Commercial Metals Company reported first quarter net earnings of $2.2 million on net sales of $629 million for the quarter ended Nov. 30. This compares with net earnings of $8.5 million for the same period last year on net sales of $565 million. Cash flows from operations for the quarter were $18.1 million compared with $25.4 million last year.
Stanley Rabin, CMC chairman, president and CEO, said, "It was as tough of an operating quarter as we have experienced over the past decade. Several of our key markets -- particularly those for our Manufacturing segment -- deteriorated further during the quarter. Private non-residential construction in the United States has fallen about 20 percent from last year, which impacted our downstream businesses as well as our steel mills and copper tube mill. Additionally, the industrial side of the economy slowed sharply again. The demand downturn affected both volume and selling prices, and resulted in a continuing margin squeeze in our Manufacturing segment. Conversely, despite the global slowdown, Recycling segment results were better than one year ago and the Marketing and Distribution segment benefited from relatively strong markets in Australia and non-Japan Asia as well as increased sales into the U.S.
"Our Manufacturing segment operating profit was substantially below last year's fairly strong first quarter and the drop generally occurred across all product areas. Profits were also sharply lower than the fourth quarter, mainly due to a drop at the CMC Steel Group minimills. Net sales for the segment were 13 percent lower at $289 million."
Rabin added, "The CMC Steel Group minimills' profit was far below last year's good first quarter as domestic supply plus imports exceeded demand. Our mills continued to be squeezed by falling selling prices and higher scrap costs. Tons melted and rolled were off 2 percent and 1 percent, respectively. Shipments increased 6 percent to 505,000 tons on a year-to-year basis; however, our average total mill selling price was $6 per ton below last year at only $272 per ton while the average selling price for finished goods declined $1 per ton to $281 per ton. Rebar, merchant bar and light structural prices all remained at extremely depressed levels. Meanwhile, the average scrap purchase cost went up $17 per ton.
"Operating profit in our steel fabrication and related businesses fell considerably compared with last year's first quarter. Prices and shipments were markedly lower. Our average fabricated selling price dropped $76 per ton. Shipments from our fab plants totaled 217,000 tons, 15 percent less than the prior year's first quarter. Rebar fabrication, concrete-related products, joists and structural steel fabrication all recorded weaker results on account of much softer markets. Only steel fence posts and heat treating generated comparable performance. In general, continued cost reduction and productivity efforts could not offset the drop in gross margins.”
Rabin continued, "The Copper Tube division operating profit also was well below that of last year's first quarter. Although sales and construction of new homes held up relatively well, other market sectors were weaker and the pricing of plumbing tube and refrigeration tube was down by $.12 a pound while copper scrap prices increased $.03 a pound. Consequently, metal spreads were significantly lower. More positively, our copper tube shipments increased 3 percent against the same period last year.
"The Recycling segment recorded a profit compared with an operating loss the prior year quarter on 17 percent higher net sales dollars, with gross margins up 23 percent. The ferrous scrap market continued to buoy results, although markets in the Sunbelt were not as strong as elsewhere. Versus last year, the average ferrous scrap sales price increased by $18 per ton to $89 per ton while shipments rose 13 percent to 390,000 tons.
“Nonferrous markets improved overall. The average nonferrous scrap sales price increased 9 percent compared with a year ago while nonferrous shipments were level. Total volume of scrap processed, including our CMC Steel Group processing plants, equaled 669,000 tons against 584,000 tons last year."
"Operating profit for the Marketing and Distribution segment," according to Rabin, "was more than double that of last year's first quarter. Net sales increased 61 percent to $256 million, with the predominant increase outside the U.S. Volume generally was up, while prices were mixed. Our strategy in recent years to build up our regional business around the world and to increase our downstream presence in Marketing and Distribution continued to be fruitful. As previously mentioned, better demand in several of our key markets, including that for processed material, contributed to the improved results. In early September 2002 we acquired the sheet and coil business of Horans in Australia, which was merged into our Coil Steels operation in Sydney."
"Because we are operating in a post-bubble environment, it has been especially difficult to forecast one quarter to the next. We have entered a quarter which typically is our weakest and we continue to be challenged by depressed market conditions. As well, we will be taking some additional downtime at the steel mills to manage inventories.
“Accordingly, second quarter results also will be weak. Although commercial construction is likely to remain very soft, we anticipate in our second half an upturn in performance led by increases in production and shipments and some price increases in most of our businesses. Public construction should remain healthy despite tighter fiscal conditions at the state and local level, and typically picks up in the spring. Institutional building has held up well, and should continue to be active.
“The more favorable prognosis for steel volume and pricing in the second half presumes lower import levels, primarily because of the very low domestic prices for our products. We also expect further cost reductions to benefit our bottom line as the year progresses. A resurgence of overseas scrap demand coupled with a decrease in availability will lend support to the ferrous scrap market, while nonferrous prices appear to have found a floor. Marketing and Distribution markets are expected to be mixed."