CMC grows earnings in fiscal Q3
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CMC grows earnings in fiscal Q3

CEO says quarterly success showcases company's “robust business model, focus on providing best-in-class customer service and commitment to our employees."

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Irving, Texas-based Commercial Metals Co. (CMC) has announced financial results for its fiscal 2020 third quarter ended May 31. Quarterly earnings from continuing operations were $64.2 million, or 53 cents per diluted share, on net sales of $1.3 billion compared with prior-year-period earnings from continuing operations of $78.6 million, or 66 per diluted share, on net sales of $1.6 billion.

The company incurred a $6.2 million net after-tax charge for facility closure expenses and asset impairments primarily related to the curtailment of a West Coast fabrication facility in the third quarter. CMC says this decision was made in accordance with its ongoing network optimization efforts and is expected to provide cost benefits in future periods. Excluding these expenses, adjusted earnings from continuing operations for the three months ended May 31 were $70.4 million, or 59 cents per diluted share. This compares with adjusted earnings from continuing operations of 67 cent per diluted share for the three months ended May 31, 2019, the company notes.

Barbara R. Smith, Chairman of the board, president and chief executive officer of CMC, says, "While the effects of the COVID-19 crisis impacted our business throughout the third quarter, CMC acted early and swiftly to ensure the safety of our employees, the continuity of our operations and the uninterrupted service to our customers. Our entire organization can be proud of these efforts and their results. We were able to keep our workforce fully employed and safe. We also avoided any meaningful disruptions to operations and experienced no loss of productivity while closely following CDC (Centers for Disease Control and Prevention) guidelines at all of our locations."

She adds, "In the face of unprecedented global uncertainty, we concentrated our focus on the elements of our business within our direct control. Because of these efforts, CMC achieved sequential earnings growth while increasing our market share in many products, continuing to reduce our operating costs and further strengthening our balance sheet. Our success during the quarter underscores several of CMC's best qualities—a robust business model, focus on providing best-in-class customer service and commitment to our employees."

CMC says its liquidity position as of May 31 strengthened further, with cash and cash equivalents of $462.1 million and availability under the company's credit and accounts receivable facilities of $604.2 million.

On June 16, the board of directors declared a quarterly dividend of 12 cents per share of CMC common stock payable to stockholders of record July 6. The dividend will be paid July 20 and marks 223 consecutive quarterly dividend payments, the company says.

CMC’s Americas Recycling segment recorded an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $1.7 million for the third quarter of fiscal 2020 compared with adjusted EBITDA of $12.3 million for the prior year’s quarter. The reduction reflected a challenging environment of lower shipments and decreasing average selling prices, the company says. Volumes were affected by sharply reduced demand from third-party mill customers. Inflows of material to the company’s yards were slowed by broadly weak manufacturing activity and low prices that disincentivized collection of obsolete scrap. Compared with the year-ago period, ferrous shipping volumes and selling prices were down 21 percent and 15 percent, respectively.

CMC’s Americas Mills segment recorded adjusted EBITDA of $133.2 million for the third quarter of fiscal 2020, a decrease of 16 percent compared with adjusted EBITDA of $158.1 million for the third quarter of fiscal 2019. Despite the impact of COVID-19 on the U.S. economy, volumes declined only 4 percent compared with the prior-year period because of continued strength in construction activity, CMC says. Metal margins contracted by $19 per ton year over year, as the $64 per ton reduction in average selling price was only partially offset by lower scrap costs. Results in the third quarter of fiscal 2020 benefited from what CMC says was the best conversion cost performance since its November 2018 rebar asset acquisition. Conversion costs per ton were 7 percent below the postacquisition average.

The company’s Americas Fabrication segment recorded adjusted EBITDA of $31.9 million for the third quarter of fiscal 2020, marking a significant improvement from an adjusted EBITDA loss of $23.3 million for the third quarter of fiscal 2019 primarily because of expanded selling price margins over rebar cost, CMC says. The third quarter of fiscal 2020 marks the segment's best quarterly profit performance in nearly 12 years and highlights the beneficial impact of the fixed-price contract backlog of its fabrication business during a period of economic slowdown. As in prior quarters, third quarter adjusted EBITDA did not include the benefit of the purchase accounting adjustment related to amortization of the acquired unfavorable contract backlog reserve of $4.4 million. The trend of year-over-year increases in selling price continued during the quarter, as CMC shipped at an average price of $966 per ton. This represented a significant rise of $41 per ton, or 4 percent, compared with the prior year period, according to the company. Backlog remains strong in relation to quantity and pricing.

CMC’s International Mill segment in Poland recorded adjusted EBITDA of $14.3 million for the third quarter of fiscal 2020 compared with adjusted EBITDA of $24.1 million for the prior-year quarter. Metal margins were affected by continued import pressure. Despite market challenges caused by COVID-19, CMC says shipment volumes decreased only 1 percent on a year-over-year basis, driven by resilience in the Polish construction sector and market share gains in merchant products.

"We expect construction and infrastructure activity to remain resilient during our fiscal fourth quarter," Smith says. "Our finished product volumes are supported by strong fabrication backlogs, which stood near record-high levels at May 31. Customers' sentiment about their own summer construction workloads is also encouraging. CMC's net debt-to-EBITDA ratio of 1.2x and substantial cash and equivalents on hand give us great confidence in our ability to withstand these challenging times and provide us with significant flexibility in our capital allocation decisions."

Commercial Metals Company and its subsidiaries manufacture, recycle and market steel and metal products, related materials and services through a network of facilities that includes seven electric arc furnace (EAF) minimills, two EAF micromills, two rerolling mills, steel fabrication and processing plants, construction-related product warehouses and metal recycling facilities in the U.S. and Poland.