another 20% in my view.

And I'm wondering if that were to happen, given the amount of capital spending you've done and acquisitions you've done in the last, say, 8 years or so.

Can you talk about what you think your full run rate of revenues might be compared to where it is today?

Without assuming any further price changes or anything like that, just in pure simple volume terms, kind of an idea of what utilization rate you think your facilities are at right now?

Aldo, Dave Wolfort here, and Rick can comment on this further, but I would tell you, we would be very comfortable in absorbing your aspirational goals of the marketplace going up 20%.

We have a lot of levers with all of our facilities.

We've done a terrific job on commercial integration.

We're utilizing our facilities for all the products that we described, and we're capable of moving those around in a very seamless manner in order to capitalize again on that aspirational goal of 20%.

If it went up 10%, we'd be thrilled to death, and we'd be able to absorb that without any capital expenditures.

So we've made all of those expenses and we've done that in times as you well know, and we've done that at times when it hasn't been fashionable.

So we were buying property and we were buying facilities back in '10 and '11 and '12 and redeploying equipment, that's all done.

So we could, I wouldn't say easily absorb 20%, but we could absorb 20% growth without any significant capital expense.

Rick?

I think that's exactly right.

And I think, Aldo, the one indicator of that is you look at the first quarter, the 14% increase in volume was a powerful driver for our earnings in the first quarter.

And I think, as the industrial markets come back, we are very well positioned based on all the things that David just commented on to really take advantage of that without significant additional investment.

I have a follow-up too.

On the way the market is developing now after the March shipments from the MSCI came out and you saw the inventory slightly decline sequentially.

And I'm hearing there's more buying in the middle level in the month of April.

I wonder if you could say how you're looking at the -- how are you looking at your strategy in buying steel.

Are you trying to step-up and increase inventories a little bit versus your shipments or keep them relatively where they are?

And then also wondering whether the likely absence of U.S. Steel in the near term here is going to make a big difference to the supply side?

Well.

Aldo, David again, and I'm sure Michael will comment on this.

Being appropriately inventory in our facilities is our goal as Mike said earlier, inventory and working capital rotation is our objective.

And we are appropriately inventoried across the board.

So we don't really change dramatically in these marketplaces.

The change that we did see is the change in administration, as Mike said.

When we're going to have a change anyhow, but the bias has changed quite a bit.

And quite frankly, our customers were fatigued with having a negative bias and they have a positive bias today and we see great growth going forward.

So the reality of it is, is our inventory is very well maintained and we're consistent about how we approach it, and as you well know, we're principally supplied domestically.

There are some new players on the block, on the supply side, that have come on board.

There is some revitalized facilities that have come on board, and then there is some domestic manufacturers who aren't doing so well.

In that market basket, we're very satisfied with our vendor relationships and the way that we manage those and with the inventory that we currently have.

Again, Aldo, I'll just reiterate the same thing, I just said to Phil.

We are really focused on inventory management at all of our facilities by the product that is unique to that facility and we're really on the 4.5 to 5 turn level at everywhere and it is our desire to stay in that box.

And so we have no qualms about where the market is, about our ability to stay within the 4.5 to 5 turns.

And moving on, we'll take a follow-up question from Martin Englert with Jefferies.

Can you discuss how much of your delivery freight you manage internally with the trucking fleet versus externally?

I can, Martin, David here.

We manage about anywhere between 25% and 30% of our shipments on our own fleet.

The balance of that obviously is on commercial carriers.

We're constantly measuring that and adding the appropriate vehicles, if you will, to enhance our service levels.

Okay.

Have you noted any, I guess, constraint on the external supply for transportation or I guess, the rising cost factors there, or are you think it may be more advantageous to add like more than the 25% to 30%?

Yes, I think that, I think we can add more, I think we will add more over time.

We are -- we always want to make sure that whatever we add is sustainable.

We believe it is sustainable, and we'll do that, right.

The only thing it really inhibits us on that is, everybody is wrestling match for truck drivers.

And so we have a little bit of a pause on that as that sorts out, so forth and so on.

But it certainly, distribution costs are certainly on our dashboard right upfront, Martin.

Okay, excellent.

And one last one, what's your budgeted CapEx for 2017?

The budget that we talked about last quarter is about $20 million, but I won't, (inaudible) Martin, we're not going to hit that number, just because of the timing.

I think some of the items that are in that plan will likely get spent lapping over into '18.

And we'll take another follow-up question from Phil Gibbs with KeyBanc.

Last one here is kind of a philosophical question, Michael.

How are you thinking about the sort of the import landscape, one way or the others, is it more important to you to have kind of more balanced import versus U.S. supply?

Meaning call it more market share for the domestic mills or is it more important to see sort of a cut down of fabricated products coming into the United States so your customers can make more?

Look, there is great uncertainty about where we're going to be 2 and 3 years out relative to the current administration, and different signals that we're getting around the 232, both in steel and now aluminum and maybe it will dovetail into some components, as it relates to the consideration of National Security desires.

And obviously, we're always concerned when you restrict imports of steel, that in fact steel products then come in finished form to reach to the consumer.

So what I would tell you is, and since you said it's philosophical as opposed to reality, this market is underserved by production in a general sense, we need a certain amount of imports to feed the market, a lot of it is on blooms, billets and slabs, a lot of it's for the steel mills themselves.

We're all for free and fair trade.

And therefore, we would say that when unfair trade is considered, we want the fullest extent of our laws to actually be enforced to those who choose to violate fair trade.

And moving on, let's take another follow-up question from Aldo Mazzaferro with Macquarie.

Just a couple of quick ones.

On the margins, looking at the Specialty Metal margins, gross margin percentages are below the carbon, even though, obviously, the per ton margin is much higher on the absolute dollars.

But I'm wondering, is there is some reason why stainless and aluminum distribution margins would not eventually approach carbon as that division matures, or is there some reason why you're at -- you'd stay a little below the carbon market?

No, what I would tell you, Aldo, is traditionally in the flat roll, we've seen that.

We've seen the improvement in that margin.

We expect we will continue to, as we do more on the fabrication side, that's probably going to add a little bit more to it.

But it's been traditional for our company to have the margin in stainless and aluminum be below the carbon.

Aldo, Dave Wolfort here.

Just one additional comment.

When you look at the totality of Olympic Steel, you have to consider Chicago Tube & Iron as the balancing element of the Specialty Metals.

I mean, they are 17% equal in our marketplace, and when you blend those together, you get very close to where the carbon is.

So this isn't by accident or coincidence.

So as matter of fact, Don McNeeley is here, he can comment, if you so desire on the Chicago Tube & Iron element of our business, and as you well know, both of these components now, the tubing component and our acquisition of Chicago Tube & Iron in July of '11 and then the growth of our specialty business since Andrew Greiff joined us in 2009, the manifestation of both of those now equate to 35% of our revenue.

And that's a pretty big deal, and it's evenly divided, and we expect equal growth.

You want to hear a little bit from Don?

Absolutely.

Good morning, Aldo, I think David is spot on.

I think if you step back and look at ZEUS, you look at it in terms of a portfolio theory, here they are in this very hard [soft] commodity business, if you will, and they move it upstream with value-added.

And I think I would describe them as an environment where nothing happens by accident.

So David is right on.

If you look at Andy Greiff's Specialty Metals and combine it with our long products, frankly, our market is such a niche market, we'll never be able to deliver the growth that Andy has been able to deliver for Olympic.

And Andy, probably won't have the opportunity to deliver the margins that we deliver, because of our high value-added and high engineering.

So I think if you look at them together, you've got a very strategic inclusion, now to tune of 235% of total revenue.

So I think David's comments again are spot-on, you better look at it in its totality.

Great.

That was a great explanation.

And Michael, I'd go one more.

If was at your Annual Meeting today, I can't make it unfortunately, but if I was a shareholder and I thought that Trump might reduce taxes on corporate 15%, would I be likely to expect a higher dividend, do you think?

Well, maybe an extra brownie.

No, Aldo, we said this at our board meeting yesterday.

One quarter does not make a trend.

And so we're thrilled with the direction where the market is moving, the sentiment across the board of our customers is very positive, not just positive, but very positive.

And so all of these things will lead to what we believe is the manifestation of the previous investments that we made for a better kind of outcome on our income.

All those things will be considered as we start to write -- get some sustained profitability at the levels we know we're capable of delivering.

And if that includes dividend increase, I would say it's premature at this point.

Yes, I would think from the angle of, you got 38% to 40% effective rate now and if you suddenly had a 15% or even 20% effective rate that you develop more retained earnings.

I'm wondering whether some of that retain might end up in the shareholders hands, that's all.

Well, the answer is that -- look, as a major shareholder, I'm never against it.

On the other side of the equation, I would say, Aldo, you talk to shareholders as well as I do.

And I don't find too many shareholders who actually own Olympic Steel because of their dividend.

I think they view us as a growth and value company.

We're going to show them the power of the growth, and we hope to actually now show them the value of those investments that we made in the past.

If in fact, we don't have better use for that capital as we have done in the past where we have had higher dividends and special dividends, if it is appropriate, there is no question that we are not opposed to taking that approach if it is the most desirable aspect for the use of our funds.

That concludes today's question-and-answer session.

I'd now like to turn the call back over to Mr. Siegal for any additional or closing remarks.

Yes, thanks, operator, and thanks for all the very good questions this time.

We appreciate you joining us this morning and your interest in Olympic Steel.

We certainly look forward to announcing our successful second quarter and first-half earnings.

So everybody enjoy the day.

Have a great day, everybody.

Thank you.

Once again, that does conclude today's conference.

Thank you for your participation.

You may now disconnect.