Commercial Metals (CMC) Up 3.3% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Commercial Metals (CMC). Shares have added about 3.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Commercial Metals due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Commercial Metals Q1 Earnings Top Estimates, Dip Y/Y

Commercial Metals reported adjusted earnings per share (EPS) of $1.63 for first-quarter fiscal 2024 (ended Nov 30, 2023), beating the Zacks Consensus Estimate of $1.43. The bottom line fell 27% from the prior-year quarter’s $2.24.

Including one-time items, CMC reported an EPS of $1.49 in the quarter compared with the prior-year quarter’s $2.20.

Net sales in the reported quarter were $2,003.1 million, down 10% from the year-ago quarter’s $2,227.3 million. The reported figure surpassed the Zacks Consensus Estimate of $1,902.6 million.

The cost of goods sold in the quarter was down 6.7% from the year-ago quarter’s reading to $1,604 million. The gross profit was down 21.5% from the year-ago quarter’s level to roughly $399 million during this period. The core EBITDA was $325.3 million in the fiscal first quarter, down 23.5% from the year-ago quarter. Our model predicted core EBITDA to be $223 million for the quarter. The decline mainly resulted from the continued challenging market in Europe, partially offset by the solid demand for finished steel products in North America.

Segmental Performance

To better reflect its operations, CMC realigned its reporting structuring starting from the first quarter of fiscal 2024. It now reports under three segments — North America Steel Group, Europe Steel Group and Emerging Businesses Group.

The North America Steel Group segment generated net sales of roughly $1,593 million in the fiscal first quarter compared with $1,664 million in the prior-year quarter. The segment registered an adjusted EBITDA of around $267 million compared with the year-earlier quarter’s $350 million.

The Europe Steel Group segment’s revenues were $225 million, down 42% from the year-ago quarter. The adjusted EBITDA was around $39 million in the fiscal first quarter compared with the year-ago quarter’s $61 million.

The Emerging Businesses Group segment generated net sales of around $177 million in the fiscal first quarter compared with $170 million in the prior-year quarter. The segment registered an adjusted EBITDA of $30.9 million compared with the year-earlier quarter’s $31 million.

Financials

Commercial Metals reported cash and cash equivalents of roughly $705 million at the end of first-quarter fiscal 2024 compared with $592 million at the end of fiscal 2023. CMC’s long-term debt was around $1,120 million at the end of the first quarter of fiscal 2024 compared with $1,114 million at the end of fiscal 2023. Cash generated from operating activities was roughly $261 million in the quarter compared with $372 million in the prior-year quarter.

CMC repurchased shares worth $28.4 million in the quarter under review. As of Nov 30, 2023, $58.3 million remained under the current share buyback authorization.

Outlook

The company expects margins on steel products to experience some further compression in the fiscal second quarter, partially offset by the recent price announcements, which is likely to support an inflection and improved margins in the upcoming quarters. CMC anticipates downstream product margins to be sequentially stable in the second fiscal quarter.
Conditions in Europe are expected to remain challenging. However, adjusted EBITDA, excluding energy rebates, is expected to increase from the previous two quarters.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -24.68% due to these changes.

VGM Scores

Currently, Commercial Metals has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Commercial Metals has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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