Commercial Metals Company Reports Second Quarter Fiscal 2020 Results

IRVING, Texas, March 19, 2020 /PRNewswire/ -- Commercial Metals Company (NYSE: CMC) today announced financial results for its fiscal second quarter ended February 29, 2020.  Second quarter earnings from continuing operations were $63.6 million, or $0.53 per diluted share, on net sales of $1.3 billion, compared to prior year period earnings from continuing operations of $14.9 million, or $0.13 per diluted share, on net sales of $1.4 billion. Gross margin increased by 45% year-over-year, while total shipment volumes grew 2% over the same period.

Adjusted earnings from continuing operations were $63.6 million, or $0.53 per share, as detailed in the non-GAAP reconciliation on page 12. This represents an 82.8% increase compared to adjusted earnings from continuing operations of $0.29 per diluted share for the three months ended February 28, 2019.

Barbara R. Smith, Chairman of the Board, President and Chief Executive Officer, commented, "Despite winter seasonality and an unusually wet February, the second quarter was strong and demonstrates our Company's enhanced earnings capability following the transformational actions of the last several years.  In the quarter, we achieved the second highest adjusted EBITDA margin in our history, behind only our first quarter 2020 performance.  The great results were helped by robust demand from the U.S. and Polish construction markets, which continued to support steel shipment volumes during the quarter."

"Strong earnings and disciplined working capital management provided $107.0 million of operating cash flow during the quarter, allowing us to further de-lever our balance sheet.  Our net debt-to-EBITDA ratio of 1.6x provides us great flexibility in our capital structure to pursue our growth strategies, as well as endure today's volatile environment."

The Company's liquidity position as of February 29, 2020 remained strong, with cash and cash equivalents of $232.4 million and availability under the Company's credit and accounts receivable facilities of $616.6 million.

On March 18, 2020, the board of directors of CMC declared a quarterly dividend of $0.12 per share of CMC common stock payable to stockholders of record on April 6, 2020.  The dividend will be paid on April 20, 2020, and marks 222 consecutive quarterly dividend payments.

Business Segments - Fiscal Second Quarter 2020 Review

Our Americas Recycling segment recorded adjusted EBITDA of $5.8 million for the second quarter of fiscal 2020, a decrease of 43% compared to adjusted EBITDA of $10.1 million for the prior year quarter.  The reduction reflected a combination of lower average ferrous selling prices and shipping volumes compared to a year ago, down 15% and 9% respectively.

Our Americas Mills segment recorded adjusted EBITDA of $125.7 million for the second quarter of fiscal 2020, an increase of 12% compared to adjusted EBITDA of $112.4 million for the second quarter of fiscal 2019.  Volumes increased 5% compared to the prior year period, driven by strength in our construction end markets, as well as targeted merchant bar growth opportunities.  Metal margins contracted by $24 per ton year-over-year, as a reduction in average selling price of $71 per ton was only partially offset by lower scrap costs.  Results in the second quarter benefited from a 6% year-over-year reduction in conversion costs per ton.

Our Americas Fabrication segment recorded adjusted EBITDA of $16.1 million for the second quarter of fiscal 2020, marking a significant improvement from an adjusted EBITDA loss of $49.6 million for the second quarter of fiscal 2019, primarily due to expanded selling price margins over rebar cost.  As in prior quarters, second quarter adjusted EBITDA did not include the benefit of the purchase accounting adjustment related to amortization of the acquired unfavorable contract backlog reserve of $6.0 million.  The trend of sequential increases in selling price continued during the quarter, as we shipped at an average price of $984 per ton.  This represented a significant rise of $139 per ton, or 16%, compared to the prior year period.  Metal margins within our backlog remained at attractive levels.

Our International Mill segment in Poland recorded adjusted EBITDA of $13.5 million for the second quarter of fiscal 2020, compared to adjusted EBITDA of $20.5 million for the prior year quarter.  Metal margins remain under pressure as a result of elevated import levels.  The overhang of imported steel products in Europe is lessening, but remains a headwind to margins. Despite import challenges, shipment volumes reached their highest second quarter level in 12 years, increasing 25% on a year-over-year basis, driven by strong demand from the Polish construction sector.

Our Corporate and Other segment recorded an adjusted EBITDA loss of $23.2 million for the second quarter of fiscal 2020 compared to an adjusted EBITDA loss of $24.1 million for the prior year quarter.

Outlook

"We enter the summer construction season with a good fabrication backlog, solid bidding activity, and mill metal margins above past cyclical averages," said Ms. Smith.  "However, given economic uncertainties caused by the COVID-19 outbreak, as well as potential courses of action that local, state, and federal government bodies may take, we are unable to provide forward guidance at this time.  In this unpredictable environment, we remain focused on factors we can control, and are positioning our Company for long-term value generation."

Conference Call

CMC invites you to listen to a live broadcast of its second quarter fiscal 2020 conference call today, Thursday, March 19, 2020, at 11:00 a.m. ET.  Barbara Smith, Chairman of the Board of Directors, President, and Chief Executive Officer, and Paul Lawrence, Vice President and Chief Financial Officer, will host the call.  The call is accessible via our website at www.cmc.com.  In the event you are unable to listen to the live broadcast, the call will be archived and available for replay on our website on the next business day.  Financial and statistical information presented in the broadcast are located on CMC's website under "Investors".

About Commercial Metals Company

Commercial Metals Company and its subsidiaries manufacture, recycle and market steel and metal products, related materials and services through a network of facilities that includes seven electric arc furnace ("EAF") mini mills, two EAF micro mills, two rerolling mills, steel fabrication and processing plants, construction-related product warehouses, and metal recycling facilities in the U.S. and Poland.

Forward-Looking Statements

This news release contains or incorporates by reference a number of "forward-looking statements" within the meaning of the federal securities laws with respect to general economic conditions, key macro-economic drivers that impact our business, the effects of ongoing trade actions, the effects of continued pressure on the liquidity of our customers, potential synergies provided by our recent acquisitions, demand for our products, steel margins, the effect of the coronavirus ("COVID-19") and related governmental and economic responses thereto, the ability to operate our mills at full capacity, future supplies of raw materials and energy for our operations, share repurchases, legal proceedings, the undistributed earnings of our non-U.S. subsidiaries, U.S. non-residential construction activity, international trade, capital expenditures, our liquidity and our ability to satisfy future liquidity requirements, estimated contractual obligations and our expectations or beliefs concerning future events. These forward-looking statements can generally be identified by phrases such as we or our management "expects," "anticipates," "believes," "estimates," "intends," "plans to," "ought," "could," "will," "should," "likely," "appears," "projects," "forecasts," "outlook" or other similar words or phrases. There are inherent risks and uncertainties in any forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements.

Our forward-looking statements are based on management's expectations and beliefs as of the time this news release is filed with the SEC or, with respect to any document incorporated by reference, as of the time such document was prepared. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Except as required by law, we undertake no obligation to update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or any other changes. Important factors that could cause actual results to differ materially from our expectations include those described in Part I, Item 1A, Risk Factors, of the 2019 Form 10-K as well as the following: changes in economic conditions which affect demand for our products or construction activity generally, and the impact of such changes on the highly cyclical steel industry; rapid and significant changes in the price of metals, potentially impairing our inventory values due to declines in commodity prices or reducing the profitability of our fabrication contracts due to rising commodity pricing; excess capacity in our industry, particularly in China, and product availability from competing steel mills and other steel suppliers including import quantities and pricing; compliance with and changes in environmental laws and regulations, including increased regulation associated with climate change and greenhouse gas emissions; involvement in various environmental matters that may result in fines, penalties or judgments; potential limitations in our or our customers' abilities to access credit and non-compliance by our customers with our contracts; activity in repurchasing shares of our common stock under our repurchase program; financial covenants and restrictions on the operation of our business contained in agreements governing our debt; our ability to successfully identify, consummate, and integrate acquisitions and the effects that acquisitions may have on our financial leverage; risks associated with acquisitions generally, such as the inability to obtain, or delays in obtaining, required approvals under applicable antitrust legislation and other regulatory and third party consents and approvals; lower than expected future levels of revenues and higher than expected future costs; failure or inability to implement growth strategies in a timely manner; impact of goodwill impairment charges; impact of long-lived asset impairment charges; currency fluctuations; global factors, including trade measures, political uncertainties and military conflicts; availability and pricing of electricity, electrodes and natural gas for mill operations; ability to hire and retain key executives and other employees; competition from other materials or from competitors that have a lower cost structure or access to greater financial resources; information technology interruptions and breaches in security; ability to make necessary capital expenditures; availability and pricing of raw materials and other items over which we exert little influence, including scrap metal, energy and insurance; unexpected equipment failures; losses or limited potential gains due to hedging transactions; litigation claims and settlements, court decisions, regulatory rulings and legal compliance risks; risk of injury or death to employees, customers or other visitors to our operations; new and clarifying guidance with regard to interpretation of certain provisions of the Tax Cuts and Jobs Act that could impact our assessment; increased costs related to health care reform legislation; and impacts from the COVID-19 on the economy, demand for our products or our operations including the responses of governmental authorities to contain the COVID-19.

COMMERCIAL METALS COMPANY
NON-GAAP FINANCIAL MEASURES (UNAUDITED)

This press release contains financial measures not derived in accordance with generally accepted accounting principles ("GAAP"). Reconciliations to the most comparable GAAP measures are provided below.

Core EBITDA from Continuing Operations is a non-GAAP financial measure. Core EBITDA from continuing operations is the sum of earnings (loss) from continuing operations before interest expense and income taxes (benefit). It also excludes recurring non-cash charges for depreciation and amortization, asset impairments and equity compensation. Core EBITDA from continuing operations also excludes certain material acquisition and integration related costs and other legal fees, amortization of acquired unfavorable contract backlog, facility closure costs and purchase accounting adjustments to inventory. Core EBITDA from continuing operations should not be considered an alternative to earnings (loss) from continuing operations or net earnings (loss), or as a better measure of liquidity than net cash flows from operating activities, as determined by GAAP. However, we believe that Core EBITDA from continuing operations provides relevant and useful information, which is often used by analysts, creditors and other interested parties in our industry as it allows: (i) comparison of our earnings to those of our competitors; (ii) a supplemental measure of our ongoing core performance; and (iii) the assessment of period-to-period performance trends. Additionally, Core EBITDA from continuing operations is the target benchmark for our annual and long-term cash incentive performance plans for management. Core EBITDA from continuing operations may be inconsistent with similar measures presented by other companies.

A reconciliation of earnings from continuing operations to Core EBITDA from continuing operations is provided below:

Adjusted earnings from continuing operations is a non-GAAP financial measure that is equal to earnings (loss) from continuing operations before certain acquisition and integration related and costs and other legal expenses, facility closure costs, and purchase accounting adjustments to inventory, including the estimated income tax effects thereof. Additionally, we adjust adjusted earnings from continuing operations for the effects of the Tax Cuts and Jobs Act ("TCJA"). Adjusted earnings from continuing operations should not be considered as an alternative to earnings from continuing operations or any other performance measure derived in accordance with GAAP. However, we believe that adjusted earnings from continuing operations provides relevant and useful information to investors as it allows: (i) a supplemental measure of our ongoing core performance and (ii) the assessment of period-to-period performance trends. Management uses adjusted earnings from continuing operations to evaluate our financial performance. Adjusted earnings from continuing operations may be inconsistent with similar measures presented by other companies. Adjusted earnings from continuing operations per diluted share is defined as adjusted earnings from continuing operations on a diluted per share basis.

A reconciliation of earnings from continuing operations to adjusted earnings from continuing operations is provided below:

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SOURCE Commercial Metals Company