Commercial Metals Co. (CMC), Irving, Texas, reports that its second-quarter earnings from continuing operations increased compared with the prior-year earnings from continuing operations. According to CMC’s latest earnings report, the steelmaker achieved earnings from continuing operations of $66.2 million, or 54 cents per diluted share, on net sales of $1.5 billion compared with prior-year earnings from continuing operations of $63.6 million, or 53 cents per diluted share, on net sales of $1.3 billion.
During the second quarter of fiscal 2021, CMC reports that it incurred $13.5 million in net after-tax charges, primarily from the previously announced refinancing of long-term debt, as well as closure costs associated with the final decommissioning of CMC’s Steel California operations. CMC says those costs were partially offset by a gain on the sale of certain facilities. Excluding these items, CMC reports that second-quarter adjusted earnings from continuing operations were $79.8 million, or 66 cents per diluted share.
Barbara R. Smith, chairman of the board, president and chief executive officer at CMC, says the company achieved “record” second-quarter core earnings before interest, depreciation and amortization (EBITDA). She notes that the company achieved that in a particularly challenging environment of “rising scrap costs and weather-related disruptions,” which she says demonstrates the value of CMC’s vertically integrated structure and the agility of its commercial, operational and support teams.
Smith says, “CMC’s second-quarter results also highlight the benefits of managing the operating factors that are within our control, including leveraging opportunities to improve efficiency throughout our organization. From this solid foundation, CMC will further enhance our earnings capability in the coming quarters, as we continue to capitalize on benefits from ongoing network optimization efforts and ramp up our third rolling line in Poland this summer.”
Operational updates
During an earnings presentation March 18, Smith provided an update on several projects the company is working on. She reported that site work at CMC’s Arizona micromill “is progressing well,” and that the company remains on target for startup in early 2023. That mill is replacing CMC’s shuttered rebar capacity at its Steel California operations in Rancho Cucamonga, California. All production ceased at that site as of December 2020.
“This will be our third micromill and the first in the world capable of producing merchant bar product,” Smith said of its Mesa site. “Once fully operational, we expect this state-of-the-art mill to contribute roughly $50 million of annual EBITDA. WE look forward to giving future updates as activity progresses.”
On the call, the company noted that it plans to invest about $85 million on the new micromill in fiscal 2021.
CMC is also working to expand its sustainability disclosures and reporting; Smith said the company plans to provide an update in its corporate sustainability report in the summer.
Business segment results
CMC reports that its North America segment generated adjusted EBITDA of $171.6 million for the second quarter of fiscal 2021, an increase of 12 percent compared with $152.8 million in the prior-year period. The company reports that this improvement reflects “solid management of controllable costs at each stage of [its] vertically integrated value chain.”
CMC says cost performance at the mills was particularly strong in its second quarter, driven by network efficiencies and lower costs for consumables. Earnings also benefited from expanded margins on sales of raw materials, as well as the impact of selling lower cost inventory within an environment of rising prices for steel products.
Shipment volumes of finished steel, which include steel products and downstream products, increased by 2 percent from the prior-year quarter. CMC’s earnings report states that demand for rebar from the mills remained strong, growing year over year, supported by resilient construction activity.
Single-family residential construction within CMC’s core geographies has increased significantly over the last year, which CMC says has opened additional selling opportunities for the company and is a positive indicator of future infrastructure and nonresidential spending in these areas. According to the company, shipments of merchant and other products increased by 13 percent from a year ago, driven by rising industrial activity and the construction of warehouses and metal buildings. Downstream products volumes declined 6 percent year over year due to a backlog contraction and weather-related job-site disruptions in several regional markets.
Margins over scrap cost within the vertical chain declined from the second quarter of fiscal 2020, with compression in both steel products and downstream products. Average selling price for steel products increased $70 per ton year over year, which CMC reports was offset by higher scrap costs. Steel products margins improved sequentially throughout the second quarter and exited February at the highest level in nearly a year. According to the company, margin over scrap cost on downstream products declined compared to a year ago, driven by higher input costs and modestly lower pricing in CMC’s committed backlog, which led to lower average selling prices.
CMC’s Europe segment reported adjusted EBITDA of $16.1 million for the second quarter of fiscal 2021, up 20 percent compared with adjusted EBITDA of $13.5 million for the prior-year quarter. The company reports that the improvement was driven by a modest expansion in margin over scrap, as well as the impact of selling lower cost inventory within an environment of rising prices for steel products.
Demand for steel products from both construction and industrial end markets remained healthy during the quarter. However, shipments declined by 7 percent year over year due to the “unusually high volumes” that shipped during the second quarter of fiscal 2020. During the quarter, CMC says it shifted product mix “to capitalize on opportunities with customers of merchant and other products.” The company says the reduction in rebar shipments from a year ago reflects the operations commercial agility rather than any softening of market conditions.
Smith says, “We expect finished steel volumes in both North America and Europe to follow typical seasonal trends during the third quarter, which is historically strong given the start of the spring and summer construction seasons. Shipments of steel and downstream products in North America should be supported by our construction backlog, with steel products also benefiting from elevated residential construction spending, continued manufacturing recovery and anticipated strong highway infrastructure activity.
She concludes, “Volumes in Europe are anticipated to remain healthy, driven by growing demand from construction and industrial end markets. We expect margins over scrap on steel products in both North America and Europe to increase sequentially following the realization of price adjustments made throughout the second quarter.”
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