Reliance - Earnings Call - Q2 2016
July 21, 2016
Transcript
Speaker 0
Greetings and welcome to the Reliance Steel and Aluminum Co Second Quarter twenty sixteen Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. 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. Thank you. Please go ahead.
Speaker 1
Thank you, operator. Good morning and thanks to all of you for joining our conference call to discuss our second quarter sixteen financial results. I'm joined by Greg Mullins, our President and CEO Carla Lewis, our Senior Executive Vice President and CFO Jim Hoffman, our Executive Vice President and COO and Bill Sales, our Executive Vice President of Operations. A recording of this call will be posted on the Investors section of our website at investor.rsac.com. The press release and the information on this call may 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 ks for the year ended December 3135, 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 Fred Mullins, President and CEO of Reliance.
Speaker 2
Good morning, everyone, and thank you for joining us today. I would like to start off by saying that I am extremely proud of the outstanding execution by our managers in the field, which contributed to our sixth consecutive quarter of FIFO gross profit margin expansion. Over the past few years, we have made significant investments in cutting edge value added processing equipment to provide higher value to our customers, which has benefited our gross profit margin. And as we have discussed in previous quarters, in 2015, we focused our efforts on reducing our inventory levels resulting in a $433,000,000 reduction in inventory. In addition to improving our inventory turn and working capital management, we believe our improved inventory position has also contributed to our increased gross profit margin by allowing us to be more selective in our efforts by focusing on higher margin business.
During the second quarter, our gross profit margin further benefited from a rising pricing environment, most notably for carbon steel products. We were able to enhance our gross profit margin as we pushed through mill price increases in the marketplace. As a result of all these factors, our second quarter FIFO gross profit margin reached 31.1%, up five forty basis points from the second quarter of twenty fifteen. The metals pricing environment continued to improve as the second quarter progressed with multiple price increases announced on certain carbon steel products. The mill price increases were supported by many factors, including steel demand and the filing of multiple trade cases by U.
S. Producers that have reduced import offerings. In addition, the domestic producers have maintained production capacity discipline and raw material costs have increased. Despite these positive factors, however, the overall pricing environment remains below 2015 levels and far below peak levels. Our average selling price per ton sold during the second quarter of twenty sixteen was 10.1% lower than in the second quarter of twenty fifteen.
In regard to customer demand, we experienced a sequential increase in tons sold of 1.1% in the second quarter of twenty sixteen, which was in line with our expectation of flat to up 2%. Although end demand is not as strong overall as we had anticipated going into 2016, we believe demand is generally healthy with certain markets such as automotive and aerospace continuing to perform at high levels. Our strategy of diversifying our product and end market exposures along with our ongoing investments in state of the art value added processing equipment and our relentless focus on customer service has allowed us to increase our market share. For the first six months of twenty sixteen, we once again outperformed the industry with our same store tons sold down only 2.1% versus the MSCI industry average shipments, which were down 6.9% as compared to the first six months of twenty fifteen. Turning to M and A, we have completed two acquisitions so far in 2016.
On 04/01/2016, we acquired Dust Manufacturing Inc, a custom sheet metal fabricator of steel and aluminum products on both a direct and toll processing basis. VESC is a great company and has been performing above our expectations since joining the Reliance family. Tubular Steel, which we acquired at the beginning of the year, is also performing well given its end market exposures. Both of these acquisitions meet our criteria of acquiring well run businesses that are immediately accretive to earnings. Given the specialty products or high value added services provided by these companies, they perform above our company wide profitability levels.
Strategic M and A opportunities and organic investments will both continue to be integral growth drivers for Reliance. Our balance sheet is strong because our managers have done a great job expanding our margins and rightsizing our inventory levels. Together, these actions have produced high levels of cash flow, enabling us to execute on our balanced capital allocation strategy, allowing for growth of the business as well as stockholder returns, including our 6.3% dividend increase effective for the third quarter of twenty sixteen. We have paid regular quarterly cash dividends for fifty seven consecutive years and increased our dividend 23 times since our IPO in 1994. In summary, I believe our execution in the first half of the year has been outstanding.
Our strong financial performance is the result of margin expansion due in part to favorable pricing environment as well as diligent expense and inventory management to drive improved profitability. Going forward, we will continue executing our strategy with the goal of extending our track record of delivering industry leading results. Reliance wouldn't be the company it is today without the incredibly talented team that we have in place. On that note, this month marks Dave Hanna's official retirement as Reliance's Executive Chairman as part of the executive leadership succession plan we announced in May of twenty fifteen. Dave will continue as a member of Reliance's Board of Directors.
We thank Dave for his leadership and many contributions over his thirty five year career at Reliance. We all wish Dave the very best in his retirement. I will now hand the call over to Jim to comment further on our operations and market conditions. Tim?
Speaker 3
Thanks, Greg and good morning everyone. First, along with Greg's comments earlier, I would like to thank our operators for their tremendous efforts in achieving a 31.1% gross profit margin in the second quarter of twenty sixteen. To all of you listening in on the call, congratulations and keep up the good work. Now, I will comment on both pricing and demand for our carbon steel and alloy products as well as our outlook on certain key end markets we sell those products into. Bill will then address our aluminum and stainless steel products and related end markets.
Demand for automotive,
Speaker 4
which
Speaker 3
we service mainly through our toll processing operations in The U. S. And Mexico remained robust throughout the second quarter. In addition to strong carbon steel demand, we are continuing to see increased demand for aluminum processing in the automotive industry. We recently opened a new facility in Mexico to support the increased automotive activity in that area.
We also added a second line to process aluminum for the automotive industry in our Michigan facility in the second quarter of twenty sixteen and we will be opening a new facility in Kentucky in 2017 to support both aluminum and steel processing in that area. These investments provide us with additional capacity to service this important end market in processing carbon steel as well as aluminum where volumes are increasing at a rapid rate. We are very well positioned from both a technology and capital perspective to continue to support this growth. As a reminder, while only a small percentage of our total sales dollars, our toll processing activities represent a far greater portion of our total overall profitability. Second quarter demand in heavy industry, which includes railcar, truck trailer, shipbuilding, barge manufacturing, tank manufacturing and wind and transmission towers remained flat to slightly down from the first quarter of twenty sixteen levels.
Our exposure to heavy equipment also includes sales to agriculture equipment OEMs, which have been weak for the larger ag equipment. That said, Reliance's exposure is mostly to small and mid sized agriculture equipment, which has held up better than the heavier items. We are hopeful that the five year infrastructure bill that was passed in December of twenty fifteen will improve further demand trends in the infrastructure and road construction equipment markets beginning 2017. Demand in non residential construction continues its gradual, but steady improvement and we are seeing increased activity in these markets we serve with our tons shipped slowly improving. Despite volumes being well below peak levels, we believe that demand will slowly continue to improve in 2017.
We have made investments in processing equipment for many of our businesses that support this market in order to provide higher levels of processing to our customers. Increased volumes will be absorbed into our existing cost structure as this end market continues to improve. Demand for energy, which is mainly oil and natural gas, has fallen further the second quarter of twenty sixteen from already weak levels due to continued reduction in drilling activities. We have been and continue to be proactive in reacting to this market conditions and managing our expenses accordingly. Although our outlook for energy remains weak in the near term, we have begun to see early signs of new activity in this end market.
Although pricing for carbon steel products remains well below peak levels, prices continue to improve throughout the second quarter, primarily due to increases in raw material costs, including scrap and multiple carbon steel trade cases filed in The U. S. That have resulted in reduced import offerings. The most significant price increases were for carbon steel flat rolled products, which represent only about 15% of our total sales with multiple price increases announced by the mills in the first half of the year. Carbon steel plate and structurals represents the single largest components of our product mix with each accounting for 10% of our total sales.
Plate volumes have been down in 2016 mainly because of the weakness in heavy equipment. However, prices have increased in both quarters of twenty sixteen. Demand for carbon steel structures has increased in 2016 mainly due to the steady improvement in non residential construction. Base prices for alloy products, the majority of which were sold into our energy end markets have declined, although they have held up better than we expected considering the significant reduction in demand. I will now hand the call over to Bill to comment further on our non sales markets.
Speaker 5
Bill? Thanks, Jim. Good morning, everyone. Today, I will discuss pricing and demand for our aluminum and stainless steel products and certain markets we sell those products into. But before I begin, I would also like to recognize our managers for their excellent execution in the second quarter.
Keep up the great work. Demand for our aluminum and stainless steel products continued to improve in the second quarter of twenty sixteen. Aerospace continues to be one of our strongest end markets. Sales to the aerospace market represented approximately 11% of our total sales in the second quarter of twenty sixteen. Our tons sold to the aerospace market were up 2.9% compared to the first quarter of twenty sixteen and up 4.4 compared to the second quarter of twenty fifteen.
Demand in aerospace continues to be strong for the products we sell. However, we expect the growth rate to moderate slightly as build rates for certain aircraft decline and mill lead times compress a bit. Our investments in new international markets have expanded our presence in the global market, allowing us to support our customers as they expand. The backlog for orders of commercial planes remains robust. As a result, our outlook remains positive and we will continue to look for investment opportunities to expand our aerospace exposure.
The majority of the products that we sell to the aerospace market are heat treated aluminum products, especially plate as well as specialty stainless steel and titanium products. Since we last spoke with you in April, our sales of aerospace aluminum plate and general engineering aluminum plate have increased and volumes continue to be strong despite some pressure on pricing. In terms of our outlook for the balance of the year, we expect continued steady demand with some pressure on margins for both aerospace and general engineering aluminum plate. Common alloy aluminum pricing has remained stable and volume has increased modestly with most of the products being sold to sheet metal fabricators that support a variety of end markets. Pricing on common alloy sheet follows ingot and we expect some modest improvement as the Midwest spot price trends up slightly.
The Midwest spot price has been trading in the zero eight two dollars per pound range with the Midwest premium in the $07 per pound range, which was fairly steady compared to the first quarter of twenty sixteen. Turning to stainless steel products, demand for our stainless steel flat products, which are primarily sold into the kitchen equipment, appliance and construction end markets, continued to be very strong. Domestic mill lead times have extended to eight to ten weeks and we believe there is room for a potential base price increase in the back half of the year. Pricing for stainless steel products is heavily impacted by nickel prices, which have been improving modestly on a sequential quarter basis. We expect to continue to see some improvement in nickel pricing in
Speaker 2
the back half of the year.
Speaker 5
I will now turn the call over to Carla to review our second quarter financial results. Carla?
Speaker 6
Thanks, Bill and good morning everyone. Our sales in the second quarter of twenty sixteen were $2,200,000,000 down $219,800,000 or 9.1% from the second quarter of twenty fifteen due to lower metal prices with our average selling price per ton sold down 10.1%. Demand was relatively consistent with our same store tons sold down 0.4% year over year. Compared to the first quarter of twenty sixteen, point 9% with our average selling price per ton sold of 0.9% and our tons sold of 1.1%. We increased our gross profit margin for the sixth consecutive quarter to 31.1%, up from 29.4% in the first quarter of twenty sixteen and twenty seven point one percent in the second quarter of twenty fifteen.
Along with the outstanding execution by our managers in the field that Greg discussed previously, the increase in our FIFO gross profit margin in the second quarter of twenty sixteen benefited from our ability to push through announced mill price increases. When mills announce price increases, we attempt to increase our selling price at date of announcement, which is before we receive the higher cost material in our inventory. This allows us to increase our gross profit margin until we receive in the higher cost material. The increased gross profit dollars generated from both a higher gross profit margin and a higher average selling price increased our profitability at all levels with our pretax income margin increasing to 6.9% from 5% in the first quarter of twenty sixteen. Similar to the prior quarter, we did not record a LIFO inventory valuation adjustment for the second quarter of twenty sixteen as we continue to expect that overall metal prices will be higher at December 3016 as compared to January 1 based on current pricing trends.
This would typically result in a LIFO charge or expense in 2016. However, given our current expectation of higher metal prices, we anticipate that any LIFO expense would be offset by a decrease in our lower cost for market reserve established as of December 3135. In the second quarter of twenty fifteen, our results included LIFO income of $32,500,000 As a percent of sales, our SG and A expenses were 20.7% compared to 18.2% in the second quarter of twenty fifteen and twenty point eight percent in the first quarter of twenty sixteen. On a year over year basis, the increase as a percent of sales was mainly due to lower metal prices. Our increased gross profit margin drove our operating income margin up to 7.9% for the second quarter of twenty sixteen, a significant improvement from 6.6% in the second quarter of twenty fifteen and six point 0% in the first quarter of twenty sixteen.
Our effective income tax rate for the second quarter of twenty sixteen was 32.7% compared to 32.6% in the second quarter of twenty fifteen and fourteen point four percent in the first quarter of twenty sixteen. As a reminder, our tax rate in the first quarter of twenty sixteen was significantly reduced as we favorably resolved certain tax matters that have been under examination. We currently estimate that our full year 2016 effective income tax rate will be approximately 28%, down from 31.1% in 2015. Net income attributable to Reliance for the second quarter of twenty sixteen was $100,900,000 or $1.38 per diluted share compared to $90,200,000 or $1.2 per diluted share in the second quarter of twenty fifteen and $92,200,000 or $1.27 per diluted share in the first quarter of twenty sixteen. Non GAAP earnings were $1.36 per diluted share, which was above our expectations mainly because of our stronger than anticipated gross profit margin and this compares to $1.21 per diluted share in the second quarter of twenty fifteen and $1.03 per diluted share in the first quarter of twenty sixteen.
And please refer to our earnings release issued earlier today for a reconciliation of our non GAAP adjustments. Now turning to our balance sheet and cash flow, we generated $49,800,000 of cash from operations during the second quarter of twenty sixteen and $205,200,000 during the first half of twenty sixteen. Given both increased metal pricing and increased demand, we used cash to build working capital by $109,000,000 in the first half of twenty sixteen. However, our higher gross profit margin produced cash in excess of our working capital needs with $174,700,000 of additional gross profit dollars resulting from the margin expansion in the first half of sixteen compared to the first half of twenty fifteen. Our inventory current rate at June 30 was 4.7 times or two point six months on hand based on tons.
Our successful efforts to reduce inventory in 2015 allowed us to reach our company wide inventory turn goal in 2016. At June 3036, our total debt outstanding was $2,170,000,000 and our net debt to total capital ratio was 33.4%. We had significant liquidity with $831,100,000 available on our $1,500,000,000 revolving credit facility. We continue to execute our balanced capital allocation strategy of both growing the business and returning value to our stockholders. In addition to the two acquisitions we have completed so far in 2016, we spent $71,700,000 on capital expenditures during the first half of twenty sixteen, primarily on purchases of new equipment to increase our value added processing capabilities.
Our 2016 CapEx budget remains unchanged at $180,000,000 In the first half of twenty sixteen, we paid our regular quarterly cash dividend totaling $58,000,000 and we increased the quarterly dividend by 6.3% for the third quarter of twenty sixteen to an annual rate of $1.7 per share, up $0.10 from our prior annual rate. Now turning to our outlook, we continue to believe The U. S. Economy is generally healthy and anticipate a continued slow recovery in demand subject to normal seasonal factors. We're optimistic that metal pricing is sustainable at current levels through the third quarter of twenty sixteen and we are confident in our ability to execute well in this environment.
As a result, we estimate tons sold to be down 1% to 3% in the third quarter of twenty sixteen compared to the second quarter of twenty sixteen due to normal seasonal factors. We also expect our average selling price per ton sold in the third quarter of twenty sixteen to be up approximately 1% to 3% from the second quarter of twenty sixteen, assuming current mill prices remain in place for the full quarter. As a result, we currently expect non GAAP earnings per diluted share to be in the range of $1.25 to $1.35 for the third quarter of twenty sixteen. In closing, I'd like to once again thank our managers in the field for their hard work and dedication to Reliance. Their successful execution of our strategy resulted in yet another quarter of FIFO gross margin expansion and strong financial results.
That concludes our prepared remarks. Thank you for your attention. And at this time, we would like to open the call up to questions. Operator?
Speaker 0
Our first question comes from the line of Tony Rizzuto with Cowen and Company. Please proceed with your question.
Speaker 7
Thanks very much. Good morning all and thanks for taking my questions. Good Good morning, Greg. I just wanted to extend my heartiest congrats to both Dave on his long term accomplishments while he was at the helm and also to Mark too as he takes on the new role. So wishing you guys both all the best.
So Greg, Carla and team excellent progress, number of areas. I think we were most impressed by the continued ability that you guys are capturing market share. You've had six consecutive quarters of gross profit margin improvement. It's got to be disappointing when your shares are down 5% on a day you report results like this. And it would seem to indicate that there's some skepticism out there about the sustainability of these achievements.
And I was wondering, first of all, if you could provide your thoughts on this and then maybe to how we should think about your gross margin a little bit more in a granular manner as we move forward. You said that you kind of finished the quarter with inventories where they are. So how should we think about that? And then I've got some other questions too.
Speaker 2
Well, Tony, obviously, we're very pleased with the thirty one point one percent and six consecutive quarters of increased gross profit margin. There's been a tremendous amount of time and effort put forth not only by our people in the field, but certainly by our operators here in this office and we couldn't be more proud of their accomplishments. I think we mentioned on our last call about the sustainability issue, which is a legitimate question, okay, very legitimate. But with six quarters of increases, I think we guided last time to the 28% range thinking with the prices going up, but still a little questionable that maybe that would be more prudent to go in that direction and then we increase it by 1.7% above that, so above the 29.4% that we finished the second quarter the first quarter with. So obviously, we kind of missed the gun on that one.
But I wouldn't guide to 31 or do my modeling on that and maybe we can get a couple of thoughts from Karl on that.
Speaker 6
Yes. And I guess first, Tony, on the stock price, certainly it is disappointing when we execute the way we do to see the stock price go down, but we are confident that everyone will realize that we deserve a higher stock price and we will see it go back up. On the gross profit standpoint and the sustainability, as you know, we have been conservative. We typically are conservative, but we have seen very good progress for all the different reasons Greg had in his comments. And in the second quarter, did get a little bit of a lift because mills were announcing price increases mainly on carbon steel products.
And as we've done consistently in periods of rising prices, we're typically able to expand our gross profit margin when the prices are announced before we get the higher cost inventory in. So we do believe there was a little extra expansion in the second quarter because of the timing of the price increases. In the third quarter assuming price, no pricing remains flat as we start to receive in our higher cost metal, we do believe we will see a bit of compression from the 31.1% margin that Greg talked about. But we do believe our gross profit margins are certainly sustainable at a higher level than 25 to 27% we had talked about previously because of all the good things we've done with pricing, additional value add processing, good inventory management, etcetera.
Speaker 7
Right. That's a bit of a wide range there. You could drive a Class eight truck through there a little bit, 25 to 27 to 31. But let's maybe perhaps look at it. So if we are maybe assuming pricing is maybe some possibility of retracement, not a collapse, but maybe taking that into account and looking at what has structurally changed with your gross margin, maybe that's the way to look at it.
I mean, are we talking about possibility closer to 28% to 30% versus that type of level? Just trying to figure out of that how much of a boost. You mentioned a bit of a boost and I hate to split hairs on this, but it's obviously very important.
Speaker 6
Yes, think Tony, if you look at our first quarter of this year, we were at 29.4% FIFO gross profit margin, didn't have expansion from the mill price increases during the quarter. I think the current environment hasn't changed. We're still feeling good like we were in the first quarter. So I think probably something close to the first quarter number is reasonable for the third quarter.
Speaker 7
Okay, okay. That's very helpful. What can you tell us about your willingness or unwillingness to perhaps buy more foreign material? Obviously, we're beginning to hear reports of obviously the widening spreads out there for some products. And with inventories seemingly quite low across the board, what can you tell us about the attractiveness of foreign material and your view towards possibly changing your behavior?
Speaker 2
Tony, I think our behavior is one of the main reasons why our margins have improved to the extent that they have. Turn our inventories whenever we turn our inventories effectively, we get a kick on our margins because we don't have to chase truckload quantities of material at low margin. It's just to blow out inventory. We haven't been doing that in the last six quarters. And if we brought in foreign material, it would expand our inventories and probably put us into a position where we would chase some of those orders that we choose to walk away from today.
So I think our position of keeping as much domestic material here by way of purchases has served us very well. I mean, we could go out in the market and buy foreign material and go chase orders and increase our tons and make certain people that follow our stock happy because our tons are going up and all this other stuff, but we wouldn't have anything to show for it. There wouldn't be anything on the bottom line improvement that we've seen thus far with our increase in our gross profit margin. So I think our model of keeping our purchases domestically to the extent that we have, which is about 95% of what we buy is produced in North America, has served us very, very well. And I don't see any reason to move astray from that.
Yes, some of the spreads are pretty high, but we have some very good relationships with the domestic producers and they're not going to let us get too far out of whack because if we lose position, they lose position and that's a lose lose proposition.
Speaker 4
Hey, John, this is Jim. Hey, How are you? Yes. Good. Another point, one of our strategies for margins was our investment in value added equipment.
That's certainly still a strategy of ours. Our budget was $180,000,000 It's still $180,000,000 We haven't spent anywhere near $180,000,000 We've got a long way to go. So, we've got more equipment coming in. And as the quarters roll by, we'll be bringing that equipment online and be able to offer our customers more activity at better tolerances. So, we hope it continues to play out like it has so far.
Speaker 7
Do you all of you guys, I'd be interested in hearing your thoughts. Do you believe in the theory or are you buying the theory that because inventories we look at the MSCI data and certain product categories extremely low and the lowest we've seen in years. Do you buy into the theory that inventories are so low and with demand relatively stable that there could be a pretty significant restock maybe in the fourth quarter? Or do you just think it's kind of steady as she goes in terms of inventory behavior, generally speaking? Now obviously, this is you've obviously done an excellent job.
I'm just asking you to think a little bit more broadly in terms of the service center industry.
Speaker 2
Tony, I don't think there's going to be a surge in purchases from service centers restocking. I think inventories are low. I think everybody has been keeping their inventories close to their vest. I think that's the absolute right thing to do. That's certainly what we've done.
And I think there's some question as to this sustainability of some of the prices that are out there today. Certainly, there's fewer imports that are coming in, fewer offerings, although that's picking up just a little bit now. But overall, I think that people will be more or less business as usual going through the second half of the year.
Speaker 7
What do you
Speaker 2
guys think?
Speaker 5
Do you agree with that? I do. And probably the most important, Tony, is really speaking for our guys, and we definitely will not be doing that. So I agree with Greg. I don't think we're going to see any major restocking take place.
Speaker 4
Yes, it's fair to remember, in my opinion, I mean, the kind of general consensus is prices are going up, that's when people buy a little more. If there's a gut feel or somebody thinks the pricing might may come down a hair or more imports come in, people take a little bit of a pause and they watch their dollars. So we've seen we can only control 62 companies. We don't know the rest of them out there. They're going to do what they're going to do.
But if you look at the MSCI numbers, I think the inventory is in pretty good shape right now, and there's really no pressing reason to screw that up.
Speaker 7
Great. Listen, final question for Bill, and I'm going to turn it over then. So the recent affirmation against the Chinese in stainless flats, how positive an impact is that for you guys?
Speaker 5
Tony, I think that's going to be very positive. I think we'll see the Chinese back away from this market and I think that should be very positive for the domestic guys. And as you know, demand has been good there and I think that will be very positive from a pricing standpoint.
Speaker 7
Has your competitor who's getting out of the market, have they liquidated their inventory at this point?
Speaker 5
I'm not sure what I'm not sure about that, Tony.
Speaker 6
Okay. Don't think we can
Speaker 8
comment on that. Yes.
Speaker 7
No worries. All right. Thanks. Thanks very much all.
Speaker 2
Okay. Have a great day, Tony. Our
Speaker 0
next question comes from the line of Jorge Verstadt with Deutsche Bank. Please proceed with your question.
Speaker 9
Well, thanks guys. Appreciate Tony taking the lead there. I guess I just have a few questions remaining. Carla, my question is kind of sort of the flip side of what Tony's question was earlier. We did see the gross margin expansion of 170 basis points quarter on quarter, yet average selling prices were actually disappointingly a bit low.
And so what I'm trying to figure out is, were you fully able to affect as quickly as you say and as fully across your carbon steels the price hikes or could there be a little bit still in the kitty into the second half? And then also what about other later cycle metals that we're starting to see move up in non carbon like aluminum and stainless, are you seeing any kind of I think you touched on that in your comments earlier, but some second half momentum there where maybe average selling prices will not fall as much as list prices as they start to correct? So that's my question.
Speaker 6
Yes. Good morning, Jorge. So I think from the average selling price not going up as much as we had anticipated, if you do break it down by commodity, most of the price increases were on the carbon steel products and our carbon steel average sale price per ton was up 2.6%. What did happen during the quarter was our average inventory cost on hand continued to trend down a bit because we were still receiving in some of the lower cost inventory that we had ordered previously. So I think we got the spread that we expected to get based upon the price increases that were out there.
It was just off of a lower base than we had anticipated. So that's where we talked about in Q3. We think our average inventory cost will start to go up a bit as we receive in some of that higher cost inventory. We might give up a little bit of that carbon margin spread from the price increases, but we still expect the margins to be very healthy and for us to sustain our margin on those. So I think it was really the cost going down that caused our average sell price to not be up as much as we thought it would over the first quarter.
And to your point about the other products, yes, during the second quarter compared to the first quarter, the other commodities, aluminum, stainless, alloy, saw average sell prices down. There are some regions out there that we might see some increases in those in the back half, which could help us in those products as we pass through those price increases.
Speaker 5
Yes, particularly on stainless. I think we have the opportunity there where surcharges, we expect those to go up in the second half.
Speaker 8
And then
Speaker 5
I think there's a good possibility we'll see a base price increase sometime in the second half.
Speaker 2
And we've had a couple of base price increases, okay, already in
Speaker 6
the first
Speaker 10
half of the year.
Speaker 2
So I thought that reading those trade cases on China, okay, I know that Bill was having somewhat of a party in the past that
Speaker 4
could be Yes, could be, absolutely.
Speaker 9
Great. Thank you for the full response. Just one second follow-up, just on the aluminum, you mentioned that you're basically making better margin on tolling. Could you just give us a kind of sense as to with your aerospace exposure now at 11%, should we be expecting you to be growing sort of in line with the build rate for aircraft going forward or are you expecting an above build rate growth average just because you're kind of winning market share? Just if you could just talk about that.
Speaker 5
Yes. On the aerospace side, we still think we'll see growth in the second half. And so our outlook is still positive. The build rate changes that have been announced, think we're seeing a little bit of an impact there when we look at mill lead times. Those are have compressed just a bit.
But that's still very dependent on what programs you're supporting. And for our guys, our outlook is still positive and we think we'll still see improvement from a demand standpoint in the second half.
Speaker 9
Okay. Thanks very much.
Speaker 0
Our next question comes from the line of Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question.
Speaker 11
Hey, good morning.
Speaker 2
Good morning. Hey,
Speaker 11
Bill, I had a question on the aerospace side as well in terms of the more moderate growth you're talking about. What's that really off of?
Speaker 5
Really, Phil, we're just looking at the programs we have, looking at the demand that we saw through the first half, and we think we're going to see that continue. When we say moderated growth, it may not be at the same growth rate, but we still see it as positive in the second half.
Speaker 11
How much have the lead times in general for the aerospace heat treat plate come in relative to maybe three months ago?
Speaker 5
To three they come in like one to two weeks, Phil. So overall, we've seen that when I said they've compressed a bit, I'm really referring to a kind of a one to two week timeframe.
Speaker 11
Okay. I appreciate that. And Jim, on the energy side, I believe there were some comments about a little bit of light coming out of the darkness in the press release. Anything that you could comment on in terms of what you're seeing and what the allusion to was there?
Speaker 4
Yes. So it's when you've been down like this for a long period of time, just a little bit makes you feel good. So just the quoting activity has come up a little bit. The feet drilled came up a little bit. There's been a couple of announcements where some of the big boys announced that they're going to release some CapEx dollars, and we're seeing better quoting activity.
So that's what I mean by a little light at the end of the tunnel.
Speaker 11
Perfect. And any sense you could give us as to how much inventory that still needs to be churned through maybe relative to the current rig count levels? And when we're through the kind of mopping up some of the excess pipe and tube in bar products?
Speaker 4
I mean, if I understand your question properly, our inventory is in okay shape. We kind of got on this early before it started really coming down. So we took a lot of inventory out before it really started crashing. I'm not going to tell you we don't have some excess A items, but they are A items and we know they're going to come back. So we keep them in line.
We're not going to increase our inventories. We don't need to. If the business came back X amount of percent, we would be able to absorb those orders without adding any expense and without adding a whole lot of inventory, to tell you
Speaker 2
the truth. And we've been pleasantly surprised, okay, that the producers, okay, would have expected alloy pricing to go down much greater than it actually did. In large part, that's because automotive has been so strong. So there's been a lot of alloy being consumed in that market. But we think the suppliers have exercised some very prudent discipline on the pricing side.
So we haven't seen the major price discounts that normally you'd expect to see when business is down 40%, 50%. Yes.
Speaker 4
And just the product itself, SBQ bar, the S stands for special. It's hard to make. And there's not a whole lot of players in the game. Heavy wall tubing, those are very high quality products. And thankfully, they've to Greg's point, they really haven't come down as much as they could.
Speaker 11
I appreciate all the color. I just have a housekeeping one for Karl, and I'll jump off. Was your tax rate guidance for the year, was that on a GAAP basis?
Speaker 6
Yes. Okay.
Speaker 11
Thanks so
Speaker 6
much. Our
Speaker 0
next question comes from the line of Aldo Mezzafaro with Macquarie. Please proceed with your question.
Speaker 10
Hey, Good morning, caller and I was just wondering about the demand side a little bit more. Greg, I think you said in your initial comments that when you made your first guidance for the second quarter, you had a view of demand that came in a little bit weaker than you thought. I wonder, could you specify a little bit about where those sectors were in terms of they came in a little weaker or was it generally across the board?
Speaker 2
It was generally across the board. But it was fairly much in line. I think we were up 1.1%.
Speaker 6
Yes, I think out of Greg's comment that you're talking about was more about 2016 in general compared for the first half. Second quarter was in line, but earlier in the year, we thought 'sixteen was going to be a little stronger than we've seen it playing out.
Speaker 2
Good point. When we were going into 2016, our outlook was a little bit more positive than what it turned out. In the second quarter, I think we were up in tons 1.1% over first quarter, which was in line with our guidance of zero to flat to 2%. So there wasn't really any big surprise there. Non res came in just about where we thought it would.
We've seen some improvement there. The heavy equipment, basically no big surprises there at all. Aerospace is doing well. Automotive and toll processing is doing extremely well. And as Jim mentioned in his comments, we just opened up a new facility down in Monterrey, Mexico, just had our opening day ceremonies on July 12.
So, we're really upbeat about that particular one. We put a brand new slitter in place in our Michigan operation that was commissioned in April. So, we're anticipating more growth there. We broke ground in Kentucky just recently in the last thirty days and expect to have a facility there operational to support the automotive industry that are moving into the Louisville area and that should be open and running sometime in the second quarter of twenty seventeen. So we're seeing there's been really no industry that has surprised us.
We thought that it might be a little bit stronger than it actually is. We're continuing to make investments like the ones that I just described and those investments are paying off quite well. So with those investments, you go to your people and you say, we need to pay for those investments. This 180,000,000 that we've been spending basically every year for the past five years, damn near $900,000,000 in the last five years, we want to get paid for that stuff. And we don't see our competition very honestly pouring as much money in CapEx spending.
So that tells us that our tolerances are superior, okay, the finished parts are better and we want to get paid for it. So that's the message that we've given to our four op guys and they've set the guidelines for the people in the field who ultimately are the ones that execute the plan. So no big changes out there.
Speaker 6
Yes, I think when we came into the year we were at the after the fourth quarter when we talked to you guys in February, we were anticipating that our volumes might be up a couple of percentage points for the 2016 year compared to 'fifteen, but we have seen the overall demand down. So at Reliance, are down only 2.1% in tons sold on a same store basis for the first half of the year. The industry is down 6.9%. So we think we are definitely doing well given the overall demand environment we are in and we are kind of out beating the industry even with our higher gross profit margins we're achieving because of those reasons Greg talked about.
Speaker 10
Great. And thank you. Just a quick follow-up. I know you answered a lot of questions already. But on stainless steel specifically, are you anticipating any price gains in the second half from the tariffs that were announced on a preliminary basis?
Speaker 5
Yes, Aldo. We I think we said that, that we do think there's a very good potential for a price increase in second half. And we also think that we'll see continued increases on the surcharge side based on nickel pricing too.
Speaker 8
Right.
Speaker 10
Okay. Thanks very much.
Speaker 8
Thanks, Oliver. Our
Speaker 0
next question comes from the line of Timna Tanners with Bank of America Merrill Lynch. Please proceed with your question.
Speaker 12
Hey, good morning guys.
Speaker 2
Good morning. Good morning.
Speaker 12
I just had two left and I know we've probed the oil and gas end market and I know we've probed aerospace, but I just wanted to touch on the automotive industry and was really interested in the new facilities and capacity you were talking about. Our automotive counterparts are starting to get a little bit more cautious in terms of the outlook, not negative, but
Speaker 0
just maybe closer to a peak.
Speaker 12
And I was wondering if you have any contracts or maybe if you're more on the aluminum side or what gives you the confidence in adding capacity at this point in the market?
Speaker 4
Tim, this is Jim. When you're I've always said, when you're speeding down the highway going 85 miles an hour and you slow down to 70, you're still speeding. The automotive count is still in excess of 17,000,000. I think I read an article the other day where they adjusted their $17 build down from 17,700,000.0 to 17,400,000.0 That's still a lot of activity. And a lot of our activity happens to be in the light truck and the kind of medium duty trucks.
And everything we see and all the folks we deal with are telling us that the build rates are exactly what we thought they were going to be. So we don't see in the foreseeable future any real issues. Those are tremendous numbers.
Speaker 6
So Tim, even if the build rates for autos stay where they are, a lot of our investments are going into the shift from carbon to aluminum processing a lot more aluminum. So that's why we are very bullish and see our piece of that market increasing because of that shift to aluminum that we're supporting.
Speaker 2
Those are investments, Timna, that we in The United States. So the Kentucky operation, the slitter that went into Michigan, our new plant in Michigan, which was April of last year and a new piece of equipment that was commissioned in April of this year, those three operations are all centered around aluminum going into light trucks, okay. The one in Mexico that we're opening in Monterrey is not necessarily aluminum related, but we're at capacity in our plant down there. So we needed to either add on or get closer to Monterrey. We decided to get closer to Monterrey for logistic purposes.
So that was put in there not necessarily for aluminum, although the piece of equipment that we put into Monterrey, Mexico is designed to be able to do light gauge aluminum going into automotive. So the majority of what you're seeing, especially in The United States, is actually being put in place because of the switch from carbon steel to aluminum.
Speaker 4
And one other thing to remember, Tim, that we process a lot of steel that goes into the appliance industry as well. So and that's strong as well.
Speaker 12
Okay. That makes a lot of sense. Thanks for that answer. The only other question I had for now was just in terms of the guidance, wanted to clarify because you make the comment here assuming current mill prices remain in place for the full quarter. And I'm not as sophisticated on how long products are priced on the carbon steel side.
So I was just wondering, is that already baking in the recent declines in scrap prices and or any declines that may result from what's happening in Turkey and the weakness there or what scrap price might that be baking in when you talk about current mill prices?
Speaker 6
Yes, I think we didn't put anything in specifically because of what's going on in Turkey or pull it down. So kind of the general prices, remember, we've got a very broad product mix and scrap certainly impacts many of our products, but I think we're still kind of consistent with where prices have been over the last three to four weeks in our guidance.
Speaker 2
Yes. And the scrap is going to probably have more of an impact on many mill product, long products that you're referring to. But they have have pretty good discipline in those products through the years and they may go down. We're not anticipating that they will. But even if they do, they're not going to go down in our opinion significantly or dramatically that's going to make any impact on us one way or the other.
So we're not overly concerned about that, but it wouldn't shock us. But right now we're of the opinion that it's going to be it's going to remain fairly flat.
Speaker 0
Okay. Thanks guys. Appreciate it.
Speaker 8
Thank you.
Speaker 2
Thank you.
Speaker 0
Our next question comes from the line of Michael Gamboedala with JPMorgan. Please proceed with your question. Michael, you can proceed with your question. Can you please check to see if your phone is on mute?
Speaker 2
Well, that was easy to answer.
Speaker 0
Okay. Our next question comes from the line of Chris Olin with Rosenblatt Securities. Please proceed with your question.
Speaker 13
Hey, thanks for taking my call.
Speaker 6
Hi, Chris. I
Speaker 13
just have a basic question. A couple of companies have started to mention weather, especially the rain in Texas as part of an issue in the past quarter. I was just wondering if you think you lost any volumes because of the amount of rainfall and your leverage to construction markets?
Speaker 4
No, I don't think we do. When we have weather issues, whether it's in the wintertime in Cleveland, Ohio or rain in Texas, if we lose a day, we pick it up the next day because you always end up getting the orders you are going to get, but they just get pushed out in the future. So no, I wouldn't we don't blame things on weather.
Speaker 2
Yes. Rarely will you ever hear us say anything about our business being negatively affected by weather conditions unless there's an absolute devastating five day hailstorm, right? But because the orders are still there. The fact of the matter is we just can't ship them because either issues on the road or our customers aren't open to receive it. But at the end of whether it be in the end of the month or at the beginning of the following month, it's going to ship.
So it has not been an issue with us. We've had some certainly some complaints about 14 inches of rain in twenty four hours and stuff like that. But I haven't heard and by the mercy of God, none of our people have had been affected. They're all healthy and whatnot. That's the most important thing.
But I haven't heard any and if Jim would have heard something, I would have heard it. So the answer to your question is no. It's business as usual at Reliance.
Speaker 8
Okay. Thanks a lot.
Speaker 0
Our next question comes from the line of John Tumazos with John Tumazos Very Independent Research. Please proceed with your question.
Speaker 14
Just want to thank Dave and congratulate Dave on his retirement and the whole team under the for the accomplishments over the last twenty two plus years. And when you think about it, even Ken Iverson at Nucor made a mistake once, iron carbide or steel concrete railroad ties fifty years out of the railroad industry or maybe Tom Graham once or twice spent money on an oilfield tube machine or an automotive processing plant that didn't earn returns the first ten years. A lot of people I don't think Reliance has made a significant strategic mistake since it's gone public. God bless you.
Speaker 2
We had good leadership with Dave, that's for sure.
Speaker 14
Well, the team, the team
Speaker 4
too. Yes.
Speaker 14
So with regard to several metrics, I'm trying to remember what are the best ones ever. Is the 31.1% FIFO margin the best ever? And could you just refresh us as to what was the best quarterly revenue ever, the best quarterly tonnage ever and the best quarterly EPS ever? And it's so extraordinary to have the record margin without having record volume and price. You must have really bought steel well at the beginning of the price runoff?
Speaker 6
Yes, I think, John, far as the question on records, in the quarter of 31.1%, I thought that probably had to be a record, but we went back and in 2004 when we had that first price spike, there were the second, third and fourth quarters of 'four for second and third quarters, we were actually a little bit above that with the record at 34.3 during that time. Revenues, we're not quite there because pricing is still down. We've been building the company, but the third quarter of twenty fourteen was kind of our record there. And from an EPS standpoint, we hit our record in the February. Prices were certainly a lot different in the February than they are now.
And I think we would easily beat that with the fundamental improvements we've made in the business through the companies we've acquired and through the value add we've added and the way our people are executing on getting the margin. So I think without pricing, like I said, we'd be there, but we feel really good about how we performed in the current environment.
Speaker 2
John, speaking from our team's point of view, we really appreciate that question. It's very valid. But we had a Board meeting last night and there were a Board member brought up the very question about our 31.1%. And I happened to glance at the report Carla is looking at today and I said, no, it's not a record, but it's the best GP percent we've had in the past twelve years. So, I can't tell you how proud and excited we are as a management team here and we are able to do that.
And out of the six consecutive increases in GP per quarter, four of those quarters were in 2015 when prices were going down. And nine times out of 10, when prices are going down, your margins are going right down with it, okay? We reduced our inventory margins in each one of those quarters throughout that particular year. And I have to tell you, there's not a whole lot of companies I've ever seen when prices fall fifteen months in a row that are able to increase their prices every single quarter throughout a year like that. So it was a heck of an accomplishment.
And I think what it did for us, it just gave our team both here and in the field a lot more confidence in our ability to be able to sell product at higher prices based on the processing that we're doing and the outstanding commitment to customer service that we have. So you can ask those questions to us any time.
Speaker 14
If you could elaborate on the 1% to 3% up pricing guidance for the third quarter. Nickel is up almost $1 now and stainless is strong and I don't think any of the nonferrous prices are worse right now. Do you think you might be a little conservative on that or do you think steel is softening?
Speaker 2
We're thinking steel is pretty flat, okay, for the quarter. That's what we're that's our best guesstimate is that steel will be pretty much at flat levels throughout the third quarter. We're anticipating a kick in the stainless, but normally that takes a little bit of time to get work its way into the marketplace. So our guidance is considering that to be a little bit flat. But if this trade case kicks in, it's probably not going it's not going to affect us in the third quarter, but it could have an impact in the fourth quarter.
Speaker 6
Yes. And in all honesty, John, we are probably a little more hesitant of the price increase in Q3 versus Q2 since we missed a bit on Q2 versus Q1. I mean carbon was there. And also with our product mix in the third quarter, stainless is about 14% of our total sales dollars. On some a lot of our stainless products are sold into the energy industry.
So we don't know that we'll necessarily get the bump as quickly on those stainless steel products as we will on the flat rolled and some of the other stainless products. So certainly, we think it's positive. As you know, we're generally conservative or try to be in our guidance. So there is some upside there.
Speaker 14
Could you elaborate on the 11% of your total revenue now from aerospace And just review how much of it's aluminum versus jet engine alloys or which parts of the plane fasteners? And if it's the high if it's helping contribute to the 31.1% higher margin?
Speaker 5
John, I'll take that. It's Bill. I think of that 11, most of it is on the aluminum side.
Speaker 6
Probably And about 9%
Speaker 5
of that mix would be on the aluminum side. And then we're the balance would be in those specialty alloys, the aerospace steel and titanium products. And it goes across a wide range of end uses. On the aerospace steel, we're a big player in landing gear And then on the aluminum side, with monolithic design for aluminum plate, it goes really all over the airframe. Of
Speaker 2
that 9% though, Bill, what would you consider to be
Speaker 5
our plate? Significant part of that is plate. Mean 70%. Yes, probably 70%, 75% of that would be on the aluminum plate side. Right.
Speaker 14
If I could just interject on the stainless and the nickel. Sure. There's a real sweet lady in The Philippines that's the Minister of Environment and Mines. She wants to close every open pit mine out while the use of explosives. Last year, The Philippines were 23% of world nickel mine output first.
And even through the first half of this year, they're still number one. So there's a new patron saint of the nickel market out there.
Speaker 2
We'll get on our knees and say a prayer
Speaker 14
for us. Yes, I got my rosary beads in my hand.
Speaker 2
I got you.
Speaker 14
Take care.
Speaker 4
You too. Thanks, John.
Speaker 0
Next question comes from the line of Michael Gamperdella with JPMorgan. Please proceed with your question.
Speaker 10
Yes, good morning.
Speaker 8
And sorry, I got disconnected Congratulations on the quarter and just wanted to get some color on the processing end of your business, the tolling business. Can you give us an idea, the gross profit margin in the quarter, 31%, what would that be if you excluded the processing part of your business?
Speaker 6
Yes. So the tool processing part, Mike, does have higher gross profit margins than the other part of the business. So it brings it up a bit, but it's right around 3% of our sales dollars. So it's not moving it significantly. So we saw that trend in the gross profit margin percent truly was across the company.
It wasn't achieved only because of the toll processing. Toll processing helped pull it up a bit, but the rest of our operations all increased their gross profit margins and really have that improvement that you see in the total GP percent.
Speaker 2
We take a look at that basically every month and as happy as we are with the toll processing operations and their contributions to earnings and believe me we are. But as a whole, when you look at all the entire corporation, okay, basically every business unit had increased gross profit margins over the past six quarters.
Speaker 8
Right. But the toll processing business, I mean, their gross profit margins must be more than double what the company reported, right?
Speaker 6
Not at the gross profit margin level. They're significantly better than the company wide average, but not to that extent. When you go down to kind of the pre tax operating income or pre tax, you are going to see a higher multiple to the company wide average produced by our toll processing company.
Speaker 8
But you're saying that the total revenue on toll processing is 3%?
Speaker 6
Of total sales dollars, because remember we're only charging for the processing fee. So it's 3% of total sales dollars, but it is a bigger percentage of the operating income or pretax income lines.
Speaker 8
And that tends to be stickier business, right, than the rest of the vast majority of the other business?
Speaker 6
Yes. It's kind of high volume, long run. We're the customers we're working with there, we're going into large pieces of business.
Speaker 8
And that's contracted on an annual basis?
Speaker 2
Actually, when we get into contracts there, there are more agreements that we have with the suppliers and the end users. Of course, the suppliers are ultimately our customer, but we're also very, very close with the end users. So we understand the quality needs of that end user. So it's not like you walk into a signed agreement. It's a handshake agreement that this is what you're going to do and these are the volumes associated with it and this is what our price is for the various processes that we perform.
So it's you have to understand, we're our business on toll processing is a little bit different than the majority of toll processors in that we do the really, really difficult things that most toll processors don't even want to touch. We do process in that our toll processing operations that we could not do in any of our service centers throughout the country, okay. They're very niche orientated and it's very, very high quality needs. So we don't have a tremendous amount of competition and we do a really good job with that. But we don't have a firm commitment for a year with basically anybody.
Speaker 8
Okay. And is that part of the reason why your capital expenditure commitment is higher than some of your competitors?
Speaker 2
It definitely is. Some of the equipment that we put in well, let's put it this way. The most expensive equipment that we put in at Reliance Steel is associated with our toll processing operations. Right.
Speaker 6
But even outside of that, putting the toll processing investments aside, Mike, we still spend significantly more than our competitors on capital expenditures and putting in kind of new state of the art equipment into our facilities.
Speaker 8
Okay. And just final question, I assume this is in the 10 ks, I can look it up, but what percent of the peak of the locations at this point, if you look at on a square footage basis is owned versus leased?
Speaker 6
Sorry, Mike. Give me one second here. I'm flipping in our 10 ks.
Speaker 4
It's the only number code that doesn't have memorized. I know.
Speaker 6
We've got our big table, so it's harder for me to find right now. Think it's the majority, Mike. We could wait, got it. So about 80% of our total square footage in our operating facilities we own.
Speaker 8
Great. Thanks again and congratulations on the quarter.
Speaker 2
You very Thanks
Speaker 0
Mike. Next question is a follow-up question from Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question.
Speaker 11
I think at this point my questions are answered. Actually, just remembered it. It was a question on the sheet business, because I think you acquired a lot of that for Metals USA. So is there a lag, Carla and Greg, in terms of the pricing there? Is this more of that business on a CRU reset?
Speaker 2
The contract business that in carbon steel that we have with the Metals USA companies, a degree of that is based on crew, okay? So whenever you have any contract based on that index, there is a lag, okay? So what you see in a particular month or quarter, I should say, okay, could lag the market and then you can get higher margins in the following quarter. So and just the opposite, if prices go down, you might have higher margins this quarter and lower margins the next quarter. So yes, there is.
But if you look at our total company, okay, as a whole, what that lag is, whether it's going up or it's going down, is relatively insignificant when you look at the entire scheme of things. It's not something that I worry about.
Speaker 11
Okay. I was just trying to gauge in your carbon steel portfolio if you had a lot of log business and I think if you had in my mind, if you had any, it would be in the sheet side, but it sounds like even that is pretty mixed.
Speaker 2
It is. It's a good question. And we don't have the crew on anything other than the carbon steel flat rolled business. We don't have it in the other products.
Speaker 6
Yes. And carbon flat rolled is 15% of our total sales dollars, 3% of that is hot rolled I am sorry, 6% is hot rolled. The rest is in kind of galvanized the majority is in galvanized and cold rolled.
Speaker 11
Okay. Thanks so much.
Speaker 2
Thanks, Mike. Thank you, Mike.
Speaker 0
There are no further questions at this time. I would like to turn the call back over to Greg Mullins for any closing comments.
Speaker 2
Okay. Thank you for joining us today. I'd just like to reiterate the fact that our focus is on maximizing earnings, not tons or sales and that starts with gross profit margin, which is why we speak so much of towards that particular bottom line. We're not a tonnage type company, we're an earnings company. So I just wanted to reinforce that.
Also, I'd like to we'd like to remind you that in mid September, we will be in Boston presenting at the KeyBanc Basic Materials Conference and we hope to see many of you there. Thanks for joining us, and have a great day.
Speaker 0
This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.