Earnings Call Transcript
COMMERCIAL METALS Co (CMC)
Earnings Call Transcript - CMC Q3 2023
Operator, Operator
Hello, and welcome, everyone, to the Third Quarter Fiscal 2023 Earnings Call for Commercial Metals Company. Today's materials, including the press release and accompanying slides, can be found on CMC's Investor Relations website. This call is being recorded. I would like to remind all participants that during this conference call, the company will make statements providing information beyond historical data, including expectations regarding economic conditions, effects of legislation, U.S. steel import levels, construction activity, demand for finished steel products, new facilities' expected capabilities and timeline, future operations, growth plan execution timeline, and anticipated future financial results and capital spending. These 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. They reflect the company's beliefs based on current conditions but are subject to certain risks and uncertainties, including those described in the latest filings with the Securities and Exchange Commission, like the annual report on Form 10-K and quarterly report on Form 10-Q. Although these statements stem from management's current expectations and beliefs, CMC offers no assurance that these expectations or beliefs will prove accurate, 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 or clarify these statements in connection with future events or changes in assumptions. Some numbers presented will be non-GAAP financial measures, with reconciliations available in the earnings release, supplemental slide presentation, or on the company's website. Unless stated otherwise, all references to year or quarter-end pertain to the company's fiscal year or quarter. Now for opening remarks and introductions, I will turn the call over to the Chairman of the Board and Chief Executive Officer of Commercial Metals Company, Ms. Barbara Smith.
Barbara Smith, CEO
Good morning, everyone, and thank you for attending CMC's third quarter earnings conference call. As we reported in our press release this morning, it was another period of outstanding financial results with quarterly core EBITDA performance among the best in our company's history. I would like to thank CMC's 12,500 employees who have made these results possible. Your hard work and focused efforts are driving our success. For this morning's call, I'm joined by Commercial Metals Company President, Peter Matt; as well as Senior Vice President and Chief Financial Officer, Paul Lawrence. I will start today's discussion with a few comments on CMC's third quarter results and give an update on our strategic growth projects. Peter will then provide commentary on current market conditions and factors behind CMC's long-term demand outlook. Paul will cover the quarter's financial information in more detail, and I will then conclude with our outlook for the fourth fiscal quarter after which we will open the call to questions. Before diving into more details on the quarter, I'd like to direct listeners to the supplemental slides that accompany this call. The presentation can be found on CMC's Investor Relations website. As I noted, CMC's third quarter fiscal 2023 earnings were among the strongest in our company's 108-year history. We reported net earnings of $234 million or $1.98 per diluted share on net sales of $2.3 billion. Excluding the impact of non-operational items, which Paul will discuss in more detail, adjusted earnings were $239.7 million or $2.02 per diluted share. CMC generated core EBITDA for the quarter of $391.7 million, an increase of 29% from the prior quarter, producing an annualized return on invested capital of 19.1%. This marks the North America segment's 10th consecutive quarter of year-over-year EBITDA growth and the 20th quarter of year-over-year growth in the last 21 quarters, excluding the gain on the sale of land recognized during the second quarter of fiscal 2022. I will now provide an update on CMC's key strategic growth projects. I am pleased to share that operational startup of Arizona 2 is now underway. This operation marks yet another industry first for CMC as the only micro mill in the world capable of producing both rebar and merchant bar in a continuous process. As a reminder, at full run rate, we expect Arizona 2 to produce approximately 350,000 tons of rebar and 150,000 tons of merchant bar annually. The ramp-up to this level should cause minimal market disruption as we have maintained CMC's presence in the West Coast following the closure of our former Steel California operations in anticipation of bringing Arizona 2 online. Output from our new micro mill will help optimize our footprint. As we have discussed previously, the addition of Arizona 2 provides strategic benefits to CMC's portfolio. It will extend our geographic reach in merchant bar to the West Coast and provide optimal access to the sizable Southern California and Arizona markets. Additionally, it will help form a unique steelmaking complex through its co-location with our existing Arizona micro mill, allowing for shared staff support, production optimization, improved production scheduling, and shared site infrastructure. The operational flexibility of Arizona 2 will also provide the ability to seamlessly adjust the output of rebar and merchant bar to quickly address market conditions and opportunities. Looking ahead to fiscal 2024, we initially expect our new mill to produce approximately 400,000 tons, with output approaching full run rate by the end of the fiscal year. We anticipate Arizona 2 will achieve breakeven on an EBITDA basis during the first quarter and improve from there as production increases, assuming metal margins remain fairly consistent with current levels. We believe Arizona 2 should add roughly $70 million to $80 million to CMC's sustainable through-the-cycle EBITDA. Turning to our other exciting new mill project, progress at the future Steel West Virginia site remains on target. We anticipate receiving the air permit in the coming weeks and expect to break ground during the middle of summer. We look forward to providing further updates over the next several quarters as we hit key project milestones. We recently celebrated one year since the acquisition of Tensar, an industry-leading provider of engineered solutions for ground and soil stabilization that complement our concrete reinforcing steel products. Several of the first-year highlights are shown on Slide 6 of the supplemental presentation posted to our Investor Relations website. We purchased Tensar with the expectation that it would represent a significant new growth platform for CMC with a meaningful runway of long-term value creation opportunities through increased market adoption, commercial synergies, and additional growth targets. Our experience during the first year has validated this view and reinforced our expectations for future prospects of this business. The successful launch of Tensar's newest geogrid design, InterAx, has shown the potential to achieve increased market penetration and share of wallet through engineered solutions that offer a compelling customer value proposition. We have a clear path toward executing on a broad commercial strategy, one that leverages a unique portfolio of reinforcement solutions to deliver more value to project owners, general contractors, and project engineers. Since the acquisition, Tensar has generated EBITDA of $61 million, punctuated in May by the achievement of its best monthly results since joining CMC. While this first-year performance was within our initial range of expectations, we see further upside ahead by executing across a number of fronts. First, we see significant opportunity to increase market penetration, which is currently in the mid-single digits through an excellent value proposition and sustained marketing efforts. The launch of the InterAx product line highlights Tensar's potential to drive broader adoption. In less than two years on the market, InterAx has grown to roughly 20% of our geogrid volumes. This product has years of patent protection remaining and is, by far, the premier offering in the marketplace. In addition, we continue to improve production reliability and have an opportunity to add low-cost capacity to meet growing demand. Our recent acquisition of BOSTD in Oklahoma supports this goal by increasing CMC's control of our geogrid supply chain, providing the ability to expand production in the Central U.S., which is a large and growing market. Longer term, we expect commercial synergies and expansion into new product adjacencies to drive meaningful earnings growth. We are confident in our outlook for Tensar to become an increasingly important contributor to CMC's financial success. I would remind you that it is a highly seasonal business, so progress along this growth path may at times be less apparent due to typical quarter-to-quarter variations. Before turning the call over to Peter, I'd like to comment on the bolt-on acquisitions we have completed since the start of the fiscal year. Each transaction supports CMC's strategy by either securing critical inputs to our manufacturing operations or enhancing our ability to serve our customers. In three separate transactions, we acquired recycling operations in California, Texas, and Tennessee. The addition of the California location supports our growth in steelmaking in the Western U.S., while the other facilities increase the security of scrap supply to our mills within core markets. Finally, the acquisition of Tendon Systems, a leading supplier of post-tension cable to the Southeast market, complements CMC's existing footprint in the region and adds valuable engineering and commercial expertise. Post-tension cable is used in conjunction with rebar, and the ability to offer a bundled package increases the ease of doing business for customers. With that overview of strategic projects, I will now hand the call over to Peter to discuss conditions in CMC's end markets.
Peter Matt, President
Thank you, Barbara, and good morning to everyone on the call. Before providing remarks on CMC's end markets, I would like to share a few observations from my first two months as President. My time has been filled with site visits and conversations with employees from across the organization, and I have come away with a true appreciation for the quality of our culture and our people. It's clear that our team members are truly dedicated to our customers and to each other. It's also clear that our people excel at meeting challenges, from routine business issues to spearheading the adoption of breakthrough technologies. After meeting these folks, it's no surprise that CMC has become an industry leader and built a track record of innovation and financial success. I am highly energized by the opportunity to work closely with such a talented group of people and to join a management team I greatly respect from my tenure on the company's Board of Directors. Now turning to CMC's markets in North America. Conditions remained strong with healthy demand for our products and a generally favorable margin environment. The value of our downstream backlog ended the third quarter at a record level for this time of year, up roughly 4% from a year ago. Volume in our backlog is also at historically high levels and conversations with customers indicate that other fabricators are similarly situated, which should support finished steel shipments over the next several quarters. CMC's downstream bidding activity for newly announced projects, which provides the best view of developments within the future project pipeline, also remained robust, increasing nearly 30% on a year-over-year basis. Projects in the pipeline continue to represent a healthy blend of both private and public work, spanning across our geographies. We are experiencing particular strength in local infrastructure projects, manufacturing, data centers, LNG investments, and e-commerce. There is also surprising resilience in some construction market segments that are typically more sensitive to higher interest rates, including office space and general commercial activity. While we expect a slowdown in these areas, it is not yet reflected in our activity. Our view is echoed by external indicators that have been historically reliable. The first is the Dodge Momentum Index, which tracks projects entering the planning phase and generally leads on-the-ground activity by nine to twelve months. The May reading increased by 11% from a year ago; and though down month-over-month, remained within the top decile of all months reported over the last 20 years of data. Moreover, both the commercial and institutional components grew, increasing by 7% and 18%, respectively. Spending on highway and street construction, as tracked by the U.S. Census Bureau, has increased 20% or more on a year-over-year basis each month since August of 2022. This is consistent with comments made on previous calls regarding the growth in state highway budgets and the record level of new highway and bridge contracts awarded last year. We believe this uptick in activity represents the early stages of rising infrastructure investment. Another metric we watch is the Dodge Analytics Infrastructure Design-Phase Index, which indicates that federal funding is flowing through the project pipeline. This measure increased by nearly 700% on a year-over-year basis in the three months ended in April. So to sum up, while we continue to monitor a range of market indicators, on balance, we see good activity and positive future signals for our key segments. Now let me zoom out a bit and discuss where we are, where we came from, and more importantly, where we believe we are going in terms of domestic rebar demand. U.S. consumption has been consistently above 9 million tons on an annualized basis since mid-2021 and is running about 6% to 10% above the pre-pandemic average from 2015 to 2020. This level of demand already reflects the downward adjustment in the housing market that occurred in early to mid-2022. Following a sharp decline, U.S. new housing starts have stabilized at rates 10% to 15% above where they were prior to the pandemic. We believe the powerful structural trends we are witnessing have the potential to drive rebar consumption well above the levels seen on Slide 7. These trends include the reshoring of critical manufacturing, infrastructure investment, and investments in energy to support the transition to renewables and the realignment of global energy trade. There is over $1.1 trillion of either direct federal funding or announced large private projects that will be executed over the next several years to address these needs. This massive figure incorporates approximately $350 billion in reshoring projects within the semiconductor and automotive supply chains. To this, there are likely to be added hundreds of smaller reshoring investments across a number of other industries that will also benefit rebar demand. Slide 8 provides an overview of domestic rebar consumption and some of the major factors that we believe could have an impact on demand over the next several years. As you can see, about 55% of consumption is in markets that are or will be receiving direct federal funding or incentives, much of which will be subject to Buy America provisions. We would also categorize about two-thirds of demand as having relatively low sensitivity to interest rates. These are markets that are driven by necessity and rely heavily on either public funding or strong corporate balance sheets. Further, of the remaining one-third of consumption that tends to be interest rate sensitive, the majority is residential construction. As I indicated earlier, new residential starts have actually stabilized above pre-pandemic levels despite 30-year mortgage rates nearly doubling since 2022. We believe this points to structural support for new construction provided by an ongoing shortage of housing inventory in most metropolitan areas. This leaves about 10% of U.S. rebar consumption that is both highly sensitive to lending conditions and unsupported by structural factors such as economic necessity or low levels of existing inventory. Taken together, we believe the multiyear outlook for rebar demand is strong. The markets that are most rebar-intensive are receiving increased investment dollars, while construction segments likely to contract, such as office, retail, and hospitality, are far less rebar-intensive and comprise a relatively small portion of overall consumption. As an example, $1 of infrastructure construction will consume roughly five to six times more rebar than $1 spent on the construction of a standard office or retail building. While my comments regarding the potential impact of structural economic trends have focused on rebar, we also expect these benefits to carry over to our Engineered Solutions businesses. Tensar soil stabilization solutions are used in highway applications, access roads into green energy projects, and to improve the structural rigidity of massive building foundations, such as those under manufacturing plants. Looking briefly at CMC's merchant bar end markets, we continue to experience stable demand across most applications, and supply chain inventories appear to be in good shape. Turning now to Europe, current market conditions are more challenging, and the near-term outlook is less certain. Construction activity in recent months has slowed, driven by the impact of higher interest rates on the residential market. The pipeline for new home construction, as indicated by building permits, has contracted sharply since mid-2022 and is now affecting on-the-ground activity. Some relief may be ahead. We mentioned in our second-quarter earnings call that the Polish government was developing a plan to support the housing market through assistance to first-time homebuyers. We are encouraged that this measure passed through the parliament in late May and is expected to be implemented on July 1. The legislation will provide qualified buyers with mortgages at 2% interest compared to the current market rate of 9% to 10%. This should benefit residential construction activity, but the magnitude of the impact remains to be seen. Another encouraging development is the recent announcement by Intel regarding the planned construction of a $4.6 billion semiconductor assembly plant, which is expected to be completed in 2027. The project is the largest greenfield investment in the history of Poland and highlights that the build-out of semiconductor supply chains is not limited to North America. Industrial activity in Central Europe continues to be impacted by ongoing energy concerns and weak economic sentiment. The current state of manufacturing in the region is best highlighted by 11 consecutive contractionary monthly readings for German manufacturing PMI and 13 straight in Poland. Despite this challenging backdrop, our team in Poland has been able to maintain historically strong shipment volumes by leveraging their operational flexibility. Looking ahead, we believe that lower European energy prices and the stimulus of Polish home buying will provide support to our key end markets. We expect that our strong competitive position with both cost and operational flexibility will allow us to maintain volumes above historical levels. And with that, I will now turn the discussion over to Paul to provide more detail on our financial results.
Paul Lawrence, CFO
Thank you, Peter, and good morning to everyone on the call. As Barbara noted earlier, we reported fiscal third quarter 2023 net earnings of $234 million or $1.98 per diluted share compared to the prior year levels of $312.4 million and $2.54 per diluted share. Results this quarter include a net after-tax charge of $5.8 million related to ongoing commissioning efforts at Arizona 2. Excluding this item, adjusted earnings were $239.7 million or $2.02 per diluted share in comparison to adjusted earnings of $320 million or $2.61 per diluted share during the third quarter of fiscal 2022. Core EBITDA was $391.7 million for the third quarter of 2023, representing a 19% decline from the record $483.9 million generated during the prior year period, but still among the most profitable quarters in CMC history. Slide 12 of the supplemental presentation illustrates the year-to-year changes in CMC's quarterly results. Our North America segment achieved earnings growth, while Europe experienced a reduction from the record set in the prior year quarter. Consolidated core EBITDA per ton of finished steel of $245 remained well above average historical levels and compared to $293 per ton a year ago. CMC's North American segment generated adjusted EBITDA of $402.2 million for the quarter, equal to $344 per ton of finished steel shipped. Segment adjusted EBITDA improved 6% on a year-over-year basis and 34% sequentially. The increase from the third quarter of fiscal 2022 was primarily the result of significant expansion in the margin of the average downstream selling price over scrap costs. Sequential improvement was driven by a combination of higher shipments and meaningfully lower controllable cost per ton of finished steel. Controllable cost per ton in the quarter benefited from improved fixed cost leverage, lower per unit cost for key consumables, and a lower cost burden related to major planned maintenance outages. As we have mentioned on prior calls, CMC is undergoing two significant replacement and upgrade projects this year. The first was entirely executed during the second quarter. Due to the timing of costs related to the second project, the costs are split nearly evenly between the third and fourth quarters. Turning to Slide 14 of the supplemental deck. Our Europe segment generated adjusted EBITDA of $9.6 million for the third quarter of 2023 compared to a record $121 million in the prior year period. The decline was primarily driven by lower margin over scrap, higher costs for energy and a reduction in shipment volumes. CMC's energy procurement remains competitively positioned relative to the broader European industry, but no longer provides us with the outside advantage we enjoyed in fiscal 2022. We anticipate that energy costs will continue to improve sequentially in the fourth quarter as the April 1 reduction in contractual natural gas pricing will be fully reflected in our results. Europe volumes decreased 10% compared to the prior year. As a reminder, the prior year benefited from accelerated customer buying in the wake of the Ukraine invasion. Demand conditions within Central Europe are challenging. Though, as Peter mentioned, some relief could be provided by the recently passed legislation. We believe CMC is well positioned for this current period of volatility in Europe. We are a low-cost industry leader with operational flexibility to adjust and serve changing market conditions. Tensar generated EBITDA of $17.4 million during the third quarter, ending the period with its strongest month yet as a division of CMC. The EBITDA performance yielded a margin of approximately 25%, up approximately 750 basis points from the prior quarter. The increase was driven by a strong seasonal pickup in demand, improved production performance at the domestic manufacturing facility, as well as growth in sales of InterAx, Tensar's newest and highest margin geogrid solution. As a reminder, Tensar's performance is included within CMC's existing segments. Of the $17.4 million in EBITDA, $13.6 million was included within CMC's North America segment, while the remaining $3.8 million was reported within the Europe segment. Moving next to the balance sheet. As of May 31, cash and cash equivalents totaled $475.5 million, which reflected the repayment made earlier last month of $214.1 million in maturing senior notes. It should be noted that CMC does not face another note maturity until 2030. In addition to cash and equivalents, we had approximately $958 million of availability under our credit term loan and accounts receivable facilities, bringing total liquidity to approximately $1.4 billion. During the quarter, we generated $375.8 million of cash from operating activities, with working capital being a modest positive factor. Our free cash flow amounted to $225.3 million, defined as our cash from operations, less $150.5 million of capital expenditures. Our leverage metrics remain attractive and have improved significantly over the last several fiscal years. As can be seen on Slide 18, our net debt-to-EBITDA ratio now sits at just 0.5x. We believe our robust balance sheet and our overall financial strength provide us the flexibility to finance our strategic organic growth projects and pursue opportunistic M&A, while continuing to return cash to shareholders. CMC's effective tax rate was 24.5% in the third quarter, and looking ahead to the fourth quarter, we currently expect an effective tax rate of between 23% and 25%. Turning to CMC's fiscal 2023 capital spending outlook. We expect to invest between $575 million to $600 million in total. Outside of normal sustaining investments, expenditures in 2023 are directed towards finalizing the construction of Arizona 2, funding major upgrade projects at the two domestic steel mills, as well as initial investments related to Steel West Virginia. CMC continues to deploy capital to support our growth plan and reinforce our core operations. During the quarter, we invested $101.9 million for strategic bolt-on acquisitions, which Barbara covered earlier. And lastly, CMC purchased 352,000 shares during the fiscal third quarter at an average price of $46.92 per share. Transactions since the initiation of the buyback program through the third quarter have amounted to approximately $245 million, leaving $105 million remaining under the authorization. And with that, I will now turn the call back to Barbara for comments on CMC's financial outlook.
Barbara Smith, CEO
Thank you, Paul. We expect strong financial performance in the fourth quarter, which will generally align with the levels we saw in the third quarter. We anticipate that finished steel shipments in North America will remain stable, driven by robust end market demand and a historically high backlog. Margin levels in North America should also be comparable to the previous quarter. In our Europe segment, we expect results to mirror those of the third quarter, facing a tough margin environment and ongoing economic uncertainty. Our team in Poland possesses the expertise and operational capabilities to manage this challenging situation, and they will utilize CMC's leading cost position to sustain profitability. Once again, I would like to extend my gratitude to our customers for their trust and confidence in CMC, as well as to all CMC employees for delivering another outstanding quarter. With that, go ahead.
Operator, Operator
Our first question is from Tristan Gresser with BNP Paribas.
Tristan Gresser, Analyst
I have two. The first one is on the new micro mill. You disclosed some EBITDA figures, I think, of the earning potential of $75 million on average on EBITDA. I believe initially the earnings potential of those mills was closer to $50 million. So what has changed really in this, if I calculated this $50 uplift? Is that the result of the structural changes you mentioned in the presentation and you've flagged in the past and you're currently witnessing in the marketplace? That's my first question.
Barbara Smith, CEO
Yes. We are really excited about Arizona 2. In fact, I was there on Monday as they were doing their commissioning activities, and they achieved a significant milestone. So it was really exciting to be with the team. As we look at the expectation from the Arizona 2 operation, it's exactly what you pointed out. If we look at through the cycle, average performance, we really have updated based upon current past 10-year results or past five to seven-year results, and that is showing that structural uplift through the consolidation of the industry and other factors.
Tristan Gresser, Analyst
All right. That's really clear. And maybe my second question is more on the fabrication outlook. I think some peers have flagged some delays within their downstream operation. Is that also something you've witnessed across your specific products and geographies? And you touched on the backlog and the bid volumes that remain pretty healthy. If you could maybe touch on how meaningful the reshoring activity, all those new semiconductor plants that are being built, how does that contribute to this really healthy activity level?
Barbara Smith, CEO
First, let me address the delays. I think we've studied the commentary, and what I would reflect is every project is different. There are certain segments of the industry that may see different demand scenarios. What CMC is experiencing is as follows: There still are challenges from supply chains, and there still are challenges with labor; then you factor in weather and other things. So shipping activity on certain projects, not all projects, can be affected by those ongoing supply chain or labor challenges in the marketplace. And we've seen that in some jobs that we are carrying in our backlog. But if you look at the situation more broadly, as we indicated, as Peter indicated in his commentary, our backlogs are extremely healthy. We are very encouraged by what we hear from other fabricators. We're very encouraged by the bidding activity, which remains very robust. A lot of that is underpinned by factors like the supply chain rebalancing and the number of onshoring activities. Those have been consistently strong, and there's a strong pipeline moving forward. The various infrastructure and other legislation that has been passed, whether that's IIJA or the IRA or the CHIPS Act, every one of those bills has an enormous amount of support for various infrastructure, energy transition, or onshoring activities. Some of that we have seen already, as we've indicated, in the chip plants we have been associated with here. But much of that is still activity we expect to see in the future. It was highlighted in the script, this new chip plant in Poland. That is a very, very positive development from our vantage point for our Polish operations. We are very well-positioned to participate in that, and we look forward to that. So we remain quite optimistic for a strong demand backdrop, both near-term, medium and even in the long term.
Peter Matt, President
I might just jump in and add, so to complement Barbara's points on the infrastructure bill, we've said in the past that that's 1.5 million incremental tons of rebar demand per year, and we think we're on the very front end of that. And on the reshoring projects, you can count over $300 billion of projects that will have substantial rebar demand. For example, just to put it in context, look at one of these chip factories; one phase talks about demand of something like 100,000 tons. A lot of this still needs clarification, but it's clear there will be a good backlog going forward for our products.
Operator, Operator
The next question is from Timna Tanners with Wolfe Research.
Timna Tanners, Analyst
I have several questions. I wanted to ask about the impact of declining global rebar prices on your operations. It seems the strong performance in your fabricated business and the decrease in scrap prices have offset some of the effects. However, I would like to know more about what you're observing with imports and how you think your end markets are performing in relation to those lower global prices.
Paul Lawrence, CFO
I'll start off, Timna, and Barbara and Peter can add. You're right. What we have experienced is that it really has started with a soft scrap market, and we benefited from scrap that has come down over the last few months, which is expected to continue to be soft for the balance of the summer. Given the strength of the rebar demand, we have seen and expect to continue to see that we can hold on to pricing for a longer period of time. It's very similar to the back half of 2022 when we saw scrap fall during much of that second half of the year, and we saw margin expansion through that period. This is the benefit of the strong demand environment that we see, which is supported by our own backlogs and a very robust Buy America program, which mutes the direct impact to the import pricing scenarios.
Barbara Smith, CEO
As it relates, Timna, to imports in general, if you look at rebar imports, they're actually down compared to historical levels. But if you look at it more broadly, the import levels have been stable around 10% to 15%, which is very manageable in the U.S. market. Again, we pointed to in past calls the effect of the earthquakes in Turkey, which has disrupted production there and influenced the rebuilding effort. At the current time, maybe that introduced some softness in the scrap market because they weren't as significant a buyer of scrap. We also think that provides longer-term support to an import environment that is stable and manageable for the market here. As Paul pointed out, a lot of the demand in the future is going to have a Buy America component, which will prevent those imports from competing for that demand.
Timna Tanners, Analyst
Cool. Yes. So on the Buy America, I was actually going to ask about that as you shift to more public demand and perhaps more muted private demand. If you could quantify that Buy America amount? And then actually, my second question was just to take a step back and ask about capital allocation, bigger picture. So it sounds like you're stepping away from building new mills. And I just wondered if you could talk a little bit more about how we should think about uses of cash going forward? I know you talk about M&A. Maybe you can expand on what kind of companies you might be looking at: downstream focus versus is there much left to do among rebar scrap guys?
Barbara Smith, CEO
Thank you, Timna. I apologize for forgetting your first question, but...
Timna Tanners, Analyst
Just the Buy America quantifying.
Barbara Smith, CEO
Oh, the Buy America. Yes. Thank you. So I think it would be hard to put a specific quantification on it, Timna. Suffice it to say that anything that's got federal funding to it is generally speaking, a Buy America project. There are many statistics you can look at regarding each of the acts and the billions of dollars allocated to various areas, whether it's energy transition or the onshoring of critical manufactured products. Much of that is still pending, but it will all be under the Buy America umbrella. I don't have a strict quantification at this moment; perhaps we can look into that further. As for capital allocation and welcome any input from Paul and Peter after my remarks. We've had a well-balanced strategy. We've reviewed our dividend policy over the last several years and made a number of adjustments. We take pride in that as it speaks to our confidence in the business and the ongoing cash flows. We've had the share repurchase program for some time, and we continue to focus on returning capital. Obviously, we continue to prioritize growth. I'll push back slightly on us stepping away from new mills because we are looking forward to breaking ground on our next greenfield project in West Virginia in the coming months. These are massive multiyear projects. We have made a number of acquisitions and will continue to evaluate across the entire portfolio, whether that's recycling to support our raw material needs or within steel manufacturing or downstream, or in the case of Tensar; I spoke about our desire to look at ways we can continue to expand and grow that business perhaps through some bolt-on acquisitions. Acquisitions like Tendon Systems, which is interesting as it aligns with our existing post-tension cable business. Post-tension cable is used in conjunction with rebar; having a bundled package makes it easier for customers. These are complementary to our existing operations and allow us to serve large construction projects and help simplify the process for our customers.
Operator, Operator
The next question is from Lawson Winder with Bank of America Securities.
Lawson Winder, Analyst
Yes, thank you for taking the time to take the question as well. I wanted to ask about the downstream pricing and maybe get a little color on your outlook and thoughts around that heading into Q4. So I mean, pricing surprised us very positively in Q4. And obviously, that helped margins. Just when you think about your order backlog and the new bidding, can you speak to the pricing but also the margin outlook for the end of the year and then looking into next year as well would be really helpful?
Peter Matt, President
Yes, Lawson, if we look at the pricing environment in the fabrication business, as you can see from the trailing four quarters, especially much of this year, our pricing has remained very stable and resilient. That stability comes from the underlying demand that supports our strong backlogs. This stable environment should continue to support us moving forward. From a margin perspective, this will be driven by expectations around scrap prices. Looking toward the fourth quarter, we see continued opportunities for overall margin expansion as the forecast is for scrap to remain soft through the summer. There has been significant stability in our downstream business, which is benefitting from major projects like semiconductor facilities. These projects are complex, and only a few players can execute them, resulting in a premium for the complexity, driving some of the margin uptick in that space.
Lawson Winder, Analyst
Yes. Thanks, Paul. That was a fantastic color. Could I also ask about just a follow-up on your M&A comments, Barbara? Those were very helpful. But in terms of value, are you seeing good value in the M&A pipeline at this point?
Peter Matt, President
What I'd say is that we need to be patient on that. In certain instances, we are seeing good value. The company has put itself in a position to be patient. We see decent activity, and when the valuation isn't where we need it to be, we simply pass. We'll be patient.
Lawson Winder, Analyst
Okay. And then just finally, it would be helpful to get your thoughts on Turkey and whether or not you're seeing any indications there of like a rebuild starting to gain some momentum and some real local demand starting to take form?
Peter Matt, President
In Turkey, I think we have seen a slight uptick in utilization over the past month. But generally speaking, it has stayed quite low. I think we are running at something like 50% to 60% utilization. The challenge that Turkey faces involves the damage done to the areas, but also the humanitarian impact and the difficulty of getting people back to work and producing material. In general, we have seen Turkey step away from the scrap buy, so they aren't as significant a factor in that market. We expect this will continue for a while as they work through their challenges.
Barbara Smith, CEO
And if your question was aimed at rebuilding, our experience suggests that we are not seeing consumption of structural products toward rebuilding efforts at this time. Following past major disasters, such as Hurricane Harvey, you typically first have cleanup and recovery, then a demolition phase begins before any reconstruction can occur. I believe we are still a year to 18 months away from any meaningful rebuilding. Of course, this could be expedited or delayed with government support and priorities.
Operator, Operator
The next question is from Emily Chieng with Goldman Sachs. Your question focused on rebuilding. Based on our experience, we are currently not observing a demand for structural products related to rebuilding efforts. After significant disasters like Hurricane Harvey, the process usually starts with cleanup and recovery, followed by demolition before any reconstruction can take place. I think we are still a year to 18 months from any substantial rebuilding. However, this timeline could be affected by government support and priorities.
Emily Chieng, Analyst
Good morning, Barbara, Peter, and Paul. Thanks for the update this morning. My first question is just around any early insights you might have into fiscal '24 CapEx, particularly as it relates to the West Virginia mill. Are there any indications of cost inflationary pressures there? And anything left on the West Virginia mill ahead of groundbreaking that needs to be sort of met on perhaps some permitting or otherwise?
Barbara Smith, CEO
I'm going to take a crack at it, and then Paul might be able to add some commentary on how we see the cash flows related to that project. As I indicated in my remarks, we are awaiting the air permit; we expect to receive it shortly. Upon receiving that permit, we will proceed earnestly with construction. We do not anticipate any delays in starting the project. Regarding inflation, we are seeing some abatement of supply chain issues and some relief from the severe inflation impacts experienced during the Arizona project. The labor market is better than some challenges we saw in Arizona, where we had a concrete shortage. I believe we will have fewer inflation impacts this time. We will take care to not face the same challenges we met in Arizona and will closely manage long lead-time items to avoid waiting or paying higher prices. As I mentioned, I was in Arizona on Monday, and the team supporting that project will transition to work on West Virginia, which positions us well to learn from experience and ensure a smoother process. We do see some moderation of inflation at this time.
Paul Lawrence, CFO
And Emily, in relation to our forecast for CapEx next year, we guided that CapEx this year will be between $575 million to $600 million, which comprises ongoing CapEx, as well as the two large maintenance end-of-life replacements and Arizona 2. In 2024, with the air permit expected soon, next year will be a full year of construction activity in West Virginia and will essentially replace the spending we did this year on Arizona 2. Spending levels will likely be similar to this year but will probably fall between $550 million.
Emily Chieng, Analyst
Great. That's very helpful. And just one follow-up around the supply side landscape for rebar. Certainly, you have significant experience with building micro mills. It seems like there are a couple of other announcements out there for micro mills being constructed. Do you have any concerns about the level of supply growth that might be on its way over the next couple of years?
Barbara Smith, CEO
Yes. We monitor those projects closely. I can't say how well the market will absorb all new mills; not every proposed project will ultimately be executed. I point to history; when we introduced the Durant facility, there was substantial concern, but that facility was absorbed in the market due to our focus on existing needs. There is certainly a massive structural shift that is going to necessitate strong demand in the future. However, we will await to see how many of these projects are actually completed. Currently, we're not concerned about supply growth.
Operator, Operator
The next question is from Alex Hacking with Citi.
Alex Hacking, Analyst
So on Tensar, the EBITDA for the last 12 months was fairly similar to the levels when you bought it, I think, $60 million to $65 million, if I have my numbers correct. As you look forward, you see this as a growth opportunity; what kind of compound annual growth rate do you think is reasonable to expect from that segment?
Peter Matt, President
First of all, in commenting on the performance year-to-date, we have acknowledged that we faced some manufacturing challenges that affected our EBITDA this year. But looking ahead, we believe we can grow the business in the high single digits area. Additionally, consider that the war in Ukraine forced us to sell the Russian business, which also contributed to our EBITDA, so those are factors to consider. However, we are excited about the future and recognize we have tools to grow.
Paul Lawrence, CFO
This is reinforced by our recent acquisition of the facility in Oklahoma, which gives us more flexibility to tackle the strong demand that we are witnessing out of that business, supporting the growth Peter outlined.
Alex Hacking, Analyst
Okay. And then a second question would be on merchant bar. Are you seeing the same trends in merchant bar as you are seeing in rebar? Are there any particular pockets of strength or weakness in merchant bar? Any comments there would be helpful.
Barbara Smith, CEO
Yes. I think it's a stable market. There are obviously more dependencies on manufacturing activity. There have been some fluctuations since the global pandemic regarding recovery in manufacturing. The most encouraging factor is, again, the reshoring; we're likely to see greater manufacturing activities in the U.S. market, which should support further growth in ongoing needs for merchant sizes, shapes, and different applications. We’re generally optimistic about the demand profile there. The only area that may show weakness is in the joist and deck sector, which has been well publicized by larger players than us.
Operator, Operator
At this time, there appears to be no further questions. Ms. Smith, I'll now turn the call back over to you.
Barbara Smith, CEO
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 we hope everyone has a great day. Thank you.
Operator, Operator
This concludes today's Commercial Metals Company conference call. You may now disconnect.