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Construction boosts CMC outlook

Keywords: Tags  Commercial Metals, CMC, Joseph Alvarado, quarterly earnings, Trinecke Zelezarny, electric furnace, South Carolina mill, steel long products

CHICAGO — Commercial Metals Co. (CMC) expects better results in the year ahead as demand improves and cautious customers keep inventories low after fiscal first-quarter earnings were squeezed by economic uncertainty and an extended outage at its South Carolina mill.

"There is growing evidence of an emerging recovery in domestic construction end markets, which is encouraging for future quarters," CMC chairman, president and chief executive officer Joseph Alvarado said Monday in commentary released with the company’s quarterly earnings results.

Alvarado was quick to note that the fiscal second quarter is historically the weakest of the year for CMC as a whole because of holiday slowdowns and winter weather, which limit construction activity, the main end market for CMC’s products. And while CMC’s Americas Recycling business could benefit from scrap prices that typically recover during the same quarter, that same trend could put a lid on profit margins at the Irving, Texas-based company’s mill and fabrication operations, he warned.

CMC’s International Mill segment is unlikely to provide any relief in the near term, especially given "deteriorating conditions in the eurozone," Alvarado said. In addition, CMC’s International Marketing and Distribution segment will probably experience "continued softness" until "there is more clarity around the economic direction in both domestic and international markets."

CMC recorded net income of $49.7 million for the three months ended Nov. 30, down 53.9 percent from $107.7 million in the same period last year, on net sales that declined 9.9 percent to $1.79 billion from $1.99 billion.

Abroad, the company notched a $26.1-million pre-tax gain from the November 2012 sale of its stake in Czech long products firm Trinecke Zelezarny AS (, Nov. 5). But at home, it lost $5.5 million due to an outage to install a new electric-arc furnace at its steel mill in Cayce, S.C. (, Oct. 25), the primary reason CMC’s Americas Mills division was hit with higher costs despite improvements in shipping volumes and metal margins, CMC said.

CMC’s Americas Mills segment posted an operating profit of $52.5 million during the quarter, down 9.3 percent from $57.9 million in the same three-month span last year.

However, CMC stressed that all segments remained profitable for the third consecutive quarter. That includes its Americas Fabrication division, which posted an adjusted operating profit of $10.2 million in contrast with an operating loss of nearly $7.4 million in the same year-ago quarter.

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