Commercial Metals Company — Q3 FY2024 Form 10-Q
Business context and reporting period. CMC manufactures and supplies steel, fabricated products, recycled metals, construction products and ground-stabilization solutions. This report covers the three and nine months ended May 31, 2024; comparisons are with the periods ended May 31, 2023. CMC reorganized its reporting segments during the first quarter of FY2024 into North America Steel Group, Europe Steel Group and Emerging Businesses Group; prior-period segment figures were recast.
Financial performance
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Net sales | $2,078.5 million | $2,345.0 million | $5,929.8 million | $6,590.3 million |
| Net earnings | $119.4 million | $234.0 million | $381.6 million | $675.6 million |
| Diluted EPS | $1.02 | $1.98 | $3.25 | $5.69 |
| Operating cash flow | Not presented as a quarterly figure | Not presented as a quarterly figure | $547.9 million | $934.7 million |
| Capital expenditures | Not presented as a quarterly figure | Not presented as a quarterly figure | $242.8 million | $439.7 million |
- Q3 sales declined 11% and net earnings declined about 49% year over year. For the nine-month period, sales declined 10% and net earnings declined about 44%.
- Management attributed the earnings decline primarily to steel-product metal-margin compression in North America and Europe: selling prices fell more than scrap costs declined, or scrap costs rose.
- Q3 segment sales / adjusted EBITDA: North America Steel, $1,671.4 million / $246.3 million; Europe Steel, $208.8 million / $(4.2) million; Emerging Businesses, $188.6 million / $38.2 million. Nine-month segment adjusted EBITDA was $735.4 million, $26.1 million and $87.0 million, respectively.
- North America steel-product metal margin was $538 per ton in Q3 versus $595 a year earlier; Europe’s was $292 versus $326. Europe’s Q3 shipments fell 31% and average steel selling price fell 10% year over year.
Balance sheet, liquidity and capital allocation
- At May 31, 2024, cash and cash equivalents were $698.3 million; total debt was $1,209.5 million, including $62.9 million current maturities and short-term borrowings and $1,137.6 million long-term debt. Total equity was $4,259.1 million.
- Current assets were $3,239.6 million and current liabilities were $765.0 million. The $600 million revolving facility was undrawn, with $599.1 million available after letters of credit; CMC reported compliance with debt covenants.
- Nine-month financing cash outflow was $202.7 million, including $128.2 million of share repurchases and $58.2 million of dividends. Remaining repurchase authorization was $458.6 million. The quarterly dividend increased to $0.18 per share.
- CMC expects FY2024 capital spending of $400–$425 million. It said cash, operating cash flows and available liquidity should be sufficient for at least the next 12 months, including planned capital expenditures, dividends and opportunistic repurchases.
Outlook, commentary and risks
- Management described weaker European construction and industrial activity and competitive pricing in North American markets. Excessive rainfall affected project timing and activity during the quarter.
- Europe’s nine-month results included $66.3 million of government assistance, compared with $13.8 million in the prior-year period; this support partly offset lower margins and shipment volumes.
- The third micro mill in Mesa, Arizona began commercial rebar production before merchant-bar production commenced in Q2 FY2024. The planned fourth micro mill in West Virginia is under construction, with startup expected in late calendar 2025.
- Key risks identified include cyclical steel demand, volatile metal and energy prices, fixed-price downstream project exposure to changing input costs, competition and imports, currency movements, project startup and execution, and geopolitical and regulatory developments.
- In Pacific Steel Group’s antitrust lawsuit, both sides’ summary-judgment motions were denied on June 10, 2024; trial was scheduled for October 2024. CMC recorded no liability, stating a loss was not probable and a possible loss range could not be estimated. Environmental liabilities accrued were $5.2 million.
- CMC reported disclosure controls were effective. A phased replacement of the scrap-recycling information system is underway and expected to be completed in Q1 FY2025.
Important facts for investors to verify
- Whether steel selling prices and metal margins stabilize, particularly in North America, and whether European demand and shipments recover.
- How much Europe’s reported performance depends on government assistance and whether such support continues.
- Progress, spending and startup timing for the West Virginia micro mill, alongside the FY2024 capital-spending estimate.
- Future operating cash flow, working-capital needs, debt levels and the pace of share repurchases and dividend payments.
- Developments and any potential financial exposure from the Pacific Steel Group trial and other contingencies.