Commercial Metals Company Reports First Quarter Earnings Per Share Of $0.21 And Earnings Per Share From Continuing Operations Of $0.22

Jan 05, 2016, 06:45 ET from Commercial Metals Company

IRVING, Texas, Jan. 5, 2016 /PRNewswire/ -- Commercial Metals Company (NYSE: CMC) today announced financial results for its first quarter ended November 30, 2015. Net earnings attributable to CMC for the three months ended November 30, 2015 were $25.1 million ($0.21 per diluted share) on net sales of $1.2 billion. This compares to net earnings attributable to CMC of $32.2 million ($0.27 per diluted share) on net sales of $1.7 billion for the first quarter ended November 30, 2014.

Earnings from continuing operations for the first quarter of fiscal 2016 were $25.6 million ($0.22 per diluted share), compared with earnings from continuing operations of $34.3 million ($0.29 per diluted share) for the first quarter of fiscal 2015.

Joe Alvarado, Chairman of the Board, President and CEO, commented, "Our results for the first quarter of fiscal 2016 were generally consistent with our outlook from last quarter.  Our Americas Fabrication segment achieved a $25.5 million improvement in adjusted operating profit during the first quarter of fiscal 2016 compared to the first quarter of fiscal 2015 benefiting from lower steel input prices and solid construction demand. In addition, compared to the same quarter in the prior year, our Americas Mills segment was able to expand metal margins as finished steel prices declined at a slower rate than ferrous scrap prices. However, our remaining segments continued to be adversely impacted by steel import activity into the U.S., weakness in scrap markets and decreased global demand and pricing for all major commodities. We are very pleased with our financial strength and our strong cash flow of $219.6 million during the quarter."

During the first quarter of fiscal 2016, the Company elected to change the accounting method it uses to value its inventories from the last-in, first-out method to the weighted average cost method for its Americas Mills, Americas Recycling and Americas Fabrication segments and to the specific identification method for the steel trading division headquartered in the U.S. in its International Marketing and Distribution segment. The Company applied this change in accounting principle retrospectively to all prior periods presented. Also during the first quarter of fiscal 2016, the Company elected to change the accounting method it uses to value its inventories in its International Marketing and Distribution segment, except for the steel trading division headquartered in the U.S., from the first-in, first-out method to the specific identification method. Because this change in accounting principle was immaterial in all prior periods, it was not applied retrospectively.

Adjusted operating profit from continuing operations was $56.1 million for the first quarter of fiscal 2016. This compares with adjusted operating profit from continuing operations of $67.0 million for the first quarter of fiscal 2015. Adjusted EBITDA from continuing operations was $87.7 million for the first quarter of fiscal 2016, compared with adjusted EBITDA from continuing operations of $100.1 million for the first quarter of fiscal 2015.

The Company's financial position at November 30, 2015 remained strong with cash and cash equivalents of $637.2 million, compared to $485.3 million at August 31, 2015, and approximately $1.2 billion in total liquidity.  Cash flow from operations was strong at $219.6 million. Pursuant to the share repurchase program that was approved in the first quarter of fiscal 2015, the Company purchased approximately 316 thousand shares of its common stock for $4.6 million during the first quarter of fiscal 2016.

Business Segments

The Americas Recycling segment recorded adjusted operating loss of $6.5 million for the first quarter of fiscal 2016 compared to adjusted operating loss of $2.0 million for the first quarter of fiscal 2015. During the first quarter of fiscal 2016, ferrous volumes declined 21%, and a decrease in average ferrous selling prices outweighed a decline in average ferrous material costs which compressed average ferrous metal margins by 19%, in each case compared to the corresponding period in fiscal 2015. Additionally, during the first quarter of fiscal 2016, average nonferrous volumes declined 12% and average nonferrous metal margins were compressed by 22%, in each case compared to the corresponding period in fiscal 2015.

The Americas Mills segment recorded adjusted operating profit of $59.1 million for the first quarter of fiscal 2016 compared to adjusted operating profit of $72.6 million for the corresponding period in the prior fiscal year. During the first quarter of fiscal 2016, shipments of our higher margin finished products, including reinforcement bar ("rebar") and merchants, decreased 8% primarily as a result of continued import pressures in the U.S. However, this segment was able to expand average metal margins for the first quarter of fiscal 2016 by 3%  compared to the first quarter of fiscal 2015 as a result of the $138 per short ton decrease in the average cost of ferrous scrap consumed outpacing a decline in average selling prices. On the cost side, freight expense decreased 6% per short ton, utilities expense decreased 9% per short ton, and repairs and maintenance expenses decreased $3.0 million, in each case compared to the first quarter of fiscal 2015.

The Americas Fabrication segment recorded adjusted operating profit of $21.3 million for the first quarter of fiscal 2016 compared to adjusted operating loss of $4.2 million for the first quarter of fiscal 2015. The $25.5 million increase in adjusted operating profit was primarily due to a 26% expansion in average metal margin compared to the first quarter of fiscal 2015. Additionally, freight expenses decreased 14% per short ton compared to the first quarter of fiscal 2015. Further contributing to the increase in adjusted operating profit, this segment benefited from a $2.4 million gain on a property sale in the first quarter of fiscal 2016.

The International Mill segment recorded adjusted operating profit of $2.8 million for the first quarter of fiscal 2016 compared to adjusted operating profit of $4.2 million for the corresponding period in fiscal 2015. For the first quarter of fiscal 2016, average metal margins contracted 13% and shipments, excluding billets, decreased 1%, in each case compared to the first quarter of fiscal 2015.

The International Marketing and Distribution segment recorded adjusted operating loss of $2.2 million for the first quarter of fiscal 2016 compared to adjusted operating profit of $16.7 million for the same period in the prior fiscal year. The $18.8 million decrease in adjusted operating profit in the first quarter of fiscal 2016 was the result of a 33% decrease in volumes coupled with a 42% decrease in average margin, in each case compared to the first quarter of fiscal 2015. This segment's results continued to be pressured by the strong U.S. dollar, global steel overcapacity, weakening global energy markets and reduction in demand from service centers as inventory levels increased compared to the first quarter of fiscal 2015. This segment also recorded a $2.7 million inventory write-down in the first quarter of fiscal 2016 and a $2.1 million increase in bad debt expense compared to the first quarter of fiscal 2015.

Outlook

Alvarado concluded, "The recent passage of comprehensive infrastructure spending legislation, Fixing America's Surface Transportation Act, or FAST, marked a significant achievement for the future infrastructure in the U.S.  We expect that FAST will provide a guaranteed and predictable funding stream for state and local governments to plan and construct road, bridge, transit, freight and passenger rail projects for the next five years. Although we expect the new legislation to provide meaningful upside from a demand perspective, we do not anticipate the new spending provision will translate into steel orders for 12 months or more.

Our second fiscal quarter has historically been seasonally slower as a result of holiday slowdowns and winter weather conditions, which reduce construction activities. We anticipate that market conditions will not improve materially over the short term, due to ongoing pressure from steel import activity into the U.S. and continued weakness in the scrap markets."

Conference Call

CMC invites you to listen to a live broadcast of its first quarter of fiscal 2016 conference call today, Tuesday, January 5, 2016, at 11:00 a.m. ETJoe Alvarado, Chairman of the Board, President and CEO, and Barbara Smith, Senior 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 webcast will be located on CMC's website under "Investors - Presentations/Webcasts."

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 the Company's expectations relating to U.S. construction activity, economic conditions, volumes, FAST legislation and its impact on the Company and the Company's operating plans and future financial 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" 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, the Company 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.

Actual results may differ materially from those projected as a result of certain risks and uncertainties, including, but not limited to, the following: overall global economic conditions, including recovery from the recent recession and construction activity or lack thereof, and their impact in a highly cyclical industry; rapid and significant changes in the price of metals; excess capacity in our industry, particularly in China, and product availability from competing steel minimills 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 and military uncertainties; availability of electricity and natural gas for minimill operations; information technology interruptions and breaches in security data; ability to retain key executives; 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; increased costs related to health care reform legislation; and those factors listed under Item 1A. "Risk Factors" included in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2015.

 

COMMERCIAL METALS COMPANY OPERATING STATISTICS AND BUSINESS SEGMENTS (UNAUDITED)

Three Months Ended November 30,

(short tons in thousands)

2015

2014

Americas Recycling tons shipped

441

552

Americas Mills rebar shipments

394

434

Americas Mills merchant and other shipments

246

289

Total Americas Mills tons shipped

640

723

Americas Mills average FOB selling price (total sales)

$

556

$

683

Americas Mills average cost ferrous scrap consumed

$

198

$

336

Americas Mills metal margin

$

358

$

347

Americas Mills average ferrous scrap purchase price

$

158

$

286

International Mill tons shipped

278

305

International Mill average FOB selling price (total sales)

$

408

$

546

International Mill average cost ferrous scrap consumed

$

207

$

314

International Mill metal margin

$

201

$

232

International Mill average ferrous scrap purchase price

$

166

$

266

Americas Fabrication rebar tons shipped

249

265

Americas Fabrication structural and post tons shipped

28

34

Total Americas Fabrication tons shipped

277

299

Americas Fabrication average selling price (excluding stock and buyout sales)

$

889

$

948

(in thousands)

Three Months Ended November 30,

Net sales

2015

2014

Americas Recycling

$

179,207

$

316,059

Americas Mills

384,532

524,851

Americas Fabrication

382,314

412,488

International Mill

120,448

177,629

International Marketing and Distribution

283,037

537,806

Corporate

2,391

832

Eliminations

(197,070)

(289,675)

Total net sales

$

1,154,859

$

1,679,990

Adjusted operating profit (loss)

Americas Recycling

$

(6,548)

$

(1,952)

Americas Mills

59,064

72,648

Americas Fabrication

21,345

(4,181)

International Mill

2,771

4,223

International Marketing and Distribution

(2,169)

16,669

Corporate

(18,072)

(19,611)

Eliminations

(330)

(805)

Adjusted operating profit from continuing operations

56,061

66,991

Adjusted operating loss from discontinued operations

(522)

(1,663)

Adjusted operating profit

$

55,539

$

65,328

 

COMMERCIAL METALS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

Three Months Ended November 30,

(in thousands, except share data)

2015

2014

Net sales

$

1,154,859

$

1,679,990

Costs and expenses:

Cost of goods sold

997,242

1,500,067

Selling, general and administrative expenses

101,908

113,383

Interest expense

18,304

19,057

1,117,454

1,632,507

Earnings from continuing operations before income taxes

37,405

47,483

Income taxes

11,772

13,218

Earnings from continuing operations

25,633

34,265

Loss from discontinued operations before income tax benefit

(572)

(2,102)

Income tax benefit

(2)

(21)

Loss from discontinued operations

(570)

(2,081)

Net earnings

25,063

32,184

Less net earnings attributable to noncontrolling interests

Net earnings attributable to CMC

$

25,063

$

32,184

Basic earnings (loss) per share attributable to CMC:

Earnings from continuing operations

$

0.22

$

0.29

Loss from discontinued operations

(0.02)

Net earnings

$

0.22

$

0.27

Diluted earnings (loss) per share attributable to CMC:

Earnings from continuing operations

$

0.22

$

0.29

Loss from discontinued operations

(0.01)

(0.02)

Net earnings

$

0.21

$

0.27

Cash dividends per share

$

0.12

$

0.12

Average basic shares outstanding

116,022,241

117,818,170

Average diluted shares outstanding

117,339,445

118,909,618

 

COMMERCIAL METALS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

November 30,  2015

August 31,  2015

Assets

Current assets:

Cash and cash equivalents

$

637,188

$

485,323

Accounts receivable, net

715,030

900,619

Inventories, net

794,702

880,484

Current deferred tax assets

4,370

3,310

Other current assets

93,256

93,643

Assets of businesses held for sale

14,892

17,008

Total current assets

2,259,438

2,380,387

Net property, plant and equipment

860,378

883,650

Goodwill

66,230

66,383

Other noncurrent assets

116,661

115,168

Total assets

$

3,302,707

$

3,445,588

Liabilities and stockholders' equity

Current liabilities:

Accounts payable-trade

$

222,228

$

260,984

Accounts payable-documentary letters of credit

31,723

41,473

Accrued expenses and other payables

246,238

290,677

Notes payable

20,090

Current maturities of long-term debt

10,451

10,110

Liabilities of businesses held for sale

4,379

5,276

Total current liabilities

515,019

628,610

Deferred income taxes

51,373

55,803

Other long-term liabilities

94,727

101,919

Long-term debt

1,275,410

1,277,882

Total liabilities

1,936,529

2,064,214

Stockholders' equity attributable to CMC

1,366,029

1,381,225

Stockholders' equity attributable to noncontrolling interests

149

149

Total stockholders' equity

1,366,178

1,381,374

Total liabilities and stockholders' equity

$

3,302,707

$

3,445,588

 

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended November 30,

(in thousands)

2015

2014

Cash flows from (used by) operating activities:

Net earnings

$

25,063

$

32,184

Adjustments to reconcile net earnings to cash flows from (used by) operating activities:

Depreciation and amortization

31,991

33,859

Provision for losses on receivables, net

2,071

(95)

Stock-based compensation

6,266

5,728

Amortization of interest rate swaps termination gain

(1,899)

(1,899)

Deferred income taxes

(14,058)

(2,908)

Tax benefit from stock plans

(25)

(13)

Net gain on sales of assets and other

(2,830)

(467)

Write-down of inventories

2,657

Changes in operating assets and liabilities:

Accounts receivable

166,661

100,486

Advance payments on sale of accounts receivable programs, net

10,678

(88,201)

Inventories

78,700

(96,656)

Other assets

(3,963)

3,804

Accounts payable, accrued expenses and other payables

(76,449)

(61,448)

Other long-term liabilities

(5,290)

(4,270)

Net cash flows from (used by) operating activities

219,573

(79,896)

Cash flows from (used by) investing activities:

Capital expenditures

(11,169)

(22,450)

Proceeds from the sale of property, plant and equipment and other

2,813

882

Proceeds from the sale of subsidiaries

2,845

Net cash flows used by investing activities

(8,356)

(18,723)

Cash flows from (used by) financing activities:

Increase (decrease) in documentary letters of credit, net

(9,752)

32,410

Short-term borrowings, net change

(20,090)

(11,758)

Repayments on long-term debt

(2,909)

(2,444)

Stock issued under incentive and purchase plans, net of forfeitures

(7,628)

(2,981)

Treasury stock acquired

(4,555)

(9,341)

Cash dividends

(13,978)

(14,150)

Tax benefit from stock plans

25

13

Decrease in restricted cash

1

Net cash flows used by financing activities

(58,886)

(8,251)

Effect of exchange rate changes on cash

(466)

(1,980)

Increase (decrease) in cash and cash equivalents

151,865

(108,850)

Cash and cash equivalents at beginning of year

485,323

434,925

Cash and cash equivalents at end of period

$

637,188

$

326,075

Supplemental information:

Noncash activities:

Change in liabilities related to purchases of property, plant and equipment

$

7,562

$

5,062

 

COMMERCIAL METALS COMPANY NON-GAAP FINANCIAL MEASURES (UNAUDITED) (dollars in thousands)

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 is a non-GAAP financial measure. Management uses adjusted operating profit to evaluate the financial performance of CMC. Adjusted operating profit is the sum of adjusted operating profit from continuing operations and adjusted operating loss from discontinued operations. 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 loss from discontinued operations is the sum of our loss from discontinued operations before income tax benefit, interest expense and discounts on sales of accounts receivable. 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 may be inconsistent with similar measures presented by other companies.

Three Months Ended November 30,

(in thousands)

2015

2014

Earnings from continuing operations

$

25,633

$

34,265

Income taxes

11,772

13,218

Interest expense

18,304

19,057

Discounts on sales of accounts receivable

352

451

Adjusted operating profit from continuing operations

56,061

66,991

Adjusted operating loss from discontinued operations

(522)

(1,663)

Adjusted operating profit

$

55,539

$

65,328

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is the sum of adjusted EBITDA from continuing operations and adjusted EBITDA from discontinued operations. Adjusted EBITDA from continuing operations is the sum of our 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 impairment charges, which are also non-cash. There were no net earnings attributable to noncontrolling interests and no impairment charges during the three months ended November 30, 2015 and 2014. Adjusted EBITDA from discontinued operations is the sum of our loss from discontinued operations before net earnings attributable to noncontrolling interests, interest expense and income tax benefit. It also excludes the largest recurring non-cash charge from discontinued operations, depreciation and amortization, as well as impairment charges from discontinued operations, which are also non-cash. Adjusted EBITDA should not be considered as an alternative to 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 provides relevant and useful information, which is often used by analysts, creditors and other interested parties in our industry. Adjusted EBITDA to interest expense is part of a debt compliance test in certain of our debt agreements. Adjusted EBITDA is also the target benchmark for our annual and long-term cash incentive performance plans for management. Adjusted EBITDA may be inconsistent with similar measures presented by other companies.

Three Months Ended November 30,

(in thousands)

2015

2014

Earnings from continuing operations

$

25,633

$

34,265

Interest expense

18,304

19,057

Income taxes

11,772

13,218

Depreciation and amortization

31,991

33,583

Adjusted EBITDA from continuing operations

87,700

100,123

Adjusted EBITDA from discontinued operations

(572)

(1,700)

Adjusted EBITDA

$

87,128

$

98,423

 

Adjusted EBITDA to interest coverage ratio for the quarter ended November 30, 2015:

$87,128

/

$18,304

=

4.8

 

Total Liquidity is a non-GAAP financial measure and is the sum of the Company's cash and cash equivalents and availability under its revolving credit facility, U.S. and international accounts receivables sales facilities and its uncommitted bank lines of credit. The table below reflects the Company's cash and cash equivalents, credit facilities and availability to liquidity.

November 30, 2015

(in thousands)

Total Facility

Availability

Cash and cash equivalents

$

637,188

$

637,188

Revolving credit facility

350,000

326,555

U.S. receivables sale facility

200,000

154,870

International accounts receivable sales facilities

78,396

39,977

Bank credit facilities — uncommitted

83,199

81,803

Total Liquidity

$

1,348,783

$

1,240,393

 

Total Capitalization is a non-GAAP financial measure and is the sum of stockholders' equity attributable to CMC, long-term debt and deferred income taxes. The ratio of debt to total capitalization is a measure of current debt leverage. The following reconciles total capitalization to the most comparable GAAP measure, stockholders' equity attributable to CMC.

(in thousands)

November 30, 2015

Stockholders' equity attributable to CMC

$

1,366,029

Long-term debt

1,275,410

Deferred income taxes

51,373

Total capitalization

$

2,692,812

 

OTHER FINANCIAL INFORMATION

Long-term debt to capitalization ratio as of November 30, 2015:

$1,275,410

/

$2,692,812

=

47.4%

 

Total debt to capitalization plus short-term debt plus notes payable ratio as of November 30, 2015:

(

$1,275,410

+

$10,451

+

$—

)

/

(

$2,692,812

+

$10,451

+

$—

)

=

47.6%

 

Current ratio as of November 30, 2015:

Current assets divided by current liabilities

$2,259,438

/

$515,019

=

4.4

 

 

SOURCE Commercial Metals Company



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