Commercial Metals Company — FY2022 Form 10-K
Reporting period: Fiscal year ended August 31, 2022. Although the request metadata says “2022 Q4,” this filing is an annual report; the supplied text does not provide a complete standalone fourth-quarter income statement. CMC manufactures, recycles and fabricates steel and metal products, and provides construction-related solutions through North America and Europe segments.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $8.913 billion | $6.730 billion |
| Net earnings | $1.217 billion | $412.9 million |
| Diluted EPS | $9.95 | $3.38 |
| Adjusted EBITDA | $1.746 billion | $754.3 million |
| Cash from operating activities | $700.3 million | $228.5 million |
| Capital expenditures | $450.0 million | $184.2 million |
Sales increased 32% and net earnings increased 195%. Management attributed the improvement principally to higher selling prices and expanded margins as price increases outpaced rising scrap, freight, energy and other input costs. Reported earnings included a $273.3 million gain on the sale of the Rancho Cucamonga facilities; CMC also recorded a $16.1 million loss on debt extinguishment. Cost of goods sold was $7.057 billion, implying gross profit of approximately $1.856 billion and a gross margin of about 20.8%, versus approximately 16.4% in FY2021.
North America sales were $7.299 billion and adjusted EBITDA was $1.554 billion, including the Rancho Cucamonga gain. Europe sales were $1.622 billion and adjusted EBITDA was $346.1 million. North America steel-products metal margin per ton rose to $629 from $397; Europe’s rose to $433 from $255. Europe’s results faced adverse foreign-currency translation and higher energy costs, partly mitigated by electricity and natural-gas arrangements.
Liquidity, debt and capital allocation
At August 31, 2022, cash and cash equivalents were $672.6 million. Total debt was $1.514 billion, including $388.8 million classified as current; long-term debt was $1.113 billion. CMC reported $3.286 billion of stockholders’ equity. Its $400 million revolver had $398.6 million available and no borrowings; the $150 million U.S. receivables facility also had no advances outstanding. Management said cash, operating cash flow and available facilities should fund operations, debt maturities, capital spending and shareholder returns for at least the following 12 months.
CMC issued $600 million of senior notes in January 2022 and redeemed $300 million of 2027 notes in February. The $330 million 4.875% notes due May 2023 were classified as current. The company also issued $145.1 million of Series 2022 bonds to support construction of its Mesa micro mill. FY2022 financing included $161.9 million of share repurchases and $67.7 million of dividends. The quarterly dividend increased from $0.14 per share in FY2022 to $0.16 declared in October 2022.
Material changes, outlook and risks
- CMC acquired Tensar on April 25, 2022 for approximately $550 million net of cash acquired. Tensar contributed $102.1 million of sales and $3.2 million of pretax earnings from acquisition through year-end. The acquisition added $260.5 million of intangible assets and approximately $186.8 million of goodwill.
- The Rancho Cucamonga facilities were sold for $313.0 million gross proceeds, producing the $273.3 million gain included in FY2022 earnings. The sale supports the planned Mesa micro mill, which CMC expected to commission in early calendar 2023.
- Management estimated FY2023 capital spending of $450 million to $500 million. A planned fourth U.S. micro mill was expected to take roughly two years to construct and commission after site selection, permitting and approvals. No specific earnings or sales guidance was provided in the supplied filing text.
- Management said the Ukraine invasion had no direct material adverse impact in FY2022; it cited continued monitoring of energy and material supply, inflation, foreign exchange, commodity prices and cybersecurity exposures. COVID-19’s operational impact was described as limited.
- Key risks include cyclical construction and steel demand; volatile scrap, energy and freight costs; imports and global overcapacity; fixed-price fabrication contracts; inflation and labor availability; foreign-exchange exposure; project execution and acquisition integration; environmental compliance and remediation; litigation; and cyber incidents. Environmental expenses were $44.2 million in FY2022, with $6.9 million of environmental capital spending. Accrued environmental liabilities were $5.3 million; CERCLA-site accruals were described as immaterial.
- CMC reported effective disclosure controls and internal control over financial reporting. Deloitte issued unqualified opinions on the financial statements and internal controls, but Tensar was excluded from the FY2022 internal-control assessment following its acquisition.
Important facts for investors to verify
- How much FY2022 earnings and adjusted EBITDA growth reflects recurring operating performance versus the $273.3 million facility-sale gain.
- Whether margins and shipment volumes hold up as steel, scrap and energy prices change; North America steel shipments declined 7% year over year, and management cited fourth-quarter customer destocking and slower construction activity.
- Funding and repayment plans for the $330 million notes due in May 2023, alongside the planned $450 million–$500 million FY2023 capital program.
- Progress, cost and commissioning of the Mesa micro mill and the planned fourth mill, as well as realization of Tensar integration benefits.
- Potential impacts from Poland-related currency and energy exposure, environmental matters, and the risks and obligations associated with debt covenants.