IRVING, Texas, March 25 /PRNewswire-FirstCall/ -- Commercial Metals
Company (NYSE: CMC) today reported net earnings of $39.8 million or $0.34
per diluted share on net sales of $2.3 billion for the quarter ended
February 29, 2008. This compares with net earnings of $65.9 million or
$0.54 per diluted share on net sales of $1.9 billion for the second quarter
last year. This year's second quarter included after-tax LIFO expense of
$38.3 million or $0.32 per diluted share compared with expense of $12.3
million or $0.10 per share in last year's second quarter. LIFO is an
inventory costing method that assumes the most recent inventory purchases
or goods manufactured are sold first which in periods of rising prices
results in an expense that eliminates inflationary profits from net income.
Changes in LIFO are not writedowns or writeoffs or market adjustments. They
are changes in cost components based on an assumption of physical inventory
flows.
During the quarter we repurchased 3.7 million of our shares at an
average price per share of $27.36. This represented 3.1% of the shares
outstanding at the beginning of the quarter. For the six months we have
purchased 5,412,238 shares at an average price of $28.00 per share.
Net earnings for the six months ended February 29, 2008, were $108.9
million or $0.91 per diluted share on net sales of $4.4 billion. For the
same period last year, net earnings were $151 million or $1.25 per diluted
share on net sales of $3.8 billion. For the six months ended February 29,
2008, after- tax LIFO expense was $35.5 million or $0.30 per share,
compared with an expense of $18.9 million or $0.16 per share last year.
Selling, general and administrative expenses in the second quarter
included $14.7 million of pre-tax costs associated with the investment in
the global deployment of SAP software. For the six months ended February
29, 2008, the amount was $25.0 million. Other costs of $9.2 million were
capitalized during the quarter. We have expensed $60 million and
capitalized $59.4 million for the project to date.
CMC Steel Arkansas was named by the Steel Manufacturer's Association as
the safest steel mill in North America in 2007. Our other mills ranked
second, third, and fifth and combined, all our mills were ranked first in
safety. This is the sixth year in a row one of CMC's mills has won the
award; each mill has won at least once.
Our outlook is increasingly positive. As discussed in more detail later
in this release, we anticipate third quarter LIFO diluted net earnings per
share between $0.70 to $0.80 ($20 million pre-tax LIFO expense, $0.11 per
share decrease in earnings impact assumed in the quarter) compared to last
year's third quarter of $0.82 per share, including $0.16 of LIFO expense,
which is the current record third quarter.
General Conditions
CMC President and Chief Executive Officer Murray R. McClean said,
"Market conditions improved steadily throughout the quarter. December ended
excess inventory hangovers and the quarter saw an unanticipated $97 per
short ton spike in ferrous scrap pricing followed by an $85 per ton
increase in rebar and merchants by quarter end. Management's outlook had
not anticipated a LIFO effect for the quarter; however, the dramatic
increase in pricing inevitably led to a huge LIFO expense of $0.32 a share,
a record quarterly charge. Our Americas Recycling segment, propelled by
ferrous scrap pricing, had a strong second quarter. Our Americas Mills
segment, on the strength of higher production and shipment levels, overcame
a temporary metal margin squeeze. The Americas Fabrication and Distribution
operations felt the margin squeeze and the effect of a massive LIFO charge
although underlying operations remain solid. The International Mills were
at extremes. CMCZ (Poland) shook off lethargic pricing early in the quarter
to achieve excellent results in the second half of the period. CMCS
(Croatia) remained in turnaround mode. International Fabrication and
Distribution showed continued strength in raw materials, inter-Asian trade,
and European markets."
Americas Recycling
McClean added, "Adjusted operating profit of $25.6 million was 3%
behind last year's second quarter, yet still represented a historically
strong result. Riding January's spike which led to all-time record ferrous
pricing, ferrous operations accounted for two-thirds of the segment's
profitability. The average ferrous scrap sales price for the second quarter
compared to last year's second quarter increased $73 per short ton to $287
per short ton, while shipments (including the units that formerly were
reported under the old Domestic Mills segment) increased 17% to 754
thousand tons. In such a period of rising prices, LIFO expense of $5.0
million was incurred for the second quarter compared to $1.8 million income
in last year's second quarter. Nonferrous pricing showed mixed trends as
copper pushed toward $4 per pound, but aluminum and stainless average sales
prices retreated. The average nonferrous scrap sales price for the quarter
was $2,780 per ton, 2% higher than last year's comparable quarter.
Nonferrous shipments decreased 12% to 72 thousand tons versus last year's
second quarter due to weak residential construction, lower manufacturing
output, and Chinese consumers opening warehouses in the U.S. We exported
37% of our nonferrous scrap material during the quarter. Ferrous scrap
exports were 15 thousand tons, all in containers. Strong international
demand for scrap and other products has now resulted in container shortages
and higher container freight costs."
Americas Mills
"Fueled by spiking ferrous scrap prices, our Americas Mills segment's
adjusted operating profit of $55.3 million was comparable to last year's
second quarter," according to McClean. "The major variant between quarters
was the segment's pre-tax LIFO expense of $18.2 million compared to $7.7
million in the prior year. Net sales were up 33%.
"Our steel mills adjusted operating profit was down 6% due to LIFO
expense of $19 million this quarter compared to $13 million in last year's
second quarter. Metal margins were slightly lower at $324 per ton as there
was a lag between sales price increases which came late in the quarter and
the rising ferrous scrap cost which was spread throughout the quarter. The
price of ferrous scrap consumed rose 36% compared to last year. Our average
selling price was up $76 per ton to $617 per ton while the average selling
price for finished goods was up $101 per ton to $657 per ton. Margins were
also affected by a 100% increase in alloys, a 21% increase in electrodes,
and a 17% increase in energy costs. Combined, these three costs accounted
for some $11.5 million in increased costs this quarter. Sales volumes
increased 12% to 630 thousand tons. Rebar shipments rose 6% and merchant
tonnage rose 17%. Included in the sales volumes was 113 thousand tons of
billets of which 40 thousand tons were exported. The price premium of
merchant bar over reinforcing bar was $105 per ton, up $18 per ton from
last year. Sales volumes in the second quarter of last year were down due
to scheduled maintenance for the melt shop and the rolling mill, and billet
sales were lower. Service centers continue to match their buying to their
sales commitments with no surge in purchasing though inventories are at
10-year lows. On a quarter-to- quarter basis, tonnage melted for the second
quarter was up 9% to 578 thousand tons while tonnage rolled was 504
thousand tons, a decrease of 2%. We have invested $39.6 million of the
expected $155 million total cost of our micro mill project in Arizona.
"The copper tube mill recorded an adjusted operating profit of $4.4
million, a 100% increase over last year on a 38% increase in sales and
after absorbing a $4.6 million swing quarter to quarter in LIFO expense.
Pounds shipped rose 26% to 14.5 million on the strength of commercial
markets, additional orders from buying groups, and the pullback from the
market of a competitor. Pre-tax LIFO income in the quarter was $800
thousand compared to $5.4 million income last year. The average selling
price increased 33 cents to $3.83 per pound, and metal spreads rose 41
cents overcoming copper scrap price increases of 30 cents to $3.08 per
pound. Copper tube production increased 23% to 12.8 million pounds compared
to last year's second quarter."
Americas Fabrication and Distribution
McClean said, "Driven by rapidly escalating steel prices, the segment's
results were buried by a pre-tax LIFO expense of $35.2 million compared to
$14.1 million pre-tax LIFO expense in last year's second quarter. This
resulted in an adjusted operating loss of $7.6 million compared to an
adjusted operating profit of $11.7 million last year. The composite average
fab selling price (excluding stock and buyouts) increased 9% to $1,022 a
ton; however, in periods of rising prices the backlog inevitably is margin
squeezed until the rollover of new jobs occurs at higher prices. Absent the
LIFO hit, our structural, joist and deck (both with and without the results
of the N.J. Bouras acquisition), and post operations all improved over last
year's second quarter. Rebar fabrication adjusted operating profit fell 3%,
and construction services was lower. Our domestic steel import and
distribution operations continue to feel the sting of a weak U.S. dollar,
high international prices, and elevated freight rates. Pipe and tubular
goods was a bright spot."
International Mills
McClean said, "This segment had two opposite, though expected, results
to report this quarter. Combined adjusted operating profit was $9.7 million
compared to last year's $26.0 million. CMCZ (Poland) saw an improved
pricing environment from mid-quarter on and achieved an adjusted operating
profit of $16.1 million. CMCS (Croatia) continued to be saddled with
start-up costs and investments in customer acceptance. A mild winter, low
inventory levels at the end of 2007, the reduction of Turkish and Chinese
imports in the region, and a strong Middle East construction market all led
to higher shipments. Merchant bar tonnages again showed an improvement in
sales this quarter compared to last year's second quarter. For the second
quarter, tons melted were 385 thousand, 2% above last year's 378 thousand;
rolled tons equaled 308 thousand against 292 thousand last year; and
shipments totaled 403 thousand tons (a new all-time quarterly record)
including 81 thousand tons of billets versus 369 thousand tons last year.
Average selling prices decreased 5% to PLN 1,414 (including 20% billets)
from PLN 1,486 per ton (including 11% billets). The cost of purchased scrap
entering production increased 5%. The average metal margin decreased to PLN
589 from PLN 660. Our mega-shredder processed 108 thousand tons of scrap
during the quarter.
"Our turnaround at CMCS (Croatia) continues. Our marketing efforts are
aimed at winning back customer acceptance that was lost in the many years
that the mill was operated poorly and at low capacities. Our sales are
often in trial lots as we develop the customer base. Our adjusted operating
loss was $6.4 million. We rolled 12,100 tons and sold 9,200 tons during the
quarter."
International Fabrication and Distribution
McClean added, "International Fabrication and Distribution had a strong
second quarter recording an adjusted operating profit of $21.7 million, a
26% increase compared to the prior year of $17.3 million. Though included
in this discussion, our aluminum, copper, and stainless steel semis
business is classified as a discontinued operation. Our raw materials
division set all- time quarterly sales records and posted its best second
quarter profit ever. Strong international demand coupled with supply
interruptions in China (severe weather) and South Africa (power shortage)
fueled results. European operations were again profitable and the decline
in Chinese steel exports supported higher prices and good profitability in
inter-Asian markets. Australian marketing and distribution operations both
remained profitable, and the combined operations of our fab shops (Poland
and Germany) returned to the black after a slight loss in the first
quarter."
Corporate and Other
McClean continued, "Two years of planning and development culminated in
our first units rolling on to SAP from legacy systems. Our CMC Steel Texas
mill, the Corporate functions, and U.S. payroll all successfully went live
on January 1, 2008. Once again the largest change in Corporate and
Eliminations between the second quarter of this year and last is the $4.4
million in additional SAP deployment expense quarter to quarter. Included
in earnings from discontinued operations is LIFO pre-tax expense of $600
thousand compared to $1 million of income in last year's second quarter.
Interest expense increased as a result of our $400 million debt issue in
July 2007."
Financial Condition
McClean said, "Our financial position remains solid. At quarter end,
long-term debt as a percentage of total capitalization was 27.5%. Our
working capital was $1.1 billion, and the current ratio was 1.9. Our
coverage ratios were strong."
Outlook
McClean said, "Our third fiscal quarter should be excellent. Global
infrastructure growth will continue to create a strong demand for rebar and
other steel long products in emerging countries. In the U.S.,
nonresidential construction growth should be flat. Supply of rebar is
likely to be impacted by the reduced level of rebar imports. Supply of
steel products in global markets is likely to be significantly impacted by
the Chinese cut back in steel exports. The recently announced contract iron
ore prices for 2008 (up 65% plus) should support higher pig iron and
ferrous scrap prices in global markets."
In summary, McClean added, "Higher prices globally and in the U.S. for
raw materials, ferrous scrap and steel long products should be positive for
four of our five segments. The fifth segment, Americas Fabrication and
Distribution, is likely to be impacted by a margin squeeze due to higher
steel prices. We anticipate a significant LIFO expense for the third
quarter."
Conference Call
CMC invites you to listen to a live broadcast of its second quarter
2008 conference call on Tuesday, March 25, at 11:00 a.m. ET. The call will
be hosted by Stan Rabin, Chairman, Murray McClean, President and CEO, and
Bill Larson, Sr. Vice President and CFO, and can be accessed via our
website at http://www.cmc.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."
Forward-Looking Statements
Paragraph six and the Outlook section of this news release contain
forward-looking statements regarding the outlook for the Company's
financial results including net earnings, product pricing and demand,
production rates, inventory levels, impact of acquisitions, credit
conditions and general market conditions. These forward-looking statements
generally can be identified by phrases such as the company or its
management "expect," "anticipates," "believe," "ought," "should," "likely,"
"appears," "projected," "forecast," "outlook," "will" 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 construction activity,
difficulties or delays in the execution of construction contracts resulting
in cost overruns or contract disputes, metals pricing over which the
Company exerts little influence, interest rate changes, 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,
the ability to integrate acquisitions into operations; global factors
including political and military uncertainties, credit availability,
currency fluctuations, energy and supply prices and decisions by
governments impacting the level of steel imports and pace of overall
economic activity, particularly China.
Three months ended Six months Ended
(Short Tons in Thousands) 2/29/08 2/28/07 2/29/08 2/28/07
Domestic Steel Mill Rebar
Shipments 266 252 551 470
Domestic Steel Mill
Structural and Other
Shipments 364 311 673 619
CMCZ Shipments 403 369 671 681
Total Mill Tons Shipped 1,033 932 1,895 1,770
Average FOB Mill Domestic
Selling Price (Total
Sales) $617 $541 $601 $549
Average Cost Domestic Mill
Ferrous Scrap Utilized $292 $215 $269 $211
Domestic Mill Metal Margin $324 $326 $332 $337
Average Domestic Mill
Ferrous Scrap Purchase
Price $275 $200 $254 $192
Average FOB Mill CMCZ
Selling Price (Total Sales) $576 $507 $574 $502
Average Cost CMCZ Ferrous
Scrap Utilized $336 $282 $333 $274
CMCZ Mill Metal Margin $240 $225 $241 $228
Average CMCZ Ferrous Scrap
Purchase Price $319 $253 $305 $244
Fab Plant Rebar Shipments 226 247 488 531
Fab Plant Structural, Post,
Joist and Deck Shipments 150 119 316 239
Total Fabrication Tons
Shipped 376 366 804 770
Average Fab Selling Price
(Excluding Stock & Buyout
Sales) $1,022 $935 $1,018 $915
Domestic Scrap Metal Tons
Processed and Shipped 833 733 1,620 1,531
BUSINESS SEGMENTS
(in thousands)
Three months ended Six months ended
2/29/08 2/28/07 2/29/08 2/28/07
Net Sales
Americas Recycling $478,030 $392,519 $903,395 $810,053
Americas Mills 467,790 352,412 870,600 697,638
Americas Fab and
Distribution 636,902 599,383 1,278,190 1,214,698
International Mills 245,886 195,243 414,064 357,370
International Fab and
Distribution 752,533 658,441 1,509,925 1,272,929
Corporate, Discontinued
Operations and
Eliminations (326,973) (289,684) (606,002) (551,655)
Total Net Sales $2,254,168 $1,908,314 $4,370,172 $3,801,033
Adjusted Operating Profit (Loss):
Americas Recycling $25,634 $26,399 $42,511 $48,383
Americas Mills 55,263 56,185 124,476 128,398
Americas Fab and
Distribution (7,638) 11,656 22,798 40,555
International Mills 9,651 25,985 9,074 51,872
International Fab and
Distribution 21,708 17,260 48,267 27,672
Corporate and
Eliminations (25,793) (18,894) (48,504) (29,355)
COMMERCIAL METALS COMPANY
Condensed Consolidated Statements of Earnings (Unaudited)
(in thousands except share data)
Three months ended Six months ended
2/29/08 2/28/07 2/29/08 2/28/07
Net Sales $2,254,168 $1,908,314 $4,370,172 $3,801,033
Costs and Expenses:
Cost of goods sold 2,016,397 1,656,237 3,871,777 3,261,419
Selling, general and
administrative expenses 157,411 137,370 307,410 268,789
Interest expense 14,033 8,545 26,458 16,604
2,187,841 1,802,152 4,205,645 3,546,812
Earnings from Continuing
Operations Before
Income Taxes and
Minority Interests 66,327 106,162 164,527 254,221
Income Taxes 22,923 37,353 56,280 90,065
Earnings from Continuing
Operations Before
Minority Interests 43,404 68,809 108,247 164,156
Minority Interests 391 4,648 263 9,276
Net Earnings from
Continuing Operations 43,013 64,161 107,984 154,880
Earnings (Loss) from
Discontinued Operations
Before Taxes (4,229) 2,193 2,221 (6,119)
Income Taxes (Benefit) (991) 433 1,266 (2,510)
Net Earnings (Loss) from
Discontinued Operations (3,238) 1,760 955 (3,609)
Net Earnings $39,775 $65,921 $108,939 $151,271
Basic earnings per share
Earnings from Continuing
Operations $0.37 $0.55 $0.93 $1.32
Earnings (Loss) from
Discontinued Operations $(0.02) $0.01 $0.01 $(0.03)
Net Earnings $0.35 $0.56 $0.94 $1.29
Diluted earnings per share
Earnings from Continuing
Operations $0.36 $0.53 $0.90 $1.28
Earnings (Loss) from
Discontinued Operations $(0.02) $0.01 $0.01 $(0.03)
Net earnings $0.34 $0.54 $0.91 $1.25
Cash dividends per share $0.12 $0.09 $0.21 $0.15
Average basic shares
outstanding 115,139,693 117,266,573 116,354,030 117,348,716
Average diluted shares
outstanding 118,028,571 121,807,414 119,200,422 121,422,373
COMMERCIAL METALS COMPANY
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
February 29, August 31,
2008 2007
Assets:
Current Assets:
Cash and cash equivalents $75,435 $419,275
Accounts receivable, net 1,173,078 1,082,713
Inventories 986,782 874,104
Other 134,142 82,760
Total Current Assets 2,369,437 2,458,852
Net Property, Plant and Equipment 942,134 767,353
Goodwill 41,509 37,843
Other Assets 244,032 208,615
$3,597,112 $3,472,663
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable - trade $573,786 $484,650
Accounts payable - documentary letters
of credit 144,039 153,431
Accrued expenses and other payables 365,656 425,410
Deferred income taxes 4,369 4,372
Commercial Paper 39,990 -
Notes payable 29,613 -
Current maturities of long-term debt 104,429 4,726
Total Current Liabilities 1,261,882 1,072,589
Deferred Income Taxes 36,641 31,977
Other Long-Term Liabilities 122,130 109,813
Long-Term Debt 606,623 706,817
Total Liabilities 2,027,276 1,921,196
Minority Interests 4,780 2,900
Stockholders' Equity 1,565,056 1,548,567
$3,597,112 $3,472,663
COMMERCIAL METALS COMPANY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six months ended
2/29/08 2/28/07
Cash Flows From (Used by) Operating Activities:
Net earnings $108,939 $151,271
Adjustments to reconcile net earnings to
cash from (used by) operating
activities:
Depreciation and amortization 63,873 49,021
Minority interests 263 9,276
Provision for losses on receivables 1,424 41
Share-based compensation 9,068 5,358
Net loss (gain) on sale of assets and other 102 (28)
Asset impairment 409 1,390
Changes in Operating Assets and Liabilities,
Net of Effect of Acquisitions:
Accounts receivable (93,908) 42,145
Accounts receivable sold 37,369 95,255
Inventories (52,894) (92,453)
Other assets (58,478) (57,958)
Accounts payable, accrued expenses, other
payables and income taxes (55,754) (133,079)
Deferred income taxes (8,053) (2,136)
Other long-term liabilities 5,264 19,673
Net Cash Flows From (Used By) Operating
Activities (42,376) 87,776
Cash Flows From (Used by) Investing Activities:
Purchases of property, plant and equipment (151,359) (75,100)
Purchase of minority interest in CMC Zawiercie (130) (61)
Sales of property, plant and equipment 663 467
Acquisitions, net of cash purchased (21,040) (10,633)
Net Cash Flows Used By Investing Activities (171,866) (85,327)
Cash Flows From (Used by) Financing Activities:
Decrease in documentary letters of credit (9,392) (12,191)
Short-term borrowings, net change 38,309 (60,000)
Payments on long-term debt (1,201) (18,787)
Stock issued under incentive and purchase plans 12,808 14,024
Treasury stock acquired (151,530) (17,744)
Dividends paid (24,629) (17,748)
Tax benefits from stock plans 4,101 5,068
Net Cash Flows Used By Financing Activities (131,534) (107,378)
Effect of Exchange Rate Changes on Cash 1,936 375
Decrease in Cash and Cash Equivalents (343,840) (104,554)
Cash and Cash Equivalents at Beginning of Year 419,275 180,719
Cash and Cash Equivalents at End of Period $75,435 $76,165
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
2/29/08 2/29/08
Net earnings $39,775 $108,939
Interest expense 13,990 26,368
Income taxes 21,932 57,546
Depreciation and amortization 32,351 63,873
EBITDA $108,048 $256,726
EBITDA to interest coverage
for the quarter ended for the six months ended
February 29, 2008: February 29, 2008:
$108,048 /13,990 = 7.7 $256,726 /26,368 = 9.7
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 29, 2008 to the nearest GAAP measure,
stockholders' equity:
Stockholders' equity $1,565,056
Long-term debt 606,623
Deferred income taxes 36,641
Total capitalization $2,208,320
Other Financial Information
Long-term debt to cap ratio as of February 29, 2008:
Debt divided by capitalization
$606,623 /2,208,320 = 27.47%
Total debt to cap plus short-term debt ratio as of February 29, 2008:
$711,052 / (2,208,320 + 104,429) = 30.75%
Current ratio as of February 29, 2008:
Current assets divided by current liabilities
$2,369,437 / 1,261,882 = 1.9
SOURCE Commercial Metals Company
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Related links:
http://www.cmc.com
CONTACT:
Debbie Okle, Director, Public Relations of
Commercial Metals Company, +1-214-689-4354
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