Commercial Metals Company Reports Third Quarter Fiscal 2023 Results

Commercial Metals Company (“CMC” or the “Company”) announced financial results for its fiscal third quarter ended May 31, 2023. Net earnings were $234.0 million, or $1.98 per diluted share, on net sales of $2.3 billion, compared to prior year period net earnings of $312.4 million, or $2.54 per diluted share, on net sales of $2.5 billion.

During the third quarter of fiscal 2023, the Company recorded a net after-tax charge of $5.8 million related to the commissioning of the Arizona 2 micro mill. Excluding this item, third quarter adjusted earnings were $239.7 million, or $2.02 per diluted share, compared to adjusted earnings of $320.2 million, or $2.61 per diluted share, in the prior year period. “Adjusted EBITDA,” “core EBITDA,” “adjusted earnings” and “adjusted earnings per diluted share” are non-GAAP financial measures. Details, including a reconciliation of each such non-GAAP financial measure to the most directly comparable measure prepared and presented in accordance with GAAP, can be found in the financial tables that follow.

Barbara R. Smith, Chairman of the Board and Chief Executive Officer, said, “CMC delivered strong third quarter financial results, benefiting from robust North American construction activity, good product margins in the domestic market, and success in our continued efforts to reduce controllable costs. Our North America segment achieved EBITDA growth both sequentially and year-over-year, demonstrating the resilience of CMC’s business and the strength of our end markets. During the third quarter, North American segment volumes were supported by significant structural trends, including the re-shoring of manufacturing and logistical supply chains, and increasing investment to improve the condition and functionality of our nation’s core infrastructure and energy markets. We expect increased activity in these rebar-intensive construction sectors will continue to drive demand in the quarters and years ahead.”

Ms. Smith continued, “I am also extremely encouraged by the progress we have made on our commissioning of operations at CMC’s Arizona 2 project. Operations are starting at an ideal time to capitalize on growing construction activity related to the Infrastructure Investment and Jobs Act, re-shoring, and the Inflation Reduction Act. We expect this project, together with our Tensar platform and other strategic initiatives, will provide a significant source of earnings and cash flow growth and generate meaningful value for our shareholders.”

The Company’s balance sheet and liquidity position remained strong as of May 31, 2023. Cash and cash equivalents totaled $475.5 million, with available liquidity of $1.4 billion. During the quarter, CMC repaid $214.1 million in senior notes that matured in May, and repurchased 352,000 shares of common stock valued at $16.5 million. As of May 31, 2023, $105.3 million remained available under the current share repurchase authorization.

On June 21, 2023, the board of directors declared a quarterly dividend of $0.16 per share of CMC common stock payable to stockholders of record on July 3, 2023. The dividend to be paid on July 12, 2023, marks the 235^th consecutive quarterly payment by the Company, and represents a 14% increase from the dividend paid in July 2022.

Business Segments – Fiscal Third Quarter 2023 Review

Demand for CMC’s finished steel products in North America remained healthy during the quarter. Downstream bid volumes, a significant indicator of the construction project pipeline, improved from a year ago, resulting in an expansion of the Company’s contract backlog value compared to the prior year period. Demand from industrial end markets, which is important for merchant products, was stable on both a sequential and year-over-year basis.

The North America segment reported adjusted EBITDA of $402.2 million for the third quarter of fiscal 2023, in comparison to $379.4 million in the prior year period, representing a 6% increase. Financial results for the period mark the tenth consecutive quarter of year-over-year growth in adjusted EBITDA, excluding the large gain on the sale of real estate recognized in the second quarter of fiscal 2022. The improvement was driven by expanded margins over scrap cost on downstream products. Controllable costs per ton of finished steel increased from the prior year period by approximately 6%, primarily due to general inflationary pressures. However, in comparison to the second quarter of fiscal 2023, controllable costs decreased meaningfully primarily due to improved fixed cost leverage on higher volumes, lower per-unit costs for key consumables, and a lower cost burden related to major planned maintenance outages.

Shipment volumes of finished steel, which include steel products and downstream products, were relatively unchanged from the prior year period. The average selling price for steel products decreased by $131 per ton compared to the third quarter of fiscal 2022, while the cost of scrap utilized declined $88 per ton, resulting in a year-over-year decrease of $43 per ton in steel products margin over scrap. The average selling price for downstream products increased by $208 per ton from the prior year period and $34 per ton on a sequential quarter basis.

Europe end market conditions softened during the quarter, as Polish construction activity decelerated, and industrial production across Central Europe remained muted. The Europe segment reported adjusted EBITDA of $9.6 million for the third quarter of fiscal 2023, compared to the record adjusted EBITDA of $121.0 million achieved in the prior year period. The decline was driven by lower margins over scrap, higher energy costs, and reduced shipment volumes.

The Europe segment’s advantageous cost position and operational flexibility allowed it to maintain strong shipment levels, despite these market headwinds. Third quarter volume of 429,000 tons was 10% below prior year shipment levels, which were positively impacted by heavy customer buying following the invasion of Ukraine. Average selling price decreased by $214 per ton in the third quarter compared to the prior year period, while the cost of scrap utilized declined $103 per ton. The result was a year-over-year decline in margin over scrap of $111 per ton. Average selling price and margin over scrap also decreased on a sequential basis by $3 per ton and $41 per ton, respectively.

Outlook

Ms. Smith said, “We expect financial performance to remain strong during the fourth quarter of fiscal 2023. North America finished steel product shipments are anticipated to be consistent with the third quarter, supported by healthy end market demand and our historically high downstream backlog. Margin levels in North America should be similar to the third quarter. Results in our Europe segment are expected to be relatively unchanged from the third quarter, reflecting continued economic uncertainty. CMC will leverage its market leading cost position to maintain profitability in Europe within this challenging backdrop.”

For the full third quarter results, click here.

About Commercial Metals Company

Commercial Metals Company and its subsidiaries manufacture, recycle and fabricate steel and metal products and provide related materials and services through a network of facilities that includes seven electric arc furnace (“EAF”) mini mills, two EAF micro mills, one rerolling mill, steel fabrication and processing plants, construction-related product warehouses and metal recycling facilities in the United States and Poland. Through its Tensar operations, CMC is a leading global provider of innovative ground and soil stabilization solutions selling into more than 80 national markets through two major product lines: Tensar® geogrids and Geopier® foundation systems.

Source: Commercial Metals Company