CMC quarterly earnings slide from year ago

CMC quarterly earnings slide from year ago

Texas-based scrap and steel firm has sales boost, but earnings drop by nearly 40 percent.

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January 7, 2019
Edited by Brian Taylor

Irving, Texas-based Commercial Metals Co. (CMC) has reported increased sales but decreased earnings for the first quarter of its new fiscal year compared with year-ago results.

In CMC’s fiscal 2019 first quarter, which ended Nov. 30, 2018, earnings from continuing operations were $19.4 million, or 16 cents per share, on net sales of $1.3 billion. That compared with earnings from continuing operations of $31.9 million, or 27 cents per share, on net sales of $1.1 billion for the three months ended Nov. 30, 2017.

CMC says its most recent quarterly results “include net after tax expenses of $22.1 million related to certain nonoperational costs.” Minus those expenses, adjusted earnings from continuing operations were $41.5 million, or 35 cents per share, which compares to figures of $36.2 million or 31 cents per share in the three months ended Nov. 30, 2017.

Barbara R. Smith, board chair, president and CEO of the company, cites weather and steel mill capital investments as factors influencing the most recent quarterly results. “Results for the first quarter were strong even though we experienced historically wet weather in the United States, which reduced shipments,” she comments.

“In Poland, we completed a major rolling mill overhaul while also delivering record levels of seasonally adjusted profits from this operation,” adds Smith. “The highlight of the quarter, however, was the closing of the acquisition of certain rebar assets from Gerdau, which occurred on Nov. 5, 2018. Excluding $4.1 million of intercompany elimination charges, these assets contributed approximately $12.5 million of operating income in the first partial month of ownership. The integration of these assets purchased from Gerdau has gone very well thus far, allowing us to gain confidence in the accretive nature and operating synergy potential of these assets.”

The company reports that its Americas Recycling segment kept pace with its year-ago rate of profitability. The business unit’s recorded adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $15.4 million for the first quarter of fiscal 2019 compares to adjusted EBITDA of $15 million for the first quarter of fiscal 2018. Scrap volumes remained strong and margins remained relatively consistent, according to CMC.

On the steelmaking side, the company’s Americas Mills segment recorded adjusted EBITDA of $113.9 million for the first quarter of fiscal 2019, an increase of 106 percent compared with adjusted EBITDA of $55.2 million for the first quarter of fiscal 2018. In addition to the impact of its acquired Gerdau mills, the increase in shipment volume in comparison to the first quarter of fiscal 2018 was tied to incremental shipments from our new micro mill in Durant, Oklahoma.

As a result of what CMC calls strong global demand for rebar, metal margins have increased by $80 per ton from the same period of the prior year “and are currently the highest that we have experienced since the Great Financial Crisis,” according to CMC.

CMC experienced reduced performance in its Americas (steel) Fabrication segment, which recorded an adjusted EBITDA loss of $37 million for the first quarter of fiscal 2019 compared with adjusted EBITDA of $2 million for the first quarter of fiscal 2018. The results included an $8 million loss tied to an acquired fabrication operation.

Also affecting the first quarter 2019 CMC ledger was an adjusted EBITDA loss of $59.6 million in CMC’s Corporate and Other segment connected to acquisition costs and legal expenses. Also factoring in was a $9.7 million charge related to an elimination of profit in inventory on shipments between the segments, including $4.1 million related to rebar shipments from the mill segment to the newly acquired fabrication locations and $5.6 million related to “extraordinarily wet weather during the first quarter of fiscal 2019,” which led to a temporary increase in inventory levels.

Regarding the rest of its fiscal year, Smith says, “We remain optimistic about the demand outlook in our key markets. Our second quarter of fiscal 2019 will include normal seasonality, which will reduce shipment rates at our facilities. However, we expect the quarter to be strong in comparison to historical second quarter results, due to the contribution from our strategic growth initiatives.”

Adds Smith, “We expect to see continued growth from our investment in the new Durant, Oklahoma, micro mill, as well as growth from the ongoing integration of the newly acquired rebar assets. We are confident that these will position us well to serve our customers in this period of strong demand and deliver enhanced returns to our shareholders.”