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Commercial Metals (CMC) Up 7.8% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Commercial Metals (CMC). Shares have added about 7.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Commercial Metals due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Commercial Metals Q3 Earnings Top, Revenues Lag, Up Y/Y

Commercial Metals shares jumped 6.5% to $16.92 during the last trading session on the company’s better-than-expected third-quarter fiscal 2019 (ended May 31, 2019) results. The steel and metal products manufacturer delivered adjusted earnings per share of 67 cents, beating the Zacks Consensus Estimate of 63 cents. The reported figure also marks a year-over-year jump of 64%.

Including one-time items, the company reported net income of 66 cents per share during the May-end quarter compared with the prior-year quarter’s 36 cents.

Net sales for the reported quarter climbed 33% year over year to $1,606 million, backed by execution of various growth strategies and solid fundamentals in core markets. However, the reported figure missed the Zacks Consensus Estimate of $1,622 million.

Strength in construction activity, solid industrial production, acquisition of the Oklahoma facility and introduction of hot-spooled rebar contributed to the stellar top- and bottom-line performance during the fiscal third quarter.

Cost of goods sold in the reported quarter flared up around 31.6% year over year to roughly $1,364 million. Gross profit surged 44% year over year to $242 million in the quarter. Core EBITDA was $153.6 million in the fiscal third quarter compared with the year-ago quarter’s $91 million.

Financials

Commercial Metals exited the fiscal third quarter with cash and cash equivalents of $120.3 million compared with $622 million witnessed at the end of fiscal 2018. The company’s long-term debt increased to $1,306 million at the end of the quarter from $1,138 million recorded as of the end of fiscal 2018. Cash utilized in operating activities were $218 million during the first nine months of fiscal 2019 compared with $330 million for the comparable period in the prior fiscal.

On Jun 19, the company’s board of directors announced a quarterly dividend of 12 cents per share. This dividend will be paid on Jul 18, to shareholders of record on Jul 5, 2019.

On Nov 5, 2018 the company completed the acquisition of certain U.S. rebar steel mill and fabrication assets from Gerdau S.A., a producer of long and specialty steel products in the Americas, for $600 million. During the reported quarter, the acquired assets added $453.5 million to the company’s revenues and $56.6 million to its operating income.

Outlook

Demand in the company’s key markets remains strong, driven by continued strength in non-residential construction activity levels. Acquisition, favorable long steel margin and improvement in fabrication segment position the company well for the balance of the fiscal year. The company also anticipates to generate strong free cash flow while reducing debt levels.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Commercial Metals has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Commercial Metals has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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