Steel Mills

CMC Posts Strong Quarter After "Flawless" Integration with Gerdau

Written by Sandy Williams

Commercial Metals Company is enjoying the rewards of its purchase of four rebar mills and 33 fabrication facilities from Gerdau. The acquisition added 2.5 million tons of rolling capacity and increased fabrication capacity by almost 50 percent.

“The systems integration was flawless and got completed in less than four months, well ahead of schedule,” said CEO Barbara Smith. “The confirmed commercial and operational synergies were double our original expectations and the operational results have also exceeded our initial business modeling.”

CMC revenue grew by 26 percent in fiscal 2019 and earnings from continuing operations grew by 41 percent. The acquired rebar mills generated $58.1 million of EBITDA in the FY 2019 fourth quarter on shipments of 455,000 tons. EBITDA from continuing operations rose to $501.5 million for the year in comparison to $412.2 million in 2018.

CMC earnings for the fourth quarter were $89.9 million on net sales of $1.5 billion, the highest consecutive quarterly earnings for CMC since the Great Recession.

The Americas fabrication segment reported a reduced  EBITDA loss of $13.2 million for the fourth quarter, which included $4.2 million in charges related to the closing of four redundant acquired fabrication locations. Average sales price of materials shipped increased to $963 per ton, up $38 from the previous quarter, and is expected to continue to improve. Volume, including the new facilities, increased 46 percent year-over-year to 141,000 tons.

The Americas Recycling segment EBITDA fell to $4.2 million in the quarter compared to $17 million a year ago due to lower volume and 27 percent and 7 percent year-on-year drops in ferrous and nonferrous prices, respectively.

The Americas Mill segment saw EBITDA rise 51 percent to $160.8 million. Shipments rose 45 percent from the prior fourth quarter due to the ramp up of the Oklahoma micro mill and the acquired facilities. Metal margins in the segment increased $51 per ton from fourth quarter 2018 and were up $13 per ton sequentially.

Construction activity typically begins to slow as winter weather and the holiday season starts to affect shipments, said Smith. “However, we remain bullish regarding our underlying demand. Our customers are indicating that their backlogs are robust and our fabrication backlog level, as noted earlier, is healthy and priced attractively. For our mills, in contrast to the broader steel market, rebar metal margins remain above historic norms.”

Smith said the company is seeing an increase in public infrastructure projects now that FAST Act money is making its way through the system. CMC revenue from the construction sector is divided into about two-thirds to three-quarters private work and one-third to one-quarter public construction.

Smith was asked to comment on trade cases in both Mexico and Turkey during the earnings call. The new trade case on rebar from Mexico will be a positive development for CMC, she said.

“It’s clearly a circumvention of the intent of the trade action,” said Smith. “All of the producers in the U.S. have good communication with the Department of Commerce and we have clear instructions from Commerce when we see circumvention that we report it.” She added, “This was a very, very clear-cut case of circumvention where they were welding a hook on the end of straight rebar and designating that as fabricated rebar. And we have produced all the evidence to Commerce to prove that it was really a circumvention.”

Regarding the Section 232 tariffs on steel from Turkey, Smith said the trade situation is fluid. “I think the 25 percent is more likely than not to remain in effect and we will see where those relationships evolve over time. I think the president and the administration are consistent in their message of creating a fair and level playing field.”

CMC’s outlook remains strong with current elevated rebar margins continuing. Strong cash flow will allow CMC to pursue any additional long-term growth opportunities that arise, Smith said.

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