HD Supply 1Q17 Earnings Call Notes

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Evan Levitt

Cost pressures in steel leading to significant margin compression

“The new administration is being extremely tough on imported steel products and as instituted from anti-dumping tariffs on imports, particularly imports coming from Turkey; they’ve also instituted some counterfeit — countervailing duties on those imports which can be retroactive. And so as a result, much of the lower cost source of steel and steel Rebar coming into the country has ceased and so we’re seeing a significant escalation in our cost for steel Rebar and the market is such that it’s difficult to pass at all of that on to our customers. So we are seeing pretty significant margin compression pressures within Rebar. We expect that will continue for the balance of the year.”

Joe DeAngelo – CEO

Margin pressure in Rebar will probably impact through the end of the year

“Yes, I do think that the gross margin pressure in Rebar in particular will impact us through the balance of the year. The dynamics within the Rebar market are a little different. Most of the rebar that’s available now is domestic-based Rebar versus imports and the domestic steel mills, they have distribution functions too and so they will sell directly to [indiscernible] and so to some extent we’re now competing with the mills; obviously they’ve got a much lower cost position as they are the manufacturer of the product and so that makes it difficult for us to pass on the increasing cost. In the past we have access to lower cost import sources, it was easier to compete.”