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CMC eyes more profitability ahead

Keywords: Tags  Commercial Metals, Joseph Alvarado, Barbara Smith, earnings conference call, steel, imports, rebar, construction Michael Cowden

TORONTO — Commercial Metals Co. (CMC) expects to remain in the black in its fiscal third quarter as business activity, even in challenged markets like the western United States and Florida, show signs of improving, its top executive said.

"We forecast the third quarter of 2012 to be another profitable quarter," CMC president and chief executive officer Joseph Alvarado said Wednesday during a conference call with analysts.

CMC’s mills operated at 77 percent of capacity during the fiscal second quarter ended Feb. 29 vs. 73 percent in the year-ago period, Alvarado said.

The company’s mill in Mesa, Ariz., recorded another profitable quarter thanks in part to improving markets in the long-beleaguered western United States. CMC hopes to "harvest" profits from facilities like the Arizona mill that came online during the financial crisis and are now bearing fruit, Alvarado said.

Alvarado and CMC chief financial officer Barbara Smith appeared cautiously optimistic about this year’s prospects for its U.S. mills.

Alvarado noted a slight improvement in commercial construction, but admitted the sector remained nothing like it was four years ago.

"There is some optimism for continued market recovery. All regions are reporting growth in private-sector projects," he said. On the fabrication front, however, as much as 70 percent of business is largely tied to public projects.

But a mild winter saw projects across the board pulled forward, and even the troubled Florida construction market has shown signs of life, including for hotels and commercial space, Alvarado said. "It’s hard to believe, but there is more activity along those lines."

On the East Coast, there is more commercial construction activity than public, he said, stressing the importance of passing a comprehensive transportation bill instead of temporary extensions, which don’t "move the needle" in terms of demand.

Metal margins are also improving, CMC said. Metal margins at the company’s mills jumped to $334 per ton in the fiscal second quarter compared with $322 per ton in the preceding quarter and $289 per ton in the same quarter last year, Smith said.

While mills in the Americas generally reported stronger results, CMC’s adjusted operating profits at its copper tube mill in New Market, Va., dwindled to $2.5 million in the fiscal second quarter from $4 million a year earlier as average copper prices fell to $4.34 per pound from $4.92 per pound, she said.

Alvarado also voiced some mild concern about rebar imports from Turkey, noting that countries like Mexico and Turkey have traditionally played a role in the U.S. market and will likely again if demand continues to improve. The company will monitor the behavior of Turkish mills and "do what we need to do" if it sees import prices that don’t make sense, he added.

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