May 4, 2012
Operator
Greetings, and welcome to the Haynes International, Inc. Second Quarter Fiscal Year 2012 Earnings Conference Call.
[Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Maudlin, Controller and Chief Accounting Officer for Haynes International.
Thank you. Mr.
Maudlin, you may begin.
Daniel Maudlin
Thank you very much for joining us today. With me today, as usual, is Mark Comerford, President and CEO of Haynes International; and Marcel Martin, Vice President and Chief Financial Officer.
Daniel Maudlin
Before we get started, as always, I would like to read a brief cautionary note regarding forward-looking statements.
Daniel Maudlin
This conference call could contain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. The words believe, anticipate, plan and similar expressions are intended to identify forward-looking statements.
Although we believe our plans, intentions and expectations regarding or suggested by forward-looking statements are reasonable, such statements are subject to a number of risks and uncertainties, and we can provide no assurances that such plans, intentions or expectations will be achieved. Many of these risks are discussed in detail in the company's filings with the Securities and Exchange Commission, in particular, Form 10-K for fiscal year ended September 30, 2011.
Daniel Maudlin
The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Daniel Maudlin
Thank you very much for listening. And now I will turn the call over to Mark.
Mark Comerford
Thank you, Dan. Good morning, everyone, and thank you for joining us today.
Hopefully, you've all seen the press release and had a chance to review it. We'll follow our standard agenda in today's call.
I'll open with comments about the business and our end markets and then Marcel will give you greater detail on the financial results.
Mark Comerford
Our second quarter of fiscal 2012 closed with net revenue of $158.9 million, up 14.2% from the second quarter of fiscal 2011. Net income more than doubled to $15.2 million, or $1.23 per share.
Mark Comerford
Backlog held up despite a strong invoice level, increasing just under 1% to $264.2 million. If you remember in our last call, we also mentioned that our first fiscal quarter was impacted by some planned and unplanned equipment outages.
And as we discussed in the first quarter call, we did manage to make those up in the second quarter.
Mark Comerford
Also, as we've been doing recently, I want to give you a quick update on the April backlog. We shipped more than we booked.
Our book-to-bill was slightly under one in April and the backlog today is now at about $261 million. So it's similar to what we've been seeing over the past few quarters.
The backlog is varied between $240 million and $290 million range. In fact, in recent quarters, it's been more in the, I'll say, the $250 million to $270 million range, as we manage our product mix.
Mark Comerford
Also, last year, when we were building the stronger backlog, customers were placing longer-term blanket orders to replenish depleted pipelines from the earlier years, the crisis years. And effectively, reserved their spot in our manufacturing queue.
In the past 6-plus months, business has been more transaction-oriented, as customers are more comfortable with their inventory levels and are keeping an eye on commodity prices.
Mark Comerford
Looking at our key markets, net revenue in the Aerospace market for the second quarter of 2012 was $61.9 million, up 26.4% over the second quarter of '11. Aerospace accounted for roughly 39% of our revenue during the quarter.
Mark Comerford
The Aerospace market continues to perform well as demand for engine materials and hydraulic tubing are being driven by the end-user requirements. Both Boeing and Airbus backlogs remained strong and the need for greater fuel efficiency and cost efficiency is driving demand for better engine designs and materials.
Mark Comerford
In recent meetings with designers, new more fuel-efficient engine plant platforms are progressing well. As a result, demand for HAYNES 282 is increasing.
Mark Comerford
And just to give you a rough idea. I've mentioned previously that we can't get into specifics because of a lot of the nondisclosure agreements we have with the manufacturers.
The HAYNES 282 volume will double this year over last year and we expect it to at least double and likely triple again within the next 2 years. And this time period that I've stated for you is still well ahead of some of the new engine platforms that we expect to move into production in the 2014, 2015 timeframe.
Mark Comerford
Anyway, so we're very pleased with where we are with 282 and where it's positioned on these platforms. Our backlog in the Aerospace market slipped during the second quarter, down about 0.7%.
We remain very confident that 2012 will be a strong year for our Aerospace products and momentum is expected to build in 2013, as ramp-up plans are being suggested by our key accounts and end-users.
Mark Comerford
In our Chemical Processing market. Net revenue for the second quarter was $37.8 million, up 1.6% from last year.
CPI accounted for 23.8% of our total revenue in the quarter. Business in this market remains very competitive for large project-related applications and our results reflect much higher selling prices and much lower volumes than a year ago, as a key high-volume project from 2011 has not repeated, but transactional MRO business was strong in the quarter.
Mark Comerford
Our backlog in this area rose 15% during the quarter, mainly due to new applications. And I believe some customers took advantage of the lower nickel prices.
Nickel today, I believe, went -- is below $8 a pound. We saw quite a bit of activity moving below $10 and below $9 during the quarter.
Mark Comerford
As I just mentioned, we had a major new application last year that did not repeat this year. We may see a repeat business in this application in the future.
But right now, that market is pretty much flush with capacity so we do not have any indications of a timeframe. We also had a second major new application from last year in this market that will repeat this year.
Mark Comerford
In fact, we have the order on the books now and the material is in process. It will likely ship in the late third or early fourth quarter.
Our Application Engineering and Marketing groups have done an excellent job this year filling the gap of that first nonrepeating application, as I've mentioned. For our revenues to be holding up in this market without that application, is, in my opinion, testament to the strength of our pipeline of prototype applications in alloys like HASTELLOY C-22HS, HASTELLOY G-35 and HASTELLOY HYBRID-BC1, and our people are out there developing these applications with customers.
It's interesting, sometimes these applications hit and sometimes there are gaps, especially in reorder patterns. It's critical to have these applications in the pipeline in the sales and marketing and technology people as well as the production personnel in our plants who can respond and step up when these applications do hit.
Mark Comerford
Turning to the Land-Based Gas Turbine market. Our net revenues totaled $32.2 million during the quarter, up roughly 16% from last year.
This market was 20.2% of our total revenues for the quarter, and backlog increased 1.7%. End-users remained bullish on hitting their shipping targets in this market, especially in the U.S.
where natural gas prices remained at or near multiyear lows. We've seen increased quote activity globally with OEM.
And we're having success booking orders with non-U.S. manufacturers, as well as the US-based manufacturers.
Mark Comerford
Similar to CPI, this market remains very transaction-oriented. However, we have seen some slight increases in longer-term blanket orders.
Compared to 6 months or longer ago, our customers are indicating greater confidence.
Mark Comerford
Finally, our other markets had net revenues of $23.1 million in the quarter, up 5% from the second quarter of fiscal 2011. These markets accounted for about 14.5% of our total revenue in the quarter.
Mark Comerford
Backlog in this area fell about 8.7%. As we said previously, this market is project timing dependent and we're seeing increased activity in the industrial heat treating and FGD quoting areas.
That's usually a good precursor to increased order entry. Pricing in this area remains very competitive and transactional.
Mark Comerford
With that, let me turn it over to Marcel for details on our financials.
Marcel Martin
Thanks, Mark. I will start with the year-over-year comparisons of margin contribution in cost between the second quarters of fiscal 2011 and 2012.
The combination of the noted revenue and cost changes between last year's and this year's second quarter as discussed in the 10-Q and press release resulted in a gross profit margin in the second quarter of fiscal 2012 of $34.5 million, compared to $20.6 million in the same quarter a year ago, an improvement of $13.9 million between periods. The volume contributions to the gross margin improvement was approximately $200,000 and the change in product pricing netted against the change in product costs per product pound contributed $13.7 million to gross margin improvement.
Marcel Martin
The result was that gross profit margin, as a percentage of net revenues, was 21.7% in the current quarter, compared to 14.8% in its comparable period of last year.
Marcel Martin
The contribution to the improved gross margin from the volume change for the second quarter fiscal 2012, as compared to the comparable period of fiscal 2011, was due to the volume increasing between quarters approximately by 1.6%. The most significant contributor to the gross margin improvement for this year's second fiscal quarter compared to the prior year was the increase in the average gross margin per pound of $2.10 or in total for all pounds, $13.7 million.
Marcel Martin
Last fiscal year, second quarter gross margin per pound was $3.23 per pound, and this year's second quarter gross margin per pound was $5.33, a 65% increase between years.
Marcel Martin
The year-over-year improvement of performance in the second fiscal quarter reflects the improving economic environment and the favorable impact on the markets we service. It also highlights the effect of continuing to improve product mix by managing what markets we sell into, what forms we sell, what alloys we sell and our continuing effort to improve the manufacturing cost structure.
Marcel Martin
SG&A including R&D for the current quarter was $11.5 million, an increase of $0.5 million or 4.3% compared to the prior year fiscal second quarter. Factors contributing to higher SG&A costs in the second quarter of fiscal 2012, compared to the last year, included additional headcount, salary increases and increased marketing cost due to the increasing levels of activity.
Marcel Martin
From last year's second quarter to this year's second quarter, SG&A plus R&D as a percentage of sales, declined from 7.9% to 7.2%. The forecast for fiscal 2012 of SG&A including R&D continues to be approximately $45.2 million for the year.
Marcel Martin
For the second quarter of this fiscal year, pre-tax income was $23 million compared to pre-tax income of $9.6 million in the second quarter of fiscal 2011.
Marcel Martin
For the second quarter of fiscal 2012, there was tax expense of $7.9 million versus a tax expense of $3.3 million in the second quarter fiscal 2011. The effective tax rate for the second quarter fiscal 2012 was 34.2%, compared to 35% in the comparable period of last year.
The rate for this year was lower primarily due to reduced state taxes. It is anticipated that the rate for fiscal 2012 will be approximately 34%.
Marcel Martin
Net income for the second quarter fiscal 2012 was $15.2 million, or $1.23 per diluted share, compared to net income of $6.2 million or $0.51 per diluted share in last year's fiscal second quarter.
Marcel Martin
Gross margin from between the first and second quarters of fiscal 2012. The combination of the improved volume, revenue and cost changes between quarters resulted in gross margin in the second quarter fiscal 2012 of $34.5 million compared to $23.5 million in the first quarter of this year, an improvement of $11 million.
A higher gross margin quarter-to-quarter is a result of an increase of volume between quarters of 1.3 million pounds or 26.1% and the favorable effect of an improved average second quarter gross margin per pound of $5.33 versus the first quarter average gross margin per pound of $4.58, which is an improvement of $0.75 per pound between quarters.
Marcel Martin
Volume improvement to gross margin between quarters equals $5.3 million, and the net pricing in cost change between quarters contributed $5.7 million to additional gross margin. Result was that gross margin, as a percent of net revenues, was 21.7% in this current quarter compared to 18.2% in the first quarter of this fiscal year.
Marcel Martin
Backlog dollars were $264.2 million at the end of March, down by $9.2 million or 3.5% from the beginning of the year due to sales for the 6-month period running slightly ahead of the order entry with the same period. First quarter order entry activity was down due to the traditional seasonality of the holiday season and year-end inventory reduction by our customers.
Marcel Martin
In addition, order entry activity in the first quarter was negatively impacted by the global economic uncertainty and influenced by the European sovereign debt crisis.
Marcel Martin
Order entry in the second quarter, however, improved and slightly exceeded sales, which contributed to the recovery of the backlog in the second quarter as compared to 12/31/2011 balance. Overall, the current backlog and order entry rate is expected to support the forecasted performance for the balance of the year.
The April backlog declined slightly from the backlog at the end of March, with the balance of the backlog at April 30, 2012, equaling $260.8 million (sic) [$261.8 million], a decrease of $3.4 million from March 31, 2012. The backlog pound at April 30, 2012, were approximately 8.8 million pounds with an average selling price of $29.59.
The order entry for April was down from the average monthly order entry run rate from the previous quarter and continues to reflect a broad product mix, including billet product, which contributed to the reduction in backlog average selling price of $0.26 per pound from March to April.
Marcel Martin
The company continues to focus on improving working capital management with an emphasis on inventory through initiation of full and lean manufacturing techniques and capital improvements.
Marcel Martin
Inventory increased by approximately 24.1 million during the first half of the year, primarily due to material in process that relates to project business as it's expected to ship in the third and fourth quarters of this year. It is anticipated that through the third and fourth quarters, inventory will decline and terms will improve in approximately a turn rate equal to the rate at the end of last fiscal year.
Marcel Martin
Capital spending. In the first half of fiscal 2012, the company spent $12.7 million on capital projects, which include the continuation of work on the 4-high Steckel rolling mill, start of the installation process for an additional electroslag remelt furnace, upgrades of the vacuum melt furnace processing system instrumentation, upgrades to the research and technology laboratory equipment and the upgrade to the information technology system.
These projects are expected to improve quality, enhance working capital and reduce cost and increase capacity.
Marcel Martin
In addition, the company is currently evaluating further increases to spending beyond levels previously disclosed in the company's most recent Form 10-K. This additional spending for new equipment is being contemplated to enable the company to take advantage of the continued strong growth in the markets it serves.
Such spending will be expected to increase capacity, improve product quality, enhance manufacturing efficiency.
Marcel Martin
Let's comment on liquidity. In addition to the cash available of $51.4 million at March 31, 2012, the company has a working capital facility of $120 million, which can be increased to $170 million at the company's option.
This provides total liquidity of $220.1 million, which is expected to enable the company to continue taking advantage of the improving economic environment and any other growth opportunities that become available.
Marcel Martin
The outlook for the balance of the year. Net income for each of the third and fourth quarters of fiscal 2012 is currently expected to approximately equal the net income of the second quarter fiscal 2012, without the inclusion of the $1.1 million net income carryover from the first quarter to the second quarter.
Marcel Martin
We are providing guidance indicating that net income to the third and fourth quarters of fiscal 2012 will be approximately equal. However, the project bids which is currently planned to ship equally between the third and fourth quarters may not ship as planned, which could ship net income between the third and fourth quarters.
Marcel Martin
In summary, even though the economic environment continues to be uncertain, the company's performance continues to improve. The company's balance sheet is solid with no debt, and liquidity is expected to be sufficient to fund our obligations and support the growth of the business on a prospective basis.
We have a business plan and continue to perform to that plan. Lastly, the current backlog represents a strong starting point for the second half of fiscal 2012.
With that, let me now turn back to Mark.
Mark Comerford
Thank you, Marcel. We've got a number of projects going on in the mill, 5s projects.
I like the discipline that they're giving our people and more importantly, the discipline it's giving us in our processing and the way we manage our work. There's some great lean projects going on that are helping us with our velocity, especially on high volume materials.
Same thing, we've got a number of people in Green Belt and Black Belt training right now and I really like the results we're seeing. But I also like the questions that we're asking.
So a lot of good things going on there, from the manufacturing side of the business, as far as getting more efficiency. We're grinding out more capacity all the time from our existing operations and significantly better quality, good cost structures as we move forward.
Also like what we're seeing on the commercial side of the business. I think you're seeing that in some of the pricing management that we're getting right now.
Dropping nickel is a concern, but I'm still very pleased with the way our people are managing the mix.
Mark Comerford
We expanded gross margin percentage north of 20% for the first time since the 2008 timeframe. As Marcel mentioned, our balance sheet remains very strong, no debt.
That allows us the flexibility to commit to the needs of our customers and meet some market opportunities that we're finding out there. We also continue to use these process improvements and capital expansion projects to meet current and future needs of our target markets.
Mark Comerford
With that, let's go ahead and open it up to your questions.
Operator
[Operator Instructions] Our first question is coming from the line of Edward Marshall with Sidoti & Company.
Edward Marshall
First question is on gross margin. You talked a lot about it and gave it a lot of color.
You are seeing lower pricing probably than you did last cycle in some of the markets, and you're not getting the same vipo [ph] spread. And I understand that most likely, some of the costs were allocated to 1Q, and that's why you're seeing a hefty margin in this quarter.
But the trends are going in the right direction. It seems like the equipment upgrades are paying off for you.
I mean, how much do you attribute to that? And how much do you attribute to maybe volume and then of course, maybe just the overall market trend, what's going on in the market in general?
Marcel Martin
I think overall one of the things we keep focusing on, we remind people is that, we are going through a process of trying to improve our product mix. And I think you see that reflected -- Mark spoke to a specific project in our last year that didn't repeat this year.
That was a project, for example, that was at the lower end of our alloy value and at the lower end of our conversion, our added value curve. That project got replaced with a number of additional projects of higher value alloys and a more complex value-added process.
So what you see happening is that, even though for, and you'll see this in our cost structure. Over the course of the year, last year into this year, our raw material cost did increase over the course of the year because of the mix change.
But more importantly, and to your point, Ed, our conversion cost remained equal or actually declined over the course of the year with a higher value product mix. And again, it's difficult to quantify it except to say that the cost, conversion cost, excluding the material was either neutral or declined by probably 5% to 7% through the course of the year.
And that decline was precipitated by volume, obviously, but also, more importantly, by the contribution, more equipment processing. Did that help at all?
Edward Marshall
Yes, it does.
Mark Comerford
Yes, Ed, let me add to it just to take a little more specific example. When Haynes redid the furnaces, if you remember, we had the coal finishing project back in 2008, the objective was to increase the capacity of the coal finish area on the order of 30% at the time.
Right now, we've sold all that capacity and we're finding more capacity available there, than I think we expected was available. So you have -- part of your question was, what's the new equipment doing for us?
I'd say the $25 million or $30 million that was spent in upgrading the coal finishing area there has returned upwards of $100 million worth of revenue. And you know what our margin levels are.
So that's a great project that's going on. Also, just as an aside to that, this is a little bit more difficult to measure, so it's kind of a broad measurement we look at.
We look at the number of therms. So the energy inputs we use for output feet or pounds, and that number is holding fairly steady over this period.
So it's not the cost of the energy or things like that, but it's the number of therms used, which gives you an indication of the old furnaces and just how much heat you were losing or how inefficient those old furnaces were. So the CapEx moves that were made in the past -- we're definitely benefiting from those right now.
Edward Marshall
And I'm assuming you put the most critical applications first and that you may not get the same kind of, you hope to, but may not get the same kind of return that you saw earlier on in some of the earlier projects?
Marcel Martin
Well, actually, I think, we were -- you appreciate where we were for a number of years. And we continue to find that the CapEx projects that we invest in have a substantial return probably in excess of 35% or greater.
And everything we find that we can do for relatively nominal investment amounts has a significant impact on the organization. So Mark picked out a perfect one.
But we like to think that we continue to evaluate opportunities of equal value.
Mark Comerford
Yes, and Ed, just that specific item, the furnaces. I'd been here -- before I came to work here, I'd been here and then walked through the mill a few times and I'm certain that the return we could get from replacing those furnaces was definitely the #1 reason for doing it.
I think very close to it, the #2 reason was probably those furnaces were pretty close to almost falling in on themselves. It was a necessary capital move regardless of what the return was going to be.
Edward Marshall
And so, I guess, segue to the next question and that you mentioned a few things about mix and the gross margin. How close are you to say a fourth leg of a stool and I'm assuming that you'll be somewhat conservative about kind of your approach to those new markets that you enter into.
And we've had good commentary, good color in previous quarters, where does all that stand? And I know your comments about some of the other alloys earlier in the call?
Marcel Martin
Yes, the energy market has been doing great for us, that might be the best way to put it. And when I say energy, I'm speaking very broadly.
And I'm speaking also separately from land-based gas turbines. Be it down hole applications, either on the exploration side, we don't have a great traction yet on the exploration side but we've got a lot of interest and especially in some of the newer alloys.
On the production or delivery side, we've had some pretty good hits in the last 2 years. And that's the marketplace that Haynes really hasn't participated in for, I'll say, 10 or 15 years.
So that's been very, very kind to us. Also, the alternative energies or the renewables, we've had some success on especially I'll say in the solar area.
Both in, I'll say transport and storage systems, that has been good, not as good as the down oil and gas drilling, at least from a volume point of view. But still very nice application wins in -- especially the transport and storage area for solar.
And also we've had some success further down the line in the solar processing, which would be the chemical refinement of some solar materials. I'm being very broad in this discussion but we've got a lot of non-disclosure agreements that I can't, I can't violate by discussing this.
But that gives you an idea, if you're talking about a fourth leg of the stool, the energy market itself has been very good to us in the last 2 years.
Edward Marshall
And I assume the energy market, saying the oil and gas kind of exploration production, will probably be a little bit closer than maybe some of the alternative energy stuff that has longer kind of build cycle et cetera.
Marcel Martin
Yes, and that's probably the best way to put it. The oil and gas area is a lot like the Aerospace industry.
When they need something, they've got a problem, they need it today. And we've been very fortunate.
We got some alloys that are meeting the needs of these hotter, more sour environments.
Edward Marshall
Are you selling any more than just kind of introductory kind of, say, taste -- the market's tasting what your product is? Or are you seeing kind of decent-sized orders coming through?
Or is it still just kind of testing the waters?
Marcel Martin
Decent-sized orders coming through.
Edward Marshall
Excellent. And then, finally, I'll save all the sappy stuff for the year-end.
And we like having Marcel, but I saw the announcement earlier. How's the CFO search going?
I mean, is there anything we can kind of talk about surrounding that at all?
Marcel Martin
It's going well. We're outlining the plans.
We met with the board and we formed a committee. We're doing internal in and external search.
Honestly much like the CEO search that was conducted here when I came in 3.5, 4 years ago.
Operator
[Operator Instructions] Our next question is coming from the line of Dan Whalen with Auriga USA.
Daniel Whalen
I was just wondering if we could maybe walk through how the quarter progressed. And we've heard from other companies that the quarter started out Jan, Feb, pretty strong and then April took a little of a pause, possibly the first part of the month was a restocking following a 4Q or calendar 4Q de-stocking.
And then we saw a little bit of a pause in April. Is that similar to what you guys saw or a bit different?
Mark Comerford
I tell you what, Dan, if you don't mind I'll bore a little bit of macro on this end as well as the Haynes specific. If you think of last year, 2011, our year started off absolutely gangbusters.
If you remember, we -- and you saw the backlog, really go by $100 million plus early in the year. That was everybody placing those blanket orders and reserving their spot in the queue.
So as we move through the balance of the year, order entry remained good and then as we got into the first quarter of this year, I wouldn't say it backed off, it held pretty much even if you look at our backlog that we give you, book-to-bill pretty much settled in right at one all the way through. I guess on a macro side -- that's the Haynes-specific side -- on the macro side, I'd watch that nickel market.
And nickel market below $8 a pound tells me that this marketplace, the mills, especially stainless, right now just aren't drawing the nickel out of the system that the miners are producing. Now I could be wrong on that.
But does it tell me that there's a soft patch coming? I really can't say.
In our specific markets, talk about the Aerospace, the Land-Based Gas Turbine and the CPI, if you look out in '13 and '14, these build rates are there. Boeing, I think shipped 137 commercial aircraft in the first quarter.
That puts them at a -- gosh, and I think they ship another 51 in April. I mean, they're hitting the ramp-ups that they said they would it.
Airbus, I haven't seen the -- they don't announce until I think May 16 for first quarter. But I think their number through February was something like 91.
So again, these guys are shipping what they said they would ship. And that's a great indication especially out into the '14, '15 timeframe.
There's a lot of headline noise out there right now. So I think, at least what we're seeing and when I talk with customers and meet with customers, they're saying, "Yes, we got some orders that we're going to place.
But right now, we're holding off." And that's what I mean, when we're saying right now the environment is very transactional.
It's that 1:1 book-to-bill, that's a lot of what we've been seeing. Anything else, Marcel?
Marcel Martin
Yes, I think that's right on point.
Mark Comerford
Does that help you, Dan?
Daniel Whalen
No, no, that's very helpful. And Mark, you were talking about the Haynes 282.
Then after that you mention either an application or a potential project -- major that could be shipped in late 3Q or 4Q. Is that kind of baked into your current second half guidance?
Or would that be incremental?
Mark Comerford
The third and fourth quarter item I mentioned under the CPI market, if you remember. That's a big project that we'll be shipping in the third and fourth quarter, and that's in our numbers.
Daniel Whalen
In your numbers, okay, great. And then, lastly, just about the incremental CapEx that you, I guess, you're considering.
Any color you can provide in terms of how much incremental capacity that could provide?
Mark Comerford
Right now, that's something we're considering with the Board. We're looking at specific areas where the markets are expected to grow and how can we support them.
If you take a look at our product range, I think it's fair to say that the Aerospace market is going to be a driving force. Again, based on what I just said about Airbus and Boeing, and think of all those engines.
Right now, were running in that 2,500 engine a year type of run rate. And these guys have made no secret that, that's going to 3,500 engines.
So far, they've been doing what they say. And the same thing with Boeing and Airbus, if you take the number of commercial aircraft deliveries in places like Airline Monitor, what those expectations are.
And what we do is we walk right through every piece of equipment in our alloys and we put capacity numbers on them and where we are today and what we can get from better techniques and where we think we're going to do some investments. So that's really how -- that's what our approach is to this.
Daniel Whalen
Okay. Then if I could ask one more, just to help me -- I may have missed this in the release.
But just to help me, first quarter you shipped about 5.1, second quarter you shipped about 6.5 million pounds. Can you help me just normalize, I mean, excluding the nonrecurring shipments from the extended outages, what would the true fiscal second quarter volume numbers would have looked like, excluding the nonrecurring issue?
Marcel Martin
We're talking about 400,000 pounds of product, approximately, about $10 million.
Daniel Whalen
Okay. So we're looking at a true number of about 6.1.
And then, any color, just so I can kind of back into what capacity is, what's your utilization rates were for the quarter?
Marcel Martin
I think right now, this past quarter, we're probably running around, anywhere, depending on the form of between 80% to 85%. Again, from the perspective of capacity that we could bring -- gain some additional volume on would be in the sheet area.
We have capacity available there yet that we could bring on or we could produce to probably in the plate also. Less so on the tubular side.
I mean, we're running pretty full, we're at the top end of our capacity on the tubular side. As far as billet, slab goes, we have probably several million pounds of additional -- on an annualized basis of capacity available there.
And also [indiscernible] side, we've got substantial amount of capacity available.
Daniel Whalen
Okay. So I mean, if I'm just kind of backing into some numbers, if you annualize your 6.1 million, it gets you to roughly 25 million.
You're operating at 80% to 85% utilization rates. So that means you got capacity of about, call it 29 million to 31 million.
Is that the right way to...
Mark Comerford
I'd be a little bit -- I guess I'd look at it based on what we did in the fourth quarter from a producer sales perspective. And we're probably -- when you look at our primary products, we're probably a bit lower than that.
I mean, not a lot lower. But I'd say maybe closer to the 27 million, 28 million range.
Daniel Whalen
Okay, okay. So in the next 12 months, you're not really going to be capacity constrained and you're planning ahead for the secular and cyclical patterns that we're so excited about.
Mark Comerford
Yes, Dan, that's a lot -- with what the bookings looked like right now, and frankly, that's code for when we say managing the mix.
Operator
[Operator Instructions] Our next question is coming from Edward Marshall with Sidoti & Company.
Edward Marshall
I just had a quick follow-up, if I could. On the -- you talked about improving mix in the overall business and looking for some of the, and putting some of the lower product mix stuff to the side.
And I think your commentary was on billet in the backlog, and that brought down some of the lower pricing. What was the decision to take that project?
I mean, was it -- obviously, knowing billet, it's a little lower-grade. Was it specific customer?
Was it part of a big order? Like maybe just help me understand kind of the mix equation that we're working to and then taking the lower quality business as well.
Mark Comerford
Yes, it's a little bit of everything, Dan. And by lower quality, we mean lower selling price, not necessarily lower margin, okay?
There's just fewer operations you have to put on to the product to get it shipped. And the nice thing about something like a billet, that scenario where there is a lot of capacity available.
Okay?
Operator
Gentlemen, I'm showing there are no further questions at this time. I would now like to turn the floor back over to management for closing remarks.
Mark Comerford
Thank you, Claudia. Thank you, everyone.
Thanks for your time today and thank you for your interest and support of Haynes. We look forward to updating you again in the next quarter.
Bye-bye.
Operator
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.