Russel Metals Inc

TSX:RUS

Earnings Call Transcript 2022-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the 2022 Year-end and Fourth Quarter Results for Russel Metals. Today’s call will be hosted by Mr. Martin Juravsky, Executive Vice President and Chief Financial Officer; and Mr. John Reid, President and Chief Executive Officer of Russel Metals, Inc. Today’s presentation will be followed by a question-and-answer period. [Operator Instructions]

I will now turn the call over to Martin Juravsky. Please go ahead, sir.

[Marty Juravsky, Executive Vice President and CFO]

Great. Thank you, Operator. Good morning, everyone. I will provide an overview of the Q4 2022 results and if you want to follow along, I will be using the PowerPoint slides to reference that are on our website and just go to the Investor Relations section. If you go to Page 3, you can read our cautionary statement on forward-looking information.

So let me start with a little perspective on the quarter and 2022 as a whole. In 2022, we generated record revenues little over $5 billion and EBITDA of $579 million. Our EBITDA and net income were the second highest in the company's history and only a little bit behind the records that were set in 2021. We generated annual gross margin of 22% and a return on capital of 33%, both are tremendous results.

The results for 2022 were strong overall, but if we look at the second half of 2022, in particular, I'm even more proud of how we performed as the market experienced volatility during that period. Our business is now more resilient as we have substantially reduced the volatility of our earnings profile. In addition, we continue to show the countercyclical nature of our cash flows.

In Q4, not only did we deliver good operating results, but we also generated $146 million of cash and working capital. As a result, our balance sheet is extremely strong, and that gives us a great opportunity to take advantage of both internal and external investment opportunities.

So let's begin by talking about market conditions which are on Page 5. Steel prices came down in Q4, but remained at healthy levels by historical comparisons, particularly for plate. In addition, we have seen price stabilization effects and price upticks over the past month or so. If we look back to around mid-December or so, the market was at somewhat of an inflection point at that point, as it felt like prices had hit a floor and as we’ve now rolled into January, there's now a more upbeat tone to the market, and we are cautiously optimistic based upon what we see today.

The right charts on the page illustrate the recent movements in service center inventories for the industry. Inventory tonnage levels for Canada is on the top right chart and the U.S is on the bottom right chart. They both came down over the past few months, which is typical at this time of year. The result is that supply chain inventories are modest and are in check. As we look at takeaways from our customer base, demand has picked up quite nicely in early 2023 and we see it across most geographies and end markets.

If we go to Page 6 for our financial results, from an income statement perspective, revenue of $1.1 billion in Q4 was down from Q3, but comparable to Q4 of 2021. Overall gross margins declined to 20% from 22%, but remained very healthy.

EBITDA of almost $100 million for the quarter was very good for what is typically a seasonally weaker quarter. Interest expense came down by $2 million as the increase in interest rates is allowing us to generate some interest income from our growing cash balance. Overall, we generated earnings of $58 million and earnings per share $0.93 per share.

Our Q4 results were impacted by a few non-operating items. In the case of TriMark, we picked up $10 million of earnings from that joint venture, which was about the same amount as the $8 million of cash flow that came into us as dividends in Q4. Stock-based comp had a $2 million negative impact versus nil in Q3, and we had a small, about $3 million increase in our inventory NRV reserves.

One of the things that has changed in our portfolio over the past number of years is how we manage inventory in a period of falling prices. There were times in the past where we had significant NRV adjustments in some of our business units. The business units that had experienced those wild swings in the past are either no longer part of Russel or are under much tighter inventory control measures in the past.

Lastly, we had a $1 million expense for the annuitization of a significant portion of our DB pension plan. This transaction closed in early Q4 and involve the transfer of around $35 million of pension assets and liabilities off our books to that of a AA rated insurance company. In addition, it allows us to derisk and secure the current pension surplus of around $40 million for use across our other pension plans.

From a cash flow perspective, in Q4, we generated as I said earlier, $146 million working capital. We have a countercyclical business that generates strong free cash flow in market downturns, and we did experience some of that in Q4 with a decrease in both inventory and AR. The decline in inventory was a combination of a decrease in both tonnage as well as average unit costs.

I expect that going forward into Q1, we might see a small decline in tonnage and some further price drops in average cost as our on order inventory remains below the average cost for our on hand inventory since we use an average cost system.

CapEx of $15 million for the quarter has picked up and we are continuing to advance a series of value added equipment projects and facility modernizations. Going into 2023, our CapEx should pick up, and I suspect that will average around $75 million or so over the next number of years. From a balance sheet perspective, we are now in a net cash position, which is made up of our term notes of $300 million that are more than offset by cash position of a little over $360 million.

In total, if we look back over the past year, our net debt position has declined by about $230 million as a result of the strong free cash flow generation. Our liquidity of $743 million and our credit metrics are strong. In Q4, we are using our NCIB to acquire shares, and since the NCIB was put in place we've acquired a million shares at an average price just below $28, our current share count is now back to around 62.1 million shares.

Our capital base continued to grow in the quarter with our book value per share up to around $25.10. This represents more than $5 or 27% increase in book value just over the past year. Lastly, we’ve declared a quarterly dividend of $0.38 per share, and that will be payable on March 15.

If you go to Page 7, you can see our variance analysis between last quarter and this quarter. In looking at service centers, the seasonal decline in volumes impacted EBITDA by around $10 million. As mentioned earlier, we lost some operating days due to normal holiday schedules. The $25 million decline in margins was due to lower prices which have only partially been offset by lower cost of goods sold due to the lag effect.

We expect cost of goods sold to come down further in Q1. Offsetting this is a $9 million favorable variance due to the direct drive system we have on variable comp, and that went the other direction in the quarter to create that favorable variance of $9 million.

Energy declined by about $6 million in the quarter and steel distributors declined by about $2 million due to the moderation of steel prices that particularly impacted our U.S distributors business. There was a $9 million favorable variance in other, which included TriMark's lower earnings in Q4 versus Q3 and the mark-to-market on our stock-based compensation.

Go to Page 8, we have some segmented P&L information. The service centers continued to do well amidst the market volatility. Revenues were down versus Q3, but still represented a good Q4 result. Average prices were down versus Q3, but still up versus the historical average.

Gross margin in percentage terms is down to about 18%, but it's still strong in dollar per ton terms. I'll go into a little bit more detail on that in a minute on the next page. In Energy, we're continuing to see positive market sentiment. There was a seasonal factor with the Q4 revenues, but overall market conditions remain upbeat as we look into 2023.

Gross margins came in at 28%. It have remained north of 25% since the monetization of the OCTG/Line Pipe business. Not to repeat the old cliché, we've used in the past, but we're doing more with less. Distributors revenues and operating results came down as they were impacted by the moderation of steel prices.

If we go to Page 9, we want to here is show a deeper dive on some of the metrics within our Metal Service Center business. Last quarter, we started to disclose both current and historical tonnage and allows for some unit and dollar per ton comparisons. The top graph is the past 5 years for ton shift, and as you can see, the typical Q4 dynamic is around a 5% to 10% pullback in volumes from Q3 levels because of that seasonal factor.

In Q4 of 2022, the shipments decline was around 8%, which is within the normal range. And as we roll into Q1 of 2023, we expect to see a bounce back to more typical activity levels for Q1. On the bottom left graph, we have the revenue and cost of goods sold per ton. On revenue per ton, even though there was a pullback in the past couple of quarters, average price realizations remain around 50% higher than the long-term average.

The bottom right graph shows gross margin and EBITDA per ton. Similar comment to revenues, net margins have come down from the peak levels, but are strong and well above historical levels. And as one basis of comparison even though gross margin percentage is 18% in this past quarter, which has been below the cycle average, the gross margin dollar per ton is around $464 per ton, which is much higher than the historical average that tended to be between $300 and $350 per ton. Some of this increase is related to market prices being higher on average, and some is due to the increase in our value added processing that is part of the portfolio and is continuing.

On Page 10, we have illustrated our inventory turns. This chart shows the inventory turns by quarter for each segment with Energy in red, Service Centers in green, Steel Distributors in yellow. In addition, the black line is the average for the entire company.

A few observations. Overall, our inventory turns remain strong just under 5. By sector, Service Centers improved a little bit from 4.1 to 4.2 in the quarter. Our Energy Field Stores came down from 4.4 to 3. But this is really a timing dynamic and that our inventories did pick up towards the end of the year to address the 2023 backlog of business for that business unit. For Steel Distributors in yellow, the inventory turns increased from 2.3 to 2.7 as our inventory position declined in the quarter.

If you go to Page 11, you see the impact of some of that on the dollars for inventory. Total inventory came down by about $100 million from September 30, which we expected. This is mostly a reduction in Service Center and Steel Distributors. The Service Center saw 7% reduction in unit costs and a 4% reduction in tonnage.

As they said earlier, the Service Center tonnage may inch down a little bit, but it's already in pretty good shape. At the same time, we should see additional declines in unit costs with a lag effect of the inventory on order being lower than that which is inventory on hand costs. We did see an increase in Energy Fields Store inventories, as I said earlier, is meant to serve the backlog of business for that segment.

If we go to Page 12, you can see the overall impact on capital utilization and returns. Our capital deployment is down a bit with the repatriation of some working capital, but we remain around $1.5 billion. More importantly, our returns continue to be industry leading with a strong end of the year and a 33% return for 2022 as a whole.

If we go to Page 13, I want to give you an update on our capital allocation priorities going forward. For investment opportunities, as we've talked about before we seek average returns over the cycle of greater than 15%. And we've delivered well above that over the multiple cycles.

The ongoing opportunities are threefold. We are continuing to identify and pursue value added projects. In 2022, we move forward on a series of initiatives in both Canada and the U.S. And as we look back on the projects that have recently been completed, we are pleased with their operational and financial performance to date.

Facility modernizations in several cities we have legacy locations that can be upgraded and consolidated into newer modern facilities. These projects will allow for volume growth, improve operating efficiencies, and improve health and safety conditions.

In one -- in the most recent example, we just approved about a $10 million expansion project in our Joplin, Missouri operation. This branch was part of the 2021 Boyd acquisition, and it illustrates that we often uncover incremental opportunities to deploy capital and grow the operations that come by acquisitions.

In terms of acquisitions, we remain committed to our financial and operating criteria. That being said, we expect to remain disciplined, yet active in seeking of growth opportunities that fit into our existing business units, and we are seeing a pretty reasonable deal flow of opportunities that we are taking a look at.

In terms of returning capital to shareholders, we adopted a more balanced approach over the past couple of quarters. For dividends, we've maintained our $0.38 per share per quarter dividend which equates to $24 million in the past quarter. In addition, during the back half of 2022 since we put in place our NCIB, we have purchased a million shares in total for around $28 million.

In closing, on behalf of John and other members of the management team, I'd like to express our appreciation to everyone within the Russell family. 2022 was a really great year for the company. Not only were we pleased with the financial results, but equally important were the series of initiatives that translate into record low health and safety incidents, strong community engagement and ongoing people development.

Thanks to everyone across the company for those major accomplishments. Operator, that concludes my introductory remarks. You can now open the line for questions please.

[Operator]

Thank you, sir. [Operator Instructions] And your first question will be from Michael Doumet at Scotiabank. Please go ahead.

[Michael Doumet, Scotiabank]

Hey, good morning, guys. Obviously another nice quarter, and a strong close to the year. Marty, I'm not sure if I missed your comment in terms of margin expectations for Q1 for metal Service Centers, just giving the firming steel prices in the last couple of months. And maybe just to build off of that to you, the spread between plate prices and HRC has remained wide I guess on a historical basis. So, John, maybe to get your views there on the price discrepancy in the near and medium term?

[Marty Juravsky, Executive Vice President and CFO]

Yes, why don't we start with John who could talk about the market, and then we -- I can flip it over and talk about the margin dynamic.

[John Reid, President and CEO]

Michael, good morning. And again, this observation of the spread has remained high. There has been some changes, I think several of the mills have talked about the changes to the dynamic. You have two things really weigh in, again, you have about five plate mills in North America, one of which is not operational right now out of Mexico. So that's limiting supply on the plate side. So the other is still the 232 being in plate, so that gives a premium there for that plate product. We're not seeing a lot of imports. So I think the mills are at a really sweet spot, if you will, on pricing. You take the 25% off, they just [indiscernible] is the ports not attractive at this time to come in at those numbers. So I think they're in a very healthy position. Supply is good. It's not a ton of extra material out there. At the same time, you can get there to some availability, so it's not out of control. So I think the mills have done a good job and been very disciplined on their pricing with plate as it in the historical comparison to the spread with coil. Coil there is a little bit more supply, so it's obviously more volatile. You've seen it shoot up higher, come down lower. But again, it seems to be operating in a good place. It's we've seen a rebound at the December and January. Two price increases have come through most of which have stuck, the markets receiving those fairly well. Scraps going up. So we think that pricing has stabilized and started to turn the corner in recent weeks.

[Marty Juravsky, Executive Vice President and CFO]

And then, Michael, in terms of margins, in Q4, within the Service Centers, the margins in dollars per ton averaged around $460. What we saw during the quarter was month over month it was coming down during the quarter, so October, November, December came down. So the exit margin from Q4 was lower than the Q4 average. And that was a function of both prices were coming down on average and cost of goods sold was coming down on average.

What we've seen in early q1 is more of a stabilization in the early stages of Q1 from a margin perspective, but because the pace was -- goes -- was declining during Q4, the stabilization now was stabilizing at a slightly lower level than the Q4 average. Does that get to your question, Michael?

[Michael Doumet, Scotiabank]

Yes. It's totally helpful. I mean, I guess we can work the math from the Q3 and Q4 number and then aligned to Q1, just in terms of how you've outlined it. So it's really helpful. Maybe the second question, I guess, is bigger picture and I really appreciate the new disclosures around tonnage and what that gets us to for gross margin per ton. And if you look at the chart right here number, Slide 9, it's historically hovered the gross profit per ton at $300 and we've been well above that for several quarters now. So I'm just trying to get a sense for where we can land and what the new normal is because you're doing a lot with the business just in terms of value add investments, you're looking to add scale to M&A. You've talked about inventory controls, so what's the new normal look like? And maybe to push this a little bit further if you can care to quantify what a new normal could look like.

[Marty Juravsky, Executive Vice President and CFO]

I'd love to quantify, but I'm not sure that I know how to. But I think your observation is pretty fair, though, which is the old normal was 300 to 350. The new normal, we feel comfortable is higher. What normal looks like and when we hit normal mean the cycle always moves above normal below normal, and somehow we average to create what normal supposed to be. But that's a function of both the market pricing level still remains at a pretty healthy level compared to historicals in addition to our value added initiatives. So if the historical average was 300 to 350, we should be averaging more than that on a normal through the cycle basis. And as we continue to uptick on these investment initiatives, those are within our control, we'll continue to move up that margin curve.

[Michael Doumet, Scotiabank]

That's great. Thanks, guys. Appreciate the color.

[Marty Juravsky, Executive Vice President and CFO]

Okay. Thanks, Michael.

[Operator]

Thank you. Next question will be from Frederic Bastien at Raymond James. Please go ahead.

[Frederic Bastien, Raymond James]

Good morning.

[Marty Juravsky, Executive Vice President and CFO]

Hi, Fred.

[Frederic Bastien, Raymond James]

I was wondering if you could please comment on the puts and takes around energy products results in Q4. We saw lower volume sequentially, which is a bit unusual, but margins held up quite strong. So wondering if you could comment on that, please.

[Marty Juravsky, Executive Vice President and CFO]

Yes, there is a little bit of a seasonal dynamic there less than there has been in the past. One of the things is one of our business units within Energy Field Stores had a really, really strong middle part of the year. So even though sequentially look down, if we kind of look past some of the lumpier type of stuff that happened earlier in the year, and transactional business, day to day type business, that's still moving on the uptick. So we benefited some of that lumpier stuff earlier in the year. But if we look at the more day to day type stuff, that was moving up through Q4, and its moving up through 20 -- early stage of 2023. So that was kind of the dynamic in Q4 where you saw energy pull back a little bit. It was pulling back because it was being compared against Q2 and Q3 results where there was some of that lumpier stuff that showed up.

[Frederic Bastien, Raymond James]

Okay, that's helpful. Now I'm building on that, you had higher Energy Field Store inventory. At the end of the year, you said that's helped to -- that's to help address backlog is. Is this backlog higher than it was 12 months ago? Just trying to get a sense of are we seeing growth within the Energy Field Stores? And what's your outlook on next? And your visibility is somewhat limited, but on this next 6 months, what's -- what is it looking like?

[John Reid, President and CEO]

Yes, so Fred, on the energy inventory, we saw a couple of dynamics happening. One division specifically was really, really trying to play catch up. So their sales were running ahead of their inventory. So they finally caught up some of the port congestion was catching them. So finally caught up and got their inventory where it should be. So there was a little bit of a surge there. Another division ComCo specifically was -- has got some projects going into Q1, and Q2 where they had to go ahead and bring the inventory in to be prepared for the projects due to the lead times. So they saw surge in their inventory as well as project based, it will be a back to back order.

Regarding what we see going forward for Q1 is very strong, in Energy both in Canada and the U.S., more of your medium to small type projects, and our day to day business in the field stores is very strong. Breakups hard to call for that second quarter of the year as to how long it will last, what the weather impacts will be. But we think we will have a strong breakup season based on the drilling that's out there right now, what we are being told from our customers, their backlogs are well into Q3 and early Q4 right now. So their desire is to work through breakup as much as possible weather permitting.

[Frederic Bastien, Raymond James]

Okay, thanks. Another one on Energy. You did benefit from nice equity pickups, and you received sizable dividends from the TriMark JV last year, but what is your view on it going forward? Is it something that you're very happy holding? Or is that something you would look at potentially selling or you're sharing to it?

[John Reid, President and CEO]

I think, again, their business is very much busy through the year as well as these drilling programs are busy. So we're happy with the performance. Again, long-term, it's something that we would probably look to exit either with doing something with our partner, it's there or look to exit that business is not part of our core portfolio. And it was a business we were looking to as we did exited completely in the U.S., we will probably look to exit that as well at some point in time.

[Frederic Bastien, Raymond James]

Okay, thanks. That's all I have for now. Thank you.

[Marty Juravsky, Executive Vice President and CFO]

Great. Thanks, Fred.

[Operator]

And your next question will be from Michael Tupholme at TD. Please go ahead.

[Michael Tupholme, TD Securities]

Thanks. Good morning.

[Marty Juravsky, Executive Vice President and CFO]

Hey, Mike.

[Michael Tupholme, TD Securities]

Hey. I guess I want to start with the demand outlook. So you talked in your outlook about expecting a rebound in demand. And I think this is both for Service Centers and Energy Fields Stores. And I think the commentary was really specifically about kind of the near-term and improvement versus Q4. It sounds like part of that, I guess, is a seasonal uptick. I'm wondering if you can comment on if we sort of look beyond seasonality and any improvement as a result of that. What are you seeing in terms of underlying demand? And if we look at sort of across 2023 as a whole, any thoughts or views on what you think you can do in terms of volume growth in Service Centers for 2023 as a whole?

[John Reid, President and CEO]

Yes, thanks, Mike. So overall, one of the proxies that we use is mill capacity utilization, if you've looked at it for the last 3 or 4 weeks, we're seeing that steady uptick in that back in the 74% plus. It appears a little climb again next week, we watch mill inventories, those are coming down dramatically. So people are restocking the shelves that are out there alone with end users. What we're seeing from the end user demand side across the board is a very steady backlog that they're very bullish on the first half of this year. There are some impacts to inflation, higher interest rates that are impacting housing, which we don't participate a lot in housing, residential, more non-risk construction. So if the interest rates climb that could get into their backlogs, but they're 9 months out right now, most backlog. So there's a pretty big lead on those.

Outside of that, if you're looking at agriculture, if you're looking across the border, any manufacturing of equipment, all those backlogs are really, really strong anything to do with energy, solar, wind, oil and gas are extremely busy right now. So they're pretty bullish on their backlogs. We think that wind in particular in the back half of this year is going to get extremely busy as new subsidies start to come out, tax incentives start to come out from the government. So pretty bullish on that. Also with the infrastructure projects coming on board, we think those are going to really, really have some strong impacts for us in Q2 and beyond.

[Marty Juravsky, Executive Vice President and CFO]

Just one -- and one supplement to that. One of the fastening dynamics is coming out of -- that’s come out of the global supply chain issues over the last couple of years is the concept of more on shoring has kind of evolved from a theory to a reality. And it's early stages, but we are seeing some of that activity where local North American based predominantly in the U.S., but a little bit in Canada as well. Activity has really been on shoring. And so I think that's a trend that we're going to start to see in 2023 take hold. And that is an ongoing trend that isn't going to go back to where it was for obvious reasons that we've seen over the last couple years with some of the supply chain issues.

So I wouldn't be surprised that if we look at 2023 as a whole and compared to 2022, and take out some of the quirkiness of seasonality and all that, that we see some version of a low-single-digit type growth in volumes for the industry. And we are trying to outperform the industry in terms of market share.

[Michael Tupholme, TD Securities]

Okay. That's all very helpful. Thanks very much. And I know you've already had a few questions here on Energy Field Stores and your outlook there, and it sounds like it's fairly positive, which makes sense for a variety reasons. I guess. John, you commented on drillers having strong backlogs and potentially working as much as possible through breakup.

I'm just wondering here we have seen energy prices moderate early here in 2023, particularly natural gas, I guess oil is off a bit as well. It's bouncing today on the Russia supply cuts, but could drillers pivot? Or is the backlog that that they have is that sort of hard backlog and committed? Or is there a risk here that if energy prices do particularly get natural gas if -- could they change the outlook relative to what you're describing.

[John Reid, President and CEO]

I think we're dealing with a much different dynamic than we were 3 or 4 years ago with the drillers and the energy companies due to the fact that their balance sheets are finally in such good shape. And there's a long period of time there where they were out running cash flow with these drilling programs. So when you would see a downturn, a reverse course in the either natural gas prices or oil prices, there would be those very quick pivots.

I don't think those are as necessary now, because their balance sheet now if it's a dramatic downturn and prices cut in half, I'm sure there'll be some changes. But they're not as volatile as they used to be on pivoting all tied to that old price. And so although oil prices have pulled back, some natural gas prices have pulled back, so much drill running at really, really nice levels. And I think that make sense for these drillers to keep going forward. We're not hearing a lot of commentary that says they would have any reason to pull back at this point. So it's more full steam ahead and how fast can we get this going.

[Michael Tupholme, TD Securities]

Okay, that's helpful. Thanks. And then just a question on the CapEx. I think Marty, you said about $75 million per year for the next few years. So two questions on that. I guess, first off, are you able to give us a sense for how much of that amount is related to the facility modernizations? I guess, this year and in over the next few years, and then on the value added processing side, I mean, this is something you've been talking about for quite a while. And it sounds like you've made a fair bit of progress. It certainly sounds like there's more room to go. But just to use the baseball analogy, I guess, can you talk about what inning you think you're in as far as that value added processing expansion capabilities?

[Marty Juravsky, Executive Vice President and CFO]

Yes. So let's -- so going to your first question, first, Mike. So we're -- our maintenance spend is call it around $25 million per year plus or minus. So anything above that is related to either the value add, the mill modernizations, discretionary projects that have returned dynamics attached to it. So dealing with that I know first, your observation is right, though, which is it's picking up pace, there's more opportunities identified. And the funny thing is, if you can say what inning we are in? Yes, we're probably in the fourth inning, but we are in the fourth inning last year, and we're probably in the fourth inning the year before, because the game just keeps getting extended with newer and newer opportunity.

So the scope of opportunities as every year goes by just seems to be presenting new situation as we go further down the path on certain ones, it just opens up new paths, or new opportunities that we didn't see before. As we've done acquisitions with those acquisitions, we did one in 2020 and we did one in 2021. With those acquisitions, we didn't really contemplate what specifically we could do for value added projects. But we're seeing those projects, and the one I just referenced in Missouri, part of that is to put in some value added equipment.

So those are things that are just keep showing up as we're looking at more and more opportunities. So I know we probably said we are in the fourth inning of the 19 ballgame a couple of years ago, we're still in the fourth inning, because more and more opportunities are becoming available.

[Michael Tupholme, TD Securities]

Okay, that makes sense. Thanks for that. And then just a couple questions on steel distributors. I guess from -- I mean two parts. I guess from a demand or a revenue perspective or I mean more revenue is putting the demand, how do you see that business evolving over the course of 2023 versus 2022. And then from a margin perspective, I mean, that one I find is some of the more volatile margins across the business. And I'm just wondering what you see as sort of a run rate -- normalized run rate gross margin percentage in steel distributors.

[Marty Juravsky, Executive Vice President and CFO]

You're right, there is more volatility attached to that. And in some ways just to go back, Mike, there's two pieces to that business for us. There's the U.S piece, which tends to be more on the -- more volatile and more transactional, and there's the Canadian piece of the business that tends to be more back to back lower risk, lower margins, lower risk.

And if we look at Q4, Q4 for steel distributors wasn't all that different bottom line results from Q3. And that's really because even though the steel market pulled off, that impacted more of our U.S business and our Canadian business was tends to be more of a steady eddy, steady as she goes type of business. So Q4 is actually not a bad reflection in terms of what it looks like on balance over cycle just because we did see the pull off on the U.S side, which does really, really well in up markets. And we didn't see that up market in Q4. But our Canadian business that's called worth, it was steady as she goes and did quite nicely in Q4. So Q4 is probably not a bad litmus test.

[Michael Tupholme, TD Securities]

Okay. That's great. Sorry and then just on the top line outlook for that business, I mean, it sounds like you're constructive on the other two in terms of demand. Does that apply to distributors as well?

[John Reid, President and CEO]

Yes, it does. And, again, to Marty's point, again, more back to back contractual type business in Canada, we're continuing to see that come through. So there'll be a more steady flow, we'll see the will ebb and flow more with the market price in the U.S and opportunistic, again, they're highly transactional. But again, I see that following along the same lines as a Service Centers as far as total market demand, keeping in mind Service Centers, self or others are big customers for them.

[Michael Tupholme, TD Securities]

Okay, great. Thanks very much.

[John Reid, President and CEO]

Great. Thanks, Mike.

[Operator]

Thank you. [Operator Instructions] And your next question will be from Ian Gillies at Stifel. Please go ahead.

[Ian Gillies, Stifel]

Good morning, everyone.

[Marty Juravsky, Executive Vice President and CFO]

Hi, Ian.

[Ian Gillies, Stifel]

With respect to the M&A environment, are you able to qualify for us where seller expectations are maybe relative to 6 and 12 months ago? Because I know that's been a challenging part of executing the M&A plan?

[Marty Juravsky, Executive Vice President and CFO]

Yes, it's a great question, Ian. And it's sometimes hard to gauge because we only see it through our lens. And it's not like there's a slew of activity that we have seen that's been transacted by other people. So we're seeing lots of deal flow, some of which is interesting to us, some of which is not interesting to us. But there hasn't been a lot of stuff that we've seen cross over the finish line and say, here's what value is. So it's more of an anecdotal comment than any hardwired data that I can point to. But anecdotally, yes, it seems like there's a better tone to expectations today than there would have been 6 or 9 months ago.

[Ian Gillies, Stifel]

Okay, that's helpful. And I'm going to take a shot in the dark here. Are you willing to maybe talk at all about how the discussion went with the Board around dividend increases? And your thoughts there, just given the strength of the balance sheet, future cash flow generation and the like?

[Marty Juravsky, Executive Vice President and CFO]

Sure, well, it really wasn't a hot topic to be perfectly candid. We think we've got a healthy dividend as it stands right now. So for us, we talk more holistically about capital deployment in a variety of areas. And our focus right now is we've as you’re right. Got an extremely strong balance sheet, and we see opportunities to deploy capital in a variety of ways. Your question about M&A is interesting. There's potentially opportunities that we're continuing to be optimistic about, but we'll see. And the projects that we have internally, so as of today, we're collectively comfortable with the healthy dividend that we have.

[Ian Gillies, Stifel]

Okay. And then last one around capital allocation, the NCIB was obviously pretty active through last year. It doesn't look like it's been used a lot through the early part of this year is that a function of Russel being in blackout or the perceived view of where the share price is today being healthier now?

[Unidentified Company Representative]

Yes, we've been in blackout since January 1.

[Ian Gillies, Stifel]

Okay. I just wanted to confirm that. That's helpful. That's all for me, guys. Thanks very much for the detail on the call.

[Marty Juravsky, Executive Vice President and CFO]

Great. Thanks, Ian.

[Operator]

Thank you. And at this time, gentlemen, we have no further questions. Please proceed.

Great. Thanks, operator. Well appreciate everybody for joining the call and dialing in today. If you have any further questions, please feel free to reach out. Otherwise, we look forward to staying in touch during the quarter. Thanks everyone.

[Operator]

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask you to please disconnect your lines.