Greetings, and welcome to the Reliance Steel & Aluminum Company Second Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Brenda Miyamoto, Investor Relations for Reliance Steel. Thank you. You may begin.

Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss our second quarter 2014 financial results. I'm joined by David Hannah, our Chairman and CEO; Gregg Mollins, our President and COO; and Karla Lewis, our Executive Vice President and CFO. Today, we are also joined by 2 of our Senior Vice Presidents of Operations: Jim Hoffman and Bill Sales. The recording of this call will be posted on the Investor section of our website at investors.rsac.com. The press release and the information on this call contain certain forward-looking statements which are based on a number of assumptions that are subject to change and involve known and unknown risks, uncertainties or other factors, which may not be under the company's control, which may cause the actual results, performance or achievement of the company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include, but are not limited to, those factors disclosed in the company's annual report on Form 10-K under the caption Risk Factors and other reports filed with the Securities and Exchange Commission. The press release and the information on this call speak only as of today's date, and the company disclaims any duty to update the information provided therein and herein. I will now turn the call over to David Hannah, Chairman and CEO of Reliance.

Good morning, everyone, and thank you for joining us today. In general, we were pleased with our performance for the quarter. Sales for the 2014 second quarter were a record at $2.62 billion, up 2.5% from the 2014 first quarter. Net income increased 11% from the previous quarter. The overall pricing environment in the second quarter continued to improve in line with our expectations as evidenced by a 1.8% increase in our average selling price per ton sold compared to the prior quarter, driven by strength in most major commodity types, including most notably, stainless steel products. Carbon steel pricing, except for plate products, lost a little momentum late in the quarter but still remained higher than in the previous quarter. And although aluminum prices showed some improvement in the quarter, our average selling price for aluminum decreased from the first quarter due to mix. Overall, pricing has now increased sequentially for 2 quarters in a row for the first time since 2011. While we're pleased with this trend and believe it bodes well for our business, the average selling price per ton sold is still slightly below levels from the same quarter last year and down 4.5% from the first 6 months of 2014 compared to the same period in 2013. The improved metals pricing environment during the second quarter allowed us to modestly enhance our gross profit margins. The impact of improved gross profit margins and higher selling prices is seen in our 14% increase in operating income and 15% increase in pretax income as reported in the second quarter of 2014 compared to the first quarter of 2014. Demand during the quarter was below our expectations. On a sequential quarter basis, tons sold were up only 0.5% compared to the first quarter of 2014. Although there was…

Thank you, Dave, and good morning. We were pleased with our performance in the second quarter but anticipated more of an uptick in demand than what actually occurred. Tons sold were flat as compared to first quarter, and pricing was up 1.8%. June's average daily sales were the highest this year, and the highest in quite some time. This is encouraging, and we are optimistic this average daily sales improvement trend will continue. FIFO gross profit margins improved slightly to 25.9% from 25.5% in the first quarter. The supply and availability of imports is putting downward pressure on pricing, and all of us are proud to see our managers in the field exercise the discipline needed to maintain and actually improve their margins in this competitive environment. We feel good about our inventory position with inventory turn year-to-date at 4.6x in tons. Our goal was 5 turns, and we expect improvement in the second half of the year. From an end market perspective, automotive, serviced mainly through our toll processing operations in the U.S. and Mexico, is very strong, and we believe this will continue. Aerospace continues to remain relatively strong, and we expect demand to improve as the year progresses. Overall build rates in the commercial airline segment continue to grow and the future here looks bright. Energy, that being oil and natural gas, is doing quite well, and we have a strong position in that market. We expect demand and pricing to improve in the second half of 2014 and in 2015. Heavy industries, such as railcar, truck trailer, shipbuilding, barge and tank manufacturers, wind and transmission towers, and bridge fabrication are strong. Agricultural and construction equipment makers are still quite busy, and we have a good position in these markets. Nonresidential construction continues on its path of…

Thanks, Gregg, and good morning, everyone. Our record 2014 second quarter sales of $2.62 billion included an 8.2% increase in tons sold and 0.9% decrease in our average selling price compared to the 2013 second quarter. Compared to the 2014 first quarter, our sales were up 2.5%, with a 0.5% increase in tons sold and a 1.8% increase in our average selling price. Our 2014 second quarter same-store sales of $2.14 billion, which exclude the sales of our 2013 acquisitions, were up 4.5% compared to the 2013 second quarter with a 4.6% increase in tons sold and a 0.3% increase in our average selling price. Same-store sales compared to the 2014 first quarter were up 2.6% with a 0.1% increase in tons sold and a 2.2% increase in our average selling price. Our gross profit margin of 25.7% for the 2014 second quarter was up from 25.4% in both the 2013 second quarter and the 2014 first quarter. The increase was primarily due to our focus on higher gross profit margin business as opposed to increasing tons as well as our ability to passthrough metal price increases to our customers at/or prior to receiving the higher-cost metals into our inventory. Our LIFO adjustment for the 2014 second quarter was a charge or expense of $5 million or negative $0.04 per share, which was the same as the 2014 first quarter. In the 2013 second quarter, our LIFO adjustment was a credit or income of $5 million or a benefit of $0.04 per share. Our current estimate of our full year 2014 LIFO adjustment remains unchanged as a charge or expense of $20 million. Metals prices have generally improved from the beginning of the year, and although we expect prices to fluctuate modestly throughout the remainder of the year, we believe…

[Operator Instructions] Our first question comes from Luke Folta with Jefferies.

Interesting comments on the oil and gas side of your business in terms of seeing nice demand improvements throughout the course of the year, but then you also said you're seeing pricing improvement this year and then even into '15. Can you maybe be more specific on what products you're talking about?

Yes, sure. This is Jim Hoffman. Most of it will -- we anticipate come from heavy SBQ bar and heavy structural tubing and what have you.

Okay. And you have visibility on '15 on this, already?

We have, I mean, we get positive comments from our customers and usually, when we have pent-up demand with cash, they have a tendency to spend it further in advance. When you're drilling new oil rigs, what have you, it's planned far in advance, particularly, offshore and the tracking and what have you. So we have a pretty good look into the future.

Okay. And then, I guess, secondly, just in the CapEx budget for this year. You mentioned that, Karla, there's a lot of others -- a good portion of that is growth projects. Can you maybe just give more color on what you're doing their specifically?

Yes, we're expanding plants and we're also -- we just acquired a new facility in Philadelphia that we're moving a couple of our locations into. We're spending quite a bit of money on laser projects, cut-to-length lines, a lot of burning machines, so just keeping state-of-the-art equipment out into the field so we can provide the highest level of quality for our customer base and, hopefully, be able to improve our margins because of that quality. Just a lot of equipment and some buildings.

Yes, unlike maybe the last few years, we've had some building projects where we were acquiring buildings that we had under lease with options to buy, and I think it's more related to actual equipment purchases now.

Yes, definitely over the last years as Dave just mentioned, there was quite a few leases that we had through the PNA group in particular. We bought out those leases over the last few years. This is much more equipment related rather than building.

We have opened a few facilities, one in Ohio, one in Turkey that we mentioned in the comments, but it is primarily equipment.

And we're opening up an operation in the Arkansas area, and so we're just -- it's mostly equipment related.

Okay, and when you think about how that impacts the model, I mean, is -- can you maybe more color on which markets you're going to -- is this value-added stuff you're kind of moving into certain areas you can guide us to? Or how should we think about the impact of this investment?

I mean, it's pretty broad-based from where we're deploying all the different pieces of equipment, so it's incremental revenue and margin pickup. Certainly, the more that we can do for our customers, the higher level of value add we can do. We would expect to get paid for that and get the margins on that. So you'll see that. It's kind of broad-based, though. It's hard to pinpoint the revenue side directly. Certainly, there'll be some increase in depreciation expense as you've seen as we spent for the CapEx.

It is broad, like Karla said, we've got -- it ranges from an aerospace expansion in Turkey, which tends to be higher margin type business all the way to our new structural facility, good-sized new structural facility in Ohio. So it is broad based.

Our next question comes from Matt Murphy with UBS.

Was just wondering if you could expand a little bit where you talked about maybe you're seeing some changed buying patterns in your customers. Any idea what the split is between customers who might be looking at imports versus those just -- you talked about the market uncertainty influencing buying behavior?

Matt, this is Dave. In general, and then if these guys have some more specific comments, they can make them, but in general, our customer base is made up of a lot of smaller spot-type buyers. We buy them in spot primarily, and we sell them in spot. It's not 100%, but that's the majority of our business. We focused on smaller customers, higher-margin business, quick turnaround orders. Just under, what, half of our orders are customers that call us today and want material tomorrow. And they tend to be smaller -- smaller-size orders. So it's hard to know -- those aren't the kinds of people that buy import material because there's a long lead time for import material. Certainly, we do have other customers in aerospace and in oil and gas and other areas that will buy larger quantities farther ahead. But I -- it's not the majority of our business.

But what you do see as what we've seen and talked about in other periods is, for instance, stainless prices were out there. And as those are announced and going up, some of the customers will buy a little heavier, so instead of buying 2 weeks, maybe they by 4 weeks. Same thing happens in carbon. When there is expectation of what pricing's going to do, you -- if they think it's going to go up, you might see them buying a little heavier. So we think we sell some of that in the quarter. And then with the comment on imports, because we don't buy very much import material and we really focus on gross profit margins and enhancing that on the service side of the orders, we're not the person to -- for customers to come to when they want cheap material. And so you get that from the imports. That's not really -- that's not Reliance's bread and butter. And because of the wide spread on the import prices now and that -- and a lot of import coming into the market, there might be some customers going after the lower prices right now.

And on the flat-rolled side, in particular, on the carbon side, there's been so much uncertainty in that through the years, okay? So when they hear of a price increase, okay, there's a lot of our customers that question whether or not that's really going to hold or not because, like last year, there was a number of price increases that were announced. I think 13 in total, and none of them stock. So everybody's a little bit skeptical as to whether those prices are going to hold or not. So they just hold back their purchases as long as they possibly can until they can determine whether or not those pricing increases really have held or not. So we think that some of those flat-rolled customers of ours were being ultra conservative because of their skepticism on whether or not the prices would hold or not.

Got it. Okay. Thanks. And then just on your guidance, you mentioned you expect demand to continue to improve, pricing stable, but guidance basically, if I take the average, implying flat quarter-over-quarter. So what is it that keeps you from being a little more optimistic? Is it changes in mix or just demand growth not quite being high enough?

Yes, I think, first off and Karla can mention maybe some more specifics, but the third quarter, typically, is down from the second quarter. I mean, the pattern is first quarter is okay, second quarter is usually much better than the first quarter, historically. This year, from a volume standpoint, it was not. But from an income standpoint, it was actually pretty good. We felt pretty good that our net income was up 9%, 10% compared to the prior quarter on a 2.5% increase in revenues. So that was positive. The top of our range in our guidance, we were pretty aggressive in the top of the range, and we felt pretty good 3 months ago because we saw the volumes improved substantially in the first quarter. Our volumes -- in the industry, the volumes went up substantially in the first quarter, certainly over the fourth quarter. But our volumes here at Reliance went up quite a bit more than the industry's averages. So we were feeling, probably and with hindsight obviously, more optimistic than we should have been feeling at that time, so we plugged in to get to the top of the range some pretty good volume improvements. I think it was 5% or better. On the pricing side, we were pretty close to what we anticipated so...

Yes, so I think, it basically, we're -- given our volume growth of only 0.5 of the percentage point in the second quarter over the first quarter when we had anticipated more, we're a little more cautious going from Q2 to Q3. We do expect volume to improve more than the 0.5% that we saw Q2 versus Q1, but we're probably a little hesitant to be overly aggressive again this quarter.

Our next question comes from Nathan Littlewood with Crédit Suisse. Gayle B. Podurgiel - Crédit Suisse AG, Research Division: This is actually Gayle Podurgiel in for Nathan. And my question is also about some of the product volumes and underlying factors for the product volumes. Specifically on the carbon tons, we had expected that the weather roll-off would result in higher volumes in Q2. Is that not the case? Or was there some of a timing role issue here, where we might see some weather-related volume-type stuff trickling through in Q3?

The weather for us, Gayle, was not a factor in the first quarter. We commented on it then that for our business -- and also the fact that Reliance has spread out across the country, so did we have some operations that were impacted by the weather in the first quarter? Yes. But it was a very small number in relation to the total number of facilities that we have. So I think our comments at the end of the first quarter were, sure, we probably had some higher expenses because we continued to pay people and we had trucking issues and those kinds of things. But in terms of volumes shipped, if we don't ship it today, then we're probably going to ship it at the end of the week or early next week. So it was not a big factor for us. And that's kind of how we stated it at the end of the first quarter. So there was really no rebound or adjustment or expenses to fall off of any significance in the second quarter compared to the first quarter.

I think it's fair to say that the weather conditions in the first quarter affected the mills much more than it affected distribution. So and that got all the press. As far as we were concerned, I'm not going say it was a nonevent, but we can get through it, and like Dave just said, we're shipping -- not shipping on Monday, we're probably shipping on Wednesday.

So yes, I agree. I think the mill impact or the impact on the mills was far more important and significant than us. And if you were a service center that only had operations in the impacted areas, then certainly, it was a bigger deal for you. But that's not the case with us. Gayle B. Podurgiel - Crédit Suisse AG, Research Division: Okay. So maybe, are there other factors that kind of contributed to what's going on with volumes then that's beyond -- some of the customer may be delaying purchases on the pricing issues and the imports that you guys have already discussed. So there are additional items in there?

Well, I think you mentioned an important one there on imports. That's a pretty big factor, and it's not just carbon. Most of the time people think a lot about carbon imports but, common alloy aluminum, 6061, aluminum products is heavily influenced by imports now. And certainly, carbon imports are at the highest levels, Gregg, since they've been in some products, historically.

Yes.

And the share of the apparent demand is up into the mid to high 30s, where historically, imports are down in the mid 20s. So it is taking a pretty significant piece. But from a volume standpoint, we were disappointed with our volumes, but at the same time, we were happy with our performance. It's a tough market out there. Things have not recovered in a way that we would say the industrial economy is booming. The biggest piece, and we've said this now for quite a few quarters, is certainly nonres. And we've had some spotty improvements. They have -- that industry, in general, has continued to improve quarter-by-quarter, but we really haven't seen the consistency that we'd like to see yet. Is it out there? Yes, we believe it is out there because we have been seeing more order activity. We've -- and that's true activity. It's not inquiries. It's our order book is better than it has been, and that's improved slightly quarter-over-quarter. Pricing has been reasonable even though, I think, we have some softness later in the second quarter.

We had a little softness in particular on the flat-rolled side and carbon steel. That had an impact with customers who were holding back their orders, like we said earlier. But overall, June average daily sales was the best average daily sales we've had all year long. That had something to do with pricing, okay, improvement, but it also had something to do with volume. And it was also the best average daily sales month we've had in quite some time. So we're encouraged by that. We're having our midyear managers meeting next week, but the conversations that the 3 of us -- Jim, Bill and I -- have had with our people in the field, it appears as though that the momentum that we've experienced in June, okay, is carrying forward into July, which is encouraging. So we're not painting a picture that it's going to be the greatest thing in the world, but at the same time, we're looking to see that there's some improvement. It was shocking to us, very honestly, that the volume in the second quarter over the first quarter was lackluster.

Yes, I think also, Gayle, a factor for Reliance, we talked about the competitive pressures out there, which -- with the import levels, we think the competitive pressures are enhanced. And Reliance's model has always been to focus more on maintaining and improving our gross profit margins as opposed to picking up volume or market share. And so our people in the field are focused on that gross profit margin more than volume. So we probably could've had a higher volume improvement, but our gross profit margins would've suffered. So that's kind of the way we direct the people in the field to manage margin.

To add to that, Karla, if we would had, had that volume improvement and decreased our margins, we probably would've increased our expenses.

So you end up making less money at the bottom, which is -- it's a fine line that we try to balance, but our message is always consistent, and that's maximize your gross profit margins, control your expenses and manage your inventories, so...

Our next question comes from Timna Tanners with Bank of America.

Well, now I feel bad because I was going to ask you more about why volumes were flat, and you just told me that you were shocked by it, so I guess we're in the same boat here. But I just wanted to try to understand a little bit better. I know it's unfair and you hate it, probably, but MSCI volumes were -- shipments were up 5% quarter-over-quarter. And everything you said about demand sounded solid if not -- not as dynamic as you'd like. So, and I understand passing on business that is uncompetitive, but it still doesn't add up. I mean, do you think you're losing market share because you don't import? Do you think that there's businesses that you've been in that somehow weren't up as much as others? In general, on aluminum and stainless in particular, we were expecting a lot more volumes, so wondering if you could help out on some thoughts there.

I wish we could, Timna. I will tell you this that the MSCI numbers are heavily influenced by carbon flat-roll. And as you know, as a percentage of our total business, carbon flat-roll is not that big. So, and of course, the carbon flat-roll tons and volumes are being positively impacted by the auto industry more than probably anything else. So we do look at that. We get into the byproduct numbers and analyze it. We sometimes get puzzled. One year ago, we were puzzled that our volumes were up so far above what was being reported by the industry. And this year, it seems to be the opposite. So we're still trying to figure that out, but we do know that the carbon flat-roll has a pretty big impact on it. Also, aluminum common alloy flat-roll has a pretty big impact on the aluminum numbers. And -- so that's a product where, I mean, certainly, we sell a fair amount of common alloy aluminum flat-roll, but our mix is more heavily weighted on heat treat. And so that is certainly something. And then when you look at where we are on a year-to-date basis, I think the MSCI is up 4.2% for -- that includes stainless and carbon products. And we are at 6.5% same-store. So we still think we're gaining some market share, and as Karla mentioned, we could ramp -- run up the tons, ad as Gregg mentioned, when we do that, expenses run up and usually, we're not in as good a place as we are now or we would be. So we do look at some of the components of the carbon steel on a year-to-date basis. As I mentioned, we're up 6.5% in our -- in just our carbon products. And then MSCI, excluding stainless, is up 4.0%, I believe and 4.2%, including stainless. When we look at flat-roll, and I'll give these to you, usually we don't put these out, but our flat-roll tons -- this is 6 months this year, we're up 7.4%. MSCI reported numbers were 4.8%. Carbon bars, we're up 7.4%, MSCI was up 1%. Carbon structurals, we're up 6.2%, MSCI up 0.4%. Plate, up 8% for us, 4.3% on the industry year-to-date. And pipe and tube, we're up 2.9% compared to the reported numbers at 2.4%. So we do have a look at that. It's important to us to see what it is. But very honestly, sometimes we don't know what drives some of the prices, and we've been surprised on the downside, and we've been surprised on the upside. We do know, as I mentioned earlier, that the flat-roll and both aluminum and -- common alloy aluminum and in carbon can make a big difference.

Timna, it's also important for you to know that for the first half of the year, our stainless flat-roll was up double digit. And this is the third year in a row that our stainless flat-roll is up double digit. Okay? And I'm not saying that the reason for that is completely, totally demand-related because we've opened facilities, we've added equipment, we've add -- opened and built a facility in Rockford, Illinois, in Connecticut, also in Arkansas, in Ohio. So I mean, we're opening up facilities so Bill, would you say that this -- our stainless steel market share double-digit growth is above and beyond?

Above and beyond, but demand is good. I mean, we're seeing that, all the lead times from the mills are out. We've seen price strength in stainless, and that's been really a bright spot for us.

And, Timna, our stainless in the second quarter versus first quarter was up 5%, so it's in line with what the MSCI saw. That's overall stainless products, not just the flat-roll that Gregg was talking about. And we also, we did see a decrease in volume on our alloy products, but we spoke to that on the first quarter that we see more OCTG, which falls into our alloy product category. Seasonally, that -- we sell that in Western Canada in the first quarter of the year, a majority of it. So that had our tons up more than usual because of the mix in the first quarter. So they came down a bit, which is in line with our expectations but very specific to our particular product mix in that product category.

Okay, so just 2 specific follow-ups then. Would you say that talking to your folks on the ground that you aren't losing share or that there's any risks there? And then on aluminum, are we yet to see the pricing benefit from what's happening on ingot? Or are you saying that you're kind of independent from what's happening with the ingot price?

I think it's fair to say that in no way shape or form do we feel like we're losing market share in any part of the country. I have not heard one word nor have the 2 guys next to me, about any concern from any of our people in the field that they're losing market share. In the aluminum...

Yes the aluminum side, I think, we still have some price improvement to be gained as we -- if ingot Midwest spot stays where it is. And so I think there's some upside potential there. But we also have seen in heat treat, like in the 6061 plate product, those price increases did stick. And there's one that was just announced. And it looks like it's going to have support in the market. So the higher Midwest or higher ingot prices, I think, will draw prices higher. And I think we still are yet to see some of that, specifically on the common alloy and the products that are conversion based.

But we're also facing the imports.

We are. Absolutely.

Pretty big spread, isn't there?

It is, and common alloy is a big spread; $0.20 a pound for the West Coast.

Our next question comes from Phil Gibbs with KeyBanc Capital.

My question was sort of in line with Timna's, but it was more on the pricing guidance being flattish sequentially. And with the upshot in nickel and stainless pricing, and aluminum pricing and carbon pricing largely holding, is that just your team being conservative at this point? Because it seems like your volumes are moving in the right direction per your earlier comments.

I think we're certainly conscious of what's going on, on the raw material side with respect to carbon steel. So it's -- unless demand really does kick in, in a bigger way than it is right now and that means nonres, I would say. Right, Gregg?

Right.

That the pricing levels are always subject to uncertainty simply because if raw materials are going down and if scrap's going sideways or down a little bit, it just makes it difficult to anticipate what really will happen in pricing. So as a result, will pricing change over the next few months? Yes, it will change. But whether it goes up a little bit or goes down a little bit is probably on the carbon side. It's not going to have a significant impact.

And we really talked about pricing remaining relatively stable with current levels, not the average for this quarter. So there was some runup on certain products during in the quarter. And also, remember, in the Reliance model with our small order sizes that Dave talked about earlier in our next-day delivery, we've always -- we don't get this with all customers, but we do try to get the price increases when they're announced. So we already reflect -- we've reflected probably some of the price upside in our numbers earlier than you might expect.

Right [indiscernible]. Common alloy, as an example, is one of those areas with ingot moving up, we'll see higher prices. But that's still a very, very small part of our overall mix. So you're not going to see much of an impact from that -- very competitive.

Okay. I just had a follow-up on the freight environment. Did you see a lot of those impacts in the second quarter? I mean, I just think the SG&A side was a little bit ahead of where I was looking for, but maybe it wasn't out of line what you were looking for. So I'm just trying to reconcile the difference.

Yes, so I don't think that freight was really an impact for us. We, for the most part, run our own fleet of trucks. So we've been able to still deliver to our customers on a normal basis the way we always do. Costs there haven't increased other than just the normal rates. And I think on the cost side, I think we were, overall, happy with what we saw there. We were only up 4.4% from the second quarter of last year on an 8.2% increase in volume compared to that period. So we think that demonstrates that we've got the cost structure in place as we've been saying to absorb more volume. So we think we saw that. And as a percent of sales, we're still not where we would like to be, but our volumes didn't come up that much either. So certainly, if our volumes would've been higher, I think as a percent of sales, you would've seen us trend down lower. We did trend down somewhat, but not -- we could've gone down lower with more volume.

Our next question comes from Aldo Mazzaferro with Macquarie.

I was wondering if I could just beat the dead horse on shipments a little bit more. And you said the June daily shipments were highest of the year. I would bet that's probably a seasonal pattern that's not unusual. But I'm wondering -- you said July is going well now. Is July running at a rate that it might actually cede June in terms of daily shipments?

We don't know yet. We were encouraged, as Gregg mentioned earlier, we were encouraged by June because June -- that was a little abnormal in June. And I think if -- going back to MSCI-reported numbers, the tons per day in June were down like 1. -- I don't have it in front of me -- 1.6%, 1.7% and our tons per day were up about that same amount, about just under 2%. So we were encouraged with what we saw in June, but as Karla mentioned earlier, we're a little gun shy getting too encourage because of we haven't been real good, very honestly, the last couple of quarters, in our predictions. So we're trying to be a bit more conservative. But July, it seemed I think, as much as we know is it's tracking similar to June. But there's a fair amount of billing catch-up that gets done in our company at the end of the month. And I mean, it's not significant to the numbers, but it can be -- to the financial statements, but it's certainly significant to our daily shipment numbers if you look at them early in the month compared to at the very end of the month. So we don't know. I think with respect to where we are at this point of the month compared to where we were at the same point in June, we're tracking pretty much at the same spot.

And remember, in Gregg's comments about the June, it was really on the daily sales, which is a combination of both volume and pricing.

And typically, third quarter is a little bit off compared to second quarter from a historical perspective.

Aldo, there's another piece we haven't touched on, and that's shipments direct from the mills. Some of the -- when these big pipelines come out and tanks and all of these things, when they're large orders and there certainly are a lot of those out there right now, they'll go direct to the mill and the mills will ship direct to them.

Versus going to a service side.

So it just depends on what's going on the landscape, whether mills can -- if they're placing very, very, very large orders, they are going to go directly to the mills and bypass service side. And we certainly saw some of that.

Which is why they're mill lead times are out.

Mill lead times are out, and they hit 79% capacity here last week, which is extremely high from where we've been.

So Dave, can I ask a big-picture question? In terms of your acquisition intentions, I know there's still a few big companies out there that could be acquired. I'm wondering whether you still look through a strategy where you see opportunities out there on large acquisitions or whether, on the flip side of that, if you don't see them, I'm wondering whether you might consider more share buybacks?

Well, that's a good question, Aldo. We do see opportunity out there. I can't tell you that we're looking at another EMJ, PNA, Metals USA size transaction, but there are other companies out there that we're always talking to. Timing is the unknown when the privately owned and operated companies are ready to talk and actually consider an ownership change. So we keep our relationships going. There's always something that we're working on, and it varies in size. But we -- we're pretty secure in the fact that we'll continue to do acquisitions that meet our criteria going forward. And when there's a big opportunity that's attractive to us, and that's important to know, if it's attractive to us and the opportunity presents itself, then we're in a position financially, and also, from a mindset to take advantage of those. In the meantime, if the bigger ones aren't available, then we'll go ahead and consider and continue to try to acquire smaller well-run companies that, again, are attractive to us, fit our criteria and have good management teams in place. So all that being said, we're going to continue to acquire companies.

And to your -- the follow-on your question, Aldo, certainly, yes, on -- if we're in a position where we don't see opportunities out there in the near to medium term, we would look more closely at share repurchases or dividends, special dividends or other ways to return value to shareholders.

Right. Do you -- Karla, do you have an authorized plan right now to buy back shares?

We do. We've had it in place for quite some time. We haven't been active.

Since early 2008, I think, was the last time that we actually purchased some shares back. And it's a fairly good size. She's looking...

Yes, we still have just under 8 million shares authorized for repurchase under that plan.

Great. And then, Gregg, can I ask one more big-picture question? How important do you think it would be if there was a trade case on cold-rolled and galvanized?

I think it would be fantastic, okay. And I also, I think it would be prudent, okay. There's so much import coming into our country, Aldo, as you well know. And I mean, typically, there's 23% to 25% of imports coming into our country. Our production's somewhere around about 100 million tons and normally, there's another 23%, 25% that comes in from import. And it's up into the mid 30s now, which is very problematic. And I think if there was a trade case filed with that, that there would be quite a few countries that would pull back, and it would provide the domestic mills an opportunity to, a, increase their volumes, okay, although I believe that domestic flat-roll producers are running in the upward 80% range, okay, well, total is 79%, but it -- on the flat-roll, it's even higher than that. And then, that would obviously improve the pricing environment. And with the consolidation going on in -- especially the recent consolidation going on, I think we'd see even more discipline from the mills and prices would go up, and that would help us, and that would help them, and that would help the whole industry. So I would applaud a trade case in any product, period. I hope I answered your question.

Our next question comes from Phil Gibbs with KeyBanc Capital Markets.

I just had a follow-up. There's -- the railcar industry's coming out with new proposed tank car rules, essentially some changes into some of the oil and gas cars. Just wondering how big of an impact you think that may be over the next couple of years to you guys and just the industry demand.

It will have a positive impact. Basically, what they're doing is they're going to thicker shells, in particular in the tanker cars. And that's related to the answer we're talking earlier about the direct mill shipments. Those are usually very large orders and that's what's keeping the plate guys busy. Even with all the imports that are in the country right now, the plate producers are busy because of what you're talking about.

We have a pretty good position in that railcar market. And it just seems to be getting busier and busier. And so the more railcars that are produced out there, the better it is for everybody, for the mills, for us, for others. And the railcar business right now for us is very strong, and we anticipate its going to get better.

Our next question comes from John Tumazos Independent Research Corporation.

I noticed sold the roofing business. Are there any bits and pieces of other things that might generate some asset sale proceeds? The inventory turnover slipped to 4.3% this quarter. Are there any units that don't meet standard or anything like that?

With respect to any existing businesses, John, we don't have anything else that we're anticipating selling, at least at this time.

Nothing significant.

Yes, So that's -- we don't -- there's nothing planned in that regard. We do have some facilities, some underutilized or facilities that we've just -- we're not using that some of which are for sale, some of which are in the process of being sold. So there is some of that, that's out there and what was...

Inventory. I mean [indiscernible].

Inventory, we've got a ways to go on inventory. And I'm looking at the 3 guys across the table from me who really influenced that. And we've said before, John, our goal is 5 turns based upon tons, and we're at about 4.5 or 4.6. And that half a turn is important, and it represents just under $200 million of cash flow. So we will get there. I have no doubt that we will get there. I think our inventories were a little higher in this last quarter because we bought anticipating that our volumes were going to be up. As it turned out, that was a good thing. A lot of that buying was in the stainless side and stainless pricing had come up, so it turned out to be a positive influence for our margins. So there is room in inventory, and we will continue to approach our target there for getting those turns up to 5.

[Operator Instructions] Our next question comes from Andrew Lane with Morningstar.

I'm curious about how you're angling to capitalize on increased aluminum usage in the automotive industry. So first I guess, in order to service growing demands for some of those product lines, are you going to face significant upfront costs or capital outlays? And then, maybe from a big-picture perspective, if you could just comment on how meaningful this growth opportunity is likely to be for you and what preparations you're making to participate.

Well, we've -- as part of the $220 million CapEx budget that we have for this year, there are certain pieces of equipment in there that are in line to service the automotive movement, okay, in particular, in the way of aluminum. So, but as -- so there's nothing that we haven't already reported anyway, okay?

Our exposure to the auto industry, whether it's in carbon flat-roll that ends up being exposed body part material or the increase in aluminum, is really through our toll processing operations. So we don't -- a lot of that material is sold, the majority of it, actually, direct from the mills. But we do a lot of processing related to that activity.

Activity is very strong.

And that activity has been very strong, and we expect that it's going to continue to be strong. And we have had the questions about whether the shipped -- and the movement or the increase in aluminum content in the automotive industry is going to take away business from us because we're -- we process a lot of carbon steel for that, but we also are in a position, and we're spending some money, as Gregg just mentioned, to improve and put in place some new capacity to increase what we do on the aluminum side, toll processing relative to the auto industry.

The one thing that you have to keep in mind on -- toll processing, from a revenue standpoint, because they're only charging for labor, okay, it really doesn't have a significant effect on our revenue whatsoever because we're selling absolutely no metal at all. It's all labor. So even though we could increase our revenue stream by 20% or something, you wouldn't even know it.

The -- and just so you know, also, the tons that we talk about, we've been talking a lot about volume on this call, and the volume numbers that we're talking about do not include any toll-processing volumes. So those -- since we're not actually selling the metal, we do not include those volumes in our discussion. And just so you know, too, to Gregg and Bill's point earlier, with auto being so strong, our toll-processing volumes are up nicely this year compared to last year, this quarter -- this last quarter compared to the prior quarter.

There are no further questions in queue at this time. I would like to turn the call back over to Mr. David Hannah for closing comments.

Okay, great. Thanks again for your support and for participating in our call today. We would also like to remind everyone, we'll be presenting at the Jefferies Investor Conference in August and at the KeyBanc Basic Materials & Packaging Conference in September. We hope to see many of you there. Thanks, again, for your participation, and have a great day.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.