Commercial Metals Company Reports Fiscal First Quarter Loss Due to Legal Charges and Lower Steel Margins
Commercial Metals Company released its financial results for the fiscal first quarter ending November 30, 2024, marking a significant decline in earnings. The company reported a net loss of $175.7 million, or $1.54 per diluted share, on net sales of $1.9 billion, compared to a net profit of $176.3 million, or $1.49 per diluted share, on sales of $2.0 billion in the same period of the previous year.
The primary driver behind this loss was an estimated after-tax charge of $265.0 million, related to a legal verdict in a lawsuit filed by Pacific Steel Group against CMC. Excluding this charge, the company's adjusted earnings for the quarter were $88.5 million, or $0.78 per diluted share, down from $176.3 million, or $1.49 per diluted share, a year earlier. Adjusted EBITDA for the quarter also saw a decline due to pressures on steel pricing and margins, influenced by economic uncertainty and a slowdown in construction activity.
Strong Execution Amidst Adverse Market Conditions
Peter Matt, President and CEO of CMC, expressed his confidence in the company's future despite the tough market environment. While the first quarter financials were negatively impacted by weak demand for steel, particularly in the construction sector, Matt highlighted that the company performed well operationally. CMC achieved near-record safety performance and managed costs effectively across its operations. Matt also pointed to signs of recovery, noting a robust pipeline of potential future projects in the infrastructure, non-residential, and residential markets, which he expects to support CMC’s business in the coming quarters.
A key part of CMC’s long-term strategy is its “Transform, Advance, and Grow” program. This initiative focuses on operational and commercial excellence to improve margins and enhance efficiencies. According to Matt, early results from the TAG program are encouraging, and the company expects these efforts to contribute positively to financial results in fiscal 2025.
Solid Balance Sheet and Liquidity Position
Despite the loss in the first quarter, CMC’s balance sheet remains strong. The company ended the quarter with $856.1 million in cash and cash equivalents, along with available liquidity of nearly $1.7 billion. During the period, CMC repurchased 919,481 shares of its common stock for $50.4 million. The company still has $353.4 million remaining under its current share repurchase authorization. Additionally, on January 2, 2025, CMC declared a quarterly dividend of $0.18 per share, marking a 13% increase compared to the previous year, which reflects the company's ongoing commitment to returning value to shareholders.
Segment Performance Overview
In the North American market, CMC saw strong demand for its products in the first quarter, particularly due to late-season construction activity that aimed to recover time lost to weather disruptions in 2024. Shipments of finished steel products increased by 4.4% compared to the previous year. However, the North America Steel Group’s adjusted EBITDA dropped significantly to $188.2 million, down from $266.8 million a year ago. This decline was primarily due to lower margins on steel products and increased scrap costs. The adjusted EBITDA margin for the group fell to 12.4%, down from 16.8% in the first quarter of fiscal 2024.
In Europe, the steel market remains challenging, with long-steel consumption staying well below historical levels. Although Polish demand showed some improvement, increased imports from neighboring countries have created market pressure. The Europe Steel Group reported an adjusted EBITDA of $25.8 million, bolstered by a $44.1 million CO2 credit from a government program. However, without this credit, results were weaker due to metal margin compression driven by high import volumes.
The Emerging Businesses Group, which includes CMC’s operations in the performance reinforcing steel market, saw a decline in net sales, falling by 4.4% to $169.4 million. Adjusted EBITDA for the segment also decreased by 26.6% due to an unfavorable product mix and delays in large projects within CMC's Tensar division. The truck and trailer market also slowed, affecting earnings in CMC's Impact Metals business. Despite these challenges, CMC remains optimistic about the future, citing a healthy project pipeline and continued strong activity in its Construction Services business.
Legal Challenges and Outlook
The company also faced a significant legal setback in the first quarter, as a jury in California ruled in favor of Pacific Steel Group in a lawsuit, awarding the plaintiff $110 million. This judgment was later trebled to $350 million. CMC disagrees with the verdict and plans to pursue an appeal. Despite the financial impact of the litigation charge, CMC is confident in its business practices and remains committed to defending its position.
Looking ahead to the second quarter of fiscal 2025, CMC expects financial results to decline compared to the first quarter. Seasonal trends in North America are expected to lead to a reduction in finished steel shipments, and the company anticipates continued pressure on margins due to high scrap costs. However, CMC’s management remains optimistic about future market conditions, with improved sentiment among customers and positive indicators from the construction pipeline.
Financial Outlook for Fiscal 2025
Peter Matt concluded by expressing optimism regarding the future, pointing to improving business confidence and positive signals from key markets. While the second quarter is expected to be challenging, CMC remains confident that the softness in the market will be temporary, with stronger performance expected in the coming quarters as economic conditions improve and construction activity picks up.
In summary, despite a tough fiscal first quarter marked by legal challenges and weaker demand in certain markets, Commercial Metals Company remains focused on long-term growth, operational excellence, and financial stability. The company’s strong liquidity, ongoing investment in strategic programs, and positive market indicators provide a foundation for a recovery in the coming quarters.
