COMMERCIAL METALS Co Q4 FY2026 earnings call

• Safety: Total recordable incident rate remained near historic lows; focus on embedding 'Safety First' culture in acquired precast operations.
• Strategic Execution: Core EBITDA for FY2026 reached ~$1.4 billion (up from $837M in FY2025), with margin expanding to 14.5%. Leverage reduced to below target (<2.0x).
• Transform, Advance, Grow (TAG): Exited FY2026 with >$250M gross run-rate benefits achieved; targeting additional $100M by end of FY2027. TAG is evolving into a core operating system driving productivity and commercial excellence.
• Growth Investments: Nearly $1.5B deployed over recent years. West Virginia Micromill commissioning progressing well; expected to be breakeven ~6 months post-startup. Galvabar facility expects first production in Nov 2026; GeoGrid line in Blackwell, OK is in startup.
• Precast Integration: Synergy capture meeting/exceeding expectations. Functional integration substantially complete. Backlog up 3% YoY and 4% sequentially; bookings up 12.6% sequentially. Residential weakness offset by non-residential/infrastructure demand.
• Market Dynamics: Domestic rebar market consolidated; imports moderated significantly (e.g., South Korean imports down). Non-residential construction (data centers, power, infrastructure) remains robust per Dodge Momentum Index. European trade environment improving due to CBAM and safeguards.

The North American Steel Group reported strong performance, with adjusted EBITDA increasing 25.2% sequentially to $317 million. This growth was driven by TAG benefits, a $42 per ton increase in metal margin (to $652/ton), and a 7.1% sequential increase in finished steel shipments. The segment's adjusted EBITDA margin expanded to 16.4%, up 220 basis points sequentially. The Construction Solutions Group saw net sales increase 94.5% year-over-year, with adjusted EBITDA more than doubling. However, Q4 results were below expectations due to residential softness in southeastern markets affecting the precast business, which generated $57.1 million in adjusted EBITDA. Tensar delivered consistent results, while Performance Reinforcing Steel faced lower results due to an unplanned outage at Galvabar, now resolved. Europe’s adjusted EBITDA was negatively impacted by the absence of prior CO2 credits but underlying fundamentals are improving.

• FY2027 Capital Expenditures: Anticipated to decline to ~$400 million (down from ~$580M in FY2026), as capital intensity moderates post-West Virginia construction phase.
• FY2027 Free Cash Flow: Expected to improve significantly due to declining capex and strengthening cash flow conversion.
• Share Repurchases: Accelerating pace under existing authorization (~$700M remaining); management views current share price as compelling value creation opportunity.
• Effective Tax Rate: Expected to be approximately 24% for FY2027 due to continued tax savings from 48C credits, bonus depreciation, and accelerated depreciation on acquisitions.
• Q1 FY2027 Outlook:
  • North American Steel Group: Adjusted EBITDA expected to be nearly flat sequentially vs Q4, as improved pricing offsets higher scrap costs and seasonal shipment declines.
  • Construction Solutions Group: Adjusted EBITDA expected to decline sequentially due to typical seasonal trends.
  • Europe: Adjusted EBITDA expected to meaningfully increase sequentially, supported by improving conditions and CO2 credits ($10-$15M expected).
• West Virginia Volume: Full-year volume expected to be slightly under 200,000 tons due to ongoing commissioning; full ramp-up targeted over 12-month period.

• Residential Market Softness: Weakness in single-family residential construction, particularly in southeastern US markets, weighed on precast volumes and margins in Q4.
• Trade Policy Uncertainty: While current import levels are favorable, future changes in Section 232 measures or anti-dumping duties could impact competitive dynamics.
• Operational Execution Risks: Commissioning delays (as seen in West Virginia due to weather) and unplanned outages (Galvabar) can temporarily disrupt production and shipments.
• Energy Costs in Europe: High energy prices remain a headwind, though mitigated by long-term hedging contracts covering ~50% of electricity needs.
• Inventory Normalization: Pre-buy behavior ahead of CBAM and safeguards created temporary inventory overhangs that may take 4-6 months to clear, impacting short-term pricing and margins.

Q: Why did precast EBITDA miss guidance despite strong bookings, and does this change the annual run-rate target? / A: Miss was due to residential volume weakness in the southeast, not pricing issues. Non-residential/infrastructure demand filled the gap. Management maintains confidence in the $240-$250M annual run-rate target, noting that residential is only ~50-60% of normal, suggesting most pain is absorbed.

Q: What is the sustainability of decreased South Korean rebar imports, and how will CMC handle potential new import threats? / A: Imports are non-competitive due to logistics costs vs. domestic pricing. CMC monitors violations closely and has filed AD/CVD cases lasting 5-10 years. Current supply management is durable, with imports from sanctioned countries effectively eliminated.

Q: How will West Virginia ramp-up impact product mix, specifically regarding merchant bar volumes? / A: WV ramp frees up SC capacity for higher-margin merchant products. Target is ~1 million tons of merchant shipments (including wire rod), implying ~150k-200k incremental tons. This optimizes network flexibility and keeps rebar supply tight.

Q: What drives Europe's recovery outlook given flat prices and high energy costs? / A: Recovery is margin-driven, not volume-driven. Benefits come from CBAM/safeguards clearing inventory overhangs (4-6 month lag) and commercial excellence initiatives selecting high-margin volumes. Long-term energy hedges (~50% of usage) provide competitive advantage against spot price spikes.

Q: With leverage below target and capex falling, what is the priority for capital allocation between M&A and buybacks? / A: Buybacks are accelerating due to attractive valuation and strong FCF. However, dry powder for M&A is retained, focusing on precast platform expansion. No significant deals currently, but dialogue continues in priority areas.