Gerdau Ameristeel Corporation Q1 2010 Earnings Call Transcript

May. 6.10 | About: Gerdau Ameristeel (GNA)

Gerdau Ameristeel Corporation (GNA) Q1 2010 Earnings Call May 6, 2010 2:30 PM ET

Executives

Mario Longhi - President and CEO

Barbara Smith - VP and CFO

Analysts

Kuni Chen - Bank of America

Paul D'Amico - TD Newcrest

Timna Tanners - UBS

Rob Moffit - Longbow research

Michael Willemse - CIBC

Mark Parr - Keybanc Capital Markets

Randy Cousins - BMO Capital Markets

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Gerdau AmeriSteel Corporation First Quarter Results Conference Call. At this time all participants are in a listen-only mode. Following the presentation we'll conduct a question-and-answer Session. (Operator Instructions).

The Company would like to draw your attention to the Safe Harbor Provisions in the Company's press release regarding forward-looking statements and that EBITDA is a non-GAAP financial measure, and that it is certainly not the only measure. Certain statements made on this call will be forward-looking statements. Actual results could differ materially from conclusions, forecasts or projection because certain assumptions were made in drawing those conclusions or making these forecast or projections.

You should refer to the Company's May 6, 2010, press release for additional information about the material factors that could cause actual results to vary and the assumptions used to draw conclusion or make a forecast or projection. I would like to remind everyone that this conference call is being recorded on Thursday, May 6, 2010, at 2:30 p.m. Eastern Time. I will now turn the conference over to Mr. Mario Longhi, and President and Chief Executive Officer and Ms. Barbara Smith, Vice President and Chief Financial Officer.

Please go ahead, Mr. Longhi.

Mario Longhi

Thank you, Christopher. Ladies and gentlemen, good afternoon and welcome to our first quarter 2010 conference call. I'm pleased to say that after a difficult 2009 for the first quarter of 2010 we are reporting a profit of $25.2 million for Gerdau AmeriSteel. Our performance during the quarter can be attributed to better than expected shipments as well as the actions we took during 2009 to increase cost efficiency and lower our break even point.

Sales volumes in steel prices moved in the right direction, and our product mix provided us with good end market diversification. In addition, during the quarter our manufacturing costs were the lowest they have ever been since September 2007, which is a testament to the initiatives we took over the last 18 months. I would also like to highlight that we continue to demonstrate our commitment to safety.

Our loss time frequency rate for this past quarter was 2.7 which is even better than 3.2 we experienced for the full year 2009, which had been the lowest loss time frequency rate in our in our Company's history. For the first quarter of 2010, net income was $25.2 million or $0.06 per share which compares to a net loss of $31.5 million or $0.07 per share for the first quarter of 2009.

We generated $116.7 in EBITDA during the quarter which was a significant increase over last year's first quarter. During the quarter, we saw shipments increase 15% over the fourth quarter of last year. While some of this increase was due to the normal seasonal pickup, we also saw customers return to the market in a manner slightly stronger than expected. We believe that confidence in the economic recovery is beginning to slowly grow among many of our customers, and this is translating into more orders.

Many industries severely cut back capital expenditures over the last eighteen months. And along with low inventory levels, we believe this is leading to a gradual pickup of economic activity across many end markets. I want to stress that while we're encouraged by the activity of our customers, we continue to be cautious and believe that this recovery will progress slowly. We remain in close communication with our customers to ensure that we can quickly respond to their needs and react swiftly to the ever changing business environment.

The backlog at our mill and downstream operations showed growth during the first quarter. Our mill backlog is the highest we have seen since December 2008. And our downstream backlog is the highest we have had since October 2008. Several product categories demonstrated good demand growth during the first quarter. As 2Q volume has been strong since the beginning of the year, due to the increasing demand from the energy sector as well as heavy machinery and industrial equipment customers.

Merchant products are seeing good demand as inventories throughout the system remain at low levels. Sheet piling demand has also been strong. Looking at rebar and structural demand for those products has been stable, and as the economy slowly improves so should the demand for these products. The demand increase in the first quarter allowed to us increase production to the point where we needed to add additional crews to meet that demand.

Giving the initiatives we undertook in 2009, we added that capacity in a very efficient manner. Our decision to add additional shifts was made after careful examination of the market, and we will monitor these trends closely as we consider future changes. Steel prices during the first quarter rebounded from the previous quarter increasing 6%. The increase was primarily driven by a rise in scrap costs, and because of the quick pace with which scrap prices increased we were then able to raise our own prices fast enough to match that.

This led to a slight tight meeting our metal spreads by roughly 3%. Turning to the export market, activity was strong during the first quarter, and I continue to expect a good export year for Gerdau AmeriSteel. We shipped products to a number of different countries all over the world, and we had one of our strongest quarters in terms of bookings on record depending on the product shipped pricing for exports improved around 20 to 30% during this past quarter.

We will continue to explore all export opportunities as this market continues to provide good volume for our network of mills. Looking ahead, I'm encouraged by what we saw during the first quarter. I believe the U.S. economy has begun a slow recovery, and as it gains momentum, so should the demand for steel.

High unemployment and tight credit will continue to limit the strength of the recovery, but demand for our products can gradually improve as customers maintain a more positive view of the economy. I want to thank the Gerdau AmeriSteel team for all their efforts over the past year and express to them how proud I am of our first quarter profitability and results. With this I conclude my comments, and then I'll now turn it over to Barbara to comment on our financial results.

Barbara Smith

Thank you Mario, and good afternoon, everyone. As Mario indicated earlier, we reported a profit in the first quarter 2010 with net income of 25.2 million or $0.06 per share. This compares to a net loss of $32.8 million or $0.08 per share for the fourth quarter of 2009 and a net loss of $31.5 million or $0.07 per share for the first quarter of 2009.

I'm very proud of the work we've done throughout this downturn. We worked hard to maintain close relationships with our customers and to remain focused on things we can control, and this has led to an increased sales and lower costs. EBITDA in the first quarter was $116.7 million, which was nearly double the amount we recorded in the fourth quarter of 2009. We were able to do this despite shipments being up only 15%.

This is confirmation that modest improvements in volume should have a positive impact on our bottom line due to the productivity and capacity realignment initiatives we took in 2009. Total shipments for the quarter were 1.5 million tons, which was about 25% greater than the comparable quarter of last fiscal year, and 15% greater than the fourth quarter of last year.

The weighted average selling price per ton net of freight of our mill shipments to external customers in the first quarter was $642 per ton, up from $605 per ton in the fourth quarter of 2009. Our downstream steel fabricating prices were $800 per ton in the first quarter, compared with $839 in the prior quarter.

Our downstream business quoting activity has remained in line with the past two quarters and our backlog continues to grow. However, as I mentioned last quarter competition remains fierce and this has led to pressure on downstream margins. The cost of scrap charge for the first quarter was $266 per ton compared with $217 in the previous quarter. Metal spreads, the difference between mill selling prices and the cost of scrap charge were $376 per ton in the first quarter compared to $388 per ton in the fourth quarter of last year.

Although spreads have been decreasing since December of 2008, I believe we're nearing an end to this trend as spreads should level off in the current quarter. Our manufacturing costs dropped sharply during the first quarter. Costs for the quarter were $ 274 per ton, compared to $328 per ton in the fourth quarter of 2009, a decrease of over 16%. This was driven by increased utilization rates, and a continued focus on operational efficiency.

With regard to our flat rolled joint venture at Gallatin, their shipments for the first quarter were $395,000 tons up 9% from the prior quarter. Gallatin's weighted average selling price per ton to external customers in the first quarter was $574 per ton, compared to $528 per ton in the fourth quarter of 2009. Gallatin's business continued to operate at close to capacity during the quarter, but margins tightened.

While prices were up, they couldn't keep pace with the 16% quarter-over-quarter increase in scrap costs. For the quarter, our share of Gallatin's net income was $7.7 million. Demand for Gallatin's end products remained strong, and we expect them to continue to generate positive results in the second quarter.

Turning back to Gerdau AmeriSteel consolidated results; net interest expense was $35.6 million in the first quarter, compared to $41.8 million in the previous quarter and $41.1 million in the first quarter of 2009. The quarterly decrease is due to the fact that the fourth quarter 2009 interest expense included one time write-offs of deferred financing costs which were associated with the partial repayment of our term loans in that quarter.

The year-over-year decrease is attributable to interest savings that resulted from the $705 million of debt we repaid in 2009. Capital spends were approximately $10 million during the quarter. We expect 2010 CapEx to be approximately $140 million as certain of the projects payable during the downturn move forward. Depreciation and amortization of intangibles for the quarter was $61.4 million, compared to 72.6 million in the previous quarter.

Our strong liquidity position continued in the first quarter with approximately $1.1 billion available. As of March 31st, 2010, we had $595 million of cash and short-term investments and $498 million available under our new senior secured credit facility. As we previously communicated, we have transitioned our financial reporting from U.S. GAAP to International Financial Reporting Standards or IFRS as of January 1st, 2010.

The reason for this change is to align accounting policies with our majority shareholder Gerdau S.A. who has been reporting under IFRS for some time. All the financial numbers we referred to on this call including those from prior quarters were compiled using IFRS.

For reconciliation from U.S. GAAP to IFRS for the first and fourth quarters of 2009, please refer to the press release we sent out earlier today. Looking forward, we expect second quarter market conditions to continue to improve thanks to normal seasonality effects, and a building confidence in the economic recovery in the U.S. As I mentioned earlier, we expect metal spreads to remain similar to the first quarter.

A lot of that will depend on where scrap prices go as we follow normal seasonal trends. We thank you again for your continued interest in Gerdau AmeriSteel. I would also like to thank the employees of Gerdau AmeriSteel for their dedication and commitment to serving our customers and stakeholders, and at this time Mario and I would be pleased to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Kuni Chen from Bank of America.

Kuni Chen - Bank of America

I guess just first question, can you give us some flavor on for a sequentially month-by-month through the quarter and into the second quarter, what you're seeing as far as the pace of order bookings? Has that been pretty consistent or is that leveled off somewhat, just to want get some flavor there?

Mario Longhi

Well, since the beginning of the year what we noticed was a continued increase in orders, and I think it was driven mostly by two factors, first the inventories remain sort of low and the price increases were coming in quite consistently so I think there has been a little bit of front buy in this regard. We just need to see what happens now going into the second quarter going, but up until the this moment it has been stable.

Kuni Chen - Bank of America

Okay and I guess can you comment on downstream; obviously, a bit of a more competitive environment. Can you talk about what you're seeing as far as any project rebids and what impact you expect that to have going forward?

Mario Longhi

The environment, you're absolutely correct. It remains not only competitive, but somewhat fierce. You see three to four folds, the average amount of folks that come into quote on a particular job. Pricing is incredibly tight, has been incredibly tight in that regard. We've been fortunate to be able to maybe pick some of the jobs that we felt were more profit for our organization, and therefore we have increased our backlog going forward which has been good for us, but make no mistake it remains very, very tight and competitive out there.

Kuni Chen - Bank of America

Okay, and then one last quick one and I will turn it over. Just can you comment on the tax rate in the quarter, some items that were embedded in there perhaps?

Barbara Smith

I think Kuni when you have a low level of income it tends to distort the tax rate. We had one change in the withholding rate between the U.S. and Canada that actually dropped the rate, so from modeling purposes I would guide everyone to start with a 35% statutory rate and then the tower benefit is around $9 million per quarter off of that 35%.

Operator

Your next question comes from the line of Dave Martin from Deutsche Bank.

Dave Martin - Deutsche Bank

I wanted to come back to Kuni's question on the order book and maybe be a bit more pointed. Could you give us a flavor of what type of shipment and volume growth you would see in the second quarter? Would it be a similar sequential improvement to what you saw in the first over the fourth?

Barbara Smith

At this point and we really have one month in the quarter behind us, we would not expect to see that 15% type of increase quarter-over- quarter because as Mario indicated we do believe there was some pull forward buying because of the increasing prices throughout the first quarter. Having said that, we do think there will be some additional volume available in the second quarter due to normal seasonality. You roll all that together, and we would say something less than 5% increase quarter-over-quarter.

Kuni Chen - Bank of America

Okay, and then wanted to also ask an IFRS question. Can you comment on the impact, the move to IFRS would have had in your first quarter operating results or EBITDA, and I guess particularly just wondering about what impact it may have had on inventory costs and costs of goods sold because I think you're now using average costs versus a LIFO basis in the past?

Barbara Smith

We have always been on average costs, and the impact is really immaterial. And there is further color in the press release, and we certainly will happy to take questions after the call separately to help anybody through that, but it's really immaterial.

Kuni Chen - Bank of America

And that D&A cost of $61 million a quarter a good run rate to use for the balance of the year?

Barbara Smith

Yes, that would be.

Operator

Your next question is from the line of Paul D'Amico from TD Newcrest.

Paul D'Amico - TD Newcrest

Just a few quick ones; if I can back track a bit, Mario you mentioned in terms of a good export year, this year for Gerdau. Are we still talking 5% of tonnage or are we talking north of that?

Barbara Smith

5% of total tonnage; I think, Paul we're -- we said we would like to double our export volumes over last year which was just shy of 400,000 tons, and I think at this point we're pretty encouraged by what we've seen so far.

Paul D'Amico - TD Newcrest

And in terms of Barbara, I think you were mentioning I don't know if I heard it right, and you're talking about sales volume pickup on the seasonality in Q2 versus Q1 being less than 5%. Is that what you said?

Barbara Smith

Yes.

Paul D'Amico - TD Newcrest

Okay, and last one just in of the understanding the flow of scrap in terms of the charge, so in terms of Q1 versus Q2, I imagine there is timing differences, and I apologize I didn't pick up on the commentary or not. You spoke about metal spreads being flat in Q2 versus Q1. Are we talking that there is going to be a notable increase in scrap charge to offset whatever price increases you're going to get?

Barbara Smith

Yes. There will be an increase in scrap charge for the second quarter and as we sit here today and of course we don't know precisely where scraps are going to move throughout the balance of the quarter, but at this point in time we would expect those to roughly offset each other.

Paul D'Amico - TD Newcrest

Just for a reference, what sort of delta are we talking about on the scrap charge difference? Is it like a 40 --?

Barbara Smith

$30 to $40 a ton.

Paul D'Amico - TD Newcrest

30 to 40, okay, I appreciate it. Thank you.

Operator

Your next question is from the line of Timna Tanners from UBS.

Timna Tanners - UBS

I'm just wondering if you could elaborate a little bit more about what you're seeing in infrastructure. I know you talked about that market is being opportunity, it's been in the past and public spending appears to be picking up?

Mario Longhi

Well, not enough of the stimulus money has yet flowed down to real work if I recall correctly, about $40 billion of DOT money was laded to be invested and I think no more than seven has flowed down yet. So, that's still to happen and hopefully we can begin to see more of that by the end of summer going into the second half of the year. We've noticed though some areas that have had jobs, not necessarily just in for structure money. Some schools, hospitals, energy certainly in transmission have happened. We're seeing some of the alternative fuel arena improve. Finally, there is work going on the dikes in Orleans, so some of these areas have been the major areas that drove activity had up to this point.

Paul D'Amico - TD Newcrest

It's helpful. So, not seeing a lot of the road spending yet for the rebar parts of your business and another maybe for sign posts, that kind of thing?

Mario Longhi

No, not necessarily.

Paul D'Amico - TD Newcrest

And on the downstream side I was wondering you're talking about competition being really fierce, and I was wondering if you could weigh on what you think it will take for that to change a bit?

Mario Longhi

Well, first of all, I think the volatility that we've seen with prices of raw materials is putting an enormous pressure on performance of many people, so many people that want to keep operating and I think there is succumbing to the prices and to the low amount of available jobs, and I think that they agree into conditions that in our view are very, very delicate. The other thing is that could be boosted if we had more credit available.

Many organizations, many companies have had an incredible resilience up until this moment and we don't know how long that's going to last, but I believe that the pressure on pricing is going to have to probably put a different stance on the part of folks bidding because with the cost increases that we have seen if the prices had been available out there continue, that means a lot of losses could be incurred.

Paul D'Amico - TD Newcrest

So, some of your competitors are not necessarily passing through all the high raw materials yet?

Mario Longhi

That's very true.

Operator

Your next question comes from the line of Rob Moffit from Longbow Research.

Rob Moffit - Longbow Research

I was wondering if you could maybe shed some light on how sustainable some of the cost cuts may be moving forward, maybe what stays out, what comes back as production ramps?

Mario Longhi

Well, very definitely most of the costs that are not directly related with prices of consumables can be maintained. There is no doubt about that. Where we are probably going to see some increases, for example, yield costs are going to be higher for this year factor even you know stretched about twice what it was a few months ago, so I think you will see some of that impact but what we have put in place from a fixed cost perspective and the levels of improvements on the overall non-financial indicators that we have gotten better those will be preserved.

Rob Moffit - Longbow Research

Though maybe like a manufacturing cost and SG&A on a per ton basis should kind of stay about where they are?

Barbara Smith

Right, if maybe if I could add a little bit of color to Mario's remarks.

Rob Moffit - Longbow Research

Sure.

Barbara Smith

I think you're going to see slightly higher manufacturing costs if everything else is equal just due to the fact that we have higher scrap prices though your yield losses are going to cost you more. So, in the second quarter if all things were equal manufacturing costs would go up slightly in the second quarter. We certainly will do everything we can to try to offset that, and as Mario indicated as the whole economy recovers and the industry recovers, you will continue to see pressure on raw materials and input costs.

So, eventually we'll see more of that. The other factor is just timing of outages throughout the year, and currently we would expect third quarter to have a number of outages in our business, so we would typically see a slightly higher cost in that quarter as well.

Mario Longhi

There is something else that we've done carefully, which is we were fortunate enough to be able to quickly add a few ships to our base operations because we believe that they will be able to be used appropriately. We're keeping an eye on that, but as you bring a little bit more capability online, you reduce some training, so that may impact for a period of time until they all get back up to speed.

Barbara Smith

A little bit of additional volume can help all that, too.

Rob Moffit - Longbow Research

And then just in the beam market what are you guys seeing in terms of the competitive environment? I guess, particularly in terms of domestic competitors and pricing, and are you seeing any import competition come back?

Mario Longhi

That remains somewhat of a weak market as you know. And even though imports have increased a little bit, I know it's not at a magnitude that at this point is putting a lot of more pressure onto us, but in general it's a weak market and it's going to stay somewhat like that for a little longer.

Rob Moffit - Longbow Research

And then domestically?

Mario Longhi

Domestic competition is there for every single job.

Rob Moffit - Longbow Research

Sure. Okay, all right, thanks a lot, guys.

Operator

Your next question comes from the line of Michael Willemse from CIBC.

Michael Willemse - CIBC

Mario, you mentioned you got your backlogs in I guess in your steel business and in your fabrication business are back at where they were in late 2008. Does that suggest here your fabricated division is going to be running close to capacity again, or is it you're still going to be probably 70% of capacity?

Mario Longhi

We're going to be even inferior to that going forward. Even though it's meaningful because if we were running with about a couple of months of backlog, so it certainly has improved, but definitely it's not yet up to 60%.

Michael Willemse - CIBC

So we should expect fabricated shipments to stay kind of weak going forward, or I guess what I'm trying to say is do you think we've seen the bottom for fabricated shipments on a quarterly basis?

Mario Longhi

I think we've seen the bottom, but it will creep up slowly.

Michael Willemse - CIBC

And then on scrap maybe you mentioned this earlier, Barbara, can you give us what your monthly scrap buy was in the quarter and how your monthly buy was in April and May?

Mario Longhi

We don't typically give the exact numbers, Mike, but April was up, $5, $10, and May is not done yet, but for the quarter our thinking is around $300 a ton.

Michael Willemse - CIBC

And this is versus 266 in the last quarter?

Barbara Smith

Right; and some of that is the catch up of the flow through and then some of that are just price changes.

Michael Willemse - CIBC

And did you give shipments at Gallatin?

Barbara Smith

For the first quarter?--

Michael Willemse - CIBC

For the first quarter?

Barbara Smith

395,000 tons.

Operator

Your next question comes from the line of Mark Parr from Keybanc Capital Markets.

Mark Parr - Keybanc Capital Markets

I had a couple questions about your -- the order momentum. Mario, you had indicated probably SBQ was looking probably one of the stronger product areas, and you went through that, and I really appreciate the color by product. I was wondering but you also talked about pull through, maybe some early ordering that might take away from the second quarter. Could you give some color on what product categories might have experienced some pull through?

Mario Longhi

I think it would be probably merchants. That would be one that I would expect that maybe impacted going into the second quarter.

Mark Parr - Keybanc Capital Markets

What about how about the rebar market or the beam market?

Mario Longhi

Beam hasn't changed much to start with, but rebar has also been sort of weak, so rebar doesn't even have a very big demand for rolling cycle, so that will remain weak.

Mark Parr - Keybanc Capital Markets

All right, and then if I just could ask one other question on the scrap, we saw some pullback in scrap for the overall market in May. Do you have a sense of about what your buy looks like in May relative to April?

Mario Longhi

It would be just a guess, Mark at this point. We don't have anything materialized and you know how volatile that story is.

Mark Parr - Keybanc Capital Markets

Yes.

Mario Longhi

I think one more week and we'll have a better sense of that.

Mark Parr - Keybanc Capital Markets

Congratulations on the progress of manufacturing costs, and I'll second Barbara's vote for a little more in demand.

Operator

Your next question comes from the line of Randy Cousins from BMO capital markets.

Randy Cousins - BMO Capital Markets

A couple of questions; with reference to working capital, I guess your trade receivables were up about $100 million, inventories up $140 million, payables up $120 million, but your sales only went up $162 million. So is there a lot more working capital in the system to support a larger revenue base or as you continue to add revenues, are you going to still see some working capital crunch?

Barbara Smith

Well, it's not just the volume of inventory and receivables, it's also the price changes that occurred through the quarter, but we were expecting our big working capital increase to occur in the first quarter and sort of level out from there, Randy.

Randy Cousins - BMO Capital Markets

So can we add a couple hundred million dollars worth of revenue without having to add any additional working capital into the system?

Barbara Smith

No. You'll still have to add some, but levels were pretty low at the end of the year. Typically they are, and like I said, the big build was in the first quarter and a lot will depend on where prices go and where volume goes.

Randy Cousins - BMO Capital Markets

You guys have four labor agreements coming up this year if my memory serves me from your annual report. What's the status of the negotiations? What's happening there?

Mario Longhi

We have two negotiations ongoing, one in Brazil, one in Beaumont and it's progressing normally.

Randy Cousins - BMO Capital Markets

And you talked about export activity and the desire to increase export business. Could you give us any sense to sort of relative pricing of the export business? Is it a significant discount to your domestic business? Are you selling billets or are we in sort of a fortunate position where the export business is actually comparable in price to what you get in the domestic market? What's the relative pricing?

Mario Longhi

Well, the pricing of the international market has grown quite significantly over the last few months, so it has been similar when you add transportation and everything else to what is being practiced in the domestic market, and yes, the balance has meaningful amount of billets into the portfolio, Randy.

Randy Cousins - BMO Capital Markets

And then last question on you're spending $140 million on CapEx. Is there any projects in that 140 that you would sort of consider as sort of having a meaningful impact on 2010 results, or is this just like a 101 little small things that really fall more into the category sort of maintenance CapEx as opposed to something that's going to have a material or any kind of meaningful impact on the bottom line?

Mario Longhi

There are a couple of projects in our merchant and SBQ mills that we're going to be doing, but this is more than a year long project, so you should not expect to see anything coming from ahead for 2010, Randy.

Operator

Your next question comes from the line of Tim Hayes from Davenport & Co.

Tim Hayes - Davenport & Co

My questions have already been asked and answered. Thank you.

Operator

Your next question comes from the line of Brian Yu from Citi.

Brian Yu - Citi

With regard to the export tons, can you remind me of the 500,000 tons of last year maybe in a rough percentage terms, how much went into the Euro zone and I know it's a recent development, but with that currency falling so hard, how should we think about your ability to be competitive in that market?

Mario Longhi

Well, it really is in the Euro zone that was the most important region, two was Latin America was the most important region in case here Brian.

Brian Yu - Citi

And did you not export any to Europe or was it small?

Mario Longhi

No, no.

Barbara Smith

Very little.

Mario Longhi

Yes, it's negligible.

Brian Yu - Citi

That's helpful. Thank you, and then secondly just with your fabrication business, is that business geared up to grab some of the stimulus spending that we keep out hearing about it's going to come through in the back half and if it is, when should we start seeing that or when should you see it in your fabrication business?

Mario Longhi

If you look at the area that we normally operate, it will be directly benefited from this stimulus money hitting the road. Let's put it that way. I think that there will be an increase on the part of bridges sometime down the road, and I think that that will be an area where we should expect to see an uplifting in bookings.

Brian Yu - Citi

Do you have a I just think of maybe a rough lead time looking at bridge project where it is going to start nine months from now and the bidding would be occurring currently or twelve months, however long?

Mario Longhi

I'll suggest six months as a probably a point where we see some of that flow in.

Operator

Your next question comes from the line of Paul D'Amico from TD Newcrest.

Paul D'Amico - TD Newcrest

Thanks for the follow-up. I will be quick. Barbara, if you can just give me an update on CapEx was low in Q1, CapEx for 2010?

Barbara Smith

Yes. We're still holding to our earlier forecast of around $140 million with that being obviously back end loaded.

Paul D'Amico - TD Newcrest

And in terms of getting back to some commentary on the fabrication business, in terms of the relatively stronger order book, so pricing there typically follows rebar. Is there any chance that you guys at least in the near term can leverage off a bigger improvement in pricing versus just what happens in rebar?

Mario Longhi

It's fairly much is going to depend on what the competition does because it's really tight up there, Paul, and you just need to pick very carefully where you go.

Paul D'Amico - TD Newcrest

All right, and right now you would describe this still very competitive from what I understand?

Mario Longhi

Yes, definitely.

Paul D'Amico - TD Newcrest

And last question for you, Mario, and this might be early days as well, but we're turning to profit on the bottom line here, any prospects that you can give right now that the consideration for reinstatement of dividends in the second half of this year?

Mario Longhi

This is again a very constant topic on every border meeting, and as a matter of fact we have one next week, and it's part of the agenda.

Paul D'Amico - TD Newcrest

So you wouldn't be dismissive of that?

Barbara Smith

I think he is saying is continuously being looked at and reevaluated and clearly now that we have profit in the first quarter behind us that if the trends continue then there will be more confidence in reinstating it.

Paul D'Amico - TD Newcrest

So what else might shall be more clear, it isn't there is no concerns for the balance sheet right now with respect to the reinstatement of the dividend?

Barbara Smith

No.

Mario Longhi

No.

Operator

Your next question comes from the line of Rob Moffit from Longbow Research.

Rob Moffit - Longbow Research

I just wanted to circle back on the fab side. Are you guys seeing any kind of thinning of the [herd] fabrication, small shops closing up, and are you expecting that and should that maybe help the competitive environment moving forward?

Mario Longhi

Yes, we have seen some of that already happen and again I mentioned how important credit is. The longer it takes for credit to flow appropriately, the more the conditions for some more of those businesses to not being able to cope with it.

Rob Moffit - Longbow Research

Would that potentially be a meaningful driver of recovery or is the overall kind of thinning of the [herd] small right now?

Mario Longhi

No.

Barbara Smith

Well, you still have the three large fabricators with more than enough capacity to serve the market. It will clearly help, but it is still going to take a bit of time.

Rob Moffit - Longbow Research

And just one more quick one; regarding Gallatin, I guess how are order books looking there and are you expecting kind of a similar capacity run through in the next quarter?

Mario Longhi

Yes. Definitely, it should be sustained at this point.

Operator

(Operator Instructions). Your next question comes from the line of John Hughes from Desjardins Securities.

John Hughes - Desjardins Securities

Many have be answered, just a couple of quick ones. You noted the addition of several shifts I guess during the first quarter in terms of shift work, and I am wondering if; those additions still in place through the second quarter are?

Mario Longhi

Yes, they are, Jeff.

John Hughes - Desjardins Securities

And Mario, I'm quite intrigued again as we are every quarter by the fact that you continue to highlight the availability or actually the lack of availability of credit. It is a theme that as we work with European clients, it's a continuing theme throughout Germany in particular, and I am just wondering in your view how much of a limiting factor availability of credit is with regards to any restock phase that we may see or what -- how important is this to your end demand?

Mario Longhi

It's important because it drives two things. First of all, you don't have a higher demand to take the inventory to levels where our customer can respond better to whatever opportunities are out there. The second thing is that it keeps pushing the pricing down because they are really trying to go from hand to mouth every day. Their cash position will continue to weaken, and I think if this situation goes for another year, I think you might see an increase in some levels of bankruptcy.

John Hughes - Desjardins Securities

That's -- you're very much echoing a gain quite a number of years particularly in the European side. Last question, any long product price increases we've seen in the first quarter? Are they sticking through the second quarter so far?

Mario Longhi

Yes, they are, for the most part.

John Hughes - Desjardins Securities

Is there any discussion on any potential material price increases in Q2?

Barbara Smith

I think you're going to see as followed scrap changes, and I think the recent announcements have been where prices are going to be holding level at least for the next month.

Mario Longhi

I would offer to you, though, John that in general around the world the cost of everything is going up. So, some of these fluctuations I wouldn't take any of these fluctuations as ultimate because of the pressure is real. Some of the price increases on consumables that you are seeing, they are quite significant, and they are going to influence where the price of our products will have to go.

John Hughes - Desjardins Securities

Thank you very much indeed for the clarity.

Operator

And there are no further questions at this time. Ms. Smith, Mr. Longhi, I turn the call back over to you.

Mario Longhi

Thank you, Christopher. I want to thank everyone for the interest and for participating in this call. Hopefully we were able to give you a little more clarity on the material that we sent earlier today, and if there is any need feel free to call us, and we'll be more than pleased to give you more clarification, but again, thank you so much and look forward to talking to you again next quarter.

Operator

This concludes today's conference call. You may now disconnect.

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