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Commercial Metals Q1 Profit Soars On Tax Benefit - Update

Commercial Metals Q1 Profit Soars On Tax Benefit - Update
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1/6/2012 9:20 AM ET

Steel and metal products maker Commercial Metals Co. (CMC: Quote) reported Friday a profit for the first quarter that soared from last year, boosted by an income tax benefit and quarterly sales growth. Looking ahead, the company said the second quarter is historically its weakest due to seasonal factors, but anticipates some positive factors to boost results.

"We achieved another quarter of profitability, reflecting the continued effective execution of our business plan and the fact that this plan is beginning to yield positive results," Chairman, President and CEO Joe Alvarado said in a statement.

The Irving, Texas-based company reported net earnings of $107.73 million or $0.93 per share for the first quarter, sharply higher than $0.65 million or $0.01 per share in the prior-year quarter.

Earnings from continuing operations for the quarter climbed to $125.05 million or $1.07 per share from $14.89 million or $0.13 per share in the year-ago quarter.

The results for the latest quarter included an tax benefit of $102.0 million or $0.87 per share related to ordinary worthless stock and bad debt deductions from the company's investment in its Croatian subsidiary.

On average, 11 analysts polled by Thomson Reuters expected the company to report earnings of $0.16 per share for the first quarter. Analysts' estimates typically exclude special items.

In early October, Commercial Metals decided to exit its Croatian pipe mill business by closure of the facility and sale of the assets, with production in the melt shop and rolling mill ceasing in the first quarter, and final shipments to be made in the second quarter.

Total net sales for the quarter increased to $1.99 billion from $1.78 billion in the same quarter last year, but missed nine Wall Street analysts' consensus estimate of $2.05 billion.

Americas Recycling reported sales that grew to $414.81 million from $375.80 million and sales at Americas Mills also increased to $525.50 million from $435.40 million last year.

At Americas Fabrication, sales grew to $319.77 million from $287.75 million in the prior-year quarter, and International Mills sales also increased to $296.18 million from $217.19 million in the year-ago quarter.

International Marketing and Distribution sales were $710.07 million, up from $645.91 million a year ago.

All of the company's segments fared better in operational results this quarter compared to the year-ago quarter, except International Marketing and Distribution, with Americas Mills being the most profitable segment.

The results for the latest quarter was boosted by an income tax benefit of $95.33 million, compared to an income tax expense of $6.73 million last year.

On Thursday, the company declared a quarterly dividend of $0.12 for shareholders of record on January 20, payable on February 3, 2012.

"Our second quarter is historically our slowest quarter due to weather-related slowdowns in construction and holiday seasons around the world. That said, we expect scrap prices to rise in the second quarter of 2012, which should benefit our recycling operations; however, our mills and fabrication operations could temporarily experience metal margin compression," Alvarado added.

Meanwhile, activist investor Carl Icahn has been eying the company since November, after he rapidly acquired some stake in the company. Icahn initially made the proposal on November 28, which was rejected by Commercial Metals on December 5. Icahn then took the buyout offer directly to shareholders by commencing a tender offer for all of the outstanding shares of common stock at $15.00 per share or a total consideration of $1.73 billion.

CMC closed Thursday's regular trading session at $14.42, up $0.10 on a volume of 1.89 million shares, higher than the three-month average volume of 1.93 million shares. In the past 52-week period, the stock has been trading in a range of $8.64 to $18.20.

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by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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