CMC upbeat on steel margins, growth outlook, and construction resilience

CMC entered the back half of its fiscal year with improving steel margins, steady rebar demand, and confidence in long-term construction fundamentals. Executives said infrastructure activity and downstream momentum are helping to offset macroeconomic uncertainty as the company pushes forward on multiple growth projects.

For its fiscal third quarter ended May 31, the Irving, Texas-based longs producer and metal recycler reported net earnings of $83.1 million on sales that exceeded $2 billion. While the quarterly results were below those of last year (see chart above), they showed significant improvement from a weak second-quarter performance.

“We believe that the second quarter of fiscal 2025 marked a trough, and expect business conditions for each segment will continue to improve from those levels,” CEO Peter Matt said on the company’s earnings call Monday morning.

He highlighted the margin improvement on steel products throughout the quarter, as average selling prices rose $45/short ton (st), outpacing the $22/st increase in scrap costs. Steel product metal margins exited the quarter at $518/st, $19 above the quarterly average.

“We see improving volume and margin conditions ahead as we move through the 2025 construction season,” added CFO Paul Lawrence.

Market and tariff uncertainty

Matt addressed the current uncertainty in the markets.

“There’s little doubt that the impact of economic uncertainty and elevated interest rates are hanging over our markets,” he commented on the call. “But I would note two things. One, tariffs are just the latest flavor of uncertainty that the industry has had to manage through. And two, we have been living in a high interest rate environment for more than two and a half years.”

On the supply side, he said CMC is benefiting from the tariffs: The elimination of Section 232 exemptions and the hiking of the levy to 50% have reduced import levels. “While we do not know how long these policies will remain in effect, they should support steel pricing for their duration,” he noted.

As for demand, he acknowledged the near-term uncertainty the tariffs are causing. But he believes they have the longer-term potential to be “a single component of a broader program that includes changes to tax, regulatory, energy, and trade policy aimed at stimulating domestic investment, which could meaningfully benefit construction activity.”

“We expect powerful tailwinds from long-term secular trends that will drive construction investment for years to come,” he said, mentioning “infrastructure investment, reshoring, artificial intelligence, energy transition and generation growth, and the need to address our nation’s housing shortage.”

North America results

CMC’s North America Steel Group posted adjusted EBITDA of $186 million in fiscal Q3, down 24% from last year but up 44% from the prior quarter.

“Despite concerns regarding tariffs and related economic uncertainty, we experienced an encouraging degree of stability across each of our key internal leading indicators,” including project bids, new awards, and backlog volumes, Matt said.

CMC’s rebar shipments in North America increased 6.2% sequentially and 2.7% year over year to 534,000 st.

Merchant bar (MBQ) shipments of 264,000 st rose 8.2% from a year earlier, as the Arizona 2 micro mill has enhanced CMC’s ability to serve customers on the West Coast, the company said.

Raw material shipments to external customers improved 23.4% sequentially and 6.9% year over year (y/y).

Matt said the company faced some challenges from mill outages late in the quarter that resulted in lower-than-expected production.

West Virginia micro mill update

CMC confirmed it expects to begin hot commissioning the melt shop at its West Virginia micro mill in early 2026.

An anticipated $80-million tax credit under the Inflation Reduction Act (IRA) contributed to a pause in construction while contract compliance was reviewed.

“It was worth waiting for this,” Matt commented. “It reduces the net capital that we put into the project and therefore helps us drive higher returns.”

Europe returns to profitability

“Market conditions for the Europe Steel Group continued to improve in the third quarter, supported by solid Polish economic conditions and reduced import flows that helped establish a better balance of supply and demand,” CMC said.

The segment posted adjusted EBITDA of $3.6 million, up from a loss of $4.2 million in the same quarter last year. Stronger pricing, improved shipment volumes, and ongoing cost controls helped to boost the results.

“The picture in Europe does appear to be getting better,” Matt commented. “There are reasons for optimism.”

Expansion on the horizon

CMC said the company’s strategic focus remains on both organic expansion and targeted acquisitions to continue growing the business.

On the organic side, Matt highlighted investments in downstream capacity, automation, and efficiency. This includes continuing to scale up the Arizona 2 mill, which reached 70-75% capacity utilization during the quarter.

As for inorganic growth, CMC is targeting opportunities in adjacent construction markets that also have geographical overlap with its existing operations. The ideal transaction size is $500 million to $750 million.

“We’re very disciplined,” Matt added. “We look for bolt-on deals that enhance our capabilities in our core markets or help us enter adjacent markets that align with our business model.”

CMC is currently evaluating several potential opportunities, primarily in the early-stage construction market. However, market uncertainty is slowing some processes, the company said.