Steel Dynamics 1Q17 Earnings Call Notes

Mark Millet

Demand from auto remained steady

Demand from the automotive sector remained steady and construction continued to improve. Additionally, the energy-related demand improvement that we discussed on our January conference call actually strengthened further during the quarter. We received related orders both at Columbus Flat Roll Division and Engineered Bar Products Division. Additionally, there was an overall general demand improvement for our SBQ steel which typically suggests broader industrial sector momentum

Capacity utilization in 70s in long products and bar

“Although our consolidated quarterly production utilization rate was 95%, our Long Products division’s operated at 78%. While not as high as we’d like, it’s an improvement from last year’s average rate of 68%. The most significant change was seen in SBQ. Our Engineered Bar Products Division operated over 70% of its current capacity compared to just over 50% in 2015 and ’16. Not only did we see improved demand environment, but the Engineered Bar Division is also benefiting from the bulk and pull-through volume.”

Energy is rebounding

“Well, I think obviously, energy is a big focus and as the energy markets continue to rebound — and one has to remember, energy used to be, not too long ago, only 2 years ago, about 8% to 10% of steel demand in the States. And that is a big outlook for hot-rolled coil, certainly, for us at Columbus. So I think energy would be a principal focus there. And I think also, in the long products side of things, if you look at the heavy beam market recently, imports of what I call roll bar, just straight bar, have increased over the last few years. ”

Mexico is still strong and growing

“The Mexico market, at least from our perspective, is still strong and growing. They have — well, they’re still short in a big way down there. They will continue to need imports. Just with the current assets in place, you can argue whether or not people are going to continue to build that. I think they will. But nonetheless, just the current assets in place there, the consumption will — is strong and will continue to grow”

The administration has softened its stance on Mexico

“So I don’t see an issue with Mexico. I think the administration has softened or kind of moderated its stance. There’s a recognition that we need to be good trading partners. Maybe the NAFTA agreement should be modified. I think it’s been around for a long time and I think both parties will benefit from a new look at that, but I think it’s going to be a prudent, pragmatic review. So I don’t have any concerns, any issues with trade with Mexico. “

Steel Dynamics 2Q16 Earnings Call Notes

Steel Dynamics (STLD) Mark D. Millett on Q2 2016 Results

Supply side dynamics have led to much improved market dynamics in steel industry

“The steel platform performed well in the second quarter. 2016 has certainly provided a changing landscape to the domestic flat roll market. Several positive macro shifts have resulted in significantly improved flat roll product pricing. Year-over-year, first half flat roll steel import levels have declined and customer inventory levels are better aligned to actual consumption, all supporting higher domestic sheet mill utilization. While demand has remained steady, these supply side drivers have led to much improved market dynamics. Our flat roll steel mills operated at full capacity during the second quarter, supported by the automotive and construction sectors.”

Weak sectors should remain weak, strong sectors will remain strong

“Relative to the macro environment, the steel-consuming sectors that were weak in 2015 such as energy, heavy equipment, and agriculture will likely remain so in 2016. However, those that have been strong or recovering are expected to continue this path, such as automotive and construction. 2016 forecast for these two largest domestic steel-consuming sectors remains positive. Automotive has continued forecasting strength. And overall, construction spending continues to improve with additional forecasted growth in 2016.”

Import levels are ticking up but not going to return to levels that imploded the market

” I think import levels are down about 25% year-to-date. But we do, indeed, see activity picking up a little bit. The global spread for hot band is in excess of $200 a ton today. And so, it’s natural for that to occur. But I think it’s been amazing that the import pricing, though, remains pretty resilient, I would say, unusually resilient and maybe there is import offers now about 50 bucks off in the domestic market. And as I said, that’s a little unusual, a little more resilient. The trade constraints have totally eliminated China and the other primary importers from the marketplace. And import offers are coming in through what we would consider somewhat non-traditional sources, Vietnam and others. And those are a little less accessible, and the network from a customer base importing those steels is a little less reliable at this moment in time. And in any event, import pressure is not going to materialize in any great form in Q4. And I am somewhat confident that it’s not going to return to the levels that really imploded on markets at the end of whenever that was, 2014 and early 2015″

Obviously the elimination of China has buoyed the market

“Obviously, the elimination of China has buoyed the market currently. I do think that the coated and cold rolled sheet spreads, which are at historical highs, will probably remain so as long as China has shut out. As long as the trade cases are in place to impede, they are not going to eliminate, but they will impede the import pricing. So I think those spreads are not just an aberration. I think they are going to be around for a while. Ultimately, longer term and when I say longer term, years out – over the years, I think some of that material will somehow look find its way back into the American market either through other converters or through manufactured goods. There is a good portion of imported steel in refrigerators and cars and other things. So, seriously, I’m not smart enough to know long term what the impact is. ”

Theresa E. Wagler – Chief Financial Officer & Executive Vice President

Shipments increased 9%

“For the second quarter, steel shipments increased 9% to 2.5 million tons, as volumes improved across all divisions except in special bar quality products. The SBQ market continues to be challenged by weak demand dynamics.”

Platform utilization in flat roll was 95%

“Conversely, domestic flat roll steel utilization is strong, as imports have declined and customer inventory levels are better balanced with actual demand. Even though second quarter platform utilization was 95%, it’s a bit misleading as the Flat Roll Group produced over the theoretical quarterly capacity, offsetting lower utilization at the structural and engineered bar divisions, which operated at 82% and 53% respectively.

Steel Dynamics 1Q16 Earnings Call Notes

Steel Dynamics (STLD) Mark D. Millett on Q1 2016 Results

Flat rolled operated at full capacity, long product operated at 67% of capacity

“Our Flat Roll Steel divisions operated basically at full capacity for the quarter, supported by the strong auto build and construction pick up. Although sequential long products steel shipments improved 9%, our long product mills was still challenged with end market weakness, operating at only 67% of their capacity.”

Total utilization at 88% compared to industry at 71%

“For the steel platform as a whole, driven by the our flat roll operations, our production utilization rate for the first quarter 2016 increased to 88% as compared to overall industry utilization of approximately 71%.”

Price increases in flat roll are sticking

“Despite a material decline in scrap cost in the quarter, our metal spread contracted as average product pricing declined more than our actualized average scrap costs. Pricing declines were felt in all areas. However, the recent price increases in flat roll, especially for value-added coated product is sticking and we should see the positive impact in the coming months.”

Outlook for auto and construction sectors continues to be strong

“those that have been strong or recovering are also expected to continue this path, such as automotive and construction. 2016 forecast for these two largest domestic steel consuming sectors remains positive. Automotive has continued forecasting strength and overall construction spending continues to improve with additional forecasted growth in ’16.”

End markets that were weak continue to be weak, those that are strong remain strong

“honestly against the areas that were weak in 2015 will continue to be weak. Automotive remains very strong. Residential, I think although it ticked down a little bit here in the last month and so, year-over-year it’s improved and will continue to improve. Our garage door business is off the charts. So there is residential strength, we do believe. And non-residential construction for all reports from as I said macro indices and from our customers and also just the order book within New Millennium. They have year-over-year much higher backlog and quote activity right there. We feel quite optimistic that there is going to be incremental growth. The apparent consumption last year was about 108 million tons and we would love to see that growing to perhaps 111 million, 112 million tons this year.”

Miscellaneous Earnings Call Notes

McDonald’s (MCD) CEO Steve Easterbrook on Q4 2015 Results

Our turnaround is starting to take hold

“I am confident in the actions we are taking and attraction is beginning to take hold. Most importantly, customers are noticing a difference. Our customer feedback systems are showing improvements in many important aspects of the customer visit, including food quality, order accuracy, speed and friendliness.”

Zions Bancorporation’s (ZION) CEO Harris Simmons on Q4 2015 Results

Paul Burdiss

Don’t expect credit deterioration in anything besides energy

Well I mean, I guess the short answer is until we see the non-energy economies start to really fray, but we’re not seeing that we — and I don’t think we’re going to venture a guess as to when the cycle really starts to et cetera, we’ll actually do that but I think suffice to say that at the moment we continue to see improvement and even in markets like, in a market like Texas the non-energy portfolio remains very healthy. We are looking at a lot of indicators in each of those portfolios to kind of watching for problems and so far it is not really showing up.”

Michael Morris

All domains continue to perform well and metrics are all solid

No, I can’t add anything to that, all domains consumer, retail, mortgage, small business, large commercial they all continue to perform well and metrics are all solid.

W.W. Grainger (GWW) Q3 2015 Results

Macroeconomic conditions are well understood

“The macroeconomic conditions faced by our industry in 2015 are well documented and largely understood.”

DuPont’s (DD) CEO Ed Breen on Q4 2015 Results

There is always cost saving

“Look, there is always cost savings. I mean I am a believer that they occur every year in a few percent range, as you keep streamlining your company, I would say. So, you are never done with it.”

Dow is already on IT systems that we were implementing

“we’re on a very fragmented IT system. One of the benefits it looks like we obviously get here with the Dow merger is Dow is on the IT platform that we were going through the global — actually latest revision of the SAP platform”

Fourth quarter was actually our best organic quarter of the year

“It’s interesting to note though that — and I don’t want to say there is a trend here, but our fourth quarter organic revenue was actually our best of the year. We had been running kind of minus 3% through the first nine months of the year and we are minus 1% in the fourth quarter. And if you kind of look at it around the geographies, it was kind of flat in Latin America, flat in North America, pretty flat in Asia and our one down market was Europe which was down about 2%. So, we’ll see how the trend goes here in the first half of the year but that was little bit encouraging that we saw that lift.”

Brown & Brown (BRO) Powell Brown on Q4 2015 Results

Small businesses still trying to understand ACA

“We define small employee benefits as employers with less than 100 employees. For this segment we are continue to see companies be very focused on managing their costs and trying to understand the implementation complexities of ACA, specifically how they manage costs via exchanges and/or private plan.”

Do expect rates to remain under pressure. A lot of activity in M&A but prices remain high

“We do expect rates in ’16 to remain under pressure and are watching the economy very closely for signs of further expansion or contraction. From an M&A perspective there’s a lot of activity out there. We’ve seen a number of announcements in 2015, maybe the most active year of acquisitions ever. We can tell you that prices remain high, some at levels that don’t make sense to us. However, we continue to look for partners that fit culturally and make sense financially”

AK Steel Holding’s (AKS) CEO Roger Newport on Q4 2015 Results

“the steel industry continues to face significant challenges as we enter 2016. These challenges include continued pressures in the global steel industry as the result of the massive oversupply steel primarily from China, that direct and indirectly impact others oversupply in all regions of the world and otherwise AK Steel is not a major player in the oil country tubular goods business, the significant downturn in that market is contributing to the excess capacity in those markets in which we do compete and to the overall steel market. As we have been stating for several quarters now, the steel market in the United States has been flooded with what we believe are unfairly traded imports. While the import levels have indeed began to decline for many of those countries where preliminary duties are being levied, we still face significant ongoing import pressures.”

Tupperware Brands (TUP) CEO Rick Goings on Q4 2015 Results

Turkey very weak

“Turkey, very disappointed. It was down 25% and much like France it’s been heavily impacted by externals, particularly the terrorist attacks, military activity, there is political instability which has just been almost bipolar from the President almost being voted out of office in June to getting a majority back again just over the last two months. So that’s we’ve seen weakened concurrency and there is a lot of change in consumer behavior in spending.”

I might be concerned if I were selling cars in China, but I think we’re ok

“Also I would say in China for all the news you really hear about that, I think if I was selling cars I might be concerned, but at the lower, we’re again a multi-local business, I think we’re in good shape there.”

It isn’t business as usual out there

“we don’t look at it as a crisis but isn’t business as usual out there”

Qualcomm’s (QCOM) CEO Steve Mollenkopf on Q1 2016 Results

Qualcomm talking about strong volumes

“QCT chipset shipments were near the high end of expectations, with low tier strength across OEMs particularly in China, offsetting some weakness in thin modem sales at a key customer. QTL revenues were higher than expectations on strong 3G/4G device volumes and ASPs and we continue to make progress in signing up Chinese licensees, although there is still more work to be done on that front.”

Lots of industries are looking to leverage mobile technology into their products

“At the Consumer Electronics Show earlier this month, it was clear that many industries are looking to leverage mobile technology into their products and businesses are looking to the leaders in communications and computer systems, such as Qualcomm, to make the world more connected and smarter. Our many announcements at the show reflect our progress extending Qualcomm technology into adjacent and new areas, including automotive, IoT and networking.”

PulteGroup’s (PHM) CEO Richard Dugas on Q4 2015 Results

The volatility does change the way management teams think about their businesses at the margin

“All that being said we are well aware of the volatility in the world today. From concerns of our global economic conditions to the swoon in oil prices, to gyrations in the stock market, the day-to-day swings can be violent. The reality is however that we can’t control any of these factors, what we can do is focus on running our business, consistent with the goals we have established and disciplines we’ve demonstrated. This means acquiring well-located communities that we believe can deliver high returns on investment. It also means hedging our bets by using more land options, where possible and focusing in on smaller, shorter duration projects, where we can get our capital back quickly. It also means, not over leveraging the balance sheet and keeping one hand on the lever to slow investment if housing demand begins to change. And finally, it means having the discipline to systematically give excess funds back to shareholders, rather than trying to force investments in the system. ”

Ford Motor’s (F) CEO Mark Fields on Q4 2015 Results

We are a mobility company

“Well to answer your question Joe when you look at where we’re heading we said we were transforming into an auto and a mobility company because it’s really important that we don’t lose sight of our core business as I mentioned on our remarks upfront.”

China is going from an industry led economy to one that’s consumer led

“In China obviously as we mentioned, when you look at the stock market volatility, that’s endemic of the country that’s moving from an investment and industry led economy to one that’s consumer led. And actually when you look at the components of GDP growth there, the services in the consumer portions of that are actually growing while some of the industry ones are coming down and we view that as a good sign.”

Marion Harris

Not seeing any uptick in delinquencies in the US

“Colin, this is Marion. No, we’re really not. I know there is a lot of discussion about this, but with the exception of the trend in longer term financing we’re not seeing any weakness in the consumer alone. In fact delinquencies which are a leading indicator were at an all time record low for us.”

Las Vegas Sands’ (LVS) CEO Sheldon Adelson on Q4 2015 Results

Adelson thinks we’ve seen stabilization in Macau

“We do see stabilization in gaming revenue trends. In the mass gaming segment, our non-rolling drop was down just 1% over the prior quarter, despite new competition that has predominately focused on the mass market. Our VIP rolling volumes were actually up 5% over the prior quarter outperforming the 2% sequential increase in the Macau market.”…”I thought we had either hit bottom in the mass market or we are bottoming out. Ever since I said I’ve been reading the issues, I’m been reading from analyst reports and from other Sands China reports that I get daily, other clippings that people are starting to believe that and some of the numbers put out and experienced through December and January indicate to me that that’s the case.”

Steel Dynamics (STLD) Mark D. Millett on Q4 2015 Results

I think there’s positive momentum

“Well, I think there’s positive momentum, generally. I’m sure Dick can speak to some of it, but the inventory overhang, there’s continued destocking there and it’s becoming balanced. It’s still relatively high, particularly in hot band. But in coated products, in coated sheet, I think it’s getting into a good position. And you speak to a seasonal uptick. I think we’re seeing that as well.”

Theres tightness forming in cold roll sheet

“On cold roll sheet and coated, I sense a tightness forming in that arena. I think it’s a combination of – the automotive arena is strong. So, the integrated mills got a relatively good order book. Construction continues to come back. There’s some destocking going on. And we have some relief from the trade cases and erosion of import levels.”

United States Steel’s (X) CEO Mario Longhi on Q4 2015 Results

Automotive continues to be a good market, appliance and construction markets should also grow

“Now I would like to give a brief summary of what we are seeing in our markets and our guidance for 2016. The automotive market continues to be a very good market for us and we expect it to remain strong throughout the year. We also expect growth in demand in the appliance and construction markets compared with last year. Industrial equipment market is mixed with a slight improvement in demand for construction equipment, steady demand in the railcar markets and weakness in mining equipment. In the energy markets, low oil prices and rig counts remain a significant headwind. At this time, we do not see any catalysts other than increase in oil prices that would drive significant improvement in tubular demand and pricing with impacts to both our tubular and flat-rolled segments. We continue to expect slight growth in the automotive, appliance and construction markets in Europe as compared to last year but tin mill products may be facing increasing challenges from imports.”