Commercial Metals Company Reports First Quarter Fiscal 2023 Results
Commercial Metals Company today announced financial results for its fiscal first quarter ended November 30, 2022. Net earnings were $261.8 million, or $2.20 per diluted share, on net sales of $2.2 billion, compared to prior year period net earnings of $232.9 million, or $1.90 per diluted share, on net sales of $2.0 billion.
- First quarter net earnings of $261.8 million, or $2.20 per diluted share, increased 12% compared with $232.9 million, or $1.90 per diluted share, in the prior year period
- Core EBITDA of $425.0 million increased 30% from the prior year period
- Continued year-over-year growth in North America downstream backlog and project bidding volumes
- Historically strong Europe segment profitability benefiting from favorable cost structure driving market share gains
- Good progress on strategic growth initiatives; Arizona 2 project on target for spring 2023 start-up, announced fourth micro mill location in West Virginia
During the first quarter of fiscal 2023, the Company recorded net after-tax costs of $4.4 million associated with pre-commissioning activities at its Arizona 2 micro mill project. Excluding these items, first quarter adjusted earnings were $266.2 million, or $2.24 per diluted share, compared to adjusted earnings of $199.2 million, or $1.62 per diluted share, in the prior year period. The first quarter of fiscal 2022 included a net after-tax benefit of $33.7 million, primarily related to an international tax restructuring transaction. “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, President and Chief Executive Officer, said, “CMC’s outstanding financial performance during fiscal 2023’s first quarter was made possible through strong execution by our North America and Europe teams who navigated very different market environments. In North America, we again benefited from strong demand, enabling us to achieve near record quarterly segment adjusted EBITDA. Our Europe operations leveraged their excellent relative cost position to gain market share, shipping high volumes despite dynamic and uncertain market conditions. CMC’s fiscal first quarter results provide another clear demonstration of how our ongoing strategic actions have positioned the company to perform well throughout the economic cycle, generating superior value for shareholders.”
Ms. Smith continued, “We continue to make solid progress on the strategic initiatives that are expected to drive CMC’s next phase of growth. Work at the Arizona 2 site remains on schedule, and we expect a spring 2023 start-up. The commissioning of this exciting project is well-timed, as we anticipate construction activity related to the Infrastructure Investment and Jobs Act will begin ramping up during 2023. Additionally, last month CMC announced the location of our fourth micro mill in Berkeley County, West Virginia. Once complete, we expect this investment will enhance our production flexibility and customer service capabilities, generate attractive returns, and improve our sustainable, through-the-cycle earnings and cash flows.”
The Company’s balance sheet and liquidity position remained strong as of November 30, 2022. Cash and cash equivalents ended the quarter with a balance of $582.1 million, while available liquidity totaled $1.5 billion. CMC repurchased approximately 1.3 million shares of common stock during the quarter, returning $49.1 million of cash to shareholders. As of November 30, 2022, $139.0 million remained under the current share repurchase authorization.
On January 5, 2023, the board of directors declared a quarterly dividend of $0.16 per share of CMC common stock payable to stockholders of record on January 19, 2023. The dividend to be paid on February 2, 2023, marks the 233rd consecutive quarterly payment by the Company, and represents a 14% increase from the dividend paid in February 2022.
Business Segments – Fiscal First Quarter 2023 Review
Demand for CMC’s finished steel products in North America remained healthy during the quarter. Domestic consumption of rebar increased year-over-year, and key internal measures point toward solid demand for the balance of the fiscal year. Downstream bid volumes, a significant indicator of the construction project pipeline, improved from a year ago, resulting in expansion of contract backlog levels compared to the prior year period. Demand from industrial end markets, which are important for merchant products, was stable on both a sequential quarter and year-over-year basis.
The North America segment reported adjusted EBITDA of $378.0 million for the first quarter of fiscal 2023, an improvement of 2% and 41% on a sequential quarter and year-over-year basis, respectively. The year-over-year improvement was driven by expanded margins over scrap cost on shipments of steel and downstream products. The spread between average downstream selling price and underlying scrap costs increased by over $400 per ton from the prior year period, significantly enhancing the profitability on shipments of downstream products. Controllable costs per ton of finished steel were relatively flat compared to the fourth quarter of fiscal 2022 but increased relative to the prior year period, primarily as a result of higher per unit purchase costs for energy, alloys, and freight. Signs emerged during the first quarter of fiscal 2023 that per unit costs for certain consumables may have peaked, with electricity and alloys costs declining modestly as the period progressed.
Shipment volumes of finished steel, which include steel products and downstream products, followed typical seasonal patterns and were relatively unchanged from the prior year period. Volume growth remained constrained by the slower pace of construction on numerous job sites stemming from staffing and material supply challenges. The average selling price for steel products increased by $44 per ton compared to the first quarter of fiscal 2022, while the cost of scrap utilized declined $103 per ton, resulting in a year-over-year increase of $147 per ton in steel products margin over scrap. The average selling price for downstream products increased by $307 per ton from the prior year period and $51 per ton on a sequential quarter basis. The margin of downstream average selling price over underlying scrap cost was $1,074 per ton during the first quarter, compared to a trailing 10-year average of $625 per ton. Future pricing indicators on new work entering the backlog remain positive, as average price levels for bids and new awards climbed significantly from the prior year period.
The Europe segment reported adjusted EBITDA of $64.5 million for the first quarter of fiscal 2023, down 19% compared to adjusted EBITDA of $79.8 million for the prior year period. The decline was driven by modestly lower margin over scrap costs, higher costs for energy, the receipt of a $9.5 million CO2 energy credit in the current year in comparison to $15.5 million in the prior year period, and the impact of the weakening Polish Zloty in relation to the U.S. Dollar. Despite headwinds, earnings levels remained historically strong: fiscal 2023’s first quarter result was more than double the quarterly average adjusted EBITDA of the previous 10 fiscal years, excluding the impact of the energy credit received during the quarter.
Average selling price decreased by $77 per ton in the first quarter compared to the prior year period, while the cost of scrap utilized declined $68 per ton. The result was a year-over-year decline in margin over scrap of $9 per ton. Average selling price and margin over scrap also decreased on a sequential basis by $96 per ton and $27 per ton, respectively.
Europe end market demand was mixed during the quarter. Polish construction activity continued to grow modestly on a year-over-year basis, while industrial production across Central Europe has contracted for several months. CMC’s advantageous cost position has provided the ability to profitably gain market share and maintain strong shipment levels. First quarter of fiscal 2023 volume of 473,000 tons was the second highest quarterly volume on record and was made possible by the addition of a third rolling line commissioned in July 2021, which has enhanced CMC’s ability to serve the market through improved operational and commercial flexibility.
The Company’s new Tensar business generated EBITDA of $11.4 million during the first quarter of fiscal 2023, yielding an EBITDA margin of 18.9%. This was below the historical average of 25% as a result of temporary production challenges in North America that have required sourcing from overseas operations, leading to increased logistics costs and slower delivery times. Tensar’s financial performance is included within CMC’s existing operating segments, with North American results incorporated into CMC’s North America segment and all other operations included in the Europe segment.
Ms. Smith said, “We remain confident regarding our outlook for financial performance in fiscal 2023. Volumes and average pricing within CMC’s North America downstream backlog are at historically high levels, and we continue to experience a robust inflow of bidding activity on new projects. While we anticipate some sectors of the construction market will likely be impacted by the changing interest rate environment, current and new reshoring projects, as well as rising levels of infrastructure spending, are expected to support CMC’s North America volumes in the quarters ahead. The commissioning of Arizona 2 and the addition of Tensar will provide our Company with greater ability to capitalize on these emerging structural economic trends. Over the last several quarters, our Europe segment has demonstrated its operational and commercial agility within a tumultuous marketplace. We remain confident that CMC’s favorable relative cost position within Europe will continue to benefit our financial performance.”
Ms. Smith added, “Looking ahead, we anticipate good financial results in the second quarter compared to historical standards. Finished steel volumes in North America and Europe are expected to follow typical seasonal patterns, which have historically declined from our first quarter levels due to weather conditions and holidays. Additionally, volumes in Europe may be impacted by economic uncertainty. While we anticipate margins over scrap in both North America and Europe to remain elevated in relation to historical levels, we expect they will compress from first quarter levels.”
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About Commercial Metals Company
Commercial Metals Company (NYSE: CMC) 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.
Source: Commercial Metals Company