Commercial Metals Sees International Growth in Fiscal Second-Quarter 2014, Expects Up to $140 Million Capex for Year

Researched by Industrial Info Resources (Sugar Land, Texas)--Commercial Metals Company (NYSE:CMC) (CMC) (Irving, Texas), a major steel and metal products firm, reported a jump in earnings for the second quarter of the company's 2014 fiscal year, as solid improvement in international markets, particularly Poland, offset tepid conditions in North America. Net earnings were reported to be $11.14 million, compared with $4.48 million in the second quarter of fiscal year 2013.

Net sales stood at $1.65 billion, a 2.34% decrease from the same period last year. Industrial Mills proved to be the strongest-performing segment, particularly in the company's Polish operations, as February was a record month for merchant shipments. Sales prices in the segment increased $23 per short ton, while the cost of ferrous scrap dropped $4 per short ton. Unfortunately, the opposite dynamic was a problem in the Americas Mills segment, where average selling prices declined and the cost of ferrous scrap increased. In the Americas Recycling segment, a sharp increase in ferrous scrap costs more than offset an advantageous hike in selling prices.

The North American market also was negatively affected by normal seasonal issues, as well as periods of unusually harsh weather and holiday-related delays. CMC also incurred an estimated $3 million after-tax charge from the settlement of an anti-trust lawsuit.

Capital expenditures were reported to be $36.22 million for the first half of the year, compared with $41.85 million in the first half of fiscal year 2013.

As part of its North American Metals & Minerals Project Database, Industrial Info is tracking $23 million in CMC projects, including the planned, $6 million revamp of a structural steel mini-mill in Seguin, Texas. Work on the 120-ton electric arc furnace will include modifications to key parts, such as the cooling water system, carbon injection system and oxygen fuel burners, and the replacing and rebuilding of the furnace shell. The project is expected to kick off in the first quarter of 2015.

"Total U.S. construction spending increased in January for the 12th straight month, with positive momentum in the residential, transportation, communications, manufacturing, water supply, and highway and field construction sectors," said Joe Alvarado, the chairman, president and chief executive officer of CMC, in a conference call. "As it relates to the renewal of federal funding of transportation programs, although we would prefer the approval of a longer-term bill rather than the repeated extensions of a prior bill, we are encouraged by signs of higher overall spending approvals currently under discussion in Washington."

Capital spending for the full 2014 fiscal year is expected to be between $130 million and $140 million. CMC executives noted that the third quarter of the company's fiscal year usually benefits from warmer weather, and thus stronger construction activity. In a quarterly press release, they noted date from the American Institute of Architects also indicates the U.S. construction market may improve in the coming months, following slower-than-expected growth in the second quarter, although imported Turkish rebars might hinder the growth.

"During the second quarter, we built up inventory levels in anticipation of spring and summer construction, and to prepare for the commissioning of a new electric arc furnace in Poland, which led to an increase in working capital levels over August 31, 2013," said Barbara Smith, the senior vice president and chief financial officer of CMC, in the conference call. "As the construction season gets into full swing, we expect this inventory build to translate into greater cash from operations over the remainder of the fiscal year."

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.