Commercial Metals Company :CMC-US: Earnings Analysis: Q1, 2018 By the Numbers : January 19, 2018

Commercial Metals Company reports financial results for the quarter ended November 29, 2017.

Highlights

  • Summary numbers: Revenues of USD 1,238.52 million, Net Earnings of USD 38.54 million.
  • Gross margins widened from 11.99% to 13.25% compared to the same period last year, operating (EBITDA) margins now 7.43% from 5.03%.
  • Change in operating cash flow of -3,485.12% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-11-29 2017-08-30 2017-05-30 2017-02-27 2016-11-29
Relevant Numbers (Quarterly)
Revenues (mil) 1238.52 962.37 1382.62 1149.62 994.09
Revenue Growth (%YOY) 24.59 24.09 12.65 12.74 -13.92
Earnings (mil) 38.54 -43.87 39.61 29.64 4.94
Earnings Growth (%YOY) 680.71 -220.4 12.81 173.2 -80.74
Net Margin (%) 3.11 -4.56 2.86 2.58 0.5
EPS 0.33 -0.38 0.34 0.25 0.04
Return on Equity (%) 2.72 -3.11 2.85 2.2 0.37
Return on Assets (%) 5.25 -5.62 4.95 3.87 0.64

Access our Ratings and Scores for Commercial Metals Company

Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, CMC-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if CMC-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 28.69% and earnings by 187.84% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 11.99% to 13.25% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 5.03% to 7.43% compared to the same period last year. For comparison, gross margins were 9.12% and EBITDA margins were -1.65% in the last reporting period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

CMC-US’s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days are now 81.04 days compared to 109.81 days for the same period last year.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

CMC-US’s year-on-year change in operating cash flow of -3,485.12% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 1.99% to 4.83% and (2) one-time items. The company’s pretax margins are now 4.06% compared to 0.71% for the same period last year.

EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Commercial Metals Company

Company Profile

Commercial Metals Company, together with its subsidiaries, manufactures, recycles and markets steel and metal products, related materials and services through a network. The Company’s Americas Recycling segment processes scrap metals for use as a raw material by manufacturers of new metal products. The Americas Mills segment consists of steel mills, commonly referred to as minimills that produce reinforcing bar (rebar), angles, flats and rounds. Its Americas Fabrication segment consists of its steel fabrication facilities that bend, weld, cut and fabricate steel, primarily rebar. Its International Mill segment consists of its mill, recycling and fabrication operations located in Poland. Its International Marketing and Distribution segment includes international operations for the sales, distribution and processing of primary and secondary metals, fabricated metals, semi-finished, long and flat steel products, and other industrial products.

CapitalCube does not own any shares in the stocks mentioned and focuses solely on providing unique fundamental research and analysis on approximately 50,000 stocks and ETFs globally. Try any of our analysis, screener or portfolio premium services free for 7 days. To get a quick preview of our services, check out our free quick summary analysis of CMC-US.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any of our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.