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December 21st, 2007
- Reports
Irving Texas - Commercial Metals Company reports solid First Quarter.
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Commercial Metals Company today reported first quarter net earnings of $69.2 million on net sales of $2.1 billion for the quarter ended November 30, 2007. This compares with a record first quarter of the prior year with net earnings of $85.4 million on net sales of $1.9 billion in 2006. The largest swing in earnings for the quarter was at our International Mills CMC President and Chief Executive Officer Murray R. McClean said. With lower profitability at our Polish mill and start-up costs in Croatia, adjusting operating profit fell from $25.9 million in last year's first quarter to a slight loss this quarter. The current year quarter included a pre-tax LIFO income of $4.3 million compared with a LIFO expense of $10.1 million in the prior year quarter. Our outlook remains positive.
McClean continued, "The copper tube mill recorded an adjusted operating profit of $3.3 million, 4% lower than last year, on a 15% increase in sales. As residential housing remains weak, we continue to emphasize HVAC products. Pre-tax LIFO income was $1 million with no significant effect in the prior year. The average selling price increased 12 cents to $4.29 per pound, and metal spreads contracted 9 cents to $1.03 as scrap prices increased 21 cents to $3.26 per pound. Copper tube production increased 15% to 11.6 pounds while shipments rose 13% to 11.7 million pounds compared to last year's first quarter."
McClean said, "The combined operations of CMCZ (Poland) and CMCS (Croatia) were disappointing with a slight adjusted operating loss of 577 thousand as compared to last year's record $25.9 million. This quarter hopefully saw the bottoming of long product pricing for CMCZ (Poland). With continuing GDP growth rates of 6%, the economy attracted more than sufficient steel imports which are working their way through the distribution channels. The zloty remains strong, having gained against the Euro and the dollar during the quarter and compelled us to change our normal 60/40 split between domestic and export tonnage to closer to 80/20. Pricing had a downward trend during the quarter for all product lines, but merchants held up relatively better than rebar or wire rod. We shipped 70% more merchant bars this first quarter than the first quarter of last year.
"This was our first quarter of operations at CMCS (Croatia), acquired September 19, 2007. We inherited a strong workforce and a promising product line, but the mill had suffered such severe liquidity constraints over the last years that it can only be viewed as a turnaround. Our operating loss, representing both operating and start up activities, amounted to $4.5 million. We produced 4,900 tons and sold 8,900 tons during the quarter. The mill has a functional annual capacity of 330,000 tons."
McClean concluded, "Our second quarter (winter quarter) is likely to be our slowest quarter for fiscal 2008. In the U.S., our recycling business should benefit from higher ferrous scrap prices although flows are typically lower at this time of year. The nonferrous scrap business should be steady with respect to shipments with prices remaining volatile. Our steel mills in the U.S. should benefit from both higher shipments and higher selling prices although rapidly increasing ferrous scrap prices may cause a temporary margin squeeze. Our copper tube mill may be impacted by a period of destocking after Wolverine's announced plant closures. However, this situation should be short lived.
"Internationally, we forecast improving market conditions in Poland as steel prices increase and the destocking period ends," McClean added. "However, the very strong Polish zloty should continue to limit export opportunities. In Croatia, we anticipate a gradual improvement with an operating loss of $2 to $3 million. Our raw materials business should remain strong. Our steel distribution businesses in Asia, Europe and Australia should also be good.
"We anticipate global infrastructure and nonresidential construction growth rates to remain strong. U.S. nonresidential construction activity should remain similar to 2007. Rising iron ore and ferrous scrap prices should result in significant steel price increases. In global markets, pricing should be mainly demand driven whereas in the U.S., supply driven due to low levels of both steel inventory and steel imports. As well, high bulk freight rates and a weak U.S. dollar are likely to continue to be barriers to U.S. steel imports. We believe higher international steel prices are likely to be sustainable due to China's recent significant reduction in steel exports which should continue throughout 2008."
Commercial Metals Company and subsidiaries manufacture, recycle and market steel and metal products, related materials and services through a network including steel minimills, steel fabrication and processing plants, construction-related product warehouses, a copper tube mill, metal recycling facilities and marketing and distribution offices in the United States and in strategic international markets.
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