Commercial Metals Company (CMC) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents mixed signals. The company has shown improvements in certain areas such as Emerging Business Group's performance and Europe Steel Group's turnaround. However, challenges persist with declining margins in North America and delays in the West Virginia mill. The Q&A revealed concerns about operational challenges and market uncertainties, particularly in pricing and inorganic growth. Despite positive long-term demand expectations and share repurchases, the lack of strong near-term catalysts and mixed financial performance suggest a neutral outlook.
Key Financial Performance
Net Earnings $83.1 million, a decrease from $119.4 million in the prior year period. The decline was attributed to lower margins over scrap and other factors.
Net Sales $2 billion, no year-over-year comparison provided.
Adjusted Earnings $84.4 million or $0.74 per diluted share, compared to $119.6 million or $1.02 per diluted share in the prior year period. The decline was due to lower margins over scrap and other factors.
Consolidated Core EBITDA $204.1 million, a decline from $256.1 million in the prior year period. The decrease was driven by lower margins over scrap in the North American Steel Group.
Core EBITDA Margin 10.1%, compared to 12.3% in the prior year period. The decline was due to lower margins over scrap.
North American Steel Group Adjusted EBITDA $186 million, a 24% decrease compared to the prior year period. This was driven by lower margins over scrap cost on steel and downstream products.
North American Steel Group Adjusted EBITDA Margin 11.9%, compared to 14.7% in the prior year period. The decline was due to lower margins over scrap.
Emerging Business Group Net Sales $197.5 million, a 4.7% increase year-over-year. The increase was driven by strong demand for proprietary products within the performance reinforcing steel division.
Emerging Business Group Adjusted EBITDA $40.9 million, a 7% increase year-over-year. The improvement was driven by strong demand for proprietary products and a higher mix of sales from performance reinforcing steel.
Europe Steel Group Adjusted EBITDA $3.6 million, compared to a loss of $4.2 million in the prior year period. The improvement was driven by cost management efforts and increased shipment volumes.
Cash and Cash Equivalents $893 million as of May 31, 2025, no year-over-year comparison provided.
Cash from Operating Activities $154.4 million during the quarter, no year-over-year comparison provided.
Capital Expenditures $89.5 million during the quarter, primarily driven by construction activity related to the Steel West Virginia micro mill project.
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Operating Highlights
Proprietary Products: Shipments increased year-over-year for InterAx, Geogrid, GalvaBar, ChromX, and CryoSTEEL reinforcing solutions, as well as CMC anchoring systems. These products offer benefits like reduced construction costs, labor usage, and CO2 emissions.
Geogrid Expansion: CMC is increasing Geogrid manufacturing capacity to meet demand, with completion expected within 18 months.
GalvaBar Coating Line: A second GalvaBar coating line is being added to enhance production capabilities, expected to be operational within 18 months.
North America Market: Construction and industrial activity remained resilient, with year-over-year growth in finished steel shipments. Infrastructure demand is strengthening, particularly in Sunbelt states.
Europe Market: Improved conditions due to reduced import flows and growing construction demand. Shipment volumes reached the highest level in nearly two years.
TAG Program: Operational excellence initiatives under the TAG program are expected to yield $50 million in EBITDA benefits for fiscal 2025 and over $100 million annually when fully realized.
Cost Management in Europe: Efficiency gains in Poland operations, including labor, consumable usage, and maintenance, have improved cost management.
Steel West Virginia Project: Construction of the Steel West Virginia micro mill is ongoing, with production expected to begin in spring 2026. This project is expected to contribute significantly to EBITDA.
Inorganic Growth: CMC is targeting acquisitions in early-stage construction markets with EBITDA margins above 20% and free cash flow conversion above current levels. Potential targets are valued between $500 million and $750 million.
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Risk or Challenges
Economic Uncertainty and Interest Rates: Economic uncertainty and elevated interest rates are causing delays in project starts and hesitation among project owners to award new contracts. This is impacting both nonresidential and residential market segments.
Tariffs and Trade Policies: Tariffs are creating near-term uncertainty, delaying some projects not under contract. Additionally, a trade case alleging dumping by exporters from Algeria, Bulgaria, Egypt, and Vietnam could impact market dynamics.
Supply Chain and Weather Delays: Construction delays at the Steel West Virginia project due to weather and adjustments for tax credit eligibility have pushed back the timeline for melt shop production to spring 2026.
European Market Challenges: The Europe Steel Group has faced challenging market conditions, including reduced import flows and the need for extensive cost management to remain cash flow breakeven.
Profitability Pressures: Lower margins over scrap costs and delays in certain projects have negatively impacted profitability in North America and the Emerging Business Group.
Capital Allocation Risks: Delays in capital expenditures and reliance on tax credits under the Inflation Reduction Act could impact project timelines and financial planning.
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Guidance & Outlook
TAG Program: The TAG program is expected to yield approximately $50 million of EBITDA benefit in fiscal year 2025 relative to a fiscal year 2024 baseline. Looking ahead, initiatives are expected to provide annual run rate EBITDA benefits of over $100 million when fully realized.
Organic Growth: The Arizona 2 and Steel West Virginia mill investments are expected to contribute a combined incremental EBITDA of over $150 million compared to current levels. Completion of the Steel West Virginia micro mill is anticipated in spring 2026, with targeted run rate profitability improving ROIC by approximately 150 basis points.
Inorganic Growth: CMC is targeting acquisitions in the $500 million to $750 million range, focusing on adjacencies in the early-stage construction market with EBITDA margins above 20% and high free cash flow conversion.
North America Steel Group: Finished steel shipments are expected to follow normal seasonal trends in Q4 2025, with adjusted EBITDA margin anticipated to increase sequentially due to higher steel product margins over scrap.
Emerging Businesses Group: Financial results are expected to improve sequentially and year-over-year in Q4 2025, driven by project backlog and demand for proprietary products.
Europe Steel Group: Adjusted EBITDA is expected to increase sequentially in Q4 2025, supported by improved market fundamentals and cost management efforts. A CO2 credit of approximately $28 million will also be received in Q4 2025.
Capital Expenditures: Fiscal 2025 capital spending is now expected to be between $425 million and $475 million, down from previous guidance of $550 million to $600 million due to timing adjustments and weather delays at the Steel West Virginia project.
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Shareholder Return Plan
Dividend Program: CMC returned approximately $71 million to shareholders during the third quarter, which includes dividends. The company emphasizes providing shareholders with attractive cash distributions.
Share Repurchase Program: CMC repurchased approximately 1.1 million shares at an average price of $45.30 per share during the third quarter. As of May 31, $254.9 million remained available for repurchase under the current authorization.
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Key Q&A
Q:What drove the lower-than-expected steel product volumes in the North American segment during Q3, and what is the outlook for Q4?
A:The lower-than-expected steel product volumes in Q3 were due to outages late in the quarter, challenges in recovering from those outages, lower inventories, and higher costs. For Q4, volumes are expected to be flattish to slightly up from Q3, following a normal seasonal trend.
Q:Are U.S. rebar prices gaining traction, and is there room for further price hikes?
A:Management did not directly discuss price specifics but emphasized their focus on value over volume and balancing customer needs, returns, and incentivizing Buy America. They will continue to monitor and adjust pricing as appropriate.
Q:What is the current status and future outlook for Arizona 2, including utilization rates and profitability?
A:Arizona 2 made good progress in Q3, with utilization expected to exit the year at 70%-75%. The plant is producing 75% of MBQ SKUs by volume and is expected to be profitable in Q4. The target mix for next year is 350,000 tons of rebar and 150,000 tons of merchant bar, but this may adjust based on market conditions.
Q:Why has the West Virginia mill ramp-up been delayed, and what is the updated timeline and CapEx outlook?
A:The delay is due to compliance with Department of Energy requirements for an $80 million tax credit, which improves project returns. The hot commissioning phase is planned for the first half of next year. CapEx for next fiscal year is expected to be $550 million gross, with $300 million allocated to West Virginia.
Q:What are the expected transaction multiples for potential inorganic growth opportunities, and what is the timeline for completing a deal?
A:Transaction multiples for potential acquisitions are higher than CMC's current multiple due to the higher margins and growth potential of target businesses. Management is engaged in several processes, some mature and others just starting, but timing is uncertain.
Q:What is the outlook for European shipments and mix in Q4, and what are the broader market conditions in Europe?
A:European shipments are expected to remain strong in Q4, with a focus on MBQ due to better margins. Broader market conditions are improving, with infrastructure spending in Poland and Germany expected to drive demand.
Q:How is the backlog pricing for fabrication evolving, and what measures are being taken to improve the business?
A:Booking prices for fabrication are expected to increase in Q4, following rebar price trends. Management is focusing on operational excellence, value over volume, and addressing duration risk to improve profitability through escalators and better market discipline.
Q:Why didn’t CMC buy back more shares in Q3, and what is the outlook for share repurchases?
A:CMC is prioritizing maintaining a strong financial position for strategic growth initiatives. The company plans to execute its buyback program over 2-3 years, with no changes to this commitment.
Q:Review of Unclear Management Responses
A:Management avoided directly answering the question about U.S. rebar prices gaining traction and the potential for further price hikes. They emphasized their focus on value over volume and balancing various factors but did not provide specific details on pricing trends or future adjustments.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
CMC investment
Capital Markets
Conference
EBG segment
GalvaBar
Geogrid solution
Inc Research
Research Division
Segment result
Virginia micro
business group
calendar
concern
contract
core margin
criterion
delay project
demand side
duration
end market
game
hesitation
impact term
market exposure
market opportunity
mill investment
mill project
network
overlap
path
product adoption
run rate
tag
target program
tax credit
term impact
trough
uncertainty interest
understanding
CMC Transcript
Commercial Metals Company (CMC) Q1 2026 Earnings Call Transcript
Positive1-8
The earnings call indicates strong financial performance with positive surprises from recent acquisitions and no unexpected negatives. The market can absorb new supply, and initiatives like TAG and scrap sorting are expected to improve margins. Despite typical seasonal declines, the outlook remains optimistic with substantial demand and strategic investments. While guidance on D&A was unclear, overall sentiment is positive with expected EBITDA growth and improved margins, suggesting a potential stock price increase of 2% to 8% over the next two weeks.
Commercial Metals Company (CMC) Q4 2025 Earnings Call Transcript
Unknown10-16
The earnings call summary suggests a mixed outlook. While there are strong financial metrics and optimistic guidance for certain segments, concerns about margin improvements, seasonal challenges, and cautious capital allocation impact sentiment. The Q&A section reveals uncertainties in margin improvements and vague management responses, which temper positive aspects. The lack of clear guidance on some issues and the focus on debt reduction over immediate shareholder returns contribute to a neutral sentiment. Without market cap data, a more precise prediction is difficult, but overall, the sentiment is balanced.
Commercial Metals Company (CMC) Q3 2025 Earnings Call Transcript
Unknown6-23
The earnings call presents mixed signals. The company has shown improvements in certain areas such as Emerging Business Group's performance and Europe Steel Group's turnaround. However, challenges persist with declining margins in North America and delays in the West Virginia mill. The Q&A revealed concerns about operational challenges and market uncertainties, particularly in pricing and inorganic growth. Despite positive long-term demand expectations and share repurchases, the lack of strong near-term catalysts and mixed financial performance suggest a neutral outlook.
Commercial Metals Company (CMC) Q2 2025 Earnings Call Transcript
Neutral3-20
CMC Slides
CMC Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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