Commercial Metals Co. (CMC), Irving, Texas, has announced financial results for its fiscal second quarter ended Feb. 29. Second quarter earnings from continuing operations were $63.6 million, or 53 cents per diluted share, on net sales of $1.3 billion, compared with prior year period earnings from continuing operations of $14.9 million, or 13 cents per diluted share, on net sales of $1.4 billion. Gross margin increased by 45 percent year over year while total shipment volumes grew 2 percent over the same period, CMC reports in a news release on its second quarter earnings. Additionally, adjusted earnings from continuing operations were $63.6 million.
“Despite winter seasonality and an unusually wet February, the second quarter was strong and demonstrates our company’s enhanced earnings capability following the transformational actions of the last several years,” says Barbara R. Smith, chairman of the board and president and CEO at CMC. “In the quarter, we achieved the second highest adjusted [earnings before interest, taxes, depreciation and amortization or EBITDA] margin in our history, behind only our first quarter 2020 performance. The great results were helped by robust demand from the U.S. and Polish construction markets, which continued to support steel shipment volumes during the quarter.
“Strong earnings and disciplined working capital management provided $107 million of operating cash flow during the quarter, allowing us to further delever our balance sheet,” she continues. “Our net debt-to-EBITDA ratio of 1.6 times provides us great flexibility in our capital structure to pursue our growth strategies, as well as endure today’s volatile environment.”
The company reports that its liquidity position as of Feb. 29 remained strong, with cash and cash equivalents of $232.4 million and availability under the company’s credit and accounts receivable facilities of $616.6 million.
“We enter the summer construction season with a good fabrication backlog, solid bidding activity and mill metal margins above past cyclical averages,” Smith adds. “However, given economic uncertainties caused by the COVID-19 outbreak, as well as potential courses of action that local, state and federal government bodies may take, we are unable to provide forward guidance at this time. In this unpredictable environment, we remain focused on factors we can control and are positioning our company for long-term value generation.”
Earnings breakdown by segment
CMC’s Americas Recycling segment recorded an adjusted EBITDA of $5.8 million for the second quarter of fiscal 2020, a decrease of 43 percent compared with adjusted EBITDA of $10.1 million for the prior year quarter. According to CMC, the reduction reflected a combination of lower average ferrous selling prices and shipping volumes compared to a year ago, down 15 percent and 9 percent respectively.
The company’s Americas Mills segment recorded adjusted EBITDA of $125.7 million for the second quarter of fiscal 2020, an increase of 12 percent compared with adjusted EBITDA of $112.4 million for the second quarter of fiscal 2019. Volumes increased 5 percent compared with the prior year period, driven by strength in construction end markets, as well as targeted merchant bar growth opportunities. Metal margins contracted by $24 per ton year-over-year, as a reduction in average selling price of $71 per ton was only partially offset by lower scrap costs. Results in the second quarter benefited from a 6 percent year-over-year reduction in conversion costs per ton.
CMC’s Americas Fabrication segment recorded adjusted EBITDA of $16.1 million for the second quarter of fiscal 2020, marking a significant improvement from an adjusted EBITDA loss of $49.6 million for the second quarter of fiscal 2019, primarily due to expanded selling price margins over rebar cost. As in prior quarters, second quarter adjusted EBITDA did not include the benefit of the purchase accounting adjustment related to amortization of the acquired unfavorable contract backlog reserve of $6.0 million. The trend of sequential increases in selling price continued during the quarter, as the company shipped at an average price of $984 per ton. This represented a significant rise of $139 per ton, or 16 percent, compared with the prior year period. Metal margins within our backlog remained at attractive levels.
CMC’s International Mill segment in Poland recorded adjusted EBITDA of $13.5 million for the second quarter of fiscal 2020, compared with adjusted EBITDA of $20.5 million for the prior year quarter. Metal margins remain under pressure as a result of elevated import levels. The overhang of imported steel products in Europe is lessening but remains a headwind to margins. Despite import challenges, shipment volumes reached their highest second quarter level in 12 years, increasing 25 percent on a year-over-year basis, driven by strong demand from the Polish construction sector.
In addition, CMC’s Corporate and Other segment recorded an adjusted EBITDA loss of $23.2 million for the second quarter of fiscal 2020 compared to an adjusted EBITDA loss of $24.1 million for the prior year quarter.