Commercial Metals Company Reports Income of $36.2 Million or $0.31 per Share for the Third Quarter

IRVING, Texas, June 21, 2011 /PRNewswire/ -- Commercial Metals Company (NYSE: CMC) today reported net income of $36.2 million or $0.31 per diluted share on net sales of $2.1 billion for the quarter ended May 31, 2011.  This compares with a net loss of $8.8 million or $0.08 per diluted share on net sales of $1.8 billion for the third quarter last year. This year's third quarter included after-tax LIFO expense of $3.9 million or $0.03 per diluted share compared with expense of $22 million or $0.20 per diluted share in last year's third quarter.  

Net loss for the nine months ended May 31, 2011 was $9.3 million or $0.08 per diluted share on net sales of $5.7 billion.  For the same period last year, the Company had a net loss of $213.3 million or $1.88 per diluted share on net sales of $4.5 billion.  For the nine months ended May 31, 2011, after-tax LIFO expense was $43.8 million or $0.38 per diluted share compared with expense of $16 million or $0.14 per diluted share last year.

Cash and short-term investments totaled $244 million as of May 31, 2011. There were no outstanding borrowings against the $400 million revolving credit line. Coverage ratio tests on our unused revolver and public debt were met.

General Conditions

CMC Chairman and Chief Executive Officer Murray R. McClean said, "The economic improvements anticipated in last quarter's outlook manifested itself in a turnaround from both the third quarter of last year and the second quarter of this year. Four of our five operating segments achieved profitability, and the remaining segment reduced its losses year over year. Our backlogs continue to grow at higher pricing. With falling scrap prices at quarter end, LIFO expense netted to a relatively modest number for the quarter.  Improved operating performance gave us the confidence to move forward with an important regional acquisition of G.A.M. Steel Pty. Ltd., a leading distributor and processor of long products and plate based in Melbourne, Australia. This operation enhances our existing steel service capabilities in Australia."

President and Chief Operating Officer Joe Alvarado commented on the operational highlights for the quarter. "An increase in demand plus a seasonal pick up supported higher finished goods pricing and better margins for the Americas Mills segment. Prices stabilized within a range as we moved through the quarter, reducing margin pressure on the Americas Fabrication segment as evidenced by the reduction in losses quarter over quarter.  On the international front, stronger than expected GDP growth in Poland of 4.4% for the first quarter of calendar 2011 resulted in higher operating rates, improved margins and improved profitability. Our technical teams continue to make progress in process improvements and cost reductions at CMC Sisak in Croatia, but the market for line pipe remains challenging."

Americas Recycling

The Americas Recycling segment had an adjusted operating profit of $13.2 million (net of pre-tax LIFO expense of $2.6 million). The adjusted operating profit in the third quarter of last year was $14.2 million (net of pre-tax LIFO expense of $4.6 million). Ferrous scrap pricing was stable during the quarter, but higher than last year's quarter on consistent domestic mill demand; export demand fell due to instability in the Middle East. Ferrous volumes were level with the prior year's quarter as flooding in the Midwest constrained flow. Nonferrous margins increased on both price and volume improvements. The average ferrous scrap sales price for the third quarter was $354 per ton, a 16% increase over the prior year third quarter. Average nonferrous scrap pricing was $3,413 per ton, up 18% from the prior year. Shipments of ferrous scrap totaled 557 thousand tons compared to 562 thousand tons for the same period last year. Nonferrous scrap shipments totaled 67 thousand tons, 10% higher than last year's quarter. The segment exported 6% of its ferrous scrap tonnage and 36% of its nonferrous scrap tonnage during the quarter.

Americas Mills

Finished goods pricing outpaced ferrous scrap prices, resulting in expanded metal margins in the third quarter of this year compared to both the second quarter of this year and the third quarter of last year. Mill conversion costs per ton were lower versus the prior year on higher operating rates. Shipment volumes were the highest of any quarter in the last three years, driven by seasonal pickups and continued strength in certain regional markets.

The steel mills had an adjusted operating profit of $67.6 million compared to an adjusted operating profit of $12.8 million in the same quarter last year. The quarter had pre-tax LIFO income of $6.1 million compared to pre-tax LIFO expense of $21.7 million in last year's third quarter. The metal margin for the quarter was $320 per ton, up from the second quarter's margin of $289 per ton and last year's third quarter of $280 per ton. The price of ferrous scrap consumed at the mills during the quarter increased $57 per ton compared to last year's quarter, and average selling prices increased $97 per ton. Sales volumes were 637 thousand tons as compared to 606 thousand tons in the second quarter and 588 thousand tons in the prior year third quarter.

Americas Fabrication

Mill prices to the downstream fabricating units stabilized during the quarter, allowing margins to recover modestly. As a result, amounts accrued for potential contract losses were released. Backlogs continued to grow in both tonnage and pricing. The overall market remains weak for fabricated steel with credit availability, state and federal funding capacity, and unemployment trends affecting the launch of new projects. The segment reported an adjusted operating loss of $14.7 million compared to last year's third quarter adjusted operating loss of $24.5 million. The current quarter recorded pre-tax LIFO expense of $3.4 million compared to last year's third quarter which had a pre-tax LIFO expense of $22.2 million. The composite average fabricating selling price was $839 per ton, 9% above last year's third quarter price.

International Mills

The Polish economy grew at a GDP rate of 4.4% in the first quarter of calendar 2011. With very good domestic construction demand and a strong German merchant market, CMC Zawiercie (CMCZ) achieved its fifth consecutive quarterly adjusted operating profit.  CMCZ had adjusted operating income of $22.6 million compared to income of $1.1 million in the third quarter of last year. Shipments totaled 425 thousand tons compared to 363 thousand tons in the prior year's third quarter. The average selling price increased 30% to PLN 1,913 per ton compared to PLN 1,477 per ton for the same period last year on the strength of a better economy and an upgraded product line. The average metal margin per ton increased significantly to PLN 756 from PLN 481 in last year's third quarter. Significant operational improvements at CMC Sisak resulted in an adjusted operating loss of $7.2 million compared to the prior year's loss of $12.0 million and to the second quarter's loss of $11.3 million.

International Marketing and Distribution

The International Marketing and Distribution segment remained profitable in the third quarter, as it has for each of the last eight quarters. The segment achieved adjusted operating profit of $17.0 million compared to adjusted operating profit of $30.9 million in last year's third quarter. The raw materials marketing operations led the segment in profitability. The domestic steel import business continued its turnaround with another good quarter. Australian results improved from the second quarter, which was affected by a cyclone and severe flooding; however, the Australian market remains soft. Our steel import operation is on LIFO; for the quarter it had pre-tax LIFO expense of $3.9 million compared to pre-tax LIFO income of $7.9 million in last year's third quarter.

Outlook for Fourth Quarter

McClean concluded, "The fourth quarter is normally a seasonally slower period, and we would expect a similar trend in this quarter.  While we expect it to be a profitable quarter, due to seasonality it will not be as strong as the third quarter. We remain focused on improving operational efficiency."

Conference Call

CMC invites you to listen to a live broadcast of its third quarter 2011 conference call today, Tuesday, June 21, 2011, at 11:00 a.m. ET.  The call will be hosted by Murray McClean, Chairman and CEO; Joe Alvarado, President and COO; and Barbara Smith, Senior Vice President and CFO, and can be accessed via our website at www.cmc.com or at www.streetevents.com. In the event you are unable to listen to the live broadcast, the call will be archived and available for replay within two hours of the webcast.  Financial and statistical information presented in the broadcast can be found on CMC's website under "Investor Relations."

Commercial Metals Company and 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, a copper tube mill, 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 outlook for the Company's financial results including net earnings (loss), operating profit (loss), economic conditions, credit availability, product pricing and demand, currency valuation, production rates, interest rates, inventory levels, margins, acquisitions, construction and operation of new facilities and general market conditions. These forward-looking statements generally can be identified by phrases such as we, the company or its 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. Variances will occur and some could be materially different from our current opinion.

Developments that could impact the Company's expectations include the following: absence of global economic recovery or possible recession relapse; solvency of financial institutions and their ability or willingness to lend; success or failure of governmental efforts to stimulate the economy, including restoring credit availability and confidence in a recovery; continued sovereign debt problems within the euro zone and other foreign zones; customer non-compliance with contracts; construction activity or lack thereof; decisions by governments affecting the level of steel imports, including tariffs and duties; claims litigation and settlements; difficulties or delays in the execution of construction contracts resulting in cost overruns or contract disputes; unsuccessful or delayed implementation of new technology; metals pricing over which the Company exerts little influence; increased capacity and product availability from competing steel minimills and other steel suppliers, including import quantities and pricing; execution of cost minimization strategies; ability to retain key executives; court decisions and regulatory rulings; industry consolidation or changes in production capacity or utilization; global factors, including political and military uncertainties; currency fluctuations; interest rate changes; availability and pricing of raw material including scrap metal and energy, insurance and supply prices; passage of new, or interpretation of existing, environmental laws and regulations; severe weather, especially in Poland; and the pace of overall economic activity, particularly in China.

COMMERCIAL METALS COMPANY

Non-GAAP Financial Measures (Unaudited)

(dollars in thousands)

This press release uses financial statement measures not derived in accordance with generally accepted accounting principles (GAAP).  Reconciliations to the most comparable GAAP measures are provided below.

Adjusted EBITDA:

Earnings before interest expense, income taxes, depreciation and amortization, and impairment charges.

Adjusted EBITDA is a non-GAAP liquidity measure. It excludes Commercial Metals Company's largest recurring non-cash charge, depreciation and amortization, including impairment charges. As a measure of cash flow before interest expense, it is one guideline used to assess the Company's ability to pay its current debt obligations as they mature and a tool to calculate possible future levels of leverage capacity. Adjusted EBITDA to interest is a covenant test in certain of the Company's note agreements.

Total Capitalization:

Total capitalization is the sum of long-term debt, deferred income taxes, and stockholders' equity. The ratio of debt to total capitalization is a measure of current debt leverage.  The following reconciles total capitalization at May 31, 2011 to the nearest GAAP measure, stockholders' equity:

SOURCE Commercial Metals Company