Commercial Metals Company (CMC) is a leading global provider of innovative solutions for the construction industry, offering a diverse range of products and technologies to meet the critical reinforcement needs across a wide variety of applications. With a rich history spanning over a century, CMC has established itself as a premier provider of high-quality steel, recycled metals, and construction-related solutions that are essential in shaping the built environment.
Business Overview and History Founded in 1915, Commercial Metals Company has evolved from a small metal recycling operation into a vertically integrated manufacturer and distributor of steel and steel-related products. The company's roots can be traced back to its inception in Dallas, Texas, where it began as a scrap metal processing facility. Over the decades, CMC has strategically expanded its operations, establishing a comprehensive network of recycling facilities, steel mills, and fabrication operations across the United States and Central Europe.
In the 1960s, CMC marked a significant shift towards vertical integration by constructing its first steel mill. This strategic move allowed the company to gain more control over its supply chain and manufacturing processes. Throughout the 1970s and 1980s, CMC continued its growth trajectory through acquisitions and the construction of additional steel mills and fabrication facilities.
The early 2000s presented a major challenge for CMC, as the company faced the impacts of a recession and overcapacity issues in the steel industry. In response, CMC underwent a significant restructuring, which included closing underperforming facilities and streamlining operations. This strategic decision helped the company weather the economic downturn and emerge as a leaner, more efficient organization.
The 2010s saw CMC making strategic investments to further strengthen its market position. This included the construction of innovative micro-mill facilities, enabling the company to produce high-quality steel products more efficiently. Additionally, CMC expanded its portfolio beyond steel, venturing into adjacent construction-related products and services through strategic acquisitions.
One of the key milestones in CMC's journey was the acquisition of Gerdau's Americas long steel business in 2018, which significantly bolstered the company's footprint and production capabilities. This transformative deal allowed CMC to further solidify its position as a leading producer of reinforcing bar (rebar), merchant bar, and other long steel products. Additionally, the company's strategic investments in state-of-the-art micro-mill technology have enabled it to enhance its operational efficiency and cater to the evolving needs of its diverse customer base.
Today, CMC operates through three reportable segments: North America Steel Group, Europe Steel Group, and Emerging Businesses Group. The North America Steel Group segment comprises a vertically integrated network of recycling facilities, steel mills, and fabrication operations, primarily serving the construction and manufacturing industries in the United States. The Europe Steel Group segment, headquartered in Poland, mirrors this integrated structure, catering to the Central European market. The Emerging Businesses Group, on the other hand, focuses on providing innovative construction-related solutions and value-added products, positioning the company to capitalize on emerging trends and growth opportunities.
Financial Performance and Liquidity In its most recent fiscal year (2024), CMC reported revenue of $7.93 billion and net income of $485.49 million, demonstrating the company's resilience in the face of market challenges. The company's strong balance sheet and liquidity position provide ample flexibility to finance strategic growth initiatives and maintain a balanced capital allocation strategy.
CMC's fiscal year 2024 financial results were among the best in the company's 109-year history, with core EBITDA of $1 billion, which remained well above historical levels, though down from $1.4 billion achieved in fiscal 2023. The company's fiscal 2024 core EBITDA margin was 12%, which is historically strong. CMC generated strong cash flow from operating activities of $899.71 million in fiscal 2024, supporting ongoing investment in growth initiatives and cash distributions to shareholders. Free cash flow for the fiscal year 2024 stood at $575.44 million.
In the most recent quarter (Q4 2024), CMC reported revenue of $2.00 billion, net income of $103.9 million, operating cash flow of $351.8 million, and free cash flow of $270.35 million. It's worth noting that year-over-year revenue decreased 14.5% in Q4 2024, driven by lower steel products and downstream products pricing and volume.
As of August 31, 2024, CMC's cash and cash equivalents stood at $857.92 million, complemented by $599.06 million available under the Revolver, $149.99 million under the Poland credit facilities, and $45.10 million under the Poland accounts receivable facility, resulting in total liquidity of just under $1.7 billion. The company's net debt to EBITDA ratio of 0.3x and net debt to capitalization ratio of 6% further underscore its financial strength and ability to navigate market volatility.
CMC's strong financial position is further evidenced by its debt-to-equity ratio of 0.276, current ratio of 3.94, and quick ratio of 2.78. These metrics demonstrate the company's ability to meet its short-term obligations and maintain financial flexibility.
In fiscal 2024, CMC returned $261.8 million to shareholders in the form of share repurchases and dividends, an increase of 48% from fiscal 2023, underscoring its commitment to delivering value to shareholders.
Operational Excellence and Strategic Initiatives Recognizing the importance of continuous improvement, CMC has launched its "Transform, Advance, and Grow" (TAG) program, a comprehensive operational and commercial excellence initiative. This enterprise-wide effort aims to identify and execute on value-generating opportunities across the organization, driving sustainable margin enhancement, earnings growth, and improved capital efficiency.
The TAG program has engaged employees at all levels, from department managers to regional leaders, fostering a culture of collaboration and a relentless pursuit of optimization. With over 150 identified initiatives, the company is poised to unlock significant value and fortify its competitive position in the market.
In addition to its focus on operational excellence, CMC is actively pursuing strategic growth opportunities, both organically and inorganically. The company's recent investments in micro-mill technology, such as the Arizona 2 and Steel West Virginia projects, demonstrate its commitment to expanding its production capabilities and serving its customers with greater efficiency and flexibility.
Furthermore, CMC is actively exploring inorganic growth avenues, targeting adjacent markets and product categories that complement its existing portfolio and align with the company's long-term strategic vision. These targeted acquisitions are expected to broaden CMC's customer value proposition, extend its growth runway, and contribute to the company's goal of achieving higher, less volatile through-the-cycle margins.
Navigating Market Dynamics and Industry Trends The construction industry, which is a primary driver of CMC's business, has faced a mixed environment in recent years. While the company has benefited from strong underlying demand, particularly in the infrastructure, non-residential, and residential sectors, it has also navigated challenges stemming from macroeconomic uncertainties, supply chain disruptions, and inflationary pressures.
In the North America Steel Group segment, CMC has maintained relatively stable finished steel shipment volumes, even as the market sentiment has softened due to factors such as the U.S. presidential election and rising interest rates. The company's disciplined approach to pricing and production has enabled it to preserve its market share and customer relationships during these periods of uncertainty.
In the Europe Steel Group segment, CMC has faced heightened competitive pressure from rising imports, particularly from Germany, which has put pressure on steel product margins. However, the company's proactive cost management initiatives have allowed it to near breakeven performance in this segment, demonstrating the resilience of its operational model.
The steel industry as a whole has faced some challenges, with steel prices declining sharply in the US and globally in 2024 due to soft demand in China amid an economic slowdown. However, improved demand in the automotive space and a resilient non-residential construction market have provided some support for the industry.
Looking ahead, CMC remains cautiously optimistic about the long-term prospects of the construction industry, buoyed by the ongoing infrastructure investment, reshoring trends, and the growing demand for energy transition and transmission projects. The company believes that its strategic investments, operational excellence programs, and diversified product portfolio position it well to capitalize on these structural trends and drive sustainable growth.
Segment Performance and Outlook CMC's business is organized into three reportable segments: North America Steel Group, Europe Steel Group, and Emerging Businesses Group.
The North America Steel Group segment reported net sales to external customers of $1.67 billion and $4.75 billion for the three and nine months ended May 31, 2024, respectively. Adjusted EBITDA for this segment was $246.30 million and $735.42 million for the same periods. This segment's vertically integrated network of recycling facilities, steel mills, and fabrication operations primarily serves the construction and manufacturing industries in the United States.
The Europe Steel Group segment, headquartered in Poland, reported net sales to external customers of $208.81 million and $626.48 million for the three and nine months ended May 31, 2024, respectively. Adjusted EBITDA for this segment was $4.19 million and $26.14 million for the same periods. This segment mirrors the integrated structure of the North America Steel Group but caters to the Central European market.
The Emerging Businesses Group segment reported net sales to external customers of $188.59 million and $521.83 million for the three and nine months ended May 31, 2024, respectively. Adjusted EBITDA for this segment was $38.22 million and $87.01 million for the same periods. This segment provides construction-related solutions and value-added products to serve domestic and international markets adjacent to those served by the other two segments.
Looking forward, CMC expects consolidated financial results for the first fiscal quarter of 2025 to decline from the fourth quarter of 2024 level due to temporary softness in certain areas of the construction industry amid continued macroeconomic uncertainty. Finished steel shipments in the North America Steel Group are anticipated to follow normal seasonal trends, while the adjusted EBITDA margin is expected to decrease on lower steel product margins over scrap costs.
For the Europe Steel Group, adjusted EBITDA is expected to experience a meaningful sequential increase, driven by the receipt of an annual CO2 credit expected to be in the range of $35 million to $40 million. Financial results for the Emerging Businesses Group are anticipated to decline due to normal seasonality and the impact of economic uncertainty.
CMC expects the first half of fiscal 2025 to be impacted by challenges related to current uncertainty and typical seasonal slowness but anticipates financial results to rebound in the second half as solid construction fundamentals return.
Conclusion Commercial Metals Company's rich history, innovative mindset, and unwavering commitment to operational excellence have been the driving forces behind its success. As the company navigates the evolving construction landscape, it is poised to further strengthen its position as a leading provider of steel-related solutions and construction-related technologies. With its robust financial foundation, strategic growth initiatives, and dedicated workforce, CMC is well-equipped to forge a sustainable future and deliver long-term value for its stakeholders.
The company's strong performance in fiscal year 2024, including record employee safety performance and historically strong financial results, demonstrates its resilience and ability to adapt to changing market conditions. As CMC looks to the future, its focus on operational excellence, strategic investments, and balanced capital allocation strategy position it well to capitalize on emerging opportunities in the construction and steel industries while navigating near-term challenges.