Commercial Metals Company — FY2021 Form 10-K
Reporting period: Fiscal year ended August 31, 2021. This is an annual filing, not a standalone fourth-quarter report; quarterly results are not clearly provided in the filing text.
Business context
CMC manufactures, recycles and fabricates steel and metal products through vertically integrated operations in North America and Poland. Its businesses include scrap recycling, electric arc furnace steel mills and downstream fabrication. Construction is an important end market, making results seasonal and sensitive to economic cycles, steel and scrap prices, and demand.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $6.730 billion | $5.476 billion |
| Earnings from continuing operations | $412.9 million | $278.3 million |
| Diluted EPS from continuing operations | $3.38 | $2.31 |
| Adjusted EBITDA | $754.3 million | $576.6 million |
| Cash provided by operating activities | $228.5 million | $791.2 million |
| Capital expenditures | $184.2 million | $187.6 million |
Sales grew 23% and continuing-operations earnings increased 48% year over year. Higher selling prices and improved steel-product metal margins drove much of the improvement. Calculated gross profit was approximately $1.106 billion, or 16.4% of sales; adjusted EBITDA was approximately 11.2% of sales.
Operating cash flow fell sharply, primarily because rising prices and volumes increased inventory and receivables, consuming working capital. Operating cash flow less capital expenditures was approximately $44 million. Cash and cash equivalents were $497.7 million at year-end, down from $542.1 million.
Total debt in the debt note was approximately $1.078 billion, including finance leases and $26.6 million of Poland receivables-facility borrowings. The company reported $1.015 billion of long-term debt, excluding current maturities. It had a $400 million revolver with $397.0 million available, and reported compliance with debt covenants; its interest-coverage ratio was 14.61 and debt-to-capitalization ratio was 0.31.
Segments and changes versus prior year
- North America: Sales were $5.671 billion, up 19%; adjusted EBITDA was $746.6 million, up from $661.2 million. Steel-product shipments rose 8%, and average selling price increased to $752 per ton from $618. Steel metal margin increased to $397 per ton from $380. Downstream shipments declined, and fixed-price project work faced higher input costs, reducing downstream margins.
- Europe: Sales were $1.049 billion, up 50%; adjusted EBITDA was $148.3 million, versus $62.0 million. Higher prices, improved demand and shipment growth contributed; the third rolling line started during the fourth quarter. Favorable currency translation also lifted reported sales.
- Downstream-products backlog was $1.5 billion at year-end, versus $1.1 billion a year earlier.
- Fourth-quarter 2021 dividend was set at $0.14 per share, compared with the $0.12 quarterly rate paid during FY2021 and FY2020.
Outlook, significant items and risks
- Management estimated FY2022 capital spending of $450 million to $500 million, including costs for the Mesa, Arizona micro mill. The mill was expected to start up in 2023.
- CMC agreed after year-end to sell its Rancho Cucamonga assets for approximately $300 million gross proceeds, subject to closing conditions; the expected closing was in the second quarter of FY2022. The assets were classified as held for sale at August 31, 2021.
- The company issued $300 million of 3.875% notes due 2031 and retired its 5.75% notes due 2026, recording a $16.8 million debt-extinguishment loss.
- Asset impairment expense was $6.8 million. No goodwill impairment was recorded. Environmental expense was $49.8 million, and accrued environmental liabilities were $7.1 million.
- CMC said COVID-19 had limited operational impact in FY2021 but could still affect demand, supply chains, projects and liquidity. Other key exposures include cyclical construction and steel markets, volatile scrap, metal and energy costs, imports and foreign competition, currency movements, equipment/startup risks, environmental and climate regulation, and litigation.
- Management expected available cash, operating cash flow and borrowing sources to cover planned needs, but noted sustained market deterioration could require additional liquidity. No specific earnings or revenue guidance was provided.
Most important facts for investors to verify
- Whether working-capital investment unwinds and operating cash flow recovers after its substantial FY2021 decline.
- Whether steel and scrap spreads and downstream project margins remain favorable as input costs and selling prices change.
- Progress, cost and timing of the Mesa micro mill, and whether the Rancho Cucamonga sale closes near the expected timing and proceeds.
- Debt maturities, covenant headroom and liquidity needs alongside the elevated FY2022 capital-spending plan.
- Potential changes in environmental, legal, tax, import, energy and COVID-related exposures; the company states that outcomes and costs may differ materially from estimates.