Commercial Metals Co. reported first quarter net earnings of $69.6 million on net sales of $1.6 billion for the quarter ended November 30, 2005.

The $69.6 million net earnings ($1.14 per diluted share) compares with net earnings of $73.7 million ($1.21 per diluted share) for the same period last year. Net sales, $1.6 billion, compares with net sales of $1.5 billion for the same period last year, the first quarter record.

Results included a pre-tax LIFO expense of $21.7 million ($0.23 per diluted share), which compares with a LIFO expense of $34.2 million ($0.36 per diluted share) in the prior year quarter. The effective tax rate was 34.9%.

CMC Chairman, President and CEO Stanley A. Rabin said, "Overall market conditions remained favorable, but more challenging than one year ago. Nonetheless, with our diverse but related businesses, we achieved again outstanding results across four of our five segments. Steel and nonferrous prices were relatively high and shipments especially robust in the United States. All signs point to relatively low inventories at end users and distributors. On the other hand, steel prices weakened in Asia and Europe. Meanwhile, input costs remained high resulting in a higher than expected LIFO expense. The U.S. dollar strengthened moderately, putting some general pressure on dollar denominated selling prices."

Domestic Mills—Regarding CMC’s domestic mills, Rabin said, "It was a record first quarter for our Domestic Mills segment. The adjusted operating profit of $64.9 million for the quarter, on net sales of $370 million, exceeded last year's excellent first quarter by 20%. This year's result included a pre-tax LIFO expense of $9.7 million (compared with $27.1 million LIFO expense last year) of which $8.2 million applied to the domestic steel mills. Within the segment, quarterly adjusted operating profit for our domestic steel minimills at $60.7 million also was a first quarter record and up 25% from that of a year earlier on the strength of improved margins and strong shipments, which more than offset higher operating costs.

“Higher rebar prices compensated for lower merchant bar prices. On a year-to- year basis, tonnage melted for the first quarter rose by 4% to 573 thousand tons; tonnage rolled was 522 thousand tons, 4% below last year's first quarter; and shipments, including billets, increased 14% to 624 thousand tons.

“Our quarterly average mill selling price (total sales) of $490 per ton was $6 per ton (1%) above last year's level, and the average selling price for finished goods was up by $12 per ton to $510 per ton. Conversely, the average scrap purchase cost decreased slightly compared with a year ago to $187 per ton. Our metal margin based on scrap utilized increased by $16 per ton to $287 per ton. Utility costs increased by $7.9 million or 46% versus the first quarter last year; electricity costs rose $3.5 million, the result of both increased usage and price per kwh, while natural gas costs were up over $4.4 million due solely to higher prices. Changes in costs for supplies were mixed.

CMCZ—According to Rabin, "This year's first quarter's adjusted operating profit was $1.5 million for CMCZ, the steel minimill and related operations in Poland, compared with an adjusted operating profit of $12.3 million the prior year. Market conditions were considerably weaker than the first quarter of fiscal 2005 with selling prices depressed, especially for billets and wire rod, and with gross margins much lower, partly attributable to major planned maintenance during the quarter. Certainly, infrastructure spending by the Polish government has been slower to develop than we had anticipated. CMCZ generated net sales of PLN 349 million ($107 million) compared with net sales of PLN 436 million the previous year. The average sales price decreased by 22% from the first quarter of fiscal 2005 to PLN 1,304 ($398) per short ton while the average scrap purchase cost decreased by 32% to PLN 569 ($173) per short ton. This year's metal spread was PLN 631 per ton, which compared with PLN 700 per ton one year ago. For the quarter, melted tons equaled 284 thousand, rolled tons equaled 237 thousand, and shipments totaled 257 thousand tons, including billets. Prior year numbers were 328 thousand tons, 202 thousand tons, and 252 thousand tons. Inventories at November 30, 2005 were nearly half their levels compared to last year.

"In early December 2005, we announced that Ludovit Gajdos succeeded Marek Rozga as President of the Management Board of CMCZ. Mr. Gajdos has been a member of the Management Board since acquisition. Start up of the strategically important 8,000 hp mega-shredder situated at the mill is expected mid-January 2006. We are scheduled to complete installation of our initial rebar fabrication operation in Poland by May 2006, also at the mill site, as we further implement our vertical integration in that market."

Domestic Fabrication—Rabin continued, "The adjusted operating profit of $18.2 million for the Domestic Fabrication segment on net sales of $401 million compares with an adjusted operating profit of $21.3 million the previous year's quarter under increasingly favorable market conditions. This year included a $13.9 million LIFO expense (compared with a $4.6 million expense last year). Among our product areas — rebar fabrication, construction-related products (CRP), steel post plants, steel joist manufacturing, structural steel fabrication, and heat treating — most showed improved profits and benefited from strong selling prices and shipping levels. Shipments from our fabrication plants totaled 364 thousand tons, 11% above the prior year's first quarter, although specific product lines were mixed. We were fortunate that the impact of the three hurricanes in the U.S. Gulf was minimal, while the reconstruction efforts will provide additional work."

Financial Condition—Rabin said, "Our financial position remained strong. At quarter end, long-term debt as a percentage of total capitalization was 28%. Our working capital was $876 million and the current ratio was 2.1. Our coverage ratios were strong. Cash flows from operating activities was $72 million."

Outlook—"Our outlook for the balance of the year remains very positive,” commented Rabin, “although the second quarter typically is our weakest because of the seasonal construction slowdown. Still, the non-residential and non-building construction markets continue to be relatively strong in the United States. Indeed, the overall economic outlook is positive, led by a continuous string of good reports in the U.S. and moderate growth in the Pacific Rim. The outlook for domestic steel mill prices and shipments remains relatively strong, while these same factors for CMCZ are much less favorable. The biggest uncertainty for our global steel markets continues to be overproduction in China, Brazil and Turkey, possibly leading to excessive exports, although we still believe the Chinese Central Government will constrain China's steel exports. We are cautiously optimistic for the copper tube mill results. Domestic Fabrication segment prices have risen and order books remain robust. Ferrous and nonferrous scrap prices remain high, especially the latter, but we can anticipate extraordinary volatility with the likelihood that the average ferrous scrap price will be down in the second quarter of fiscal 2006. Marketing and Distribution shipments and orders continue at a very healthy level. We anticipate second quarter LIFO diluted net earnings per share between $0.85 and $1.05, still strong compared to $0.91 last year, but lower than the first quarter.

"We then expect earnings to reaccelerate in the second half of fiscal 2006, especially since the private and public non-residential construction outlook in the United States has improved further, and the highway program should be vibrant."

Commercial Metals Co. 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 overseas markets.