CMC Reports Mixed Financial Results for Q2 Fiscal 2025 Amid Economic Pressures
Commercial Metals Company, one of the leading manufacturers of steel products, released its financial results for the second quarter of fiscal year 2025, reporting net earnings of $25.5 million, or $0.22 per diluted share, on net sales of $1.8 billion. This marks a significant decrease compared to the prior year period, where CMC reported net earnings of $85.8 million or $0.73 per diluted share. Despite constant sales, profitability declined mainly due to a variety of economic challenges.
Key Financial Metrics and Adjustments
The reported adjusted earnings for Q2 fiscal 2025 stood at $29.3 million or $0.26 per diluted share, down from $85.9 million or $0.73 per diluted share in the previous year. The difference largely stemmed from net after-tax charges of $3.9 million, mostly related to interest expenses tied to the Pacific Steel Group litigation. Excluding these charges, the adjusted figures represent a more accurate picture of the company’s financial performance, showing declining profits.
CMC's core EBITDA for the quarter reached $131.0 million, marking a core EBITDA margin of 7.5%, which reflects the financial pressures faced in the period.
Sector and Regional Performance
North America Steel Group
Despite some headwinds, North America Steel Group showed strong performance with finished steel shipments increasing by 3.3% compared to Q2 of fiscal 2024. Demand for steel in the construction sector, especially in North America, remained robust, and CMC's downstream backlog grew nearly 10% quarter-over-quarter, signaling a healthy pipeline of future construction projects.
• Market Conditions: Domestic scrap prices saw an upward trend in January and February 2025, leading to price increases across CMC’s key steel products.
• Profitability: Adjusted EBITDA for the North American Steel Group decreased to $128.8 million, reflecting lower margins on scrap costs and steel products. This drop was further impacted by unrealized losses linked to hedging positions in copper.
• Future Outlook: CMC anticipates improved profitability in the coming months as the construction season progresses, with margins expected to rebound from seasonal declines.
Europe Steel Group
The performance of CMC's Europe Steel Group showed signs of stabilization. The group achieved adjusted EBITDA breakeven during the quarter, which marked a positive shift compared to the previous year’s loss of $8.6 million.
• Cost Management: Effective cost controls, combined with a decrease in imported steel entries, helped improve the group's profitability. However, the improvement was modest due to seasonal fluctuations in demand.
• EBITDA Margins: The adjusted EBITDA margin for the Europe Steel Group improved to 0.4%, up from a negative margin of (4.5%) last year, largely driven by reduced scrap costs and more favorable price trends.
Emerging Businesses Group
CMC's Emerging Businesses Group, which focuses on performance-driven steel products, saw a notable improvement in both net sales and adjusted EBITDA.
• Growth in Profits: The EBG segment's adjusted EBITDA grew by 31.2% year-over-year, reaching $23.5 million, driven by strong project-related shipments, particularly in the Performance Reinforcing Steel sector.
• Profitability: The adjusted EBITDA margin for the segment was 14.8%, an improvement of 330 basis points from the prior year, signaling growing demand for corrosion-resistant steel solutions.
Strategic Growth and Operational Initiatives
CMC’s ongoing operational excellence program, known as TAG, Transform, Advance, and Grow, remained a core contributor to the company’s fiscal performance in Q2. This initiative, designed to enhance commercial and operational efficiencies, is expected to provide significant financial benefits in the coming quarters and beyond.
• Strategic Growth Investments: CMC's efforts to invest in organic growth and operational excellence continue to fuel the company’s long-term strategy, with positive contributions already being observed.
• Outlook: CMC expects its fiscal third-quarter results to improve, especially with North American finished steel shipments projected to follow typical seasonal trends, benefiting from a strong spring and summer construction season.
Strong Liquidity and Shareholder Return
Despite a decline in profits, CMC's liquidity position remains robust. As of February 28, 2025, the company held $758.4 million in cash and cash equivalents, and its total available liquidity exceeded $1.6 billion.
• Share Repurchase Program: During Q2, CMC repurchased 906,603 shares of its common stock, valued at $48.0 million.
• Dividend Declaration: On March 19, 2025, CMC declared a quarterly dividend of $0.18 per share, which marks the 242nd consecutive quarterly payment to stockholders.
Key Takeaways:
• CMC reported second-quarter net earnings of $25.5 million or $0.22 per diluted share for fiscal 2025, down significantly from the prior year's $85.8 million.
• Adjusted earnings stood at $29.3 million, or $0.26 per diluted share, excluding charges related to litigation expenses.
• Core EBITDA reached $131.0 million, with a 7.5% margin, signaling pressure on profitability due to higher scrap costs and margin compression.
• North America Steel Group saw a 3.3% increase in finished steel shipments, but adjusted EBITDA decreased due to margin compression.
• The Europe Steel Group achieved breakeven adjusted EBITDA, thanks to cost management and improved market conditions.
• The Emerging Businesses Group experienced significant growth, with adjusted EBITDA increasing by 31.2%, driven by strong project-related shipments.
• CMC's liquidity remains strong, with over $1.6 billion in available funds, and the company repurchased 906,603 shares worth $48.0 million.
• CMC declared a quarterly dividend of $0.18 per share, marking the 242nd consecutive dividend payment.
Looking ahead, CMC expects an improvement in financial results for the third quarter of fiscal 2025, driven by seasonal demand growth in North America and continued momentum in Europe and its Emerging Businesses Group.
