Commercial Metals Posts Quarterly Profit

Commercial Metals Co. reported first quarter net earnings of $8.8 million on net sales of $565 million for the quarter ended November 30, 2001. This compares with a net loss of $2.2 million for the same period last year on net sales of $595 million. Cash flows from operations for the quarter were $25.6 million compared with $14.5 million last year.

CMC chairman, president and CEO Stanley Rabin said, ``Operating profit improved significantly over the first quarter of last year -- even excluding the litigation accrual -- although the worldwide downturn widened and deepened, exacerbated by the aftermath of September 11, 2001, which in turn worsened already difficult market conditions. The high level of bankruptcies among customers and competitors remained a challenge. Positively, lower interest expense improved net income and residential activity was relatively stable albeit softer. Public construction remained strong. Late in the quarter production cutbacks by steel and metals suppliers accelerated on a global basis, a favorable development. The strong U.S. dollar continued to be a negative factor for us.

``Selling prices in our business segments remained severely depressed virtually across the board; however, we were able to increase production and shipments compared with last year and yet control inventories. Raw material costs were lower, and the significant increases in electricity and natural gas prices that we faced last year have reversed and positively impacted operating costs on a year-to-year basis.''

``Our steel minimills more than doubled last year's profitability, as we overcame the terribly low prices that stemmed from still excessive inventories of low-priced steel imports and aggressive domestic competition. Shipments increased 13 percent to 476,000 tons on a year-to-year basis. Our average total mill selling price was $16 per ton below last year at only $277 per ton and the average selling price for finished goods plummeted $17 per ton to $282 per ton. Mill rebar prices stayed weak while merchant bar and light structural prices remained at dreadful levels.

Lower steel scrap prices were a partial offset in maintaining mill product margins, with the average scrap purchase cost down by $4 per ton. Utility costs declined by $1.3 million compared with last year in spite of higher usage.''

Rabin continued, ``Operating profit in our steel fabrication and related businesses increased considerably compared with last year's first quarter. Prices were lower but volume generally was higher. Rebar fabrication, concrete-related products and the steel post plants continued their solid performance. Structural steel fabrication showed a major turnaround versus last year with no litigation accrual and a strong rebound at SMI-Owen. As a result of continued cost reduction efforts, we achieved a profit turnaround in steel joist and cellular beam manufacturing despite lower prices and shipments. Shipments from our fab plants totaled 256,000 tons, 8 percent more than the prior year's first quarter.

``The Copper Tube division operating profit was about half that of last year's relatively strong first quarter. Although the housing sector held up relatively well, demand for plumbing tube and refrigeration tube was not as vibrant as it has been. Our copper tube shipments increased 7 percent against the same period last year. However, prices and metal spreads declined. Commissioning of the new line and product expansion at our plant in Virginia has begun.''

``The Recycling segment,'' according to Rabin, ``recorded a loss of about 60 percent of the prior year quarter on 20 percent lower net sales dollars. Cash flows from operations remained positive. The principal problem continued to be abysmal markets, the worst in a generation. Prices were atrocious plus some consumers deferred shipments, while a number of others are in financial straits. Versus last year, the average ferrous scrap sales price sank by $8 per ton to $71 per ton while shipments rose 3 percent to 347,000 tons. The average nonferrous scrap sales price fell a precipitous 20 percent compared with a year ago and nonferrous shipments declined 6 percent. Total volume of scrap processed, including our CMC Steel Group processing plants, equaled 584,000 tons against 574,000 tons last year.

Rabin added, ``There is an abnormal degree of uncertainty in the near term, especially regarding consumer and business confidence. Nevertheless, we continue to believe that our performance will improve further in fiscal 2002, owing to both internal and external factors, including a modest economic pickup during the latter part of the year. While the U.S. economy continues to contract, there are signs that the rate of decline has slowed, that inventories have been worked down significantly and that stimulative factors are helping. Commercial construction is likely to be softer but public construction should remain firm. Both houses of Congress recently passed the fiscal 2002 Department of Transportation spending bill, which appropriates $59.6 billion in funding, an overall increase of 2.5 percent.

``However, we have entered a quarter which typically is our weakest coupled with an even poorer near term pricing environment; accordingly, we expect second quarter results to be below this year's first quarter, but substantially higher than last year's second quarter. We anticipate in our second half an upturn in performance led by increases in volume and prices in most of our businesses combined with generally low input costs. This prognosis includes lower import levels. We also have reduced costs in various areas which already have begun to benefit our bottom line.''

In conclusion Rabin said, ``We are confident that we will emerge from the downturn stronger than ever. Longer term, we remain optimistic that we will experience vibrant demand for construction-related products and services. We anticipate relatively high consumption of steel bar and structural steel in the public sector during the next few years. The outlook for institutional building and power plant construction continues to look promising. We also look forward to a pickup in various end use markets around the world, especially in manufacturing activity, once the economic downturn reverses.

Renewed growth in steel and nonferrous metal consumption should lead to a more favorable supply/demand balance. Strategically our focus remains on creating shareholder value by operating and marketing effectively, participating in industry consolidation, forming strategic alliances, growing in added value businesses and redeploying assets, thereby increasing our earnings and cash flows.''