Commercial Metals Reports First Quarter Results
12/22/2010 - Commercial Metals Co. reported net income of $0.7 million or $0.01 per diluted share on net sales of $1.8 billion for the quarter ended November 30, 2010. This compares with a net loss of $31.2 million or $0.28 per share on net sales of $1.4 billion for the first quarter of last year.
Commercial Metals Co. (CMC) reported net income of $0.7 million or $0.01 per diluted share on net sales of $1.8 billion for the quarter ended November 30, 2010. This compares with a net loss of $31.2 million or $0.28 per share on net sales of $1.4 billion for the first quarter of last year.
The period's results included pre-tax LIFO expense of $5.7 million or after tax $0.03 per share. This compares with pre-tax LIFO income of $17.3 million or after tax $0.10 per share in last year's first quarter. At quarter end, the LIFO reserve totaled $236 million.
"Most of our business units performed better than our fourth quarter of fiscal year 2010 and considerably better than the first quarter of fiscal year 2010, reflecting some improvement in market conditions as well as our continued focus on increasing efficiencies and reducing costs across our operations,” said Murray R. McClean, Chairman, President and CEO. “The exceptions were Americas Fabrication and CMC Sisak (Croatia), with our Croatian operations, in particular, performing below expectations. We previously predicted that ferrous scrap prices would rise by quarter end, but the magnitude of the increase was greater than we had anticipated.
“The outcome of the mid-term elections in the U.S. appears to have improved demand as there is greater clarity on the economic environment,” McClean continued. “Internationally, we are witnessing a similar scenario to calendar year 2009 where ferrous scrap prices rose sharply in November and December followed by steel prices. Inventories across the supply chain, whether in the U.S. or in international markets, are relatively low; a seasonal demand pickup in early 2011 may lead to higher ferrous scrap and steel prices."
Americas Mills – The mills ran at 72% of rolling capacity during the quarter, up from 63% in the fourth quarter of last fiscal year. Shipments from the backlog of highway work and other infrastructure projects increased after the summer. Though there is some demand in education, healthcare, and manufacturing, commercial work remains weak, according to CMC.
The announcement of pending finished goods price increases based on rising ferrous scrap prices is said to have pulled demand forward into this quarter. Metal margins rose substantially from last year's first quarter. In the prior year, sales prices fell faster than scrap prices, and there was an unfavorable product mix of billets, neither of which repeated this year.
The steel mills had an adjusted operating profit of $29.1 million compared to an adjusted operating loss of $3.4 million in the same quarter last year as the segment absorbed $11.3 million in start-up costs at the micromill in Arizona. The quarter had pre-tax LIFO expense of $10.5 million compared to a minimal effect in last year's quarter. The metal margin for the quarter was $293 per ton, ahead of the prior year's metal margin of $241 per ton. The price of ferrous scrap consumed at the mills during the quarter increased $46 per ton compared to last year.
Each of the steel mills was comparable or ahead of last year in tonnages melted, rolled, and shipped. Sales volumes were 572,000 tons, of which 90,000 tons were billets, compared with 498,000 tons in the first quarter of last year, including 117,000 tons of billets. Compared to last year’s first quarter, tonnage melted was up 23% to 589,000 tons, and tonnage rolled increased 43% to 506,000 tons.
The copper tube mill reported adjusted operating profit of $5.0 million (pre-tax LIFO expense of $1.6 million) compared to $3.4 million adjusted operating profit (pre-tax LIFO expense of $3.0 million) in last year's first quarter.
International Mills – Last quarter the Polish mill CMC Zawiercie (CMCZ), for the second time, recorded over one million man-hours without a recordable injury. Shortly after the end of the first quarter, the steelworkers in Poland extended this to two million man-hours. In addition to its strong safety record, the mill also has maintained monthly operating profits since April. The Polish economy achieved calendar third quarter GDP growth of above 4% with EU funding still available for highway and public works.
CMCZ had adjusted operating income of $6.4 million compared to an $11.6 million loss in the first quarter of last year. Shipments totaled 356,000 tons (50,000 tons of billets) comparable to the prior year quarter, but the prior year included 103,000 tons of billet sales. Tons melted were 361,000 tons compared to 399,000 tons, and tons rolled were 307,000 tons compared to 266,000 tons.
Average selling prices increased 35% to PLN 1,650 compared to PLN 1,220 in the prior year's first quarter, a period of lower volumes and tighter scrap pricing. The cost of scrap entering production increased 27%. The average metal margin per ton increased to PLN 656 from PLN 438 in last year's first quarter. Backlogs increased 50,000 tons during the quarter.
In Croatia, CMC Sisak (CMCS) commissioned its ladle metallurgical station during the quarter, the last piece of its meltshop upgrade and, by quarter's end, CMCS had begun its sequence casting trials. Both mills undertook major maintenance projects during the quarter, CMCZ in its melt shop and CMCS in the medium section seamless mill.
Though anticipating an adjusted operating loss this quarter, CMC Sisak's result of a $14.1 million adjusted operating loss was “unacceptable” and actions to address performance have been taken, the company says. Management changes have been made, and technical personnel from both U.S. and Polish mills are on extended assignments at CMCS to improve business processes, lower the cost structure, and better utilize new capital investments.
During the quarter, the mill melted 38,000 tons, rolled 19,000 tons, and shipped 13,000 tons.
Outlook – "Due to seasonal factors, our second quarter is historically our weakest,” McClean said. “Typically ferrous scrap prices would be relatively stable until the end of the quarter when spring construction buildup would begin. However, the trend appears to be for continuing higher prices early in the quarter, though a pullback by spring could be expected.
“Rebar price increases are already in effect, and increasing ferrous scrap pricing likely will continue to apply upward pressure. Fabrication backlogs normally decline in this period; however, they are likely to trend upwards at higher prices which overall should be positive.
“Nonferrous metals, particularly copper, appear to be supply-constrained and prices should remain historically high. Volumes are always weather-dependent; the largest swing factor is likely to be Poland. Absent LIFO considerations, we would anticipate a small loss for the second quarter.
“We remain focused on a number of operational and strategic initiatives to both address near-term challenges and position us for improved performance when the markets further recover," McClean concluded.
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.
