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Commercial Metals Company Reports Second Quarter Fiscal 2020 Results

IRVING, Texas, March 19, 2020 /PRNewswire/ -- Commercial Metals Company (NYSE: CMC) today announced financial results for its fiscal second quarter ended February 29, 2020.  Second quarter earnings from continuing operations were $63.6 million, or $0.53 per diluted share, on net sales of $1.3 billion, compared to prior year period earnings from continuing operations of $14.9 million, or $0.13 per diluted share, on net sales of $1.4 billion. Gross margin increased by 45% year-over-year, while total shipment volumes grew 2% over the same period.

www.CMC.com

Adjusted earnings from continuing operations were $63.6 million, or $0.53 per share, as detailed in the non-GAAP reconciliation on page 12. This represents an 82.8% increase compared to adjusted earnings from continuing operations of $0.29 per diluted share for the three months ended February 28, 2019.

Barbara R. Smith, Chairman of the Board, President and Chief Executive Officer, commented, "Despite winter seasonality and an unusually wet February, the second quarter was strong and demonstrates our Company's enhanced earnings capability following the transformational actions of the last several years.  In the quarter, we achieved the second highest adjusted EBITDA margin in our history, behind only our first quarter 2020 performance.  The great results were helped by robust demand from the U.S. and Polish construction markets, which continued to support steel shipment volumes during the quarter."

"Strong earnings and disciplined working capital management provided $107.0 million of operating cash flow during the quarter, allowing us to further de-lever our balance sheet.  Our net debt-to-EBITDA ratio of 1.6x provides us great flexibility in our capital structure to pursue our growth strategies, as well as endure today's volatile environment."

The Company's liquidity position as of February 29, 2020 remained strong, with cash and cash equivalents of $232.4 million and availability under the Company's credit and accounts receivable facilities of $616.6 million.

On March 18, 2020, the board of directors of CMC declared a quarterly dividend of $0.12 per share of CMC common stock payable to stockholders of record on April 6, 2020.  The dividend will be paid on April 20, 2020, and marks 222 consecutive quarterly dividend payments.

Business Segments - Fiscal Second Quarter 2020 Review

Our Americas Recycling segment recorded adjusted EBITDA of $5.8 million for the second quarter of fiscal 2020, a decrease of 43% compared to adjusted EBITDA of $10.1 million for the prior year quarter.  The reduction reflected a combination of lower average ferrous selling prices and shipping volumes compared to a year ago, down 15% and 9% respectively.

Our Americas Mills segment recorded adjusted EBITDA of $125.7 million for the second quarter of fiscal 2020, an increase of 12% compared to adjusted EBITDA of $112.4 million for the second quarter of fiscal 2019.  Volumes increased 5% compared to the prior year period, driven by strength in our construction end markets, as well as targeted merchant bar growth opportunities.  Metal margins contracted by $24 per ton year-over-year, as a reduction in average selling price of $71 per ton was only partially offset by lower scrap costs.  Results in the second quarter benefited from a 6% year-over-year reduction in conversion costs per ton.

Our Americas Fabrication segment recorded adjusted EBITDA of $16.1 million for the second quarter of fiscal 2020, marking a significant improvement from an adjusted EBITDA loss of $49.6 million for the second quarter of fiscal 2019, primarily due to expanded selling price margins over rebar cost.  As in prior quarters, second quarter adjusted EBITDA did not include the benefit of the purchase accounting adjustment related to amortization of the acquired unfavorable contract backlog reserve of $6.0 million.  The trend of sequential increases in selling price continued during the quarter, as we shipped at an average price of $984 per ton.  This represented a significant rise of $139 per ton, or 16%, compared to the prior year period.  Metal margins within our backlog remained at attractive levels.

Our International Mill segment in Poland recorded adjusted EBITDA of $13.5 million for the second quarter of fiscal 2020, compared to adjusted EBITDA of $20.5 million for the prior year quarter.  Metal margins remain under pressure as a result of elevated import levels.  The overhang of imported steel products in Europe is lessening, but remains a headwind to margins. Despite import challenges, shipment volumes reached their highest second quarter level in 12 years, increasing 25% on a year-over-year basis, driven by strong demand from the Polish construction sector.

Our Corporate and Other segment recorded an adjusted EBITDA loss of $23.2 million for the second quarter of fiscal 2020 compared to an adjusted EBITDA loss of $24.1 million for the prior year quarter.

Outlook

"We enter the summer construction season with a good fabrication backlog, solid bidding activity, and mill metal margins above past cyclical averages," said Ms. Smith.  "However, given economic uncertainties caused by the COVID-19 outbreak, as well as potential courses of action that local, state, and federal government bodies may take, we are unable to provide forward guidance at this time.  In this unpredictable environment, we remain focused on factors we can control, and are positioning our Company for long-term value generation."

Conference Call

CMC invites you to listen to a live broadcast of its second quarter fiscal 2020 conference call today, Thursday, March 19, 2020, at 11:00 a.m. ETBarbara Smith, Chairman of the Board of Directors, President, and Chief Executive Officer, and Paul Lawrence, Vice President and Chief Financial Officer, will host the call.  The call is accessible via our website at www.cmc.com.  In the event you are unable to listen to the live broadcast, the call will be archived and available for replay on our website on the next business day.  Financial and statistical information presented in the broadcast are located on CMC's website under "Investors".

About Commercial Metals Company

Commercial Metals Company and its subsidiaries manufacture, recycle and market steel and metal products, related materials and services through a network of facilities that includes seven electric arc furnace ("EAF") mini mills, two EAF micro mills, two rerolling mills, steel fabrication and processing plants, construction-related product warehouses, and metal recycling facilities in the U.S. and Poland.

Forward-Looking Statements

This news release contains or incorporates by reference a number of "forward-looking statements" within the meaning of the federal securities laws with respect to general economic conditions, key macro-economic drivers that impact our business, the effects of ongoing trade actions, the effects of continued pressure on the liquidity of our customers, potential synergies provided by our recent acquisitions, demand for our products, steel margins, the effect of the coronavirus ("COVID-19") and related governmental and economic responses thereto, the ability to operate our mills at full capacity, future supplies of raw materials and energy for our operations, share repurchases, legal proceedings, the undistributed earnings of our non-U.S. subsidiaries, U.S. non-residential construction activity, international trade, capital expenditures, our liquidity and our ability to satisfy future liquidity requirements, estimated contractual obligations and our expectations or beliefs concerning future events. These forward-looking statements can generally be identified by phrases such as we or our management "expects," "anticipates," "believes," "estimates," "intends," "plans to," "ought," "could," "will," "should," "likely," "appears," "projects," "forecasts," "outlook" or other similar words or phrases. There are inherent risks and uncertainties in any forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements.

Our forward-looking statements are based on management's expectations and beliefs as of the time this news release is filed with the SEC or, with respect to any document incorporated by reference, as of the time such document was prepared. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Except as required by law, we undertake no obligation to update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or any other changes. Important factors that could cause actual results to differ materially from our expectations include those described in Part I, Item 1A, Risk Factors, of the 2019 Form 10-K as well as the following: changes in economic conditions which affect demand for our products or construction activity generally, and the impact of such changes on the highly cyclical steel industry; rapid and significant changes in the price of metals, potentially impairing our inventory values due to declines in commodity prices or reducing the profitability of our fabrication contracts due to rising commodity pricing; excess capacity in our industry, particularly in China, and product availability from competing steel mills and other steel suppliers including import quantities and pricing; compliance with and changes in environmental laws and regulations, including increased regulation associated with climate change and greenhouse gas emissions; involvement in various environmental matters that may result in fines, penalties or judgments; potential limitations in our or our customers' abilities to access credit and non-compliance by our customers with our contracts; activity in repurchasing shares of our common stock under our repurchase program; financial covenants and restrictions on the operation of our business contained in agreements governing our debt; our ability to successfully identify, consummate, and integrate acquisitions and the effects that acquisitions may have on our financial leverage; risks associated with acquisitions generally, such as the inability to obtain, or delays in obtaining, required approvals under applicable antitrust legislation and other regulatory and third party consents and approvals; lower than expected future levels of revenues and higher than expected future costs; failure or inability to implement growth strategies in a timely manner; impact of goodwill impairment charges; impact of long-lived asset impairment charges; currency fluctuations; global factors, including trade measures, political uncertainties and military conflicts; availability and pricing of electricity, electrodes and natural gas for mill operations; ability to hire and retain key executives and other employees; competition from other materials or from competitors that have a lower cost structure or access to greater financial resources; information technology interruptions and breaches in security; ability to make necessary capital expenditures; availability and pricing of raw materials and other items over which we exert little influence, including scrap metal, energy and insurance; unexpected equipment failures; losses or limited potential gains due to hedging transactions; litigation claims and settlements, court decisions, regulatory rulings and legal compliance risks; risk of injury or death to employees, customers or other visitors to our operations; new and clarifying guidance with regard to interpretation of certain provisions of the Tax Cuts and Jobs Act that could impact our assessment; increased costs related to health care reform legislation; and impacts from the COVID-19 on the economy, demand for our products or our operations including the responses of governmental authorities to contain the COVID-19.

COMMERCIAL METALS COMPANY

FINANCIAL & OPERATING STATISTICS (UNAUDITED)




Three Months Ended


Six Months Ended

(in thousands, except per ton amounts)


2/29/2020


11/30/2019


8/31/2019


5/31/2019


2/28/2019


2/29/2020


2/28/2019

 Americas Recycling















Net sales


$

248,084



222,261



268,447



289,015



287,075



470,345



589,084


Adjusted EBITDA


$

5,754



3,417



4,235



12,331



10,124



9,171



25,558


Tons shipped (in thousands)















 Ferrous


519



492



559



597



570



1,011



1,149


 Nonferrous


58



57



61



60



59



115



122


 Total tons shipped


577



549



620



657



629



1,126



1,271


Average selling price (per ton)















 Ferrous


$

226



182



217



252



266



204



269


 Nonferrous


$

2,044



1,983



1,998



2,047



1,998



2,014



1,990

















 Americas Mills















Net sales


$

732,040



768,893



824,809



866,903



774,709


1,500,933



1,376,562


Adjusted EBITDA


$

125,691



155,025



160,832



158,114



112,396


280,716



226,269


Tons shipped















     Rebar


830



881



897



913



773


1,711



1,303


     Merchant & Other


317



325



319



323



322


642



639


Total tons shipped


1,147



1,206



1,216



1,236



1,095


2,353



1,942


Average price (per ton)















Total selling price


$

606



611



645



670



677



608



677


Cost of ferrous scrap utilized


$

256



226



246



284



303



238



305


Metal margin


$

350



385



399



386



374


370



372

















 Americas Fabrication















Net sales


$

511,748



571,847



622,385



633,047



530,836



1,083,595



967,947


Adjusted EBITDA


$

16,060



17,481



(13,151)



(23,289)



(49,578)



33,541



(86,574)


Tons shipped (in thousands)


366



413



448



469



396



779



715


Total selling price (per ton)


$

984



976



963



925



845



979



856

















 International Mill















Net sales


$

180,079



165,389



205,461



209,365



175,198



345,468



402,222


Adjusted EBITDA


$

13,451



11,359



22,666



24,120



20,537



24,810



53,316


Tons shipped















Rebar


145



122



151



126



66



267



146


Merchant & Other


235



216



237



250



238



451



550


Total tons shipped


380



338



388



376



304



718



696


 Average price (per ton)















Total selling price


$

449



461



500



524



545



455



546


Cost of ferrous scrap utilized


$

251



244



265



288



301



248



298


Metal margin


$

198



217



235



236



244



207



248


 

COMMERCIAL METALS COMPANY

BUSINESS SEGMENTS (UNAUDITED)

(in thousands)


Three Months Ended


Six Months Ended

Net sales


2/29/2020


11/30/2019


8/31/2019


5/31/2019


2/28/2019


2/29/2020


2/28/2019

 Americas Recycling


$

248,084



$

222,261



$

268,447



$

289,015



$

287,075



$

470,345



$

589,084


 Americas Mills


732,040



768,893



824,809



866,903



774,709



1,500,933



1,376,562


 Americas Fabrication


511,748



571,847



622,385



633,047



530,836



1,083,595



967,947


 International Mill


180,079



165,389



205,461



209,365



175,198



345,468



402,222


 Corporate and Other


(330,988)



(343,682)



(378,097)



(392,458)



(365,035)



(674,670)



(655,690)


Total Net Sales


$

1,340,963



$

1,384,708



$

1,543,005



$

1,605,872



$

1,402,783



$

2,725,671



$

2,680,125

















Adjusted EBITDA from continuing operations















 Americas Recycling


$

5,754



$

3,417



$

4,235



$

12,331



$

10,124



$

9,171



$

25,558


 Americas Mills


125,691



155,025



160,832



158,114



112,396



280,716



226,269


 Americas Fabrication


16,060



17,481



(13,151)



(23,289)



(49,578)



33,541



(86,574)


 International Mill


13,451



11,359



22,666



24,120



20,537



24,810



53,316


 Corporate and Other


(23,235)



(27,477)



(29,337)



(27,305)



(24,146)



(50,712)



(83,700)


 

COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)




Three Months Ended


Six Months Ended

(in thousands, except share data)


February 29, 2020


February 28, 2019


February 29, 2020


February 28, 2019

Net sales


$

1,340,963



$

1,402,783



$

2,725,671



$

2,680,125


Costs and expenses:









Cost of goods sold


1,123,096



1,252,493



2,269,610



2,370,926


Selling, general and administrative expenses


115,538



98,726



227,067



215,943


Interest expense


15,888



18,495



32,466



35,158




1,254,522



1,369,714



2,529,143



2,622,027











Earnings from continuing operations before income taxes


86,441



33,069



196,528



58,098


Income taxes


22,845



18,141



50,177



23,750


Earnings from continuing operations


63,596



14,928



146,351



34,348











Earnings (loss) from discontinued operations before income taxes


301



(1,075)



1,196



(618)


Income taxes


99



3



401



138


Earnings (loss) from discontinued operations


202



(1,078)



795



(756)











Net earnings


$

63,798



$

13,850



$

147,146



$

33,592











Basic earnings per share*









Earnings from continuing operations


$

0.53



$

0.13



$

1.23



$

0.29


Earnings (loss) from discontinued operations




(0.01)



0.01



(0.01)


Net earnings


$

0.54



$

0.12



$

1.24



$

0.29











Diluted earnings per share*









Earnings from continuing operations


$

0.53



$

0.13



$

1.22



$

0.29


Earnings (loss) from discontinued operations




(0.01)



0.01



(0.01)


Net earnings


$

0.53



$

0.12



$

1.22



$

0.28











Average basic shares outstanding


118,919,455



117,854,335



118,644,823



117,677,422


Average diluted shares outstanding


120,407,256



118,942,758



120,303,259



118,996,427



*Earnings Per Share ("EPS") is calculated independently for each component and may not sum to Net EPS due to rounding

 

COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in thousands, except share data)


February 29, 2020


August 31, 2019

Assets





Current assets:





Cash and cash equivalents


$

232,442



$

192,461


Accounts receivable (less allowance for doubtful accounts of $8,388 and $8,403)


961,694



1,016,088


Inventories, net


714,842



692,368


Other current assets


176,000



179,088


Total current assets


2,084,978



2,080,005


Property, plant and equipment, net


1,522,342



1,500,971


Goodwill


64,172



64,138


Other noncurrent assets


236,446



113,657


Total assets


$

3,907,938



$

3,758,771


Liabilities and stockholders' equity





Current liabilities:





Accounts payable


$

275,491



$

288,005


Accrued expenses and other payables


329,920



353,786


Acquired unfavorable contract backlog


21,008



35,360


Current maturities of long-term debt and short-term borrowings


22,715



17,439


Total current liabilities


649,134



694,590


Deferred income taxes


123,726



79,290


Other noncurrent liabilities


232,450



133,620


Long-term debt


1,144,573



1,227,214


Total liabilities


2,149,883



2,134,714


Stockholders' equity


1,757,843



1,623,861


Stockholders' equity attributable to noncontrolling interests


212



196


Total stockholders' equity


1,758,055



1,624,057


Total liabilities and stockholders' equity


$

3,907,938



$

3,758,771


 

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)




Six Months Ended

(in thousands)


February 29, 2020


February 28, 2019

Cash flows from (used by) operating activities:





Net earnings


$

147,146



$

33,592


Adjustments to reconcile net earnings to cash flows from (used by) operating activities:





Depreciation and amortization


82,338



76,430


Deferred income taxes and other long-term taxes


42,142



11,705


Stock-based compensation


15,805



10,007


Amortization of acquired unfavorable contract backlog


(14,328)



(34,808)


Net gain on disposals of subsidiaries, assets and other


(5,585)



(1,202)


Other


1,571



(281)


Changes in operating assets and liabilities


(15,673)



(80,809)


Beneficial interest in securitized accounts receivable




(367,521)


Net cash flows from (used by) operating activities


253,416



(352,887)







Cash flows from (used by) investing activities:





Capital expenditures


(96,592)



(67,497)


Proceeds from the sale of property, plant and equipment


14,004



2,042


Acquisitions, net of cash acquired


(9,850)



(700,982)


Proceeds from insurance, sale of discontinued operations and other


974



5,798


Beneficial interest in securitized accounts receivable




367,521


Net cash flows used by investing activities:


(91,464)



(393,118)







Cash flows from (used by) financing activities:





Proceeds from issuance of long-term debt


11,299



180,000


Repayments of long-term debt


(106,880)



(14,605)


Proceeds from accounts receivable programs


85,686



140,070


Repayments under accounts receivable programs


(81,314)



(92,664)


Dividends


(28,480)



(28,181)


Stock issued under incentive and purchase plans, net of forfeitures


(2,463)



(2,856)


Contribution from noncontrolling interests


16



10


Net cash flows from (used by) financing activities


(122,136)



181,774


Effect of exchange rate changes on cash


337



(221)


Increase (decrease) in cash, restricted cash and cash equivalents


40,153



(564,452)


Cash, restricted cash and cash equivalents at beginning of period


193,729



632,615


Cash, restricted cash and cash equivalents at end of period


$

233,882



$

68,163








Supplemental information:


Six Months Ended

(in thousands)


February 29, 2020


February 28, 2019

Cash and cash equivalents


$

232,442



$

66,742


Restricted cash


1,440



1,421


Total cash, restricted cash and cash equivalents


$

233,882



$

68,163


COMMERCIAL METALS COMPANY
NON-GAAP FINANCIAL MEASURES (UNAUDITED)

This press release contains financial measures not derived in accordance with generally accepted accounting principles ("GAAP"). Reconciliations to the most comparable GAAP measures are provided below.

Core EBITDA from Continuing Operations is a non-GAAP financial measure. Core EBITDA from continuing operations is the sum of earnings (loss) from continuing operations before interest expense and income taxes (benefit). It also excludes recurring non-cash charges for depreciation and amortization, asset impairments and equity compensation. Core EBITDA from continuing operations also excludes certain material acquisition and integration related costs and other legal fees, amortization of acquired unfavorable contract backlog, facility closure costs and purchase accounting adjustments to inventory. Core EBITDA from continuing operations should not be considered an alternative to earnings (loss) from continuing operations or net earnings (loss), or as a better measure of liquidity than net cash flows from operating activities, as determined by GAAP. However, we believe that Core EBITDA from continuing operations provides relevant and useful information, which is often used by analysts, creditors and other interested parties in our industry as it allows: (i) comparison of our earnings to those of our competitors; (ii) a supplemental measure of our ongoing core performance; and (iii) the assessment of period-to-period performance trends. Additionally, Core EBITDA from continuing operations is the target benchmark for our annual and long-term cash incentive performance plans for management. Core EBITDA from continuing operations may be inconsistent with similar measures presented by other companies.

A reconciliation of earnings from continuing operations to Core EBITDA from continuing operations is provided below:



Three Months Ended


Six Months Ended

(in thousands)


2/29/2020


11/30/2019


8/31/2019


5/31/2019


2/28/2019


2/29/2020


2/28/2019

Earnings from continuing operations


$

63,596



$

82,755



$

85,880



$

78,551



$

14,928



146,351



34,348


Interest expense


15,888



16,578



17,702



18,513



18,495



32,466



35,158


Income taxes


22,845



27,332



16,826



29,105



18,141



50,177



23,750


Depreciation and amortization


41,389



40,941



41,051



41,181



41,245



82,330



76,421


Asset impairments




530



369



15





530




Non-cash equity compensation


7,536



8,269



7,758



7,342



5,791



15,805



10,006


Facility closure




6,339









6,339




Acquisition and integration related costs and other






6,177



2,336



5,475





33,445


Amortization of acquired unfavorable contract backlog


(5,997)



(8,331)



(16,582)



(23,394)



(23,476)



(14,328)



(34,808)


Purchase accounting effect on inventory










10,315





10,315


Core EBITDA from continuing operations


$

145,257



$

174,413



$

159,181



$

153,649



$

90,914



$

319,670



$

188,635



*Net of interest, taxes, depreciation and amortization, impairments, and non-cash equity compensation.

Adjusted earnings from continuing operations is a non-GAAP financial measure that is equal to earnings (loss) from continuing operations before certain acquisition and integration related and costs and other legal expenses, facility closure costs, and purchase accounting adjustments to inventory, including the estimated income tax effects thereof. Additionally, we adjust adjusted earnings from continuing operations for the effects of the Tax Cuts and Jobs Act ("TCJA"). Adjusted earnings from continuing operations should not be considered as an alternative to earnings from continuing operations or any other performance measure derived in accordance with GAAP. However, we believe that adjusted earnings from continuing operations provides relevant and useful information to investors as it allows: (i) a supplemental measure of our ongoing core performance and (ii) the assessment of period-to-period performance trends. Management uses adjusted earnings from continuing operations to evaluate our financial performance. Adjusted earnings from continuing operations may be inconsistent with similar measures presented by other companies. Adjusted earnings from continuing operations per diluted share is defined as adjusted earnings from continuing operations on a diluted per share basis.

A reconciliation of earnings from continuing operations to adjusted earnings from continuing operations is provided below:



Three Months Ended


Six Months Ended

(in thousands)


2/29/2020


11/30/2019


8/31/2019


5/31/2019


2/28/2019


2/29/2020


2/28/2019

Earnings from continuing operations


$

63,596



$

82,755



$

85,880



$

78,551



$

14,928



$

146,351



$

34,348


Facility closure




6,339









6,339




Acquisition and integration related costs and other






6,177



2,336



5,475





33,445


Purchase accounting effect on inventory










10,315





10,315


Total adjustments (pre-tax)


$



$

6,339



$

6,177



$

2,336



$

15,790



$

6,339



$

43,760

















Tax impact















TCJA impact


$



$



$



$



$

7,550



$



$

7,550


Related tax effects on adjustments




(1,331)



(1,297)



(490)



(3,316)



(1,331)



(9,190)


Total tax impact




(1,331)



(1,297)



(490)



4,234



(1,331)



(1,640)


Adjusted earnings from continuing operations


$

63,596



$

87,763



$

90,760



$

80,397



$

34,952



$

151,359



$

76,468

















Adjusted earnings from continuing operations per diluted share


$

0.53



$

0.73



$

0.76



$

0.67



$

0.29



$

1.26



$

0.64


 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/commercial-metals-company-reports-second-quarter-fiscal-2020-results-301026558.html

SOURCE Commercial Metals Company

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