Commercial Metals Company Reports Third Quarter Fiscal 2019 Results

IRVING, Texas, June 20, 2019 /PRNewswire/ -- Commercial Metals Company (NYSE: CMC) today announced financial results for its fiscal third quarter ended May 31, 2019.  For the three months ended May 31, 2019, earnings from continuing operations were $78.6 million, or $0.66 per diluted share, on net sales of $1.6 billion, compared to earnings from continuing operations of $42.3 million, or $0.36 per diluted share, on net sales of $1.2 billion for the prior year period.  Revenue increased 33% on a year-over-year basis driven by the Company's growth strategy and strong fundamentals in its core markets.

Third quarter fiscal 2019 results included net after tax expenses of $1.8 million related to certain non-operational costs related to the acquisition of rebar assets from Gerdau S.A.  Excluding these expenses, adjusted earnings from continuing operations were $80.4 million, or $0.67 per diluted share, as detailed in the non-GAAP reconciliation on page 12.  This represents a 64% increase compared to adjusted earnings from continuing operations of $49.0 million, or $0.41 per diluted share, for the three months ended May 31, 2018.  In comparison to the most recent quarter ended February 28, 2019, this represents an increase of 130% compared to adjusted earnings from continuing operations of $35.0 million or $0.29 per diluted share.

Excluding non-recurring integration related costs related to the four steel mills and rebar fabrication assets purchased from Gerdau S.A., that closed on November 5, 2018, the acquired assets contributed revenue of $453.5 million and operating income of $56.6 million to the consolidated results of CMC in the third quarter of fiscal 2019.

Barbara R. Smith, Chairman of the Board, President and Chief Executive Officer, said, "The strong results for the quarter reflect the strength of construction activity, as well as solid industrial production levels and the resilient U.S. and Polish economies. Our recent acquisition, our greenfield Oklahoma facility, and introduction of hot spooled rebar were all meaningful contributors to top and bottom line financial results.  In addition, the fundamentals of the fabrication segment have improved significantly as we have shipped the majority of the lower priced work in our backlog which has resulted in a significant improvement in the segment results."

The Company's liquidity position at May 31, 2019 continued to be strong with cash and cash equivalents of $120.3 million and availability under the Company's credit and accounts receivable sales facilities of $617.2 million.

On June 19, 2019, 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 July 5, 2019.  The dividend will be paid on July 18, 2019.

Business Segments - Fiscal Third Quarter 2019 Review
Our Americas Recycling segment recorded adjusted EBITDA of $12.3 million for the third quarter of fiscal 2019, compared to adjusted EBITDA of $19.5 million for the prior year third quarter.   Despite a decline in ferrous pricing, we generated good EBITDA results in this segment as a result of our diligent buying practice, high inventory turnover and recent investment in separation technology to better refine our end non-ferrous purity levels to achieve higher margins.

Our Americas Mills segment recorded adjusted EBITDA of $158.1 million for the third quarter of fiscal 2019, an increase of 76% compared to adjusted EBITDA of $89.6 million for the third quarter of fiscal 2018.  The third quarter results include adjusted EBITDA of $53.6 million from the acquired mills on shipments of 469 thousand tons.  As a result of decreases in both ferrous scrap cost and our manufacturing costs due to higher production levels, combined with relatively flat selling prices, the per ton EBITDA contribution for our Americas Mills segment increased $26 per ton in comparison to the third quarter of fiscal 2018.

Our Americas Fabrication segment recorded an adjusted EBITDA loss of $23.3 million for the third quarter of fiscal 2019, compared to an adjusted EBITDA loss of $8.2 million for the third quarter of fiscal 2018.  This year's third quarter results include an adjusted EBITDA loss of $13.9 million related to the acquired fabrication operations on shipments of 184 thousand tons.  This loss excludes the benefit of a purchase accounting adjustment of $23.4 million related to amortization of the unfavorable contract backlog reserve that was assumed in the acquisition.  Including this adjustment, the operating income of the acquired fabrication assets was $10.1 million for the quarter.

The segment had significantly improved results in comparison to the results of the past three quarters.  Average selling prices in the Americas Fabrication segment rose 19% compared to the third quarter of fiscal 2018.  The existing business is approaching break-even levels at current rebar prices.  The backlog acquired from Gerdau had a lower per ton value, so a return to positive EBITDA is expected to occur in fiscal 2020.  Rebar fabrication bidding activity remains strong.  Selling prices for contracted work during fiscal 2019, including the acquired locations, has averaged above $1,000 per ton, which is expected to be profitable when shipped in future quarters at current rebar prices.

Our International Mill segment in Poland recorded adjusted EBITDA of $24.1 million for the third quarter of fiscal 2019, compared to adjusted EBITDA of $32.0 million for the comparable prior year quarter.  Elevated levels of imported product resulted in a slight compression of metal margins during the quarter.  Despite the reduction in selling prices, this segment is on track to earn the second highest level of profitability in its history due to the continued strong non-residential construction market in Poland.

Our Corporate and Other segment recorded an adjusted EBITDA loss of $27.3 million for the third quarter of fiscal 2019 compared to an adjusted EBITDA loss of $31.8 million for the prior year's third quarter.  The current quarter loss includes $2.3 million related to acquisition costs in comparison to $5.0 million in the third quarter of fiscal 2018.  Excluding these costs, our Corporate segment costs have remained relatively flat as the newly acquired operations were absorbed with little impact to the overall cost structure.

Outlook
"Our outlook for demand remains very positive driven by the continued strength in non-residential construction activity levels in our markets," said Ms. Smith.  "Leveraging the growth in our business from the acquisition, combined with the continued favorable long steel margin environment and improvement in our fabrication segment, we anticipate a strong finish to our fiscal year.  We also anticipate that our business will generate strong cash flows, creating the opportunity to reduce our indebtedness levels."

Conference Call
CMC invites you to listen to a live broadcast of its third quarter fiscal 2019 conference call today, Thursday, June 20, 2019, at 2:00 p.m. ET.  Barbara Smith, Chairman of the Board of Directors, President, and Chief Executive Officer, and Mary Lindsey, Senior 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 eight electric arc furnace ("EAF") mini mills, two EAF micro mills, a rerolling mill, 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 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, potential synergies provided by our recent acquisitions, demand for our products, steel margins, the ability to operate our mills at full capacity, future supplies of raw materials and energy for our operations, legal proceedings, U.S. non-residential construction activity, international trade, capital expenditures, our liquidity and our ability to satisfy future liquidity requirements, our Oklahoma micro mill, estimated contractual obligations, the effects of the acquisition of substantially all of the U.S. rebar fabrication facilities and the steel mini-mills located in or around Rancho Cucamonga, California, Jacksonville, Florida, Sayreville, New Jersey and Knoxville, Tennessee previously owned by Gerdau S.A. and certain of its subsidiaries (collectively, the "Acquired Businesses"), 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.

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 our Annual Report on Form 10-K for the fiscal year ended August 31, 2018 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; failure to retain key management and employees of the Acquired Businesses; issues or delays in the successful integration of the Acquired Businesses' operations with those of the Company, including the inability to substantially increase utilization of the Acquired Businesses' steel mini mills, and incurring or experiencing unanticipated costs and/or delays or difficulties; difficulties or delays in the successful transition of the Acquired Businesses to the information technology systems of the Company as well as risks associated with other integration or transition of the operations, systems and personnel of the Acquired Businesses; unfavorable reaction to the acquisition of the Acquired Businesses by customers, competitors, suppliers and employees; 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 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; ability to realize the anticipated benefits of our investment in our micro mill in Durant, Oklahoma; 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; impacts of the Tax Cuts and Jobs Act ("TCJA"); and increased costs related to health care reform legislation.

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, mill operational start-up costs, CMC Steel Oklahoma incentives, net debt restructuring and extinguishment gains and losses, purchase accounting adjustments to inventory and severance expenses. 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:

*Net of interest, taxes, depreciation and amortization, impairments, and non-cash equity compensation.

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, mill operational start-up costs, CMC Steel Oklahoma incentives, asset impairments, debt restructuring and extinguishment gains and losses, purchase accounting adjustments to inventory and severance expenses, including the estimated income tax effects thereof. Additionally, we adjust adjusted earnings from continuing operations for the effects of the TCJA as well as the tax benefit associated with an international reorganization. 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:

SOURCE Commercial Metals Company

Related Links

http://www.cmc.com

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