Russel Metals Inc

TSX:RUS

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the 2017 Fourth Quarter and Year-end Results Conference Call for Russel Metals. Today's call will be hosted by Mr. Brian Hedges, Chief Executive Officer; Mr. John Reid, President and Chief Operating Officer; and Ms. Marion Britton, Executive Vice President and Chief Financial Officer of Russel Metals. [Operator Instructions] I will now turn the meeting over to Ms. Marion Britton. Please go ahead, Ms. Britton.

[Marion E. Britton, CFO, Executive VP & Secretary]

Good morning, everyone. I'll start by reading the standard cautionary statement on Page 3. Certain statements made on this conference call constitute forward-looking statements or information within the meaning of applicable securities law, including statements as to our future capital expenditures, our outlook, the availability of our future financing and our ability to pay dividends. Forward-looking statements relate to future events or our future performance. All statements other than statements of historical fact are forward-looking statements.Forward-looking statements are necessarily based on estimates and assumptions that, while considered reasonable by us, inherently involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Our actual results could differ materially from those anticipated in our forward-looking statements, including as a result of the risk factors described below in our MD&A and in our annual information form.While we believe that the expectations reflected in our forward-looking statements are reasonable, no assurance can be given that these expectations will prove to be correct, and our forward-looking statements included in this call should not be unduly relied upon. These statements speak only to the date of this call, and except as required by law we do not assume any obligation to update our forward-looking statements.I'll just mention to everybody that we did yesterday as well as putting out this document and our press release for the quarter, we filed our financial statements and our annual information form. So if you're looking for those, they would be on SEDAR or on our website.If you can now turn to Page 5 of the slide deck. So we had a strong quarter. We ended up with $0.45, earnings of $28 million, so this year, comparable to the $0.37 last year. Although within that $0.37 last year, there was $0.27 related to a sale of a property. And these were in -- this was in Q4 and then obviously in the annual numbers. And we did repatriate some money back to Canada, which was $0.03. So a net $0.24 that is not in -- repeated in 2017. So an extremely strong quarter compared to last year, consistently strong in relation to what we've been able to do in the first 3 quarters of this year. And the strength was driven by all 3 segments, with particularly strong energy numbers. And we'll get into that in a bit more detail when we get to the next slides.So the -- similarly, the year EPS is $2, we show $1.02, but to be really comparative you have to take the $0.24 off of that number.Strong free cash flow, $2.92 per share compared to $1.25 last year. Extremely strong return on equity numbers. RONA, 18.7%, really in the top of our target range to get to, I mean, always, a bigger number is always better, but above 15%, we think, is a good result.U.S. tax reform had a very minimal impact on our results. We actually ended up with a minor income related to net timing differences. So we actually had a net timing liability that we will end up paying at a lower rate when we take that back in the future years. The impact of the changes in the U.S. tax rates will be positive going forward. We anticipate that, based on state, other permanent differences, our combined operations, our rate will be 2% or 3% lower than our Canadian statutory rate. But once we combine everything, considering permanent differences in that, I am estimating 27% combined all-in rate. And obviously, this factor will move around according -- depending on where our strong earnings are from each year. Also, we did declare our dividend of $0.38 in the quarter.Moving forward to Slide 6. Metals service center shipments in Q4 were 13% higher than Q4 '16. The -- this number, the 13%, excludes Color. So our revenue actually, which included 3 months of Color Steels, our acquisition at the -- in September, so the revenue number is higher than that. Our shipment in January continued to be up year-over-year. Steel mill prices started to rise, announcements were late in the year. Pricing actually started to impact in January a little bit, but will have a further impact in our next few months, February, March of the year. So we will see at least 0.5 quarter of rising steel prices in Q1 2018. Year-over-year, the rig count, at this point, U.S. is up and Canada seems to be running flat where it was at Q1 '17. Energy products, improved demand continues in our operations, even though the -- we're stronger in Canada, and it's running flat, we are seeing some increased demand in our specific operations in the sector.In addition, we did extend our bank facility to September 2021. It was previously going to expire in September 2019. And we did upsize it $50 million to $450 million.Moving forward to Page 7. Want to point out a few numbers on this chart. If you start at the top and look at the total revenue, you'll notice that the second-highest there in comparison to the other years that we have on there, the 5 years, if you go down to the EBITDA as a percent of revenue, you'll notice that we produced a 6.3% of revenue compared to '14, our other closest year of 5.6%. And we were able to produce $2 of EPS on a much lower revenue stream, which is something that is -- we wish to note.One of the things also going down to the balance sheet. You know that -- notice that inventory tons are up compared to prior year. There's both -- sorry, inventory values are up, there's both tons and pricing increases in there. There is a slight overhang of energy inventory that we anticipated shipping before year end, but they have started to move into Q1. So would expect that, that's going to come down before spring breakup. And you'll see those numbers later on.Another item I'll mention, if you just note down, we have $30 million of net liability for taxes. There's approximately $20 million that will get paid this month, Canadian taxes that you're allowed to wait till after year-end to pay, related to last year.At this point, I would like to flip to the end of the deck, almost, Page 26, so I can just speak to the quarterly numbers. And then I'll quick -- go back and quickly highlight some of the yearly numbers related to our earnings. So if you are on Page 26, you'll note all of our segments were up 24% to 32% in revenue, so a combined 26% for the quarter. Going down to the segment operating profit, you'll see that gain on sale of properties that's showing part of the operating profit. If you were to exclude that, you would have $17.1 million for the quarter [ it's ] compared to the $46.9 million. So almost 2.5x stronger this year. And also, if you were to exclude that as -- at the line of segment operating profit as a percent of revenues, you would note that last year's would be 2.6%. And this year, our combined number is 5.7%.Two of the items I'll also mention on here is the gross margin. You'll note that the metals service centers and the steel distributors are slightly below where we were last year. The selling price is up, and if you look down below, same-store for service center, we're saying 9% higher than fourth quarter 2016. Although there, we weren't able to capture the rising steel prices that started late in the quarter. Last year, it started earlier on, and that's particularly relevant when we get to the annual numbers. And I'll speak to that when we flip backwards to the annual numbers, which are on Page 15.So for the year, we're up 28% for our combined revenues, with obviously energy up 44%. So the strongest improvement year-over-year in our operations, as many of you would know, driven by the fact that oil and gas prices did come up a bit and more stable at this point than they were a year ago. Once again, you'll notice the 27.7% (sic) [ $27.7 million ] is in here, so we would have -- that would have been $91.3 million. So we more than doubled our year -- annual EBIT, excluding the gain on sale of properties. And I wanted to next look at the gross margins, that's down below. Metals service centers was about 1% lower than they were last year. And one of the reasons for that is that late in 2015, prices started to shoot up, and we were able to capture more of the increase. And there was a higher movement up at that time [ than ] we have seen in this year. The total operations gross margin as a percent of revenues at 20.1%, driven stronger by the energy strong numbers.Okay. Just take you back a few pages to Page 10. I will speak to -- a little bit to our working capital changes and use of [ cash ] in the quarter. You'll note that we had $43.3 million use of cash for inventory. I spoke earlier a little bit about overhang of inventory at year end that we don't anticipate is a problem. Shipments are happening in this quarter, so that we did end up with a use of cash in the quarter, which I expected to be a little closer to neutral. Looking at the annual numbers, you'll notice that we used $68.4 million for -- cash for operating activities. Strong cash from operations of $216 million, but we did need to increase inventories and AR due to higher revenues, and slightly offset by AP, as you can see. So we've seen our working capital, non-cash working capital, is $251 million use of cash.Also on this page, I just wanted to draw your attention to the CapEx at the end of the year. We did spend higher than our normal in the fourth quarter, $13.5 million and then $35.7 million for the year. We did add some more value-added equipment and we chose to purchase a property at our Williams Bahcall operation that we were previously renting and was up for sale. And the net impact is going to actually reduce our expenses due to the fact we purchased it, but increased our capital expenditures.We'll now go to Slide 17. So for the year, our -- I'm talking metals service centers, our tons were up 6%, our selling price was up 11%. Flipping forward to the energy sector, I've pretty much covered a lot of this on the first slide, but 44% increase in the revenue in the energy sector. A big portion of this was driven by increased revenue at our OCTG operations and Apex, mainly driven by our Canadian operations, is what I'm saying [ it ].Flipping forward now to Page 19. Just -- as I mentioned, we had increased revenue and earnings at our Apex operation. We did have our final payment to set up for our Apex Distribution earn-out contingent consideration from the acquisition 5 years ago. So we will be making a payment of $3.3 million in Q1.Turning to Page 21. 21 has our inventory by segment. You can see which segments are up in relation to inventory values and then where we align with inventory turns. The turns that aren't as strong at the end of '17 as they had been throughout the year are our energy product turns, and I think I've somewhat addressed that. But obviously, selling prices up in both steel distributors and metals service center, our average cost of inventory is up, which is -- accounts for some portion of the increased dollar value. And in addition, we had some additional tons.Those are my comments. I'm going to turn it over for questions.

[Operator]

[Operator Instructions] And your first question is from Michael Tupholme from TD Securities.

[Michael Tupholme, Research Analyst]

Very strong year-over-year same-store sales growth in service centers, up 13%. In the outlook, it sounds like you're suggesting you've seen a further step-up in growth in Q1, and I'm taking that to mean a sequential improvement relative to Q4. So I'm just wondering, is the expectation that we should see year-over-year same-store volume growth in service centers in the first quarter be even stronger than that 13%?

[John Gregory Reid, President & COO]

I think it's just a modest growth, based on what we're seeing out there right now.

[Marion E. Britton, CFO, Executive VP & Secretary]

I would probably model at least half -- not less than half, or a half of that.

[Michael Tupholme, Research Analyst]

So sorry, year-over-year growth in Q1, you think, is going to be half of what you saw in the fourth quarter?

[Marion E. Britton, CFO, Executive VP & Secretary]

Yes. Or maybe that amount, but yes, about half.

[Michael Tupholme, Research Analyst]

And so why is it coming down then? Is the comp that much tougher in this, in the first quarter of 2017?

[John Gregory Reid, President & COO]

No. Again, we're seeing modest improvement. We continue to see margin out there, compression from the competition. But we're not seeing a runway train on it as well. And so we -- again, I think that [indiscernible] be tough to replicate. But we'll continue to see modest improvement in Q1.

[Marion E. Britton, CFO, Executive VP & Secretary]

But we were up Q1 also '16 -- I mean, '17 over '16. And we're not going to see the same increase as we had back then. I think our annual increase ended up to be 6%, it's just where the tons fell later in the year.

[Michael Tupholme, Research Analyst]

Right. But I guess, if I go -- the big step-up came in Q3 when we saw you do volume growth of about 10% year-over-year in service centers. So if I go back to Q1 '17, it was only up 2% on the volume side. So it doesn't look to me like the comp gets much more difficult. And if demand continues to be modestly improved, I'm just struggling to see how the year-over-year change on same-store sales comes down from what you just did in the fourth quarter.

[Marion E. Britton, CFO, Executive VP & Secretary]

Michael, some of the increase in Q4 was driven by additional activity in Alberta. And as you can see, our energy continued to do well in Q4. We don't see that additional activity in Alberta increasing that much. And we did see activity throughout the year. So I think that the big jump that we got out of Alberta is going to be muted as we get through '18.

[Michael Tupholme, Research Analyst]

Okay. Okay, that helps. And then in terms of the -- in terms of pricing, which you talked to, Marion, the prices have obviously been very strong since the latter part of 2017. How do we think about margins in -- gross margins in the service center segment in view of the strength in prices?

[Marion E. Britton, CFO, Executive VP & Secretary]

I think they'll go up slightly in Q1. And assuming they continue to move up as we go through the month, I mean, at this point in time, my people on the purchasing side are saying that they're going to be coming in through past Q1. Unless something else changes them, we'll see a gradual increase in gross margin in Q1 and a little bit more in Q2.

[Michael Tupholme, Research Analyst]

So Q2, assuming prices continue to enjoy the kind of momentum we've seen, Q2 could be a further improvement from Q1, or just kind of equally as strong?

[Marion E. Britton, CFO, Executive VP & Secretary]

And that -- the reason why I say that is that we're gradually getting some of the average price, but it takes a lot longer for the average price to move up in our inventory, where we will bill to increase our selling price because the amount of increase in the actual dollar of the product has come up -- will have gone up significantly if everything we're aware of holds by Q2.

[Michael Tupholme, Research Analyst]

Okay. Okay, that makes sense. And then in energy products, the top line was up 24% year-over-year, so pretty strong still. But you did -- well, I guess 2 questions on that. I mean, first of all, can you -- is there any way to kind of break that down in terms of how much of that was volume-driven versus price? And then secondly, you mentioned that the rig count in Canada recently has flattened out on a year-over-year basis. So how should we think about energy products as a segment from a top line perspective in '18? Is there growth opportunity or growth potential there? Or is that more of a flattish type of outlook?

[Marion E. Britton, CFO, Executive VP & Secretary]

I think at this point, we believe there is some growth opportunity, but obviously, going to be driven by the price of oil and gas and the ability to move it around with line pipe. And so at this point, we're only anticipating a modest increase, but hoping for better.

[Michael Tupholme, Research Analyst]

Okay. And then sorry, just in terms of the -- I know you don't sort of give it -- the breakdown the way you do on the service centers side, but any kind of commentary around how much of that growth you saw in the fourth quarter was volume versus price?

[Marion E. Britton, CFO, Executive VP & Secretary]

Pretty much all volume. There will be some price increase because prices are up year-over-year. But you have to remember, Apex doesn't get the same price increase that our OCTG operations get, because their product isn't as volatile. The price on that product isn't as volatile, and so that would be driven by volume.

[John Gregory Reid, President & COO]

The biggest change we're seeing out there, Michael, right now, is the line pipe in the U.S. And we anticipate having a good year there, there are a lot of projects out there that are [indiscernible].

[Marion E. Britton, CFO, Executive VP & Secretary]

That will impact our -- not Q1, but later in the year.

[Michael Tupholme, Research Analyst]

Okay. And then just sticking with energy products. On the gross margin side in the fourth quarter, 21.3%. I was looking back, I think that's actually the best quarterly gross margin we've seen in that segment since 2008. So I guess, what would have been the drivers to that strength? Was that Apex? Or is there something else at play? And I mean, is that kind of a number, or something in and around there, sustainable?

[Marion E. Britton, CFO, Executive VP & Secretary]

So it is a mix-related item, and we did continue to have product that was in demand. So on the OCTG side, we were able to get a little bit of a premium. We anticipate that we'll come closer to our norm, and I'm not really sure what our norm is these days, but come down as we go into '18. So we will depend a lot on demand and mix. So if we have a stronger mix of OCTG or line pipe, which are both at lower margins, it will draw it down, naturally. We'll have high revenues, but lower margins. So it's a bit of a mix thing.

[Operator]

Your next question is from Tyler Kenyon from KeyBanc.

[Tyler Lange Kenyon, Associate]

Appreciate just some of the color on the year-over-year comparisons for the business in the first quarter here. But wondering if you could comment just on what you've seen kind of year-to-date in the volume relative to normal seasonality. Is it trending more or less in line with what you would typically see quarter-to-date? Or are you seeing perhaps a little bit more pronounced strength versus what you would typically see seasonally? Or is it perhaps tracking a little bit below norms, just given the strong fourth quarter?

[John Gregory Reid, President & COO]

And you're speaking specifically service centers or energy or both?

[Tyler Lange Kenyon, Associate]

[ In your ] service centers -- and energy, please.

[John Gregory Reid, President & COO]

Okay. On the service center side, we're seeing pretty much the historical norms. Again, we're getting the increase and the lift. We're seeing some increase again, but U.S. may be just a little stronger than Canada on that, but there's not a huge differential there. On the energy side, as we said, we're seeing a strong line pipe business in the U.S. OTCG (sic) [ OCTG ] has improved on both sides. The Apex side of the business is very busy, although Canada seems to have plateaued as we mentioned last quarter, it's at a healthy level for us. So we feel good about where we are on the Canadian side on the energy. The U.S. energy does continue to move up. But again, it seems to be getting close to a plateau level there, where the increases are slowing down, and the rig counts.

[Marion E. Britton, CFO, Executive VP & Secretary]

Yes, we're not down, but we're not anticipating huge upside there at this point in energy.

[Tyler Lange Kenyon, Associate]

Got it. Okay. Appreciate that. And the inventory build-up just on the energy side that you mentioned at the end of the year, was there anything in particular that was driving that? Was it a weather-related issue? Or perhaps lack of availability in terms of transporting the product?

[John Gregory Reid, President & COO]

Primarily two things. One was timing of the material coming into us, especially in Canada. [indiscernible] [ compared to ] the time it came in early before we actually started to ship out [ and the ] timing with the customer. And then we had a couple of -- projects get pushed back. And they weren't delayed indefinitely, they were just pushed back for 30 days.

[Tyler Lange Kenyon, Associate]

Okay. And then just a -- just last question for me. Just on costs, are you seeing any operating expense or freight pressure that might be manifesting in a way that's perhaps a little bit stronger than what you might see typically this time of year?

[John Gregory Reid, President & COO]

Of costing, if you look at the service center side, I know there's a lot of issues out there with trucking right now. We typically run a large majority of our own trucking, so we control that in-house. So we're not seeing a big cost there. We do have some outside carriers that will do it primarily for overflow in the service center side. So we are seeing some of that, but it's been manageable to this point. On the energy side, there are increased costs, but that's a pass-through for us. So it's part of the project as we bid it.

[Operator]

Your next question is from Brett Levy from Seelaus.

[Brett Matthew Levy, MD & High Yield Credit Strategist]

In terms of the Section 232 case. If and when that [ regresses to where it goes ], how do you see that affecting you in both the U.S. and Canada?

[John Gregory Reid, President & COO]

Yes, the 232, to some degree, has had a lot of the intended impact just with the threat of it for the last year, roughly. So we've seen some of the increase there, but we don't see any negative to it. We think there's something that's going to be done, so we see it can be a potential impact for increasing of prices. But again, we don't see it going backward in any way. So we think there will be something that will be out. Again, have no idea exactly he's going with it. But we think there will be something out that limits it. But if you look at the imports, they're not down dramatically compared to previous years. The impact of the threat of it has put us in a fairly stable pricing environment for 2017 that they've gradually increased.

[Brett Matthew Levy, MD & High Yield Credit Strategist]

Okay, and in terms of, like, a Canadian response, do you think there will be any? Or you think Canada just kind of lets this go through and lives with the benefits and the curses of it?

[John Gregory Reid, President & COO]

Yes, we'll have -- Canada's going to have to react to it in some way, but we don't -- we're not sure [ and again ] NAFTA will come into play on that. A lot of our customers, again, we're not doing cross-border, there will be some impact there. But right now, it's just something, we'll have to react to it, but we have no idea what the outcome's going to be. And maybe in price [indiscernible] driven. The Canadian pricing's usually driven by the U.S. price. And so the pricing should find its balance across the border there.

[Operator]

Your next question is from Anoop Prihar from GMP Securities.

[Anoop Prihar, MD & Special Situations Analyst]

Just firstly, the 44% year-over-year increase in your energy revenue, I'm curious to ask, did Canada and the U.S. contribute equally to that growth? Or was there one geographic area that was pushing it more than the other?

[Marion E. Britton, CFO, Executive VP & Secretary]

It was predominantly Canada. There was growth in our -- all of our U.S. operations, but much smaller than the amount that we got in Canada.

[Anoop Prihar, MD & Special Situations Analyst]

So they're primary driven by the Canadian...

[Marion E. Britton, CFO, Executive VP & Secretary]

We're also [ much ] bigger in Canada, too. So it tends to skew it when they have the bigger percent. But definitely -- all our operations were up, but definitely skewed to Canada.

[Anoop Prihar, MD & Special Situations Analyst]

Okay. And then it doesn't sound like you -- you're seeing much in the terms of customer activity in Q1 trying to take advantage of moving in advance of a mid-April 232 ruling. Is that a fair statement?

[John Gregory Reid, President & COO]

On the service center side, we may be seeing a little bit of a pull-ahead that's creating some artificial demand out there, extending mill lead times. There may be a little bit, but I think they got -- a lot of people got burned last year in the middle of the year in anticipation of a July. So I think more people are playing it close to the vest now, and just really ordering as they need.

[Anoop Prihar, MD & Special Situations Analyst]

Okay. So you -- maybe a little bit, but nothing material?

[John Gregory Reid, President & COO]

Nothing that's material right now.

[Anoop Prihar, MD & Special Situations Analyst]

Okay. And then just lastly, when I look at your 5-year table on Page 7, I mean, we did $241 million of EBITDA this year, the 5 [ that buys ] the [ 250 ]. If we assume some modest growth, it's not unreasonable to assume that 2018 will be pushing our 5-year highway to around $250 million of EBITDA. I guess what I'm wondering is, capacity-utilization-wise on the existing platform, what is your ability, do you think, to drive EBITDA materially higher on the existing footprint? Or are you at a point now where we need to start material growth initiatives?

[John Gregory Reid, President & COO]

We won't have any capacity issues at that. We should be able to handle that going forward. There may be a facility or 2 that get to capacity, but overall and across both countries, we should be fine to continue to grow.

[Marion E. Britton, CFO, Executive VP & Secretary]

And just a reminder that a lot of our energy volumes in the OCTG and line pipe is through third-party yards, not our own facilities. And we have very good relationship with lots of yards that we can use.

[John Gregory Reid, President & COO]

And keep in mind, the value added will also be part of that growth. And so it will work in the existing facilities, but that will be part of that growth that's new.

[Operator]

And your next question is from Frederic Bastien from Raymond James.

[Frederic Bastien, Senior Vice President]

I'd like to get back and touch on the gross margins at energy products. You did 19.5% in 2017, which is a 400 basis point improvement year-over-year. Where do you think you can settle this year? Do we see you going back maybe halfway? Or I would suspect that these margins at 19.5% may be not sustainable.

[Marion E. Britton, CFO, Executive VP & Secretary]

So there was a considerable pressure on the margins in 2016 because there really wasn't the same demand that we have now. So depending on mix. And I have to keep commenting on that because if we do take some large orders, U.S. line pipe and other things that we would hope we might get this year, that they're always at lower margins because of the dollar values and will drive it. But I would say, go in the middle of those 2 numbers for now.

[Frederic Bastien, Senior Vice President]

Okay. That's what I had in mind. And also, I just wanted to -- I guess 2, 3 years ago, your dividend was quite topical. You're now in a position where you're paying less than 80% of your EPS in dividend. What's the thought there? Has the overall philosophy around the dividend changed? Could you walk through that -- walk us through that [ please ]?

[Brian R. Hedges, CEO & Executive Director]

Frederic, it's Brian. We're paying out a number over a cycle. And so this is the first time we've been in excess of what we're paying out in a couple of years. So it's a little premature to come to a conclusion there. I mean, I think we may have a light -- a nice pickup just on the tax side in the States. That might give you a little bit of a bump. But it's too premature right now to even think about it. We haven't earned over the cycle yet, the $1.50. And I think that's what we need to prove out.

[Operator]

Your next question is a follow-up from Michael Tupholme from TD Securities.

[Michael Tupholme, Research Analyst]

Just want to go back to something you mentioned, Marion, about steel prices and the momentum we've seen. I think you had suggested, in speaking to some of your team members, the -- there's an expectation internally that we could see prices continue to rise into the second quarter. Is that what you had suggested?

[Marion E. Britton, CFO, Executive VP & Secretary]

John, maybe you want to address that. But that's what my purchasing people are telling me, that the mill increases, even though they're announced, they actually don't get into shipments until a month or 2 later because whatever is already booked is shipped at the old price. And we're now into increases that will be coming in, in April. John, do you have any....

[John Gregory Reid, President & COO]

Yes. If you're trying to model, again, if you look at -- back at the end of '16, there was a rapid increase from October forward. We didn't see the run up as fast and as timely. You're going to see a similar run up, we think, in prices [ that ] will continue into Q2. But if you look at the turns for the industry, it's going to take 2 to 3 months to get into the cycle. So we think it will continue to go up well into Q2 right now. The mills have a pricing advantage right now in the marketplace due to restricted supply, so we think they will continue to push the increases.

[Michael Tupholme, Research Analyst]

Okay, perfect. No, I just wanted to clarify that. That's helpful. And then I don't think it's been discussed in any of the Q&A so far. But on the steel distributors -- or in that segment, strong quarter from a revenue perspective. I think it was the best quarter of any single quarter in 2018 that you did in the fourth quarter there. How do we think about that business -- sorry, the best quarter of any quarter in 2017, pardon me. How do we think about that business in 2018, I guess, both from a top line perspective but also from an EBIT margin perspective are where I think -- the margins there have come down a little bit over time.

[John Gregory Reid, President & COO]

Again, I think they will follow the lines for the trends for the service centers. So we may see some modest demand improvements, but revenues are going to probably come off just a little bit in '18 for them. There was some opportunity due to the 232 and things that happened midyear where they were able to take advantage of some of those opportunities. So overall, I would say flat to maybe slightly down for them for the year.

[Michael Tupholme, Research Analyst]

Okay. And that's on the top line, right? Right, John? You're...

[John Gregory Reid, President & COO]

Yes, top line. From -- margin side, probably similar. Again, there will remain to be pressure there. Now as the 232 goes forward, that could change everything. But if -- all things considered, when the market is where it is today, I think they will probably be similar, maybe up slightly on the margin.

[Operator]

And at this time, there are no further questions.

[Marion E. Britton, CFO, Executive VP & Secretary]

Okay, thank you, everyone, for attending, and we'll talk to you next quarter.

[Operator]

Ladies and gentlemen, this concludes today's conference call. We thank you for participating and we ask that you please disconnect your lines.