COMMERCIAL METALS Co Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Safety: Achieved a record low incident rate, with OSHA recordable events the lowest since late fiscal 2018 despite fewer employees then.
• Financial Results: Q2 net earnings $25.5 million ($0.22 per diluted share) on net sales of $1.8 billion. Excluding $3.9 million in after-tax charges, adjusted earnings were $29.3 million ($0.26 per diluted share).
• Market Conditions: North American construction/industrial activity resilient, with finished steel shipments up year-over-year. Europe market improved with reduced import flows and better market balance. Emerging Businesses Group profitability increased sequentially.
• Strategic Initiatives: Enterprise-wide TAG program with over 150 initiatives, executing over 25 first-wave initiatives. Efforts to enhance logistical capabilities expected to save $5-10M annually. Progress on Arizona 2 micro mill and Steel West Virginia site, with investments in specialized solutions.

Segment Performance

• North American Steel Group: Reported adjusted EBITDA of $128.8 million for the quarter, equal to $123 per ton of finished steel shipped. Segment adjusted EBITDA decreased 42% compared to the prior year period, primarily due to lower margin over scrap costs on both steel and downstream products. Finished steel shipments increased by 3.3% compared to a year ago.
• Europe Steel Group: Reported adjusted EBITDA of $0.8 million for the second quarter of 2025 compared to a loss of $8.6 million in the prior-year period. Improvement driven by ongoing cost management efforts, a $4 million rebate for natural gas costs, and increased shipment volumes.
• Emerging Businesses Group: Second quarter net sales were $158.9 million, an increase of 1.8% year-over-year, while adjusted EBITDA was $23.5 million, an increase of 31%. Driven by strong demand for proprietary products within the Performance Reinforcing Steel division.

Guidance

• Q3 Outlook: Expect consolidated financial results to rebound from Q2. North American Steel Group shipments to follow seasonal trends, Europe Steel Group near breakeven, Emerging Businesses Group to improve.
• Capital Spending: Revised to $550-600M from $630-680M, due to timing of West Virginia project expenditures.
• Shareholder Returns: Returned $68 million to shareholders in Q2, with $305.3 million available for repurchases under current authorization.

Risks

• Economic/Geopolitical Uncertainties: Impact on steel pricing and project awards.
• Commodity Volatility: Volatility in copper affecting hedging positions.
• Supply vs Demand: Incremental supply in the market could affect margins if demand doesn't keep pace.

Question and Answer

Q: On the U.S. rebar market, how about pricing and future room for rebar price hikes?

A: Seeing price increases across the portfolio. Rebar pricing in some markets has seen increases, with booking activity remaining strong. Merchant and wire rod prices also expected to stick, with room for further increases in construction season.

Q: About the Arizona 2 mill's financial performance in Q2 and EBITDA positive outlook?

A: Did not break even in Q2 due to seasonal weakness and startup issues. Expect to cross breakeven threshold in Q4 and be continuously profitable in 2026.

Q: On North American margins, how about recouping lost margin in next quarters?

A: See recovery in coming quarters due to improving metal margins, removal of copper mark-to-market charge, and cost management efforts offsetting prior disruptions.

Q: On Europe, about natural gas rebate, German stimulus timing, and tariffs?

A: Anticipated natural gas refund, with good demand backdrop in Poland expected to keep results close to breakeven. German stimulus and tariffs seen as potential long-term benefits, impacting 2026 and beyond.