CMC Provides Economic Outlook as It Reports Quarterly Earnings
03/31/2014 - Commercial Metals Company announced financial results for its second quarter ended 28 February 2014.
Net earnings attributable to CMC for the second quarter were US$11.1 million, or US$0.09 per diluted share, on net sales of US$1.6 billion. Results for the three months ended 28 February 2014 included an after-tax charge of approximately US$3 million (US$0.03 per diluted share) incurred in connection with the company's final settlement of the Standard Iron Works v. Arcelor Mittal et al. lawsuit. This compares to net earnings attributable to CMC of US$4.6 million, or US$0.04 per diluted share, on net sales of US$1.7 billion for the three months ended 28 February 2013.
Results for this year's second quarter included after-tax LIFO expense of US$12.3 million (US$0.10 per diluted share), compared with after-tax LIFO income from continuing operations of US$0.3 million (US$0.00 per diluted share) for the second quarter of fiscal 2013, an unfavorable change of US$12.6 million (US$0.10 per diluted share). Adjusted operating profit was US$35.2 million for the second quarter of fiscal 2014, compared with adjusted operating profit of US$26.7 million for the prior year's second quarter. Adjusted EBITDA was US$67.9 million for the second quarter of fiscal 2014, compared with adjusted EBITDA of US$60.1 million for the prior year's second quarter.
The company's financial position at 28 February 2014 remained strong with cash and cash equivalents ofUS$431.8 million and approximately US$1 billion in total liquidity, compared with cash and cash equivalents of US$378.8 million and total liquidity of US$1.1 billion at August 31, 2013.
Joe Alvarado, chairman of the board, president, and CEO, commented, "As expected, results for the second quarter declined due to the impact of normal seasonality, inclement weather conditions particularly in North America and holiday slowdowns. However, we are encouraged by the second quarter results of our Polish operations, which were driven by economic improvements in Poland and surrounding markets. In addition, backlogs in our Americas division as of 28 February 2014 were at record highs."
Business Segments
The Americas Recycling segment recorded adjusted operating loss of US$0.9 million for the second quarter of fiscal 2014, compared with adjusted operating profit of US$2.2 million for the second quarter of fiscal 2013. The decline in this segment's performance is attributed to a 5% decline in ferrous metal margins as a result of a 7% increase in ferrous material costs, which outpaced an increase in ferrous selling prices of 4% when compared to the second quarter of fiscal 2013. The decline in profitability was offset by a US$2.0 million favorable change in pre-tax LIFO, from pre-tax LIFO expense of US$1.0 million in the second quarter of fiscal 2013 to pre-tax LIFO income of US$1.0 million in the second quarter of fiscal 2014.
The Americas Mills segment recorded adjusted operating profit of US$44.1 million for this year's second quarter, compared with adjusted operating profit of US$47.7 million for the prior year's second quarter. While shipments for each of this segment's products increased during the second quarter of fiscal 2014 when compared to the second quarter of fiscal 2013, an US$18 per short ton increase in the average cost of ferrous scrap consumed, as well as a US$7 per short ton decrease in average selling price of this segment's products, resulted in an 8%, orUS$25 per short ton, metal margin compression, when compared to the second quarter of fiscal 2013. Additionally, pre-tax LIFO expense increased US$8.3 million from the second quarter of fiscal 2013 to the second quarter of fiscal 2014. This increase in pre-tax LIFO expense, coupled with metal margin compression, resulted in a US$3.6 million, or 8%, decline in this segment's adjusted operating profit in the second quarter of fiscal 2014 when compared to the second quarter of fiscal 2013.
The Americas Fabrication segment recorded adjusted operating loss of US$5.3 million for this year's second quarter, compared with adjusted operating loss of US$3.8 million for the second quarter of fiscal 2013. The decline in profitability was primarily due to a US$5.0 million unfavorable change in pre-tax LIFO, from pre-tax LIFO income of US$0.5 million in the second quarter of fiscal 2013 to pre-tax LIFO expense of US$4.5 million in the second quarter of fiscal 2014. The unfavorable charge to pre-tax LIFO was partially offset by a US$45 per short ton increase in metal margin as a result of a 6% decrease in material cost, when compared to the second quarter of fiscal 2013.
The International Mill segment recorded adjusted operating profit of US$8.3 million for this year's second quarter, compared with adjusted operating loss of US$4.2 million for the prior year's second quarter. While tons shipped were steady for the current quarter when compared to the same quarter in the prior year, sales prices increased by US$23 per short ton and the cost of ferrous scrap consumed decreased by US$4 per short ton, resulting in a 12% increase in metal margin, which contributed to the improved operating results. Volumes for this segment's merchant products increased by approximately 34,000 short tons when compared to the prior year's second quarter, with February representing a record month for merchant shipments.
The International Marketing and Distribution segment recorded adjusted operating profit of US$2.5 million for this year's second quarter, compared with adjusted operating profit of US$3.9 million for the prior year's second quarter. The decline in adjusted operating profit compared to the second quarter of fiscal 2013 was primarily attributed to an US$8.1 million unfavorable change in pre-tax LIFO associated with our U.S.-based trading divisions, from pre-tax LIFO income of US$4.3 million in the second quarter of fiscal 2013 to pre-tax LIFO expense of US$3.8 million in the second quarter of fiscal 2014. Additionally, our U.S.-based trading divisions experienced an increase in metal margins, which partially offset the unfavorable change in pre-tax LIFO. All non-U.S. divisions within this segment recorded improvements to adjusted operating profit for the second quarter of fiscal 2014 when compared to the same quarter in the prior year. The Australian operations reported a modest improvement for the second quarter of fiscal 2014 compared to the same quarter in the prior year. The Australian market remains depressed with ongoing aggressive competition for volumes; however, cost improvements have resulted in improved operating results for this division.
Year to Date Results
Net earnings attributable to CMC for the six months ended 28 February 2014 were US$57.1 million (US$0.48 per diluted share) on net sales of US$3.3 billion, compared with net earnings attributable to CMC of US$54.3 million(US$0.46 per diluted share) on net sales of US$3.4 billion for the six months ended 28 February 2013. Results for the six months ended 28 February 2014 included an after-tax gain of US$15.5 million (US$0.13 per diluted share) associated with the sale of the Company's wholly owned copper tube manufacturing operation, Howell Metal Company ("Howell"). Results for the six months ended 28 February 2013 included an after-tax gain of US$17.0 million (US$0.14 per diluted share) associated with the sale of the Company's 11% ownership interest in Trinecke Zelezarny, a.s., a Czech Republic joint-stock company. The Company recorded after-tax LIFO expense of US$15.1 million (US$0.13 per diluted share) for the six months ended 28 February 2014, compared with after-tax LIFO income of US$15.4 million (US$0.13 per diluted share) for the six months ended 28 February 2013. For the six months ended 28 February 2014, adjusted operating profit was US$125.2 million, compared with US$117.3 million for the six months ended 28 February 2013. Adjusted EBITDA was US$192.2 million for the six months ended 28 February 2014, compared with US$186.2 million for the six months ended 28 February 2013.
Outlook
Alvarado concluded, "The third quarter typically brings warmer weather and therefore seasonal improvements in the construction markets, which we expect will spur activity in the industry. Overall, the U.S. construction markets continued to show improvement during the second quarter of 2014, but at a slower pace than we would like to see. While the American Institute of Architects reported the Architecture Billings Index (ABI) below 50 in November and December of 2013, the ABI index rebounded in January 2014 to 50.4 and to 50.7 in February 2014, which we believe points to improvement in the domestic construction markets. This growth may be offset by a continued influx of Turkish rebar imports, pending the upcoming countervailing and anti-dumping decisions by the U.S. Commerce Department in April. In the upcoming months, our Polish operations plan to commission a new modern electric arc furnace, and we anticipate that this upgrade, over time, will translate into meaningful operating cost improvements in our International Mill segment. Despite improvements in the Eurozone during the second quarter of fiscal 2014, the recent turmoil in Ukraine could have an adverse impact on our European operations. Although growth in China has slowed and import pricing has continued to challenge our operations, we are hopeful that global economic improvements will positively impact our businesses."
Results for this year's second quarter included after-tax LIFO expense of US$12.3 million (US$0.10 per diluted share), compared with after-tax LIFO income from continuing operations of US$0.3 million (US$0.00 per diluted share) for the second quarter of fiscal 2013, an unfavorable change of US$12.6 million (US$0.10 per diluted share). Adjusted operating profit was US$35.2 million for the second quarter of fiscal 2014, compared with adjusted operating profit of US$26.7 million for the prior year's second quarter. Adjusted EBITDA was US$67.9 million for the second quarter of fiscal 2014, compared with adjusted EBITDA of US$60.1 million for the prior year's second quarter.
The company's financial position at 28 February 2014 remained strong with cash and cash equivalents ofUS$431.8 million and approximately US$1 billion in total liquidity, compared with cash and cash equivalents of US$378.8 million and total liquidity of US$1.1 billion at August 31, 2013.
Joe Alvarado, chairman of the board, president, and CEO, commented, "As expected, results for the second quarter declined due to the impact of normal seasonality, inclement weather conditions particularly in North America and holiday slowdowns. However, we are encouraged by the second quarter results of our Polish operations, which were driven by economic improvements in Poland and surrounding markets. In addition, backlogs in our Americas division as of 28 February 2014 were at record highs."
Business Segments
The Americas Recycling segment recorded adjusted operating loss of US$0.9 million for the second quarter of fiscal 2014, compared with adjusted operating profit of US$2.2 million for the second quarter of fiscal 2013. The decline in this segment's performance is attributed to a 5% decline in ferrous metal margins as a result of a 7% increase in ferrous material costs, which outpaced an increase in ferrous selling prices of 4% when compared to the second quarter of fiscal 2013. The decline in profitability was offset by a US$2.0 million favorable change in pre-tax LIFO, from pre-tax LIFO expense of US$1.0 million in the second quarter of fiscal 2013 to pre-tax LIFO income of US$1.0 million in the second quarter of fiscal 2014.
The Americas Mills segment recorded adjusted operating profit of US$44.1 million for this year's second quarter, compared with adjusted operating profit of US$47.7 million for the prior year's second quarter. While shipments for each of this segment's products increased during the second quarter of fiscal 2014 when compared to the second quarter of fiscal 2013, an US$18 per short ton increase in the average cost of ferrous scrap consumed, as well as a US$7 per short ton decrease in average selling price of this segment's products, resulted in an 8%, orUS$25 per short ton, metal margin compression, when compared to the second quarter of fiscal 2013. Additionally, pre-tax LIFO expense increased US$8.3 million from the second quarter of fiscal 2013 to the second quarter of fiscal 2014. This increase in pre-tax LIFO expense, coupled with metal margin compression, resulted in a US$3.6 million, or 8%, decline in this segment's adjusted operating profit in the second quarter of fiscal 2014 when compared to the second quarter of fiscal 2013.
The Americas Fabrication segment recorded adjusted operating loss of US$5.3 million for this year's second quarter, compared with adjusted operating loss of US$3.8 million for the second quarter of fiscal 2013. The decline in profitability was primarily due to a US$5.0 million unfavorable change in pre-tax LIFO, from pre-tax LIFO income of US$0.5 million in the second quarter of fiscal 2013 to pre-tax LIFO expense of US$4.5 million in the second quarter of fiscal 2014. The unfavorable charge to pre-tax LIFO was partially offset by a US$45 per short ton increase in metal margin as a result of a 6% decrease in material cost, when compared to the second quarter of fiscal 2013.
The International Mill segment recorded adjusted operating profit of US$8.3 million for this year's second quarter, compared with adjusted operating loss of US$4.2 million for the prior year's second quarter. While tons shipped were steady for the current quarter when compared to the same quarter in the prior year, sales prices increased by US$23 per short ton and the cost of ferrous scrap consumed decreased by US$4 per short ton, resulting in a 12% increase in metal margin, which contributed to the improved operating results. Volumes for this segment's merchant products increased by approximately 34,000 short tons when compared to the prior year's second quarter, with February representing a record month for merchant shipments.
The International Marketing and Distribution segment recorded adjusted operating profit of US$2.5 million for this year's second quarter, compared with adjusted operating profit of US$3.9 million for the prior year's second quarter. The decline in adjusted operating profit compared to the second quarter of fiscal 2013 was primarily attributed to an US$8.1 million unfavorable change in pre-tax LIFO associated with our U.S.-based trading divisions, from pre-tax LIFO income of US$4.3 million in the second quarter of fiscal 2013 to pre-tax LIFO expense of US$3.8 million in the second quarter of fiscal 2014. Additionally, our U.S.-based trading divisions experienced an increase in metal margins, which partially offset the unfavorable change in pre-tax LIFO. All non-U.S. divisions within this segment recorded improvements to adjusted operating profit for the second quarter of fiscal 2014 when compared to the same quarter in the prior year. The Australian operations reported a modest improvement for the second quarter of fiscal 2014 compared to the same quarter in the prior year. The Australian market remains depressed with ongoing aggressive competition for volumes; however, cost improvements have resulted in improved operating results for this division.
Year to Date Results
Net earnings attributable to CMC for the six months ended 28 February 2014 were US$57.1 million (US$0.48 per diluted share) on net sales of US$3.3 billion, compared with net earnings attributable to CMC of US$54.3 million(US$0.46 per diluted share) on net sales of US$3.4 billion for the six months ended 28 February 2013. Results for the six months ended 28 February 2014 included an after-tax gain of US$15.5 million (US$0.13 per diluted share) associated with the sale of the Company's wholly owned copper tube manufacturing operation, Howell Metal Company ("Howell"). Results for the six months ended 28 February 2013 included an after-tax gain of US$17.0 million (US$0.14 per diluted share) associated with the sale of the Company's 11% ownership interest in Trinecke Zelezarny, a.s., a Czech Republic joint-stock company. The Company recorded after-tax LIFO expense of US$15.1 million (US$0.13 per diluted share) for the six months ended 28 February 2014, compared with after-tax LIFO income of US$15.4 million (US$0.13 per diluted share) for the six months ended 28 February 2013. For the six months ended 28 February 2014, adjusted operating profit was US$125.2 million, compared with US$117.3 million for the six months ended 28 February 2013. Adjusted EBITDA was US$192.2 million for the six months ended 28 February 2014, compared with US$186.2 million for the six months ended 28 February 2013.
Outlook
Alvarado concluded, "The third quarter typically brings warmer weather and therefore seasonal improvements in the construction markets, which we expect will spur activity in the industry. Overall, the U.S. construction markets continued to show improvement during the second quarter of 2014, but at a slower pace than we would like to see. While the American Institute of Architects reported the Architecture Billings Index (ABI) below 50 in November and December of 2013, the ABI index rebounded in January 2014 to 50.4 and to 50.7 in February 2014, which we believe points to improvement in the domestic construction markets. This growth may be offset by a continued influx of Turkish rebar imports, pending the upcoming countervailing and anti-dumping decisions by the U.S. Commerce Department in April. In the upcoming months, our Polish operations plan to commission a new modern electric arc furnace, and we anticipate that this upgrade, over time, will translate into meaningful operating cost improvements in our International Mill segment. Despite improvements in the Eurozone during the second quarter of fiscal 2014, the recent turmoil in Ukraine could have an adverse impact on our European operations. Although growth in China has slowed and import pricing has continued to challenge our operations, we are hopeful that global economic improvements will positively impact our businesses."
