CMC Reports Jump in Earnings

Commercial Metals reported first quarter net earnings of $12.6 million on net sales of $830 million for the quarter ended November 30. This compares with net earnings of $2.2 million the same period last year on net sales of $636 million.

Stanley Rabin, CMC chairman, president and CEO, said, "The better market conditions that took hold in the fourth quarter of fiscal year 2003 continued during this quarter for most of our business units, although margins in our Manufacturing segment remained compressed because raw material prices and other input costs have increased rapidly. The weak U.S. dollar, continued strong demand in Asia (especially China), and the upturn in the U.S. economy all contributed to improved performance. U.S. manufacturing activity has surged recently, and industrial production has picked up in many parts of the world. Construction markets were mixed, but perhaps slightly better than we expected at this juncture."

According to Rabin, "Our Manufacturing segment's pre-tax profit was 452 percent above last year's depressed first quarter. Within the segment, pre-tax profit for our steel minimills was substantially higher than a year earlier on the strength of improved selling prices, increased tons and several production records. On a year-to-year basis tonnage melted was up 9 percent to 561,000 tons; tonnage rolled was 541,000 tons, 13 percent above last year's first quarter; and, shipments increased 12 percent to 566,000 tons. Our average total mill selling price was $37 per ton above last year's extremely low level and the average selling price for finished goods was up by $32 per ton to $313 per ton. The average scrap purchase cost rose by $29 per ton.

“Additionally, utility costs increased by $1.8 million compared with the first quarter last year. Consequently, the realized increase in our steel product prices essentially only kept up with the rise in input costs, thereby continuing to restrict mill product margins; nevertheless, the metal spread was $8 ton above the first quarter of last year. Pre-tax profit in our steel fabrication and related businesses increased considerably versus last year's comparable quarter. Prices and volumes were mostly higher despite the slowdown in commercial construction because of decent demand in several other construction markets. All elements were profitable including rebar fabrication, construction-related products, steel post plants, steel joist manufacturing, and structural steel fabrication. Shipments from our fab plants totaled 280,000 tons, 29 percent above the prior year's first quarter.

"The Recycling segment recorded another outstanding quarter, primarily a result of the improved ferrous scrap market. This compared favorably with the quarter a year ago: Pre-tax profit trebled. Gross margins were significantly above last year while operating costs as a percent of sales declined. Strong international demand and the weak U.S. dollar continued to drive steel scrap prices and prices increased as the quarter progressed. Nonferrous markets also improved but at a more moderate pace. Versus last year, the average ferrous scrap sales price increased by $35 per ton to $124 per ton and shipments climbed 10 percent to 430,000 tons. The average nonferrous scrap sales price for the quarter was approximately 18 percent above a year ago while nonferrous shipments were 2.5 percent lower. The total volume of scrap processed, including our CMC Steel Group processing plants, equaled 734,000 tons against 669,000 tons last year."

"Our outlook for the balance of the fiscal year remains favorable, albeit uneven. Economic and industry sector trends are mostly positive. The second quarter, typically our weakest, will be relatively strong as we anticipate FIFO net earnings between $7 and $10 million. Manufacturing margins are likely to be squeezed as the impact of higher volumes and improved pricing will be offset by continued increased raw material costs as well as higher energy and freight costs. The weak U.S. dollar, high freight costs, and strong Asian demand will minimize the impact of the Section 201 tariff repeal. The second half should be robust, our expectation being that mill margins and fabrication margins will widen as the year progresses, and our other business segments will remain strong, buoyed by strong markets and expansions in markets and product lines."