IRVING, Texas, June 21 /PRNewswire-FirstCall/ -- Commercial Metals Company
(NYSE: CMC) today reported net earnings of $71.7 million or $1.14 per diluted
share on net sales of $1.7 billion for the quarter ended May 31, 2005, ranking
it as the strongest third quarter ever for the Company. This compares with
net earnings of $50.9 million or $0.84 per diluted share on net sales of
$1.4 billion for the third quarter last year. This year's third quarter
included after-tax LIFO income of $1.5 million or $0.02 per diluted share
compared with $16.3 million expense or $0.27 per share in last year's third
quarter. The effective tax rate for the quarter increased to 40.0% (including
catch-up) because of a shift in profitability from low tax jurisdictions
(Poland) to those domestic jurisdictions subject to state taxes. Last year's
third quarter effective tax rate of 28% was substantially lower due to
proportionately higher income in Poland. The effective tax rate for the year
is anticipated to be 36.9%.
Net earnings for the nine months ended May 31, 2005 were $202 million or
$3.26 per diluted share on net sales of $4.9 billion. Net earnings for the
nine months now exceed last year's record annual net earnings of $132 million.
For the same period last year, net earnings were $84.7 million or $1.43 per
diluted share on net sales of $3.3 billion. For the nine months ended May 31,
2005, after-tax LIFO expense was $23.4 million or $0.38 per share compared
with $23.3 million expense or $0.39 per share last year.
General Conditions
CMC Chairman, President and Chief Executive Officer Stanley A. Rabin said,
"We again generated outstanding profits and returns. As anticipated, our
fiscal third quarter reflected a seasonal pickup in construction, offset to
some extent by global softening in our markets. Profitability was excellent
in all of our segments except for CMCZ, the Polish steel operation.
"While global economic growth moderated in the quarter, our end-use
markets in the United States remained healthy, even though the multi-year
Transportation Bill still is being negotiated in Congress. Distributor
markets, though, still were overstocked. Various fiscal and trade-related
steps by the Chinese central government to slow the growth rate of fixed
investment in certain sectors and reduce steel exports from China resulted in
a near-term softening effect on steel markets; nevertheless, China's economy
continued to grow at a brisk pace. The biggest soft spot appeared to have
been western Europe, for us particularly Germany and Italy. The U.S. dollar
firmed by over 8% against the Euro between mid-March 2005 and the end of May.
Conversely, after a prolonged period of strengthening, the Polish Zloty
weakened somewhat toward the end of our third quarter."
Rabin added, "Most spot prices in our markets were lower than the second
quarter of this year. Ferrous scrap prices -- amid extreme volatility -- fell
sharply during the quarter, especially in May, evidently because of steel
production cutbacks and cautious buying by scrap consumers. Our average steel
mill selling price in the U.S. was slightly higher compared with the second
quarter despite the dampening effect of reduced scrap costs. However, strong
metal margins continued. In Poland, our prices and margins exhibited a bigger
decline. The largest price drops in the global market, however, were
associated with products that we do not manufacture. Mill shipments picked up
substantially from the second quarter, although not quite as much as we had
expected; it appears that we encountered some further inventory adjustments by
distributors as well as deferred purchases by end users in anticipation of
lower prices. On the copper tube side, results were affected negatively by
narrower metal spreads.
"The downstream businesses continued to benefit from the solid end-use
markets, mainly improved construction outlets, resulting in a favorable
pricing environment. The various fabrication businesses also began to
experience a leveling of input costs, which was helpful to gross margins."
Rabin said, "Our global Marketing & Distribution segment was impacted by
softer markets in a number of products and geographic regions, but continued
to produce outstanding results attributable to our diversification and
execution.
"Our outlook for the fourth quarter remains very positive. As discussed
in more detail later in this release, we believe end-use demand should remain
solid and prices stabilize. Assuming no additional income from the business
interruption insurance claims we anticipate fourth quarter LIFO diluted net
earnings per share of between $1.15 and $1.30."
Domestic Mills
Rabin added, "Our Domestic Mills segment's adjusted operating profit at
$57.0 million was more than double last year's third quarter. Net sales were
up 6%. This quarter LIFO income was $8.0 million pre-tax compared with an
expense of $9.1 million last year. There were no amounts recognized on either
business interruption claim. Within the segment, adjusted operating profit
for our steel minimills was 167% greater than a year earlier on the strength
of improved metal margins, which more than offset a decline in finished goods
shipments. Compared with last year's third quarter, the metal spread
increased by $55 per ton to $276 per ton. On a year-to-year basis, tonnage
melted for the third quarter was down 4% to 587 thousand tons; tonnage rolled
was 544 thousand tons, 6% below last year's third quarter. Shipments
decreased 4% to 607 thousand tons, but increased 20% over the second quarter
of this year. Our average total mill selling price at $476 per ton was
$67 per ton above last year's level. By product line, the price premium of
merchant bar over reinforcing bar narrowed from the second quarter to about
$75 per ton. The average scrap purchase cost rose by $4 per ton versus a year
ago to $175 per ton. Year-over-year changes for utility costs, ferroalloys,
graphite electrodes and other supplies were generally higher. The copper tube
mill recorded an adjusted operating profit modestly less than that of last
year's third quarter including LIFO income this year.
"Despite good demand from commercial as well as residential users, metal
spreads declined by 12 cents per pound to 51 cents per pound because of the
proportionately greater increase in the cost of copper scrap versus the
average selling price of our tubular products. Against the same period last
year, copper tube production declined 15% while shipments decreased 8% to
18.0 million pounds."
CMCZ
Rabin continued, "It was a difficult quarter for CMCZ. The Polish
operation recorded an adjusted operating loss of $9.8 million on a 100%-owned
basis compared with the extraordinary adjusted operating profit of
$32.6 million the previous year. While the weather improved, aiding
construction activity in Central Europe, effects of weak construction activity
in Western Europe again spilled over into Poland. Selling prices fell
significantly and operating levels and shipments were down substantially
compared with the third quarter of fiscal 2004. March 2005 was a particularly
weak month. Exports remained limited because of the relatively strong Polish
Zloty, especially against the Euro. For the quarter, tons melted equaled
219 thousand, rolled tons equaled 198 thousand, and shipments totaled
244 thousand tons including billets. For the prior year the numbers were
402 thousand, 311 thousand, and 328 thousand, respectively. Meanwhile, the
average selling price fell to PLN 1,313 per ton (including 11% billets) from
PLN 1,774 per ton (including 14% billets) while the average scrap purchase
cost decreased to PLN 607 per ton from PLN 765 per ton. On a positive note,
operating levels improved as the quarter progressed."
Fabrication
Rabin said, "As expected, the substantial turnaround in the Fabrication
segment continued, buoyed by very good demand. Net sales surged versus the
prior year. We recorded an adjusted operating profit of $43.3 million
compared with a small profit last year. This year LIFO had a negligible
impact while last year's LIFO charge was $10.3 million pre-tax. Within the
segment, prices were up across-the-board and volumes within the segment were
mostly higher. All product areas -- rebar fabrication, construction-related
products (CRP), steel fence posts, steel joist manufacturing, cellular beam
manufacturing, structural steel fabrication, and heat treating -- participated
in the improved profitability. Shipments from our fab plants totaled
347 thousand tons, 2% above the prior year's third quarter and well above this
year's second quarter. Meanwhile the composite average fab selling price
(excluding stock and buyouts) increased by $239 per ton from last year."
Recycling
According to Rabin, "The Recycling segment recorded its second best third
quarter following last year's record third quarter on comparable net sales.
The adjusted operating profit of $15.7 million, though exceptional, was 30%
below the previous year. LIFO expense was $1.8 million pre-tax this quarter
versus an expense of $600 thousand the prior year. Gross margins were 10%
lower than last year. The ferrous scrap market was extraordinarily volatile
during the quarter with the net result being a sharp drop in price from the
beginning to the end of the quarter. Nonferrous markets remained volatile as
well, but our average selling prices for aluminum, copper, brass and stainless
steel scrap did not vary as much during the quarter. Export demand was mixed.
"Versus last year, the average ferrous scrap sales price for the quarter
decreased by 4% to $184 per short ton while shipments fell 14% to 491 thousand
short tons. The average nonferrous scrap sales price for the quarter was
approximately 11% above a year ago while nonferrous shipments were 6% higher.
Inventory turnover across the board remained extremely high. The total volume
of scrap processed, including all our domestic processing plants, equaled
869 thousand tons against 972 thousand tons last year."
Marketing and Distribution
"Adjusted operating profit for the Marketing and Distribution segment of
$21.8 million was 75% above last year's already strong third quarter on much
higher net sales," Rabin said. "Our business was good in the United States,
Australia, China, elsewhere in Asia, and in Europe, although our steel sales
declined in certain markets. A broad array of product lines contributed to
the overall high sales and increased gross margins. This segment recorded
LIFO expense of $4.0 million pre-tax compared with an expense of $5.0 million
the year before. The margins and shipments in aluminum, copper and brass, and
stainless steel increased significantly over the prior year. Sales and gross
margins for a number of industrial materials and products surpassed previous
record levels; included among the active product lines were minerals, ores,
refractories, ferroalloys, and various metals and alloys. Our value-added
downstream and processing businesses continued to perform very well."
Financial Condition
Rabin said, "Our financial position remains strong. At May 31, 2005, our
stockholders' equity was $842 million. At quarter end, our working capital
was $787 million and the current ratio was 1.9. Our coverage ratios remain
strong. Long-term debt as a percentage of total capitalization was 31%, and
the ratio of total debt to total capitalization plus short-term debt was 32%.
Both ratios include the debt of CMCZ which has recourse only to the assets of
CMCZ. During the quarter we repurchased 1,944,610 shares of the Company's
common stock at an average price of $26.06, and the Board subsequently
authorized a new repurchase of up to 2 million shares. During the quarter we
entered into a new $400 million, 5-year revolving credit facility backing our
commercial paper program. The new facility is larger, has a longer tenure,
less restrictive covenant tests and lower costs than the former facility."
Outlook
Rabin continued, "We are in one of those periods where numerous observers
again hold a negative outlook on the steel and nonferrous sectors. The
ultimate arbiter will be the strength of the end-use markets and the supply
into those markets. If there is an economic consensus it is that growth in
the U.S. and much of Asia remains relatively strong, but below extremely high
levels registered one year ago, and that Western Europe is suffering most from
its slowdown. China will continue to be a key factor; recent data show the
Chinese economy remains strong. In any event, we believe that our
diversification will continue to serve us well as we adapt to ever-changing
market conditions.
"Overall, our outlook for the fourth quarter remains very positive
although varied by segment. More specifically, total earnings from our
domestic steel mills should continue to be strong during the fourth quarter on
account of still high metal margins, although there will be some downtime at
the mills during the quarter to control inventories. The copper tube business
should be steady. Results at CMCZ should improve albeit hindered by weaker
steel market conditions in Europe. Our anticipation remains that fabrication
profits will expand further as we continue to benefit from strong selling
prices, stabilized material costs, and robust shipments. Profits from our
Recycling segment will not be as strong as recent quarters because of a
further drop in the price of ferrous scrap. We expect the Marketing and
Distribution segment to continue to perform well based on healthy volume and
margins in diversified markets and product lines to compensate for weakness in
certain products."
Conference Call
CMC invites you to listen to a live broadcast of its third quarter 2005
conference call on Tuesday, June 21, at 3:00 p.m. ET. The call will be hosted
by Stan Rabin, Chairman, President and CEO, Murray McClean, Executive Vice
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.
The opening paragraph, the last paragraph in the section on General
Conditions 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, energy
expense, interest rates, inventory levels, acquisitions 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,"
"presumes," "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,
global factors including political and military uncertainties, credit
availability, currency fluctuations, energy and supply prices, disputes as to
insurance coverage or the extent of lost income subject to reimbursement which
could result in a lengthy delay or failure to obtain recovery under business
interruption insurance, and decisions by governments impacting the level of
steel imports and pace of overall economic activity, particularly China.
COMMERCIAL METALS COMPANY
Condensed Consolidated Statements of Earnings (Unaudited)
(in thousands except share data)
Three months ended Nine months ended
5/31/05 5/31/04 5/31/05 5/31/04
Net Sales $1,726,251 $1,407,206 $4,852,636 $3,305,273
Costs and Expenses:
Cost of goods sold 1,496,719 1,205,037 4,181,619 2,881,970
Selling, general and
administrative expenses 106,192 114,066 329,627 268,953
Interest expense 7,608 7,739 23,426 19,728
1,610,519 1,326,842 4,534,672 3,170,651
Earnings Before Income
Taxes and Minority
Interests 115,732 80,364 317,964 134,622
Income Taxes 46,345 22,539 117,329 41,800
Earnings Before Minority
Interests 69,387 57,825 200,635 92,822
Minority Interests (2,354) 6,941 (1,406) 8,155
Net Earnings $71,741 $50,884 $202,041 $84,667
Basic earnings per share $1.20 $0.88 $3.41 $1.48
Diluted earnings per share $1.14 $0.84 $3.26 $1.43
Cash dividends per share $0.06 $0.04 $0.17 $0.12
Average basic shares
outstanding 59,801,749 58,054,908 59,332,329 57,208,324
Average diluted shares
outstanding 62,735,824 60,269,432 62,021,496 59,341,888
BUSINESS SEGMENTS
(in thousands)
Three months ended Nine months ended
5/31/05 5/31/04 5/31/05 5/31/04
Net Sales:
Domestic Mills $343,997 $324,084 $943,594 $787,574
CMCZ 109,977 146,189 340,735 260,680
Domestic Fabrication 392,229 284,804 1,049,755 718,402
Recycling 238,888 242,640 683,868 564,407
Marketing and
Distribution 771,237 536,004 2,200,836 1,279,502
Corporate and
Eliminations (130,077) (126,515) (366,152) (305,292)
Total Net Sales $1,726,251 $1,407,206 $4,852,636 $3,305,273
Adjusted Operating
Profit (Loss):
Domestic Mills $57,048 $25,496 $143,774 $56,090
CMCZ (9,811) 32,564 (2,038) 38,785
Domestic Fabrication 43,294 3,044 92,463 7,536
Recycling 15,712 22,543 55,560 45,979
Marketing and
Distribution 21,834 12,494 68,418 27,586
Corporate and
Eliminations (3,541) (7,922) (13,809) (21,062)
COMMERCIAL METALS COMPANY
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
May 31, August 31,
2005 2004
Assets:
Current Assets:
Cash and cash equivalents $68,207 $123,559
Accounts receivable, net 784,259 607,005
Inventories 740,410 645,484
Other 46,672 48,184
Total Current Assets 1,639,548 1,424,232
Net Property, Plant and Equipment 475,134 451,490
Goodwill 30,542 30,542
Other Assets 93,104 81,782
$2,238,328 $1,988,046
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable - trade $389,793 $385,108
Accounts payable - documentary letters
of credit 155,432 116,698
Accrued expenses and other payables 251,363 248,790
Income taxes payable 30,211 11,343
Short-term trade financing arrangements 2,904 9,756
Notes payable - CMCZ --- 530
Current maturities of long-term debt 22,515 11,252
Total Current Liabilities 852,218 783,477
Deferred Income Taxes 50,433 50,433
Other Long-Term Liabilities 52,360 39,568
Long-Term Trade Financing Arrangement 5,167 14,233
Long-Term Debt 386,909 393,368
Minority Interests 49,325 46,340
Stockholders' Equity 841,916 660,627
$2,238,328 $1,988,046
Three months ended Nine months Ended
5/31/05 5/31/04 5/31/05 5/31/04
(Short Tons in Thousands)
Domestic Steel Mill Rebar Shipments 264 264 684 766
Domestic Steel Mill Structural
and Other Shipments 344 368 975 1,040
CMCZ Shipments 244 328 704 718
Total Mill Tons Shipped 852 960 2,363 2,524
Average FOB Mill Domestic Selling
Price (Total Sales) $476 $409 $478 $354
Average Domestic Ferrous Scrap
Purchase Price $175 $171 $182 $145
Average FOB Mill CMCZ Selling
Price (Total Sales) $417 $452 $458 $363
Average CMCZ Ferrous Scrap
Purchase Price $182 $195 $214 $193
Fab Plant Rebar Shipments 230 229 651 569
Fab Plant Structural, Joist,
and Post Shipments 117 112 320 308
Total Fabrication Tons Shipped 347 341 971 877
Average Fab Selling Price (Excluding
Stock & Buyout Sales) $864 $625 $845 $591
Domestic Scrap Metal Tons
Processed and Shipped 869 972 2,519 2,544
COMMERCIAL METALS COMPANY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Nine months ended
5/31/05 5/31/04*
Cash Flows From (Used by) Operating Activities:
Net earnings $202,041 $84,667
Adjustments to reconcile net earnings to cash
from (used by) operating activities:
Depreciation and amortization 56,756 52,328
Minority interests (1,406) 8,155
Loss on reacquisition of debt --- 3,072
Provision for losses on receivables 3,574 5,443
Tax benefits from stock plans 10,809 4,262
Asset impairment charge --- 2,940
Net gain on sale of assets and other (1,200) (523)
Changes in Operating Assets and Liabilities,
Net of Effect of Acquisitions:
Accounts receivable (212,701) (268,469)
Accounts receivable sold 41,063 34,967
Inventories (84,414) (162,823)
Other assets (6,029) (11,443)
Accounts payable, accrued expenses,
other payables and income taxes 12,503 133,899
Deferred income taxes (45) 566
Other long-term liabilities 12,282 9,692
Net Cash Flows From (Used By) Operating Activities 33,233 (103,267)
Cash Flows From (Used by) Investing Activities:
Purchases of property, plant and equipment (67,884) (33,215)
Sales of property, plant and equipment 4,913 2,192
Acquisitions of fabrication businesses (2,950) ---
Acquisition of Lofland and CMCZ,
net of cash acquired --- (99,401)
Net Cash Used By Investing Activities (65,921) (130,424)
Cash Flows From (Used by) Financing Activities:
Increase in documentary letters of credit 38,734 67,987
Proceeds from trade financing arrangements --- 35,307
Payments on trade financing arrangements (16,311) (23,267)
Short-term borrowings, net change (581) (13,959)
Proceeds from issuance of long-term debt --- 238,400
Payments on long-term debt (1,441) (90,250)
Stock issued under incentive and purchase plans 17,007 15,919
Dividends paid (10,146) (6,842)
Debt reacquisition and issuance costs --- (4,989)
Treasury stock acquired (50,675) ---
Net Cash From (Used By) Financing Activities (23,413) 218,306
Effect of Exchange Rate Changes on Cash 749 896
Decrease in Cash and Cash Equivalents (55,352) (14,489)
Cash and Cash Equivalents at Beginning of Year 123,559 75,058
Cash and Cash Equivalents at End of Period $68,207 $60,569
*As restated
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 Nine Months
Ended Ended
5/31/05 5/31/05
Net earnings $ 71,741 $ 202,041
Interest expense 7,608 23,426
Income taxes 46,345 117,329
Depreciation and amortization 18,910 56,756
EBITDA $ 144,604 $ 399,552
EBITDA to interest coverage
for the quarter ended for the nine months ended
May 31, 2005: May 31, 2005:
$144,604 / 7,608= 19.0 $399,552 / 23,426= 17.1
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 May 31, 2005 to the nearest GAAP measure, stockholders'
equity:
Stockholders' equity $ 841,916
Long-term debt 392,076
Deferred income taxes 50,433
Total capitalization $ 1,284,425
Other Financial Information
Long-term debt to cap ratio as of May 31, 2005:
Debt divided by capitalization
$392,076 / 1,284,425 = 30.5%
Total debt to cap plus short-term debt ratio as of May 31, 2005:
($392,076 + 22,515 + 2,904) / (1,284,425 + 22,515 +2,904) = 31.9%
Current ratio as of May 31, 2005:
Current assets divided by current liabilities
$1,639,548 / 852,218 = 1.9
SOURCE Commercial Metals Company
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Related links:
http://www.commercialmetals.com
CONTACT:
Debbie Okle, Director, Public Relations of
Commercial Metals Company, +1-214-689-4354
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