CMC Holds Upbeat Outlook for 2006

Commercial Metals Co. reported first quarter earnings of $69.6 million on sales of $1.6 billion for the quarter ended November 30.

Stanley Rabin, CMC chairman, president and CEO, said, "Overall market conditions remained favorable, but more challenging than one year ago. Nonetheless, with our diverse but related businesses, we achieved again outstanding results across four of our five segments. Steel and nonferrous prices were relatively high and shipments especially robust in the United States. All signs point to relatively low inventories at end users and distributors. 

“On the other hand, steel prices weakened in Asia and Europe. Meanwhile, input costs remained high resulting in a higher than expected LIFO expense. The U.S. dollar strengthened moderately, putting some general pressure on dollar denominated selling prices."

Looking at the company’s domestic mill business, Rabin said, "It was a record first quarter for our domestic mills segment. The adjusted operating profit of $64.9 million for the quarter, on net sales of $370 million, exceeded last year's excellent first quarter by 20 percent. Within the segment, quarterly adjusted operating profit for our domestic steel minimills at $60.7 million also was a first quarter record and up 25 percent from that of a year earlier on the strength of improved margins and strong shipments, which more than offset higher operating costs.

“Higher rebar prices compensated for lower merchant bar prices. On a year-to- year basis, tonnage melted for the first quarter rose by 4 percent to 573,000 tons; tonnage rolled was 522,000 tons, 4 percent below last year's first quarter; and shipments, including billets, increased 14 percent to 624,000 tons. Our quarterly average mill selling price of $490 per ton was $6 per ton or 1 percent above last year's level, and the average selling price for finished goods was up by $12 per ton to $510 per ton. Conversely, the average scrap purchase cost decreased slightly compared with a year ago to $187 per ton. Our metal margin based on scrap utilized increased by $16 per ton to $287 per ton.

"The copper tube mill recorded an adjusted operating profit of $4.2 million, about 91 percent above that of the prior year's first quarter. Demand from residential and commercial users was relatively steady. First quarter- to-quarter metal spreads improved by 29 cents per pound to 92 cents per pound, despite the sharp rise in the underlying copper scrap price, because of a parallel increase in tube selling prices (for the first time in over a year). Against the same period last year, copper tube production essentially was unchanged at 15.9 million pounds while shipments also were virtually the same at 16.2 million pounds." 

For the recycling side, Rabin said, "The Recycling segment recorded another very solid quarter on 7 percent higher net sales dollars ($236 million) in the face of continually volatile ferrous scrap prices and lower stainless steel scrap prices, partially offset by some record-high nonferrous prices. Adjusted operating profit declined by 30 percent to $13.8 million compared with $19.8 million in the very strong prior year, mainly because gross margins were significantly below last year. Profitability was more balanced between ferrous and nonferrous product lines. As ever, we focused on rapid inventory turnover. Versus last year, the average ferrous scrap sales price for the quarter decreased by 11 percent to $195 per ton, and shipments decreased slightly to 468 thousand tons. The average nonferrous scrap sales price for the quarter was approximately 21 percent above a year ago while nonferrous shipments were 4 percent higher at 70,000 tons.  The total volume of scrap processed, including all our processing operations, equaled 839,000 tons against 828,000 tons in last year's first quarter." 

Rabin concluded, "Our outlook for the balance of the year remains very positive, although the second quarter typically is our weakest because of the seasonal construction slowdown.  Still, the non-residential and non-building construction markets continue to be relatively strong in the United States. Indeed, the overall economic outlook is positive, led by a continuous string of good reports in the U.S. and moderate growth in the Pacific Rim. Ferrous and nonferrous scrap prices remain high, especially the latter, but we can anticipate extraordinary volatility with the likelihood that the average ferrous scrap price will be down in the second quarter of fiscal 2006.  Marketing and Distribution shipments and orders continue at a very healthy level.  We anticipate second quarter LIFO diluted net earnings per share between $0.85 and $1.05, still strong compared to $0.91 last year, but lower than the first quarter.