Commercial Metals Company Reports Fourth Quarter And Full Year Fiscal 2019 Results

IRVING, Texas, Oct. 23, 2019 /PRNewswire/ -- Commercial Metals Company CMC today announced financial results for its fiscal fourth quarter and year ended August 31, 2019. Net sales for the fourth quarter increased 18% to $1.5 billion from $1.3 billion in the prior year quarter, and for the full year increased 26% to $5.8 billion compared to $4.6 billion in the prior year, reflecting increased capacity from the previously announced rebar assets acquisition. Earnings from continuing operations were $85.9 million, or $0.72 per diluted share, in the fourth quarter compared to $51.3 million, or $0.43 per diluted share, in the prior year quarter. For the full year, earnings from continuing operations were $198.8 million, or $1.67 per diluted share, compared to $135.2 million, or $1.14 per diluted share in the prior year.

Barbara R. Smith, Chairman of the Board, President and Chief Executive Officer, commented, "2019 was a transformational year for CMC. I am proud of what our team accomplished, with results that reflect the successful execution of our growth strategy and the strong fundamentals in the end markets we serve."

"Key milestones in fiscal 2019 included the completion and integration of CMC's largest acquisition to date, the ramp up of our second micro mill in Oklahoma, and the addition of hot spooled rebar capability at our Arizona micro mill. Together, they bolster the strategy that has positioned CMC to be the largest supplier of rebar and a leading producer of merchant bar for the U.S. market place. In addition, our Polish operations generated full year EBITDA in excess of $100 million from strong sales and margins despite the flood of imported steel into the European Union.  The successful execution of these accomplishments resulted in our ability to reduce our indebtedness by $124.5 million during the fourth quarter," Smith added.

Results for the fourth quarter and full year included net after-tax expenses related to certain non-operational costs resulting from the acquisition and integration of the rebar assets of $4.9 million and $48.8 million, respectively. Excluding these expenses, adjusted earnings from continuing operations were $90.8 million, or $0.76 per diluted share, for the fourth quarter, an increase of 52% compared to $59.9 million, or $0.51 per diluted share, in the prior year quarter. For the full year, adjusted earnings from continuing operations were $247.6 million, or $2.08 per diluted share, an increase of 41% compared to $176.1 million, or $1.49 per diluted share, in the prior year, as detailed in the non-GAAP reconciliation on page 12.            

As a result of the strong free cash flow generated during the fourth quarter, the Company reduced its debt and accounts receivable programs usage while also improving its cash balance by $72.1 million to $192.5 million at fiscal year-end. Availability under the Company's credit and accounts receivable programs was $611.0 million at August 31, 2019.

On October 22, 2019, the board of directors declared a quarterly dividend of $0.12 per share of CMC common stock payable to stockholders of record on November 6, 2019. The dividend will be paid on November 20, 2019.

Business Segments - Fiscal Fourth Quarter 2019 Review
Our Americas Recycling segment adjusted EBITDA of $4.2 million for the fourth quarter of fiscal 2019 declined compared to $17.0 million for the fourth quarter last year. The decrease reflected a 27% drop in ferrous and 7% drop in non-ferrous prices year-on-year, which also constrained volume.

Our Americas Mills segment adjusted EBITDA of $160.8 million for the fourth quarter of fiscal 2019 rose 51% compared to $106.8 million for the fourth quarter last year, and includes adjusted EBITDA of $58.1 million from the acquired mills, on shipments of 455 thousand tons. Volume increased 45% compared to the prior year fourth quarter primarily due to the ramp up of our Oklahoma micro mill and the additional production from the acquired facilities. Metal margins increased $51 per ton compared to the fourth quarter last year, and $13 per ton sequentially from the third quarter of this year, reflecting the greater price stability of CMC's rebar and long product offerings when compared to the broader steel market.

Our Americas Fabrication segment recorded an adjusted EBITDA loss of $13.2 million for the fourth quarter of fiscal 2019, an improvement compared to an adjusted EBITDA loss of $24.6 million for the prior year fourth quarter. The 2019 fourth quarter included $4.2 million of costs related to the closure of certain acquired locations. As in prior quarters, the fourth quarter EBITDA losses did not include the benefit of the purchase accounting adjustment related to amortization of the unfavorable contact backlog reserve that relates to the acquisition, which was $16.6 million. The acquired locations shipped 172 thousand tons in the 2019 fourth quarter. CMC's historical locations produced break-even results in the 2019 fourth quarter. Current rebar bidding activity remains strong and selling prices averaged $963 per ton in the 2019 fourth quarter, $120 per ton or 14%, higher compared to the same period in the prior year.

Our International Mill segment adjusted EBITDA of $22.7 million for the fourth quarter of fiscal 2019 declined compared to adjusted EBITDA of $36.7 million for the prior year quarter. The construction sector remains strong in Poland and our operations produced record quarterly rebar shipments during the fourth quarter. Results of the operation in comparison to the prior year were lower due to a high volume of steel imports into the European Union.   

Outlook
"Supported by the sentiment of our customers and the strength and profitability of our fabrication backlog, our outlook remains strong," said Ms. Smith. "We anticipate the current elevated rebar margin environment will continue, our fabrication business will be a positive contributor to our results, and the solid results will continue from our Polish operations. Our strong cash flow generation has allowed us to delever faster than originally anticipated, strengthening our balance sheet and enabling us to seek additional opportunities for long term growth that will benefit our stakeholders."

Conference Call
CMC invites you to listen to a live broadcast of its fourth quarter fiscal 2019 conference call today, Wednesday, October 23, 2019, 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 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 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, 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, 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 Business") 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, 2019, 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 prices; 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 Business; issues or delays in the successful integration of the Acquired Business' operations, systems and personnel with those of the Company, including the inability to substantially increase utilization of the Acquired Business' steel mini mills, and incurring or experiencing unanticipated costs and/or delays or difficulties; unfavorable reaction to the acquisition of the Acquired Business 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; 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 the Tax Cuts and Jobs Act ("TCJA") that could impact our assessment; 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, 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 before income taxes 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 costs, 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:

SOURCE Commercial Metals Company