Commercial Metals Company (NYSE:) reported robust financial results for the fourth quarter of fiscal 2023, with net earnings of $184.2 million or $1.56 per diluted share on net sales of $2.2 billion. Despite near-term challenges, such as pressure from imports and a slowdown in contract awards, the company remains optimistic about its long-term outlook, bolstered by infrastructure investments and structural trends.
Key takeaways from the earnings call include:
- CMC’s North American segment posted its 11th consecutive quarter of year-over-year adjusted EBITDA growth.
- The company’s downstream backlog declined by 8% compared to the prior year.
- Infrastructure investments, such as the Jobs Act and IIJA, are expected to benefit rebar consumption and the company’s Tensar engineered solutions.
- The company reported net earnings of $184.2 million for the fourth quarter, with adjusted earnings of $199.9 million.
- CMC expects to invest between $550 million and $600 million in capital spending for fiscal 2024.
- The company experienced lower market supply due to cutbacks in output by various producers.
- The company had a total liquidity of $1.6 billion as of August 31, with cash and cash equivalents totaling $592.3 million.
- The company expects an effective tax rate between 24% and 25% for Q1 2024.
CMC’s robust Q4 performance was driven by healthy rebar shipments and increased total finished steel volumes. However, the company anticipates a decline in pricing and demand conditions for domestic rebar due to import pressure. Despite an 8% decline in its downstream backlog, primarily due to a slowdown in contract awards and a tighter credit market for commercial projects, CMC remains confident in its business’s long-term outlook.
Infrastructure investments, particularly the Jobs Act and IIJA, are expected to boost rebar consumption and the company’s Tensar engineered solutions. CMC anticipates that the IIJA will add 1.5 million tons of annual consumption. The company also expects an increase in rebar demand driven by investments in semiconductor fabrication plants, electric vehicle and EV battery manufacturing, and renewable energy projects.
In Europe, despite challenging market conditions, CMC remains committed to its presence in Poland. The company reported successful operations at the Arizona 2 micro mill and progress in the Tensar division. CMC plans to invest between $550 million and $600 million in capital spending for fiscal 2024, a significant portion of which will be allocated to the construction of Steel West Virginia.
The company’s financial health remains robust, with a total liquidity of $1.6 billion as of August 31, including cash and cash equivalents totaling $592.3 million. The company’s net debt-to-EBITDA ratio was reported to be 0.4x, indicating attractive leverage metrics. CMC also repurchased shares during the quarter, further demonstrating its financial strength.
Despite expectations of a decline in financial performance in Q1 2024 due to seasonally slower shipments, metal spread compression, and challenging market conditions in Europe, CMC remains optimistic about the long-term outlook. The company expects to benefit from infrastructure investments in the United States and believes that the impact of infrastructure spending on rebar demand has not yet been fully reflected in prices. CMC anticipates an inflection point in 2024 and mentioned positive developments in Poland, such as pricing stabilization and potential government rebates.
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