CMC Reports Strong Quarter

Commercial Metals Co. reported record quarterly net earnings of $73.7 million on net sales of $1.53 billion for the quarter ended November 30, 2004. This compares with net earnings of $12.6 million on net sales of $830 million for the same time last year.

CMC chairman, president and CEO Stanley A. Rabin said, "We continued to benefit in the first quarter from the favorable pricing and volume environment for most of our businesses and we achieved outstanding results across all of our segments. But just as certainly, our long enacted strategy of vertical integration and diversification has placed us in a position to reap major gains from positive environments. While markets generally remained strong during the quarter, there was a slowing in China and inventory adjustments in the U.S. and Europe which created some pressure on the high global prices for steel, nonferrous metals and industrial raw materials, as well as some slowing of shipments at the mill level. On the other hand, input costs remained high, freight rates increased again, and the U.S. dollar weakened further, all serving to sustain elevated dollar denominated selling prices."

Rabin said, "It was a remarkable quarter for our Domestic Mills segment. The record adjusted operating profit of $50.7 million for the first quarter on net sales of $316 million dwarfed last year's first quarter, including a pre- tax LIFO expense of $27.1 million in this year's first quarter (compared with $553 thousand LIFO expense last year). Within the segment, quarterly adjusted operating profit for our domestic steel minimills at $48.5 million also was a record and quadrupled that of a year earlier on the strength of vastly improved selling prices and solid shipments, which more than offset the steep rise in steel scrap and other input costs.

“Indeed, it was the best ever quarterly profit for each of the four mills. On a year-to-year basis, tonnage melted for the first quarter was lower by 2 percent to 549,000 tons; tonnage rolled was 546,000 tons, 1 percent above last year's first quarter; and shipments, including billets, decreased 4 percent to 545,000 tons. Our quarterly average total mill selling price of $484 per ton was $175 per ton or 57 percent above last year's still depressed level and the average selling price for finished goods was up by $185 per ton to $498 per ton. Conversely, the average scrap purchase cost rose by $70 per ton versus a year ago to $188 per ton. Additionally, utility costs increased by $1.0 million compared with the first quarter last year, and costs for other supplies increased as well. On balance, though, our margins rose considerably; the metal spread at $296 per ton was $105 per ton greater than the first quarter of last year."

CMC’s recycling division reported sales increased by 67 percent to $220 million. propelled by vibrant ferrous and nonferrous scrap markets. Adjusted operating profit more than tripled to $19.8 million. LIFO expense for the quarter was $2.2 million ($367 thousand last year). Most of the increase in profitability occurred on the ferrous side. Gross margins were significantly above last year while processing costs, as a percent of sales, declined to 9.1 percent.

“Our markets still were characterized by extraordinary price volatility for our major commodities against a backdrop of continued overall strong demand for our products. As ever, we focused on rapid inventory turnover. Versus last year, the average ferrous scrap sales price for the quarter increased by 77 percent to $220 per ton, and shipments climbed 9 percent to 470,000 tons. The average nonferrous scrap sales price for the quarter was approximately 32 percent above a year ago while nonferrous shipments were 23 percent higher at 67,000 tons. The total volume of scrap processed, including all our processing operations, equaled 828,000 tons against 734,000 tons in last year's first quarter," Rabin pointed out.

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. We expect the shift in profits to continue, with a higher proportion coming from the Domestic Fabrication segment. Domestic steel mill prices and shipments have weakened somewhat, while these same factors for CMCZ [dollar denominated] have declined to a greater extent. On the other hand, Domestic Fabrication prices have risen and demand remains strong. Ferrous and nonferrous scrap prices remain high, but extraordinarily volatile. Marketing and Distribution orders continue at a very healthy level. We anticipate second quarter LIFO diluted net earnings per share between $1.50 and $1.70, still strong and well above last year, but lower than the first quarter. We then expect earnings to reaccelerate in the second half of fiscal 2005, especially since the non-residential construction outlook in the United States has improved further. The additional potential recovery resulting from the South Carolina and Texas mill transformer business interruption claims, which may be substantial, has not been considered in our earnings estimate owing to the timing of recovery which may extend beyond the second quarter and our inability to estimate the recoverable amount."