The continued strength of the US non-residential construction sector contributed to a strong Americas mills and fabrication business for Commercial Metals Company (CMC).
CMC projects construction and infrastructure demand to remain strong based on customer sentiment and its fabrication backlog. During the quarter, a strong demand and metal margins in the Americas mills segment increased its net sales by 8pc to $1.4bn compared with the same quarter last year. It indicated that Q2 will be impacted by seasonality related to holidays and weather affecting construction.
Its metal margin is expected to remain above the historical cycle average but will decline from Q1 levels. Its fabrication business is expected to remain profitable, with ferrous scrap recycling benefiting from the rebound in prices.
In Q1, the metals recycler and fabricator’s volumes increased 42pc compared to the prior year period due to extra production from acquired facilities. But its Americas recycling segment posted an adjusted EBITDA of $3.4mn compared to $15.4mn in the prior year quarter, due to the average decrease of 33pc in ferrous prices.
Its Americas mills adjusted EBITDA for Q1 increased 36pc to $155mn in Q1 compared with $113.9mn in Q1 2019 while the US fabrication segment turned a profit of $17.5mn from a loss of $37mn during the same quarter last fiscal. The segment’s turnaround was attributed to a 12pc increase in average selling price to $976/nt in Q1—compared to the same quarter in the prior year period—as well as declining rebar input. Together, both these factors resulted in a strong margin increase compared to recent quarters.
The company’s Q1 earnings from continuing operations increased 109pc to $82.8mn compared to the prior year period of $19.4mn. A net charge (after taxes) of $5mn from ending melting operations at CMC’s Rancho Cucamonga, California, facility is not included in these figures.
However, the company expects the challenges facing its Polish operations to remain due to the current overhang of imports to the European Union. In Q1 its Polish operations were impacted by a compression of metals margins due to increased imported product into Europe. CMC’s Poland operations’ adjusted EBITDA declined to $11.4mn during the quarter compared to $32.8mn in the prior year period.
The company also indicated that shipment volumes declined compared to the previous year, due to lack of healthy billet sales in Q1 of fiscal 2019. Despite lower shipment volumes during the quarter, CMC’s Polish operations have reduced conversion costs compared to the prior year period.
On a corporate level, CMC’s loss decreased to $27.5mn in Q1 compared to a loss of $59.6mn in the prior year quarter.