IRVING, Texas, March 21 /PRNewswire-FirstCall/ -- Commercial Metals
Company (NYSE: CMC) today reported net earnings of $80.1 million or $1.29 per
diluted share on net sales of $1.6 billion for the quarter ended February 28,
2006, ranking it as the strongest second quarter ever reported for the Company
and the second best quarter in history. This compares with net earnings of
$56.6 million or $0.91 per diluted share on net sales of $1.6 billion for the
second quarter last year. This year's second quarter included after-tax LIFO
income of $2.6 million or $0.04 per diluted share compared with an expense of
$2.6 million or $0.04 per share in last year's second quarter.
Net earnings for the six months ended February 28, 2006 were $150 million
or $2.44 per diluted share on net sales of $3.3 billion. For the same period
last year, net earnings were $130 million or $2.11 per diluted share on net
sales of $3.1 billion. For the six months ended February 28, 2006, after-tax
LIFO expense was $11.5 million or $0.19 per share compared with an expense of
$24.8 million or $0.40 per share last year.
CMC Chairman and Chief Executive Officer Stanley A. Rabin said, "We again
generated outstanding profits in what is typically our weakest quarter,
results which exceeded our expectations and after a period of declining steel
prices in many parts of the world. As we anticipated, the second quarter
reflected some seasonal softness, although abnormally dry weather in the
southwest U.S. aided shipping levels. Profitability was relatively strong in
all of our segments except for CMCZ, but it performed better than the prior
year as well. Currency changes were not significant. Our outlook for the
third quarter and second half remains very positive. As discussed in more
detail later in this release, we believe product demand should accelerate
further, and volume and prices remain strong. We anticipate third quarter
LIFO diluted net earnings per share between $1.25 and $1.40."
Domestic Mills
Rabin added, "Our Domestic Mills segment's adjusted operating profit at
$71 million was nearly double last year's historically strong second quarter.
The LIFO expense was $686 thousand pre-tax in this year's second quarter
compared with $983 thousand expense last year. Within the segment, adjusted
operating profit for our steel minimills was almost 65% greater than a year
earlier on the strength of higher selling prices combined with seasonally high
finished goods shipments as well as a lower average cost for scrap utilized.
Compared with last year's second quarter, the metal spread increased by 11% to
$293 per ton. On a year-to-year basis, tonnage melted for the second quarter
was up 8% to 577 thousand tons; tonnage rolled was 532 thousand tons, 13%
above last year's second quarter; and shipments gained 19% to 603 thousand
tons. Our average total mill selling price was $26 per ton above last year's
level, and the average selling price for finished goods was up by $26 per ton
to $516 per ton. By product line, the price premium of merchant bar over
reinforcing bar remained relatively wide at $88 per ton. The average scrap
purchase cost increased by 1% versus a year ago to $184 per ton. Total
utility costs increased dramatically by $8.7 million compared with the second
quarter last year, with increases in both electricity and natural gas. Year-
over-year costs for ferroalloys, graphite electrodes and other supplies were
mixed, while transportation rates rose significantly.
"The copper tube mill recorded an adjusted operating profit of $6.1
million, substantially above that of last year's second quarter. Included was
a pre-tax LIFO expense of $1.7 million compared to a $1 million expense last
year. Better supply/demand conditions in the industry resulted in an
increased average selling price of $2.84 per pound and metal spreads widened
to $1.11 per pound, up from 68 cents per pound, more than offsetting the
pronounced rise in the cost of copper scrap. Against the same period last
year, copper tube production edged higher to 16.7 million pounds while
shipments were down 2% to 15.7 million pounds."
CMCZ
Rabin continued, "The Polish steel operation recorded a small adjusted
operating loss of $584 thousand on a 100%-owned basis compared with an
adjusted operating loss of $4.5 million the previous year. Operating levels
and shipments were up significantly compared with the second quarter of fiscal
2005, even though severe weather slowed construction in Poland and surrounding
areas; however, prices and margins continued to be squeezed. Exports did
increase despite the relatively strong Polish Zloty. For the quarter, tons
melted equaled 285 thousand versus 203 thousand last year; rolled tons equaled
261 thousand against 206 thousand last year; and shipments totaled 285
thousand tons (including billets) compared with 208 thousand last year.
Meanwhile, the average selling price fell to PLN 1,238 per ton (including 7%
billets) from PLN 1,523 per ton (including 7% billets) with particular
weakness in the wire rod market. Accordingly, the average metal margin
decreased further to PLN 546 per ton from an already inadequate PLN 619 per
ton. During January 2006, we began to commission the new mega-shredder and
construction of the greenfield rebar fabrication plant will begin shortly."
Domestic Fabrication
Rabin said, "Profitability in the Domestic Fabrication segment was a
record for a second quarter. We recorded an 80% increase in adjusted
operating profit to $38.5 million, including $9.7 million pre-tax LIFO income
(reduced inventories). Last year's pre-tax LIFO expense was $4.6 million.
Total shipments jumped 23% compared with the prior year's second quarter and
were up across-the-board for the various product areas. Realized selling
prices were mostly higher, with all products sustaining strong levels.
Construction activity was relatively strong in all areas. Public and
institutional construction continued at a very solid level, and various
sectors of commercial construction showed further improvement. Almost all
product areas - rebar fabrication, construction-related products (CRP), steel
fence posts, steel joist manufacturing, cellular beam manufacturing,
structural steel fabrication, and heat treating - contributed to the
improvement in profitability. Shipments from our fab plants totaled 363
thousand tons, while the composite average fab selling price (excluding stock
and buyouts) increased by $22 per ton."
Recycling
According to Rabin, "The Recycling segment achieved a near record second
quarter with net sales up by 21% compared with one year ago, marked by record
nonferrous price levels. The adjusted operating profit of $18.6 million was
off 7% from last year's record second quarter. LIFO expense was $3.2 million
pre-tax this quarter versus an income of $1.0 million the prior year. The
ferrous scrap market was still strong - and notably volatile - although on
balance down in price from the second quarter of last year. Versus last year,
the average ferrous scrap sales price for the quarter decreased by 4% to $190
per short ton while stock shipments increased 6% to 490 thousand short tons.
The average nonferrous scrap sales price for the quarter jumped by 33%
compared with a year ago, while nonferrous stock shipments were 3% higher.
Inventory turnover across the board remained extremely rapid. The total
volume of scrap processed, including all our domestic processing plants,
equaled 862 thousand tons against 822 thousand tons last year."
Marketing and Distribution
"Adjusted operating profit for the Marketing and Distribution segment of
$12.9 million was significantly below last year's very strong second quarter
on considerably lower net sales, mostly due to what we believe were temporary
factors," Rabin said. "Business was mixed by geography and product line.
This segment recorded LIFO expense of $1.8 million pre-tax compared with pre-
tax income of $519 thousand the year before. Global sales and prices of steel
declined, especially in Europe and Asia, resulting in lower profitability for
this large product line. The margins for aluminum, copper and stainless steel
semis decreased over the prior year, and sales and margins for industrial
materials and products were down as well from recent record levels. Our
value-added downstream and processing businesses continued to perform well,
although not as robust as recent quarters because of the generally weaker
steel markets."
Financial Condition
According to Rabin, "Our financial position remains strong. At February
28, 2006, our stockholders' equity exceeded $1 billion for the first time. At
quarter end, our working capital was $962 million, and the current ratio was
2.2. Our coverage ratios remain strong. Long-term debt as a percentage of
total capitalization was 26%, as was the ratio of total debt to total
capitalization plus short-term debt. Both ratios include the debt of CMCZ
which has recourse only to the assets of CMCZ.
"Following up on the Company's previously announced intent to increase the
regular quarterly cash dividend, on March 13, 2006, the board declared a cash
dividend of 10 cents per share, up from the prior 6 cents per share. This
increase, effective with the dividend to be paid on April 21, 2006, to
stockholders of record April 7, 2006, represents an increase of 67%."
Outlook
Rabin continued, "As the quarter ended, the global steel market in
particular had reversed course, resulting in another price rally. The end of
de-stocking in most markets, disciplined production rates by EU mills, and a
rapid Asian turnaround all contributed to the upswing. Generally good
economic conditions prevail. Manufacturing activity continues to expand.
While residential construction in the U.S. has pulled back from its peak,
worldwide non-residential construction notably is expected to strengthen.
More specifically, construction materials generally are in strong demand. Our
domestic steel mill markets continue at relatively strong levels, underpinned
by the growing U.S. economy and solid construction markets. Imports of carbon
steel bar products recently have increased into the U.S.; although at
reasonable levels relative to demand, the situation bears watching. Our mill
shipments should accelerate during the third quarter, and steel prices should
remain firm. Steel scrap prices remain relatively strong, domestically and
internationally, although a continuation of the unprecedented price volatility
we have seen in recent quarters appears inevitable. The outlook for
nonferrous markets remains favorable, although prices are off from recent
highs. Demand for downstream products and services remains vibrant.
"Accordingly, total earnings from our domestic steel mills should remain
strong during the third quarter. The copper tube business should be steady at
the improved level. Results at CMCZ are expected to improve significantly
based on increased selling prices and shipments. Our anticipation remains
that fabrication profits will expand yet further given robust prices and
volumes. Our Recycling segment will again post strong results buoyed by
relatively firm markets. We expect the Marketing and Distribution segment to
pick up again, driven by higher volume and margins in various steel markets,
led by firmer market conditions in China."
CMC invites you to listen to a live broadcast of its second quarter 2006
conference call on Tuesday, March 21, at 3:00 p.m. ET. The call will be
hosted by Stan Rabin, Chairman and CEO, Murray McClean, President and COO, and
Bill Larson, Vice President and CFO, and can be accessed via our website at
http://www.commercialmetals.com or at http://www.streetevents.com . In the
event you are unable to listen to the live broadcast, the call will be
archived and available for replay within two hours of the webcast. Financial
and statistical information presented in the broadcast can be found on CMC's
website under "Investor Relations."
Commercial Metals Company and subsidiaries manufacture, recycle and market
steel and metal products, related materials and services through a network
including steel minimills, steel fabrication and processing plants,
construction-related product warehouses, a copper tube mill, metal recycling
facilities and marketing and distribution offices in the United States and in
strategic overseas markets.
Paragraphs three, twelve and thirteen (Outlook) of this news release
contain forward-looking statements regarding the outlook for the Company's
financial results including net earnings, product pricing and demand, currency
valuation, production rates, inventory levels, and general market conditions.
These forward-looking statements generally can be identified by phrases such
as the company or its management "expect," "anticipate," "believe," "ought,"
"should," "likely," "appears," "outlook," "projected," "forecast," or other
words or phrases of similar impact. There is inherent risk and uncertainty in
any forward-looking statements. Variances will occur and some could be
materially different from management's current opinion. Developments that
could impact the Company's expectations include interest rate changes,
construction activity, metals pricing over which the Company exerts little
influence, increased capacity and product availability from competing steel
minimills and other steel suppliers including import quantities and pricing,
court decisions, industry consolidation or changes in production capacity or
utilization, global factors including political and military uncertainties,
credit availability, currency fluctuations, energy prices, and decisions by
governments impacting the level of steel imports and pace of overall economic
activity.
COMMERCIAL METALS COMPANY
Condensed Consolidated Statements of Earnings (Unaudited)
(in thousands except share data)
Three months ended Six months ended
2/28/06 2/28/05 2/28/06 2/28/05
Net Sales $1,639,487 $1,597,313 $3,285,185 $3,126,385
Costs and Expenses:
Cost of goods sold 1,388,883 1,388,792 2,813,613 2,684,900
Selling, general
and administrative
expenses 118,623 113,630 225,357 223,435
Interest expense 6,952 8,517 13,876 15,818
1,514,458 1,510,939 3,052,846 2,924,153
Earnings Before
Income Taxes and
Minority Interests 125,029 86,374 232,339 202,232
Income Taxes 45,504 31,709 82,945 70,984
Earnings before
Minority Interests 79,525 54,665 149,394 131,248
Minority Interests (578) (1,910) (333) 948
Net Earnings $80,103 $56,575 $149,727 $130,300
Basic earnings
per share $1.36 $0.95 $2.57 $2.20
Diluted earnings
per share $1.29 $0.91 $2.44 $2.11
Cash dividends
per share $0.06 $0.06 $0.12 $0.11
Average basic
shares outstanding 58,775,891 59,489,851 58,371,850 59,097,619
Average diluted
shares outstanding 61,915,314 62,427,957 61,429,080 61,664,332
BUSINESS SEGMENTS
(in thousands)
Three months ended Six months ended
2/28/06 2/28/05 2/28/06 2/28/05
Net Sales
Domestic Mills $366,170 $283,835 $735,949 $599,597
CMCZ 112,584 107,644 219,916 230,758
Domestic Fabrication 408,156 330,886 808,679 657,526
Recycling 272,013 224,510 508,412 444,980
Marketing and
Distribution 642,184 749,004 1,326,742 1,429,599
Corporate and
Eliminations (161,620) (98,566) (314,513) (236,075)
Total Net Sales $1,639,487 $1,597,313 $3,285,185 $3,126,385
Adjusted Operating Profit (Loss):
Domestic Mills $70,767 $39,248 $135,686 $93,189
CMCZ (584) (4,542) 948 7,773
Domestic Fabrication 38,494 21,372 56,691 42,706
Recycling 18,592 20,073 32,426 39,848
Marketing and
Distribution 12,934 23,215 35,989 46,584
Corporate and
Eliminations (7,425) (3,465) (13,952) (10,268)
COMMERCIAL METALS COMPANY
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
February 28, August 31,
2006 2005
Assets:
Current Assets:
Cash and cash equivalents $72,111 $119,404
Accounts receivable, net 901,040 829,192
Inventories 765,825 706,951
Other 52,087 45,370
Total Current Assets 1,791,063 1,700,917
Net Property, Plant and Equipment 532,163 505,584
Goodwill 30,542 30,542
Other Assets 117,602 95,879
$2,471,370 $2,332,922
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable - trade $439,545 $408,342
Accounts payable - documentary letters
of credit 100,109 140,986
Accrued expenses and other payables 238,407 293,598
Income taxes payable and deferred income taxes 40,867 40,126
Short-term trade financing arrangements --- 1,667
Current maturities of long-term debt 9,743 7,223
Total Current Liabilities 828,671 891,942
Deferred Income Taxes 45,579 45,629
Other Long-Term Liabilities 72,703 58,627
Long-Term Debt 391,973 386,741
Minority Interests 52,059 50,422
Stockholders' Equity 1,080,385 899,561
$2,471,370 $2,332,922
Three months ended Six months Ended
(Short Tons in Thousands) 2/28/06 2/28/05 2/28/06 2/28/05
Domestic Steel Mill
Rebar Shipments 273 188 543 420
Domestic Steel Mill
Structural and Other
Shipments 330 318 684 632
CMCZ Shipments 285 208 542 460
Total Mill Tons Shipped 888 714 1,769 1,512
Average FOB Mill
Domestic Selling Price
(Total Sales) $500 $474 $495 $479
Average Domestic Mill
Ferrous Scrap Purchase
Price $184 $181 $184 $185
Average FOB Mill CMCZ
Selling Price
(Total Sales) $381 $494 $389 $481
Average CMCZ Ferrous Scrap
Purchase Price $179 $207 $176 $227
Fab Plant Rebar Shipments 232 196 469 421
Fab Plant Structural,
Joist, and Post Shipments 131 100 257 203
Total Fabrication Tons
Shipped 363 296 726 624
Average Fab Selling Price
(Excluding Stock & Buyout
Sales) $871 $849 $857 $835
Domestic Scrap Metal Tons
Processed and Shipped 862 822 1,701 1, 650
COMMERCIAL METALS COMPANY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six months ended
2/28/06 2/28/05
Cash Flows From (Used by) Operating Activities:
Net earnings $149,727 $130,300
Adjustments to reconcile net earnings
to cash from (used by) operating activities:
Depreciation and amortization 39,678 37,846
Business interruption insurance recovery --- (4,500)
Minority interests (333) 948
Provision for losses on receivables 1,841 3,012
Share-based compensation 4,424 27
Net gain on sale of assets and other (1,098) (1,027)
Changes in Operating Assets and Liabilities,
Net of Effect of Acquisitions:
Accounts receivable (75,138) (82,198)
Accounts receivable sold --- 26,238
Inventories (57,967) (99,255)
Other assets (23,577) (5,494)
Accounts payable, accrued expenses,
other payables and income taxes (24,909) (50,164)
Deferred income taxes (635) (30)
Other long-term liabilities 13,062 8,993
Net Cash Flows From (Used By) Operating Activities 25,075 (35,304)
Cash Flows From (Used by) Investing Activities:
Purchases of property, plant and equipment (59,460) (40,141)
Sales of property, plant and equipment 3,672 2,598
Acquisitions of fabrication businesses (5,140) (2,950)
Net Cash Used By Investing Activities (60,928) (40,493)
Cash Flows From (Used by) Financing Activities:
Increase (Decrease) in documentary
letters of credit (40,877) 26,207
Payments on trade financing arrangements (1,667) (11,378)
Short-term borrowings, net change --- 9,583
Payments on long-term debt --- (423)
Proceeds from issuance of long-term debt 6,040 ---
Stock issued under incentive and purchase plans 21,172 14,121
Dividends paid (7,005) (6,519)
Tax benefits from stock plans 9,726 8,168
Net Cash From (Used By) Financing Activities (12,611) 39,759
Effect of Exchange Rate Changes on Cash 1,171 1,654
Decrease in Cash and Cash Equivalents (47,293) (34,384)
Cash and Cash Equivalents at Beginning of Year 119,404 123,559
Cash and Cash Equivalents at End of Period $72,111 $89,175
COMMERCIAL METALS COMPANY
Non-GAAP Financial Measures (Unaudited)
(dollars in thousands)
This press release uses financial statement measures not derived in
accordance with generally accepted accounting principles (GAAP).
Reconciliations to the most comparable GAAP measures are provided below.
EBITDA:
Earnings before interest expense, income taxes, depreciation and
amortization.
EBITDA is a non-GAAP liquidity measure. It excludes Commercial Metals
Company's largest recurring non-cash charge, depreciation and amortization.
As a measure of cash flow before interest expense, it is one guideline used to
assess the Company's ability to pay its current debt obligations as they
mature and a tool to calculate possible future levels of leverage capacity.
EBITDA to interest is a covenant test in certain of the Company's note
agreements.
Three Months Six Months
Ended Ended
2/28/06 2/28/06
Net earnings $80,103 $149,727
Interest expense 6,952 13,876
Income taxes 45,504 82,945
Depreciation and amortization 20,408 39,678
EBITDA $152,967 $286,226
EBITDA to interest coverage
for the quarter ended for the six months ended
February 28, 2006: February 28, 2006:
$152,967 / 6,952 = 22.0 $286,226 / 13,876 = 20.6
Total Capitalization:
Total capitalization is the sum of long-term debt, deferred income taxes,
and stockholders' equity. The ratio of debt to total capitalization is a
measure of current debt leverage. The following reconciles total
capitalization at February 28, 2006 to the nearest GAAP measure, stockholders'
equity:
Stockholders' equity $1,080,385
Long-term debt 391,973
Deferred income taxes 45,579
Total capitalization $1,517,937
Other Financial Information
Long-term debt to cap ratio as of February 28, 2006:
Debt divided by capitalization
$391,973 / 1,517,937 = 25.8%
Total debt to cap plus short-term debt ratio as of February 28, 2006:
($391,973 + 9,743) / (1,517,937 + 9,743) = 26.3%
Current ratio as of February 28, 2006:
Current assets divided by current liabilities
$1,791,063 / 828,671 = 2.2
SOURCE Commercial Metals Company
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Related links:
http://www.commercialmetals.com
http://www.streetevents.com
CONTACT:
Debbie Okle, Director, Public Relations of
Commercial Metals Company, +1-214-689-4354
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