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Edited Transcript of RUS.TO earnings conference call or presentation 9-Aug-19 1:00pm GMT

Q2 2019 Russel Metals Inc Earnings Call

MISSISSAUGA Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Russel Metals Inc earnings conference call or presentation Friday, August 9, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Gregory Reid

Russel Metals Inc. - CEO, President & Director

* Marion E. Britton

Russel Metals Inc. - Executive VP, CFO & Secretary

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Conference Call Participants

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* Derek Spronck

RBC Capital Markets, LLC, Research Division - Analyst

* Devin Dodge

BMO Capital Markets Equity Research - Analyst

* Frederic Bastien

Raymond James Ltd., Research Division - MD & Equity Research Analyst

* Michael Tupholme

TD Securities Equity Research - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the 2019 Second Quarter Results Conference Call for Russel Metals. Today's call will be hosted by Ms. Marion Britton, Executive Vice President and Chief Financial Officer; and Mr. John Reid, President and Chief Executive Officer of Russel Metals Inc. (Operator Instructions) I'll now turn the meeting over to Ms. Marion Britton. Please go ahead, Ms. Britton.

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [2]

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Good morning, everyone. Thanks for joining our call. I'm going to begin by reading the cautionary statement that is on Page 3 of our information that we circulated last night. Certain statements made on this conference call constitute forward-looking statements or information within the meaning of applicable securities laws, including statements as of our future capital expenditures, our outlook, the availability of our future financing and our ability to pay dividends.

Forward-looking statements relate to future events or our future performance. All statements other than statements of historical facts are forward-looking statements. Forward-looking statements are necessarily based on estimates and assumptions that while considered reasonable by us, inherently involve known and unknown risks, uncertainties and other factors that makes us actually results or events to differ materially from those anticipated in such forward-looking statements. Our actual results could differ materially from those anticipated in our forward-looking statements, including as of the result of the risk factors described below in our MD&A and our Annual Information Form. While we believe that the expectations reflected in our forward-looking statements are reasonable, no assurance can be given that these expectations will prove to be correct, and our forward-looking statements included in this call should not be unduly relied upon. These statements speak only as of the date of this call, and except as required by law, we will not assume any obligation to update our forward-looking statements.

Okay. Turning to Page 5. We will just summarize few of the highlights of second quarter. Second quarter earnings 2019 were $31 million or $0.50 of EPS. You can see there are great results we didn't have in Q2 2018. I want to remind everybody that Q2 '19 was actually a good year -- a good result. I'm going to speak a little bit to that when I get to the 5-year summary. In the 6 months, we've produced an EPS of $1.05. Free cash flow was strong at $102 million for the 6 months or $1.65 per share. Also, our return on equity at 15% is very -- a good result. We declared our dividend of $0.38 per share yesterday.

Turning over to Page 6. A few market comments. Demand is lower and steel price has come down compared to 2018 and earlier in the year. Metals service centers average selling price was 2% higher than Q2 2018, also, though the tons were down 7% compared to Q2 2018; the year-to-date also was down 7%. So volumes were down. To this point in the year, selling price is up; I'll speak to that in a minute where we think it's going. We count down in the U.S. and Canada both year-over-year for the quarter, and currently, it remains down. Energy products segment revenues decreased 7% compared to Q2 2018, mainly related to the fact that rig counts have been down. Tariffs between the U.S. and Canada were removed in May 20, 2019. So during the quarter, we had our tariffs that were put in place last year removed, and it did have some impact on further pressure downward on steel prices.

Turning over to the next page, Page 7. If you could look there at our basic earnings, you'll see what we produced between '15 and '18 and then the Q2 this year -- last year -- or I mean, sorry, 6 months of this year and last year. You'll note that our results if you would annualize them, are second best to our 2018 results produced. So we're still having a good year, although in most cases all our measurables are down because 2018 was a spectacular year.

Down below, you'll see the working capital of metals, and you'll also -- we have the fixed assets and everything compared year-over-year. Net assets employed are down from year-end slightly. We'll get into a little more detail on that in a minute.

Turning forward to Page 10. This is where I was going to speak to the change in working capital. So accounts receivable did -- positive cash flow from accounts receivable, mainly collections in our energy and our decline in revenue, as selling price did come off also impacts that. So $55 million in the quarter, $31 million year-to-date. Inventories provided cash of $17 million in the quarter, $32 million -- $33 million year-to-date. Accounts payable in the quarter was $55 million, that's mainly relates to the fact that we've been reducing our inventories, and as we reduced our inventories, we don't have the payments as we start to restock because our inventories in special and metal service centers are now at a lower level. We will get the payable.

If you look at the accounts payable, it's down $81 million -- or I mean, utilized $81 million year-to-date. Part of that is because we did take bonuses in February that were accrued at year-end. So the noncash working capital movement has been $22 million year-to-date. Also, you'll note a significant impact from taxes paid year-to-date related to some of the amount we were able to pay this year related to '18 in Canada and then came under our '19 taxes.

Moving forward to Page 13. You'll note at the bottom, we have updated the information on the tariffs U.S., Canada and the Canadian Safeguards, what has been happening. We did also give some information on the fact that the Canadian Department of Finance has looked at the structural steel matters, and the -- sorry, that was the U.S. International Trade Commission, sorry, I confused the two. And Canada was taken out of the preliminary determination, and there will be countervailing duties against China and Mexico. So that, hopefully, that section recaps everything that happened starting in '18 and then some of it has been unwound into '19.

Turning over on to Page 14. See the decline in total revenues. I've spoken already to the selling price and tons information there. Just wanted to bring your attention to the gross margin. So gross margins for metal service centers down slightly from Q1. We anticipate some continued pressure on gross margins in metal service centers in Q3, may be slightly lower than Q2 caused by the fact that a plate is still declining, and we will start to buy some of our other inventory at a lower price but we still need to average that higher price through the system. So we'll see some drag on our gross margins in to Q3 and should start improving in Q4, subject to anything else changing.

Energy products had consistent margins related to the first quarter, and that is created by the good margins in our oil field stores and the mix between oil field and OCTG. Steel distributors are also more consistent with Q1. Similarly, steel prices have come off there, but we continue to be able to sell our product at reasonable margins. The net result of operating profits and revenues is reported down below. Steel -- metal service centers should improve as we go forward, we hope.

The next page to 15. We drew a chart that explains IFRS impact of the capitalization of leases, so the assets and liabilities put on the impact of moving some of the EBIT into interest by segment is broken up there.

Moving on to Page 16. So just distinct to the selling price, so selling price, I had indicated earlier was up 2% compared to second quarter 2018. If you were to go backwards, you would see that in Q3, selling price actually went up 6% over Q2 2018 and Q3 '19 is when we're going to drop below where we had been. So just looking -- thinking back or taking a view back as to what happened in '18 versus '19, tariff came on in May/June. Prices started to ramp up. So selling price increased significantly for the second half of 2018. Actually, Q3 and Q4 were at similar selling price levels for us. And we've now started to drop below those levels, and we expect that Q3 '19 will be approximately 5% lower than Q2 '19. And tons probably are going to be similar range or maybe a little bit more down than what we have experienced for the first half of the year, which is 7% down.

Turning to Page 21. I wanted to speak to the inventory level. You'll note that our inventory levels at June '19 are very close to our inventory levels at June '18. The area that we would like to see some improvement is our energy products. We only have turns of 1.9. We had 2 last year. So yes, second quarter is always challenging with the lower revenues. We hope that more activity, especially in OCTG in the second half of the year will help to improve that to some of the levels that we saw at other quarters during '18 and earlier '19. The metal service center turns and levels, we're very happy with. As we mentioned, we have been selling off our higher-priced inventory. We will be starting to replace that that will help our average price and gross margin in the look forward. Steel distributors have brought down their inventory levels as they get to what the new norm is in North America with tariffs.

Those are my comments, and I'm going to open it up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

First question is from Devin Dodge of BMO.

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Devin Dodge, BMO Capital Markets Equity Research - Analyst [2]

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So obviously, lots of moving parts. On the pricing side, there was some helpful commentary, Marion. Just trying to get a sense for maybe for each product line, obviously, you said plate continues to soften. Has that continued through early Q3? Maybe just -- maybe from other -- try to accommodate for other products that you sell, including maybe some in the energy space?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [3]

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So Devin we'll start with flat-rolled coil, as you have so many products that are obviously a downstream or byproduct of that. And it looks like it bottomed out early July and started to bounce back now. So numbers get -- U.S. numbers get around $480. We've come back into the currency-adjusted situation following the 232, and we're now U.S. currency adjusted for Canada. We're just back to normal. If you look at the metal margin spreads, it feels like the metal is actually overcorrected on coil products. So when it got down around that $480, $500 number, there was probably an overcorrection, if you look at the metal margin spread and the spreads of the world market. I think that's recovered nicely now, and you're getting it back to a normal metal margin spread, I mean, although be it on the low end, it seems to be at a sweet spot to keep imports at bay, but again, I don't see a whole lot of upside potential for it, but it's seems to be at a good landing spot. Plate, on the other hand, still has some metal margin room to run. We did see an increase of $20 a ton on scrap this month, with potential for scrap to be flat to up again next month and that will probably take the metal margin back to a reasonable level for plate. So it definitely outran and held longer. So I think plate through July, early August is starting to come back in line, maybe $20 to $40 a ton more to go, but we're getting to the bottom there. So the recovery so far that we've (inaudible) $40 increase, we've not seen that take. Hopefully, they're establishing a flow. As far as tubular products, structural tubing, those products are following similar to flat rolled. OCTG and Line Pipe typically run about 90 days in arrears on pricing. So they're continuing to drift south predominantly because a lot of the import timing to the market coming in versus the flat rolled being made in North America and converted. So again, we think we'll see that probably fall throughout the third quarter.

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Devin Dodge, BMO Capital Markets Equity Research - Analyst [4]

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Okay. That's really good color. So how can you -- can you give us a sense how you're feeling about inventory levels? I think you addressed some of this may be in the prepared comments, but just, I guess, in particular, inventories were up in energy products. Just how should we be thinking about that given the context that OCTG pricing seems like it's set to fall in Q3?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [5]

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I'll start with service centers. We're in really good position with service centers. Our Canadian service centers will push over 4 this month. U.S. service centers will push over 6x this month. We are high on our energy turns for OCTG and Line Pipe ending the quarter. That will be an emphasis for us in the third quarter. We need to do a better job there getting those in line. So we're pulling back on our purchases there dramatically and looking to move material. Again, it will be at the -- under margin pressure, though, because of the pullback in price.

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Operator [6]

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Your next question is from Frederic Bastien from Raymond James.

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Frederic Bastien, Raymond James Ltd., Research Division - MD & Equity Research Analyst [7]

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Just want to follow up on that last question. Do you have any concerns around the net realizable value of your inventory across segments?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [8]

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Service centers, I think, we're in good shape, Frederic. I think, in the steel distribution, that we're in pretty good shape there. There may be a slight adjustment in the U.S. there, but it would be -- not be material. On the energy side, it will remain to be seen before we bottom out on that. There's a potential for one, but I don't think we're looking to do anything large materiality. Nothing like we've done in the past.

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Frederic Bastien, Raymond James Ltd., Research Division - MD & Equity Research Analyst [9]

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Okay, cool. I was pleasantly surprised with how pricing held up during the quarter. And based on your comments around the second half, Marion, it looks like ASPs would settle higher than they were before the imposition of tariffs. Is that a correct assumption?

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [10]

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Yes, I think so.

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Frederic Bastien, Raymond James Ltd., Research Division - MD & Equity Research Analyst [11]

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Any guess as to how much higher they could kind of fill that? Or is it too far out to tell?

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [12]

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Too far out to tell at this point. I think we have to let the dust settle a bit more.

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Frederic Bastien, Raymond James Ltd., Research Division - MD & Equity Research Analyst [13]

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Okay. But still a very good lineup from a pricing perspective?

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [14]

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Yes.

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [15]

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Yes.

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Frederic Bastien, Raymond James Ltd., Research Division - MD & Equity Research Analyst [16]

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Okay. And I guess, John, I think we ask you that question every quarter, so I'll ask again. On the energy side, the rig counts are trending lower, but I guess, at the same time, in your comments you're saying, you're seeing continued positive momentum in the Permian Basin. It looks like things are finally moving along with LNG Canada. So given this backdrop, how are you feeling about the outlook for energy products into the second half and then into 2020.

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [17]

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We feel like the Permian is obviously one of the hottest spots in North America right now. We'll continue to grow there and really putting an emphasis on future growth there. The LNG has taken off. We're getting some positive momentum. We just landed a nice Suncor project that we've been working on with Comco that goes up through the end of the year, roughly $50 million project. So we're starting to see some positive things happen in Canada. But again, I think, most of the growth that we'll see will be in the U.S., predominantly in the Permian.

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Frederic Bastien, Raymond James Ltd., Research Division - MD & Equity Research Analyst [18]

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Okay. Will the growth of LNG upsets some of the weakness to your -- you're seeing in Alberta, I think?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [19]

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Yes, we've doing -- I mean, we're doing reasonably well in Alberta with energy right now. So again, I think that will offset on its own. Yes, it's just a matter of how much capital is going to be spent -- continue to be spent in Canada. It's nongas related so little concern.

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Operator [20]

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Your next question is from Derek Spronck of RBC.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [21]

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Do you feel that you have enough visibility around steel pricing and end market demand to maybe look at acquisitions against?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [22]

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Again, we're always looking at them, Derek. It's a cyclical nature of our business. Especially in the downturn, we could -- we'll throw off cash. It's a matter of valuation. But again, with the cyclical nature, we really don't try to time the market. It's more of when the opportunity is right and it fits for our organization.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [23]

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Valuations, have those conversations or do you feel more comfortable maybe being a little bit more focused around that and perhaps valuations are a little bit more attractive now. Is that a fair statement or...?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [24]

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The volume has slowed of what we're seeing. It's out there, the deal volume. That's what we're seeing. As far as valuations, we typically look at a 4 to 5-year trend. And so even in an upmarket, that balances itself out as well. So we're looking at the cyclical nature again and trying to put a price tag on that to where we can get a stabilized return that's accretive for us and accretive to our capital structure, not just earned.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [25]

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How would you characterize your capital allocation priorities over the next 12 months?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [26]

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Of course, inventory will be one we'll be watching closely. And we'll continue to push through that to see where the market is headed. So we'll be looking at equipment in our value-added processing. And then we have the -- we'll be looking in our computer system, and then obviously, our dividends always a top priority.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [27]

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Okay. And do you expect to see a little bit of a reversal on working capital trends and perhaps a reduction in inventory over the next several quarters or...?

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [28]

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I think that it's -- yes, the inventory will come down, and AP will actually generate cash considerably the remainder of the year because we will need to start buying again in our metal service centers. I mean, one of the things that happens in the following market is, if you wait as long as possible to replace your inventory, you then move out all your high-cost inventory and also as you figure out somewhat where the bottom is, at some point, you do have to buy. So we will increase their AP. So that will have a positive impact on working capital.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [29]

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Okay. And then just one last one for myself before I turn it over. Any color or update around U.S. metal production following the last, call it, 8 months of tariff and geopolitical dynamic?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [30]

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The challenging thing to follow based on historical numbers are the new quotas that are in place with various countries. So some of those are starting to fill up. So there will be some natural replacement in that. So you can get a little bit of a false rating there from time to time, but you may have more metal capacity coming online in the time when you're actually not shipping as much. So we're trying to watch overall shipments and lead times closer. Again, now with Mexico and obviously with Canada being out of that mix with the 232, that will create a shift just comparing it to last year's if we do year-over-year. So again, we'll watch lead times closer and really watch scrap closer. I think the sustainability of pricing is the ultimate measure to see how strong demand is.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [31]

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Okay. And you're seeing a bit of a pickup in the scrap pricing, right?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [32]

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Scrap pricing has come up $20. I think it's come up $20 to $40 in Q3. So we're definitely seeing an upturn there. Seen an upturn in steel pricing with the exception of plate products, as I mentioned before.

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Operator [33]

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Your next question is from Michael Tupholme from TD Securities.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [34]

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John, just in terms of your comments around plate having more room to run, do you think we're at a bottom here? And the next move is upward and following hot-rolled coil upwards? Is that what you're suggesting?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [35]

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I think plate is probably getting close to the bottom, very close it's probably going to hold. So I think we're getting to normal spreads or historical spread you could see between plate and coil. Coil, probably overcorrected. Plate just has to get there. The metal margin spreads were exceptional in plate for the last year. So I think plate is probably getting close to a holding point. So we may bounce up or down $20 more following scrap pricing. I think -- overall, I think it's at a holding point right now.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [36]

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Okay. And would the same hold true for hot-rolled coil and recognizing we've already seen the bounce basics, and that sort of played out and we stay stable from here?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [37]

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As stable is the steel business has been, which it has been in my 28 years. But again, I think we have a big bang in demand, up or down, or we have a wild swing, I think it would typically follow scrap, right.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [38]

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Okay. In the outlook commentary, in the MD&A, you talked about overall demand having softened slightly in all of the business segments. Can you just expand on that a little bit, I guess, in service centers, for example, is this across the board? Or are there certain end markets that have seen greater softness? And just to be clear, is this sort of relative to Q2 is what you're indicating in terms of softening?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [39]

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We've seen softening in Q2. We think it will carry over into Q3, but again, if you look at Canada being a resource-driven economy, if you look across the resources: oil, natural gas, mining, ag, so if we look at the things that are out there, those have all softened across Canada. Construction has softened, but it's on its head okay. If you look in the Greater Toronto Area, it's very busy than across the rest of the country. Moving to the eastern side of Canada, though, construction is pretty strong in Québec and in shipbuilding and for the government vessels, and Atlantic Canada is very strong. So those are kind of what we're seeing across Canada. In the U.S., it's more across the board that we've seen the softening. And other than probably heavy equipment, which seems to be holding flat to slightly down, the rest seem to have dropped off maybe 3% or 4% more than we anticipated.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [40]

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Okay. And again, this is a further decline relative to Q2, the third quarter being a little bit softer than you saw in Q2. Is that what you mean?

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [41]

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Yes, right now it's difficult to tell, but yes, we would see the third being a little bit softer. But again you're coming through summer holidays, you got Québec construction slowdown. So there's a lot of variables that's little cloudy right now to get a hit completely around what's seasonality and what's actual slowdown, but it feels a little softer, overall, right now.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [42]

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Okay. I know it wasn't a big number, but the inventory impairment charge in the quarter, Marion, $2.2 million. Was that all in one particular segment or was that sprinkled across a few segments?

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [43]

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It was sprinkled across. The bigger one was energy, but there was the -- a little bit in service center.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [44]

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Okay. And just back on your commentary around about the gross margins in the service center, you can see some further softness there or deterioration in Q3 relative to Q2, but do you think that that at that point, we sort of bottomed?

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [45]

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Yes, that's what I think. I mean, the biggest thing is when you see the steel prices coming down, as I mentioned, we waited as long as possible to replace the inventory, and so you're selling off that high price, which drives your margins down. As we start to replace, our average will come down. And the replacements will start in Q3, but the average will come down even more in Q4, in my mind, which will help us expand through number and margin.

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [46]

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Yes, we won't raise the bottom sometime in Q3, so we'll take a lot of reverse course.

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [47]

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Yes.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [48]

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And what is -- how do you think about a normal margin for that business once you've sort of worked through the higher cost inventory. Where does that sort of stabilize that once you finish through that?

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [49]

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Well, I think we'll go back up into the low $20 million, $21 million, $22 million.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [50]

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So as we look out in assuming anything can happen with prices between now and next year, but that's how we should be thinking about sort of the margin as we look into next year, assuming a relatively stable steel price environment?

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [51]

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Yes, that's what I would say. Yes, we may not get back to the $21 million in Q4, but we'll be heading up into the $20 million.

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Michael Tupholme, TD Securities Equity Research - Research Analyst [52]

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Okay. And is there anything going on with margins in energy products as we look out the next few quarters in terms of similar dynamic?

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [53]

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It really depends on what happens on pipe, and I think there is a bit of a price movement, but I think the biggest thing will be, does the rig count start to -- or activities start to happen, particularly OCTG and Western Canada. If it's slow, we will get competitive pressure on top of lower pricing, which could impact prices more than you would hope.

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John Gregory Reid, Russel Metals Inc. - CEO, President & Director [54]

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In your energy services business, the APAC-type businesses out there, pretty stable on margins because it's such a highly engineered product. So we have very little movement there. So that margin is pretty stable. You'll see some pressure but not as much as you do in OCTG, Line Pipe or other product ranges.

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Operator [55]

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Your next question is from [John Vickers], an investor.

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Unidentified Participant, [56]

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I keep looking at the dividend here and look at the payout of about 76% from where I see, leaves about $7 million in free cash flow. I just don't understand how that can continue to pay out that much dividend and still make acquisitions?

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [57]

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We're a working capital company. It goes up and down, but if we make an acquisition, we obviously will take on some more debt, but they would be a working-capital-type acquisition, which would allow us to borrow more. We are -- as a company, we throw off a lot of cash, and we feel the best thing to do with it is to pay a dividend to our shareholders.

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Unidentified Participant, [58]

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Are you guys afraid that if you cut that dividend, the stock would just be reduced big time?

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [59]

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We are -- well, we're not afraid of that. We have, over a number of years, become a dividend yield stock and we protect the dividend. Any acquisition we do has to be accretive to the dividend, not just accretive to a dollar on the bottom line. If it's not going to return enough to continue to pay this level of dividend, then we shouldn't be doing it.

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Unidentified Participant, [60]

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All right. Because I'm still looking at that long-term debt. From where I see in your financials it's like $440 million. It's still a lot, considering this quarter after the dividend was paid $7 million in earnings.

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [61]

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No, I'm comfortable with it. Our debt equity levels are very low, and that is how we monitor. If we are eroding our equity too much, I would be concerned. But as a company, we have very low debt equity level.

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Unidentified Participant, [62]

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Yes, I just look at the 18% margin with 7% dividend out there, and that's pretty skinny to me, but...

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [63]

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I'm comfortable. We've watched this over a number of years. So if you would go back, you would see, I think we set our 70th quarterly dividend. We've given the dividend for a long time. We're comfortable.

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Operator [64]

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There are no further questions. You may proceed.

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Marion E. Britton, Russel Metals Inc. - Executive VP, CFO & Secretary [65]

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Thanks, everybody, for joining. Enjoy the rest of summer, and we'll talk to you next quarter.

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Operator [66]

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Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.