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Why Is Commercial Metals (CMC) Up 7.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Commercial Metals (CMC - Free Report) . Shares have added about 7.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Commercial Metals due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Commercial Metals Earnings and Sales Top Estimates in Q1 

Commercial Metals Company reported adjusted earnings per share (EPS) of $2.24 for first-quarter fiscal 2023, beating the Zacks Consensus Estimate of $1.99. The bottom line rose 38.3% from the prior-year quarter’s earnings per share of $1.62.

Including one-time items, CMC logged an EPS of $2.20 in the quarter compared with the prior-year quarter’s $1.90.

Net sales in the reported quarter were $2,227.3 million, up 12.4% from the year-ago quarter’s $1,981.8 million. The reported figure surpassed the Zacks Consensus Estimate of $2,164.5 million. The results were driven by growth in North America downstream backlog and project bidding volumes, and ongoing strategic actions.

The cost of goods sold in the fiscal first quarter was up 8.4% from the year-ago quarter to $1,719.4 million. The gross profit was up 28.3% from the year-ago quarter to $508 million. The core EBITDA was $425 million in the fiscal first quarter, up 30% from the year-ago quarter.

Segmental Performance

The North America segment generated net sales of $1,816.9 million in the first quarter of fiscal 2023 compared with $1,653.6 million in the prior-year quarter. The segment registered an adjusted EBITDA of $378 million compared with the year-earlier quarter’s $268.5 million. The increase was aided by expanded margins over scrap cost on shipments of steel and downstream products.

The Europe segment’s revenues were $406.5 million, gaining 23.4% from the year-ago quarter. Adjusted EBITDA was $64.5 million in the quarter under review, down from the year-ago quarter’s $79.8 million. The decline was caused by a slightly lower margin over scrap costs, higher energy costs, lower receipt of CO2 energy credit, and the impacts of the weakening of the Polish Zloty in relation to the US dollar.

Despite the volatile market conditions, Europe operations utilized its relative cost position to increase market share and ship large volumes.

Financials

Commercial Metals reported cash and cash equivalents of $582 million as of Nov 30, 2022, compared with $415 million as of Nov 30, 2021. CMC’s long-term debt was $1,093 million at the end of first-quarter fiscal 2023 compared with $1,007 million at the first-quarter fiscal 2022 end. Cash generated from operating activities in the first three months of fiscal 2023 was $372 million compared with $26 million last year.
 
CMC repurchased shares worth $1.3 million in the quarter under review. It returned $49.1 million of cash to shareholders in the fiscal first quarter. As of Nov 30, 2022, $139 million remained under the current share buyback authorization.

Outlook

Commercial Metals noted that downstream backlog volumes and average pricing are at historical highs. It is experiencing sustained robust demand for each of its major product lines in North America. In the upcoming quarter, North America volumes are expected to be aided by current and new reshoring projects, and rising levels of infrastructure spending.

However, economic uncertainties are projected to impact volumes in Europe. With the completion of Arizona 2 and the addition of Tensar, the company expects to be better positioned to capitalize on the emerging structural economic trends. CMC believes that its favorable relative cost position in Europe will benefit the financial performance of the Europe segment.

Finished steel volumes in North America and Europe are forecast to follow typical seasonal patterns in the fiscal second quarter. Volumes have historically declined from the first-quarter levels due to weather and holidays. The company expects scrap margins in North America and Europe to remain elevated from the historical levels in the second fiscal quarter. However, it expects the margin to decline from the first quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 21.88% due to these changes.

VGM Scores

At this time, Commercial Metals has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Commercial Metals has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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