Commercial Metals Company Reports Third Quarter Fiscal 2020 Results

IRVING, Texas, June 18, 2020 /PRNewswire/ -- Commercial Metals Company (NYSE: CMC) today announced financial results for its fiscal third quarter ended May 31, 2020.  Third quarter earnings from continuing operations were $64.2 million, or $0.53 per diluted share, on net sales of $1.3 billion, compared to prior year period earnings from continuing operations of $78.6 million, or $0.66 per diluted share, on net sales of $1.6 billion.

During the third quarter of fiscal 2020, we incurred a $6.2 million net after-tax charge for facility closure expenses and asset impairments primarily related to the curtailment of a west coast fabrication facility.  This decision was made in accordance with our ongoing network optimization efforts and is expected to provide cost benefits in future periods.  Excluding these expenses, adjusted earnings from continuing operations for the three months ended May 31, 2020 were $70.4 million, or $0.59 per diluted share, as detailed in the non-GAAP reconciliation on page 12. This compares to adjusted earnings from continuing operations of $0.67 per diluted share for the three months ended May 31, 2019.

Barbara R. Smith, Chairman of the Board, President and Chief Executive Officer, commented, "While the effects of the COVID-19 crisis impacted our business throughout the third quarter, CMC acted early and swiftly to ensure the safety of our employees, the continuity of our operations, and the uninterrupted service to our customers.  Our entire organization can be proud of these efforts and their results.  We were able to keep our workforce fully employed and safe.  We also avoided any meaningful disruptions to operations and experienced no loss of productivity, while closely following CDC guidelines at all of our locations."

Ms. Smith continued, "In the face of unprecedented global uncertainty, we concentrated our focus on the elements of our business within our direct control.  Because of these efforts, CMC achieved sequential earnings growth while increasing our market share in many products, continuing to reduce our operating costs, and further strengthening our balance sheet.  Our success during the quarter underscores several of CMC's best qualities – a robust business model, focus on providing best-in-class customer service, and commitment to our employees."

The Company's liquidity position as of May 31, 2020 strengthened further, with cash and cash equivalents of $462.1 million and availability under the Company's credit and accounts receivable facilities of $604.2 million.

On June 16, 2020, the board of directors of CMC declared a quarterly dividend of $0.12 per share of CMC common stock payable to stockholders of record on July 6, 2020.  The dividend will be paid on July 20, 2020, and marks 223 consecutive quarterly dividend payments.

Business Segments - Fiscal Third Quarter 2020 Review

Our Americas Recycling segment recorded an adjusted EBITDA loss of $1.7 million for the third quarter of fiscal 2020, compared to adjusted EBITDA of $12.3 million for the prior year quarter.  The reduction reflected a challenging environment of lower shipments and decreasing average selling prices.  Volumes were impacted by sharply reduced demand from third party mill customers. Inflows of material to our yards were slowed by broadly weak manufacturing activity, and low prices that disincentivized collection of obsolete scrap. Compared to the year ago period, ferrous shipping volumes and selling prices were down 21% and 15%, respectively.

Our Americas Mills segment recorded adjusted EBITDA of $133.2 million for the third quarter of fiscal 2020, a decrease of 16% compared to adjusted EBITDA of $158.1 million for the third quarter of fiscal 2019.  Despite the impact of COVID-19 on the U.S. economy, volumes declined only 4% compared to the prior year period due to continued strength in construction activity.  Metal margins contracted by $19 per ton year-over-year, as a reduction in average selling price of $64 per ton was only partially offset by lower scrap costs.  Results in the third quarter of fiscal 2020 benefited from our best conversion cost performance since our November 2018 rebar asset acquisition.  Conversion costs per ton were 7% below the post-acquisition average.

Our Americas Fabrication segment recorded adjusted EBITDA of $31.9 million for the third quarter of fiscal 2020, marking a significant improvement from an adjusted EBITDA loss of $23.3 million for the third quarter of fiscal 2019, primarily due to expanded selling price margins over rebar cost.  The third quarter of fiscal 2020 marks the segment's best quarterly profit performance in nearly 12 years, and highlights the beneficial impact of the fixed price contract backlog of our fabrication business during a period of economic slowdown.  As in prior quarters, third quarter adjusted EBITDA did not include the benefit of the purchase accounting adjustment related to amortization of the acquired unfavorable contract backlog reserve of $4.4 million.  The trend of year-over-year increases in selling price continued during the quarter, as we shipped at an average price of $966 per ton.  This represented a significant rise of $41 per ton, or 4%, compared to the prior year period.  Backlog remains very strong in relation to both quantity and pricing.

Our International Mill segment in Poland recorded adjusted EBITDA of $14.3 million for the third quarter of fiscal 2020, compared to adjusted EBITDA of $24.1 million for the prior year quarter.  Metal margins were impacted by continued import pressure.  Despite market challenges caused by COVID-19, shipment volumes decreased only 1% on a year-over-year basis, driven by resilience in the Polish construction sector and market share gains in merchant products.

Outlook

"We expect construction and infrastructure activity to remain resilient during our fiscal fourth quarter," said Ms. Smith. "Our finished product volumes are supported by strong fabrication backlogs, which stood near record-high levels at May 31.  Customers' sentiment about their own summer construction workloads is also encouraging. CMC's net debt-to-EBITDA ratio of 1.2x and substantial cash and equivalents on hand give us great confidence in our ability to withstand these challenging times, and provide us with significant flexibility in our capital allocation decisions."

Conference Call

CMC invites you to listen to a live broadcast of its third quarter fiscal 2020 conference call today, Thursday, June 18, 2020, at 11:00 a.m. ET.  Barbara Smith, Chairman of the Board of Directors, President, and Chief Executive Officer, and Paul Lawrence, Vice President and Chief Financial Officer, will host the call.  The call is accessible via our website at www.cmc.com.  In the event you are unable to listen to the live broadcast, the call will be archived and available for replay on our website on the next business day.  Financial and statistical information presented in the broadcast are located on CMC's website under "Investors".

About Commercial Metals Company

Commercial Metals Company and its subsidiaries manufacture, recycle and market steel and metal products, related materials and services through a network of facilities that includes seven electric arc furnace ("EAF") mini mills, two EAF micro mills, two rerolling mills, steel fabrication and processing plants, construction-related product warehouses, and metal recycling facilities in the U.S. and Poland.

Forward-Looking Statements

This news release contains or incorporates by reference a number of "forward-looking statements" within the meaning of the federal securities laws with respect to general economic conditions, key macro-economic drivers that impact our business, the effects of ongoing trade actions, the effects of continued pressure on the liquidity of our customers, potential synergies provided by our recent acquisitions, demand for our products, steel margins, the effect of the coronavirus ("COVID-19") and related governmental and economic responses thereto, the ability to operate our mills at full capacity, future supplies of raw materials and energy for our operations, share repurchases, legal proceedings, the undistributed earnings of our non-U.S. subsidiaries, U.S. non-residential construction activity, international trade, capital expenditures, our liquidity and our ability to satisfy future liquidity requirements, estimated contractual obligations and our expectations or beliefs concerning future events. These forward-looking statements can generally be identified by phrases such as we or our management "expects," "anticipates," "believes," "estimates," "intends," "plans to," "ought," "could," "will," "should," "likely," "appears," "projects," "forecasts," "outlook" or other similar words or phrases. There are inherent risks and uncertainties in any forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements.

Our forward-looking statements are based on management's expectations and beliefs as of the time this news release is filed with the Securities and Exchange Commission or, with respect to any document incorporated by reference, as of the time such document was prepared. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Except as required by law, we undertake no obligation to update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or any other changes. Important factors that could cause actual results to differ materially from our expectations include those described in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended August 31, 2019 and in Part II, Item 1A, Risk Factors of our subsequent Quarterly Reports on Form 10-Q as well as the following: changes in economic conditions which affect demand for our products or construction activity generally, and the impact of such changes on the highly cyclical steel industry; rapid and significant changes in the price of metals, potentially impairing our inventory values due to declines in commodity prices or reducing the profitability of our fabrication contracts due to rising commodity pricing; impacts from COVID-19 on the economy, demand for our products or our operations, including the responses of governmental authorities to contain COVID-19; excess capacity in our industry, particularly in China, and product availability from competing steel mills and other steel suppliers including import quantities and pricing; compliance with and changes in environmental laws and regulations, including increased regulation associated with climate change and greenhouse gas emissions; involvement in various environmental matters that may result in fines, penalties or judgments; potential limitations in our or our customers' abilities to access credit and non-compliance by our customers with our contracts; activity in repurchasing shares of our common stock under our repurchase program; financial covenants and restrictions on the operation of our business contained in agreements governing our debt; our ability to successfully identify, consummate, and integrate acquisitions and the effects that acquisitions may have on our financial leverage; risks associated with acquisitions generally, such as the inability to obtain, or delays in obtaining, required approvals under applicable antitrust legislation and other regulatory and third party consents and approvals; lower than expected future levels of revenues and higher than expected future costs; failure or inability to implement growth strategies in a timely manner; impact of goodwill impairment charges; impact of long-lived asset impairment charges; currency fluctuations; global factors, including trade measures, political uncertainties and military conflicts; availability and pricing of electricity, electrodes and natural gas for mill operations; ability to hire and retain key executives and other employees; competition from other materials or from competitors that have a lower cost structure or access to greater financial resources; information technology interruptions and breaches in security; ability to make necessary capital expenditures; availability and pricing of raw materials and other items over which we exert little influence, including scrap metal, energy and insurance; unexpected equipment failures; losses or limited potential gains due to hedging transactions; litigation claims and settlements, court decisions, regulatory rulings and legal compliance risks; risk of injury or death to employees, customers or other visitors to our operations; civil unrest, protests and riots; new and clarifying guidance with regard to interpretation of certain provisions of the Tax Cuts and Jobs Act that could impact our assessment; and increased costs related to health care reform legislation.

COMMERCIAL METALS COMPANY
NON-GAAP FINANCIAL MEASURES (UNAUDITED)

This press release contains financial measures not derived in accordance with generally accepted accounting principles ("GAAP"). Reconciliations to the most comparable GAAP measures are provided below.

Core EBITDA from Continuing Operations is a non-GAAP financial measure. Core EBITDA from continuing operations is the sum of earnings (loss) from continuing operations before interest expense and income taxes (benefit). It also excludes recurring non-cash charges for depreciation and amortization, asset impairments and non-cash equity compensation. Core EBITDA from continuing operations also excludes certain material facility closure costs, amortization of acquired unfavorable contract backlog, acquisition and integration related costs and other legal fees, and the effect of purchase accounting adjustments on inventory. Core EBITDA from continuing operations should not be considered an alternative to earnings (loss) from continuing operations or net earnings (loss), or as a better measure of liquidity than net cash flows from operating activities, as determined by GAAP. However, we believe that Core EBITDA from continuing operations provides relevant and useful information, which is often used by analysts, creditors and other interested parties in our industry as it allows: (i) comparison of our earnings to those of our competitors; (ii) a supplemental measure of our ongoing core performance; and (iii) the assessment of period-to-period performance trends. Additionally, Core EBITDA from continuing operations is the target benchmark for our annual and long-term cash incentive performance plans for management. Core EBITDA from continuing operations may be inconsistent with similar measures presented by other companies.

A reconciliation of earnings from continuing operations to Core EBITDA from continuing operations is provided below:

Adjusted earnings from continuing operations is a non-GAAP financial measure that is equal to earnings (loss) from continuing operations before certain asset impairments, facility closure costs, acquisition and integration related and costs and other legal expenses and effect of purchase accounting adjustments on inventory, including the estimated income tax effects thereof. Additionally, we adjust adjusted earnings from continuing operations for the effects of the Tax Cuts and Jobs Act ("TCJA"). Adjusted earnings from continuing operations should not be considered as an alternative to earnings from continuing operations or any other performance measure derived in accordance with GAAP. However, we believe that adjusted earnings from continuing operations provides relevant and useful information to investors as it allows: (i) a supplemental measure of our ongoing core performance and (ii) the assessment of period-to-period performance trends. Management uses adjusted earnings from continuing operations to evaluate our financial performance. Adjusted earnings from continuing operations may be inconsistent with similar measures presented by other companies. Adjusted earnings from continuing operations per diluted share is defined as adjusted earnings from continuing operations on a diluted per share basis.

A reconciliation of earnings from continuing operations to adjusted earnings from continuing operations is provided below:

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SOURCE Commercial Metals Company