Commercial Metals Company announced financial results for its fiscal fourth quarter. Net earnings were $288.6 million, or $2.40 per diluted share, on net sales of $2.4 billion, compared to prior year period net earnings of $152.3 million, or $1.24 per diluted share, on net sales of $2.0 billion.
During the fourth quarter of fiscal 2022, the company recorded net after-tax costs of $6.3 million primarily for purchase accounting adjustments related to the acquisition of Tensar Corporation. Excluding these items, fourth quarter adjusted earnings were $295.0 million, or $2.45 per diluted share, compared to adjusted earnings of $154.2 million, or $1.26 per diluted share, in the prior year period.
Barbara R. Smith, chairman of the board, president and chief executive officer, said, “Fiscal 2022 was another year of exceptional performance for CMC, with record financial results, as well as meaningful advancement of our growth plan and our commitment to enhance shareholder distributions. The financial benefits of past and ongoing strategic actions were clearly demonstrated through record profitability and returns on invested capital. We expect our more-recent strategic initiatives,
including the acquisition of Tensar, the construction of Arizona 2, and the announcement of a fourth micro mill to serve the Eastern U.S., will drive the next phase of our value accretive growth as we build on the solid operational foundation already in place. Shareholder distributions remain a core focus of our capital allocation strategy, with CMC repurchasing over $100 million worth of shares during the quarter and raising our quarterly dividend by 14 percent.”
The company’s balance sheet and liquidity position remained strong. Cash and cash equivalents ended the quarter with a balance of $672.6 million, while available liquidity totaled over $1.3 billion. CMC repurchased approximately three million shares of common stock during the quarter, returning $106.3 million of cash to shareholders. As of August 31, 2022, $188.1 million remained under the current share repurchase authorization.
On October 11, 2022, the board of directors declared a quarterly dividend of $0.16 per share of CMC common stock payable to stockholders of record on October 27, 2022. The dividend to be paid on November 10, 2022, marks the 232nd consecutive quarterly payment by the company, and represents a 14 percent increase from the dividend paid in July 2022.
Demand for CMC’s finished steel products in North America was again robust during the quarter, with several key internal and external indicators pointing toward continued strength. Downstream bid volumes, a significant indicator of the construction project pipeline, increased meaningfully from a year ago, resulting in year-over-year expansion of contract backlog levels. Demand from industrial end markets was stable, with conditions in most end-use applications unchanged from the sequential quarter, but improved compared to the prior year period.
The North America segment reported adjusted EBITDA of $370.5 million for the fourth quarter of fiscal 2022, which was largely unchanged on a sequential basis, and up 75 percent compared to $212.0 million in the prior year period. The year-over-year improvement was driven by record margins on steel products and a significant increase in the margin over scrap on sales of downstream products. Steel products have now experienced six consecutive quarters of year-over-year margin expansion. Controllable costs per ton of finished steel shipped were up modestly compared to the third fiscal quarter and increased relative to the prior year period, primarily as a result of higher per unit purchase costs for energy, alloys and freight.
Shipment volumes of finished steel, which include steel products and downstream products, followed typical seasonal patterns and were down slightly from the prior year period, due largely to destocking activities by customers as well as the slower pace of construction on numerous job sites stemming from staffing challenges. The average selling price for steel products increased by $204 per ton compared to the fourth quarter of fiscal 2021 while the cost of scrap utilized declined $47 per ton, resulting in a year-over-year increase of $251 per ton in steel product margin over scrap. Average pricing declined by $6 per ton from the previous quarter. The average selling price for downstream products increased by $334 per ton from the prior year period and $104 per ton on a sequential basis. Future pricing indicators on new work entering the backlog remain positive, as average price levels for bids and new awards climbed significantly from the prior year period.
The Europe segment reported adjusted EBITDA of $64.1 million for the fourth quarter of fiscal 2022, down 5 percent compared to adjusted EBITDA of $67.7 million for the prior year period. Average selling price increased by $125 per ton in the fourth quarter compared to the prior year period, while the cost of scrap utilized declined $13 per ton. The result was a year-over-year increase in margin over scrap of $138 per ton. The modest year-over-year decline in adjusted EBITDA occurred despite expanded margin over scrap, primarily due to lower shipment volumes, higher costs for energy and alloys, the negative earnings impact of selling higher cost inventory, and the impact of the weakening Polish Zloty in relation to the U.S. Dollar. Earnings levels remained historically strong, as the fourth quarter result was three times higher than the quarterly average adjusted EBITDA of the prior ten fiscal years.
Europe end market demand was mixed during the quarter. Polish construction activity continued to grow on a year-over-year basis, while industrial production across Central Europe has contracted for several months. Volumes during much of the fourth quarter were negatively impacted by a supply chain destocking cycle that occurred in the wake of widespread safety stock procurement by end users and intermediaries following the outbreak of war in Ukraine. The purchase of safety stock meaningfully benefited CMC’s shipments during the fiscal third quarter, but the fourth quarter experienced the opposite effect. This, however, appears to have subsided late in the quarter, as evidenced by a strong rebound in shipment volumes on both a sequential and year-over-year basis.
The recent investment in a third rolling mill has positioned CMC’s Europe segment well to navigate current volatility. The asset has provided improved operational and commercial flexibility, as well as enhanced margins by eliminating billet sales in favor of converting material to finished product.
The company’s new Tensar business generated EBITDA of $10.2 million during the fourth quarter. Excluding a $6.5 million charge to reflect the purchase accounting effect on inventory, EBITDA amounted to $16.7 million on net sales of $74.1 million, yielding a margin of 22.5 percent. Tensar’s financial performance is included within CMC’s existing operating segments, with North American results incorporated into CMC’s North America segment and all other operations included in the Europe segment.
Published in the December 2022 Edition
