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COMMERCIAL METALS Co (CMC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY25 was seasonally weak: net sales $1.75B, diluted EPS $0.22, adjusted EPS $0.26, consolidated core EBITDA $131.0M and core EBITDA margin 7.5% .
  • North America margins compressed despite finished steel shipments +3.3% y/y; Europe achieved adjusted EBITDA breakeven; Emerging Businesses Group (EBG) adjusted EBITDA +31% y/y .
  • Management expects a Q3 rebound: NA adjusted EBITDA margin to increase sequentially on higher margins over scrap; Europe near breakeven; EBG modestly above prior year; FY25 capex guidance cut to $550–$600M (from $630–$680M) .
  • Liquidity remained strong at nearly $1.6B; repurchased ~907K shares for $48M; dividend maintained at $0.18 per share (242nd consecutive) .

What Went Well and What Went Wrong

What Went Well

  • Europe breakeven: “Adjusted EBITDA for the Europe Steel Group increased to $0.8 million… adjusted EBITDA margin of 0.4% increased from (4.5%)” .
  • EBG strength: Net sales $158.9M (+1.8% y/y), adjusted EBITDA $23.5M (+31.2% y/y); strong demand for proprietary Performance Reinforcing Steel drove margins to 14.8% (+330 bps y/y) .
  • Backlog and awards: NA downstream backlog +~10% q/q; new contract awards at second highest level since late FY22; management sees “near-term inflection” heading into spring/summer .

What Went Wrong

  • NA margin compression: Steel product metal margin declined $50/ton y/y; downstream product margins over scrap fell ~$117/ton y/y; adjusted EBITDA per ton fell to $123 from $220 .
  • Hedging impact: ~$8M unrealized losses from copper hedges weighed on NA profitability .
  • Arizona 2 micro mill: Did not breakeven in Q2; management targets breakeven more realistically in Q4 as startup issues and outages abate .

Financial Results

MetricQ4 FY24Q1 FY25Q2 FY25
Net Sales ($USD Millions)$1,996.1 $1,909.6 $1,754.4
Diluted EPS (GAAP) ($)$0.90 ($1.54) $0.22
Adjusted EPS ($)$0.90 $0.78 $0.26
Core EBITDA ($USD Millions)$227.1 $210.7 $131.0
Core EBITDA Margin (%)11.4% 11.0% 7.5%

Segment breakdown (Net Sales and Adjusted EBITDA):

SegmentQ4 FY24 Net Sales ($MM)Q1 FY25 Net Sales ($MM)Q2 FY25 Net Sales ($MM)Q4 FY24 Adj. EBITDA ($MM)Q1 FY25 Adj. EBITDA ($MM)Q2 FY25 Adj. EBITDA ($MM)
North America Steel Group$1,559.5 $1,518.6 $1,386.8 $210.9 $188.2 $128.8
Europe Steel Group$222.1 $209.4 $198.0 ($3.6) $25.8 $0.8
Emerging Businesses Group$195.6 $169.4 $158.9 $42.5 $22.7 $23.5
Corporate & Other$19.0 $12.1 $10.6 ($25.2) ($386.2) ($34.9)
Total$1,996.1 $1,909.6 $1,754.4 $224.6 ($149.5) $118.2

Key operating KPIs:

KPIQ4 FY24Q1 FY25Q2 FY25
NA External Finished Steel Tons Shipped (000s)1,120 (Steel 759 + Downstream 361) 1,146 (790 + 356) 1,044 (746 + 298)
NA Steel Products Metal Margin ($/ton)$522 $489 $476
NA Downstream Avg Selling Price ($/ton)$1,311 $1,259 $1,221
NA Cost of Ferrous Scrap Utilized ($/ton)$321 $323 $338
Europe Steel Products Tons Shipped (000s)319 313 310
Europe Steel Products Metal Margin ($/ton)$284 $269 $275
Europe Avg Selling Price ($/ton)$667 $639 $612
EBG Adjusted EBITDA Margin (%)21.7% 13.4% 14.8%

Notes:

  • Q2 included estimated net after-tax charges of ~$3.9M tied to interest expense on the PSG judgment; adjusted EPS excludes these items .
  • Non-GAAP definitions and reconciliations provided in releases and 8-K exhibits .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated performanceQ3 FY25N/A“Rebound from Q2”; NA shipments follow seasonal pattern; NA adjusted EBITDA margin to increase sequentially; Europe near breakeven; EBG modestly above prior year Raised qualitative outlook
NA margin over scrapQ3 FY25N/ASequential increase expected on higher margins over scrap on steel products Raised (directional)
Europe adjusted EBITDAQ3 FY25N/ANear breakeven expected; cost management continues Maintained near breakeven
EBG performanceQ3 FY25N/AModestly above prior year Raised (directional)
FY25 Capital ExpendituresFY2025$630–$680M (prior) $550–$600M Lowered
DividendQ2 FY25$0.18 declared Jan 2, 2025 $0.18 declared Mar 19, 2025 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24 and Q1 FY25)Current Period (Q2 FY25)Trend
AI/data center infrastructurePipeline healthy; TAG ramp begins; demand supported by re-shoring/electrification Data center segment “very strong”; >$1T announced digital infra investments expected to bid spring/summer Strengthening
Supply chain/logisticsCost management improved; commissioning Arizona 2 TAG logistics initiative targeting $5–$10M annual benefits via routing, rail use, backhauls Executing
Tariffs/macroUncertainty weighed on pricing; EU import flows pressured Europe US Section 232 exemption removal directionally positive; Europe discussing tighter safeguards/melt-and-pour; indices mixed Policy tailwinds emerging
Product performance (NA)Margins pressured by lower steel/downstream pricing; shipments stable Steel product margins -$50/ton y/y; downstream -$117/ton y/y; sequential price inflection late Q2 Inflecting upward
Regional trends (Europe)Improvement vs late FY23 with cost actions despite weak demand Breakeven adjusted EBITDA; price +$25/ton vs Dec low; natural gas rebate $4M Improving
Regulatory/legal (PSG)Verdict recorded; $350M provision in Q1 ~$3.9M after-tax interest in Q2; litigation expense line $4.7M Ongoing overhang
Growth/capexCommissioning Arizona 2; FY25 capex initially higher FY25 capex cut to $550–$600M; WV micro mill incentives $75M expected Prudent allocation

Management Commentary

  • “We believe these developments signal a near-term inflection in profitability levels heading into the spring and summer construction season.” – Peter Matt, CEO .
  • “Our Europe Steel Group achieved a breakeven performance… Effective cost management continues to be a meaningful benefit to financial results.” – Peter Matt .
  • “Core EBITDA was $131 million… Profitability of our North American Steel Group was negatively impacted by lower margins over scrap…” – Paul Lawrence, CFO .
  • “TAG related efforts will provide approximately $25 million of benefit over the remainder of fiscal 2025, in addition to the $15 million we have already achieved.” – Peter Matt .

Q&A Highlights

  • Rebar pricing vs scrap: Management expects announced price increases to stick across rebar, merchant bar, and wire rod; vertical integration mitigates scrap index moves .
  • Arizona 2 trajectory: Q2 below breakeven due to outages/startup issues; aiming for breakeven more realistically in Q4 FY25 .
  • Margin recovery cadence: Expect recovery of much of the ~$93/ton NA EBITDA per ton decline in Q3 due to margin improvement, absence of copper mark-to-market, and lower seasonal costs .
  • Demand and utilization: NA rebar supply/demand “well balanced”; mills largely fully utilized ex-Arizona (ramp) .
  • Europe outlook: Natural gas rebate anticipated; broader EU safeguards and German stimulus could benefit through FY26; Poland infrastructure and nuclear projects supportive .

Estimates Context

  • Wall Street consensus (S&P Global) could not be retrieved at time of analysis due to provider limit; therefore, EPS and revenue estimate comparisons are unavailable. Analysts may reassess near-term margin trajectories given management’s sequential improvement outlook and capex moderation . Values retrieved from S&P Global were unavailable at time of request.

Key Takeaways for Investors

  • Near-term margin inflection: Late-Q2 price strength and scrap dynamics, plus TAG efficiencies, support sequential margin improvement in Q3; watch rebar/merchant pricing and scrap indexes .
  • Europe turning a corner: Breakeven adjusted EBITDA achieved with price increases and cost actions; policy/tariff backdrop potentially constructive .
  • Proprietary solutions leverage: EBG margins improved on Performance Reinforcing Steel and Tensar; mix shift provides resilience .
  • Capital discipline: FY25 capex reduced to $550–$600M; WV project incentives and strong liquidity (~$1.6B) preserve flexibility for growth and buybacks .
  • Litigation overhang manageable in quarter: Q2 included ~$3.9M after-tax interest tied to PSG; core operations continue to generate cash .
  • Backlog/awards support visibility: Downstream backlog +~10% q/q; awards near 3-year highs underpin spring/summer construction season .
  • Trading implications: Near-term catalysts include tariff developments (Section 232 scope/duration), AI/data center project bids, and Arizona 2 ramp milestones; stock likely sensitive to confirmation of Q3 margin recovery and Europe stability .