Commercial Metals Company Reports Second Quarter Fiscal 2023 Results
Commercial Metals Company (NYSE: CMC) today announced financial results for its fiscal second quarter ended February 28, 2023. Net earnings were $179.8 million, or $1.51 per diluted share, on net sales of $2.0 billion, compared to prior year period net earnings of $383.3 million, or $3.12 per diluted share, on net sales of $2.0 billion.
- Second quarter net earnings of $179.8 million, or $1.51 per diluted share
- Core EBITDA of $302.8 million
- Volume and value of North America downstream backlog near all-time highs
- Project bid volumes grew by a double-digit percentage year-over-year, signaling strength in upcoming construction season
- Arizona 2 project start-up on target; expected to begin production in the spring of 2023
During the second quarter of fiscal 2023, the Company recorded a net after-tax benefit of $14.0 million related to the settlement of an incentive resulting from the previous capital investment at CMC’s Steel Oklahoma micro mill. This benefit was partially offset by approximately $5.4 million in net after-tax costs associated with ongoing commissioning efforts at Arizona 2. Excluding these items, second quarter adjusted earnings were $171.3 million, or $1.44 per diluted share, compared to adjusted earnings of $187.6 million, or $1.53 per diluted share, in the prior year period. The second quarter of fiscal 2022 included a net after-tax benefit of $195.8 million, primarily related to a gain on the sale of real estate in Southern California. “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 achieved strong financial results during the second quarter while managing a number of challenges, including weather-related shipment disruptions in our core geographies, costs associated with a major planned outage and steel product metal margin pressures. These headwinds notwithstanding, our key internal indicators remain positive, signaling a strong outlook for demand conditions in North America during the 2023 construction season and beyond. We are entering spring with record backlog value for this time of year and continue to experience healthy project bid volumes, giving us confidence in the strength of our book of business. Additionally, CMC stands to benefit from sustainable strong demand from reshoring-oriented industrial projects and public infrastructure work, the more rebar-intensive nature of which represents a long-term tailwind for our business.”
Ms. Smith continued, “The start-up of our Arizona 2 mill by the end of this spring positions CMC to capitalize on these emerging structural trends. We are currently finalizing on-site preparation for commissioning and are excited to ramp up this world-class asset, the first in the world to have merchant bar production capabilities in a continuous process. Together with our fourth micro mill under development in Berkeley County, West Virginia and our Tensar growth platform, we continue to expect that our strategic investments will meaningfully enhance CMC’s through-the-cycle cash flows and return on capital, creating substantial value for our shareholders while also enhancing our leadership position in sustainability metrics.”
The Company’s balance sheet and liquidity position remained strong as of February 28, 2023. Cash and cash equivalents ended the quarter at $604.0 million, while available liquidity totaled $1.5 billion. CMC repurchased 330,000 shares of common stock during the quarter, returning $17.2 million of cash to shareholders. As of February 28, 2023, $121.8 million remained available under the current share repurchase authorization.
On March 22, 2023, the board of directors declared a quarterly dividend of $0.16 per share of CMC common stock payable to stockholders of record on April 3, 2023. The dividend to be paid on April 12, 2023, marks the 234th consecutive quarterly payment by the Company, and represents a 14% increase from the dividend paid in April 2022.
Business Segments – Fiscal Second Quarter 2023 Review
Demand for CMC’s finished steel products in North America remained healthy during the quarter, though construction activity slowed in certain geographies due to weather-related disruptions. Downstream bid volumes, a significant indicator of the construction project pipeline, improved from a year ago, resulting in expansion of contract backlog volume and value levels compared to the prior year period. Demand from industrial end markets, which are important for merchant products, were stable on both a sequential and year-over-year basis.
The North America segment reported adjusted EBITDA of $299.3 million for the second quarter of fiscal 2023, in comparison to $535.5 million in the prior year period. Excluding a $273.3 million gain on the sale of real estate recognized during the prior year period, the current year results represent a 14% increase. The improvement was driven by expanded margins over scrap cost on shipments of steel and downstream products. Controllable costs per ton of finished steel increased compared to the first quarter of fiscal 2023, primarily due to a significant scheduled replacement project that occurred during the quarter, as well as lower fixed cost leverage on seasonally slower shipments. Per unit costs of several key consumables continued to moderate throughout the quarter after reaching a peak late in fiscal 2022.
Shipment volumes of finished steel, which include steel products and downstream products, were relatively unchanged from the prior year period. Volume growth was constrained by weather challenges that included freezing and icy conditions in Texas and Oklahoma and flooding in California. The average selling price for steel products decreased by $56 per ton compared to the second quarter of fiscal 2022, while the cost of scrap utilized declined $90 per ton, resulting in a year-over-year increase of $34 per ton in steel products margin over scrap. The average selling price for downstream products increased by $249 per ton from the prior year period and $19 per ton on a sequential quarter basis.
The Europe segment reported adjusted EBITDA of $12.9 million for the second quarter of fiscal 2023, down 84% compared to adjusted EBITDA of $81.1 million for the prior year period. The decline was driven by higher energy costs, lower metal margins, and a modest reduction in shipment volumes. 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 continued to contract. CMC’s advantageous cost position and operational flexibility provided the ability to maintain strong shipment levels. Second quarter of fiscal 2023 volume of 436,000 tons was 20% above the average quarterly level of the last 10 years.
Average selling price decreased by $95 per ton in the second quarter compared to the prior year period, while the cost of scrap utilized declined $55 per ton. The result was a year-over-year decline in margin over scrap of $40 per ton. Average selling price and margin over scrap also decreased on a sequential basis by $36 per ton and $59 per ton, respectively.
Ms. Smith said, “We remain confident in our outlook for financial performance in fiscal 2023, and we expect to generate sequential improvement in core EBITDA during the third quarter. North America finished steel product shipments are anticipated to improve from second quarter levels due to normal seasonality, the recovery of volumes delayed by weather disruptions, and the support of a historically high downstream backlog. We expect current and new industrial projects, as well as growing levels of state and federal infrastructure spending, will support CMC’s North America volumes in the quarters ahead. In Europe, we anticipate seasonal improvement, and expect shipment levels will remain above the long-term historical average due to the enhanced production capabilities of our facilities.”
Ms. Smith added, “In the third quarter, we look forward to commissioning our Arizona 2 micro mill, representing the next phase of growth at CMC, and we also anticipate that recent North America long steel price increase announcements will stabilize metal margins at historically high levels. At the same time, the third quarter will be impacted by a scheduled upgrade project similar in magnitude to the planned outage taken during the second quarter.”
For the complete press release, 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 division, CMC is a leading global provider of innovative ground and soil stabilization solutions selling into more than 80 national markets through its two major product lines: Tensar® geogrids and Geopier® foundation systems.
Source: Commercial Metals Company