CMC releases Q2 financial results, project updates

Commercial Metals Co. (CMC), Irving, Texas, has released the financial results for its fiscal second quarter that ended Feb. 28. The company is reporting net earnings of $179.8 million, or $1.51 per diluted share, on net sales of $2 billion compared with prior year period net earnings of $383.3 million, or $3.12 per diluted share, on net sales of $2 billion.  

During the second quarter of fiscal 2023, CMC recorded a net after-tax benefit of $14 million related to the settlement of an incentive resulting from the previous capital investment at CMC's Steel Oklahoma micromill. This benefit was partially offset by approximately $5.4 million in net after-tax costs associated with ongoing commissioning efforts at Arizona 2.   

"CMC achieved strong financial results during the second quarter while managing a number of challenges, including weather-related shipment disruptions in our core geographies, costs associated with a major planned outage and steel product metal margin pressures," says Barbara R. Smith, president and CEO of CMC.  "These headwinds notwithstanding, our key internal indicators remain positive, signaling a strong outlook for demand conditions in North America during the 2023 construction season and beyond."

RELATED: CMC picks up Tennessee scrap firm

Excluding these items, second-quarter adjusted earnings were $171.3 million, or $1.44 per diluted share, compared with adjusted earnings of $187.6 million, or $1.53 per diluted share, in the prior-year period. The second quarter of fiscal 2022 included a net after-tax benefit of $195.8 million, primarily related to a gain on the sale of real estate in Southern California.   

Together with the company’s fourth micromill under development in Berkeley County, West Virginia, and its Tensar growth platform, Smith says she expects CMC’s strategic investments will meaningfully enhance its through-the-cycle cash flows and return on capital, creating substantial value for the shareholder.  

According to CMC, its balance sheet and liquidity position remained strong as of Feb. 28. Cash and cash equivalents ended the quarter at $604 million, while available liquidity totaled $1.5 billion. CMC repurchased 330,000 shares of common stock during the quarter, returning $17.2 million of cash to shareholders. As of Feb. 28, $121.8 million remained available under the current share repurchase authorization.  

Demand for CMC's finished steel products in North America remained healthy during the quarter, though construction activity slowed in certain geographies in light of weather-related disruptions, the company says. Downstream bid volumes, a significant indicator of the construction project pipeline, improved from a year ago, resulting in the expansion of contract backlog volume and value levels compared to the prior year period. Demand from industrial end markets, important for merchant products, was stable on a sequential and year-over-year basis.  

CMC says the North America segment reported adjusted earnings before interest taxation and amortization (EBITDA) of $299.3 million for the second quarter of fiscal 2023 compared with $535.5 million in the prior-year period. Excluding a $273.3 million gain on the sale of real estate recognized during the prior-year period, the current year results represent a 14 percent increase. The improvement was driven by expanded margins over scrap costs on shipments of steel and downstream products, the company says. Controllable costs per ton of finished steel increased compared with the first quarter of fiscal 2023, primarily because of a significant scheduled replacement project that occurred during the quarter and lower fixed cost leverage on seasonally slower shipments. Per-unit costs of several key consumables continued to moderate throughout the quarter after reaching a peak late in fiscal 2022, the company adds.  

CMC says shipment volumes of finished steel, which include steel products and downstream products, were relatively unchanged from the prior-year period. Volume growth was constrained by weather challenges, including freezing and icy conditions in Texas and Oklahoma and flooding in California.   

The average selling price for steel products decreased by $56 per ton compared with the second quarter of fiscal 2022, while the cost of scrap utilized declined by $90 per ton, resulting in a year-over-year increase of $34 per ton in steel products margin over scrap. The average selling price for downstream products increased by $249 per ton from the prior year period and $19 per ton on a sequential-quarter basis.   

"We anticipate that recent North America long steel price increase announcements will stabilize metal margins at historically high levels,” Smith says. “At the same time, the third quarter will be impacted by a scheduled upgrade project similar in magnitude to the planned outage taken during the second quarter."   

The Europe segment reported adjusted EBITDA of $12.9 million for the second quarter of fiscal 2023, down 84 percent compared to adjusted EBITDA of $81.1 million for the prior year period. The decline was driven by higher energy costs, lower metal margins and a modest reduction in shipment volumes. Europe end market demand was mixed during the quarter. Polish construction activity continued to grow modestly on a year-over-year basis, while industrial production across Central Europe continued to contract. CMC's advantageous cost position and operational flexibility provided the ability to maintain strong shipment levels. The second quarter of fiscal 2023 volume of 436,000 tons was 20 percent above the average quarterly level of the last 10 years.  

The average selling price decreased by $95 per ton in the second quarter compared with the prior-year period, while the cost of scrap utilized declined by $55 per ton. The result was a year-over-year decline in margin over scrap of $40 per ton. The company reports average selling price and margin over scrap also decreased on a sequential basis by $36 per ton and $59 per ton, respectively.  

“In Europe, we anticipate seasonal improvement and expect shipment levels will remain above the long-term historical average due to the enhanced production capabilities of our facilities,” Smith says.  

She adds the company remains confident in its outlook for financial performance in fiscal 2023 and expects to generate sequential improvement in core EBITDA during the third quarter. North American finished steel product shipments are anticipated to improve from second-quarter levels in light of normal seasonality, the recovery of volumes delayed by weather disruptions and the support of a historically high downstream backlog.   

“We are entering spring with record backlog value for this time of year and continue to experience healthy project bid volumes, giving us confidence in the strength of our book of business,” Smith says. “Additionally, CMC stands to benefit from sustainable strong demand from reshoring-oriented industrial projects and public infrastructure work, the more rebar-intensive nature of which represents a long-term tailwind for our business." 

Smith says the startup of the company's Arizona 2 mill by the end of this spring positions CMC to capitalize on these emerging structural trends. The company is currently finalizing on-site preparation for commissioning.