IRVING, Texas, Dec. 19 /PRNewswire-FirstCall/ -- Commercial Metals
Company (NYSE: CMC) today reported first quarter net earnings of $69.2
million or $0.57 per diluted share on net sales of $2.1 billion for the
quarter ended November 30, 2007. This compares with our record first
quarter of the prior year with net earnings of $85.4 million or $0.71 per
diluted share on net sales of $1.9 billion.
The largest swing in earnings for the quarter was at our International
Mills. With lower profitability at our Polish mill and start-up costs in
Croatia, adjusting operating profit fell from $25.9 million in last year's
first quarter to a slight loss this quarter.
The current year quarter included a pre-tax LIFO income of $4.3 million
($0.02 per diluted share) compared with a LIFO expense of $10.1 million
($0.05 per diluted share) in the prior year quarter. The effective tax rate
was 34.0%, lower than the first quarter of last year due to state income
taxes, but higher than the fourth quarter of last year as earnings from our
European mills were lower.
Selling, general and administrative expenses in the first quarter
included $10.3 million of costs associated with the investment in the
global deployment of SAP software. The amount in the prior year's quarter
was $751 thousand. Other costs of $16.7 million were capitalized during the
quarter. We have expensed $45.3 million and capitalized $50.2 million for
the project to date.
Our outlook remains positive. As discussed in more detail later in this
release, we anticipate second quarter LIFO diluted net earnings per share
between $0.50 and $0.60 (no LIFO impact assumed in the quarter) compared to
last year's second quarter of $0.54 per diluted share.
General Conditions
CMC President and Chief Executive Officer Murray R. McClean said,
"Fabrication and Distribution operations in both our domestic and
international groups achieved results exceeding their performance of the
prior year's first quarter. The Domestic Fabrication and Distribution
segment came out from the margin squeeze of earlier quarters; however, its
steel import business declined significantly. The International Fabrication
and Distribution segment saw continued strong performance in raw materials
and inter-Asian trade. The Domestic Mills segment, though slightly behind
last year's quarter, compared favorably with its fourth quarter, a strong
performance given seasonal factors. Absent the ongoing residential slump's
effect on our copper tube business, we have not yet seen any dramatic
impact from the ongoing credit fallout. With relatively steady ferrous
scrap prices and high, but volatile, nonferrous pricing, the Recycling
segment had results lower than last year. Our International Mills segment
was significantly behind last year. CMCZ (Poland) was at the latter stages
of a country-wide inventory reduction and CMCS (Croatia) had expected start
up and investment costs."
Recycling
McClean continued, "Adjusted operating profit of $16.9 million was 23%
below last year's quarterly results. Within the context of price movements
over the last year, ferrous scrap prices were stable with a good domestic
balance of supply and demand. Lower ferrous scrap demand from domestic
mills was partially offset by growing demand for exports of containerized
scrap. With the completion of Chinese customs investigations, nonferrous
international demand helped offset the softer demand of domestic markets
due to credit concerns and the housing slump. LIFO expense was $1.8 million
in the first quarter ($1.2 million expense in last year's first quarter).
The average ferrous scrap sales price for the first quarter compared to
last year's first quarter increased $44 per short ton to $234, while
shipments (including the units that formerly were reported under the
Domestic Mills segment) declined 5% to 787 thousand tons. The segment had
driven inventory levels low at year end and had less material to market at
the beginning of the quarter. Ferrous margins were compressed due to
shredder overcapacity impacting the Texas and Louisiana markets. The
average nonferrous scrap sales price for the quarter was consistent with
last year. Nonferrous shipments fell 16% to 76 thousand tons versus last
year's first quarter mainly due to softer domestic markets."
Domestic Mills
McClean said, "Our Domestic Mills segment's adjusted operating profit
at $69.2 million was down 4% from last year's first quarter. LIFO income of
$3.9 million compares to LIFO expense of $4 million last year. Net sales
were up 19%. Within the segment, adjusted operating profit for our steel
mills was $65.9 million on 20% higher sales. Metal margins declined 3% or
$10 per ton to $339 as the price of ferrous scrap consumed rose 18%. Our
average selling price was up $28 per ton to $585 per ton, while the average
selling price for finished goods was up $44 per ton to $615 per ton. Metal
margins were squeezed by the rise in ferrous scrap; total margins were also
affected by a 91% increase in alloys and a 21% increase in electrodes.
Combined, these two costs accounted for some $8.4 million in increased
costs this quarter. Energy costs were marginally lower. Sales volumes
increased 13% at 594 thousand tons with rebar shipments up strongly and
merchants consistent with the prior year. Job activity returned to more
normal levels after the wet summer and a pause caused by the credit crisis.
Service centers continued ordering on the basis of declining stocks. On a
quarter to quarter basis, tonnage melted for the first quarter was up 6% to
566 thousand tons, while tonnage rolled was 487 thousand tons, 8% lower
than last year. The price premium of merchant bar over reinforcing bar was
$102, up $26 from last year. We have invested $32.1 million of the expected
$155 million total cost of our micro mill project in Arizona."
McClean continued, "The copper tube mill recorded an adjusted operating
profit of $3.3 million, 4% lower than last year, on a 15% increase in
sales. As residential housing remains weak, we continue to emphasize HVAC
products. Pre-tax LIFO income was $1 million with no significant effect in
the prior year. The average selling price increased 12 cents to $4.29 per
pound, and metal spreads contracted 9 cents to $1.03 as scrap prices
increased 21 cents to $3.26 per pound. Copper tube production increased 15%
to 11.6 pounds while shipments rose 13% to 11.7 million pounds compared to
last year's first quarter."
Domestic Fabrication & Distribution
"On the strength of stronger sales prices and stable steel costs,"
McClean added, "adjusted operating profit rose 5% to $30.4 million. LIFO
expense was $4.3 million pre-tax compared to $2.4 million of income in last
year's first quarter. Rebar, structural, construction-related products, and
joist and deck all saw improved profitability. Conversely, our post
operations were weaker. Also our steel import business was adversely
affected by the weak dollar, high ocean shipping costs, and stronger
international markets. Total shipments from our fab plants were up 6% to
428 thousand tons. Rebar fab shipments were marginally higher while joist
shipments were lower. Our deck operations, acquired in April 2007, shipped
48 thousand tons this quarter. The composite average fab selling price
(excluding stock and buyouts) rose 13% to $1,015 per ton."
International Mills
McClean said, "The combined operations of CMCZ (Poland) and CMCS
(Croatia) were disappointing with a slight adjusted operating loss of 577
thousand as compared to last year's record $25.9 million. This quarter
hopefully saw the bottoming of long product pricing for CMCZ (Poland). With
continuing GDP growth rates of 6%, the economy attracted more than
sufficient steel imports which are working their way through the
distribution channels. The zloty remains strong, having gained against the
Euro and the dollar during the quarter and compelled us to change our
normal 60/40 split between domestic and export tonnage to closer to 80/20.
Pricing had a downward trend during the quarter for all product lines, but
merchants held up relatively better than rebar or wire rod. We shipped 70%
more merchant bars this first quarter than the first quarter of last year.
With merchants slower rolling speeds, we opted to emphasize margins over
volume. For the first quarter, tons melted were 294 thousand, 18% below
last year's 358 thousand; rolled tons equaled 242 thousand against 296
thousand last year; and shipments totaled 268 thousand tons (including
billets) versus 312 last year. Average selling prices declined 3% to PLN
1,489 (including 12% billets) from PLN 1,529 per ton (including 22%
billets). The decline in selling prices was accompanied by a 4% increase in
the cost of purchased scrap entering production. The average metal margin
declined to PLN 623 from PLN 713. Our mega-shredder processed 101 thousand
tons of scrap during the quarter, representing 34% of the mill's scrap
requirements.
"This was our first quarter of operations at CMCS (Croatia), acquired
September 19, 2007. We inherited a strong workforce and a promising product
line, but the mill had suffered such severe liquidity constraints over the
last years that it can only be viewed as a turnaround. Our operating loss,
representing both operating and start up activities, amounted to $4.5
million. We produced 4,900 tons and sold 8,900 tons during the quarter. The
mill has a functional annual capacity of 330,000 tons."
International Fabrication & Distribution
McClean said, "International Fab had its best first quarter ever
achieving adjusted operating profit of $26.6 million, an increase of 156%
over the prior year of $10.4 million. None of the operating divisions in
this segment are on LIFO. Our steel import business is now included in our
Domestic Fab segment and our aluminum, copper, and stainless steel semis
business is classified as a discontinued operation. Our raw materials
division had a phenomenal quarter with record sales and profitability. High
freight rates kept Chinese material near home and Inter-Asian trade flows
remained strong. Australia was profitable, but at lower levels. European
operations were profitable having weathered a strong Euro which attracted
imports. The combined operations of our two fabrication shops had a slight
adjusted operating loss."
Corporate and Other
McClean added, "The largest change in Corporate and Eliminations
between the first quarter of this year and last is the $9.6 million in
additional SAP deployment expense. Included in earnings from discontinued
operations is LIFO pre-tax income of $6.5 million compared to $7.4 million
of expense in last year's first quarter. The Company has reorganized its
five segments within two geographic areas -- CMC Americas and CMC
International. We will be filing an 8K to reflect historical segment data
based on the new alignment."
Financial Condition
McClean reported, "Our financial position is strong. At quarter end,
long-term debt as a percentage of total capitalization was 30%. Our working
capital was $1.3 billion, and the current ratio was 2.2. Our coverage
ratios were strong."
Outlook
McClean concluded, "Our second quarter (winter quarter) is likely to be
our slowest quarter for fiscal 2008. In the U.S., our recycling business
should benefit from higher ferrous scrap prices although flows are
typically lower at this time of year. The nonferrous scrap business should
be steady with respect to shipments with prices remaining volatile. Our
steel mills in the U.S. should benefit from both higher shipments and
higher selling prices although rapidly increasing ferrous scrap prices may
cause a temporary margin squeeze. Our copper tube mill may be impacted by a
period of destocking after Wolverine's announced plant closures. However,
this situation should be short lived.
"Our fabrication and distribution businesses in the U.S. are likely to
have mixed results. While backlogs remain very good, fab shipments are
likely to slow (seasonal factors), and there may be a subsequent margin
squeeze due to rising steel prices. Our steel import distribution business
should further decline."
"Internationally, we forecast improving market conditions in Poland as
steel prices increase and the destocking period ends," McClean added.
"However, the very strong Polish zloty should continue to limit export
opportunities. In Croatia, we anticipate a gradual improvement with an
operating loss of $2 to $3 million. Our raw materials business should
remain strong. Our steel distribution businesses in Asia, Europe and
Australia should also be good.
"We anticipate global infrastructure and nonresidential construction
growth rates to remain strong. U.S. nonresidential construction activity
should remain similar to 2007. Rising iron ore and ferrous scrap prices
should result in significant steel price increases. In global markets,
pricing should be mainly demand driven whereas in the U.S., supply driven
due to low levels of both steel inventory and steel imports. As well, high
bulk freight rates and a weak U.S. dollar are likely to continue to be
barriers to U.S. steel imports. We believe higher international steel
prices are likely to be sustainable due to China's recent significant
reduction in steel exports which should continue throughout 2008."
CMC invites you to listen to a live broadcast of its first quarter 2008
conference call on Wednesday, December 19, at 11:00 a.m. ET. The call will
be hosted by Stan Rabin, Chairman, Murray McClean, President and CEO, and
Bill Larson, Senior 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 web cast.
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 international markets.
Forward-Looking Statements
Paragraph five 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
(Short Tons in Thousands) 11/30/07 11/30/06
Domestic Steel Mill Rebar Shipments 285 218
Domestic Steel Mill Structural and Other Shipments 309 308
CMCZ Shipments 268 312
Total Mill Tons Shipped 862 838
Average FOB Mill Domestic Selling Price
(Total Sales) $585 $557
Average Cost Domestic Mill Ferrous Scrap Utilized $246 $208
Domestic Mill Metal Margin $339 $349
Average Domestic Ferrous Scrap Purchase Price $231 $183
Average FOB Mill CMCZ Selling Price (Total Sales) $570 $496
Average Cost CMCZ Ferrous Scrap Utilized $332 $264
CMCZ Mill Metal Margin $238 $232
Average CMCZ Ferrous Scrap Purchase Price $288 $235
Fab Plant Rebar Shipments 262 284
Fab Plant Structural, Post, Joist and Deck
Shipments 166 120
Total Fabrication Tons Shipped 428 404
Average Fab Selling Price (Excluding Stock &
Buyout Sales) $1,015 $898
Domestic Scrap Metal Tons Processed and Shipped 787 832
BUSINESS SEGMENTS
(in thousands)
Three months ended
11/30/07 11/30/06
Net Sales
Recycling $425,365 $425,367
Domestic Mills 402,810 337,393
Domestic Fabrication & Distribution 646,863 615,316
International Mills 168,178 162,127
International Fabrication and Distribution 757,392 614,487
Corporate and Eliminations (197,741) (168,146)
Discontinued Operations (86,863) (93,825)
Total Net Sales $2,116,004 $1,892,719
Adjusted Operating Profit (Loss):
Recycling $16,877 $21,984
Domestic Mills 69,213 72,213
Domestic Fabrication & Distribution 30,436 28,899
International Mills (577) 25,887
International Fabrication and Distribution 26,559 10,412
Corporate and Eliminations (22,711) (10,461)
COMMERCIAL METALS COMPANY
Condensed Consolidated Statements of Earnings (Unaudited)
Three months ended
(in thousands except share data) 11/30/07 11/30/06
Net sales $2,116,004 $1,892,719
Costs and expenses:
Cost of goods sold 1,855,380 1,605,182
Selling, general and administrative expenses 149,999 131,419
Interest expense 12,425 8,059
2,017,804 1,744,660
Earnings from continuing operations before
income taxes and minority interests 98,200 148,059
Income taxes 33,357 52,712
Earnings from continuing operations before
minority interests 64,843 95,347
Minority interests (128) 4,628
Net earnings from continuing operations 64,971 90,719
Earnings (loss) from discontinued operations
before taxes 6,450 (8,312)
Income taxes (benefit) 2,257 (2,943)
Net earnings (loss) from discontinued operations 4,193 (5,369)
Net earnings $69,164 $85,350
Basic earnings per share
Earnings from continuing operations $0.55 $0.77
Earnings (loss) from discontinued operations 0.04 (0.04)
Net earnings 0.59 0.73
Diluted earnings per share
Earnings from continuing operations $0.54 $0.75
Earnings (loss) from discontinued operations 0.03 (0.04)
Net earnings 0.57 0.71
Cash dividends per share $0.09 $0.06
Average basic shares outstanding 117,568,366 117,430,858
Average diluted shares outstanding 120,372,272 121,037,332
COMMERCIAL METALS COMPANY
Condensed Consolidated Balance Sheets (Unaudited)
November 30, August 31,
(in thousands) 2007 2007
Assets:
Current assets:
Cash and cash equivalents $255,806 $419,275
Accounts receivable, net 1,101,751 1,082,713
Inventories 952,629 874,104
Other 93,694 82,760
Total current assets 2,403,880 2,458,852
Net property, plant and equipment 881,759 767,353
Goodwill 38,571 37,843
Other assets 236,759 208,615
$3,560,969 $3,472,663
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable - trade $509,129 $484,650
Accounts payable - documentary letters
of credit 146,371 153,431
Accrued expenses and other payables 333,616 425,410
Income taxes payable and deferred income taxes 27,662 4,372
Notes payable 64,578 -
Current maturities of long-term debt 3,866 4,726
Total current liabilities 1,085,222 1,072,589
Deferred income taxes 37,146 31,977
Other long-term liabilities 128,459 109,813
Long-term debt 707,624 706,817
Minority interests 3,264 2,900
Stockholders' equity 1,599,254 1,548,567
$3,560,969 $3,472,663
COMMERCIAL METALS COMPANY
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended
(in thousands) 11/30/07 11/30/06
Cash Flows From (Used By) Operating Activities:
Net earnings $69,164 $85,350
Adjustments to reconcile net earnings to cash
from (used by) operating activities:
Depreciation and amortization 31,522 25,166
Minority interests (128) 4,628
Provision for losses on receivables 605 633
Share-based compensation 4,206 2,299
Net gain on sale of assets and other (189) (3)
Changes in Operating Assets and Liabilities,
Net of Effect of Acquisitions:
(Increase) decrease in accounts receivable (29,337) 138,412
Decrease in accounts receivable sold 38,715 12,546
Increase in inventories (31,923) (90,778)
Increase in other assets (1,324) (8,927)
Decrease in accounts payable, accrued
expenses, other payables and income taxes (111,415) (145,808)
Increase (decrease) in deferred income
taxes (25,368) 326
Increase (decrease) in other long-term
liabilities 13,003 18,200
Net Cash Flows From (Used By) Operating
Activities (42,469) 42,044
Cash Flows From (Used By) Investing Activities:
Purchases of property, plant and equipment (69,189) (26,831)
Purchase of interests in CMC Zawiercie
subsidiary - (61)
Sales of property, plant and equipment 299 224
Acquisitions, net of cash acquired (18,757) -
Net Cash Used by Investing Activities (87,647) (26,668)
Cash Flows From (Used By) Financing Activities:
Decrease in documentary letters of credit (7,060) (7,007)
Short-term borrowings, net change 34,359 (10,898)
Payments on long-term debt (1,473) (18,512)
Stock issued under incentive and purchase plans 337 1,290
Treasury stock acquired (51,191) -
Dividends paid (10,671) (7,075)
Tax benefits from stock plans 881 2,987
Net Cash Used By Financing Activities (34,818) (39,215)
Effect of Exchange Rate Changes on Cash 1,465 471
Decrease in Cash and Cash Equivalents (163,469) (23,368)
Cash and Cash Equivalents at Beginning of Year 419,275 180,719
Cash and Cash Equivalents at End of Period $255,806 $157,351
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.
For the quarter ended November 30, 2007:
Net earnings $69,164
Interest expense 12,378
Income taxes 35,614
Depreciation and amortization 31,522
EBITDA $148,678
EBITDA to interest coverage for the quarter ended November 30, 2007:
$148,678 / 12,378 = 12.01
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 November 30, 2007 to the nearest GAAP measure,
stockholders' equity:
Stockholders' equity $1,599,254
Long-term debt 707,624
Deferred income taxes 37,146
Total capitalization $2,344,024
Other Financial Information
Long-term debt to cap ratio as of November 30, 2007:
Debt divided by capitalization
$707,624 / 2,344,024 = 30.2%
Total debt to cap plus short-term debt ratio as of November 30, 2007:
$711,490 / (2,344,024 + 3,866) = 30.3%
Current ratio as of November 30, 2007:
Current assets divided by current liabilities
$2,403,880 / 1,085,222 = 2.2
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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