Commercial Metals Company (NYSE:CMC) Delivers Solid Q3 Results, Sees Continued Strength in North America but Challenges Persist in Europe

Published on September 24, 2024 | Ticker: CMC

Commercial Metals Company (NYSE:CMC), a leading provider of innovative steel solutions, has reported its fiscal third quarter 2024 results, showcasing the company's resilience in the face of a dynamic market environment. Despite headwinds in certain regions, CMC's diversified business model and strategic initiatives have enabled the company to maintain strong financial performance.

Financials

For the fiscal year 2023, CMC reported annual net income of $859.76 million and annual revenue of $8.80 billion. The company's annual operating cash flow was $1.34 billion, while its annual free cash flow reached $737.44 million. These robust financial metrics demonstrate CMC's ability to generate substantial value for its shareholders.

In the third quarter of fiscal 2024, CMC reported net earnings of $119.4 million, or $1.02 per diluted share, on net sales of $2.08 billion. This compares to net earnings of $234.0 million, or $1.98 per diluted share, on net sales of $2.34 billion in the prior-year quarter. The year-over-year decline in net earnings was primarily due to compression in steel products metal margins in both the North America Steel Group and Europe Steel Group segments, driven by declining steel products average selling prices per ton, while the cost of ferrous scrap utilized per ton decreased at a lesser rate or increased slightly compared to the corresponding period.

North America Steel Group: Solid Demand and Operational Excellence

CMC's North America Steel Group segment generated net sales of $1.67 billion and adjusted EBITDA of $246.3 million in the third quarter of fiscal 2024. This compares to net sales of $1.82 billion and adjusted EBITDA of $367.6 million in the prior-year quarter. The decrease in net sales was primarily due to reductions in steel products and downstream products average selling prices per ton, partially offset by relatively stable shipment volumes.

The North America Steel Group segment benefited from good underlying market fundamentals, which yielded modest sequential margin expansion for steel products and healthy shipment levels of finished steel products. The team's focus on operational excellence and cost control helped mitigate the impact of the decline in steel products and downstream products average selling prices.

Europe Steel Group: Gradual Improvement, but Challenges Persist

CMC's Europe Steel Group segment reported net sales of $208.8 million and an adjusted EBITDA loss of $4.2 million in the third quarter of fiscal 2024. This compares to net sales of $330.8 million and adjusted EBITDA of $5.8 million in the prior-year quarter. The decrease in net sales was primarily due to reductions in steel products shipment volumes and average selling prices per ton, driven by the sustained indirect impacts of macroeconomic factors affecting the business climate in European end markets.

While the Europe Steel Group segment continued a trend of improving financial performance, nearing breakeven on an adjusted EBITDA basis, the market environment remained challenging. The team's cost-cutting efforts and the recognition of government assistance programs helped offset the decline in steel products metal margins.

Emerging Businesses Group: Steady Performance and Promising Outlook

CMC's Emerging Businesses Group segment reported net sales of $188.6 million and adjusted EBITDA of $38.2 million in the third quarter of fiscal 2024, remaining flat compared to the prior-year quarter. The segment's performance benefited from improved seasonal demand, the start-up of several European and Middle East projects, and strong product-specific demand for the company's proprietary performance reinforcing steel offerings.

The Emerging Businesses Group's healthy pipeline of new projects and successful contract awards provide a solid foundation for future growth. CMC's focus on developing innovative construction solutions and expanding its presence in adjacent markets positions the segment for continued success.

Liquidity

As of May 31, 2024, CMC had cash and cash equivalents of $698.3 million and total liquidity of approximately $1.5 billion, including available credit and accounts receivable facilities. The company's leverage metrics remain attractive, with a net debt-to-EBITDA ratio of 0.5x and a net debt-to-capitalization ratio of 9%.

CMC's capital allocation strategy remains balanced, with a focus on value-accretive growth investments, shareholder distributions, and maintaining a strong financial position. During the third quarter, the company repurchased approximately 931,000 shares at an average price of $55.64 per share, underscoring its commitment to enhancing shareholder value.

Outlook

Looking ahead, CMC expects consolidated financial results in the fiscal fourth quarter to be consistent with third quarter levels. The company anticipates flat sequential finished steel shipments within the North America Steel Group segment, with adjusted EBITDA margin remaining relatively stable. The Europe Steel Group segment is likely to continue the trend of quarter-over-quarter improvement, despite the challenging market conditions. The Emerging Businesses Group is expected to see modest improvement, driven by steady underlying market fundamentals and a healthy order book.

CMC's strategic initiatives are centered around achieving sustainably higher, less volatile through-the-cycle margins, executing on attractive organic growth opportunities, and pursuing disciplined inorganic growth to broaden its commercial portfolio and extend its growth runway. The company's recent investments, such as the Arizona 2 micro mill and the upcoming Steel West Virginia project, are expected to enhance its operational efficiency and competitiveness.

Conclusion

Commercial Metals Company's fiscal third quarter results demonstrate the company's ability to navigate a dynamic market environment. While the North America Steel Group segment continues to deliver solid performance, the Europe Steel Group segment faces ongoing challenges. CMC's Emerging Businesses Group provides a promising avenue for growth, leveraging the company's innovative solutions and expanding presence in adjacent markets.

With a robust financial position, a balanced capital allocation strategy, and a strategic focus on operational excellence and value-accretive growth, CMC is well-positioned to capitalize on the favorable long-term trends in the construction and infrastructure sectors. Investors should closely monitor the company's progress as it executes on its strategic initiatives and seeks to deliver sustainable value for its shareholders.

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