Commercial Metals Company Reports First Quarter Earnings From Continuing Operations Of $0.16 Per Share And Adjusted Earnings From Continuing Operations Of $0.35 Per Share

IRVING, Texas, Jan. 7, 2019 /PRNewswire/ -- Commercial Metals Company CMC today announced financial results for its fiscal first quarter ended November 30, 2018.  For the three months ended November 30, 2018, earnings from continuing operations were $19.4 million, or $0.16 per diluted share, on net sales of $1.3 billion, compared to earnings from continuing operations of $31.9 million, or $0.27 per diluted share, on net sales of $1.1 billion for the three months ended November 30, 2017.

First quarter results include net after tax expenses of $22.1 million related to certain non-operational costs.  Excluding these expenses, adjusted earnings from continuing operations were $41.5 million, or $0.35 per diluted share, as detailed in the non-GAAP reconciliation on page 12, compared to adjusted earnings from continuing operations of $36.2 million, or $0.31 per diluted share, for the three months ended November 30, 2017.

Barbara R. Smith, Chairman of the Board, President and Chief Executive Officer, commented, "Results for the first quarter were strong even though we experienced historically wet weather in the U.S. which reduced shipments.  In Poland, we completed a major rolling mill overhaul while also delivering record levels of seasonally adjusted profits from this operation.  The highlight of the quarter, however, was the closing of the acquisition of certain rebar assets from Gerdau which occurred on November 5th.  Excluding $4.1 million of intercompany elimination charges, these assets contributed approximately $12.5 million of operating income in the first partial month of ownership.  The integration of these assets purchased from Gerdau has gone very well thus far, allowing us to gain confidence in the accretive nature and operating synergy potential of these assets."

The Company's liquidity position at November 30, 2018 remained strong with cash and cash equivalents of $52.4 million and availability under the Company's credit and accounts receivable sales facilities of $626.8 million.

On January 2, 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 January 15, 2019.  The dividend will be paid on January 30, 2019.

Business Segments - Fiscal First Quarter 2019 Review

Our Americas Recycling segment recorded adjusted EBITDA of $15.4 million for the first quarter of fiscal 2019, compared to adjusted EBITDA of $15.0 million for the first quarter of fiscal 2018. Adjusted EBITDA was relatively flat compared to the same period of the prior year as volumes remained strong and margins remained relatively consistent.

Our Americas Mills segment recorded adjusted EBITDA of $113.9 million for the first quarter of fiscal 2019, an increase of 106% compared to adjusted EBITDA of $55.2 million for the first quarter of fiscal 2018.  The first quarter results of fiscal 2019 include adjusted EBITDA of $11.6 million for the partial one month results of the acquired mills on shipments of 114 thousand tons.   In addition to the impact of the acquired mills, the increase in shipment volume in comparison to the first quarter of fiscal 2018 was due to incremental shipments from our new micro mill in Durant, OK.  Demand from U.S. construction remains strong, however, it was impacted by weather in the current quarter as some of our markets had the most rainfall ever recorded during our first quarter, which delayed construction projects.   As a result of the strong global demand for rebar, metal margins have increased by $80 per ton from the same period of the prior year and are currently the highest that we have experienced since the Great Financial Crisis.  Inflationary pressures on the cost of alloys and electrodes and some extended maintenance outages resulted in an increase in manufacturing costs of approximately 13% per ton as compared to the first quarter of fiscal 2018.

Our Americas Fabrication segment recorded an adjusted EBITDA loss of $37.0 million for the first quarter of fiscal 2019, compared to adjusted EBITDA of $2.0 million for the first quarter of fiscal 2018.   The first quarter results of fiscal 2019 include an adjusted EBITDA loss of $8.0 million for the partial one month results related to the acquired fabrication operations on shipments of 52 thousand tons.  The adjusted EBITDA loss does not include the benefit of a purchase accounting adjustment of $11.3 million related to the unfavorable contract backlog that we assumed in the acquisition.  Including this adjustment, the operating income of the acquired fabrication assets was $3.0 million for the partial period of ownership.  Average selling prices rose 12% compared to the first quarter of fiscal 2018, significantly outpaced by steel input costs, which increased by 28%, causing continued margin pressure in this segment.   In addition, labor costs have also increased, which contributed to the margin compression.  Rebar fabrication bidding activity remains strong and selling prices for contracted work during the quarter increased approximately 40% compared to the first quarter of fiscal 2018.

Our International Mill segment in Poland recorded adjusted EBITDA of $32.8 million for the first quarter of fiscal 2019, compared to adjusted EBITDA of $30.9 million for the first quarter of fiscal 2018. Margins continue to be very good, supported by strong demand for construction steel.  The strong results were achieved despite one of the rolling mills having a significant planned overhaul, which was completed during the first quarter of fiscal 2019.

Our Corporate and Other segment recorded an adjusted EBITDA loss of $59.6 million for the first quarter of fiscal 2019 compared to an adjusted EBITDA loss of $23.9 million for the first quarter of fiscal 2018.  Included in the current quarter loss was $28.0 million related to acquisition costs and other legal expenses and $9.7 million related to an elimination of profit in inventory on shipments between the segments.  This $9.7 million includes $4.1 million related to rebar shipments from the mill segment to the newly acquired fabrication locations and $5.6 million related to our legacy fabrication operations, as extraordinarily wet weather during the first quarter of fiscal 2019 has led to a temporary increase in inventory levels.

Outlook

"We remain optimistic about the demand outlook in our key markets.  Our second quarter of fiscal 2019 will include normal seasonality, which will reduce shipment rates at our facilities; however we expect the quarter to be strong in comparison to historical second quarter results, due to the contribution from our strategic growth initiatives," said Ms. Smith.  "We expect to see continued growth from our investment in the new Durant, OK micro mill, as well as growth from the ongoing integration of the newly acquired rebar assets.  We are confident that these will position us well to serve our customers in this period of strong demand and deliver enhanced returns to our shareholders."

Conference Call

CMC invites you to listen to a live broadcast of its first quarter fiscal 2019 conference call today, Monday, January 7, 2019, at 11:00 a.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, 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 ability to operate our mills at full capacity, future supplies of raw materials and energy for our operations, share repurchases, legal proceedings, renewing the credit facilities of our Polish subsidiary, the reinvestment of 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, our new 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 the 2018 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; 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 new 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 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:

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 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:

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