Commercial Metals Posts Powerful Earnings Turnaround and Expansion

Commercial Metals ((CMC)) has held its Q1 earnings call. Read on for the main highlights of the call.

Commercial Metals Signals Strong Turnaround Amid Strategic Expansion

Commercial Metals’ latest earnings call carried a clearly upbeat tone, as management highlighted a robust turnaround in profitability, powerful year‑over‑year EBITDA growth, and marked margin expansion in its core North American business. Executives balanced this optimism with a sober look at near‑term headwinds—including seasonal softness, acquisition‑related costs, and European and operational uncertainties—but repeatedly emphasized that strategic initiatives, new acquisitions, and ongoing efficiency programs are driving durable improvements in earnings power.

Strong Earnings Rebound Marks Sharp Turnaround

The company delivered a striking reversal in profitability, moving from a net loss of $175.7 million in the prior‑year quarter to net earnings of $177.3 million, or $1.58 per diluted share, in the latest period. On an adjusted basis, earnings more than doubled to $206.2 million, or $1.84 per share, compared with $86.9 million, or $0.76 per share, a year ago. This turnaround underscores the combined impact of stronger operating performance, better pricing and margins, and disciplined execution across the portfolio.

Material EBITDA Growth and Margin Expansion

Consolidated core EBITDA surged 52% year over year to $316.9 million, up from $208.7 million, and increased nearly 9% sequentially. Core EBITDA margin expanded to 14.9%, signaling not just higher volumes and pricing but also improved cost efficiency and product mix. For investors, this margin expansion is a key signal that the company’s earnings quality is improving rather than simply benefiting from short‑term cyclical forces.

North America Steel Drives Outperformance

North America Steel was the standout performer, generating adjusted EBITDA of $293.9 million—roughly $257 per ton—a 58% jump from the prior year. Segment EBITDA margin climbed to 17.7% from 12.3%, supported by stronger metal margins over scrap, operational improvements at the Arizona 2 (AZ2) mill, and ongoing execution of the company’s TAG productivity program. This segment’s strength forms the backbone of Commercial Metals’ earnings profile and anchors the broader turnaround narrative.

Construction Solutions Continues Strong Momentum

Construction Solutions extended its positive trajectory with net sales of $198.3 million, up 17% from a year earlier, and adjusted EBITDA of $39.6 million, up 75%. The segment’s adjusted EBITDA margin improved to a robust 20%, reflecting solid performance from TENSAR and Construction Services as well as effective cost control. This business is emerging as an important growth and margin contributor, adding diversification beyond core steel operations.

Precast Acquisitions Poised to Add High‑Margin Earnings

Commercial Metals closed its CP&P and Foley precast acquisitions in December and reported encouraging early impressions. Management expects these newly acquired precast operations to contribute $165 million to $175 million of EBITDA over roughly 8.5 months of ownership in fiscal 2026, with a combined margin profile estimated around 30% to 35% when integrated with the company’s existing precast businesses. These deals materially enhance the portfolio’s exposure to higher‑margin, value‑added construction solutions.

TAG Productivity Program Builds Momentum

The company’s TAG initiatives—focused on scrap optimization, mill yield, alloy usage, and logistics—delivered about $50 million of EBITDA in fiscal 2025. Management reiterated a target to reach an exit‑fiscal‑2026 annualized run‑rate EBITDA benefit of $150 million. This structured productivity program is increasingly central to Commercial Metals’ strategy, providing a steady internal engine for earnings growth and helping to offset cyclical and cost headwinds.

Solid Liquidity and Expanded Capital Flexibility

Commercial Metals emphasized its strong balance sheet and liquidity position, with cash, cash equivalents, and restricted cash totaling $3.0 billion as of November 30, including approximately $2.0 billion of recent notes proceeds. Pro forma net leverage stands at about 2.5x on a combined adjusted EBITDA basis, already improved from a prior 2.7x measure. The company also upsized its revolving credit facility from $600 million to $1 billion, lifting estimated available pro forma liquidity to more than $1.7 billion and providing ample flexibility to navigate integration, capex, and market cycles.

European Earnings Hit by CO2 Credit Timing

The Europe Steel segment saw adjusted EBITDA fall to $10.9 million from $25.8 million a year earlier, a decline of roughly 58%. Management pointed to the timing of CO2 credit recognition as the main driver: the unit received $15.6 million in credits during the quarter versus $44.1 million in the prior‑year period, with the current year’s credits split into multiple tranches. While this is largely a timing issue, it weighed on reported results and adds complexity to near‑term European earnings visibility.

Polish Mill Outage Weighs on Near‑Term Results

The company’s Polish mill underwent an annual maintenance outage that cost roughly $10 million during the quarter. While such outages are planned and necessary for long‑term reliability, they temporarily depress production, utilization, and profitability. Management acknowledged the near‑term drag but framed it as a one‑off operational cost that should support more stable performance going forward.

Seasonal and Operational Headwinds Expected in Q2

Looking into the next quarter, the company expects consolidated core EBITDA to decline modestly from the strong Q1 level due to typical seasonal patterns and planned maintenance. Volumes are guided to fall about 5% to 10% from Q1 to Q2, slightly worse than the usual 4% to 5% seasonal dip. Certain downstream businesses are expected to be flat to slightly down sequentially, underscoring that Q1’s strength will not be fully repeated in the near term, even as underlying fundamentals remain solid.

One‑Time Charges Distort Bottom Line

The quarter included approximately $36.7 million in pretax charges, or about $28.9 million after tax, largely tied to growth initiatives and non‑core items. These comprised $24.9 million of acquisition‑related costs from the CP&P and Foley transactions, $3.7 million of interest related to a litigation judgment, and an $8.1 million unrealized loss on undesignated commodity hedges. Management indicated that additional transaction, debt issuance, and purchase accounting costs are expected in Q2, though these will continue to be excluded from core EBITDA metrics.

Leverage Rises on Deals but Deleveraging is a Priority

The December acquisition outlays of roughly $2.5 billion reduced the company’s cash balance, even after factoring in the earlier $2.0 billion of notes proceeds, pushing pro forma net leverage to around 2.5x. Management was clear that reducing leverage back below 2.0x within roughly 18 months is a near‑term priority, signaling a disciplined approach to capital allocation following the recent expansion. Investors are being asked to accept a temporary rise in leverage in exchange for higher‑margin, more diversified earnings streams.

AZ2 Ramp Progress and Remaining Constraints

Arizona 2, the company’s relatively new mill, has now achieved profitability, but it exited the prior year at only about 60% utilization. Management cautioned that AZ2 is unlikely to reach its full run‑rate in fiscal 2026 due to necessary merchant‑spec adjustments and ongoing workforce training. While the asset represents a meaningful medium‑term earnings opportunity, the ramp still presents execution risk and may cap near‑term gains in volumes and margins.

Import and Trade Dynamics Create Uncertainty

Management flagged imports as an ongoing headwind in certain markets, particularly in Europe, where flows have been influenced by expectations around the upcoming CBAM regime. Shipments from Turkey and from Portugal and Spain continue to pressure local pricing. In addition, the company is awaiting final rulings in various antidumping investigations, with a preliminary outcome in Algeria described as favorable. These trade and regulatory factors add a layer of uncertainty to the timing and strength of any European price and margin recovery.

Forward Guidance Balances Growth and Discipline

For the coming quarters, management guided to a modest sequential decline in consolidated core EBITDA from Q1’s $316.9 million, reflecting normal seasonality and maintenance outages, partly offset by contributions from the new precast businesses. Precast is expected to add $165 million to $175 million of EBITDA over roughly 8.5 months in fiscal 2026, including about $30 million in Q2. North America Steel mill margins are expected to be roughly flat in Q2 versus Q1, reinforcing the view that the core domestic business remains stable. The company reiterated its TAG target of a $150 million annualized EBITDA run‑rate benefit by the end of fiscal 2026, projected capital expenditures of about $625 million (including around $300 million for the Steel West Virginia project and about $25 million for Precast), and a fiscal 2026 tax rate of 5% to 10% with limited U.S. federal cash taxes expected into most of fiscal 2027. Management also reiterated its plan to reduce net leverage from the current pro forma 2.5x to below 2.0x within roughly 18 months while maintaining ample liquidity of around $1.7 billion.

In sum, Commercial Metals’ earnings call painted the picture of a company in the midst of a strong operational and financial upswing, fueled by high‑margin acquisitions, a powerful North American steel franchise, and a disciplined productivity agenda. While near‑term earnings will face seasonal, operational, and regional headwinds—and leverage is temporarily elevated—the overall message to investors was one of confidence in sustained earnings growth, margin resilience, and a clear path to stronger cash generation and balance sheet strength.