Commercial Metals Company reports loss of $1.53 per share for Q2

Net loss for the six months ended February 28, 2010, was $204.5 million or $1.81 per diluted share, including a loss of $163.9 million or $1.45 per diluted share from continuing operations. For the same period last year, net earnings were $26.7 million or $0.23 per diluted share, including earnings from continuing operations of $7.6 million or $0.07 per diluted share.

"Our second fiscal quarter is always our weakest due to seasonal factors," said CMC Chairman, President and Chief Executive Officer Murray R. McClean.  "However, this year it has been compounded by weak end-use demand in the nonresidential construction markets, unusually severe winter conditions in the U.S. and Europe, and rapidly rising ferrous scrap prices which have outpaced finished goods prices. Increases in ferrous scrap pricing are generally good trends, but the extreme volatility in price changes since December is causing short-term margin squeezes at our steel mills and fabricating operations, both domestically and internationally. During the quarter, we decided to exit the joist and deck business; the outlook for these products continues to be weak and what volume exists is at shrinking margins. We believe we can more profitably invest this capital in other downstream operations. Joist and deck will be accounted for as discontinued operations. The bright spot for the quarter was our International Marketing and Distribution segment, which was profitable.

"Average ferrous and nonferrous scrap sales prices reached their highest levels in six quarters," continued McClean.  "The average ferrous scrap sales price for the second quarter was $257 per short ton, a +59 percent increase over the prior year second quarter. Shipments of ferrous scrap totaled 506,000 tons, an increase of +16 percent from the second quarter of last year. We exported 9 percent of our ferrous scrap tonnage during the quarter."

In terms of the Americas steel mills, McClean said, "Our steel mills had an adjusted operating loss of $16.1 million compared to an adjusted operating profit of $71.1 million in the same quarter last year. The price of ferrous scrap consumed at the mills during the quarter increased $71 per ton compared to last year, and average selling prices decreased $116 per ton. Sales volumes were 521,000 tons of which 101,000 tons were billets (compared with 33,000 tons of billets sold in the second quarter of last year). On a second quarter to second quarter basis, tonnage melted was up 45% to 486,000 tons, while tonnage rolled increased 81,000 tons to 399,000 tons."

McClean said, "Our Americas Fabrication segment is suffering the inevitable margin compression associated with a contractual backlog in a period of rising prices. Reserves accrued for possible losses on contracts were $24.0 million, should pricing stay at current levels. Additional negative factors were weak end-use markets resulting in lower steel demand, increased competition, and bad weather. Fundamental issues remain - no effective stimulus for construction, lack of customer liquidity, high unemployment and building vacancy rates, and state budget woes. The segment reported an adjusted operating loss of $57.3 million compared to last year's second quarter adjusted operating income of $49.7 million."

In closing, McClean said, "We anticipate our fiscal third quarter results to benefit substantially from a seasonal pickup in demand in the nonresidential construction markets. The private sector of the nonresidential markets remains weak; however, there is some improvement in the public sector. We anticipate the public sector of the nonresidential markets to improve further in the second half of calendar 2010 as projects funded by stimulus dollars are awarded.

"Our third quarter results are likely to be impacted negatively early on by rapidly rising scrap prices, causing a further margin squeeze at the mills and, subsequently, at the fabricators, though our recycling operations will benefit. By quarter end, our mills should recover due to a combination of improving shipments, higher prices, higher capacity utilization and an improvement in metal margins. We estimate mill utilization rates in the third quarter to be 67%."

McClean continued, "Inventory levels in the supply chain remain relatively low, and we would anticipate finished goods prices (e.g., rebar and merchants) to continue to increase as seasonal restocking occurs. Demand in China and most of Asia has strengthened after the Chinese New Year, and we would anticipate the trend of rising raw material and steel prices to continue for the next one or two months. This will be beneficial to our marketing and distribution operations."