Commercial Metals Co Shares Up 9% Despite Poor 2Q Results
March 24 2009 - 4:07PM
Dow Jones News
Shares of Commercial Metals Co. (CMC) reversed course and moved
sharply higher Tuesday as investors shrugged off a
worse-than-expected second-quarter performance and focused instead
on the company's comments that ferrous scrap-metal prices could be
nearing a bottom.
During the company's conference call to discuss its
second-quarter loss, certain analysts also concluded that -- by
some non-GAAP measurements -- Commercial Metals was actually
profitable during the period.
Shares had been down after the company said it swung to a
second-quarter loss and indicated it expected to record a
third-quarter loss, albeit a narrower one.
But the stock climbed steadily through the call as analysts
realized the company had posted about $103 million in charges due
to severance costs, as well as what the company referred to as
"bizarre" income tax rates and "bad debt increases."
Shares of the scrap metal processors, which have plummeted from
a year high of around $40 last summer as demand and prices for
scrap metal have dropped, were recently up 9% at $12.06 on heavy
volume. Over the course of the day, shares have traded as low as
$9.91 and as high $12.20.
Commercial Metals reported a second-quarter loss of 32 cents a
share from a year-earlier profit of 34 cents a share and indicated
revenue fell to $1.62 billion from $2.25 billion a year
earlier.
The company said the latest results included after-tax LIFO
income of 72 cents a share. LIFO is an inventory costing method
that assumes the most recent inventory purchases or goods
manufactured are sold first which in periods of declining prices
results in income that eliminates the effect of deflation from
operating results.
Analysts were expecting earnings of 3 cents a share on revenue
of $1.88 billion for the current quarter. Analysts' estimates
typically exclude special items.
According to a transcript of the call from FactSet, Michelle
Applebaum, an analyst with Applebaum Research, estimated that the
company's non-GAAP earnings figure for the second quarter was
around 20 cents a share. The company refused to confirm the figure
during the call and subsequent messages left for company
representatives were not immediately returned.
In its earnings release, the company said it was likely that
metal margins would contract in the third quarter and that the
company's backlog would continue to decrease.
During the call, Financial Chief William Larson said, "Pricing
[of scrap metal] may deteriorate some, but we are close to what we
believe is the bottom," adding that the company's "cash flow has
allowed us to retire $180 million in debt this quarter, fund our
capital expenditure program, and build cash balances all with
sufficient backstop liquidity if needed."
Commercial Metals said in its earnings release that it was
adjusting production and inventory "to meet the reduced market
demand." The company also said it had no long-term debt payments
due until 2013.
-Adam Edelman, Dow Jones Newswires; 201-938-5400;
adam.edelman@dowjones.com