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Commercial Metals (CMC) Down 1.5% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Commercial Metals Company (CMC - Free Report) . Shares have lost about 1.5% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is CMC due for a breakout? 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 Q3 Earnings in Line, Revenues Lag

Commercial Metals Company reported adjusted net income of $49 million or 41 cents per share in the third quarter of fiscal 2018 (ended May 31, 2018) compared with $31.6 million or 27 cents recorded in the prior-year quarter. It was aided by strong demand across all of the company’s segments. Further, earnings came in line with the Zacks Consensus Estimate.
 
Including one-time items, the company reported net income of $42.3 million or 36 cents per share in the quarter.
Net sales of $1,204 million for the first quarter rose 15% year over year, but fell short of the Zacks Consensus Estimate of $1,272 million.
 
Cost of goods sold in the quarter rose around 16% year over year to roughly $1,036 million.
 
Adjusted operating profit in the reported quarter was $67.4 million, up 22% from $55.3 million in the prior-year quarter. Adjusted EBITDA improved 16% year over year to $101 million in the third quarter of fiscal 2018 — the highest since the financial crisis.
 
Price and Shipments
 
In the quarter, ferrous and non-ferrous prices have gone up approximately 19% and 12%, respectively, on a year-over-year basis.
 
In the Americas Mills segment, shipments rose 12% driven by strong demand from construction and drop in import levels dropped. In the International Mill segment in Poland, Shipment volumes decreased during the quarter due to higher rebar import levels into the country.
 
Financials
 
Commercial Metals exited third-quarter fiscal 2018 with cash and cash equivalents of $600 million compared with $256 million at the end of fiscal 2017. The cash on hand includes the proceeds received from the issuance of $350 million of 5.75% of Senior Notes due 2026 completed on May 3, 2018.  The proceeds, together with cash on hand and the delayed draw term loan under the company's credit agreement are anticipated to be used to finance the previously announced acquisition of certain rebar assets from Gerdau S.A.
 
The company’s long-term debt rose to $1,139 million at the end of the third-quarter fiscal 2018 compared with $805 million as of fiscal 2017 end.
 
Cash flows from operating activities were $91.7 million for the reported quarter compared with $18.9 million in the year-ago quarter.
 
On Jun 20, its board of directors declared a quarterly dividend of 12 cents per share. The dividend will be paid on Jul 19 to shareholders of record on Jul 5, 2018.
 
Guidance
 
The company noted strong bid activity has resulted in significant growth in its backlog. Per the company, leading indicators of macroeconomic and market conditions in both the United States and Poland suggest continued economic growth and strong long steel product demand.  Also the recent imposition of tariffs on steel imports creates a fair and level playing field.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to two lower.

Commercial Metals Company Price and Consensus

 

VGM Scores

At this time, CMC has a nice Growth Score of B, however its Momentum is doing a bit better with an A. The stock was also allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, CMC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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