Commercial Metals Company Reports First Quarter Earnings From Continuing Operations Per Share Of $0.06

IRVING, Texas, Jan. 9, 2017 /PRNewswire/ -- Commercial Metals Company CMC today announced financial results for its first quarter ended November 30, 2016. Earnings from continuing operations for the first quarter of fiscal 2017 were $7.2 million ($0.06 per diluted share) on net sales of $1.1 billion. This compares to earnings from continuing operations of $25.6 million ($0.22 per diluted share) on net sales of $1.2 billion for the first quarter of fiscal 2016. Net earnings attributable to CMC for the three months ended November 30, 2016 were $6.3 million ($0.05 per diluted share), compared with net earnings attributable to CMC of $25.1 million ($0.21 per diluted share) for the first quarter ended November 30, 2015. Results for the first quarter of fiscal 2017 were adversely impacted by the following, compared to the first quarter of fiscal 2016 (all after-tax):  (i) a $2.7 million ($0.02 per diluted share) increase in stock-based compensation expense related to mark to market adjustments associated with the increase in the value of our common stock at November 30, 2016, (ii) a $1.6 million ($0.01 per diluted share) increase in severance cost and (iii) an approximate $1.4 million ($0.01 per diluted share) unfavorable impact from a net mark to market loss on open copper derivatives.

Adjusted operating profit from continuing operations was $23.4 million for the first quarter of fiscal 2017, compared with adjusted operating profit from continuing operations of $56.1 million for the first quarter of fiscal 2016. Adjusted EBITDA from continuing operations was $53.8 million for the first quarter of fiscal 2017, compared with adjusted EBITDA from continuing operations of $87.7 million for the first quarter of fiscal 2016.

The Company's liquidity position at November 30, 2016 remained strong with cash and cash equivalents of $465.2 million and availability under the Company's credit and accounts receivables sales facilities of $555.4 million. We regularly evaluate the uses of our cash to maximize total shareholder return, including debt repayment, capital deployment, share repurchases and dividends.

Joe Alvarado, Chairman of the Board, President and CEO, commented, "We experienced margin compression in some of our market segments in the early part of our first quarter; however, rising raw material costs, low customer inventory levels and an increase in bidding activity in November suggest more optimistic outcomes for the balance of the year, allowing for the regular seasonal slowdown in the construction markets we experience in the second quarter. For the last two consecutive quarters of the Jacobson Survey, the customer satisfaction survey of 28 U.S. bar mills, CMC's four mills have held the top four positions in overall customer satisfaction, a testament to our continued focus on customers. This customer focus, as well as aggressive cost management, position us well to take advantage of the hopefully better months ahead for the U.S. steel industry. Our International Mill segment recorded an increase in adjusted operating profit due to increased volumes as the construction sector in Poland improved compared to the first quarter of fiscal 2016. Additionally, our Americas Recycling segment saw improved performance over the first quarter of fiscal 2016 through margin expansion and improved sales volumes."

On January 4, 2017, the board of directors of CMC declared a quarterly dividend of $0.12 per share for shareholders of record on January 17, 2017.  The dividend will be paid on February 1, 2017.

Business Segments-Fiscal First Quarter 2017 Review
Our Americas Recycling segment recorded adjusted operating loss of $5.1 million for the first quarter of fiscal 2017 compared to adjusted operating loss of $6.5 million for the first quarter of fiscal 2016. Adjusted operating loss for the first quarter of fiscal 2016 included a $2.5 million positive insurance claim. The improvement in adjusted operating loss compared to the same period in fiscal 2016 was primarily due to per ton margin expansions of 38% on nonferrous shipments and 2% on ferrous shipments as average selling prices improved. However, nonferrous tons shipped decreased 6% due to lower availability of inventory volumes entering the quarter, while ferrous tons shipped increased 4% compared to the first quarter of fiscal 2016.

Our Americas Mills segment recorded adjusted operating profit of $36.9 million for the first quarter of fiscal 2017 compared to adjusted operating profit of $59.1 million for the corresponding period in fiscal 2016. Profitability in this segment declined during the first quarter of fiscal 2017 compared to the first quarter of fiscal 2016 due to 17% margin compression as the average selling price decreased $57 per short ton, coupled with a $3 per short ton increase in the average cost of ferrous scrap consumed. Our focus remains on improvements in conversion cost for our mills as we believe margins will continue to be pressured by imports.

Our Americas Fabrication segment recorded adjusted operating profit of $6.7 million for the first quarter of fiscal 2017 compared to adjusted operating profit of $21.3 million for the first quarter of fiscal 2016. The decline in adjusted operating profit for the first quarter of fiscal 2017 continues the effect, seen in the fourth quarter of fiscal 2016, that aggressive imports had on projects booked in fiscal 2016 at lower prices which are now running through our fabrication backlog. Further contributing to the decline in adjusted operating profit, this segment recorded a $2.4 million gain on a property sale during the first quarter of fiscal 2016.

Our International Mill segment recorded adjusted operating profit of $10.0 million for the first quarter of fiscal 2017 compared to adjusted operating profit of $2.8 million for the corresponding period in fiscal 2016. Adjusted operating profit for the first quarter of fiscal 2017 increased due to strong demand in the construction sector for rebar and merchant products, which drove volumes up by 38 thousand short tons versus the first quarter of fiscal 2016. The increase in volumes more than offset a 3% margin decline, which resulted from an $11 per short ton decrease in average selling price and a $5 per short ton decrease in the average cost of ferrous scrap consumed.

Our International Marketing and Distribution segment recorded adjusted operating loss of $1.0 million for the first quarter of fiscal 2017 compared to adjusted operating loss of $2.2 million for the same period in the prior fiscal year. The decrease in adjusted operating loss was primarily due to improved margins for our steel trading businesses headquartered in the U.S. and United Kingdom, which were partially offset by a decline in margins for our operations in Asia. This segment recorded $0.4 million in inventory write-downs in the first quarter of fiscal 2017 compared to $2.7 million in the first quarter of fiscal 2016.

Outlook
Our second fiscal quarter has historically been slower as a result of a seasonal downturn in construction activity due to winter weather conditions and holidays. Several indicators point to potential improvements in market conditions during our fiscal 2017. Non-residential construction, our primary end use market in the U.S., has improved over the last several months. Non-residential construction spending increased 9% and non-residential construction starts increased 29% year over year for the quarter ending November 30, 2016. Additionally, the Architectural Billings Index for the southern U.S., an important geography for CMC, has remained strong for the last several quarters. We are optimistic about potential investments in infrastructure which may begin to develop during our fiscal 2017 as a result of the Fixing America's Surface Transportation ("FAST") Act. Ferrous scrap pricing improved during November and December 2016, which we expect will support finished goods pricing and re-entry into the market by customers anticipating a market bottom. Finally, the change in the political leadership following the U.S. elections may result in more favorable business conditions and economic growth in the medium and long terms. Potential changes in the regulatory environment related to trade, taxes, infrastructure spending and other matters may bode well for the domestic steel industry and we are well positioned to capitalize on any such changes.

Conference Call
CMC invites you to listen to a live broadcast of its first quarter of fiscal 2017 conference call today, Monday, January 9, 2017, at 11:00 a.m. ET.  Joe Alvarado, Chairman of the Board, President and CEO, Barbara Smith, COO, and Mary Lindsey, Vice President and CFO, 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 including steel minimills, steel fabrication and processing plants, construction-related product warehouses, 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 CMC's expectations relating to economic conditions, U.S. construction activity, changes in political and regulatory conditions, the effects of global steel overcapacity and international trade, anticipated finished goods pricing and customer growth, and CMC's operating plans and segment results.  These forward-looking statements generally can be identified by phrases such as we, CMC or its management, "expects," "anticipates," "believes," "estimates," "intends," "plans to," "ought," "could," "will," "should," "likely," "appears," "potential" or other similar words or phrases. There are inherent risks and uncertainties in 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, CMC undertakes 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 otherwise

Factors that could cause actual results to differ materially from CMC's expectations include the following: overall global economic conditions, including the ongoing recovery from the last recession, continued sovereign debt problems in the Euro-zone and construction activity or lack thereof, and their impact in a highly cyclical industry; rapid and significant changes in the price of metals, potentially impairing our inventory values due to declines in 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; potential limitations in our or our customers' ability to access credit and non-compliance by our customers with our contracts; financial covenants and restrictions on the operation of our business contained in agreements governing our debt; currency fluctuations; global factors, including political uncertainties and military conflicts; availability of electricity and natural gas for mill operations; information technology interruptions and breaches in security data; ability to hire and retain key executives and other employees; our ability to make necessary capital expenditures; availability and pricing of raw materials over which we exert little influence, including scrap metal, energy, insurance and supply prices; unexpected equipment failures; competition from other materials or from competitors that have a lower cost structure or access to greater financial resources; 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; 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.

Adjusted Operating Profit from Continuing Operations is a non-GAAP financial measure. Adjusted operating profit from continuing operations is the sum of our earnings from continuing operations before income taxes, interest expense and discounts on sales of accounts receivable. Adjusted operating profit from continuing operations should not be considered as an alternative to earnings from continuing operations or net earnings, as determined by GAAP. Management uses adjusted operating profit from continuing operations to evaluate the financial performance of CMC. For added flexibility, we may sell certain trade accounts receivable both in the U.S. and internationally. We consider sales of accounts receivable as an alternative source of liquidity to finance our operations, and we believe that removing these costs provides a clearer perspective of CMC's operating performance. Adjusted operating profit from continuing operations may be inconsistent with similar measures presented by other companies.

 

Adjusted EBITDA from Continuing Operations is a non-GAAP financial measure. Adjusted EBITDA from continuing operations is the sum of earnings from continuing operations before net earnings attributable to noncontrolling interests, interest expense and income taxes. It also excludes CMC's largest recurring non-cash charge, depreciation and amortization, as well as long-lived asset impairment charges, which are also non-cash.  There were no net earnings attributable to noncontrolling interests or impairment charges during the three months ended November 30, 2016 and 2015. Adjusted EBITDA from continuing operations should not be considered an alternative to earnings from continuing operations or net earnings, or as a better measure of liquidity than net cash flows from operating activities, as determined by GAAP. However, we believe that adjusted EBITDA from continuing operations provides relevant and useful information, which is often used by analysts, creditors and other interested parties in our industry. Additionally, adjusted EBITDA from continuing operations is the target benchmark for our annual and long-term cash incentive performance plans for management. Adjusted EBITDA from continuing operations may be inconsistent with similar measures presented by other companies.

 

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SOURCE Commercial Metals Company