CMC Reports Numbers for Quarter

Commercial Metals Co. reported net earnings of $2.9 million on net sales of $661 million for the recently concluded quarter. This compares with earnings of $6.6 million on net sales of $574 million for the second quarter last year.

Net earnings for the six months ended February 28 were $5.1 million on sales of $1.3 billion. For the same period last year, net earnings were $15.1 million on net sales of $1.1 billion.

Stanley Rabin, CMC chairman, president and CEO, said, "Some of our key markets -- particularly those for our Manufacturing segment -- remained weak early in the quarter. Commercial construction in the United States fell about 20 percent from last year, which impacted our downstream businesses as well as our steel mills and copper tube mill. Business spending has been very soft. Additionally, the industrial side of the economy continued to be very sluggish. The demand downturn continued to negatively impact our manufacturing segment selling prices, and profits in that segment again were hurt by a continuing margin squeeze.

“Conversely, Recycling segment results were far above one year ago and the Marketing and Distribution segment benefited from relatively strong markets in Australia and non-Japan Asia, buoyed by China."

Rabin continued, "Our Manufacturing segment operating profit was substantially below last year's fairly strong second quarter and the drop generally occurred across all product areas. Profits also were lower than the first quarter of this fiscal year.

“Net sales for the segment were 5 percent lower than the second quarter of fiscal 2002 at $307 million. Within Manufacturing the CMC Steel Group min-imills' profit was far below last year's relatively good quarter. Selling prices for long products remained relatively low, whereas input costs (scrap, ferroalloys, natural gas, et al.) were higher.

“Our average total mill selling price was $5 per ton above last year's extraordinarily low price (to only $271 per ton) and the average selling price for finished goods increased $7 per ton to $277 per ton. However, the average scrap purchase price rose $18 per ton. The higher scrap costs also contributed to a $2.5 million LIFO expense for the quarter.

Rabin added, "The second quarter of fiscal 2003 was the best quarter for the recycling segment since the fourth quarter of fiscal 1996. The segment recorded an operating profit of $4.1 million compared with a bare profit the prior year quarter on 21 percent higher net sales dollars, with gross margins up 30 percent. The ferrous scrap market continued to buoy results, although domestic markets lagged the even more robust export markets as the strong demand coupled with reduced supply led to a jump in ferrous scrap prices. Supply was impacted by severe winter weather in many areas, export restrictions from Russia and Ukraine, and reduced generation of industrial scrap.

“Versus last year's very weak numbers, the average ferrous scrap sales price increased by $23 per ton to $94 per ton while shipments rose 11 percent to 374,000 tons. Nonferrous markets improved moderately. The average nonferrous scrap sales price increased 12 percent compared with a year ago while nonferrous shipments were down 2 percent. Total volume of scrap processed, including our CMC Steel Group processing plants, equaled 642,000 tons against 583,000 tons last year.

"Despite the unusually high level of uncertainty and very sluggish global economy, we expect our markets to be better in the second half and anticipate an upturn in performance led by increases in production, shipments and prices. Though we would not expect as strong a second half as the last three years, we believe we could achieve 50-60 percent of those historical earnings. During the second quarter we implemented two steel mill product price increases on most of our products totaling $35 per ton, which partly become effective in the fiscal third quarter and become fully effective during the fourth quarter, which will help restore margins for our steel mini-mills. The more favorable prognosis for steel volume and pricing in the second half presumes some pickup in public construction and institutional building and no further deterioration in commercial construction, as well as some improvement in industrial sector demand.