CMC Reports Third Quarter Earnings
06/19/2008 - Commercial Metals Co. reports net earnings of $59.5 million on net sales of $2.9 billion for the quarter, and net earnings of $168.4 million on net sales of $7.3 billion for the nine months ended May 31, 2008.
Commercial Metals Co. reported net earnings of $59.5 million on net sales of $2.9 billion for the quarter, and net earnings of $168.4 million on net sales of $7.3 billion for the nine months ended May 31, 2008.
Third Quarter Results—The $59.5 million net earnings ($0.51 per diluted share) compares with net earnings of $99.4 million ($0.82 per diluted share) for the third quarter last year, which was a record third quarter. Net sales of $2.9 billion compares with net sales of $2.2 billion for the third quarter last year.
Results included a record $83-million ($0.71 per diluted share) after-tax LIFO expense, which compares with expense of $20.1 million ($0.16 per diluted share) in last year's third quarter. At quarter end, CMC’s LIFO reserve totaled $422 million.
Management had projected a range of $0.70 to $0.80 per diluted share, including a LIFO expense of $0.11 per diluted share. Actual earnings per diluted share were $0.51 with an unforeseen LIFO expense of $0.71 per diluted share. Operationally the company exceeded its projection by a range of $0.31 to $0.41 per share.
Selling, general and administrative expenses included $18.2 million of pre-tax costs associated with the investment in the global deployment of SAP software. Other costs of $8.7 million were capitalized during the quarter.
Nine Month Results—Net earnings of $168.4 million ($1.43 per diluted share) compare to net earnings of $250.7 million ($2.06 per diluted share) for the same period last year. Net sales of $7.3 billion compare to net sales of $6.0 billion for the first nine months last year. After-tax LIFO expense of $118 million ($1.00 per diluted share) compares with an expense of $39.0 million ($0.32 per diluted share) last year.
Selling, general and administrative expenses included $43.2 million of pre-tax costs associated with global deployment of SAP software. The company has expensed $78 million and capitalized $68 million for the project to date.
Although no shares were repurchased during the third quarter, the company has purchased 5,412,238 shares through the first nine months at an average price of $28.00 per share.
Management Comments—"Global markets maintained strength,” said CMC President and CEO Murray R. McClean. “The quarter was marked by unprecedented upward volatility in ferrous scrap and steel finished goods pricing. Following the upward movement in scrap prices, rebar and merchant pricing increased $212 a short ton during the quarter.
“Though management had anticipated significant upward movement in pricing, the extreme increases were unforeseen and led to an enormous LIFO charge. The record LIFO expense of $0.71 cents per diluted share was twice the previous quarterly record, which had been incurred only last quarter. The LIFO charges reflect the rapid pricing changes and affected all our Americas segments, but they mask the underlying strong markets.
“Our Americas Recycling segment rode the ferrous scrap price increases to record quarterly results. The Americas Mills segment had increases in tons melted, rolled, and shipped, including some export sales. Our Americas Fabrication and Distribution operations were hit with the double barrel of LIFO charges and margin compression on the rapidly escalating steel prices; however, our steel import distribution results were encouraging. The International Mills segment remained a tale of two cities—strong in Zawiercie, Poland, and the expected turnaround cost in Sisak, Croatia. Our International Fabrication and Distribution segment was opportunistic in this volatile environment and showed record results."
McClean noted that the company had invested $47 million to date of the expected $165 million total cost of its micro-mill project in Arizona.
He also said that the turnaround at CMCS (Croatia) continues, with production and shipments up despite a “totally voluntary 15% reduction of the workforce”.
Fourth Quarter Outlook—"Global demand for scrap, raw materials and steel products should remain at robust levels,” said McClean. “China's significant cutback on steel exports in 2008 has impacted supply and global steel prices. There may be further reductions in Chinese steel exports following the earthquake and, in particular, if China imposes additional export taxes on commercial steel products. Global infrastructure and construction should remain extremely strong in regions such as the Middle East and North Africa. As a result, steel prices, in particular rebar, are likely to remain at record levels. Steel inventory levels in most international markets are low which should further support rising steel prices.
“In the U.S., nonresidential construction should remain steady,” continued McLean. “U.S. ferrous scrap prices, in particular obsolete grades, may increase due to the growing price differential with prime grades as well as higher international scrap prices. Regardless of ferrous scrap price increases, rebar prices in the U.S. are likely to trend higher due to both the significant reduction in rebar imports as well as much higher international rebar prices. U.S. mills are likely to continue to export steel products while international steel prices remain significantly higher. Our global mixture of businesses should benefit from the strength in international markets impacting raw materials, scrap and steel products.”
Summarizing, McClean added, "Similar to our third quarter fiscal 2008, four of our five segments should perform very strongly. Our fifth segment, Americas Fabrication and Distribution, is likely to suffer further margin compression due to increasing steel prices.”
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 international markets.
