Irving, Texas – CMC’s Financial Struggles and Legal Setback

CMC (Commercial Metals Company), based in Irving, Texas, has reported a significant financial loss of $175.7 million for the period from September through November 2024, marking the first quarter of its fiscal year 2025. This loss, which equates to $1.54 per diluted share, contrasts sharply with a profit of $176.3 million or $1.49 per diluted share during the same period in 2023. The primary reason for this setback was a major legal issue in California, which led to significant litigation expenses.

Legal Verdict Contributing to Financial Strain

In November 2024, CMC faced a legal judgment related to a restraint-of-trade case filed by Pacific Steel Group, a steel rebar fabricator. The $110 million verdict was tripled under California law, creating a $350 million provision on CMC’s financial statement for the first quarter of fiscal 2025. Despite this setback, CMC intends to appeal the ruling. This legal challenge has significantly impacted the company’s financial performance, adding to the broader pressures faced in the steel and recycling markets.

Steel Market Pressures and Declining Profitability

CMC’s steel and recycling operations were also impacted by economic factors, particularly the slowdown in new construction activity. This has led to pressures on steel pricing and profit margins. CMC’s combined steelmaking and recycling segment, which includes its network of more than 40 metals recycling facilities and electric arc furnace (EAF) mills, reported a 29.4 percent drop in EBITDA, from $266.8 million in 2023 to $188.2 million in the recent quarter. The EBITDA margin for the North America Steel Group also saw a decline, dropping from 16.8 percent to 12.4 percent. This decline was attributed to lower margins on scrap steel and downstream products.

Scrap and Steel Prices: Rising Costs for CMC

The company reported a slight increase in the cost of ferrous scrap, which rose to $370 per ton in late 2024, compared to $365 per ton in 2023. However, the average price for steel products sold by CMC fell 9 percent, from $892 per ton to $812 per ton. This reflects the ongoing challenges in the steel market, where prices have softened. On the other hand, CMC saw an increase in the value of its combined ferrous and nonferrous raw materials. The average selling price of these materials rose by 11.6 percent, from $783 per ton in late 2023 to $874 per ton in late 2024. This price increase points to a stronger market for nonferrous metals, which CMC also processes and resells.

European Operations Show Mixed Results Amid Margin Compression

CMC’s European Steel Group, which includes operations in Poland and other European nations, faced a decline in shipment volumes, down by nearly 9 percent from late 2023 to late 2024. However, a CO2 credit of $44.1 million from the Polish government provided some relief for the European segment. Despite this, metal margin compression, driven by high import volumes, impacted overall financial performance in Europe. CMC’s European operations implemented cost management measures, which helped reduce controllable costs per ton, but the segment still saw overall financial deterioration when excluding the CO2 credit.

Outlook for the Future: Cautious Optimism Amidst Continued Challenges

Looking ahead, CMC is cautiously optimistic about the future. While it expects second-quarter fiscal 2025 results to decline from the first quarter due to seasonal trends and continued margin pressures, the company remains confident that demand from infrastructure and construction markets will drive long-term growth. CEO Peter Matt emphasized that the company is seeing optimism from customers and external indicators, particularly in the construction pipeline. This optimism suggests that the current softness in the market may be temporary, and the company is positioning itself for a recovery in the coming quarters.