Commercial Metals Co. (CMC), Irving, Texas, reported financial results for its fiscal fourth quarter, which ended August 31. or $1.24 per diluted share.
CMC indicates that during the fourth quarter, the company recorded net after-tax costs of $6.3 million for accounting adjustments related to the acquisition of Tensar Corp. Excluding these items, fourth quarter adjusted earnings were $295 million, or $2.45 per diluted share, compared to adjusted earnings of $154.2 million, or $1.26 per diluted share, in the fourth quarter of 2021.
The company says it generated record annual base earnings before interest, taxes and aromatization (EBITDA) of $1.6 billion. Core EBITDA of $419 million in the fourth quarter increased 64% year over year and was the second highest in company history. Basic EBITDA per ton of finished steel shipped increased $113 from the prior year quarter; favorable market conditions and operational execution more than offset inflationary pressures.
“Fiscal 2022 was another year of exceptional performance for CMC, with record financial results, as well as a significant advancement of our growth plan and our commitment to improving distributions to shareholders,” said Barbara R. Smith, Chairman of the Board, President and Chief Executive Officer. “The financial benefits of past and ongoing strategic actions have been demonstrated by record profitability and returns on invested capital.”
Smith says the company expects its more recent strategic initiatives, including the acquisition of Tensar, the construction of Arizona 2 and the announcement of a fourth micro-plant to serve the eastern United States. United, will drive the next phase of its accretive growth. Distributions to shareholders remain central to the company’s capital allocation strategy, with CMC repurchasing over $100 million of stock during the quarter and increasing our quarterly dividend by 14%.
The company says its balance sheet and liquidity position remained strong as of August 31. Cash and cash equivalents ended the quarter with a balance of $672.6 million, while available cash totaled over $1.3 billion. CMC repurchased approximately three million common shares during the quarter, returning $106.3 million in cash to shareholders. As of August 31, $188.1 million remained under the current stock repurchase authorization.
On October 11, the Board of Directors declared a quarterly dividend of 16 cents per CMC common share payable to shareholders of record October 27. The dividend to be paid on November 10 marks the 232nd consecutive quarterly payment by the company, and represents a 14% increase over the dividend paid in July 2022.
Demand for CMC’s finished steel products in North America was again robust during the quarter, with several key internal and external indicators pointing to continued strength. Downstream bid volumes, an important indicator of the construction project pipeline, increased significantly from a year ago, resulting in higher year-over-year backlog levels of orders. Industrial end-market demand remained stable, with conditions in most end-use applications unchanged from the prior quarter, but improved from the prior year period.
The company’s North American segment reported fourth-quarter fiscal 2022 adjusted EBITDA of $370.5 million, which was flat on a sequential basis, and up 75% from $212 million. dollars to the prior year period. The year-over-year improvement was driven by record steel product margins and a significant scrap margin increase on downstream product sales. Steel products have now seen six consecutive quarters of year-over-year margin expansion. Controllable costs per ton of finished steel shipped increased slightly from the third fiscal quarter and increased from the prior year period, due to higher unit purchasing costs for energy, alloys and freight.
Finished steel shipment volumes, which include steel products and downstream products, followed typical seasonal patterns and were down slightly from the prior year period due to customer destocking activities and the slowdown in the pace of construction on many sites due to personnel problems.
The average selling price of steel products increased by $204 per ton compared to the fourth quarter of fiscal 2021, while the cost of scrap used decreased by $47 per ton, resulting in an increase in year-over-year of $251 per ton of steel. product margin on scrap. The average price decreased $6 per tonne from the prior quarter. Average downstream product selling price increased $334 per ton from the prior year period and $104 per ton on a sequential basis. Future price indicators for new work entering the order book remain positive, as average price levels for bids and new awards have increased significantly compared to the 2021 period.
The Europe segment reported adjusted EBITDA of $64.1 million for the fourth quarter of fiscal 2022, down 5% from adjusted EBITDA of $67.7 million for the year period former. The average selling price increased by $125 per ton in the fourth quarter compared to the same period of 2021, while the cost of scrap used decreased by $13 per ton.
The result was a year-over-year margin increase on scrap of $138 per ton. The modest year-over-year decline in Adjusted EBITDA occurred despite higher scrap margin, due to lower shipment volumes, higher energy and alloys, the negative impact on earnings from the sale of higher cost inventory and the weakening of the Polish zloty against the US dollar. . Earnings levels remained historically high, with the fourth quarter result being three times higher than the quarterly adjusted EBITDA average of the previous ten years.
The company says European end-market demand was mixed during the quarter. Polish construction activity continued to grow on an annual basis, while industrial production in Central Europe contracted for several months. For most of the fourth quarter, volumes were negatively impacted by a supply chain destocking cycle that occurred following widespread provisioning of safety stock by end users and intermediaries after the outbreak of war in Ukraine. The purchase of safety stock significantly benefited CMC’s shipments during the fiscal third quarter, but the fourth quarter saw the opposite effect. This appears to have eased at the end of the quarter, due to a strong rebound in shipment volumes on a sequential and year-over-year basis.
“Market conditions in Europe are more uncertain, given the current energy crisis and slowing industrial activity,” Smith says. “However, CMC is well positioned to be competitive due to its leading cost position and operational flexibility. Scrap margins in North America and Europe are expected to compress from fourth quarter levels to remain competitive with raw material price changes and increased long steel supply from imports. »
The recent investment in a third rolling mill has positioned CMC’s Europe segment well to weather the current volatility. The asset provided improved operational and business flexibility and increased margins by eliminating billet sales to convert material to finished product.
The company’s new Tensar business generated EBITDA of $10.2 million during the fourth quarter. Excluding a $6.5 million charge to reflect the accounting effect of inventory purchases, EBITDA was $16.7 million on net sales of $74.1 million, generating a margin of 22.5%. Tensar’s financial performance is included in CMC’s existing operating segments, with North American results included in CMC’s North America segment and all other operations included in the Europe segment.
“We enter fiscal 2023 from a position of strength,” Smith says. “Our North American backlog volumes and average prices are at historically high levels.”
Smith says downstream bidding activity remains good, indicating a strong pipeline of projects entering the market ahead of any significant benefits from the Infrastructure Investment and Jobs Act ( IIJA) is promulgated last November. The company believes that the planned commissioning of CMC’s Arizona 2 micro-grinder next spring, along with the addition of Tensar’s engineering solutions capabilities, will provide it with greater flexibility to take advantage of these demand conditions. favorable.
“Looking forward, we expect strong financial performance in the first fiscal quarter,” Smith said. “Strong demand in North America for each of CMC’s major product lines is expected to persist. historically declined modestly from our fourth quarter levels.