Commercial Metals Co. reported record quarterly net earnings of $73.7 million on net sales of $1.53 billion for the quarter ended November 30, 2004. This is the third consecutive quarter in which net earnings exceeded those for any previous complete fiscal year before fiscal 2004.

First Quarter Results—Net earnings of $73.7 million ($2.42 per diluted share) compare to net earnings of $12.6 million ($0.44 per diluted share) for the same period last year. Net sales of $1.53 billion compare with net sales of $830 million for the same period last year. The current year quarter included a pre-tax LIFO expense of $34.2 million ($0.73 per diluted share) compared with a LIFO expense of $1.3 million ($0.03 per diluted share) in the prior year quarter. The effective tax rate was 33.9%.

Comments—CMC Chairman, President and CEO Stanley A. Rabin said, "We continued to benefit in the first quarter from the favorable pricing and volume environment for most of our businesses and we achieved outstanding results across all of our segments. But just as certainly, our long enacted strategy of vertical integration and diversification has placed us in a position to reap major gains from positive environments. While markets generally remained strong during the quarter, there was a slowing in China and inventory adjustments in the U.S. and Europe which created some pressure on the high global prices for steel, nonferrous metals and industrial raw materials, as well as some slowing of shipments at the mill level. On the other hand, input costs remained high, freight rates increased again, and the U.S. dollar weakened further, all serving to sustain elevated dollar-denominated selling prices."

Domestic Mills Results—Commenting on CMC’s domestic facilities, Rabin said, "It was a remarkable quarter for our Domestic Mills segment. The record adjusted operating profit of $50.7 million for the first quarter on net sales of $316 million dwarfed last year's first quarter, including a pre-tax LIFO expense of $27.1 million in this year's first quarter (compared with $553 thousand LIFO expense last year). Within the segment, quarterly adjusted operating profit for our domestic steel minimills at $48.5 million also was a record and quadrupled that of a year earlier on the strength of vastly improved selling prices and solid shipments, which more than offset the steep rise in steel scrap and other input costs. Indeed, it was the best-ever quarterly profit for each of the four mills. On a year-to-year basis, tonnage melted for the first quarter was lower by 2% to 549 thousand tons; tonnage rolled was 546 thousand tons, 1% above last year's first quarter; and shipments, including billets, decreased 4% to 545 thousand tons. Our quarterly average total mill selling price of $484 per ton was $175 per ton or 57% above last year's still depressed level and the average selling price for finished goods was up by $185 per ton to $498 per ton. Conversely, the average scrap purchase cost rose by $70 per ton versus a year ago to $188 per ton. Additionally, utility costs increased by $1.0 million compared with the first quarter last year, and costs for other supplies increased as well. On balance, though, our margins rose considerably; the metal spread at $296 per ton was $105 per ton greater than the first quarter of last year."

Rabin added, "During the quarter we filed our initial claim of $18 million for business interruption reimbursement for the transformer failure at SMI South Carolina. We recorded an advance of $4 million in the Domestic Mill segment. Our ultimate total recovery remains dependent on resolution of issues regarding lost sales, prices, costs incurred and avoided, deductible amounts, and other factors. We cannot reasonably estimate the amount of our total recovery at this time. Our claim for business interruption at SMI-Texas is still being developed and reviewed and has not been filed.

"The copper tube mill recorded an adjusted operating profit of $2.2 million, comparable with that of the prior year's first quarter. The LIFO provision was $1.0 million pre-tax expense ($230 thousand last year). Demand from residential and commercial users was relatively steady. First quarter-to-quarter metal spreads improved by 3 cents per pound to 56 cents per pound, despite the sharp rise in the underlying copper scrap price because of a parallel increase in tube selling prices. Against the same period last year, copper tube production decreased 1% to 16.0 million pounds while shipments declined 3% to 16.2 million pounds."

CMCZ Results—Commenting on CMC’s Polish operations, Rabin said, "It was another very solid quarter for CMCZ, the steel minimill and related operations in Poland. Market conditions were not as strong as the fourth quarter of fiscal 2004; we experienced a significant decline in shipments as a result of the strengthening of the Polish Zloty as well as the seasonal slowdown. CMCZ generated net sales of PLN 424 million ($123 million) and recorded an adjusted operating profit of PLN 42.4 million ($12.3 million) on a 100% owned basis. The average sales price increased from the fourth quarter to PLN 1,667 per short ton while the average scrap purchase cost increased from the fourth quarter to PLN 833 per short ton, resulting in a metal spread of PLN 834 per ton. For the quarter, melted tons equaled 328 thousand, rolled tons equaled 202 thousand, and shipments totaled 252 thousand tons, including billets. Fourth quarter 2004 shipments had totaled 364 thousand tons."

Domestic Fabrication—Rabin continued, "The adjusted operating profit of $24.6 million for the Domestic Fabrication segment on net sales of $327 million was more than four times higher than the previous year's quarter under increasingly favorable market conditions, notwithstanding a $4.6 million increase in the LIFO reserve (compared with a $322 thousand increase last year). All product areas — rebar fabrication, construction-related products (CRP), steel post plants, steel joist manufacturing, structural steel fabrication, and heat treating — showed improved profits and benefited from significant increases in selling prices and good operating levels. Shipments from our fabrication plants, including Lofland, totaled 340 thousand tons, 22% above the prior year's first quarter, although specific product lines were mixed. The composite average fab selling price (excluding stock and buyouts) increased dramatically by $266 per ton to $821 per ton."

Recycling—According to Rabin, "The Recycling segment recorded another superb quarter on 67% higher net sales dollars ($220 million), propelled by vibrant ferrous and nonferrous scrap markets. This compared most favorably with the quarter a year ago. Adjusted operating profit more than tripled to $19.8 million. LIFO expense for the quarter was $2.2 million ($367 thousand last year). Most of the increase in profitability occurred on the ferrous side. Gross margins were significantly above last year while processing costs, as a percent of sales, declined to 9.1%. Our markets still were characterized by extraordinary price volatility for our major commodities against a backdrop of continued overall strong demand for our products. As ever, we focused on rapid inventory turnover. Versus last year, the average ferrous scrap sales price for the quarter increased by 77% to $220 per ton, and shipments climbed 9% to 470 thousand tons. The average nonferrous scrap sales price for the quarter was approximately 32% above a year ago while nonferrous shipments were 23% higher at 67 thousand tons. The total volume of scrap processed, including all our processing operations, equaled 828 thousand tons against 734 thousand tons in last year's first quarter."

Marketing and Distribution—"Adjusted operating profit of $23.4 million for the Marketing and Distribution segment was another record," Rabin said, "close to four times last year's first quarter reflecting broad-based, robust business across multiple product lines and geographic areas led by the demand for steel in many of our markets. The segment recorded pre-tax LIFO expense of $281 thousand (negligible in prior year). Net sales totaled $681 million and were strong in the United States, Asia, Europe, and Australia. China imported less steel than it had been and exported significant quantities of steel during the quarter as a result of its cooler economy and, in fact, became a net exporter of steel in September 2004. Our sales of aluminum, copper, brass and stainless steel semis increased significantly. Sales and profits for industrial materials and products continued at record levels, including traditional and newer items, with especially high demand globally from the steel industry. Our value-added downstream processing businesses, primarily in Australia, continued to generate good profits. The impact of the weaker U.S. dollar and higher freight rates was mixed."

Financial Condition/Stock Dividend—Rabin added, "Our financial position remained strong. At quarter-end, long-term debt as a percentage of total capitalization was 34%, and the ratio of total debt to total capitalization plus short-term debt was 36%. Our working capital was $733 million and the current ratio was 1.9. Our coverage ratios were strong.

"On November 22, 2004, the company announced a two-for-one stock split in the form of a 100% stock dividend on the company's common stock payable January 10, 2005 to shareholders of record December 13, 2004 and announced a new quarterly cash dividend of 6 cents per share on the increased number of shares resulting from the stock dividend. The Board of Directors has implemented this increase by declaring a cash dividend payment of 6 cents per share to stockholders of record January 21, 2005. The dividend will be paid January 31, 2005. This is the 161st consecutive quarterly dividend paid by Commercial Metals Co. The effect of the stock dividend combined with the new cash dividend rate results in stockholders receiving a 20% increase in cash dividend payments, which combined with an earlier raise in the dividend represents a 50% increase in the last year."

Outlook—Rabin concluded, "Our outlook for the balance of the year remains very positive, although the second quarter typically is our weakest because of the seasonal construction slowdown. We expect the shift in profits to continue, with a higher proportion coming from the Domestic Fabrication segment. Domestic steel mill prices and shipments have weakened somewhat, while these same factors for CMCZ [dollar denominated] have declined to a greater extent. On the other hand, Domestic Fabrication prices have risen and demand remains strong. Ferrous and nonferrous scrap prices remain high, but extraordinarily volatile. Marketing and Distribution orders continue at a very healthy level. We anticipate second quarter LIFO diluted net earnings per share between $1.50 and $1.70, still strong and well above last year, but lower than the first quarter. We then expect earnings to reaccelerate in the second half of fiscal 2005, especially since the non-residential construction outlook in the United States has improved further. The additional potential recovery resulting from the South Carolina and Texas mill transformer business interruption claims, which may be substantial, has not been considered in our earnings estimate owing to the timing of recovery which may extend beyond the second quarter and our inability to estimate the recoverable amount."

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.