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What's in Store for Commercial Metals (CMC) in Q3 Earnings?

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Commercial Metals Company (CMC - Free Report) is scheduled to report third-quarter fiscal 2019 results on Jun 20, before the opening bell.
 
Past-Quarter Performance

In the last reported quarter, Commercial Metals reported earnings of 29 cents per share, surpassing the Zacks Consensus Estimate by around 16%. The figure also marked year-over-year improvement of 13%. Despite seasonal factors and unprecedented rainfall levels which impacted construction activity in many of its markets, the company delivered improved results due to the execution of various strategic growth initiatives.

In the trailing four quarters, the company surpassed the Zacks Consensus Estimate in two quarters, lagged in one and came in-line in the remaining one. The company has an average positive earnings surprise of 6.68% in the trailing four quarters.
 
Let’s see how things are shaping up prior to this announcement.

Commercial Metals Company Price and EPS Surprise

 

Key Factors to Consider

There has been improvement in farm equipment manufacturing activity, construction machinery and energy related spending of late. Strong bid activity has led to significant growth in the company’s backlog. However, holidays and winter weather conditions traditionally slow down construction activity in the second quarter of fiscal 2019. These are likely to lead to lower shipment rates at the company’s facilities in third-quarter fiscal 2019. Nevertheless, the Zacks Consensus Estimate for revenues for the quarter suggests growth of 34.7% to $1.62 billion. These factors are likely to aid the upcoming quarterly results. The Zacks Consensus Estimate for earnings per share is pegged at 63 cents for the to-be-reported quarter, suggesting growth of 53.7% from the year-ago quarter.

The Zacks Consensus Estimate for revenues for the Americas Recycling segment for the third quarter of fiscal 2019 is at $304 million, suggesting a decline of 16% from the year-ago quarter. The segment is expected to report operating profit of $5.6 million, 61% lower than the prior-year quarter’s figure of $14.4 million.

For the Americas Mills segment, the Zacks Consensus Estimate for revenues is at $907 million for the to-be-reported quarter, which is projected to grow 64% from the prior-year quarter’s revenues of $553 million. The segment’s operating profit is projected at $133 million, indicating an improvement of 90% from $70 million in the prior-year quarter. Benefit from the acquisition of certain U.S. rebar steel mill and fabrication assets from Gerdau S.A and incremental shipments from the new micro mill in Durant, OK, will aid the to-be-reported quarter’s results.

The Americas Fabrication segment is anticipated to report revenues of $571 million in third-quarter fiscal 2019, indicating an improvement of 51% from the $378 million in the third quarter of fiscal 2018. Rebar fabrication bidding activity remains strong. However, the segment is expected to report operating loss of $25 million compared with the prior-year quarter’s loss of $16 million. Increased input and production costs are likely to hurt the segment’s profitability in the quarter to be reported.
 
The Zacks Consensus Estimate for revenues for the International Mill segment is currently pegged at $193 million for third-quarter fiscal 2019, suggesting a decline of 4% from the prior-year quarter. The Zacks Consensus Estimate for the segment’s operating income is $13.8 million for the quarter, indicating a fall of 44% from the year-ago reported figure.

However, inflationary pressures on manufacturing costs owing to a tight labor market, consumable raw material prices is likely to dent the company’s margins. Furthermore, its debt to equity ratio has shot up; as a result of funding the acquisition of certain U.S. rebar steel mill and fabrication assets from Gerdau S.A. Consequently, higher interest expense will dent margins.

Earnings Whispers
 
Our proven model shows that Commercial Metals is likely to beat estimates this quarter because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely positive surprise.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate (64 cents per share) and the Zacks Consensus Estimate (63 cents per share), is +1.19%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Commercial Metals has a Zacks Rank #3. The combination of Commercial Metals’ Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat in the upcoming release.

Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.
 
Share Price Performance

Commercial Metals’ shares have dipped 37.2% in the past year, compared with the industry’s decline of 36.6%.  
 
Stocks Worth a Look

Here are a few stocks worth considering as these have the right combination of elements to post an earnings beat this quarter.
 
General Mills, Inc. (GIS - Free Report) has an Earnings ESP of +1.18% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
 
The Simply Good Foods Company (SMPL - Free Report) has an Earnings ESP of +2.44% and a Zacks Rank #2.
 
Helen of Troy Limited (HELE - Free Report) has an Earnings ESP of +0.60% and a Zacks Rank #2.

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