Commercial Metals Company Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Acquisition of Foley Products Company: Excited to add Foley, a best-in-class precast business with industry-leading margins. Combines with CPMP acquisition to create a large-scale precast platform. Expected annual run-rate synergies of approximately $25-30 million of EBITDA by year three. Foley has 580 employees in 18 plants across 9 states with strong growth and margin performance.
• Fiscal 2025 Performance: Fiscal 2025 was the safest year in company history. TAG operational and commercial excellence program generated $50 million in EBITDA benefits (exceeding target). Progress on Arizona II and Steel West Virginia projects, including Arizona II achieving full quarter of positive EBITDA and Steel West Virginia receiving an approximately $80 million net tax credit.
• Market Conditions: Resilient construction activity in North America with favorable volumes and margins. Downstream bid volumes healthy across segments like public works, highway/bridge, etc. Emerging structural drivers include infrastructure investment, reshoring, energy generation, and housing shortage.

Segment Performance

• North American Steel Group: Adjusted EBITDA for the quarter was $239.4 million, equal to $207 per ton of finished steel shipped. Segment adjusted EBITDA margin was 14.8%, driven by higher margin over scrap cost on steel products and contributions from the TAG operational excellence efforts. Finished steel shipments increased by 3% year-over-year.
• Emerging Businesses Group (EBG): Fourth quarter net sales were $221.8 million, up 13.4% year-over-year. Adjusted EBITDA was $50.6 million, up 19.1% year-over-year. Driven by strong demand for Geo grids and proprietary products, improved tensor cost performance, and commercial initiatives in Construction Services.
• Europe Steel Group: Adjusted EBITDA in 2025 was $39.1 million (compared to a loss of $3.6 million in 2024). Segment adjusted EBITDA margin was 14.8%, driven by a $31 million CO2 credit and operational improvements, including higher margins, 17% increase in shipment volumes, and cost management efforts.

Guidance

• Fiscal 2026 Outlook: Consolidated results generally consistent with Q4. North American Steel Group expected strong first quarter due to high metal margins. Europe Steel Group to receive second tranche of CO2 credit but seasonal maintenance outage will impact performance. EBG expected to improve year over year despite seasonal decline.
• Capital Spending: Approximately $600 million in total capital spending for 2026, with $350 million associated with completing Steel West Virginia and growth investments in EBG.

Risks

• Seasonality: Impact on different segments, e.g., EBG has significant seasonality related to site prep.
• Import Levels: Potential fluctuations in U.S. steel import levels affecting market conditions.
• Integration Risks: Risks associated with integrating acquired precast businesses, including ensuring successful synergies and operations.

Question and Answer

Q: Cecilia Tang asks about construction demand by sector and first quarter outlook.

A: Peter Matt states infrastructure, non-residential (energy, data centers strong, some commercial weaker), and residential (sensitive to interest rates) sectors are key. Paul Lawrence explains first quarter outlook factors include Europe Steel Group seasonal maintenance and EBG seasonality.

Q: Satish Kathanasan asks about precast integration and inorganic growth.

A: Peter Matt says integration focus now, with potential for bolt-on acquisitions later as leverage is reduced.

Q: Alex Hacking asks about Foley margins and CapEx.

A: Peter Matt discusses margin differentials due to operating model and CPMP's recent acquisitions, Paul Lawrence mentions low maintenance CapEx for precast businesses ($8-15 million).

Q: Carlos De Alba asks about CPMP margin improvement and dividends.

A: Peter Matt discusses synergy timeline of 3-5 years, Paul Lawrence states no plan to change dividends and share repurchases will resume once leverage is below two times.

Q: Bill Peterson asks about long-term product mix.

A: Peter discusses focus on early-stage construction, TAG program to improve steel business margins, and value-added products.

Q: Andrew Jones asks about barriers to entry in precast.

A: Peter Matt talks about customer relationships, capability (broad-based precast), and scale as key barriers.

Q: Katja Jankic asks about Precast EBITDA growth and M&A.

A: Peter and Paul discuss Precast growth plans to reach several hundred million in EBITDA and potential for M&A bolt-ons.

Q: Phil Gibbs asks about CapEx and European assets.

A: Peter discusses $600 million CapEx and value of European assets for North America Steel Group's low-cost strategy