Commercial Metals Co

NYSE:CMC

Earnings Call Analysis

Company weathers challenges, eyes growth

In the face of adverse weather and construction delays, the company's Arizona 2 plant reached a milestone, starting commissioning MBQ despite a temporary rebar inventory excess. North America sees a robust construction pipeline, underpinned by infrastructure and renewable energy projects. The company expects improvement in margins due to domestic market dynamics and anticipates European market recovery, driven by supply-demand balance and residential construction. Second-quarter core EBITDA was down 26% YoY to $224.4 million. Guidance projects stable adjusted EBITDA margins in North America, with significant improvement expected in Europe in the next quarter.

CMC's Commitment to Safety and Dividend Increase Highlights Company Culture and Financial Health

In CMC's second quarter earnings call, the company emphasized its commitment to safety, touting a recordable incident rate that is significantly below the industry average in the U.S. steel industry. Specifically, the rate has been reduced to less than 1, with the Emerging Businesses Group seeing a rate reduction of 50% compared to the previous year, demonstrating considerable enhancements in safety measures post-acquisition. Furthermore, investors should take note of CMC's financial strength as evidenced by a 13% increase in the quarterly dividend, up to $0.18 per share, marking a 50% growth since the end of 2021, and a concurrent $500 million increase in the share repurchase authorization.

CMC's Financial Performance Points to Strategic Success and Operational Resilience

Despite seasonal slowdowns and disruptions from adverse weather, CMC reported robust financial results, with a core EBITDA of $224.4 million and a core EBITDA margin of 12.1%. Net earnings reached $85.8 million or $0.73 per diluted share on net sales of $1.8 billion. When adjusting for nonoperational items, earnings increased to $103.1 million, or $0.88 per diluted share. Moreover, CMC retains a healthy 14.5% return on invested capital over the trailing 12 months, which is a testament to the company's recent strategic transformation and sustained execution quality.

CMC Navigates Operational Challenges While Eyeing Growth Opportunities

Operational challenges induced by severe weather conditions led to reduced metal margins in CMC's North American steel group, but the segment has seen sequential monthly increases in these margins since December. CMC's Europe Steel Group performance also improved compared to previous quarters, setting the stage for balancing and modestly increasing steel product prices in the near term. The emerging businesses group faced project delays due to weather, but the company remains confident in a rebound in sales and profitability as conditions improve.

Strategic Growth Initiatives Poised to Maximize Value and Expand Business Horizons

To maximize shareholder value and catalyze revenue growth, CMC is focusing on leveraging its current business model while pursuing strategic expansions. The company's plan includes organic and inorganic investments, including projects like Arizona 2 and Steel West Virginia, which promise to substantially contribute to CMC's earnings and cash flow capabilities. Additionally, CMC has identified opportunities for low-cost organic expansion in existing product lines and displays readiness for acquisitions aimed at boosting its early-stage construction materials and solutions portfolio. These strategies are devised to not only reinforce the company's core but also improve customer offerings and increase through-the-cycle margins.

Earnings Call Transcript 2024-Q2

[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. [Operator Instructions]

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 time line for construction of new facilities the company's future operations, the time line 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 beliefs based on current conditions, but are subject to certain risks and uncertainties, including those that are described in the risk 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, executive]

Good morning, everyone, and thank you for joining CMC's second quarter earnings conference call.

I would like to begin this morning's discussion by congratulating the CMC team for setting a new standard in safety performance for our company as they brought our total recordable incident rate to less than 1, significantly better than the U.S. steel industry as a whole. At CMC, it all begins with safety, and our goal is to ensure everyone leaves their shift in the same condition they arrived. I am particularly proud of the improvements made at recently acquired locations within our Engineering Business -- Emerging Businesses group. An important part of our integration process is instilling CMC's industry-leading safety culture and practices, which employees at acquired businesses have been eager to adopt. Compared to a year ago, the recordable incident rate for EBG has been cut in half, which equates to several injuries avoided and better outcomes for all stakeholders. The data for EBG and for all our operations can be seen on Slide 4 of our earnings presentation, and we are committed to further improvement on this strong record.

This morning, I will provide an overview of CMC's second quarter financial and operating performance, after which I will share an update on the company's strategic outlook and growth projects. And then discuss our view of current and future market environment. Paul will cover the quarter's financial results in greater detail, and I will conclude with our outlook for the third fiscal quarter and beyond. We will then open the call to questions.

Additional information regarding the quarter is provided in the supplemental slides that accompany this call, which can be found on CMC's Investor Relations website.

Before reviewing our financial results, I want to call your attention to yesterday's announcement of a 13% increase in CMC's quarterly dividend. The $0.18 per share quarterly payout represents growth of 50% since the end of 2021. The dividend increase together with January's $500 million increase in CMC's share repurchase authorization shows the cash generative power of CMC's business and demonstrates our commitment to returning back cash to our shareholders.

CMC's strong financial position and balanced capital allocation strategy allows us to prioritize returning cash to investors, while simultaneously executing our growth plan. As we reported in our press release issued this morning, the second quarter of fiscal 2024 was another strong period of financial performance. CMC generated core EBITDA and core EBITDA margin well above historic averages despite seasonal slowness and weather disruptions across much of our operational footprint. We continue to demonstrate the enhanced earnings and cash flow capabilities that were enabled by our recent strategic transformation and ongoing execution.

CMC produced net earnings for the second quarter of $85.8 million or $0.73 per diluted share on net sales of $1.8 billion. Excluding the impact of nonoperational items, which Paul will cover in more detail, adjusted earnings were $103.1 million or $0.88 per diluted share.

CMC generated consolidated core EBITDA for the quarter of $224.4 million, producing a core EBITDA margin of 12.1% and a trailing 12-month return on invested capital of 14.5%.

Results in our North American steel group were impacted by challenging weather conditions and some metal margin compression on steel products. Digging beneath the reported metal margin figure, we actually experienced sequential monthly increases from December onwards and exited the quarter at a high point. Financial performance in our Europe Steel Group segment improved from recent quarters, excluding energy rebates. The market for long steel products has come into better balance, which has allowed selling price and metal margin to increase modestly. This combined with excellent cost performance, has set us on a path toward breakeven results in the near term.

Activity levels in our emerging businesses group were hampered by weather disruptions that delayed Geogrid and Geopier Project starts and hit our Texas-focused CMC construction services, particularly hard. Outside the U.S., several projects were also delayed during the quarter. We believe these issues are temporary and we expect a strong rebound in sales and profitability heading into the spring and summer construction season.

I would like to -- I would next like to discuss CMC's strategic outlook. As we plot CMC's future path, we are starting from a position of great strength with leading presence in each of our major products and solutions, a strong company culture, a healthy balance sheet and excellent customer relationships.

From this starting point, our primary strategic focus will be twofold: to maximize value creation in our current businesses and to accelerate growth across multiple platforms. Our ultimate goal is to create an organization that has higher and less volatile through the cycle margins and that fully leverages the enhanced margin profile by organically and inorganically expanding revenues. We laid the groundwork for these efforts with our recent reporting structure changes, which greatly enhanced visibility into our key value drivers and helped us better focus our decision-making.

In our planning, we are looking at how CMC can push our existing businesses to their full potential. It all begins with our most critical resource, our people, keeping them safe and providing ample opportunities for development.

As I noted earlier, CMC has built a tremendous safety track record but there is more that can be done to reach world class, and we are working diligently on this. We are also expanding our talent development programs across a range of critical skills to ensure we have a deep bench to power CMC's future. A key driver of the company's company-wide margin enhancement efforts are efforts in operational and commercial optimization, which span the entire organization and build on a core part of our company's DNA.

To that end, we have created a commercial and operational excellence group tasked with working closely with CMC's business units to identify, benchmark, quantify and realize margin enhancement opportunities. Our optimization efforts are still in the early stages, but already many concrete opportunities have been found, both at individual businesses and across the enterprise.

I can offer a few examples. First, there is significant opportunity to optimize logistics and shorten freight lanes between our mills and final shipping points, which will lower costs and improve customer service. We also see achievable operational improvements through enhanced internal benchmarking and best practice sharing, which can lead to increased productivity and reduce costs and unplanned downtime.

On the commercial side, we are creating a unified platform that we believe will enable information sharing across sales group, unlocking opportunities for customer cross-selling, lead sharing and bundling of solutions. These efforts are targeted towards increasing CMC's share of wallet and service capabilities representing a low capital cost avenue to grow revenues.

In concert with our initiatives, margins and create value in CMC's existing businesses, we are focused on prudently accelerating our growth trajectory through both organic and inorganic investment. As you know, there are large organic projects already underway, including Arizona 2 and Steel West Virginia that will meaningfully add to CMC's earnings and cash flow capabilities. Beyond these, we see several opportunities for organic expansion in existing product lines that entail only modest capital outlays. Moreover, as we have indicated previously, CMC has a strong platform and a significant financial dry powder to achieve value-accretive growth through acquisitions. We will seek to build out CMC's portfolio of early-stage construction materials and solutions in a way that strengthens our core, improves our customer value proposition, leverages our end market expertise and enhances our margins. As we execute our strategic plan, we are extremely excited about the benefits these initiatives will bring to CMC and our shareholders. We run a great business today, but believe there is tremendous additional value to be unlocked by pursuing the next level of excellence and leveraging that excellence as we grow.

Planned development is ongoing, and we look forward to sharing more details regarding CMC's strategic vision later this year.

Now I would like to provide a brief update on the progress we've made during the quarter on CMC's key strategic projects.

As we noted in our press release, CMC's Arizona 2 plant set a new milestone by becoming the first micro mill in the world to produce merchant product -- merchant bar quality products or MBQ. We began commissioning MBQ in January and have successfully produced and sold a variety of profiles and grades. I would like to congratulate the operations team on this exciting achievement.

During the quarter, California, an important end market for AZ 2 experienced an historic amount of rainfall that led to a large number of lost days at construction sites across the state. The outcome has been a temporary excess of rebar inventory on the West Coast. We can address this condition and help balance the market by altering our planned ramp-up schedule over the next several months. Given the realities on the ground, we believe the prudent approach is to continue to focus on commissioning efforts on our MBQ production capabilities and return to rebar when the market is in better balance. Despite the deviation from our original schedule, we don't expect any pushout in the total time frame to complete the final commissioning of all products that Arizona 2 is capable of producing. This change does, however, impact our ability to provide a volume forecast for fiscal 2024, given the fluid nature of how the West Coast rebar market will evolve over the next several months. That said, we do not -- we do anticipate reaching our monthly EBITDA breakeven during the fourth fiscal quarter. Work at CMC's future Steel West Virginia site is progressing well, and we are on plan for start-up in late calendar 2025. Site improvements are nearly complete, and we have scheduled initial equipment deliveries for the spring and early summer.

Turning now to CMC's markets in North America. Construction activity remains healthy as we exit the slowest period of the year and head into the busy spring and summer seasons. We continue to hear encouraging signs from our customers, who indicate their backlogs are in good shape and that they see a strong pipeline ahead. This matches our own internal view, particularly following CMC's best quarter for downstream contract awards since mid-'22, and its second -- and its best second quarter on record. The sharp rebound in new bookings drove an 11% sequential increase in construction backlog volumes and was broad-based across a number of project types. We saw particular strength in new awards for manufacturing facilities, institutional buildings, wind energy and residential structures. Additionally, CMC added to its backlog, the highest value contract in its history, a Department of Defense project in Hawaii.

Looking ahead, we anticipate our construction pipeline will remain healthy with several key areas driving activity both in the near term and over a multiyear period. The first is infrastructure. We expect steel consumption for highways, bridges and other public works to increase in the second half of fiscal 2024 and onward, as projects awarded in previous years begin to mature. New projects are also coming to the market at a healthy rate as states execute against their expanded transportation and infrastructure budgets. Several of our key states are expected to release significant projects for bidding over the next few months. Leading the pack will be Texas, which to date has only awarded about 1/4 of its transportation budget for 2024. We are also struggling infrastructure investment and Jobs Act impact on the ground activity across many of the geographical markets that CMC serves. We continue to estimate that once at full run rate, the program will generate incremental rebar consumption of roughly 1.5 million tons annually as well as provide a tailwind to CMC's broad portfolio of reinforcement solutions. As we have discussed previously, beyond infrastructure, notable sources of structural demand growth include manufacturing and renewable energy. The project pipeline in these areas remains robust with the last few months seeing particular strength for new wind energy awards. More recently, we are seeing the emergence of data centers as a driver of activity. The number of projects in the bid stage has grown substantially over the last few quarters, and we expect several dozen additional opportunities will reach the market in the months ahead. The investment pouring into data center development is very significant, and the facilities can't be built fast enough to meet demand. We currently estimate that the projects in the planning phase were under construction represent 250,000 to 350,000 tons of total rebar consumption. We believe that these structural trends a once-in-a-generation investment cycle that aims to reinvigorate our nation's infrastructure, harden supply chains drive transition to cleaner energy sources and harness the possibilities of big data and artificial intelligence. We remain confident that this long-duration investment cycle will power construction activity for years to come, and its benefits will reach beyond rebar into CMC's other key product offerings like Geogrid, Geopier, anchoring systems and high-performance reinforcing steel.

Turning to steel product margins in North America, the environment improved throughout the second quarter. And as I mentioned, monthly levels increased from December onward, import pressures that influence the domestic market in late -- late in fiscal 2023 and early fiscal 2024 have largely abated and current import offers in volume terms remain fairly limited. This should set the stage for metal margins to be driven by domestic market fundamentals heading into the third quarter. We see a combination of seasonal volume recovery good underlying demand and limited import participation providing a favorable backdrop for some margin expansion during the spring and summer construction season. The market environment for our Europe Steel Group improved during the second quarter, largely due to better supply and demand balance. Consumption levels remain subdued but in recent months, producers have responded with significant supply rationalizations, while inventories at intermediaries have sharply reduced, driving some pricing and margin recovery.

Looking ahead, we expect demand in most of our markets to remain fairly stable with the exception of residential construction, which appears poised for a return to growth. The response to the Polish government's program to support first-time homebuyers has been significant lead levels of new mortgage originations and a sizable increase in new building permits. As we head into the spring, our team in Poland is seeing higher order rates related to residential projects. In the near term, and improved market backdrop, combined with strong cost management efforts should drive our operations to break -- toward breakeven profitability. Longer term, we see the potential for strong market fundamentals to emerge as Central European industrial production recovers to -- from the energy crisis and COVID relief funds from EUR 65 billion are injected into the Polish economy.

With that, I will now turn the discussion over to Paul to provide more detail on our financial results.

[Paul Lawrence, executive]

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, and 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 business 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 to 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 fill 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. The scrap cost on CMC's P&L during the third quarter will reflect 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 makes a more than $20 million improvement, the average losses of $30 million included in each of the prior 2 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 the footprint.

As Peter mentioned, there have been some encouraging signs that the Polish market is at least that past the bottom and that supply and demand are moving into better balance.

Emerging Business 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 to shipment delays in the United States and project delays in Tensar 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 Business Group of $17.9 million were 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 a 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 0.4x, while net debt to capitalization is only 10%. We believe our robust balance sheet and overall financial strength 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 2 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 2 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 tenant 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, executive]

Thank you, Paul.

We expect shipment volumes within our North America 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 Instructions] Our first question comes from Timna Tanners with Wolf Research.

[Timna Tanners, analyst]

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 in the last 2 years has been 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?

[Paul Lawrence, executive]

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. 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, 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 USD 9 million market or roughly are those the right numbers? And then on infrastructure, any comments there on the cadence of that would be helpful.

[Peter Matt, executive]

Yes. So on data centers, it is in the context of a 9 million-ton rebar market. And I don't have the information right in front of me to comment on where it was in the past. But what I can tell you is much lower. And today, there are -- the number is something like 120 million square feet of need in data centers. So there's been a dramatic increase in the need on the data center side. On the infrastructure side, again, we are definitely seeing the spending come through. We said that last quarter too, we are starting to see it come through. But now all the data -- all the kind of key indicators, whether it be the Dodge Momentum Index or whether it be kind of the state budgets, they're all continuing to show very strong increases on a year-over-year basis. And through some anecdotal conversations that we've had with DOTs, we have understood that they are absolutely seeing kind of the IIJA money coming through and the spending is increasing as a consequence of that. It's also important to know that they all indicate that -- and we've said this in the past, too, that the spending should escalate over the duration of the program. So it will start out, it will grow through 2024 and then should be at a higher level than 2024 and 2026 should be at a higher level than 2025. And again, just to come back to your question on incremental tons, as we've said in the past, we think that's a 1.5 million incremental tons per year, again on that 9 million-ton number.

[Paul Lawrence, executive]

Timna, just to add a little color to the 2 key leading indicators that we look at in this area. If we look at the Dodge construction starts specifically for infrastructure and again, more specifically for highway. They've got -- their projection is an increase in starts this year versus 2023 of 25.6%. That is an incredible number. But then again, that's a start number. And it really reiterates the long-term nature of how long this tailwind will be with us because these projects will not be completed this year. There will be, as Peter said, completed over the next few years. Contrast that to the PCA data, which is really based on cement consumption in 2024 that's anticipated to be up 5.5%, another 4% next year and then really continuing that into 2025. And so that sort of is more the steel in the ground but will evolve over that period of time, but it's very impressive to see the Dodge starts forecast for the current year.

[Operator]

Next question comes from Katja Jancic with BMO Capital Markets.

[Katja Jancic, analyst]

First, can you just remind us what the seasonality typically is in -- on volumes in North America?

[Paul Lawrence, executive]

Typically, got you, 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. And then maybe on the emerging business group. When I -- I know you said it's going to be up meaningfully sequentially. Now when I look at last year, it was around $38 million in EBITDA. How should we think about that segment relative to last year?

[Paul Lawrence, executive]

Yes. We -- I mean, we expect that the emerging business 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.

[Operator]

The next question comes from Tristan Gresser with BNP Paribas.

[Tristan Gresser, analyst]

So I have 2. 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 them as over the past couple of years, and there's been a lot of noise, and I believe that Senators have put a deal 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.

[Peter Matt, executive]

Yes, absolutely. So you're right, there was a bill recently introduced by Senators Brown and [ Cotton ]. And the objective of the bill is to restore tariffs to levels that are kind of along the lines of the Section 232 exemption and the USMCA. It's early days to see kind of what happens there. So we'll continue to monitor that. But yes, it would be -- it would have an impact because there have been an increase in both rebar and merchant bar shipments into the U.S. But it's early days, and we'll have to watch that one.

[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, executive]

We're 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'd 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 you.

[Peter Matt, executive]

Tristan, thank you for the question. And we're not concerned about the delays. And if you think about what we've said over the last several quarters, there's a whole predesign phase. There's a design phase that these projects have to go through until they get to the spend period. And in our conversations with some of the what we've been led to believe and told is that sometimes these predesign phases can take years, right? And so it was probably -- we were probably overambitious in our initial timing of when we thought we were going to see this coming through. But today, we are seeing it come through, as I referenced in my response to one of the earlier questions. And so we are seeing the spending come through. And the other thing that I would say is that as we look at the kind of political situation, we believe that both parties are supportive of the current infrastructure spending. It was a bipartisan bill when it was approved. And we have not seen any wavering from that on either the Republican or the Democratic side. So we remain bullish on that. And just maybe to pick up on your point on capacity, yes, there is some capacity coming, but we believe that the capacity that will -- there's a difference between the capacity that is announced or indicated and the capacity that's actually going to get built. And we're very comfortable with our estimates on how much capacity actually gets built that the market can kind of manage that capacity. So we're -- overall, we remain very bullish. The demand backdrop is, as I said in my prepared remarks, it's kind of a generational change from what it's been, and it's a multiyear spend that is going to put us in a good position for, I think, years to come.

[Paul Lawrence, executive]

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 to 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.

[Operator]

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

[Philip Gibbs, analyst]

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

[Paul Lawrence, executive]

Bill, 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 the Q3 and Q4 will achieve our guidance pretty evenly between those 2 months.

[Philip Gibbs, analyst]

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

[Paul Lawrence, executive]

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

[Philip 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, executive]

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 as we -- but it's going to be much smaller numbers because we'll be into profitability.

[Philip Gibbs, analyst]

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

[Paul Lawrence, executive]

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

[Philip 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 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, executive]

Yes, Phil, the working capital should be invested, as I mentioned in my comments, around $60 million of working capital. That was strictly driven from the scrap cost increase that occurred during the second quarter. As our scrap has come off in the third quarter. We do anticipate most of that coming back. And the offset to other factors is, yes, we did build a few -- a little bit of quantity of inventory into -- in the second quarter for the upcoming construction season. And that should really play off the growth we anticipate in accounts receivable. So I think those 2 will met. And so we should be in a working capital generation here as we complete the year and certainly, Q3 would start that.

[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, executive]

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 results from that. So thank you very much for your interest in CMC, and we look forward to talking to you in the future.

[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.