CMC Reports Strong Numbers for Quarter

Commercial Metals Co. reported net earnings of $3.0 million on net sales of $774 million for the quarter ended May 31, 2003. This compares with net earnings of $16.4 million on net sales of $652 million for the third quarter last year.

Net earnings for the nine months ended May 31, 2003 were $8.2 million on net sales of $2.1 billion. For the same period last year net earnings were $31.5 million on net sales of $1.8 billion.

Stanley Rabin, CMC chairman, president and CEO, said, "Some of our key markets -- particularly those for our manufacturing segment -- remained under pressure during the quarter, but improved modestly over the second fiscal quarter of this year. While public construction and institutional building were steady, commercial construction in the United States was off about 15 percent from last year, which continued to impact our downstream businesses as well as our steel mills. Additionally, business spending and the industrial side of the economy remained soft. On the other hand, we began to see some of the expected net benefit from the weaker U.S. dollar.

“By segment, our manufacturing segment again was hurt by a margin squeeze, with mill price realizations lower than we had anticipated, while the increase in input costs (scrap/supplies/utilities) outpaced any improvements in selling prices. Our Manufacturing segment operating profit was substantially lower than last year's strong third quarter, the best third quarter in our Steel Group's history. Higher shipments and sales along with cost reduction efforts helped the segment report better profits than this year's second quarter.”

Within Manufacturing, the CMC Steel Group minimills recorded a considerably lower profit compared with last year's strong third quarter, exacerbated by their portion of this quarter's LIFO expense ($3.9 million pre- tax) and despite higher sales, shipments and average selling price. Tons melted increased 1 percent to 572,000 tons while tons rolled decreased 2 percent to 544,000 tons.

Shipments increased 4 percent to 634,000 tons on a year-to-year basis (although the increase was accounted for by higher billet shipments).

The company’s average total mill selling price increased $13 per ton above last year's extraordinarily low price to $280 per ton; however, the average scrap purchase price rose faster at $22 per ton. The average selling price for finished goods increased $16 per ton to $289 per ton. Utility costs increased by over $3.5 million compared with the same period last year, with modestly higher electricity usage and modestly lower natural gas usage.

The third quarter of FY 2003 was another excellent quarter for the Recycling segment following several strong quarters, Rabin continued. The segment recorded an operating profit of $5.1 million, more than double the prior year quarter on 21 percent higher net sales dollars, with gross margins up 31 percent. The profit stimulus mainly came from the steel scrap market, although prices peaked during the quarter as overseas demand slackened coupled with improved flows of obsolete scrap.

“Versus last year's still relatively weak numbers, the average ferrous scrap sales price increased by $24 per ton to $110 per ton and shipments jumped 17 percent to 452,000 tons. Nonferrous markets improved moderately: the average nonferrous scrap sales price increased 5 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 768,000 tons against 667,000 tons last year,” Rabin added.

“We expect the fourth quarter to be better than the third quarter, though we do not expect to achieve as strong a fourth quarter as last year, primarily because of another anticipated LIFO charge. We anticipate FIFO net earnings of $6.0 to $9.0 million for the quarter. Despite the yet sluggish global economy, we expect a number of our markets to continue to improve in the fourth quarter and anticipate better performance in our Manufacturing segment via an improved metal spread and increases in production, shipments and prices.”

“During the third quarter we implemented two steel mill product price increases on most of our products totaling $35 per ton, which partly became effective in the fiscal third quarter and should become fully effective during the fourth quarter, which will help restore margins for our steel minimills. Strong demand for steel scrap and nonferrous scrap combined with the weaker U.S. dollar will lend support to our Recycling segment, although ferrous prices will be below the third quarter. Aluminum and copper prices still appear to be range-bound. Marketing & Distribution results are expected to remain good, but not as favorable because of reduced demand in China and elsewhere.