Commercial Metals Company Reports Strong Q1 Results and Growth Plans

2024-01-24

Commercial Metals Company (CMC) recently held its earnings call, where key participants included Peter Matt, CMC's President and CEO, and Paul Lawrence, Senior Vice President and CFO. During the conference call, the company discussed various aspects of its business, including expectations for economic conditions, steel import levels, construction activity, and future operations.

In terms of financial performance, CMC reported strong results for the first quarter of fiscal 2024. Net earnings were $176.3 million, or $1.49 per diluted share, on net sales of $2 billion. Adjusted earnings were $192.7 million, or $1.63 per diluted share. The North America steel group performed well, benefiting from healthy construction activity and near-record margins.

The emerging businesses group (EBG) plays a crucial role in CMC's strategy, focusing on innovative solutions with high margins. One example mentioned during the call was the Tensar Geogrid solutions, which have low market penetration but offer higher margins. The company expects the EBG to grow faster and maintain higher margins compared to the more mature steel groups.

CMC remains confident in the long-term outlook for its business, driven by structural trends that will bolster construction activity. Significant investments have been announced to improve the nation's infrastructure, which could lead to substantial incremental rebar consumption. However, challenges are anticipated in some areas of construction, such as office, retail, and hospitality.

Updates were provided on CMC's Arizona 2 micro mill, which is setting new daily output records. The expected production for fiscal 2024 is approximately 250,000 tons, with a target output of 500,000 tons at a full run rate. The West Virginia project is progressing well, with civil work nearly complete. The commissioning is expected to begin in late calendar 2025.

CMC's financial performance was also discussed during the call. The North American steel group generated adjusted EBITDA of $266.8 million in the first quarter, with an adjusted EBITDA margin of 16.8%. The Europe steel group faced challenges, primarily due to lower margins and reduced shipment volumes. The emerging business group's net sales decreased by 3.9% compared to the prior-year period.

Regarding capital allocation, CMC follows a balanced approach, focusing on growth and returns to shareholders. The company has increased share buybacks and kept dividends flat. The outlook for capex remains intact, with maintenance capex around $250 million per year. The company is also open to M&A opportunities that complement its core business.

The investor calls featured participants such as Peter Matt, Paul Lawrence, and analysts from KeyBanc Capital Markets, Wolfe Research, and Citi. These calls serve as a platform to discuss and provide updates on the company's financial performance.

Overall, CMC's earnings call covered various topics, including financial performance, strategic initiatives, market trends, and capital allocation. The company remains optimistic about its long-term prospects and is focused on driving growth and delivering value to its shareholders.