CMC Reports Improved First Quarter Earnings
01/09/2012 - Commercial Metals Co. reported net earnings of $107.7 million on net sales of $2.0 billion for the fiscal first quarter ended November 30, 2011.
Commercial Metals Co. reported net earnings of $107.7 million on net sales of $2.0 billion for the fiscal first quarter ended November 30, 2011.
First Quarter Results — The earnings ($107.7 million or $0.93 per diluted share) represent a substantial improvement over net earnings of $0.7 million ($0.01 per diluted share) reported in the year-ago first quarter. Net earnings from continuing operations increased significantly to $125.0 million ($1.07 per diluted share) as compared to net earnings of $14.9 million ($0.13 per diluted share) for the year-ago first quarter.
In addition to operating improvements, continuing operations benefited from a tax benefit of $102.0 million ($0.87 per share) related to ordinary worthless stock and bad debt deductions from the investment in the company's Croatian subsidiary. Continuing operations also had after-tax LIFO income of $15.5 million, which compares to $3.9 million of after-tax LIFO expense in the year-ago first quarter.
Discontinued Operations — CMC's discontinued operations, which consist primarily of the Croatian pipe mill, had a net loss of $17.3 million ($0.14 per share), which compares to a net loss of $14.1 million ($0.12 per share) in the year-ago first quarter. CMC announced its decision on October 7, 2011, to exit the Croatian pipe mill business by closure of the facility and sale of the assets. Production in the meltshop and rolling mill ceased at the end of the first quarter of fiscal 2012, and final shipments will be made in the second quarter. Severance costs of approximately $18 million were recognized by the Croatian mill in this year's first quarter and the company forecasts costs associated with this facility to be greatly reduced in the following months.
Management Comments — "We achieved another quarter of profitability, reflecting the continued effective execution of our business plan and the fact that this plan is beginning to yield positive results,” said Joe Alvarado, President and Chief Executive Officer. “Our mill segments, including our Polish mill, achieved profitability with higher volume, selling prices and metal margins as compared to the first quarter of 2011. Although ferrous scrap prices started to fall near the end of the quarter, our Americas Recycling segment still achieved higher adjusted operating profit than last year's first quarter. We are also encouraged to see our backlog at levels higher than last quarter."
Cash and short-term investments totaled $228.1 million as of November 30, 2011. Cash flow from operating activities for this quarter was $38 million with adjusted EBITDA of $55.5 million. There were no outstanding borrowings against the $400 million revolving credit facility. Coverage tests under the Company's unused revolver and public debt were met. On December 27, 2011, CMC entered into a new five-year credit revolver with a borrowing capacity of $300 million plus the option to increase up to $400 million. On December 28, 2011, CMC increased its domestic receivable sales facility capacity by $100 million to $200 million.
Segment Results — Alvarado noted that the company’s Americas Mills, Americas Recycling and International Mills segments led the first quarter's profitability with adjusted operating profit increasing over last year's first quarter. Americas Mills had an adjusted operating profit of $57.9 million, $23.8 million higher than last year's first quarter. The company’s new Arizona mill within this segment also had another quarter of profitability.
Americas Recycling had adjusted operating profit of $20.8 million, compared to $8.2 million in the first quarter of 2011. The International Mills segment, consisting of the company’s mill and other operations in Poland, had an adjusted operating profit of $9.8 million in this year's first quarter, compared to $6.4 million in the same period last year. The Polish mill achieved this level of profitability despite incurring the downtime and costs of a major, scheduled maintenance in this year's first quarter.
The Americas Fabrication segment continues to be affected by a difficult rebar fabricated steel market. Recent restructuring actions helped reduce the quarterly adjusted operating loss to $7.4 million, a significant improvement over last year's first quarter adjusted operating loss of $22.0 million. The backlog for this segment grew slightly over last quarter's backlog with the average sales price increasing $30 per ton over last quarter and $136 per ton over last year's first quarter.
Alvarado noted that although the company’s International Marketing and Distribution segment has been profitable for the nine previous quarters, it incurred an adjusted operating loss of $4.1 million this quarter, primarily due to a charge incurred on long positions CMC held on iron ore purchase contracts. Iron ore prices dropped 31% during October 2011 before beginning to recover at the end of the first quarter.
Outlook — Alvarado concluded, "Our second quarter is historically our slowest quarter due to weather-related slowdowns in construction and holiday seasons around the world. That said, we expect scrap prices to rise in the second quarter of 2012, which should benefit our recycling operations; however, our mills and fabrication operations could temporarily experience metal margin compression. Moreover, as previously mentioned, our backlog remains somewhat higher than the last quarter with improved prices. We also remain focused on and continue to make good progress in improving our operating cost structure and cash flows.
“Despite the anticipated seasonal slowdown in the second quarter, we look forward to continuing to build on our momentum in 2012 and beyond," concluded Alvarado.
Commercial Metals Company and subsidiaries manufacture, recycle and market steel and metal products, related materials and services through a network including steel minimills, steel fabrication and processing plants, construction-related product warehouses, a copper tube mill, metal recycling facilities and marketing and distribution offices in the United States and in strategic international markets.
