• Net Loss: $175.7 million or $1.54 per diluted share.
• Adjusted Earnings: $88.5 million or $0.78 per diluted share, excluding litigation charge.
• Revenue: $1.9 billion.
• Litigation Expense: $264 million after-tax charge.
• Consolidated Core EBITDA: $210.7 million.
• Core EBITDA Margin: 11%.
• Return on Invested Capital: 8.4% trailing 12-month.
• North America Steel Group Adjusted EBITDA: $188.2 million.
• Europe Steel Group Adjusted EBITDA: $25.8 million.
• Emerging Business Group Net Sales: $169.4 million.
• Cash and Cash Equivalents: $856.1 million.
• Total Liquidity: Just under $1.7 billion.
• Cash from Operating Activities: $213 million.
• Capital Expenditures: $118.2 million.
• Net Debt to Adjusted EBITDA Ratio: 0.6 times.
• Net Debt to Capitalization: 6%.
• Share Repurchases: Approximately 919,000 shares at $54.83 per share.

• Warning! GuruFocus has detected 3 Warning Sign with CMC.

Release Date: January 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• CMC's underlying financial performance remained historically strong despite a reported net loss due to litigation expenses.
• The North America Steel Group experienced strong late-season demand for rebar, driven by favorable weather conditions.
• CMC's Europe Steel Group returned to profitability with the receipt of an annual CO2 credit.
• The company is executing over 150 initiatives under its TAG program, aiming to improve margins and operational efficiency.
• CMC's Arizona 2 facility achieved two consecutive monthly production records, indicating progress in its new micro mill capabilities.

Negative Points

• CMC reported a net loss of $175.7 million for the first quarter, primarily due to a $264 million after-tax charge for litigation expenses.
• Economic uncertainty has impacted new construction activity, pressuring steel pricing and margins in North America.
• Profitability for CMC's emerging businesses group softened due to project delays and a lower margin sales mix.
• The Europe Steel Group continues to face challenging business conditions, with margins under pressure from increased imports.
• Customers remain hesitant to award new contracts, resulting in an overhang on steel pricing and margins.

Q & A Highlights

Q: How should we look at North American steel product shipments for Q2 compared to last year, considering the late-season construction activity and the Arizona 2 mill ramping up? A: Expect a normal seasonal trend between Q1 and Q2, generally about 5% to 10% lower, leaning towards the higher end since we're starting from a higher place. - Peter Matt, CEO

Q: Can you provide more color on the project delays in the emerging business group, particularly for Tensar? Are these delays limited to Europe or more broad-based? A: The delays are broad-based, affecting both North America and other regions. These are lumpy projects, and the delays have impacted earnings this quarter. However, we expect these projects to move forward later in the year, shifting revenue and earnings into Q3 or Q4. - Peter Matt, CEO

Q: Regarding the TAG initiatives, you mentioned benefits of $10 million to $15 million annually. Will these be realized in fiscal year '25? A: These numbers are run rate estimates. We expect TAG benefits in fiscal 2025, but we haven't quantified the totality yet. We are in the middle of Phase 1 initiatives and want to pressure test them before detailing the program. - Peter Matt, CEO

Q: With the expected increase in CapEx, is the current level of share buybacks sustainable over the next few quarters? A: Yes, we believe it is sustainable. We aim for a balanced capital allocation strategy and intend to be consistent with our share repurchase program over roughly three years. - Peter Matt, CEO

Q: What are your expectations for the second half of the fiscal year regarding construction recovery and specific areas driving it? A: We are optimistic due to general optimism and high bidding activity. Infrastructure spending is strong, and manufacturing spending has renewed momentum. The Dodge Momentum Index suggests design phase projects will become real soon. Residential demand is expected to improve in 2025. - Peter Matt, CEO

Q: What is your view on the additional rebar supply capacity expected to come online later this fiscal year? Can additional demand offset this supply? A: We believe the real new supply is not significant. Highbar's capacity will start in the second half of 2025, and other capacities are replacing existing ones. We are confident in absorbing the incremental capacity given the demand profile. - Peter Matt, CEO

Q: How should we think about the mix of new capacity between growth and replacement, considering the additional 1 million tons from Arizona and West Virginia? A: Arizona 2 replaces the capacity from our idled California plant. West Virginia represents some expansion in an underrepresented market. We expect rebar demand to grow, and we are positioned to fulfill that need. - Peter Matt, CEO

Q: If European demand remains structurally weak, what levers can you pull beyond TAG initiatives? A: We can further reduce operational costs and streamline operations. However, we believe in a recovery in Europe, driven by an end to the Ukraine conflict and economic recovery in Germany. Our Polish operations are well-positioned to benefit from such a recovery. - Peter Matt, CEO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.