Commercial Metals Co. reported net earnings of $56.6 million on net sales of $1.6 billion for the quarter ended February 28, 2005, ranking it as the strongest second quarter ever reported for the company. The company also reported net earnings of $130.3 million on net sales of $3.1 billion for the first six months of the fiscal year.

Second Quarter Results—Net earnings of $56.6 million ($0.91 per diluted share) compares with net earnings of $21.2 million ($0.35 per diluted share) for last year’s second quarter. Net sales of $1.6 billion compares with net sales of $1.1 billion for the second quarter last year. This year's second quarter included after-tax LIFO expense of $2.6 million or $0.04 per diluted share compared to $6.2 million or $0.10 per share in last year's second quarter.

Six Month Results—Net earnings were $130.3 million ($2.11 per diluted share) compares to net earnings of $33.8 million ($0.57 per diluted share) for the comparable year-ago period. Net sales of $3.1 billion compares to net sales of $1.9 billion for the same period last year. Results include an after-tax LIFO expense of $24.8 million ($0.40 per share), which compares with $7.0 million ($0.12 per share) last year.

Comments—CMC Chairman, President and CEO Stanley A. Rabin said, "We again generated excellent profits in what is typically our weakest quarter, results even better than our expectations. As we anticipated, the second quarter reflected some seasonal weakening and inventory adjustments by customers. Profitability was relatively strong in all of our segments except for the Polish steel operation and was sparked by the anticipated pickup in our Domestic Fabrication segment. Our outlook for the third quarter and second half remains very positive. We believe end-use demand should accelerate and prices stabilize. We anticipate third quarter LIFO diluted net earnings per share between $1.10 and $1.30. Our earnings estimate does not include any additional income from the business interruption insurance claims."

Rabin added, "Our Domestic Mills segment's adjusted operating profit at $36.0 million was more than double last year's second quarter. The LIFO expense was $1.0 million pre-tax compared with $5.0 million last year. Within the segment, adjusted operating profit for our steel minimills was more than 180% greater than a year earlier on the strength of much improved selling prices and gross margins, which more than offset a decline in finished goods shipments as well as the rise in steel scrap costs. Customers were working down inventories ordered in the fall, including imports, in concern over last summer's tight markets. Compared with last year's second quarter, the metal spread increased by $73 per ton to $264 per ton.

“On a year-to-year basis,” continued Rabin, “tonnage melted for the second quarter was down 6% to 535 thousand tons; tonnage rolled was 472 thousand tons, 13% below last year's second quarter. Shipments decreased 17% to 506 thousand tons. Our average total mill selling price was $135 per ton above last year's level, and the average selling price for finished goods was up by $144 per ton to $490 per ton. By product line, the price premium of merchant bar over reinforcing bar remained wide at $120 per ton.

“The average scrap purchase cost rose by $34 per ton versus a year ago to $181 per ton. Total utility costs were essentially unchanged compared with the second quarter last year with generally lower usage but higher rates, especially for natural gas. Year-over-year changes for ferroalloys, graphite electrodes and other supplies were mixed.

“The copper tube mill recorded an adjusted operating profit modestly less than that of last year's second quarter. Good demand from commercial as well as residential users was offset by a decline in metal spreads of 4 cents per pound to 54 cents per pound due to the more pronounced rise in the cost of copper scrap. Against the same period last year, copper tube production was unchanged while shipments edged higher to 16.0 million pounds.

"During the quarter we filed our initial claim at $20 million for business interruption reimbursement for the transformer failure at SMI–Texas. We recorded an advance of $4.5 million in the Domestic Mills 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. Discussions continued as well on the previously filed South Carolina mill business interruption claim; no further recovery was recorded."

Rabin continued, "After a string of outstanding quarters since the acquisition, it was a difficult quarter for CMCZ. The Polish operation recorded an adjusted operating loss of $4.5 million on a 100%-owned basis compared with an adjusted operating profit of $6.2 million the previous year. Operating levels and shipments were down dramatically compared with the second quarter of fiscal 2004. Severe weather slowed construction in Poland and, thereby, impacted sales; the effects of weak construction activity in Germany spilled over into Poland. Exports were extremely limited because of the relatively strong Polish Zloty, especially against the Euro. For the quarter, tons melted equaled 203 thousand, rolled tons equaled 206 thousand, and shipments totaled 208 thousand tons including billets. Meanwhile, the average selling price rose to PLN 1,523 per ton (including 7% billets) from PLN 1,083 per ton (including 22% billets) while the average metal cost increased to PLN 904 per ton from PLN 621 per ton."

CMC reported a substantial increase in adjusted operating profit to $24.6 million in the Fabrication segment, including an increase of $4.6 million pre-tax LIFO expense. The company says that all product areas — rebar fabrication, construction-related products (CRP), steel fence posts, steel joist manufacturing, cellular beam manufacturing, structural steel fabrication, and heat treating — contributed to the improvement in profitability.

The company also reported a record second quarter for the Recycling segment, with net sales up by 18% compared with the year-ago second quarter and an adjusted operating profit ($20.1 million) that was 13% greater than last year's second quarter. Gross margins were 8% above last year.

The company’s Marketing and Distribution segment reported adjusted operating profit of $23.2 million, more than double last year's already strong second quarter on much higher net sales despite seasonal factors. Rabin comments that “margins and shipments in steel, aluminum, copper and stainless steel increased significantly over the prior year. Sales and margins for industrial materials and products far surpassed previous record levels; increased activity included minerals, ores, refractories, ferroalloys, and various metals and alloys. Our value-added downstream and processing businesses continued to perform very well."

Outlook—Rabin continued, "Overall, our outlook for the third quarter and second half remains very positive. Some distributors are overstocked, but end-use demand should accelerate in the U.S., Asia, Central Europe and Latin America while business should remain strong in Australia. Asia, in particular, appears to be picking up again. Worldwide non-residential construction is expected to strengthen beginning this month. The substantial increases in the calendar year 2005 prices of iron ore and coke (used by blast furnace steelmakers) bodes well for the international price levels of steel scrap and steel products. Our domestic steel mill prices are stable at relatively high levels (although off the peaks) and continue to be underpinned by the growing U.S. economy and weak U.S. dollar. Additionally, imports of carbon steel bar products declined in recent months. Our mill shipments should accelerate during the third quarter. Steel scrap prices remain relatively strong (although again below the peak) and show signs of stabilizing or even rising again internationally. The outlook for nonferrous markets remains favorable.

"Accordingly, total earnings from our domestic steel mills should be strong during the third quarter. The copper tube business should be steady. Results at CMCZ should improve even though hindered by the strong Polish currency and what will be a poor shipping level for March 2005. Our anticipation remains that fabrication profits will expand further as bookings have been at higher levels, and shipments will be robust. Our Recycling segment will again post strong results. We expect the Marketing and Distribution segment to continue to perform well buoyed by healthy volume and margins in diversified markets and product lines. We anticipate third quarter LIFO diluted net earnings per share between $1.10 and $1.30. Our earnings estimate does not include any additional income from the business interruption insurance claims."

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.