Commercial Metals Reports Earnings

Net earnings for the nine months ended May 31 were $10.2 million on sales of $1.8 billion. For the same period last year net earnings were $33.6 million on net sales of $2 billion.

According to Stanley Rabin, president and CEO, "Results were a vast improvement over the second quarter of this year despite a continuation of extremely difficult market conditions and were achieved because of much higher profits by the CMC Steel Group. Selling prices in our three business segments remained severely depressed virtually across the board; however, we were able to increase production and shipments above the second quarter and yet reduce inventories. Also, raw material costs were flat to much lower. The significant increase in electricity and natural gas prices that began about one year ago continued to impact operating costs on a year- to-year basis, although it appears that natural gas prices peaked in our second quarter.”

Rabin added, "Our steel minimills more than matched last year's profitability, as we overcame the much lower prices that stemmed from still excessive inventories of low-priced steel imports and aggressive domestic consumption. Shipments increased 6% to 523,000 tons on a year-to-year basis, and were 25% higher than the second quarter. Our average total mill selling price was $31 per ton below last year and the average selling price for finished goods plummeted $40 per ton. Mill rebar prices remained weak while merchant bar and light structural prices were, simply put, terrible. Sharply reduced steel scrap prices were a significant offset in maintaining mill product margins, with the average scrap purchase cost down by $23 per ton. Utility costs, on the other hand, rose $3.8 million compared with the third quarter last year, although "only" $1.5 million more than the second quarter.

"The Recycling segment recorded a modest operating profit compared with a somewhat higher profit in the year ago quarter on 18% lower sales dollars, but profitability was a big improvement over the first half. Cash flows from operations were positive. The principal problem continued to be dismal ferrous scrap markets; meanwhile, nonferrous markets were comparatively stable, but still lethargic.

The market weakness resulted in a $4 million drop in material margins compared with the previous year's third quarter, although inventory turnover was phenomenal. Versus last year, the average ferrous scrap price sank by $27 per ton to $73 per ton, and shipments fell 10% to 345,000 tons. The average nonferrous scrap price was approximately 6% lower than a year ago while nonferrous shipments were virtually unchanged. However, both ferrous and nonferrous shipments increased over the second quarter.

Total volume of scrap processed, including our CMC Steel Group processing plants, equaled 580,000 tons against 629,000 tons last year. Our national account program to enhance sourcing of industrial scrap continued its growth.

"Operating profit for the Marketing and Trading segment was less than half of last year's excellent third quarter. Sales declined 25% to $189 million, in large part because of a big reduction in volume due to the depressed economies, oversupply in most markets and intense competition from domestic suppliers in the respective markets. Additionally, prices softened further, extending the squeeze on gross margins in this segment. The influence of the strong U.S. dollar continued to hamper our results in various parts of the world. Margins were compressed for most steel products, nonferrous metal products, and industrial raw materials and products. Our strategy in recent years to enhance our regional business mitigated the difficult market conditions."

Rabin concluded, "Our outlook is that the fourth quarter of fiscal year 2001 should be akin to the third quarter. We expect our mill operating levels to improve incrementally and prices to strengthen slightly. We anticipate that shipments to the construction industry will be higher despite the recent severe flooding in the U.S. Gulf region. Ongoing inventory adjustments by our other customers ought to make further headway, which would help counteract the poor demand in the industrial sector of the economy. Steel imports should remain relatively high and suppress pricing. We expect output and shipments at our fabrication operations to increase. Profits in copper tube manufacturing are likely to remain at recent levels. Recycling results should be comparable to the third quarter because the outlook for ferrous and nonferrous scrap markets is for more of the same. In Marketing and Trading, order intake has shown some improvement, but global markets continue to weaken and remain intensely competitive. Subsequent to this release it will be our policy of not commenting, updating or confirming the fourth quarter projection until our year-end announcement.

"We continue to believe that our performance will improve significantly in fiscal 2002, owing to both internal and external factors, including a modest pickup in the U.S. economy. We anticipate a moderate upturn in volume and prices in most of our businesses combined with lower or at least stabilized utility costs. We also have reduced costs in other areas which will benefit next fiscal year.

"Longer term, we are confident that we will experience vibrant demand for construction-related products and services, including increased spending under the Federal transportation program. We anticipate relatively high consumption of steel bar and structural steel in the public sector during the next few years while institutional building and power plant construction look promising. Strategically our focus remains on creating economic value by participating in industry consolidation, forming strategic alliances, growth in value businesses, redeploying assets and increasing our earnings power and cash flows."