Steel Dynamics, Inc. (STLD) Q1 2013 Earnings Report, Transcript and Summary

Marlene Owen Mark D. Millett - Co-Founder, Chief Executive Officer, President and Executive Director Theresa E. Wagler - Chief Financial Officer, Chief Accounting Officer and Executive Vice President Richard P. Teets - Co-Founder, Executive Vice President and Executive Director Russel B. Rinn - Executive Vice President of Metals Recycling, President of Omnisource Corporation and Chief Operating officer of Omnisource Corporation Gary E. Heasley - Executive Vice President of Business Development and President of New Millennium Building Systems

Shneur Z. Gershuni - UBS Investment Bank, Research Division Jonathan Sullivan - Citigroup Inc, Research Division Evan L. Kurtz - Morgan Stanley, Research Division Mark L. Parr - KeyBanc Capital Markets Inc., Research Division J. Christopher Haberlin - Davenport & Company, LLC, Research Division Sam Dubinsky - Wells Fargo Securities, LLC, Research Division Martin Englert - Jefferies & Company, Inc., Research Division David Adam Katz - JP Morgan Chase & Co, Research Division

Good day, and welcome to the Steel Dynamics First Quarter 2013 Earnings Conference Call. [Operator Instructions] Please be advised, this call is being recorded today, April 18, 2013, and your participation implies consent to our recording this call. If you do not agree to these terms, simply disconnect. At this time, I would like to turn the conference over to Marlene Owen, Director, Investor Relations. Please go ahead.

Thank you, Brenda. Good morning, everyone, and welcome to Steel Dynamics First Quarter 2013 Earnings Conference Call. As a reminder, today's conference is being recorded and will be available on the company's website for replay later today. Leading today's call are Mark Millett, President and Chief Executive Officer of Steel Dynamics; and Theresa Wagler, Executive Vice President and Chief Financial Officer. We also have the Executive Vice Presidents for the company's operating platforms, including Dick Teets, President and Chief Operating Officer for our Steel Operations; Russ Rinn, president and Chief Operating Officer for our Metals Recycling Operations; and Gary Heasley, Business Development and President of our Fabrication Operations. Please be advised that certain comments made today may involve forward-looking statements that, by their nature, are predictive. These are intended to be covered by the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995. Such statements, however, speak only as of this day, today, April 18, 2013, and involve risks and uncertainties related to our metals business or to general business and economic conditions which may cause actual results to turn out differently. More detailed information about such risks and uncertainties may be found at the Investors Center Advisory Information tab on our Steel Dynamics website and our Form 10-K Annual Report under the captions Forward-looking Statements and Risk Factors or as applicable in subsequently filed forms 10-Q filed with the Securities and Exchange Commission. For opening remarks, I'm pleased to turn the call over to Mark.

Super thanks, Marlene, and good morning, everyone. And again, thanks for joining us to discuss our first quarter results and our view of the steel industry and the opportunities that lay ahead for SDI that will further differentiate ourselves from our peers and continue to grow shareholder value. But to change up a little bit, before I do, I'd like to turn the call over to Theresa for comments regarding our financial results for the quarter. Theresa?

Thank you, Mark. Good morning, everyone. For the first quarter of 2013, our net income was $48 million or $0.21 per diluted share. This was at the upper range of our earnings guidance of between $0.17 and $0.21. Our first quarter effective tax rate included a favorable adjustment related to 2012 research and development tax credits that were approved by Congress in January. This benefited the first quarter results by $0.01 per diluted share. However, this benefit was entirely offset by charges related to our refinancing activities during March, which decreased our earnings by that same $0.01 per diluted share. In comparison, fourth quarter results were $0.27 per diluted share, which included a tax benefit of $0.07. Excluding this benefit, first quarter results were very comparable to a sequential quarter. Compared to last quarter, volumes improved for all of our operating platforms as did average sales pricing, excluding fabrication. This resulted in sales of $1.8 billion, an increase of 5% over fourth quarter revenues of $1.7 billion. Despite higher volumes and revenues, our gross margin percentage declined 49 basis points in the quarter, excluding the inventory write-down we mentioned in Minnesota as margins compressed in Mills Recycling and we're basically flat in fabrication. Ferrous and nonferrous recycled metals spreads declined 14% and 4%, respectively. In contrast, even though the average steel price per ton shipped increased less than the cost of our scrap for our steel operations, gross margin actually expanded slightly as a result of incremental cost compression related to the increased steel mill utilization rates. Operating income improved to $96 million as SG&A was at a more normalized level as a percentage of sales, and operating income per ton shipped for our steel operations improved 3%. Conversely, our consolidated pretax income actually declined marginally due to refinancing costs of $2 million that are recorded as other expense in the income statement. We also saw a change in our unrealized hedging positions within our Mills Recycling operations, which resulted in $1 million gain in the first quarter, compared to a $10 million gain in the fourth quarter. Gross interest expense for the first quarter of 2013 and the fourth quarter of 2012 was $35 million, compared to $41 million for the first quarter of 2012. This is over a 14% reduction as a result of the refinancing activities we've been engaged in over the last 9 months. We're very pleased with the execution of these initiatives, which were completed in the fall of '12 and more recently, in March and April of this year. Beginning in March and concluding in April, we issued a new $400 million, 10-year senior note at 5.25% and repaid a $500 million, 6.75% senior note maturing in 2 years. We use the net proceeds from the new issue and available cash to repay the notes. Due to timing and crossing over the end of the quarter, our March balance sheet actually depicts increased debt levels. However, effective at the closing on April 9, with the final payment of the entire $500 million, we've actually decreased our total debt again this year by $100 million. Our capital structure is very strong. Within the last 9 months, we've refinanced over $1.4 billion of our debt, well over half of our outstanding balances and repaid $278 million of debt with available cash, effectively extending and latering out our maturities while meaningfully reducing our overall effective interest rate. We reduced our interest burden from 7.5% at the end of 2011 to a performer rate of 6.2% at the end of March 2013, over a 130 basis point improvement. Based on our refinance capital structure and prevailing interest rates, we currently expect 2013 interest expense to decrease more than $45 million when compared to the full year of 2011. Near-term maturities are also very manageable. We have only $30 million due in 2013 and a little over $300 million due in 2014. We've really been able to create a very -- greater long-term strength and flexibility in our capital structure to the repayment of a portion of our debt, which we said we would do last year and this year and through the extension of our debt maturity profile. Cash flows from operations provided $30 million of funding during the first quarter of 2013, comparable to the first quarter of last year but much less than the sequential fourth quarter. As customer receivables rebuilt from lower levels at the end of the year, working capital required $81 million during the first quarter. Capital investments during the quarter were $45 million and depreciation was $47 million. You may have noticed other investing activities which seemed to have contributed $34 million during the quarter. This was merely a movement of cash from investments and short-term commercial paper to cash and equivalents. After giving effect to the April debt repayment, we have liquidity of $1.4 billion, which includes the full benefit of our $1.1 billion revolving credit facility which has no outstanding borrowings. Our credit metrics remain strong. After giving effect to the April debt repayment, total debt is $2.1 billion, with minimal secured borrowings actually less than 15%. Our net debt was $1.8 billion, resulting in net debt to trailing adjusted EBITDA of 3x. And if you actually include all the refinancing costs and the trailing EBITDA basis, it would be about $25 million. Our net leverage would be 2.9x, which is, again, underneath our long-term preference of 3x on a leverage basis. Our current estimates for 2013 capital investments remain in the range of $200 million to $225 million for the full year. We consider over 70% of each projects to be growth oriented, or projects that are intended to increase capacity, efficiency and margin in future periods. Strength of the balance sheet is derived from our low-cost, highly variable operating platforms which provide strong cash flow generation. Our strong resilient capital structure has a flexibility to not only sustain our current operations but to support our future growth as well. Thank you. Mark?

Super. Thanks, Theresa. And I guess, to begin, I'd like to commend our team for their continued safety improvement. Our performance has consistently been better than industry standards, but we strive towards 0 incidence. We made significant progress towards that goal last year and things continue to improve this past quarter. Roughly 85% or some 90 of our 114 operating and transportation units with the entire quarter without a single incident, all thanks to the dedication of each and every one of our employees. Their safety and welfare are our highest priorities. I'd like to congratulate the team for, again, operating at the top of our peer group and doing it very, very safely. I also want to congratulate everyone in our Superior Aluminum Alloy division for being chosen as the General Motors' Supplier of the Year for 2012. This is an excellent example of the customer partnership we drive and strive toward. So great job to the whole team there. Relative to the economy, from our perspective, the domestic economy continues to experience constrained growth. GDP remains weaker than we need to see. Sequestration and high unemployment is sapping consumer confidence and concerns regarding China's growth profile continue to impact the broader market. Unfortunately, and despite incremental demand growth through the first quarter, consumer sentiment appears to be waning. Consumers are keeping their inventories tight while taking advantage of short mill lead times and continue to be very watchful on steel mill raw material input costs as a leading indicator for finished steel pricing. We saw some softening of order input rate later in March as many customers expected product pricing to decrease and sympathy with ferrous scrap pricing. This procurement mentality will continue to drive price volatility while underlying demand incrementally expands. Obviously, although global overcapacity persists, pricing parity between domestic and global pricing is preventing meaningful input pressure today. Having said, I think macro drivers predicting steel consumption will suggest there is reason for optimism in 2013 and, certainly, in the years ahead. On the motors, although its growth momentum appears to abate to the small degree, remains very strong with the recent forecasts still calling for 16 million unit build rate for 2013. Residential construction appears to have sustainability, but hedging started up 7%, to the highest level since 2008. This bodes well for future nonresidential construction activity as well. Supporting our thesis, the overall ABI index reported its 8th consecutive month above 50, again reaching its highest level since 2008. Seasonally adjusted annual construction spending increased slightly in February. It was 8% higher than a year ago. So all of these macro drivers we view as positive going forward. In addition, there are still many companies with significant cash positions to be invested. And then coupled with the current low-interest rate climate, will eventually lead to fixed asset investment. These companies are also recognizing the effectiveness and efficiency of the American workplace and companies continue to reassure manufacturing. And I think, most importantly, over the longer term, inexpensive shale gas has the potential to make the U.S. energy long, providing a tremendous incentive for investment and associated job growth. We will be the beneficiaries of the associated economic growth and recovery of the construction markets. Since 2008, we've added capacity and always been shipping at record levels these past few years, market conditions have prevented us from leveraging our latent capacity. As nonresidential construction demand strengthens, all of our operating platforms can benefit. In 2012, we had approximately 1.5 million tons of steel capacity that was underutilized due to market conditions. Of that amount, about 55% of those tons had a high -- or a very high correlation to the nonresidential construction market. As domestic steel utilization improves, demand for ferrous scrap will also increase, benefiting our metals recycling operations. And similarly in 2012, we had excess fabrication capacity which is directly tied to nonresidential construction demand. Looking to steel. The steel platform, in spite of a challenging market, our diversified product portfolio had a first quarter steel utilization rate of 89%, 9% higher than the fourth quarter as production utilization at all our steel mills improved, especially at the Engineered Bar and steel, our Engineered Bar Products and also in Pittsboro and Steel of West Virginia locations. We also achieved record quarterly production at Rail and the Flat Roll division operated an annualized rate of over 3.1 million tons, a record high for the team and a phenomenal accomplishment. The domestic Mills Recycling industry experienced another volatile quarter, driven by low export activity, continued slow U.S. growth and inclement weather. We indicated last quarter that we believe the typical market strength at January would be challenged and, indeed, that was the case. And further strong -- and with ferrous price movement traditionally seen, still mills' appetite for scrap was tapered as well as the export market, causing prices to move down early in the quarter and contracting metal spreads. This trend reversed the stronger mill input-- order input rates posed a demand and pricing appreciated later in the quarter in March. The general decline in nonferrous commodity pricing also contracted margins in our copper and aluminum businesses. We continue to believe the volatility in the Mills Recycling business is unlikely to subside in a meaningful way through 2013. We are again pleased to report our fabrication business delivered its fourth consecutive profitable quarter. During the quarter, production at the new deck line in Arkansas began to ramp up and that has gone well. Production rates have been steadily improving, lowering our costs. We continue to see improvements in that business as we focus on the right market opportunities, gain market share and improve operating efficiency at our newer locations. Moving north, our pioneering efforts in Minnesota continue to make steady progress. Operations of the iron concentrate facility are proceeding well. And in March, we operated at 75% design capacity at cash costs below $50 per metric ton. This material will be the principal input concentrate for our iron nugget production on a go-forward basis. That team has done a fantastic job without a single safety incident this year. At the iron nuggets facility, production was improved during the first quarter. Prior to shutting down for the April outage, the plant ran for a 31-day period at an equivalent time of 88%, producing 25,000 metric tons. Shipments for the quarter totaled approximately 58,000 metric tons. Financial offsets during the quarter though were higher due to 2 primary causes: We used higher cost iron concentrate inventory in the production process and we agreed to sell some high cost excess iron concentrate inventory at an after-tax loss of $2 million. During the fourth quarter call, we indicated that upwards will be made to increase production at the iron nuggets facility during the second quarter. And as planned, we are installing the remaining oxygen enrichment equipment for the furnace this month. We will ramp up slowly through June to make any necessary adjustments and expect to commence increased production levels in the second half of the year once the oxygen generation plant, which will feed the oxygen burners, is commissioned in July. Due to the outages at the nugget facility in April, we anticipate the losses associated with our Minnesota operations for the second quarter of 2013 to be similar to those recorded in the fourth quarter of 2012. If production ramps up throughout the year as anticipated, we expect the losses to decrease, and we believe we can be at monthly breakeven run rate by year end. So our expectations have not changed there. Production volume for both Minnesota and Iron Dynamics has given us iron self-sufficiency as intended by the investment premise originally. And of note, the team in Iron Dynamics achieved another liquid iron production record of almost 24,000 metric tons in March. They're a significant contributor in helping the Flat Roll division achieve their record production levels. And, again, congratulations to the team there. As a reflection of our entrepreneurial culture, we continuously work to create opportunities rather than just wait for market dynamics to improve. Several organic growth projects have been implemented in 2013 that will provide increased earnings potential specific to Steel Dynamics. Engineered Bar products is undergoing a mill expansion that will add 325,000 tons of smaller diameter bars. This project will make our facility the largest single-site supplier of engineered and SBQ bars in North America, with an annual production capacity of 950,000 tons. The project is on schedule and on budget and is expected to be commissioned in the fourth quarter of this year with no material interruption of current operations. At capacity there, the potential 200,000 tons of semi-finished blooms could be supplied by our Structural and Rail division, thereby effectively diversifying their product mix and increasing through cycle utilization for them. We're also excited about the addition of premium rail production capability in our Structural and Rail division, an additional avenue to increase the mills through recycle utilization and to further diversify our markets with value-added products. Construction has also started on this project. It, too, is on budget and on schedule for commissioning close to the end of this year. We plan to eventually produce up to 300 or some thousand tons of standard strength and premium rail for the North America's railroad industry. Test material has already been approved by several of the major domestic railroads. The new rail capabilities will position us to become North America's preeminent rail manufacturer for rail quality and straightness and dimensional control. Furthermore, the product will provide exceptional customer value and the capability of 320-foot road lengths that can be further welded into 1,600-foot strings. This significantly reduces installation time and track maintenance costs for the rail customer. Another project of the Flat Roll division, the new shape correction line, is on schedule to start up early in the fourth quarter of this year. Shape correction and master coils will provide a value-added opportunity and should facilitate increased market share, a particular benefit to us as the team has racheted up mill productivity, bringing additional hot-rolled coil to market. In recycling, 2 high-tech nonferrous recovery systems have just started operating. The systems have capability to recover a greater amount of value -- nonferrous material from the shredder waste stream, thereby enhancing margins. The facilities are located in the midwest. One in Ohio and the other in Central Indiana and will be fully capable of processing all the waste from our 4 midwest shredders. The company I think continues to drive towards maximizing opportunities to effectively and efficiently perform through the cycle to maintain a sustainable differentiation from our peers. Our operating and EBITDA margins continue to be best in class and have allowed us to further solidify our balance sheet in recent months. We are also able to increase our first quarter cash dividend by 10%. We're pleased that our Board of Directors took this action based largely on their confidence in the strength of our cash flow generation capability and our financial position. We believe this action further reflects our continued optimism and confidence in our future prospects. We believe our superior operating and financial performance clearly demonstrates the sustainability of our business model in good and in challenging times. In keeping with the entrepreneurial spirit that flows throughout the company, we will continue to assess the opportunities for growth, whether new products, new technologies or new business lines. The focus is toward not only top-level revenue growth, but growth that will enhance and provide consistency to our margins and provide our shareholders with returns that demonstrate our commitment, making Steel Dynamics the preferred investment decision. I'm proud of the strong character and the fortitude that our employees have demonstrated through challenging times. It is their passion and spirit that drives us to excellence and to outperform our peers, both operationally and financially while making our low-cost, highly competitive position. I'd like to thank each and every one of them for their continued hard work and dedication and to remind them as always, to be safe, both at work and at home. So now, Brenda, I'd like to open the call up for any questions that everyone has for either myself or for the rest of the leadership team.

[Operator Instructions] Our first question comes from the line of Shneur Gershuni with UBS Securities.

I have a quick question. In your prepared remarks and also in the press release, you've sort of talked about, I guess, that cautious optimism with respect to nonresidential construction and so forth. But you also highlighted some sales of wide-flange beams, for example, is kind of a trend to zero in on as well, too. Is this tracking the typical mood or the usual lag that we see with a pickup in residential housing and the lag that we typically see in the nonresidential housing? Is this a little slower? Or -- I was wondering if you can give us a little bit of color as to how it's tracking the usual trends.

Well, I think, as we suggested, it is incremental. And one -- I think it's difficult for us to figure out whether that is truly the market or whether we're picking up market share. If it was a much larger increase, then I could say yes, the market is changing dramatically. But if you combine just the incremental increase in wide-flange and you combine the positive nature of our performance at new millennium, our fabrication divisions, I think we'll just see that as a positive optimistic sign.

I think from an SDI perspective, you're exactly right, Mark. But I think the numbers from, at least from the SMA, for the first quarter for beam shipments show it's down. And so therefore, again, I would think that it's still a little bit optimistic. So there's still a little bit more of a lag. So -- but we're benefiting slightly.

I think the -- most of our optimism, I would suggest, comes from residential. I think we are certainly beyond just the indices and the rhetoric and the metrics out there. We're actually seeing that come through in the order book. And that, obviously, in my humble opinion, anyway drives the whole economy for us is the steel industry.

Okay. You highlighted, in the prepared remarks, about all the projects that you're embracing. A lot of them are done lock [ph] on latent capacity as well as to bring in higher value at higher margin opportunities. How should we think about the cost structure at SDI kind of on a go-forward basis? As you enter these new areas, should we sort of see an increase in costs as well, too, but there should be a net effect in margin? I was just wondering if the mix shift is going to change the cost structure on a go-forward basis.

Shneur, this Theresa. No, it shouldn't be. The capacity that we're putting in is very effective from a cost perspective. The SBQ is a great example. We're adding very little additional overhead to put in that rolling additional rolling line. So that cost structure is going to stay very low, not incrementally higher at all. The same is true for the addition of premium rail because we're just adding equipment of about $26 million and the rest of the process stays basically the same. So there's not incremental cost there either. So I think, really, we're looking at truly adding value-added products with very little additional costs.

Okay. And one final question, if I may. It's kind of think you about the next 90 days versus the next year or so. Metal spread's kind of a little tough at this point right now. Do you kind of see your volume in your capacity utilization kind of offsetting that, especially given the fact that you have expected outage as well, too? Or is it going to be kind of much of the same of what we've seen in the first quarter?

Well, I'd say it's incredibly difficult to predict because it's obviously the markets, both on the steel side and on the raw materials side, are incredibly volatile. We've seen slight moderation in pricing in the last 2 or 3 weeks. Yet, Dick was just telling me, I didn't actually see the release, but there's a mill suggesting upward movement in price interest just this morning. It remains, I would tell you, a very, very fickle market. And it's difficult to tell, but I think our spreads should remain intact to some degree.

Our next question comes from the line of Brian Yu with Citi.

This is actually John Sullivan phoning in for Brian. I had -- one question I had with respective to the utilization rates which rose to 89%, I was wondering if you could comment on any sort of your current market share gains given the relatively lower growth in the industry utilization rates? And secondly, on Mesabi Nugget, given that it seems most of the capital investment is taking place in 2Q, I was wondering what are the improvements that will happen over the course of 3Q and 4Q if you get to breakeven by -- on a run-rate basis by year end?

To address the utilization rate versus the market share, a large part of the utilization rate came in 2 areas. One, being the SBQ facility and the other being at the Flat Roll facility. At the SBQ facility, we were running at a substantially lower rate and we have improved not fully, but it appears the change is what we're looking at from an improved utilization rate. And so, therefore, it's not a false signal. It is a factual signal, but it's not necessarily going out and taking new market share. It's a recovery of a market. So maybe it's exact same order, exact same percentage as everybody else maintains. So I'm not going to tell you that there's any market share appreciably one. In Butler, again, we've made some improvements there and the team is -- are running at tremendous rates. But that's such a large market in the Flat Roll world that our greater performance there as a percentage is almost insignificant in the total Flat Roll market. So you couldn't discern on a quarter-to-quarter basis that you appreciably won market share in my opinion. So I don't believe it's -- that you could identify a number in either of these cases.

But Tony, to the Mesabi Nugget, I think, again, we put a plan together back in August, actually, of last year and from the standpoint of maintenance outages and what the changes we would like to make. And I would tell you, even though the results may be frustrating, the team has accomplished, to date, every single one of those planned activities. The current shutdown is to install additional oxygen enrichment burners and systems. Unfortunately, that shutdown will impact the second quarter earnings as suggested. And so second quarter earnings or losses there will be anticipated to be somewhat similar to the fourth quarter of last year, an improvement over the first quarter for sure. Overall profitability, though, will be impacted most in the second half as the auction equipment will be there for trials, and so we'll be ramping up and adjusting the process through July, at which point in time, the oxygen generation plant, the facility that will supply both inexpensive bulk oxygen, gaseous oxygen, will be commissioned. And so we anticipate seeing a decrease in our losses through the rest or the second half of the year. Our expectation is no different. It remains unchanged with sort of a breakeven position expected on a monthly basis come the end of the fourth quarter. That, as we've already suggested over the last calls, anticipates production ramp up to roughly 30,000, 35,000 tons a month with associated drop in the cost structure. It anticipates the lower cost iron concentrate inventory, which we are successfully producing and transferring, and that material has gone through the nugget process without difficulty. And it also, obviously, depends somewhat on transfer pricing. And with pig iron, which is the basis of that transfer pricing, hangs in the $4.40, $4.50 range, breakeven is expected.

Your next question comes from the line of Evan Kurtz with Morgan Stanley.

Maybe I thought I'd start off with some of your comments you had on just the overall macro conditions going into the year here. I think you highlighted that things actually seem to be turning positively, at least in some of the key end markets, like auto and nonres, albeit at the low levels seems to be picking up. So I'm very surprised to see kind of just in the industry data, metal service centers shipment's down a little over 5%, and you have AISI parent supply tracking down a little over 6% this year. And -- just curious to hear your thoughts on how you might explain kind of the differential in the macro data versus steel numbers.

Well, there's certainly a dichotomy there, I would agree. But I remain convinced that for the last 18 months or so, there has been continued demand growth, albeit very incremental and that the pricing volatility is more related to sort of procurement mentality, changes in immediate inventory and the relationship, as I already explained, the customer is so watchful of raw material input costs direction that, that is driving a lot of that volatility. If they see, as they did later in March, that scrap is going to be off, they'd literally take their foot off the order book. And similarly, when they anticipate an upward trend, all of a sudden you take a substantial amount of orders in a very short period of time. And it's that up and down volume sort of our procurement activity that's driving the volatility more, in my mind, than underlying demand. I think the macro and I think that has probably impacted the MSCI data. As you suggested, daily shipments dropped off a little bit in March, which is disappointing, and particularly traditionally that tends to be a month -- there's sort of seasonal gain. But nonetheless, I think that automotive remains strong, 16 million units is a very, very strong rate. I think manufacturing remains very, very strong. And I think, generally, if you look at our utilization this past quarter, we're doing okay at least at SDI. I can't speak for everyone else.

It's helpful. And maybe just a follow-up on that, talking about raw material prices, what's your latest view for scrap going into May? And maybe just specifically on OmniSource, I mean, I think you mentioned that the weather was a big issue in the first quarter as far as flows go. How do you see that shaping up for the second quarter? Could we see a little bit of an improvement there just from the weather point of view?

Evan, this is Russ. Certainly, I think the flows as the weather breaks are going to improve. But, again, I think our business depends on our customers and the export markets have not been robust at least in 2013 as of yet. Whether that comes back -- if that comes back, that will certainly have a meaningful effect on our part of the business. But, again, in the endgame it's what our customers to mills and those smelters, what their order books look like is going to determine what happens in our side of business. I think pricing is marked -- adequately described earlier as extremely volatile. In the past, I don't know how many years, January, February has always been an up market. And this year, it was a down market. We saw that turnaround in March and then turned back around in April. I mean, I could make a case that it's going to go down in May, I can make a case that it's going to go up in May. So it's just always going to depend upon the utilization rates of those -- of our customers in the process. I would add, Evan, that the supply line, the supply -- the inventory levels, I think, throughout the system still remain very tight. So any uptick in utilization or downtick in utilization, again, obviously, it gets exasperated and it contributes to that volatility.

Our next question comes from the line of Mark Parr with KeyBanc Capital Markets.

This is mark Parr. I think you've already been asked this question, but your new course is out talking about better earnings in the second quarter. You're going have to have a lower loss at Mesabi. That's going to help you a couple of pennies. Do you think that you've got enough momentum going in beams and SBQ and at the Steel of West Virginia to maybe have a sequential uptick with the wildcard being what happens in the Flat Roll side?

Well, I think Flat Roll is a little bit of the wildcard. I think we've seen perhaps a little more consistency in our other steel platforms or divisions. And as Russ said, who knows what may or may not happen at -- in our Recycling business. But I'd -- we got 3 months, well, 2.5 months left to go. So I would prefer to pump in and we'll give you guidance later in the quarter.

Okay. Well, that's fair. But you did have what looked like a fairly solid quarter given the current state of the economy, so congratulations on that. I was also wondering. Theresa, you gave a really great summary of all the refinancing that has unfolded and your team has probably worked incredibly hard here over the last couple of months. Could you, just to repeat, give us some sense of these -- of the progression in interest expense? Did you say you expect interest to be down $45 million from '11 or from '12? I couldn't -- I think I missed your comment there.

First of all, thank you very much. The team here did a fantastic job. So I appreciate that. But yes, that was actually -- the reason we compared it to 2011 was so that we could really incorporate the changes that we made in 2012 as well. But what we just did in the first quarter of this year, if you're looking quarter-over-quarter, really should improve interest expense by about $13 million.

Okay, all right. That's really terrific. But also, just for bookkeeping purposes, could you give us the breakdown of the Flat Roll business in the quarter?

Sure. I'm sorry about that. I have them right here. The hot-rolled shipments were 281,000; pickle and oiled, 118,000; cold rolled, 38,000; hot-rolled galvanized, 100,000; cold-rolled galvanized, 58,000; our painted products were 89,000; and Galvalume was 20,000. It should be a total of 704,000 tons.

Got it. That's amazing. Just -- if I could ask one last question, Mark, or maybe Dick wants to take this. At least -- we looked at April scrap was probably down $20. Have you been able to hold pricing to less than a $20 decline based on the April scrap buy?

Well, since we don't publish that number, we look at every sale as an opportunity to hold the price or raise the price. So I would just tell you that we are always out to do our very best.

But Mark, I think the team demonstrated there. Month in, month out -- and I think you that suggested that our earnings are pretty steady in a very fickle market here. And if you take out maybe the tax adjustments and things, the unique items, our earnings for the last 3 quarters, I think, have been -- in the quarter over -- first quarter last year have been incredibly, incredibly consistent. And it's allowed us to do great things. We've been reducing debt, we've got great liquidity and we're in great shape to take advantages of opportunities that I truly think will unveil themselves in the next 6 months, 6 to 8, 12 months as some of the folks struggle a little bit.

Mark, on a more serious side, I would say that, of course, what I said was true. But every transaction also is taking into account our relationship with our customers, what the other opportunities are, where the market is going and the trends and so forth. So it is more than just throwing a number out and trying to get the highest. So we are always trying to do our very best for both the customers as well as ourselves.

Our next question comes from the line of Chris Haberlin with Davenport Securities. J. Christopher Haberlin - Davenport & Company, LLC, Research Division: Maybe to start, and I apologize for kind of beating the dead horse here on utilization rates, but just trying to understand the utilization rate increased 9% quarter-over-quarter, but shipments were relatively flat versus Q4. Just trying to understand, did you all build inventory levels here? And is that in expectation of an uptick in demand over the next quarter or 2?

Well, it's a correct observation. And I would tell you that the reason why we did it was in anticipation of what we are experiencing currently in the quarter. Our Flat Roll division is currently shutdown for maintenance outage. It's a 5 to 6-day outage on the hot mill and on the cold mill. And we built a large inventory ahead of the pickle line because the pickle line only went down for 1 day. And the repairs were made and now it's been back up and running for 4 of them. And, therefore, we built the inventory in pickle at oil goods. And so we are doing shipments, again, on a steady basis. And so that inventory's being drawn down as we speak. And we also built an inventory in Pittsboro, not because we have a -- we do have a maintenance outage coming for about 5 days in May. But there, as we started -- we built the inventory because we were running orders ahead of time because we wanted to -- we have a belief that the market is improving and we wanted to be available to take every order as it became available. We didn't want to have -- we didn't want to be delaying the production of any orders and then have to turn some opportunities away. So we ran some orders early, especially the ones that had additional bar finishing requirements and heat treating requirements. So the inventories at Pittsboro also grew in the work-in-process inventories and a little bit of the finished goods inventories. And, again, our Steel of West Virginia, we put in a new stacker in our #2 line and the production has really gone quite well. And we've built some inventory -- finished goods inventory there just because how well it's performed. And now we'll be readjusting our rolling schedules there. J. Christopher Haberlin - Davenport & Company, LLC, Research Division: And then earlier in the prepared remarks, Mark, I think you had mentioned that you saw weaker in order input rates in, I guess, later in March. Was that specific to the Flat Roll division or the Flat Roll in The Techs? And can you maybe kind of talk about what you've seen from those divisions, just how orders trended through the first quarter?

I think the -- my comment was principally the cheap [ph] mill, I would say. The other mills tend to have been steady relatively through the quarter. J. Christopher Haberlin - Davenport & Company, LLC, Research Division: Okay. And then just last one for me. On Mesabi Nugget, I guess you all had guided to a net loss of around $10 million and it came out at $14 million. And I understand the $2 million related to the concentrate sales. But that incremental $2 million, just kind of surprised given a 66% increase quarter-over-quarter in production there. I understand there's a lot of moving parts while you're operating at suboptimal levels. But can you just kind of talk about what drove the larger-than-expected loss?

I think a couple of things. The -- well, principally, as we suggested, you've got a couple of million dollars there or so in the agreed-upon sale of the higher-priced concentrate. And then through the quarter, we consumed a lot of additional high cost concentrate as well. The mining resources startup has gone incredibly well. And with the volume there and with inventory, we are going to a position where we would never have refused that overall inventory over time and, hence, sold off roughly, I think, it was 100,000 tons or thereabouts. But principally, it was the high cost concentrate that we used and the input or the consumption per ton of nugget produced did climb just a little bit.

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

Our next question comes from the line of Sam Dubinsky with Wells Fargo Securities.

Just a couple of quick ones. Some of your competitors have discussed moving off of a CRU-based pricing. What are your thoughts on this trend and implications for the industry?

I think the -- it's sort of a discounted CRU is something that we've resisted and have been reluctant to exercise on a broad basis. I recognize that our peers certainly adopted that here, the late last 6 or 8 months or so, I guess, 12 months?

Yes, sir.

And so it's something that we've only participated in on a very, very limited basis. But I think for the industry in general, I think it's a very positive sign.

Okay, great. And then on domestic pricing today, it's been so weak that it's helping imports moderate at least for flat products. Do you think there's room for domestic prices to increase in any product verticals while still keeping imports out of the market?

I think there's a possibility there. There's somewhat of a parity right now between global and domestic pricing. And if you look at the discount that the consumer now looks for from imports, that discount has increased dramatically over the older days where if imports were $40, $50 per ton lower than domestic pricing, you saw a lot of import activity. Today, that level has increased dramatically and it has to be up around $150 a ton due to the volatility of pricing that attracts that import business. So that being said, I'd suggest there is room there for improved pricing.

Okay. And then just my last question is, obviously, order books were soft for March. It's very early in April. But how do order books look so far in April compared to this time frame in March?

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

Yes.

I think they're about the same. If you look at it, it'll probably be a little bit better because we're taking our maintenance outages. So if you looked at it from a number of days that you need to have available, it might look a little better. But from a tonnage, it's probably equal.

Our next question comes from the line of Martin Englert with Jefferies. Martin Englert - Jefferies & Company, Inc., Research Division: So I wanted to see how the backlogs look for downstream products on a year-over-year basis if you can comment there.

When you say downstream, fabrication? Martin Englert - Jefferies & Company, Inc., Research Division: Yes, correct.

Fabrication, and I think Gary is on the line. He can actually comment, but I think they're up. And in fact, we had the, I think, the highest order input rate in fabrication in March than -- that we've had for many years. Gary, are you still on the line?

I am, and that's true, Mark. Our backlogs are better and it's really been driven by 2 things. One is a little bit more market share which is being driven in part by penetration of new markets. It's hard to say right now whether those backlog increases are driven by overall growth in demand, but we've got some pretty positive signals that would indicate that the market is strengthening a little bit. Martin Englert - Jefferies & Company, Inc., Research Division: That's helpful. And then regarding the oversupply in the galvanized market that was mentioned in the prepared remarks and the release there, is there any indication that that's abated to any extent and see more normalized volumes from The Techs?

I would tell you no. I mean, that's where, again, when we talk about the nonresidential construction, to me that's beneficial because of not necessarily -- or the residential construction is beneficial because of appliances and duct work and so forth that go along with it. So it's not just the nonresidential that lags from it. In addition to that, what I would tell you is we are focusing on other products and expanding on the Galvalume capability down at the Jeffersonville and we've also been running trials. We've now ran Galfan on all 3 of The Techs lines and continue to garner more orders and longer runs at those 3 lines in the Galfan product. So we're not just sitting around, waiting for the galvanized market to recover. Martin Englert - Jefferies & Company, Inc., Research Division: That's helpful. If I could, one more question. Within the prepared remarks as well, you had commented on manufacturing and seemed relatively optimistic that some of the fundamentals were improving there. Can you talk about what areas of manufacturing you're seeing improvements? And then maybe what areas are still kind of lagging behind if there's any continued inventory corrections going on among the consumers out there?

I think the -- probably the only inventory correction issue still remains in Engineered Bar products as I speak here. Principally, the off-road equipment folks tend to be a little slower. Other than that, we have at Pittsboro, a pretty broad or the order profile is kind of across the spectrum of our customers.

Our next question comes from the line of Dave Katz with JPMorgan & Chase. David Adam Katz - JP Morgan Chase & Co, Research Division: I may have missed it earlier, but did you talk about what you guys are seeing in terms of exports?

Sorry, exports? David Adam Katz - JP Morgan Chase & Co, Research Division: Yes.

That's not an arena we play in or follow up, to be honest, to any great degree. David Adam Katz - JP Morgan Chase & Co, Research Division: No, I understand that. But I was curious, I mean, obviously, you look at the industry overall and how that impacts your pricing ability and one would think that, that would play. So just curious, given your better view of the industry from where you sit, what have you seen in terms of exports? And how do you think that's impacting your ability to push through price increases?

Well, Dave, I think the only place where I think we've really got a major impact on the export side is on the scrap side. And those exports have been a little bit tepid during the, I guess, first quarter of the year. Again, at what point that the Turks and the Southeast Asians and those folks start taking more product, that will certainly have an impact on it. But its current rate is really not a factor on us.

But Dave, maybe from the other perspective, maybe you're asking about, I think from the reports I've read that the steel exports are down, in general, from the United States. And, therefore, with less steel being exported there is capacity available domestically than for increased sales and competition. It just goes without saying. So there's, needless to say, therefore, a little bit more pressure downward on domestic pricing. And it just has to be dealt with. David Adam Katz - JP Morgan Chase & Co, Research Division: Okay. And then coming back to the Turks in particular given that they've largely been a swing factor over the last couple of years, do you have any view on what it would take to get them back in the market in a greater capacity?

Dave, I think on -- the real issue with the Turks is going to be whether Europe -- the strength of the euro because I think they're consumption has remained very consistent. But they play the U.S. and Europe off of each other depending on the exchange rates and availability.

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

That concludes our question-and-answer session. I'd like to turn the call back over to Mr. Millet for any final and closing remarks.

Well, thank you, Brenda. Thank you, everyone. I just want to reiterate that we are, I guess, squarely focused on positioning the company for long-term growth and sustainability and not just 3 months or 6 months out. But we continue to look 3, 5, 10 years out for our company. Some of the changes will take longer to implement. But I think those will be strong catalysts for our continued success, the ones that we mentioned already. So thank you for your time today. To our shareholders and to our customers, thank you for your support. Our employees, be great, be safe and continue to do a phenomenal job. Thanks. Have a great day.

Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation and have a great day.