Earnings Call Transcript - CMC Q2 2024

Operator, Operator

Hello, and welcome, everyone, to the Second Quarter Fiscal 2024 Earnings Call for CMC. Joining me today are Peter Matt, CMC's President and Chief Executive Officer; and Paul Lawrence, Senior Vice President and Chief Financial Officer. Today's materials, including the press release and supplemental slides that accompany this call, can be found on CMC's Investor Relations website. Today's call is being recorded. After the company's remarks, we will have a question-and-answer session, and we'll have a few instructions at that time. I would like to remind all participants that during the course of this conference call, the company will make statements that provide information other than historical information and will include expectations regarding economic conditions, effects of legislation, U.S. steel import levels, construction activity, demand for finished steel products, the expected capabilities, benefits and timeline for construction of new facilities, the company's future operations, the timeline for execution of the company's growth plan, the company's future results of operation, financial measures and capital spending. These and other similar statements are considered forward-looking and may involve certain assumptions and speculation and are subject to risks and uncertainties that could cause actual results to differ materially from these expectations. These statements reflect the company's belief based on current conditions, but are subject to certain risks and uncertainties, including those that are described in the risk factors and forward-looking statements section of the company's latest filings with the U.S. Securities and Exchange Commission, including the company's latest annual report on Form 10-K. Although these statements are based on management's current expectations and beliefs, CMC offers no assurance that these expectations or beliefs will prove to be correct, and actual results may vary materially. All statements are made only as of this date. Except as required by law, CMC does not assume any obligation to update, amend, or clarify these statements in connection with future events, changes in assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or otherwise. Some numbers presented will be non-GAAP financial measures, and reconciliations for such numbers can be found in the company's earnings release, supplemental slides presentation, or on the company's website, unless stated otherwise. All references made to year or quarter end are references to the company's fiscal year or fiscal quarter. And now for opening remarks and introductions, I would like to turn the conference over to Peter Matt, President and Chief Executive Officer.

Peter Matt, CEO

Good morning, everyone, and thank you for joining CMC's second quarter earnings conference call. I want to start by congratulating the CMC team for achieving a new benchmark in safety performance, reducing our total recordable incident rate to less than 1, which is significantly better than the average in the U.S. steel industry. At CMC, safety is our priority, and we aim for everyone to leave their shift in the same condition they arrived. I'm particularly proud of the safety improvements at recently acquired locations within our Engineering Business. An essential part of our integration process is implementing CMC's leading safety culture, which our new employees are eager to adopt. Compared to last year, the recordable incident rate for our Emerging Businesses Group has been halved, avoiding several injuries and resulting in better outcomes for everyone involved. You can view the data on Slide 4 of our earnings presentation, and we are dedicated to further enhancing this strong record. Today, I will give a summary of CMC's financial and operational performance for the second quarter, followed by an update on our strategic outlook and growth initiatives, and a discussion of our current and future market environment. Paul will provide more details on the financial results, and I'll wrap up with our forecast for the third fiscal quarter and beyond, after which we will open the floor for questions. Additional information about the quarter is available in the supplemental slides accompanying this call and on CMC's Investor Relations website. Before we dive into our financial results, I want to highlight yesterday's announcement of a 13% increase in CMC's quarterly dividend. The $0.18 per share payout marks a 50% growth since the end of 2021. This dividend increase, coupled with the $500 million boost in CMC's share repurchase authorization announced in January, underscores our business's cash-generating capacity and our commitment to returning value to our shareholders. CMC's solid financial position and balanced approach to capital allocation enable us to prioritize returning cash to investors while pursuing our growth strategy. As we noted in our press release this morning, the second quarter of fiscal 2024 was another period of robust financial performance. CMC generated core EBITDA and core EBITDA margin well above historical averages, despite seasonal slowdowns and weather disruptions across much of our operational footprint. We continue to showcase enhanced earnings and cash flow capabilities resulting from our recent strategic transformation and ongoing efforts. CMC reported net earnings of $85.8 million or $0.73 per diluted share on net sales of $1.8 billion. Excluding non-operational items, which Paul will explain in detail, adjusted earnings totaled $103.1 million or $0.88 per diluted share. Our consolidated core EBITDA for the quarter amounted to $224.4 million, resulting in a core EBITDA margin of 12.1% and a trailing 12-month return on invested capital of 14.5%. The performance of our North American Steel Group was affected by challenging weather conditions and some metal margin compression on steel products. However, when we examine the monthly figures, we observe that metal margins have actually improved from December onward, and we ended the quarter on a strong note. Financial performance in our Europe Steel Group segment has shown improvement from previous quarters, excluding energy rebates. The market for long steel products is stabilizing, allowing for a slight increase in selling prices and metal margins. This, along with strong cost performance, positions us for breakeven results in the near future. Activity levels in our Emerging Businesses Group have been impacted by weather disruptions, which delayed the start of certain projects and particularly affected our Texas-based CMC Construction Services. Similarly, several projects outside the U.S. also faced delays during the quarter. However, we believe these issues are temporary and expect a strong recovery in sales and profitability as we enter the spring and summer construction seasons. Next, I would like to discuss CMC's strategic outlook. Starting from a position of strength, we have a leading presence in our major products and solutions, a strong corporate culture, a healthy balance sheet, and excellent customer relationships. Our strategic focus will be twofold: to maximize value in our current businesses and to accelerate growth across multiple platforms. Our ultimate aim is to build an organization that achieves higher and less volatile through-the-cycle margins, fully leveraging this enhanced margin profile by increasing revenues through both organic and inorganic means. We have laid the groundwork for these initiatives with our recent structural changes that improve visibility into our key value drivers and enhance decision-making. In our planning, we are exploring ways to maximize the potential of our existing businesses, starting with our most valuable resource—our people—by ensuring their safety and offering development opportunities. While we have made significant strides in safety, there is still room for improvement toward world-class standards, and we are focused on this issue. We are enhancing our talent development programs to ensure we have a capable workforce for CMC's future. Our margin enhancement initiatives emphasize operational and commercial optimization, involving the entire organization and aligning closely with our company values. We have established a commercial and operational excellence group to collaborate with CMC's business units in identifying and realizing margin enhancement opportunities. Although these optimization efforts are still early in development, we have already identified several potential opportunities. For instance, we can optimize logistics to reduce costs and improve customer service by shortening shipping routes between our mills and final delivery points. We also see chances to enhance Operations through better benchmarking and best practices, leading to increased productivity, lower costs, and reduced unplanned downtime. From a commercial perspective, we are developing a unified platform to facilitate information sharing across sales groups, enabling customer cross-selling, lead sharing, and bundling strategies. In addition to our initiatives focused on maximizing margins and creating value in our existing businesses, we are prudently accelerating our growth through both organic and inorganic investments. We have several significant organic projects that are already underway, including Arizona 2 and Steel West Virginia, which will substantially enhance CMC's earnings and cash flow capabilities. Additionally, we see further organic expansion opportunities in existing product lines that require only modest capital investment. Furthermore, as previously indicated, CMC possesses a robust platform and financial strength to pursue value-accretive acquisitions. We plan to build CMC's portfolio of early-stage construction materials and solutions in a manner that strengthens our core, enhances our customer value proposition, leverages our market expertise, and improves our margins. As we implement our strategic plan, we are excited about the benefits these initiatives will bring to CMC and our shareholders. We currently operate a strong business, but we believe there is substantial additional value to be unlocked by striving for excellence and leveraging that as we grow. Development plans are in progress, and we look forward to sharing more about CMC's strategic vision later this year. Now, I would like to provide a brief update on our key strategic projects. As noted in our press release, CMC's Arizona 2 plant has made history as the first micro mill worldwide to produce merchant bar quality products. We began commissioning MBQ in January and have successfully produced and sold various profiles and grades. I want to commend the operations team on this achievement. During the quarter, California, a key market for AZ2, faced unprecedented rainfall, resulting in numerous lost days at construction sites statewide. Consequently, we encountered a temporary oversupply of rebar inventory on the West Coast. To address this situation and help stabilize the market, we plan to adjust our ramp-up schedule in the coming months. Considering the current conditions, we believe it is wise to continue focusing on ramping up our MBQ production capabilities before returning to rebar when the market stabilizes. Although this adjustment alters our original schedule, we do not foresee any delay in the overall timeline for completing the full commissioning of Arizona 2's capabilities. However, this change does affect our ability to forecast volumes for fiscal 2024, given the unpredictable nature of the West Coast rebar market. Nonetheless, we expect to achieve our monthly EBITDA breakeven in the fourth fiscal quarter. Progress at CMC's future Steel West Virginia site is on track, with plans for startup set for late calendar 2025. Site improvements are mostly complete, and we have scheduled initial equipment deliveries for spring and early summer. As we turn to the North American markets, construction activity appears strong as we move beyond the slowest season and into the bustling spring and summer months. We're hearing optimistic feedback from our customers, indicating that their backlogs remain robust and that a strong pipeline lies ahead. This aligns with our internal assessments, especially following CMC's best quarter for downstream contract awards since mid-2022 and its strongest second quarter on record. The significant rebound in new bookings has resulted in an 11% sequential growth in construction backlog volumes, with broad strength across various project types. We saw notable success in new awards for manufacturing facilities, institutional buildings, wind energy, and residential projects, including the addition of the largest contract in our history: a Department of Defense project in Hawaii. Looking ahead, we expect our construction pipeline to remain healthy, driven by several key factors in the near term and over the coming years. Infrastructure is a priority, as we anticipate steel consumption for highways, bridges, and public works to rise in the latter half of fiscal 2024, following project awards from previous years. Healthy bidding activity is expected as states utilize their expanded transportation and infrastructure budgets, with Texas planned to release a significant number of projects for bids soon, having only allocated about a quarter of its 2024 transportation budget so far. We are also witnessing the positive impact of the Infrastructure Investment and Jobs Act across the regions we serve. We estimate that, once operating at full capacity, this program will lead to an additional annual rebar consumption of approximately 1.5 million tons and will benefit CMC's diverse portfolio of reinforcement solutions. Beyond infrastructure, other notable sources of structural demand growth include manufacturing and renewable energy. The project pipeline in these sectors remains vibrant, with recent months seeing strong momentum for new wind energy awards. Additionally, data centers have begun to emerge as a powerful demand driver, with several projects in the bidding stage expected to materialize in the coming months. The scale of investments in data center development is substantial, and the projects currently in planning or under construction signify rebar consumption of 250,000 tons to 350,000 tons. We see these structural trends representing a rare investment cycle aimed at revitalizing our nation’s infrastructure, strengthening supply chains, transitioning to renewable energy, and harnessing the potential of big data and artificial intelligence. We are confident this long-term investment cycle will sustain construction activity for years, positively impacting not only rebar but also extending to CMC’s other vital products like geogrid, Geopier, anchoring systems, and high-performance reinforcing steel. In North America, the market environment for steel product margins improved during the second quarter. As mentioned, monthly figures have risen since December. While import pressures that previously affected the domestic market diminished, current import volumes remain relatively low. This sets a favorable stage for metal margins, primarily driven by domestic market dynamics, as we approach the third quarter. We anticipate a combination of seasonal volume recovery, strong underlying demand, and limited imports to create a positive backdrop for margin expansion during the upcoming construction season. In Europe, the market experienced improvement during the second quarter, largely driven by a better balance between supply and demand. Consumption has remained subdued, but producers have significantly reduced supply, leading to some price and margin recovery. Looking ahead, we expect most of our markets to show stable demand, with the exception of residential construction, which appears poised for growth. The response to the Polish government’s program supporting first-time homebuyers has been robust, resulting in record new mortgage originations and a notable increase in building permits. As we head into spring, our team in Poland is observing heightened order rates in residential projects. In the near term, a better market backdrop alongside strong cost management should guide our operations toward breakeven profitability. Long-term, we believe strong market fundamentals will emerge in Central Europe as industrial production recovers from the energy crisis and as approximately €65 billion in COVID relief funds enter the Polish economy.

Paul Lawrence, CFO

Thank you, Peter, and good morning to everyone on the call. As noted earlier, we reported fiscal second quarter 2024 net earnings of $85.8 million or $0.73 per diluted share compared to prior year levels of $179.8 million and $1.51 per share, respectively. Results this quarter included net after-tax charges of $17.2 million related to the ongoing commissioning efforts of Arizona 2. Excluding these items, adjusted earnings were $103.1 million or $0.88 per diluted share in comparison to adjusted earnings of $171.3 million or $1.44 per diluted share during the prior year period. Core EBITDA was $224.4 million for the second quarter of 2024, representing a 26% decline from the $302.8 million generated during the prior year period, but it's still a historically strong result. Slide 10 of the supplemental presentation illustrates the year-to-year changes in CMC's quarterly financial performance. Profitability at our North American and Europe Steel groups were impacted by lower margins over scrap, while benefiting from strong controllable cost performance. Adjusted EBITDA also declined in CMC's Emerging Businesses Group due primarily to difficult weather conditions in the U.S. and project delays outside of the U.S. Consolidated core EBITDA margin of 12.1% remained above average historical levels and compares to approximately 15% a year ago. I will now review the results of our segments for the second quarter of 2024. CMC's North American Steel Group generated adjusted EBITDA of $222.3 million for the quarter, equal to $220 per ton of finished steel shipped. Segment adjusted EBITDA decreased 19% on a year-over-year basis, driven primarily by lower margin over scrap costs on steel and downstream products. This pressure was partially offset by the improved controllable cost levels per ton. The adjusted EBITDA margin for the North American Steel Group of 15% compares to 18.2% in the prior year period. As you have no doubt read, scrap markets have softened over the last few weeks. Within this environment, we expect to achieve modest metal margin expansion on steel products during the third quarter as scrap costs decrease. It should be noted that although metal margins as reported in our press release are expected to improve sequentially, in the third quarter, the positive earnings impact will likely not hit until late in the period or early in the fourth quarter. This is due to the normal flow of inventory costs through our mill operations. Much of the scrap costs on CMC's P&L during the third quarter will reflect the second quarter scrap cost levels that we have in inventory today. This factor lies beneath our third quarter guidance for stable adjusted EBITDA margin within our North American Steel Group. Turning to Slide 12 of the supplemental deck, our Europe Steel Group reported an adjusted EBITDA loss of $8.6 million for the second quarter of 2024. This marks a more than $20 million improvement from the average losses of $30 million included in each of the prior two quarters when the impact of the energy rebates is excluded. The sequential improvement was driven by higher margin over scrap cost and lower controllable costs per ton, which more than offset a 20% quarter-over-quarter decline in shipments. Controllable cost performance improved both sequentially and on a year-over-year basis as a result of lower energy pricing and operational measures taken across this footprint. As Peter mentioned, there have been some encouraging signs that the Polish market is at least past the bottom and that supply and demand are moving into better balance. Emerging Businesses Group second quarter net sales of $156 million increased 1.6% from the prior year period, driven largely by the addition of CMC anchoring systems. Underlying demand conditions were generally positive during the quarter, but activity levels within several units were impacted by weather-related shipment delays in the United States and project delays in Tensar's Europe and Middle East markets. Despite weather issues, customer order rates and inquiries were strong across the North American footprint, pointing toward good market momentum and a robust upcoming construction season. We also expect the delayed Tensar projects in the global markets to begin in Q3. Adjusted EBITDA for the Emerging Businesses Group of $17.9 million was down from $26.6 million in the prior year period. The adjusted EBITDA margin of 11.5% represented a decline from a year ago as the positive impact of the addition of CMC anchoring systems and strong profitability from our heat treating operations were more than offset by the market factors already mentioned. As Peter noted, we expect profitability in this business to recover meaningfully in the third quarter. Turning to the balance sheet, liquidity and capital allocation. As of February 29, cash and cash equivalents totaled $638.3 million. In addition, we had approximately $820 million of availability under our credit and accounts receivable facilities, bringing total liquidity to just under $1.5 billion. During the quarter, we generated $89 million of cash from operating activities despite a $62 million use of cash for working capital. Capital expenditure of $93.8 million was driven by equipment purchases, principally from our investments in Steel West Virginia. CMC's leverage metrics remained attractive and have improved significantly over the last several fiscal years. As can be seen on Slide 17, our net debt-to-EBITDA ratio now sits at just 0.4 times, while net debt to capitalization is only 10%. We believe our robust balance sheet and overall financial strength provide us the flexibility to finance our strategic organic growth projects and pursue M&A, while continuing to return cash to shareholders. CMC's effective tax rate was 26.6% in the second quarter, which was slightly above our expected full-year rate due to the lower earnings levels. Our effective tax rate through two quarters stands at 23.3%. And looking ahead for fiscal '24, we currently anticipate an effective tax rate of between 24% and 25%. Turning to CMC's fiscal 2024 capital spending outlook, we reiterate our previous guidance of between $550 million and $600 million in total. Outside of normal sustaining investments, anticipated expenditure in fiscal '24 includes substantial capital dollars for the construction of Steel West Virginia of approximately $250 million. CMC has taken two meaningful steps since the prior earnings call to further our commitment of providing competitive cash returns to shareholders. As Peter mentioned, returning cash to our investors is a core tenet of CMC's approach to capital allocation. To that end, our Board of Directors approved a 13% increase to the quarterly dividend payout. This follows the announcement in early January of a $500 million increase to CMC's share repurchase authorization. We seek to utilize both avenues to distribute an attractive portion of our free cash flow to shareholders. The execution of our buyback program accelerated during the second quarter with the repurchase of approximately 945,000 shares at an average price of $50.72 per share. Transactions during the quarter totaled $47.9 million. And as of February 29, we had approximately $510.4 million available for repurchases under our current authorization. This concludes my remarks, and I'll turn it back to Peter for additional comments on our outlook.

Peter Matt, CEO

Thank you, Paul. We expect shipment volumes within our North American Steel Group to follow a typical seasonal pattern during the third quarter, while our EBITDA margin for the segment should be largely stable on a sequential basis. Conditions in Europe are expected to remain challenging, but adjusted EBITDA is anticipated to approach breakeven levels during the third quarter. Financial results for our Emerging Businesses Group should improve meaningfully, driven by the normal seasonal uptick in demand, strong underlying market fundamentals, and a healthy order book. We continue to expect robust spring and summer construction activity driven by increased infrastructure investments, which we anticipate will support an already strong demand backdrop in both the North America Steel Group and the Emerging Businesses Group. Business conditions for our Europe Steel Group are slowly improving and should further benefit from increased residential construction activity as a government program aimed at first-time buyers and other government-sponsored investment programs begin to impact steel demand. We are proud of CMC's financial results and the transformation that made them possible. We are even more excited about our potential to reach new heights in the future as we execute our key strategic priorities and deliver significant value for our shareholders. Powerful structural trends in North America should drive construction activity for years to come, and CMC has positioned itself as a key beneficiary. I would like to thank our customers for their trust and confidence in CMC and all of our employees for delivering yet another quarter of very solid performance. Thank you. And maybe at this time, let's open it to questions.

Operator, Operator

Our first question comes from Timna Tanners with Wolfe Research. Please go ahead.

Timna Tanners, Analyst

Yes, hi, good morning. I wanted to probe the guidance on the flat margins in North America if we could, a little bit? I think you did some of the explanation sounds like it relates to the timing of scrap prices stabilizing after the recent drop maybe in the inventories you mentioned. But typically, it's pretty common, the last two years have seen a really big bump. And I was thinking maybe you'd have some fixed cost absorption as volumes improve. And there was a big weather hit in Q2, I thought. So I just would like a little bit more color about why the margin guidance, if there's anything else to read into there? And what's driving that outlook? Thanks.

Paul Lawrence, CFO

Yes, Timna, I think, as it relates to the impact of the scrap reduction, the scrap costs came fairly significantly here in March. And so that hang in terms of the impact of what we'll actually realize through the P&L is more significant than in other periods. With respect to the comment on the fixed costs, we've continued to operate our facilities at a very high utilization rate. And so despite the shipments being impacted by a slightly lower level in our seasonally slow Q2. We've maintained the production rate. So we don't really typically see a big bump in terms of the cost performance as we enter into the summer because we're continuing to operate the mills at a consistent level of utilization. So those are the principal reasons for, yes, the metal margin statistic that we provide, to your point, we'll see an improvement. But the margins that we actually realize will be pretty consistent. And really, the increase in earnings is anticipated to really be the growth in the volumes, which we expect to be on the high end of the normal seasonal pickup that we have historically seen between Q2 and Q3.

Timna Tanners, Analyst

Got it. Okay. That's helpful. Thanks. And then my second question is if you could please address a little bit more some of the hot topics. You mentioned data centers and the 250,000 tons, 350,000 tons of total rebar consumption. Can you put that in context of what it was in the past years? And also, is that in the context of like a $9 million U.S. market or roughly are those the right numbers? And then on infrastructure, any comments there on the cadence of that would be helpful? Thanks. Yes. Regarding data centers, we are looking at a market of 9 million tons of rebar. I don't have the exact past figures available, but I can confirm that they were significantly lower. Currently, there is approximately 120 million square feet of demand in data centers, indicating a substantial increase in need. On the infrastructure front, we are definitely seeing the spending increase, a trend we noted last quarter as well. Key indicators, such as the Dodge Momentum Index and state budgets, continue to show strong year-over-year growth. From conversations with Departments of Transportation, we understand they are witnessing the benefits of IIJA funding, which is driving increased spending. Importantly, they also suggest that spending will escalate throughout the program duration. It will start growing in 2024, and we anticipate that 2025 will see higher levels of spending compared to 2024, and 2026 will exceed 2025. To reiterate your question on additional tons, we believe there will be an increase of 1.5 million tons per year, based on the 9 million ton figure.

Paul Lawrence, CFO

Timna, I would like to provide some insight into the two main leading indicators we monitor in this area. When examining the Dodge Construction starts for infrastructure, particularly highways, the projection shows a 25.6% increase in starts this year compared to 2023. This is an impressive figure, but it's important to remember that it reflects the number of starts and emphasizes the long-term nature of these projects, which won’t be completed this year but rather over the next few years. On the other hand, the PCA data indicates that cement consumption is expected to rise by 5.5% in 2024, followed by another 4% increase next year, continuing into 2025. This data represents more of the foundational work that will develop over time, yet it's encouraging to see the strong forecast for Dodge starts this year.

Timna Tanners, Analyst

Got it. Okay. Thanks, again.

Peter Matt, CEO

Thanks, Timna.

Operator, Operator

The next question comes from Katja Jancic with BMO Capital Markets. Please go ahead.

Katja Jancic, Analyst

Hi. Thank you for taking my questions. First, can you just remind us what the seasonality typically is on volumes in North America?

Paul Lawrence, CFO

Typically, Katja, it's usually between 5% and 10% from Q2 to Q3. We're going to be on the high end of that this time given the more dramatic weather conditions we saw. So that's sort of the normal range we anticipate.

Katja Jancic, Analyst

Okay. Regarding the Emerging Businesses Group, I understand you mentioned it will see a meaningful sequential increase. Last year, this segment reported approximately $38 million in EBITDA. How should we evaluate that segment compared to last year?

Peter Matt, CEO

Yes. I mean, we expect that the Emerging Businesses Group is going to return to an on-trend performance. So, again, in the quarter, as we said, we had some conditions including weather and also some delays in shipments outside the U.S. that impacted us. But as we look at that business going forward, it should be and should be kind of 15% to 20% EBITDA margin, and it should grow organically. And we would expect it to return to something that was kind of a little bit better than what we did last year.

Katja Jancic, Analyst

Okay. Thank you very much.

Peter Matt, CEO

Yes, absolutely. Thank you.

Operator, Operator

The next question comes from Tristan Gresser with BNP Paribas. Please go ahead.

Tristan Gresser, Analyst

Yes, hi. Thank you for taking my questions. So I have two. The first one is on Mexico. I mean when we look at the products, the imports coming from Mexico, that's rebar is probably the one that surged the most over the past couple of years, and there's been a lot of noise, and I believe that senators have put a bill to return to tariffs on imports from Mexico. So can you discuss a bit the situation there? What happened? And also how likely do you think we're going to get some trade actions there? That's my first question. Thank you.

Peter Matt, CEO

Yes, you're correct. Recently, senators Brown and Cotton introduced a bill aimed at restoring tariffs to levels similar to those of the Section 232 exemption and the USMCA. It's still too early to determine the outcomes of this development, and we will keep track of it. However, it would have an impact since there has been an increase in both rebar and merchant bar shipments into the U.S. At this point, we need to continue monitoring the situation.

Tristan Gresser, Analyst

All right. But you have noticed the behavior from Mexican producer ramping up production, being more aggressive on prices. Has it been an issue for you anywhere in the market you operate?

Peter Matt, CEO

Well, definitely we are aware of them. But remember, at the same time, we've had a decline in some of the imports from the other areas, right. So I would say, in general, imports have been less of a factor in the quarter, and we expect them to be less of a factor kind of in the coming quarters. So yes, we can see it, but again, it's hard to say what the ultimate impact or what the ultimate outcome of that will be.

Tristan Gresser, Analyst

All right. That's helpful. Maybe just another one on infrastructure and at the risk of sounding a bit like a broken record. I mean, we were talking about infrastructure. I think a year ago, there has been consistent delays. And I was wondering if you could touch a little bit. I think the delays were also driven a little bit by the political situation. So now as we're getting close to our U.S. election, could this again, with the change or no change of administration, add a bit more delays. And if that's the case, I mean 2025, if we look at the supply situation, if you could share some thought if you think there could be a mismatch because we see quite some capacity ramping up during that year. It's true towards the end of the year. But still, I'm a bit worried looking at the political situation, the supply growth in 2025 that we could see a mismatch between supply and demand essentially. I would like to hear your thought. Thank you.

Peter Matt, CEO

Thank you for the question, Tristan. We are not concerned about the delays. Over the past several quarters, we’ve explained that there are pre-design and design phases that these projects must complete before entering the spending period. In our discussions with various Departments of Transportation, we’ve learned that these pre-design phases can take years. Therefore, we may have been overly ambitious with our initial timing expectations. However, we are beginning to see spending materialize, as I mentioned in response to an earlier question. Furthermore, regarding the political landscape, we believe both parties support current infrastructure spending, as it was a bipartisan bill when approved, and we haven't observed any signs of disagreement from either the Republicans or Democrats. We remain optimistic about this aspect. On the topic of capacity, while we do expect some capacity increases, we recognize there’s a distinction between announced capacity and what will actually be built. We are confident in our assessments and believe the market will manage that capacity effectively. Overall, we are very positive about the situation. The demand environment represents a significant shift from what we have experienced previously, leading to multi-year spending that positions us well for the future.

Paul Lawrence, CFO

Tristan, I'll just add with respect to your comment that we'll see some capacity come online in 2025, I don't think that's necessarily correct. I think if we look at the time line associated with our projects and others, and you look at the time associated with ramp-up of commissioning the mills, I think from a true product into the marketplace, we're looking beyond '25 at this stage for any of the new capacity to come online.

Tristan Gresser, Analyst

All right. Thank you for the answers. Appreciate it.

Peter Matt, CEO

Thank you.

Operator, Operator

The next question comes from Phil Gibbs with KeyBanc Capital Markets. Please go ahead.

Phil Gibbs, Analyst

Hi, good morning.

Peter Matt, CEO

Hi, Phil.

Phil Gibbs, Analyst

Just curious on CapEx cadence for the second half and fiscal '25 as you complete some of these projects?

Paul Lawrence, CFO

Phil, generally, our CapEx process is pretty consistent year after year. We sort of start the year relatively slow and then ramp up over the summer months. And we anticipate that as we complete the civil construction work at West Virginia, we're certainly going to continue to see increased spend at that site, which is driving most of our CapEx into Q3 and into Q4. So given where we are year-to-date, we anticipate that Q3 and Q4 will achieve our guidance pretty evenly between those two months.

Phil Gibbs, Analyst

And as you look into '25 to complete those projects, how should we think about that?

Paul Lawrence, CFO

Yes, there should be probably equal spend left on West Virginia to the $250 million that we anticipate for this year.

Phil Gibbs, Analyst

And then just on the start-up costs of the mill, I know you said you've gotten through some of the initial teething issues on MBQ, which is great, and rebar sounds like you're maybe being a little bit more measured here in the short term. How should we think about your start-up costs in Q3 and Q4?

Peter Matt, CEO

Well, so on rebar, we've largely crossed the bridge in terms of commissioning. I mean, we're in good shape on rebar. So I think this is really about continuing to kind of develop product families on the MBQ side. We've had good success already, and we'll just continue to kind of grow that. As we indicated in our prepared remarks, we are still expecting to be profitable there to be breakeven on the EBITDA front in our fourth fiscal quarter. So I think you'll see those trail off, and this will be kind of just ongoing commissioning costs, but it's going to be much smaller numbers because we'll be into profitability.

Phil Gibbs, Analyst

So this quarter is probably peak start-up and commissioning costs for you all?

Paul Lawrence, CFO

Yes, I would say confidently that Q2 of this year is the peak and things will tail from here.

Phil Gibbs, Analyst

Okay. And just on your net working capital outlook for the balance of the year, I think first half might have been a little bit heavier than I expected, but you probably have some bills that you're letting in the back half as shipments increase and scrap has also gone down. So you've got a couple of things working in your favor, but you also have higher levels of business activity. So how should we think about the working capital side?

Paul Lawrence, CFO

Yes, Phil, we invested about $60 million in working capital, which was primarily due to the increase in scrap costs during the second quarter. With scrap prices decreasing in the third quarter, we expect to recover most of that investment. Additionally, we did build up some inventory in the second quarter in preparation for the upcoming construction season, which should complement the growth we expect in accounts receivable. Therefore, I believe these two factors will balance out, leading us to generate working capital as we finish the year, starting in Q3.

Phil Gibbs, Analyst

Thank you.

Peter Matt, CEO

Thanks, Phil.

Operator, Operator

At this time, there appears to be no further questions. Peter Matt, I'll now turn the call back over to you.

Peter Matt, CEO

Okay. Well, I'd like to just thank everyone for joining the call today. We're really pleased with the results that we've been able to generate, and we are continuing to feel really strongly about the construction outlook for, and the demand for our products that result from that. So thank you very much for your interest in CMC, and we look forward to talking to you in the future.

Operator, Operator

Thank you for joining us on today's conference call. We look forward to speaking with many of you during our investor calls in the coming days and weeks. This concludes today's CMC conference call. You may now disconnect.