Steel and metals maker Commercial Metals Co. (CMC) on Tuesday reported a net loss for the third quarter compared to a profit in the year-ago period, as revenues more than halved reflecting weak end-use demand, and prices declined amid the economic slowdown. Looking ahead, the company anticipates results for the fourth quarter to be similar to the third quarter, and expects market conditions in the U.S. to "remain difficult" in the balance of calendar 2009.
Third-Quarter Results
The Irving, Texas-based company reported net loss of $13.08 million, or $0.12 per share, compared to net earnings of $59.48 million, or $0.51 per share, in the prior-year quarter.
The latest quarter's results include after-tax LIFO income of $29 million, or $0.26 per share, compared to LIFO expense of $83 million, or $0.71 per share, in the year-ago period. The company noted that lower prices and lower inventory quantities triggered LIFO income during the quarter.
LIFO is an inventory costing method that assumes the most recent inventory purchases or goods manufactured are sold first, which in periods of declining prices results in income that eliminates the effect of deflation from operating results.
The company's loss from continuing operations for the quarter was $10.67 million, or $0.10 per share, compared to earnings of $58.53 million, or $0.50 per share, in the year-ago quarter. On average, ten analysts polled by Thomson Reuters expected the company to report a loss of $0.14 per share for the third quarter. Analysts' estimates typically exclude special items.
While reporting its financial results for the second quarter in March, the company had said it expects a loss for the third quarter.
Total net sales for the quarter dropped 54% to $1.34 billion from $2.91 billion in the same period last year, and missed Wall Street analysts' consensus revenue estimate of $1.49 billion.
Murray McClean, Chairman, President and Chief Executive Officer of Commercial Metals, said, "Global metal markets may have tested the bottom during the quarter and though some recovery has occurred, the markets, overall, remain fragile. Any volume improvement in the quarter was seasonal and not reflective of any stimulus effect. Destocking appears to be in its last stages; however, end-use demand remains weak."
In response to price declines, falling demand and the global liquidity and credit crisis, Commercial Metals said that during the third quarter, it recorded expenses for market inventory adjustments of $27.0 million, charges relating to contractual noncompliance of $8.9 million, bad debt expense of $10.2 million and severance costs of $2.8 million.
Total costs and expenses for the third quarter dropped to $1.34 billion from $2.82 billion in the prior-year quarter.
Peer Performance
Last week, the company's peer Nucor Corp. (NUE) forecast net loss for the second quarter to be wider than the preceding first quarter due to continued lower operating rates, lower pricing and the consumption of high cost pig iron inventories at its sheet mills.
Nucor anticipates a loss for the quarter in the range of $0.55-$0.65 per share. The company posted earnings of $1.94 per share in the year-ago period, and a loss of $0.60 per share in the preceding first quarter. Analysts expect the company to report a loss of $0.63 per share on revenues of $2.33 billion for the quarter.
Segmental Results
Commercial Metals' Americas Recycling segment sales plummeted to $152.44 million from $628.62 million in the year-ago period. The company said that margin decreases on both ferrous and nonferrous sales in comparison to the year-ago period were two-thirds attributable to volume and one-third to price. Weak demand was outpaced by even weaker supply with a suffering domestic manufacturing base, the company noted.
Sales at Americas Mills plunged to $276.83 million from $519.55 million in the previous-year quarter. The company noted that metal margins eroded from the preceding second quarter, but remained at historically strong levels. Tons shipped increased from the prior quarter, but was more likely to be due to seasonal rather than sustainable demand, the company said.
At Americas Fab and Distribution segment, sales for the quarter dropped to $484.41 million from $751.87 million a year ago. The company noted that the decline in spot pricing coupled with customer liquidity issues led to unprecedented and unwarranted contract cancellations, market claims, price renegotiations and unanticipated inventory positions.
International Mills reported sales of $147.78 million, down from $341.47 million in the prior-year quarter. According to the company, weak international steel markets, metal margin compression, mill start-up costs and lower of cost or market inventory adjustments caused by rapidly falling sales prices negatively impacted results for the quarter.
International Fab and Distribution sales declined to $474.82 million from $1.09 billion last year. The segment suffered from inventory lower of cost or market adjustments and accruals on contract losses and other charges totaling over pre-tax $20 million.
Year-To-Date Results
For the nine months ended May 31, Commercial Metals reported net earnings of $13.62 million, or $0.12 per share, down from $168.42 million, or $1.43 per share, in the prior-year period.
Earnings from continuing operations for the period plunged to $11.06 million, or $0.10 per share, from $166.52 million, or $1.41 per share, in the year-ago period.
Total net sales for the year-to-date period dropped to $5.33 billion from $7.28 billion in the same period last year.
Outlook For the fourth quarter, Commercial Metals anticipates results to be similar to the third quarter. Analysts expect the company to report earnings of $0.12 per share on revenues of $1.56 billion for the quarter.
The company estimates that its domestic steel mills may operate at around 65% of capacity in the fourth quarter. Internationally, the company expects to see modest improvements in Poland as well as in its operations in Asia and Australia.
Commercial Metals noted that for the balance of calendar 2009, market conditions in the U.S. will remain difficult and added that there was very little evidence of stimulus dollars impacting demand. However, the company said that in 2010, it is likely the stimulus package will impact infrastructure spending and thus increase demand for steel long products such as rebar. Stock Quotes
In Tuesday's regular trading session, CMC is currently trading at $14.45, up $0.24 or 1.69% on a volume of 0.47 million shares. In the 52-week period, the stock has been trading in a broad range of $6.25 to $39.80.
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