CMC's 2019 results reflect price stability of its rebar, long products

Commercial Metals Co. (CMC), Irving, Texas, has announced its financial results for the fourth quarter and year ended Aug. 31. Net sales for the fourth quarter increased 18 percent to  $1.5 billion from $1.3 billion in the prior-year quarter. For the full year, net sales increased 26 percent to $5.8 billion compared with $4.6 billion in the prior year, reflecting increased capacity from the previously announced rebar assets acquisition. 

Earnings from continuing operations were $85.9 million, or 72 cents per diluted share, in the fourth quarter compared to $51.3 million, or 43 cents per diluted share, in the prior-year quarter. For the full year, earnings from continuing operations were $198.8 million, or $1.67 per diluted share, compared with $135.2 million, or $1.14 per diluted share, in the prior year, CMC reports in a news release on its fourth-quarter earnings.

“2019 was a transformational year for CMC,” says Barbara R. Smith, chairman of the board, president and CEO at CMC. “I am proud of what our team accomplished, with results that reflect the successful execution of our growth strategy and the strong fundamentals in the end markets we serve.”

Smith says some key milestones in fiscal 2019 included the completion and integration of CMC’s largest acquisition to date, the ramp-up of its second micro mill in Oklahoma and the addition of hot-spooled rebar capacity at its Arizona micro mill. Also, Smith reports that the company’s Polish operations generated full-year earnings before interest, taxes, depreciation and amortization (EBITDA) in excess of $100 million from strong sales and margins despite the flood of imported steel to the European Union. “The successful execution of these accomplishments resulted in our ability to reduce our indebtedness by $124.5 million during the fourth quarter,” she adds.

Results for the fourth quarter and full year included net after-tax expenses related to certain nonoperational costs resulting from the acquisition and integration of the rebar assets of $4.9 million and $48.8 million, respectively. Excluding these expenses, adjusted earnings from continuing operations were $90.8 million, or 76 cents per diluted share, for the fourth quarter, an increase of 52 percent compared with $59.9 million, or 51 cents per diluted share, in the prior-year quarter. For the full year, adjusted earnings from continuing operations were $247.6 million, or $2.08 per diluted share, an increase of 41 percent compared with $176.1 million, or $1.49 per diluted share, in the prior year.    

As a result of the strong free cash flow generated during the fourth quarter, the company reports that it reduced its debt and accounts receivable programs usage while also improving its cash balance by $72.1 million to $192.5 million at fiscal year-end. 

Segment overview

CMC’s Americas Recycling segment adjusted EBITDA of $4.2 million for the fourth quarter of fiscal 2019 declined compared with the $17 million for the fourth quarter of last year. The decrease reflected a 27 percent drop in ferrous and 7 percent drop in nonferrous prices year over year, which also constrained volume, CMC reports in the news release on its fourth-quarter earnings.

CMC’s Americas Mills segment adjusted EBITDA of $160.8 million for the fourth quarter of fiscal 2019 rose 51 percent compared with $106.8 million for the fourth quarter of last year and includes adjusted EBITDA of $58.1 million from the acquired mills on shipments of 455 thousand tons. Volume increased 45 percent compared with the prior-year fourth quarter primarily due to the ramp-up of CMC’s Oklahoma micro mill and the additional production from the acquired facilities. Metal margins increased $51 per ton compared with the fourth quarter of last year, and $13 per ton sequentially from the third quarter of this year, reflecting the greater price stability of CMC’s rebar and long product offerings when compared to the broader steel market.

CMC’s Americas Fabrication segment recorded an adjusted EBITDA loss of $13.2 million for the fourth quarter of fiscal 2019, an improvement compared with an adjusted EBITDA loss of $24.6 million for the prior-year fourth quarter. The 2019 fourth quarter included $4.2 million of costs related to the closure of certain acquired locations. As in prior quarters, the fourth quarter EBITDA losses did not include the benefit of the purchase accounting adjustment related to amortization of the unfavorable contact backlog reserve that relates to the acquisition, which was $16.6 million. The acquired locations shipped 172 thousand tons in the 2019 fourth quarter. CMC’s historical locations produced break-even results in the 2019 fourth quarter. Current rebar bidding activity remains strong and selling prices averaged $963 per ton in the 2019 fourth quarter, $120 per ton or 14 percent, higher compared with the same period in the prior year.

CMC’s International Mill segment adjusted EBITDA of $22.7 million for the fourth quarter of fiscal 2019 declined compared with adjusted EBITDA of $36.7 million for the prior-year quarter. CMC reports that the construction sector remains strong in Poland and its operations produced record quarterly rebar shipments during the fourth quarter. Results of the operation in comparison to the prior year were lower due to a high volume of steel imports into the European Union.   

“Supported by the sentiment of our customers and the strength and profitability of our fabrication backlog, our outlook remains strong,” Smith says. “We anticipate the current elevated rebar margin environment will continue, our fabrication business will be a positive contributor to our results and the solid results will continue from our Polish operations. Our strong cash flow generation has allowed us to deliver faster than originally anticipated, strengthening our balance sheet and enabling us to seek additional opportunities for long term growth that will benefit our stakeholders.”