CMC Reports Strong Numbers for Quarter

Company says quarterly numbers are best third quarter figures the company has ever posted.

June 21, 2005


Commercial Metals Co. reported earnings of $71.7 million on net sales of $1.7 billion for the quarter, the company’s strongest third quarter.


Net earnings for the nine months were $202 million on net sales of $4.9 billion, compared to net earnings of $84.7 million on net sales of $3.3 billion the same time last year.


Stanley Rabin, CMC chairman, president and CEO, said, "We again generated outstanding profits and returns. As anticipated, our fiscal third quarter reflected a seasonal pickup in construction, offset to some extent by global softening in our markets. Profitability was excellent in all of our segments except for CMCZ, the Polish steel operation.


"While global economic growth moderated in the quarter, our end-use markets in the United States remained healthy . . . The biggest soft spot appeared to have been western Europe, for us particularly Germany and Italy. The U.S. dollar firmed by over 8 percent against the Euro between mid-March 2005 and the end of May. Conversely, after a prolonged period of strengthening, the Polish Zloty weakened somewhat toward the end of our third quarter."


Rabin added, "Most spot prices in our markets were lower than the second quarter of this year. Ferrous scrap prices -- amid extreme volatility -- fell sharply during the quarter, especially in May, evidently because of steel production cutbacks and cautious buying by scrap consumers. Our average steel mill selling price in the U.S. was slightly higher compared with the second quarter despite the dampening effect of reduced scrap costs. However, strong metal margins continued.”


Rabin added, "Our Domestic Mills segment's adjusted operating profit at $57 million was more than double last year's third quarter. Net sales were up 6 percent. . . Within the segment, adjusted operating profit for our steel minimills was 167 percent greater than a year earlier on the strength of improved metal margins, which more than offset a decline in finished goods shipments. Compared with last year's third quarter, the metal spread increased by $55 per ton to $276 per ton. On a year-to-year basis, tonnage melted for the third quarter was down 4 percent to 587,000 tons; tonnage rolled was 544,000 tons, 6 percent below last year's third quarter. Shipments decreased 4 percent to 607,000 tons, but increased 20 percent over the second quarter of this year. Our average total mill selling price at $476 per ton was $67 per ton above last year's level. By product line, the price premium of merchant bar over reinforcing bar narrowed from the second quarter to about $75 per ton. The average scrap purchase cost rose by $4 per ton versus a year ago to $175 per ton. Year-over-year changes for utility costs, ferroalloys, graphite electrodes and other supplies were generally higher. The copper tube mill recorded an adjusted operating profit modestly less than that of last year's third quarter including LIFO income this year.”


In the recycling division, Rabin noted, "The Recycling segment recorded its second best third quarter following last year's record third quarter on comparable net sales. The adjusted operating profit of $15.7 million, though exceptional, was 30 percent below the previous year. LIFO expense was $1.8 million pre-tax this quarter versus an expense of $600 thousand the prior year. Gross margins were 10 percent lower than last year. The ferrous scrap market was extraordinarily volatile during the quarter with the net result being a sharp drop in price from the beginning to the end of the quarter. Nonferrous markets remained volatile as well, but our average selling prices for aluminum, copper, brass and stainless steel scrap did not vary as much during the quarter. Export demand was mixed.


"Versus last year, the average ferrous scrap sales price for the quarter decreased by 4 percent to $184 per short ton while shipments fell 14 percent to 491 thousand short tons. The average nonferrous scrap sales price for the quarter was approximately 11 percent above a year ago while nonferrous shipments were 6 percent higher. Inventory turnover across the board remained extremely high. The total volume of scrap processed, including all our domestic processing plants, equaled 869 thousand tons against 972 thousand tons last year."


As for the outlook through the rest of the year, Rabin pointed out, "We are in one of those periods where numerous observers again hold a negative outlook on the steel and nonferrous sectors. The ultimate arbiter will be the strength of the end-use markets and the supply into those markets. If there is an economic consensus it is that growth in the U.S. and much of Asia remains relatively strong, but below extremely high levels registered one year ago, and that Western Europe is suffering most from its slowdown. China will continue to be a key factor; recent data show the Chinese economy remains strong. In any event, we believe that our diversification will continue to serve us well as we adapt to ever-changing market conditions.”