It has been about a month since the last earnings report for Commercial Metals (CMC). Shares have lost about 6.5% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Commercial Metals Earnings & Sales Top Estimates in Q4
Commercial Metals reported fourth-quarter fiscal 2020 (ended Aug 31, 2020) adjusted earnings per share of 79 cents, beating the Zacks Consensus Estimate of 60 cents. The figure increased 4% year on year.
Including one-time items, the company reported net income of 56 cents per share in the fiscal fourth quarter compared with the prior-year quarter’s 72 cents.
Net sales for the reported quarter slid 8.7% year over year to $1,409 million. However, the reported figure beat the Zacks Consensus Estimate of $1,384 million.
Cost of goods sold in the quarter was down 11.2% year over year to $1,146 million. Gross profit was up 4% year over year to $263 million during this period. Core EBITDA was $176 million in the fiscal fourth quarter compared with the year-ago quarter’s $159 million.
Commercial Metals recently announced that the company has realigned its reporting structure into two operating segments — North America and Europe — from the beginning of fourth-quarter fiscal 2020. North America includes the company's former Americas Recycling, Americas Mills and Americas Fabrication business segments. Europe comprises the company's former International Mill segment.
The North America segment reported net sales of $1,225 million in the fiscal fourth quarter compared with the $1,333 million recorded in the prior-year quarter. The segment reported adjusted EBITDA of $174 million compared with the prior-year quarter’s $152 million.
The Europe segment’s revenues came in at $179.8 million, marking a year-over-year decline of 12.3%. Adjusted EBITDA was $23 million in the fiscal fourth quarter, flat year over year.
Commercial Metals exited fiscal 2020 with cash and cash equivalents of $542 million compared with the $192 million recorded at the end of fiscal 2019. The company’s long-term debt reduced to $1,065 million at the end of fiscal 2020 from $1,227 million recorded at the end of fiscal 2019. Cash flow from operating activities was $791 million during fiscal 2020 compared with the prior fiscal’s $37 million.
On Oct 14, the company’s board announced a quarterly dividend of 12 cents per share. This dividend will be paid on Nov 13, to shareholders of record on Oct 29, 2020.
Fiscal 2020 Performance
Adjusted earnings per share in fiscal 2020 improved 27% year over year to $2.64, which surpassed the Zacks Consensus Estimate of $2.44. Including one-time items, the company reported earnings per share of $2.31 in fiscal 2020 compared with the $1.67 recorded in fiscal 2019.
Net sales in fiscal 2020 dropped 6% year over year to $5.48 billion. However, the reported figure beat the Zacks Consensus Estimate of $5.45 billion.
Commercial Metals believes finished steel volumes for North America and Europe operations will follow seasonal trends in the first-quarter fiscal 2021, while North America operations will be adversely impacted by storms in the Texas and Gulf Coast markets. Meanwhile, solid construction backlog will support steel shipments and downstream products in the near term.
The company anticipates the recent rise in scrap costs to impact margins in its North America business in the fiscal first quarter to. This will however be partly negated by increase in steel price that have come into effect in the ongoing quarter. Long products steel market in Europe is expected to remain challenged due to elevated import levels.
Nevertheless, strong demand, spurred by recovery in the construction sector and rebound in Central European industrial production, will drive growth.
The company expects its ongoing network-optimization efforts will yield additional margin and working capital benefits in the near future. Additionally, Commercial Metals announced the construction of a third micro mill in Arizona, which will be the world's first to produce merchant bar quality (MBQ) steel products. The new facility is expected to commence operation in early 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -10.17% due to these changes.
Currently, Commercial Metals has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision 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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