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Commercial Metals Co. Reports First Fiscal Quarter Results and Outlook
01/07/2013 - As Commercial Metals Co. reported its earnings results for the quarter ended 30 November 2012, it said there is growing evidence of an emerging recovery in domestic construction markets, which is encouraging for future quarters.
Commercial Metals Company announced financial results for the first quarter ended 30 November 2012. Net earnings attributable to CMC for the first quarter were US$49.7 million on net sales of $1.8 billion. This compares to net earnings of $107.7 million on net sales of $2.0 billion for the three months ended 30 November 2011.
First quarter results included an after-tax gain of $17.0 million associated with the sale of the company's 11% ownership interest in Trinecke Zelezarny, a.s., a Czech Republic joint-stock company. Continuing operations for the three months ended 30 November 2011 included $102.1 million in tax benefits related to ordinary worthless stock and bad debt deductions from the investment in the company's former Croatian subsidiary. The company recorded after-tax LIFO income of $15.2 million for the three months ended 30 November 2012, compared with after-tax LIFO income of $15.5 million during the prior year's first quarter.
Joe Alvarado, chairman of the board, president, and CEO, commented, "We continued to improve our competitive position by adding $29 million of cash as a result of the Trinecke Zelezarny, a.s. share sale. Furthermore, we improved sequential operating results entering the winter season and all of our reporting segments remained profitable for the third quarter in a row."
First Quarter Fiscal 2013 versus First Quarter Fiscal 2012
Cash and short-term investments totaled $271.4 million as of 30 November 2012, compared with $262.4 million as of 31 August 2012. Adjusted operating profit was $90.6 million for the three months ended 30 November 2012, compared with adjusted operating profit of $21.1 million during the prior year's first quarter. Adjusted EBITDA was $126.2 million for the three months ended 30 November 2012, compared with adjusted EBITDA of $55.5 million for the three months ended 30 November 2011.
Cash and short-term investments totaled $271.4 million as of 30 November 2012, compared with $262.4 million as of 31 August 2012. Adjusted operating profit was $90.6 million for the three months ended 30 November 2012, compared with adjusted operating profit of $21.1 million during the prior year's first quarter. Adjusted EBITDA was $126.2 million for the three months ended 30 November 2012, compared with adjusted EBITDA of $55.5 million for the three months ended 30 November 2011.
CMC’s Americas Recycling segment recorded an adjusted operating profit of $4.5 million for this year's first quarter, compared with $20.8 million in the prior year's first quarter. Compared to the prior year's first quarter, there was lower demand, which negatively affected ferrous and nonferrous pricing and volumes. Lower domestic mill operating rates and general economic uncertainty contributed to reduced demand in the first quarter of fiscal 2013. LIFO income declined by $8.2 million to $2.4 million in the first quarter of fiscal 2013, from $10.6 million in the prior year's first quarter.
The company’s Americas Mills segment recorded an adjusted operating profit of $52.5 million for this year's first quarter, $5.4 million less than the prior year's first quarter adjusted operating profit of $57.9 million. Compared to the prior year's first quarter, increased conversion costs offset improvements in both shipping volumes and metal margins. The primary factor contributing to higher costs was an extended outage at our South Carolina melt shop where it installed a new electric arc furnace and related components. It incurred approximately $5.5 million of expenses associated with the outage, which were included in this quarter's results.
The Americas Fabrication segment recorded an adjusted operating profit of $10.2 million for this year's first quarter, marking a significant improvement of $17.6 million over the prior year's first quarter adjusted operating loss of $7.4 million. The segment continued to benefit from stable material pricing and improved backlog margins.
The International Mill segment had an adjusted operating profit of $0.9 million for this year's first quarter, compared with an adjusted operating profit of $9.8 million in the prior year's first quarter. It experienced declining volumes and margins as market conditions in Europe continued to erode.
The International Marketing and Distribution segment recorded an adjusted operating profit of $40.2 million for this year's first quarter, compared with an adjusted operating loss of $4.1 million in last year's first quarter. Included in this segment's results was the $26.1 million pre-tax gain on the November 2012 sale of our Trinecke Zelezarny, a.s. investment. Additionally, within the segment, the raw materials business experienced a profit recovery compared to the prior year's first quarter, which included charges on long positions the company held on iron ore purchase contracts. Overall this segment continued to lack momentum in terms of volumes and margins as uncertainty continued to exist in most major global markets.
Outlook
Alvarado concluded, "Our second fiscal quarter is normally our weakest period of the year due to holiday slowdowns and winter weather conditions curtailing construction activity. However, there is growing evidence of an emerging recovery in domestic construction end markets, which is encouraging for future quarters. Our customers remain cautious, and stocking levels are low. Within our segments, we expect our Americas Recycling segment to benefit from scrap price improvements, which historically occur during our second fiscal quarter. We believe the scrap price improvements will likely result in near term downstream margin compression in our Americas Mills and Fabrication segments. We believe our International Mill segment will remain challenged by deteriorating conditions in the Euro zone. Further, we expect the International Marketing and Distribution segment to exhibit continued softness until there is more clarity around the economic direction in both domestic and international markets. In response to these near term headwinds, we will take advantage of the holidays and the winter weather conditions to adjust our operating rates and our inventories while retaining full flexibility to respond quickly to any upturn in our markets."
Alvarado concluded, "Our second fiscal quarter is normally our weakest period of the year due to holiday slowdowns and winter weather conditions curtailing construction activity. However, there is growing evidence of an emerging recovery in domestic construction end markets, which is encouraging for future quarters. Our customers remain cautious, and stocking levels are low. Within our segments, we expect our Americas Recycling segment to benefit from scrap price improvements, which historically occur during our second fiscal quarter. We believe the scrap price improvements will likely result in near term downstream margin compression in our Americas Mills and Fabrication segments. We believe our International Mill segment will remain challenged by deteriorating conditions in the Euro zone. Further, we expect the International Marketing and Distribution segment to exhibit continued softness until there is more clarity around the economic direction in both domestic and international markets. In response to these near term headwinds, we will take advantage of the holidays and the winter weather conditions to adjust our operating rates and our inventories while retaining full flexibility to respond quickly to any upturn in our markets."
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 U.S. and in strategic international markets.
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