McEwen Mining Inc. (MUX)

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Metals USA Holdings Corp. (MUX)

Q2 2008 Earnings Call

July 15, 2008 11:00 am ET

 

Executives

Robert McPherson - Senior Vice President and Chief Financial Officer

Lourenco Goncalves - Chairman, President and Chief Executive Officer

 

Presentation

 

Operator

Welcome to the Metals USA second quarter 2008 earnings results conference call. (Operator Instructions) At this time for opening remarks and introduction I’d like to turn the call over to the Senior Vice President and Chief Financial Officer, Robert McPherson.

Robert McPherson

Welcome to the Metals USA conference call reviewing our results of operations for the quarter ended June 30, 2008. We are pleased you could join us and appreciate your interest in our company. Anyone interested in receiving an e-mail of our earnings release before our conference calls may go to our website at www.metalsusa.com, provide us with your contact information and we will add you to our distribution list.

For your convenience, a replay of today's call will be available for about 30 days. You may access this replay either by going to our website or using the dial-in instructions included in the press release we issued yesterday morning.

The press release and the information on this call contains certain forward-looking statements which involve known and unknown risks, uncertainties or other factors not under the company's control which may cause the actual results, performance or achievements 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 disclosed in the company's periodic filings with the Securities and Exchange Commission.

Finally, due to our Form S-1 currently on file with the Securities and Exchange Commission we are in a quite period and as a result we will not be hosting a question-and-answer session today and this call will be limited to our prepared remarks.

I would now like to turn the call over to Lourenco Goncalves, Metals USA Chairman, President and Chief Executive Officer.

Lourenco Goncalves

Welcome to the Metals USA conference call. As stated in our press release yesterday morning, Metals USA set an all time quarterly record, adjusted EBITDA of $93 million and revenues of $593 million for the quarter ended June 30, 2008. On a year-to-date basis we have generated $133 million of adjusted EBITDA and $1.1 billion in sales revenue.

I am very pleased with our results as they reflect the excellent performance of our very capable Metals USA team. I believe Metals USA has a fine group of professionals who are capable of generating extraordinary results, as evident not only by this quarter’s performance, but by our results over the last five years.

With this being said, I would like to discuss three topics. First, I will go over current market trends. Second, I would like to discuss the demand trends we have seen for our products and third, I will discuss how Metals USA has positioned itself to maximize our opportunities in this context. So, let me start with current market trends both at home and abroad.

We believe the fundamentals that have caused the latest round of price increases are still in place. Commodity inputs including iron ore, energy, coking coal and coke as well as the scraps continue to rise to new heights. As of today, we see no indications that current input cost trends will moderate in the foreseeable future. Perhaps equally as important, we do not think the last round of cost increases have worked themselves through the supply chain yet. As a result, it’s our view that costs will continue to put further upward pressure on finished steel prices.

There appears to be a fair amount of concern in the media that new efforts to pass along surcharges to their annual contract customers have met a steep resistance and as a result there seems to be a media consensus that this represents a peak in the market. We see it differently, that the issue, our annual contract prices set between MUSA and large OEM’s. The MUSA are attempting to offset the steep cost increases they have recently incurred. In our opinion, it’s a sign of strength that MUSA would attempt to modify contracts mid-year.

Since most steel consumers have no solicitude for skewing their products we believe MUSA will succeed in their cost recovery efforts, as contract renewals occur. The current trend in the market remains clear to us; MUSA intents to remain profitable and our increasing prices to cover their increased costs to manufacture steel.

Next, I would like to talk about the net. There can be no argument at this point that residential construction is weak, financial markets are weak and the automotive industry is weak. Service center industry reports so far this year, reveal that average base shipments are lower than shipments last year; however Metals USA’s shipments are increasing year-over-year.

Tons shipped by our flat-rolled and non-ferrous division, increased 4% this quarter over second quarter 2007 and our Plates and Shapes group increased the current quarter shipped tonnage by 60% compared to the same period last year. We believe our success in increasing shipments in a weak economy is the consequence of the specific initiatives we have implemented.

First, we have focused our sales efforts on customers and end-use applications that we believed were better than average prospects during uncertain economic times and second, our increased sales tonnage this quarter is also attributable to our growth in new customers who were experience the stock-outs and no quote excuses from our competitors. Our experiences during similar market conditions lead us to believe that once this new customers experience our service levels, we have an opportunity to retain this new accounts.

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