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Commercial Metals (CMC) Q3 Earnings in Line, Revenues Lag

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Commercial Metals Company CMC reported adjusted net income of $49 million or 41 cents per share in the third quarter of fiscal 2018 (ended May 31, 2018) compared with $31.6 million or 27 cents recorded in the prior-year quarter. It was aided by strong demand across all of the company’s segments. Further, earnings came in line with the Zacks Consensus Estimate.

 

Including one-time items, the company reported net income of $42.3 million or 36 cents per share in the quarter.

 

Net sales of $1,204 million for the first quarter rose 15% year over year, but fell short of the Zacks Consensus Estimate of $1,272 million.

 

Cost of goods sold in the quarter rose around 16% year over year to roughly $1,036 million. Adjusted operating profit in the reported quarter was $67.4 million, up 22% from $55.3 million in the prior-year quarter. Adjusted EBITDA improved 16% year over year to $101 million in the third quarter of fiscal 2018 — the highest since the financial crisis.


Commercial Metals Company Price, Consensus and EPS Surprise
 

Commercial Metals Company Price, Consensus and EPS Surprise

Commercial Metals Company price-consensus-eps-surprise-chart | Commercial Metals Company Quote

Pricing and Shipments

In the quarter, ferrous and non-ferrous prices have gone up approximately 19% and 12%, respectively, on a year-over-year basis.

In the Americas Mills segment, shipments rose 12% driven by strong demand from construction and drop in import levels dropped. In the International Mill segment in Poland, Shipment volumes decreased during the quarter due to higher rebar import levels into the country.

 

Financials

 

Commercial Metals exited third-quarter fiscal 2018 with cash and cash equivalents of $600 million compared with $256 million at the end of fiscal 2017. The cash on hand includes the proceeds received from the issuance of $350 million of 5.75% of Senior Notes due 2026 completed on May 3, 2018.  The proceeds, together with cash on hand and the delayed draw term loan under the company's credit agreement are anticipated to be used to finance the previously announced acquisition of certain rebar assets from Gerdau S.A.

 

The company’s long-term debt rose to $1,139 million at the end of the third-quarter fiscal 2018 compared with $805 million as of fiscal 2017 end.

 

Cash flows from operating activities were $91.7 million for the reported quarter compared with $18.9 million in the year-ago quarter.

 

On Jun 20, its board of directors declared a quarterly dividend of 12 cents per share. The dividend will be paid on Jul 19 to shareholders of record on Jul 5, 2018.

 

Guidance

 

The company noted strong bid activity has resulted in significant growth in its backlog. Per the company, leading indicators of macroeconomic and market conditions in both the United States and Poland suggest continued economic growth and strong long steel product demand.  Also the recent imposition of tariffs on steel imports creates a fair and level playing field.

 

Price Performance

 

 

Shares of Commercial Metals have moved up 28.1% in the last year, underperforming the industry’s 35.7% growth.

 

Zacks Rank & Stocks to Consider

 

Commercial Metals currently carries a Zacks Rank #4 (Sell).

 

Some better-ranked stocks in the basic materials space are ArcelorMittal MT, Ternium S.A. TX and Steel Dynamics, Inc. STLD. ArcelorMittal and Ternium sport a Zacks Rank #1 (Strong Buy), while Steel Dynamics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

ArcelorMittal has an average positive earnings surprise history of 40.1% over the past four quarters. Its shares have soared 57% over a year.

 

Ternium has an average positive earnings surprise history of 50.2% over the past four quarters. Its shares have appreciated 42% over a year.

 

Steel Dynamics has an average positive earnings surprise history of 3.15% over the past four quarters. Its shares have rallied 41% in a year’s time.

 

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