Steel minimill operator Commercial Metals Co. (CMC), headquartered in Irving, Texas, has announced earnings from continuing operations of $82.8 million, or 69 cents per diluted share, on net sales of $1.4 billion during the first quarter of its 2020 fiscal year, which ended, Nov. 30, 2019. This compares with prior-year period earnings from continuing operations of $19.4 million, or 16 cents per diluted share, on net sales of $1.3 billion. Net sales increased 8 percent year over year, which the company attributes to its growth strategy and strong fundamentals in its core markets.
The company ceased melting operations at its Rancho Cucamonga, California, facility in October 2019, which resulted in a net after-tax charge of $5 million in the quarter. The decision was part of CMC’s ongoing network optimization efforts and was made in response to regulatory costs and lower rebar prices, according to published reports about the closure. Excluding these expenses, adjusted earnings from continuing operations were $87.8 million, or 73 cents per diluted share. This represents a 109 percent increase compared with adjusted earnings from continuing operations of 35 cents per diluted share for the three months ended Nov. 30, 2018, the company adds.
Barbara R. Smith, CMC president, CEO and board chair, says, “The first quarter marked the best financial performance from our strategically repositioned portfolio of operations. This milestone reflects the continued health of the U.S. nonresidential construction sector, which contributed to strong performances in our Americas Mills and Fabrication segments. We believe the metal margin performance seen over recent quarters highlights the stability of CMC’s rebar and long product offerings compared to the broader steel market.”
She adds, “Strong earnings and working capital management during the quarter allowed us to further delever our balance sheet. Over the past 12 months, we have made debt repayments of $173.8 million.”
CMC says its liquidity position as of the end of the quarter remained strong, with cash and cash equivalents of $224.8 million and $659.9 million available under its credit and accounts receivable facilities.
Jan. 2, CMC’s board of directors declared a quarterly dividend of 12 cents per share of CMC common stock payable to stockholders of record Jan. 15. The dividend will be paid Jan. 30 and marks 221 consecutive quarterly dividend payments, according to the company, which offered a breakdown of its quarterly performance by business segment:
Americas Recycling segment
CMC says its Americas Recycling segment recorded adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $3.4 million for the first quarter of fiscal 2020 compared with adjusted EBITDA of $15.4 million for the first quarter of 2019. The decrease reflects a challenging price environment in which average ferrous prices decreased by 33 percent on a year-over-year basis, the company notes. Low prices also reduced material flows during the quarter.
Americas Mills segment
The company’s Americas Mills segment recorded adjusted EBITDA of $155 million for the first quarter of fiscal 2020, an increase of 36 percent compared to adjusted EBITDA of $113.9 million for the first quarter of fiscal 2019. Volumes increased 42 percent compared with the prior-year period, primarily because of additional production from acquired facilities. Metal margins expanded $10 per ton year over year, CMC says, as a reduction in scrap costs more than offset a $71 per ton decline in average selling prices. Results in the first quarter also benefited from the company achieving its lowest conversion costs since the Nov. 5, 2018, acquisition, CMC says.
Americas Fabrication segment
CMC says its Americas Fabrication segment recorded adjusted EBITDA of $17.5 million for the first quarter of fiscal 2020, marking a significant improvement from an adjusted EBITDA loss of $37 million for the first quarter of fiscal 2019. As in prior quarters, first-quarter adjusted EBITDA did not include the benefit of the purchase accounting adjustment related to amortization of the acquired unfavorable contract backlog reserve of $8.3 million.
The average selling price of $976 per ton in the first quarter of fiscal 2020 increased $108 per ton, or 12 percent, compared with the prior-year period. The increase in average selling price, as well as declining rebar input costs, resulted in a strong increase in margins compared with recent quarters, CMC says. “Current rebar bidding activity is healthy, and our backlog is priced at levels that we expect to be profitable when shipped,” the company adds.
International Mill segment
CMC says its International Mill segment in Poland recorded adjusted EBITDA of $11.4 million for the first quarter of fiscal 2020 compared with adjusted EBITDA of $32.8 million for the comparable prior-year quarter. “Safeguard trade measures have thus far been ineffective in deterring a surge of imported product into Europe, resulting in a compression of metal margins during the quarter,” the company explains.
Shipment volumes declined on a year-over-year basis, primarily because of the absence of opportunistic billets sales that were made during the first quarter of fiscal 2019, CMC adds. Conditions within the Polish construction sector remain healthy and demand for rebar continues to be strong. Despite lower shipment volumes during the quarter, the company says its Polish operations reduced conversion costs compared with the first quarter of 2019.
Corporate and Other segment
CMC’s Corporate and Other segment recorded an adjusted EBITDA loss of $27.5 million for the first quarter of fiscal 2020 compared with an adjusted EBITDA loss of $59.6 million for the prior-year quarter. The current-quarter loss did not include any acquisition costs and other legal expenses, while the first quarter of fiscal 2019 included $28 million of acquisition costs and other legal expenses, the company explains. Excluding these costs, CMC says its Corporate and Other costs declined year over year and are generally reflective of normalized levels going forward.
Smith says CMC expects construction and infrastructure demand to remain resilient going forward. “Customer sentiment and our own fabrication backlog both point to a strong outlook for activity, though our second quarter will be impacted by typical seasonality related to holidays and winter weather conditions affecting construction activity.”
She continues, “We anticipate metal margin will remain above the historical cycle average but will experience a decline from first-quarter levels. We expect our progress in optimizing our expanded domestic mill network during the first quarter will yield benefits going forward. We anticipate Fabrication will remain profitable, while Recycling should see some benefit from the recent rebound in ferrous scrap prices. We expect challenges to remain for our Polish operations until the current overhang of imports to the European Union unwinds.”
CMC 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.