Commercial Metals Company Reports Fivefold Jump in Second-Quarter Profits

Researched by Industrial Info Resources (Sugar Land, Texas)--Commercial Metals Company (NYSE:CMC) (CMC) (Irving, Texas) reported $54.5 million in net earnings for its second-quarter 2015, which ended February 28, up from $11.1 million in the same quarter a year earlier. The company cited better sales margins as raw-material and scrap-metal costs fell. Second-quarter sales by the manufacturer of steel and other metals totaled $1.4 billion, compared with nearly $1.6 billion a year earlier.

Industrial Info is tracking $48 million in active CMC projects, with $35 million worth in the construction phases and $13 million worth in the engineering phases. Construction kicked off earlier this year on a 12,600-square-foot building to house a new, 150-ton-per-hour reheat furnace at CMC's structural steel mini-mill in Seguin, Texas. Delta Fabrication & Machine Incorporated (Daingerfield, Texas) is serving as contractor for the construction. The project has a total investment value of $20 million and is scheduled for completion in mid-2015.

Chief Financial Officer Barbara Smith said capital expenditures (capex) totaled $27 million in the second quarter, compared with $22.1 million a year earlier. The company expects capex to total $150 million for fiscal year 2015.

Chief Executive Officer Joe Alvarado said the company's U.S. mills benefited from lower raw-material prices, as metals margins expanded greatly when compared with a year earlier.

The America Mills segment recorded an adjusted operating profit of $98.5 million, compared with $44.1 million a year earlier. CMC said the average cost of ferrous scrap declined $66 per ton, while average selling prices declined $13 per ton, resulting in a 17% average increase in metal margins. The segment also recorded a $50.7 million favorable last in, first out (LIFO) charge during the quarter.

CMC's Americas Recycling segment recorded an adjusted operating loss of $200,000, compared with a loss of $900,000 a year earlier. Average ferrous and nonferrous selling prices outweighed declines in average material costs.

Profit gains also were reported by the company's Americas Fabrication and International Marketing & Distributions segments.

The International Mills segment reported an adjusted operating profit of $800,000, down from $8.3 million a year earlier, due to a 19% decrease in average metal margins. Alvarado said during the company's earnings conference call that its Poland operations were seeing more competition from steel imports.

Looking forward, Alvarado noted the third quarter marks the start of the spring construction season, adding the company is "carrying healthy backlogs entering the busy time of the year for construction markets." Construction volumes in places like North Texas are "really quite vibrant," he said, but added, "elevated levels of imports supported by a strong dollar and excess global supply remain our top challenges."

Alvarado said CMC's domestic operations may take longer to reduce steel rebar inventories as a result of less oil-and-gas production activity.

"Demand remains quite good in Poland but competitive pressures, namely imports, will continue to constrain margins," Alvarado said.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 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.