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Commercial Metals (CMC) Down 0.7% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Commercial Metals (CMC). Shares have lost about 0.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Commercial Metals due for a breakout? 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 Earnings & Sales Top Estimates in Q3

Commercial Metals reported third-quarter fiscal 2020 (ended May 31, 2020) adjusted earnings per share of 59 cents, beating the Zacks Consensus Estimate of 28 cents. The figure, however, declined 11.9% year on year.

Including one-time items, the company reported net income of 53 cents per share in the fiscal third quarter compared with the prior-year quarter’s 66 cents.

Net sales for the reported quarter slid 18.7% year over year to $1.3 billion. However, the reported figure beat the Zacks Consensus Estimate of $1.2 billion.

Cost of goods sold in the quarter was down 18.3% year over year to $1.1 billion. Gross profit fell 6.6% year over year to $225 million during this period. Core EBITDA was $155 million in the fiscal third quarter compared to $154 million in the year-ago quarter.

Segment Performance

The Americas Recycling segment reported net sales of $203 million in the fiscal third quarter compared with the $289 million recorded in the prior-year quarter. The segment incurred adjusted EBITDA loss of $1.7 million as against the adjusted EBITDA of $12.3 million in the prior-year quarter.

Americas Mills segment’s revenues came in at $741 million, marking a year-over-year decline of 14.5%. Adjusted EBITDA dropped 16% year over year to $133 million.

The Americas Fabrication segment reported net sales of $569 million, down 10.1% from the prior-year quarter’s $633 million. The segment reported adjusted EBITDA of $32 million, as against the EBITDA loss of $23 million posted in the year-ago quarter.

The International Mill segment reported net sales of $174 million the fiscal third quarter compared with the year-earlier quarter’s $209 million. Adjusted EBITDA plunged 42% year over year to $14 million.

Financials

Commercial Metals exited the fiscal third quarter with cash and cash equivalents of $462 million compared with the $192 million recorded at the end of fiscal 2019. The company’s long-term debt reduced to $1,153 million at the end of the quarter from the $1,227 million recorded as of the end of fiscal 2019. Cash flow from operating activities were $532 million during the nine-month period ended May 31, 2020 compared with cash usage of $218 million in the prior-year period.

On Jun 16, the company’s board announced a quarterly dividend of 12 cents per share. This dividend will be paid on Jul 20, to shareholders of record on Jul 6, 2020.

The company’s net debt-to-EBITDA ratio of 1.2x and substantial cash flow place it well to sail through the current turbulent situation and provide significant flexibility in capital-allocation priorities.

Outlook

Commercial Metals continues to expect strong construction and infrastructure activity in the fiscal fourth quarter. Moreover, the company’s fabrication backlogs are strong.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 29.11% due to these changes.

VGM Scores

Currently, Commercial Metals has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Commercial Metals has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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