CMC(CMC) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - CMC reported net earnings of $119.4 million or$1.02 per diluted share on net sales of $2.1 billion, compared to$234 million and $1.98 per diluted share in the prior year [6][27] - Consolidated core EBITDA for the quarter was$256.1 million, down from $384.5 million in the prior year, with a core EBITDA margin of 12.3$246.3 million, with a margin of 14.7%, down from 20.2% in the prior year due to lower margin over scrap costs [43] - The Emerging Business Group reported net sales of $188.6 million and adjusted EBITDA of$38.2 million, unchanged year-over-year, but up 20.9% sequentially [44] - The Europe Steel Group reported an adjusted EBITDA loss of $4.2 million, an improvement from a loss of$8.6 million in the prior quarter [12] Market Data and Key Metrics Changes - Construction activity in North America remains healthy, with a seasonal uplift in rebar demand and stable to moderately improving steel product margins [7][8] - The Dodge Momentum Index remains 40% above pre-pandemic levels, indicating a strong pipeline of future construction projects [7] - In Europe, the Polish market is showing signs of recovery, with GDP growth expected to reach nearly 3% in 2024 [9] Company Strategy and Development Direction - CMC aims to achieve sustainably higher margins through operational excellence, pursue organic growth opportunities, and consider inorganic growth to broaden its commercial portfolio [22] - The company is focused on capital allocation that balances growth investments and shareholder returns, having returned approximately $186 million to shareholders in the first three quarters of fiscal 2024 [45] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the favorable business environment driven by structural demand trends in North America, which are expected to support construction activity for years [5][31] - The company anticipates stable financial results in the fourth quarter, with flat finished steel shipments in North America and continued improvement in Europe [46] Other Important Information - CMC is reducing its fiscal 2024 capital spending outlook to between$400 million and $425 million, down from a previous estimate of$550 million to 600 million [13] - The company is experiencing a significant housing shortage in the U.S., estimated at 1.5 million to 3 million units, which could drive future rebar consumption [8] Q&A Session Summary Question: What is the pricing and margin outlook for North American downstream products? - Management expects margins to remain relatively stable, despite potential downward pricing trends due to historical pricing contracts [48] Question: How should we think about total CapEx for next year? - Initial guidance suggests CapEx for 2025 will likely increase to around 600 million to $650 million [49] Question: What is the market situation in the U.S. regarding construction? - Management noted strong bidding levels and bookings, with stable margins despite some erosion in pricing and scrap costs [54][55] Question: How does the M&A pipeline look, especially in Europe? - Management is exploring opportunities in early-stage construction solutions and is cautious about growth in Europe due to challenging market conditions [64][76] Question: What is the exposure to interest rates in construction? - Approximately half of the portfolio has some exposure to interest rates, with infrastructure demand remaining strong while non-residential and residential sectors are more sensitive [81] Question: What is the expected ramp-up for the Arizona mill? - The Arizona mill is expected to achieve 75% capacity utilization on average for the year, with a focus on rebar production initially [40][77]