Commercial Metals Co. (CMC), Irving, Texas, achieved record earnings from continuing operations of $130.4 million, or $1.07 per diluted share, on net sales of $1.8 billion in the third quarter of its 2021 fiscal year, which ended May 31. This compares with prior-year quarterly earnings from continuing operations of $64.2 million, or 53 cents per diluted share, on net sales of $1.3 billion.
According to the company’s Q3 earnings report, it achieved record core earnings before interest, taxes, depreciation and amortization (EBIDTA) from continuing operations of $230 million, which is up 49 percent year over year and 35 percent sequentially. During the third quarter of 2021, CMC also recorded a net after-tax benefit of $3.3 million related to the sale of a small railway track reclamation business. Excluding that item, quarterly adjusted earnings from continuing operations were $127.1 million, or $1.04 per diluted share, compared with adjusted earnings from continuing operations of $70.4 million, or 59 cents per diluted share, in the prior year.
“CMC achieved exceptional results during the third quarter,” says Barbara R. Smith, chairman of the board, president and chief executive officer of CMC. “Demand for our products was robust, and our teams executed well, setting new production and shipment records at several of our facilities. We continued to tightly manage the operating factors within our control and again reduced year-over-year production costs per ton. Our excellent third-quarter performance is a testament to the operational flexibility and earnings power of the new, strategically transformed CMC, and I could not be more proud of our many accomplishments.”
During the third quarter, Smith says CMC also made progress on some of its growth initiatives, including hot commissioning of the company’s third rolling mill in Poland and receiving an air permit for the company’s Arizona 2 micromill.
On the earnings call for CMC’s Q3 earnings, Smith said receiving the air permit was “an important milestone” for the micromill in Mesa, Arizona, enabling the company to begin construction. She said, “We anticipate early 2023 startup. This plant will be the first micromill capable of producing merchant bar as well as rebar and the first in North America to connect directly on-site to a renewable energy source.”
Market outlook
In the third quarter of 2021, CMC’s North America segment generated record adjusted EBIDTA of $207.3 million, which is an increase of 30 percent compared with $159.4 million for the third quarter of 2020. The company reports that this improvement was driven by growth in demand and increased margins across multiple product lines as well as good management of controllable costs within the company’s vertically integrated value chain. CMC says costs were reduced in the quarter by its network optimization activities.
Shipment volumes of finished steel, which include steel products and downstream products, increased by 9 percent from the third quarter of 2020. Demand for rebar from mills remained strong, growing year over year, supported by healthy construction activity, CMC states. Shipments of merchant and other products increased by 37 percent from the prior year, driven by the reopening of the U.S. economy.
Margins over scrap cost on steel products increased $40 per ton from the prior-year period, marking the first year-over-year increase in six quarters, CMC reports. On a sequential basis, these margins rose $74 per ton.
The company says market conditions were favorable for each of CMC’s key products, leading to mill volume growth of 17 percent and an increase of $170 per ton in average selling price compared with the third quarter of fiscal 2020. Margin over scrap cost on downstream products declined compared with a year ago, driven by higher scrap input costs and average pricing that was largely unchanged. Future pricing indicators for backlog were positive during the quarter, as average price levels for bids and new awards increased from the prior-year quarter.
CMC’s Europe segment reported record adjusted EBITDA of $50 million for the third quarter of 2021, up 250 percent compared with adjusted EBITDA of $14.3 million for the third quarter of 2020. CMC reports that the improvement was driven by a significant expansion in margin over scrap as well as volume growth as demand for steel products from its construction and industrial end markets remained strong during the quarter. Resilient construction activity supported a 16 percent increase in rebar shipments compared with a year ago, while the continuing manufacturing recovery in Poland and Central Europe drove 4 percent growth in volumes of merchant and other. CMC reports that average selling price increased by $227 per ton compared with the prior-year quarter and $132 per ton sequentially.
“Strong demand across multiple end-use markets should support robust shipment levels of finished steel during the fourth quarter in both North America and Europe,” Smith says. “Construction activity is strong and the industrial sectors are growing in both the U.S. and Central Europe, as both regions continue to recover from the pandemic. We expect margins over scrap on steel products in North America and Europe to be relatively flat or up modestly from third-quarter levels.
She continues, “Increased willingness of downstream customers in our North America segment to contract new work and the stability of our construction backlog both point to continued demand strength. This view is supported by several widely monitored construction indicators that generally lead activity by nine to 12 months, which have improved significantly in 2021.”
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