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Commercial Metals Company Reports Third Consecutive Profitable Quarter and Announces Quarterly Dividend

June 27, 2012

IRVING, Texas, June 27, 2012 /PRNewswire/ — Commercial Metals Company (NYSE: CMC) today reported net earnings of $40.7 million or $0.35 per diluted share on net sales of $2.0 billion for the third quarter ended May 31, 2012. This earnings performance is improved over the net earnings of $36.2 million or $0.31 per diluted share reported in last year’s third quarter on net sales of $2.1 billion. Net earnings for this year’s third quarter from continuing operations were $39.1 million or $0.34 per diluted share. Included in continuing operations is an after-tax LIFO expense of $3.0 million as compared to $3.9 million of after-tax LIFO expense in the third quarter of 2011. In addition, during the third quarter of 2012, we recorded an $11.5 million ($0.10 per share) research and development tax benefit. Net earnings from discontinued operations, which consist primarily of the Croatian pipe mill, were $1.6 million or $0.01 per diluted share.

Net earnings for the nine months ended May 31, 2012 of $177.3 million or $1.52 per diluted share on sales of $6.0 billion compares to a net loss of $9.3 million or $0.08 per share on sales of $5.6 billion for the same period last year. Continuing operations for this year’s first nine months resulted in net earnings of $191.9 million or $1.64 per diluted share while discontinued operations reflected a net loss of $14.7 million or $0.12 per share. Included in continuing operations is a tax benefit of $113.5 million ($0.97 per share) related to ordinary worthless stock and bad debt deductions from the investment in the Company’s Croatian subsidiary, as well as the tax benefit for research and development expenditures. Within discontinued operations is approximately $18.0 million of severance costs in the same period of this year. After-tax LIFO income of $11.3 million ($0.10 per share) was recorded in the nine month period ended May 31, 2012, while after-tax LIFO expense of $43.8 million ($0.38 per share) was recognized for the same period last year.

Adjusted EBITDA was $104.3 million for this year’s third quarter. For the nine months ended May 31, 2012, cash flow from operating activities was $134.8 million and adjusted EBITDA was $255.1 million which are $178.9 million and $80.4 million higher, respectively, than the same period in the prior year. Cash and short-term investments totaled $233.7 million as of May 31, 2012.

The board of directors of CMC declared a quarterly dividend of $0.12 on June 26th( )for shareholders of record on July 11, 2012. The dividend will be paid on July 25, 2012.

Joe Alvarado, President and Chief Executive Officer, commented, “Our focused efforts to improve and sustain operating profitability yielded positive results for the third consecutive quarter. Results have improved from prior year’s third quarter even as uncertainty remains over the continuity of the Euro zone and the instability in the US markets. Each operating segment reported quarterly adjusted operating profit for the first time since the first quarter of 2008. Notably, our Americas Fabrication segment reported positive adjusted operating profit for the first time in the last 10 sequential quarters.”

Alvarado further commented, “On June 1, 2012, we announced the sale of all outstanding shares of our Croatian pipe mill operation, excluding certain assets. On June 13, 2012, we completed the sale of certain assets excluded from the share purchase, and we continue to market the remaining assets. This completes an important step in our strategic plan to reposition the business for improved financial performance and increased shareholder value.”

Americas Recycling continued to be profitable, recording an adjusted operating profit of $3.9 million as compared to $13.2 million from prior year’s third quarter. The results suffered from lower nonferrous average selling prices and volumes primarily from reduced export demand within the Asian scrap market. Ferrous scrap prices moved down modestly during the quarter.

Americas Mills recorded an adjusted operating profit of $59.3 million, $11.8 million lower than last year’s third quarter primarily due to margin compression and additional LIFO expense of $4.6 million.

Our Americas Fabrication segment recorded an adjusted operating profit of $0.2 million in this year’s third quarter, marking a significant improvement of $14.9 million over last year’s third quarter. The segment benefited from stable material pricing and improved market conditions resulting in stronger volume and higher pricing.

The International Mill segment had an adjusted operating profit of $1.3 million for this year’s third quarter compared to an adjusted operating profit of $22.6 million for last year’s third quarter. Market conditions have weakened amid fresh economic and political instability in Europe. New infrastructure projects in Poland have decreased but exports remain strong due to the weaker Polish zloty.

The International Marketing and Distribution segment logged an adjusted operating profit of $23.3 million for this year’s third quarter compared to an adjusted operating profit of $17.0 million for last year’s third quarter. All of the operations in this segment were profitable. The raw materials marketing operation was the largest contributor to the overall results of this segment.

Outlook

Alvarado concluded, “In the fourth quarter of 2012, we expect scrap prices to decline further from oversupply as the constriction of the export market continues through the summer months. Despite weakness in the scrap markets, we remain encouraged by the strong backlogs for both our domestic and international operations going into the fourth quarter and are optimistic about their performance. We believe our International Mill segment will continue to face difficult market conditions in the fourth quarter. However, we have reduced our higher priced inventory and we believe prices will continue to stabilize for this segment. We remain committed to improving our cost structure and cash flows.”

Conference Call

CMC invites you to listen to a live broadcast of its third quarter 2012 conference call today, Wednesday, June 27, 2012, at 11:00 a.m. ET. The call will be hosted by Joe Alvarado, President and CEO, and Barbara Smith, Senior Vice President and CFO, and can be accessed via our website at www.cmc.com or at www.streetevents.com. In the event you are unable to listen to the live broadcast, the call will be archived and available for replay on the webcast on the next business day. 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

This news release contains forward-looking statements regarding the Company’s expectations relating to economic conditions, product pricing and demand, scrap prices, inventory levels, instability within the Euro zone and general market conditions. There are inherent risks and uncertainties in any forward-looking statements. Variances will occur and some could be materially different from our current expectations. Except as required by law, the Company undertakes no obligation to update, amend or clarify any forward-looking statements to reflect events, new information or otherwise.

Developments that could impact the Company’s expectations include the following: absence of global economic recovery or possible recession relapse; construction activity or lack thereof; decisions by governments affecting the level of steel imports, including tariffs and duties; 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; increased capacity and product availability from competing steel minimills and other steel suppliers, including import quantities and pricing; execution of cost reduction strategies; industry consolidation or changes in production capacity or utilization; currency fluctuations; availability and pricing of raw materials, including scrap metal, energy, insurance and supply prices; passage of new, or interpretation of existing, environmental laws and regulations; and the pace of overall economic activity, particularly in China.

                                                                                COMMERCIAL METALS COMPANY
                                                               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                                                                                   Three Months Ended                                  Nine Months Ended
                                                                                         May 31,                                             May 31,
                                                                                        -------                                             -------
    (in thousands, except share and per share data)                        2012                                 2011             2012                   2011
    ----------------------------------------------                         ----                                 ----             ----                   ----
    Net sales                                                                     $2,006,729                               $2,062,683                         $5,950,293  $5,619,425
    Costs and expenses:
    Cost of goods sold                                                1,822,520                            1,844,120                    5,410,770              5,152,042
    Selling, general and administrative expenses                        118,050                              141,561                      368,462                379,944
    Interest expense                                                     19,605                               17,797                       51,945                 53,530
                                                                         ------                               ------                       ------                 ------
                                                                      1,960,175                            2,003,478                    5,831,177              5,585,516

    Earnings from continuing operations before taxes                     46,554                               59,205                      119,116                 33,909
    Income taxes (benefit)                                                7,488                               14,493                      (72,824)                 8,688
                                                                          -----                               ------                      -------                  -----
    Earnings from continuing operations                                  39,066                               44,712                      191,940                 25,221
                                                                         ------                               ------                      -------                 ------

    Earnings (loss) from discontinued operations before taxes             2,429                               (9,046)                     (22,780)               (34,707)
    Income taxes (benefit)                                                  812                                 (554)                      (8,112)                  (303)
                                                                            ---                                 ----                       ------                   ----
    Earnings (loss) from discontinued operations                          1,617                               (8,492)                     (14,668)               (34,404)
                                                                          -----                               ------                      -------                -------

    Net earnings (loss)                                                  40,683                               36,220                      177,272                 (9,183)
    Less net earnings attributable to noncontrolling interests                1                                   55                            3                    163
                                                                            ---                                  ---                          ---                    ---
    Net earnings (loss) attributable to CMC                                          $40,682                                  $36,165                           $177,269     $(9,346)
                                                                                     -------                                  -------                           --------     -------

    Basic earnings (loss) per share attributable to CMC:
    Earnings from continuing operations                                                $0.34                                    $0.38                              $1.65       $0.22
    Earnings (loss) from discontinued operations                           0.01                                (0.07)                       (0.12)                 (0.30)
                                                                           ----                                -----                        -----                  -----
    Net earnings (loss)                                                                $0.35                                    $0.31                              $1.53      $(0.08)

    Diluted earnings (loss) per share attributable to CMC:
    Earnings from continuing operations                                                $0.34                                    $0.38                              $1.64       $0.22
    Earnings (loss) from discontinued operations                           0.01                                (0.07)                       (0.12)                 (0.30)
                                                                           ----                                -----                        -----                  -----
    Net earnings (loss)                                                                $0.35                                    $0.31                              $1.52      $(0.08)

    Cash dividends per share                                                           $0.12                                    $0.12                              $0.36       $0.36
                                                                                       -----                                    -----                              -----       -----
    Average basic shares outstanding                                115,946,691                          115,403,374                  115,726,793            114,819,792
                                                                    -----------                          -----------                  -----------            -----------
    Average diluted shares outstanding                              116,934,840                          116,360,755                  116,742,593            116,037,430
                                                                    -----------                          -----------                  -----------            -----------

                                                           COMMERCIAL METALS COMPANY
                                               CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

    (in thousands)                                                         May 31,               August 31,
                                                                               2012                        2011
    ---                                                                        ----                        ----
    Assets
    Current assets:
    Cash and cash equivalents                                                          $233,659                   $222,390
    Accounts receivable, net                                                898,992                     956,852
    Inventories                                                             865,385                     908,338
    Other                                                                   269,537                     238,673
                                                                            -------                     -------
    Total current assets                                                  2,267,573                   2,326,253

    Net property, plant and equipment                                       979,338                   1,112,015
    Goodwill                                                                 76,240                      77,638
    Other assets                                                            136,895                     167,225
    Total assets                                                                     $3,460,046                 $3,683,131
                                                                                     ----------                 ----------

    Liabilities and stockholders' equity
    Current liabilities:
    Accounts payable-trade                                                             $445,394                   $585,289
    Accounts payable-documentary letters of credit                          110,083                     170,683
    Accrued expenses and other payables                                     326,949                     377,774
    Notes payable                                                            40,892                       6,200
    Current maturities of long-term debt                                      4,090                      58,908
                                                                              -----                      ------
    Total current liabilities                                               927,408                   1,198,854

    Deferred income taxes                                                    58,361                      49,572
    Other long-term liabilities                                             117,945                     106,560
    Long-term debt                                                        1,160,251                   1,167,497

    Stockholders' equity attributable to CMC                              1,195,930                   1,160,425
    Stockholders' equity attributable to noncontrolling
     interests                                                                  151                         223
                                                                                ---                         ---
    Total equity                                                          1,196,081                   1,160,648
    Total liabilities and stockholders' equity                                       $3,460,046                 $3,683,131
                                                                                     ----------                 ----------

                                                                         COMMERCIAL METALS COMPANY AND SUBSIDIARIES
                                                                      CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                                                                                                   Nine Months Ended
                                                                                                                                         May 31,
                                                                                                                                        -------
    (in thousands)                                                                                                          2012                 2011
    -------------                                                                                                           ----                 ----
    Cash flows from (used by) operating activities:
    Net earnings (loss)                                                                                                           $177,272                        $(9,183)
    Adjustments to reconcile net earnings (loss) to cash flows from
    (used by) operating activities:
    Depreciation and amortization                                                                                        103,941                        120,810
    Provision for losses (recoveries) on receivables, net                                                                    785                         (2,922)
    Share-based compensation                                                                                               9,196                          9,240
    Deferred income taxes (benefit)                                                                                      (67,497)                         1,357
    Tax benefits from stock plans                                                                                            (58)                        (2,367)
    Net gain on sale of assets and other                                                                                  (1,134)                        (1,569)
    Write-down of inventory                                                                                                9,305                          7,593
    Asset impairment                                                                                                       1,628                              -
    Changes in operating assets and liabilities, net of acquisitions:
    Decrease (increase) in accounts receivable                                                                             4,157                      (141,636)
    Accounts receivable sold                                                                                              23,891                         49,890
    Increase in inventories                                                                                               (8,130)                     (202,995)
    Decrease in other assets                                                                                              14,946                         60,100
    Increase (decrease) in accounts payable, accrued                                                                    (145,900)                        59,172
    expenses, other payables and income taxes
    Increase in other long-term liabilities                                                                               12,433                          8,444
                                                                                                                          ------                          -----
    Net cash flows from (used by) operating activities                                                                   134,835                        (44,066)

    Cash flows from (used by) investing activities:
    Capital expenditures                                                                                                 (82,505)                       (51,539)
    Proceeds from the sale of property, plant and equipment                                                               11,371                         52,253
    and other
    Proceeds from the sale of equity method investments                                                                        -                          4,224
    Decrease (increase) in deposit for letters of credit                                                                  30,404                         (3,258)
                                                                                                                          ------                         ------
    Net cash flows from (used by) investing activities                                                                   (40,730)                         1,680

    Cash flows from (used by) financing activities:
    Decrease in documentary letters of credit                                                                            (59,492)                       (54,741)
    Short-term borrowings, net change                                                                                     38,091                         (8,253)
    Repayments on long-term debt                                                                                         (63,542)                       (23,473)
    Proceeds from issuance of long-term debt                                                                                   -                          1,463
    Proceeds from termination of interest rate swaps                                                                      52,733                              -
    Stock issued under incentive and purchase plans                                                                        1,488                         10,062
    Cash dividends                                                                                                       (41,657)                       (41,313)
    Purchase of noncontrolling interests                                                                                     (46)                        (3,980)
    Tax benefits from stock plans                                                                                             58                          2,367
                                                                                                                             ---                          -----
    Net cash flows used by financing activities                                                                          (72,367)                     (117,868)

    Effect of exchange rate changes on cash                                                                              (10,469)                         4,503
                                                                                                                         -------                          -----
    Increase (decrease) in cash and cash equivalents                                                                      11,269                      (155,751)
    Cash and cash equivalents at beginning of year                                                                       222,390                        399,313
    Cash and cash equivalents at end of period                                                                                    $233,659                       $243,562
                                                                                                                                  --------                       --------

    COMMERCIAL METALS COMPANY
    OPERATING STATISTICS AND BUSINESS SEGMENTS (UNAUDITED)

                                           Three Months Ended         Nine Months Ended
                                                May 31,                     May 31,
                                                -------                    -------
    (short
     tons
     in
     thousands)                            2012            2011     2012            2011
    -----------                            ----            ----     ----            ----
     Americas
     Steel
     Mills
     rebar
     shipments                              357                 312                  986   913
     Americas
     Steel
     Mills
     structural
     and
     other
     shipments                              338                 325                  994   902
                                                                ---                  ---   ---
    Total
     Americas
     Steel
     Mills
     tons
     shipped                                695                 637                1,980 1,815

     International
     Mill
     shipments                              374                 425                1,164 1,095

     Americas
     Steel
     Mills
     average
     FOB
     selling
     price
     (total
     sales)                                       $715                     $705           $716 $658
     Americas
     Steel
     Mills
     average
     cost
     ferrous
     scrap
     utilized                                     $393                     $385           $390 $357
     Americas
     Steel
     Mills
     metal
     margin                                       $322                     $320           $326 $301
     Americas
     Steel
     Mills
     average
     ferrous
     scrap
     purchase
     price                                        $352                     $342           $349 $321
     International
     Mill
     average
     FOB
     selling
     price
     (total
     sales)                                       $624                     $687           $613 $623
     International
     Mill
     average
     cost
     ferrous
     scrap
     utilized                                     $411                     $416           $396 $381
     International
     Mill
     metal
     margin                                       $213                     $271           $217 $242
     International
     Mill
     average
     ferrous
     scrap
     purchase
     price                                        $330                     $341           $323 $315

     Americas
     Fabrication
     rebar
     shipments                              255                 217                  660   607
     Americas
     Fabrication
     structural
     and
     post
     shipments                               43                  47                  115   120
    Total
     Americas
     Fabrication
     tons
     shipped                                298                 264                  775   727

     Americas
     Fabrication
     average
     selling
     price
     (excluding
     stock
     and
     buyout
     sales)                                       $906                     $839           $900 $798

     Americas
     Recycling
     tons
     shipped                                648                 624                1,857 1,755

    (in thousands)                                                     Three Months Ended                       Nine Months Ended
                                                                                  May 31,                            May 31,
    ---                                                                           -------                            -------
    Net sales                                                         2012                    2011        2012              2011
    ---------                                                         ----                    ----        ----              ----
    Americas Recycling                                                        $412,412                $479,776                     $1,246,861 $1,306,133
    Americas Mills                                                 565,125                 546,015             1,616,506            1,459,333
    Americas Fabrication                                           379,326                 328,450             1,000,687              868,173
    International Mill                                             251,838                 318,322               765,109              739,425
    International Marketing and Distribution                       683,408                 646,427             2,116,834            1,915,008
    Corporate and Eliminations                                    (285,380)              (256,307)             (795,704)             (668,647)
                                                                                          --------
    Total net sales                                                         $2,006,729              $2,062,683                     $5,950,293 $5,619,425
                                                                            ----------              ----------                     ---------- ----------

    Adjusted operating profit (loss)
    -------------------------------
    Americas Recycling                                                          $3,895                 $13,194                        $31,100    $32,251
    Americas Mills                                                  59,285                  71,050               171,617              116,138
    Americas Fabrication                                               199                 (14,737)              (17,150)             (86,311)
    International Mill                                               1,277                  22,616                17,691               33,010
    International Marketing and Distribution                        23,346                  16,978                45,799               53,588
    Corporate and Eliminations                                     (20,232)                (30,592)              (72,927)             (57,592)
    Adjusted operating profit from continuing operations            67,770                  78,509               176,130               91,084
    Adjusted operating profit (loss) from discontinued operations    2,622                  (8,589)              (21,543)             (33,377)
    Adjusted operating profit                                                  $70,392                 $69,920                       $154,587    $57,707
                                                                               -------                 -------                       --------    -------

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.

Adjusted Operating Profit (Loss) is a non-GAAP financial measure. Adjusted operating profit (loss) is used to compare and evaluate the financial performance of the Company. Adjusted operating profit (loss) is the sum of our earnings (loss) before income taxes, outside financing costs and discounts on sales of accounts receivable. For added flexibility, we may sell certain accounts receivable both in the U.S. and internationally. We consider sales of receivables as an alternative source of liquidity to finance our operations and believe that removing these costs provides a clearer perspective of the current operating performance. Adjusted operating profit (loss) may be inconsistent with similar measures presented by other companies.

                                                                  Three Months Ended          Nine Months Ended
                                                                         May 31,                   May 31,
                                                                         -------                   -------
    (in thousands)                                                  2012         2011   2012             2011
    -------------                                                   ----         ----   ----             ----
    Earnings from continuing operations                                  $39,066             $44,712             $191,940 $25,221
    Interest expense                                              19,605             17,797              51,945    53,530
    Income taxes (benefit)                                         7,488             14,493             (72,824)    8,688
    Discounts on sales of accounts receivable                      1,611              1,507               5,069     3,645
    Adjusted operating profit from continuing operations          67,770             78,509             176,130    91,084
    Adjusted operating profit (loss) from discontinued operations  2,622             (8,589)            (21,543)  (33,377)
    Adjusted operating profit                                            $70,392             $69,920             $154,587 $57,707
                                                                         -------             -------             -------- -------

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is the sum of our earnings (loss) before income taxes, outside financing costs, depreciation, amortization and non-cash impairment charges. It excludes the Company’s largest recurring non-cash charge, depreciation and amortization, including impairment charges. 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. Adjusted EBITDA to interest is a covenant test in certain of the Company’s note agreements. Additionally, Adjusted EBITDA is one measure used to assess the Company’s unleveraged performance of our investments. Adjusted EBITDA may be inconsistent with similar measures presented by other companies.

                                                                      Three Months Ended              Nine Months Ended
                                                                             May 31,                        May 31,
                                                                             -------                       -------
    (in thousands)                                               2012               2011    2012      2011
    -------------                                                ----               ----    ----      ----
    Earnings from continuing operations                                 $39,066                   $44,712                $191,940  $25,221
    Less net earnings attributable to noncontrolling interests     (1)                      (55)               (3)           (163)
    Interest expense                                            19,605                   17,797            51,945          53,530
    Income taxes (benefit)                                       7,488                   14,493           (72,824)          8,688
    Depreciation, amortization and impairment charges           34,790                   37,872           103,391         116,943
    Adjusted EBITDA from continuing operations                 100,948                  114,819           274,449         204,219
    Adjusted EBITDA from discontinued operations                 3,309                   (7,282)          (19,365)        (29,513)
    Adjusted EBITDA                                                    $104,257                  $107,537                $255,084 $174,706
                                                                       --------                  --------                -------- --------

Adjusted EBITDA to interest coverage for the

    Three Months Ended May 31, 2012 Nine Months Ended May 31, 2012
                     $104,257  /    19,605 = 5.3 $255,084 / 51,945 = 4.9

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, 2012 to the nearest GAAP measure, stockholders’ equity:

    Stockholders' equity attributable
     to CMC                                       $1,195,930
    Long-term debt                     1,160,251
    Deferred income taxes                 58,361
    Total capitalization                          $2,414,542

Other Financial Information

Long-term debt to cap ratio as of May 31, 2012:

Debt divided by capitalization

     $1,160,251 / 2,414,542 = 48.1%

Total debt to cap plus short-term debt plus notes payable ratio as of May 31, 2012:

     ($1,160,251 + 4,090 + 40,892) / ($2,414,542 + 4,090 + 40,892) = 49.0%

Current ratio as of May 31, 2012:

Current assets divided by current liabilities

                       $2,267,573  /          927,408  =            2.4

SOURCE Commercial Metals Company


Source: PR Newswire