Steel Mills

CMC Prevails Over Challenges in Q2

Written by Sandy Williams

Commercial Metals Company reported a strong second quarter for fiscal year 2020 ending Feb. 29. The Americas Mills segment achieved record second-quarter shipment levels while the International Mill had the highest shipment level for second quarter in 12 years.

Earnings for the quarter were $63.6 million on net sales of $1.3 billion. Gross margins jumped 45 percent year-over year, while total shipment volume grew 2.0 percent.

“Despite winter seasonality and an unusually wet February, the second quarter was strong and demonstrates our company’s enhanced earnings capability following the transformational actions of the last several years,” said CEO Barbara Smith. “In the quarter, we achieved the second highest adjusted EBITDA margin in our history, behind only our first-quarter 2020 performance. The great results were helped by robust demand from the U.S. and Polish construction markets, which continued to support steel shipment volumes during the quarter.”

CMC’s primary market is construction, which has kept the company’s backlogs strong in both volume and pricing. Most of company’s business is driven by construction projects that are six months or longer in duration, which are generally pre-funded, said Smith. CNC’s fabricating business does have indirect exposure to the downturn in oil prices in energy-related projects such as LNG facilities. And the coronavirus could have an effect on new projects that haven’t been initiated, she added.

CMC’s Americas Recycling segment reported a 43 percent decrease in adjusted EBITDA for the quarter reflecting lower average ferrous selling prices and lower shipping volumes.

Scrap flows have been largely unaffected, said Smith. “We’re not seeing any major dislocations in terms of scrap. Normally in the winter months, depending on weather patterns, you can see scrap having a more difficult time getting to markets. But this has not been a particularly difficult winter, certainly not in the areas where we operate. Going forward, you might expect some softening in scrap prices because there is a correlation to oil prices, but I don’t think we will necessarily see a negative impact on flows. In fact, peddlers probably are going to bring in more scrap so they can get some cash flow, particularly as some folks are out of work due to this [coronavirus] disruption.”

So far, the coronavirus has had little impact on CMC operations, Smith said. Conversations with customers reveal that most job sites are open and will continue to operate as long as they are able. Once the virus subsides, there is plenty of work in the pipeline that will move forward with haste.

“This rapidly evolving environment presents unique and unprecedented challenges. We are managing all the factors within our control; however, we are subject to the actions of outside parties, particularly government authorities that have the potential to be disruptive to our business. We have seen no measurable operating or shipping disruption at this point, but the situation remains dynamic and we have plans in place to respond to these changes.”

CMC is designated as part of a critical infrastructure industry by the Department of Homeland Security, which affords some assurance that operations will continue. Should there be disruption at any of CMC’s facility, the company’s expanded domestic footprint provides flexibility to address customer needs from unaffected locations, Smith said.

Once the coronavirus crisis ends, Smith believes Congress will refocus efforts on infrastructure funding. The lack of federal grants has caused states to step up with funds for public projects, which is reflected in CMC’s backlogs.

“I think infrastructure is something that will come up quickly on the agenda, whether it’s immediately following [the crisis] or after the election is settled,” said Smith. “I think it’s something that both sides of the aisle understand as a great way to further stimulate the economy, and it’s something that the country needs.”

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