COMMERCIAL METALS Co Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Safety: Fiscal 2024 achieved the lowest incident rate in CMC history, with significant reductions in incidents involving hands/fingers, new hires, and improved safety at recently acquired facilities in the Emerging Businesses Group.
• Financial Results: Fiscal 2024 core EBITDA was $1 billion, down from $1.4 billion in 2023 but 40% above pre-pandemic levels. Strong cash flow of $900 million supported ongoing investments and shareholder returns, with $261.8 million returned to investors in fiscal 2024.
• Strategic Projects: Arizona 2 is moving towards operational breakeven, with expectations to achieve monthly breakeven in Q1 2025 and exit 2025 at or near a 500,000 tons annualized run rate. Steel West Virginia is on track for commissioning in late 2025. Organizational realignment into segments (North American Steel, Europe Steel, Emerging Businesses Group) improved visibility for value-focused decision-making.
• TAG Initiative: Enterprise-wide operational and commercial excellence program (transform, advance and grow - TAG) with over 150 initiatives to drive margin improvement, involving all lines of business and support functions to identify value-generating opportunities.

Segment Performance

• North American Steel Group: Generated adjusted EBITDA of $210.9 million for the quarter, at $188 per ton of finished steel shipped. Segment adjusted EBITDA decreased 14% sequentially, primarily due to lower margin over scrap costs and selling higher-cost inventory into a falling price environment. The adjusted EBITDA margin was 13.5% compared to 14.7% in the third quarter. Finished steel shipments decreased 1% sequentially but were nearly unchanged when adjusted for shipping days.
• Europe Steel Group: Reported an adjusted EBITDA loss of $3.6 million for the fourth quarter of 2024, an improvement from a $4.2 million loss in the third quarter. Margin levels have been range-bound between roughly $270 per ton and $290 per ton for the last five quarters. No meaningful positive change in earnings expected until an economic recovery develops in Germany.
• Emerging Businesses Group: Net sales were $195.6 million, down 3.7% quarter-over-quarter, while adjusted EBITDA was $42.5 million, up 11.2%. The sequential improvement in profitability was driven by strong activity levels in the Tensar unit and good shipment levels of performance reinforcing steel, with a richer sales mix contributing to a 140 basis point increase in adjusted EBITDA margin compared to the third quarter of fiscal 2024.

Guidance

• Q1 2025 Outlook: Consolidated results expected to decline from Q4 levels due to construction softness. North American Steel Group margins to decrease on lower steel product margins over scrap costs. Europe Steel Group to benefit from an annual CO2 credit of $35 million to $40 million, but underlying performance likely similar to Q4. Emerging Businesses Group to decline due to seasonality and economic uncertainty.
• Long-Term: Anticipate rebound in the second half of 2025 as construction fundamentals return, driven by structural trends like infrastructure investment, reshoring, and energy transition.

Risks

• Market Uncertainty: Impact of interest rate changes, US presidential election outcomes, and broader economic conditions on construction activity and steel pricing.
• Europe Steel Group: Dependence on Germany economic recovery for margin improvement, with current margins under pressure until rebar imports from Germany recede.
• Arizona 2: Continued start-up challenges affecting volumes and costs, though confident in reaching full run rate over time.

Question and Answer

• Q: Guidance for Emerging Business Group sequential vs year-on-year A: Peter Matt stated it should be roughly similar, driven by seasonal trends.
• Q: Long-term strategic plan quantification A: Peter Matt mentioned the TAG initiative is expected to contribute in 2025, but specific numbers not shared yet as the program is in the early stages.
• Q: TAG initiative and through-the-cycle margins A: Peter Matt said TAG aims for higher through-the-cycle margins, supplementing current levels and defending margins in weaker market conditions.
• Q: Backlog value vs last quarter A: Paul Lawrence noted backlog volume comparable to prior periods, but value lower due to lower rebar prices.
• Q: Arizona 2 volume contribution and future volumes A: Peter Matt acknowledged start-up challenges but is confident Arizona 2 will reach full run rate of 500,000 tons annually, with disciplined supply in softer construction markets.
• Q: Europe Steel Group sustainability and Germany recovery A: Peter Matt stated Europe Steel Group has been profitable historically, with confidence in recovery once Germany recovers, aided by cost improvements.
• Q: Infrastructure demand impact on rebar A: Peter Matt explained downgrade due to inflationary impact on infrastructure spend, but still a large number with 80% of spending remaining.
• Q: Merchant bar market dynamics A: Peter Matt said merchant bar demand is consistent but impacted by uncertainty, with merchant market margins more affected than rebar.
• Q: Fiscal 2025 CapEx and inorganic growth A: Paul Lawrence said CapEx in 2025 is ~$630-$680 million, with Steel West Virginia as a major part; Peter Matt emphasized inorganic growth will be value-disciplined, prioritizing attractive adjacencies with megatrend benefits