Hello, and welcome everyone to the Second Quarter Fiscal 2019 Earnings Call for Commercial Metals Company. Today's call is being recorded. After the company's remarks, we will have a question-and-answer session and we'll have a few instructions given at that time. I would like to remind all participants that during the course of today's conference call, the company will make statements that provide information other than historical information and will include expectations regarding economic conditions, effects of legislation, U.S. steel import levels, U.S. construction activity, demand for finished steel products, the company's future operations, the company's future results of operations, the ability to realize the anticipated benefits of our acquisition of certain rebar assets from Gerdau S.A., and the investment in our new micro mill in Durant, Oklahoma, and capital spending. These and other similar statements are considered forward-looking and may involve speculation and are subject to risks and uncertainties that could cause actual results to differ materially from these expectations. These statements reflect the company's beliefs based on current conditions but are subject to certain risks and uncertainties, including those that are described in the Risk Factors section of the company's latest annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Although these statements are based on management's current expectations and beliefs, CMC offers no assurance that these expectations or beliefs will prove to have been correct, and actual results may differ materially. All statements that are made as of this date, except as required by law, CMC does not assume any obligation to update, amend or clarify these statements in connection with future events, changes and assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise. Some numbers presented will be non-GAAP financial measures and reconciliations for such numbers can be found in the company's earnings release or on the company's website. Unless stated otherwise, all references made to year or quarter-end are references to the company's fiscal year or fiscal quarter. And now, for opening remarks and introductions, I would now like to turn the call over to the Chairman of the Board, President and Chief Executive Officer of Commercial Metals Company, Ms. Barbara Smith. Please go ahead.

Good morning and thank you for joining the call to review CMC’s results for the second quarter of fiscal 2019. I will begin the call with highlights for the second quarter. Mary Lindsey will then cover the quarter's financial information in more detail and I will conclude our prepared remarks with a discussion of our outlook for the second half of fiscal 2019, after which we will open the call to questions. As announced in our earnings release this morning, we reported fiscal second quarter 2019 earnings from continuing operations of $14.9 million or $0.13 per diluted share on net sales of $1.4 billion. Excluding the impact of the non-operational items such as certain integration costs, inventory step-up charges and adjustments related to new guidance associated with the Tax Cuts & Jobs Act, our adjusted earnings from continuing operations were $35 million or $0.29 per diluted share. The adjusted earnings were a strong result given normal seasonality and the significant effective weather which had a dramatic impact on shipments for the quarter. Also, as noted in our press release from yesterday, I'm pleased to report that the Board of Directors declared a quarterly cash dividend of $0.12 per share of CMC common stock for stockholders of record on April 5, 2019. The dividend will be paid on April 18, 2019; this represents CMC's 218th consecutive quarterly dividend. At CMC we pride ourselves on leading the industry and customer service, and product and process innovation supported by a team of professionals that are always looking for ways to provide value to our customers and all stakeholders. Some examples of our leadership and service and innovation include third-party industry surveys completed by Jacobson where our facilities are regularly rated in the top position. CMC pioneered what is known as the micro mill…

Thank you, Barbara, and good morning to everyone joining us on the call. As Barbara mentioned for the second quarter we reported earnings from continuing operations of $14.9 million or $0.13 per diluted share compared to earnings from continuing operations of $9.8 million or $0.08 per diluted share in the second quarter of 2018. Second quarter, 2019 results include after-tax cost of $20 million related to the acquisition, as well as adjustments related to the Tax Cuts & Jobs Act. Excluding these expenses, adjusted earnings from continuing operations were $35 million or $0.29 per diluted share. As you know, this was the first full quarter in which we own the assets we acquired from Gerdau on November 5, 2018. The acquired mills generated $22.7 million of EBITDA which includes a charge of $10.3 million related to the purchase accounting fair value step-up related to inventory we acquired at closing. Excluding this impact, the acquired mills would have earned $33 million on shipments of 391,000 tons. It should be noted that the product mix of rebar and wire rod of the acquired facilities results in a lower metal margin than our existing mills as our existing mills also produced higher margin merchant bar products. This metal margin difference is approximately $10 to $15 per ton. In addition, the EBITDA per ton for the acquired mills is further reduced by $20 to $30 per ton compared to our existing facilities due to the higher energy costs and lower utilization rates, we plan to reduce this gap over time. The acquired fabrication facilities had an EBITDA loss of $12.7 million. This loss was driven by a backlog of fixed price contracts that originated prior to the acquisition and before the sharp rise in rebar prices that occurred last year. This loss does not…

Thank you, Mary. Our third quarter is typically a strong shipment quarter, due to the ramp up of construction activity across our markets. Customer's sentiment, is very bullish in both Poland and the U.S., which is supported by our own healthy internal backlog. We expect strong and relatively stable metal margins to remain in place for the balance of the fiscal year. On the manufacturing cost side, we do not anticipate significant inflationary pressures from the current levels and expect higher production levels in the coming months will help decrease our costs. We are also confident that we have a cycle through much of our older fixed price fabricating backlog and anticipate the fabrication segment showing substantial improvement in their results during our fiscal third and fourth quarters. During the second half of the year, we will be focused on continuing to leverage our expanded platform of steel making and fabrication assets and delivering on our synergy expectations. I look forward to updating you next quarter on our progress. I'd like to close my remarks by saying that we are confident in our outlook and the ability to create value for our shareholders. Our team of employees have successfully executed many facets of our strategic plan. We believe our leading customer service approach coupled with our strong market position and investments made in bringing innovative solutions to our business, have positioned the company for continued success. Thank you. And at this time, we will now open the call to question.

[Operator Instructions] And today's first question will be Matthew Korn with Goldman Sachs. Please go ahead.

Good morning, Barbara. Good morning, Mary. So, Barbara there at the end, you offered -- It sounded like a pretty optimistic view and anticipation of volumes into the next quarter. Can you quantify that in any way? You know, should legacy shipments look more like last year cluster ranch? Should we still continue or continue to ramp up at the GGB mills over the remaining of the year?

Yes, we're early in the quarter, but according to our forecast, I think you're looking at it from the right perspective, Matthew. I think we will certainly see shipments be higher than this previous quarter, which of course, was affected by weather and holidays. And then we look forward to our newly acquired assets, seeing a normal seasonal pickup as well

Over in Poland, how have the order rates looked for you now that we've got the safe guards in place? Have you seen some measurable improvement there?

Yes, I think things that firmed up there. They're looking forward to a strong back half of the year, just like we're expecting here in the U.S.

And then last for you, Mary. I believe I heard you say that you expect costs on the mills segment to fall from the 2Q levels by about 5% to 8% remainder of the year. Correct me if I'm wrong. I want to know. Should I understand that to mean essentially per ton costs x scrap should fall by that amount?

Yes.

Okay. And so then American Mills only or will Poland, do you believe follow a similar trend as the volumes ramp there too?

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

And our next question today will be Martin Englert with Jefferies. Please go ahead.

Good morning, everyone. Any implications into fiscal 3Q, given the poor weather? Is this resulting in any pent-up demand that's being pushed into the quarter? Or conversely, do you think it may inhibit some of the volumes for mills and fabrication?

At this point we don't see it inhibiting volumes. I think we'll see how the weather evolves. I know that I spoke to someone yesterday and they said New York had not decided that it was spring yet. We'll be going up there shortly. So, I think we're at the end of the winter weather and assuming sunny days like we're having here this week in the Texas region, we expect nice shipment levels. It's hard to see a substantial increase or I'll call it pickup in that volume. You'll see a little bit, but there's only a certain pace that they can place this deal. But given the fact that it's been so wet, everybody's going to be anxious to keep these projects moving when the weather is nice.

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

Martin, I would note that there were -- the second quarter was a particularly difficult quarter for fabrication. And I know we've said that in a few more recent prior quarters, but as I alluded to in my scripted comments, in addition to the fact that we continue to run out, there's very, very low-priced backlog. We did have an opportunity in the second quarter to resolve some particularly difficult and troublesome jobs in the fabrication business. These were one-time adjustments related to some very difficult jobs. And as we move forward into the third quarter and fourth quarter, we are quite confident that we are going to return to break-even in the third quarter and to profitability as we move into the fourth quarter. And I would caution that that is related to the CMC historic operations. You know, the pricing levels in the Gerdau operations were lower than CMC. And so we're going to continue to kind of run that out through the balance of the next three quarters of course, offset by this amortization of the liability that we booked as part of the purchase accounting.

If I can further add to Mary's commentary, just as a reminder, I mean we're really talking about backlog that was a contracted pre 232 and as everyone knows that, there was substantial raw material price increases from about January, February, last year through May and it's really unprecedented. And we had to meet our obligations under these pre 232 to fab contracts. But overall, it's been a really positive thing for the business. Now we're going to be moving into a period where we're going to be executing on contracts that are what I'll term post 232 fabrication contracts. And so, we should see substantial improvements going forward, assuming relatively stable rebar prices.

Okay. So, what it sounds like at a segment level for the fabrication group with legacy CMC in Gerdau assets is likely some type of modest ongoing losses in fiscal 3Q and then something break-even or better in fiscal 4Q?

That's correct.

And the next question or today will be Chris Terry with Deutsche Bank. Please go ahead.

Hi, Barbara and Mary. Thanks for taking my questions. The first one just relates to the Gerdau acquisitions and the timing I guess to close the gap on the margins. I think it was around $40 for a short time difference on an EBITDA per ton level between your existing assets in Gerdau. You mentioned some of the factors earlier in your prepared remarks, but just wondering on the timing and how you go about closing that gap and whether you think you can get that back in line with your existing assets. Thank you.

Yes, I think as I commented when my made my remarks around the synergies, we've already identified $30 million of the $40 million and we are executing on capturing that. Now, it's going to trickle in over time. Some won't actually hit the bottom line until say fiscal 2020, but we have a line of sight and we're executing on that. And based on our early work, we're highly confident in the $40 million. And we believe we can in time exceed that. The other benefit of the combination is some additional CapEx investment in these facilities where the investment over the last period of time has been rather anemic. Again, we've started those activities as well and that will carry on for the balance certainly of this fiscal year. And then we'll reevaluate projects that make sense going forward to bring those operations up to our standard. Having said all that, we have a mix of mills. There are geographic differences in things like energy rates. We also in our mix of operations have two state of the art micro mills and it will be difficult to bring even our existing operations to that state-of-the-art level. But the combined mix of our operations, we're highly confident that we can close most of that gap. And our objective is to make profits and we're about getting after that. Overhead is another area that we will get a benefit. And we saw a little bit of that in this past quarter. This was a carve out type of acquisition and we did not acquire a lot of overhead. And we're absorbing most of the activity with our existing base of overhead structure.

One other thing I would mention that was a really important accomplishment in the second quarter is that we have now put all of the Gerdau assets onto our SAP system. And this was accomplished frankly, a couple of quarters ahead of schedule and this allows the operators and the people in the business responsible for balancing production and shipments to see all of their assets now on system. And this was a really good accomplishment and certainly help them going forward with the important work of integrating these notes into the existing CMC environment.

And then my next question just relates to the pricing environment. You've announced the $20 per ton price increase. How's that been accepted? Is that process sticking customers now paying that price?

We generally would not make specific comments around pricing, I think that would be appropriate. I think what I would say is as all of you know, the hot roll side of the steel industry has seen some margin erosion in the more recent period. And we're frankly not seeing that as reflected in our metal margin quarter-to-quarter and even in face of lighter shipments and declining scrap prices in January, we saw the margins hold firm. And so, we think that there are different dynamics between the flat roll markets and in the long products markets. And we think that's a really strong indicator going forward for the back half of the year.

Thanks, Barbara. The last one from me just relates to CapEx. First half you spent a little under $70 million. I think I heard the new guidance, the CapEx at $172 to $225. So heavier spending in the second half year. Can you just talk through the projects? Any key projects over than the Poland expansion?

That's probably the one that stands out and the spending on that has not evolved as quickly as we originally saw it in the original -- in our first half. We as a reminder, do have the second spooler that'll be coming online in Arizona, we'll be commissioning that shortly. So that was another major project for this fiscal year and as I said, it's going to begin commissioning. So, a lot of that activity is behind us. But don't forget, we are now starting to implement our plans, our capital plans as it relates to the newly acquired facilities. So, that's another reason why you're going to see higher spending levels in the back half of the year.

And the next question today will be Timna Tanners with Bank of America Merrill Lynch, please go ahead.

Hey, good morning, ladies. How are you? I just wanted to ask a follow-up on the pricing mechanism for the fab business. I'm just trying to understand. So, when the next contracts are being negotiated as these ones are all off and more attractive ones can be negotiated. Did they just take the prevailing rebar price and have like a fixed increase to that irrespective of what happens to the underlying rebar price of the duration of the contract? Like, if Section 232 were to change or be adjusted somehow, whether that be trickier overall? Would they still be locked in to a fixed price off of the prevailing price when they negotiate the contract?

There are many, many different pricing mechanisms depending on the type of project and there are many different types of projects from DoT work to commercial buildings to industrial types of construction site; so there is no one specific formula Timna, but generally speaking, the owner of a project -- they want to have a pretty firm idea of what their total construction cost is going to be and that's generally entered into at the time that the contract is signed, and then you perform against that. And so you're talking about a whole portfolio of projects all with different durations, anywhere from 3 months to 6 months to 3 years with many different pricing mechanisms, there are some case escalators and other provisions for inflationary types of pressures that we all see. But generally there is a known amount that is for the duration of the project and then you deal with the exceptions, whether it's through change orders that are design changes to the project or these other mechanisms.

I'm just wondering if both sides might want to adjust the contract terms to have a little more variability in your case because of your recent experience with the change in underlying price. And then the customers version, maybe they want to make sure that they are protected in case prices fall. But you're saying there is a bias towards having a fixed price generally and that probably doesn't change you think?

Yes, I think generally speaking that's been the norm in the industry. And keep in mind, Timna, that the steel component of the project is generally less than 10% of the overall cost for the project. And while as we know, there can be significant fluctuations in the raw material price on delivering that. So like I said, the owners are more interested in knowing what's my total cost is going to be and they are not as sensitive to this rebar is at $700 a ton or it's at a lower level.

And then just my other question was just -- and I apologize if I missed it when Mary was going through. But on the SG&A decline, is that a good run rate? Is there a reason for that? And then, also did you quantify the impact you think weather had on the quarter just to get a sense of that?

The corporate run rate, I would suggest it's going to be roughly $24 million a quarter and that does include some integration and acquisition cost that we will continue to call out if we go through the remaining couple of quarters of the year but I think that is a good run rate. And what was the other question on the weather?

I was actually asking about SG&A but that was really helpful as well. And then, if you quantify the weather? Thanks.

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

And our next questioner today will be Chris [ph] with Longbow Research.

Just a question, I'm not sure if you mentioned it during the presentations but -- how do we think about the flooding in the Mississippi river and some of the issues with the barge; does that impacted your thinking at all?

It's going to impact others more so than us, it's really not going to have much impact to us.

I guess I wanted to get your thoughts too in terms of the uncertainty with the new NAFTA trade agreement. And I guess, are you seeing any type of customer hesitancy to purchase materials or build inventories until we see whether or not the final agreement contains changes to the tariff structure with Canada and Mexico? And then, tying to that do you have any views on how this will play out?

We don't see the pattern changes from our customers, they tend to be more sensitive to looking at raw material price changes, and so we haven't really seen anything in that regard. I wouldn't want to make a prediction on how this plays out or the timing; obviously, we follow it carefully and we're tangentially involved in providing input into the process but it's been going on a long time and I wouldn't want to make any predictions.

What about in terms of just what you would like to see happen if it was a volume -- kind of quota system instead, would you see that as a positive/negative; any thoughts there?

Well, certainly we're supportive of a resolution here and I think that from our perspective we'd like to see some sort of quota associated with it.

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

Look, I'm not going to comment any further, it's complicated I think. There are a number of different ways to solve but we just want a fair and level playing field, we know we're low cost and we can compete if we have a fair and level playing field. And I think that's consistent with the objectives of this administration.

[Operator Instructions] And the next questioner will be Curt Woodworth with Credit Suisse.

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

I think we've been consistently saying that we would spend about $200 million to $250 million over the next 5 years. And our view really hasn't changed after 4 months of ownership. I'm not -- I wouldn't for proprietary reasons get into the details of those improvement projects. There is not -- I would call it a major maintenance need until 4 or 5 years out, and when I say major maintenance need, I mean it would be a rebuild of a major component of one of these operations. But there are whole host of smaller improvement projects that will yield some nice dividend to each of these operations, we're moving forward with those. But if you look at the amount of capacity that we acquired, that level of investment is probably a good sustaining level. And as we know more about any sort of major maintenance that may be needed, we always alert the market if there is a furnished rebuild or something like that coming out but we don't see anything in the near-term.

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

Did not, and again, for proprietary reasons we would prefer not to.

All right, that's all I had. Thank you.

Maybe, I'll further add on Oklahoma. I mean, it is ramping up exactly according to our expectations, I'm not withholding that information to suggest that there is anything different than what we originally indicated to the market. When we began that project, I would further say that our hot spooled rebar has received great receptivity in the marketplace and we've had a really nice ramp up with that product at Oklahoma as well.

At this time, there appear to be no further questions. Ms. Smith, I'd like to turn the call back over to you.

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

And this will conclude today's Commercial Metals Company conference call. You may now disconnect your lines.