IRVING, Texas, June 23 /PRNewswire-FirstCall/ -- Commercial Metals Company (NYSE: CMC) today reported a net loss of $13.1 million or $0.12 per share on net sales of $1.3 billion for the quarter ended May 31, 2009. This compares with net earnings of $59.5 million or $0.51 per diluted share on net sales of $2.9 billion for the third quarter last year. This year's third quarter included after-tax LIFO income of $29 million or $0.26 per share compared with expense of $83 million or $0.71 per diluted share in last year's third quarter. At quarter end our LIFO reserve totaled $279 million. 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. Changes in LIFO are not writedowns, writeoffs or market adjustments. They are changes in cost components based on an assumption of physical inventory flows.
Net earnings for the nine months ended May 31, 2009 were $13.6 million or $0.12 per diluted share on net sales of $5.3 billion. For the same period last year, net earnings were $168.4 million or $1.43 per diluted share on net sales of $7.3 billion. For the nine months ended May 31, 2009, after-tax LIFO income was $184 million or $1.62 per diluted share compared with an expense of $118 million or $1.00 per diluted share last year.
In response to price declines, demand destruction, and a global liquidity and credit crisis, the Company recorded the following consolidated expenses during the third quarter and the nine months ended May 31, 2009:
Three Months Ended Nine Months Ended
(in millions) 5/31/09 5/31/09
Lower of cost or market inventory
adjustments $27.0 $110.4
Charges relating to contractual
noncompliance 8.9 2.4
Bad debt expense 10.2 33.6
Severance costs 2.8 9.3
Impairment charges - 5.1
Selling, general and administrative expenses in the third quarter included $10.8 million of pre-tax costs associated with the investment in the global deployment of SAP software compared to $18.2 million in last year's third quarter; project to date we have expensed $126.8 million. Other SAP costs of $105.8 million have been capitalized since inception of the project, of which $5.6 was capitalized in the current quarter. By August 31, 2009, we estimate that 58% of the earnings power of CMC will be on SAP. These units have been identified as having the greatest benefits to realize under an integrated system. As of August 31, 2009, our deployment of SAP will be folded into our continuing IT operations and no longer be tracked as a separate project.
General Conditions
CMC Chairman, President and Chief Executive Officer Murray R. McClean said, 'Global metal markets may have tested the bottom during the quarter and though some recovery has occurred, the markets, overall, remain fragile. Any volume improvement in the quarter was seasonal and not reflective of any stimulus effect. Destocking appears to be in its last stages; however, end-use demand remains weak. Internationally, Poland remains one of the few countries with a positive GDP; its weak currency discourages imports; however, the lack of demand in traditional export markets minimizes any opportunities to leverage the euro or the U.S. dollar through exports. There are some encouraging developments in China where pricing and consumption are on the rise. Lower prices and lower inventory quantities again triggered LIFO income during the quarter. Our largest commercial exposures remain unwarranted customer contractual noncompliance leading to market claims, price renegotiations, and unexpected inventory positions.'
Americas Recycling
McClean said, 'Ferrous scrap prices are showing signs of stability as this quarter did not exhibit the tremendous volatility seen since March 2008. Domestic supply remains constrained, customer destocking appears near completion and the best markets are overseas as both break bulk and containerized exports yield better price and volumes. Margin decreases on both ferrous and nonferrous sales in comparison to last year's third quarter are two-thirds attributable to volume and one-third to price. Weak demand is outpaced by even weaker supply with a suffering domestic manufacturing base. The adjusted operating loss of $6.7 million pales compared to the $50.4 million operating profit in the third quarter of last year, but was a considerable improvement over the $36.2 million operating loss of the second quarter. Pre-tax LIFO income of $2.0 million during the quarter compares to $15.2 million of pre-tax LIFO expense in last year's comparable quarter. The average ferrous scrap sales price for the third quarter was $146 per short ton, a 63% decline from last year's third quarter. Nonferrous pricing, on the strength of a recovery in copper, fared somewhat better with an average sales price of $1,556 per short ton, a drop of 52%. Shipments of ferrous scrap totaled 371 thousand tons, a decline of 54% from the third quarter of last year and a level last seen in the second quarter of 2003. Nonferrous shipments totaled 50 thousand tons, down 36% from last year's third quarter, but up 32% from the second quarter. We exported 17% of our ferrous tonnage and 50% of our nonferrous scrap tonnage during the quarter.'
Americas Mills
McClean said, 'There were mixed trends in the results of our Americas Mills segment for the third quarter. Metal margins, though still at historically strong levels, eroded from the second quarter. Tons shipped increased from the second quarter, but this is more likely seasonal rather than sustainable demand. Most benchmarks compared to the third quarter of last year are down. Rebar continues to exhibit resilience, while merchant products wither. Import competition is limited.
Customers continue to destock, but this is slowing. We have rolled approximately 15% less than we shipped in every quarter this year as we reduce inventories to meet lagging demand. The segment earned adjusted operating profit of $42.1 million compared to $34.0 million in the comparable quarter last year. The continuing decline in prices and quantities in inventory led to pre-tax LIFO income of $16.4 million, compared to $55.3 million of pre-tax LIFO expense last year.
'Our steel mills ran at 58% of capacity this quarter, up from 55% capacity in the second quarter. The steel mills adjusted operating profit of $39.2 million was up 18% compared to the prior year third quarter; pre-tax LIFO income was $17.3 million compared to the prior year third quarter pre-tax LIFO expense of $44.5 million. Our metal margin at $365 per ton was 14% above the third quarter of last year, but down some 19% from the second quarter. The price of ferrous scrap consumed at the mills during the quarter fell 50% compared to last year's third quarter. Our average selling price of $564 was down $154 per ton, while the average selling price for finished goods was down $166 to $583 per ton. Sales volumes declined 37% to 427 thousand tons. Rebar accounted for 58% of tonnage shipped, a consistent percentage throughout the year. The price premium of merchant bar over reinforcing bar averaged $154 per ton, down $103 per ton from the second quarter. On a quarter-to-quarter basis, tonnage melted for the third quarter was down 38% to 396 thousand tons, while tonnage rolled declined 35% to 365 thousand tons. Lower production rates as well as price decreases in some alloys and natural gas resulted in an overall decrease of $22.7 million in electrode, alloys, and energy costs.'
McClean continued, 'Our copper tube mill reported an adjusted operating profit of $2.9 million compared to $700 thousand in the third quarter of last year, though it recorded pre-tax LIFO expense of only $896 thousand compared to pre-tax LIFO expense of $10.8 million in the prior year third quarter. What strength remains in construction is in education and healthcare.'
Americas Fabrication & Distribution
McClean added, 'Our Americas Fabrication & Distribution segment reported adjusted operating profit of $17.7 million compared to last year's loss of $22.3 million. The current quarter recorded pre-tax LIFO income of $19.0 million, whereas last year's third quarter suffered a pre-tax LIFO expense of $57.0 million. Consistent with the trend all year, fabrication, rebar, structural, decking, and construction services were profitable, but post and joist incurred losses. Profits were attributable to margin improvements on lower material costs supplying relatively high-priced backlog shipments. Losses in post were caused by high-priced raw material in inventory (used rail) running through production and in joist, fierce competition for dwindling tons. The composite average fab selling price (excluding stock and buyouts) was $1,071 per ton, flat with last year's third quarter, but down $172 per ton from the second quarter of 2009. Our challenge remains in our domestic steel import and distribution business which incurred a substantial loss. The decline in spot pricing coupled with customer liquidity issues has led to unprecedented and unwarranted contract cancellations, market claims, price renegotiations and unanticipated inventory positions. We have taken aggressive action to compel customer compliance, have increased bad debt expense and taken lower of cost or market adjustments on inventory positions.'
International Mills
According to McClean, 'Weak international steel markets, metal margin compression, mill start-up costs and lower of cost or market inventory adjustments caused by rapidly falling sales prices resulted in an adjusted operating loss of $17.7 million for this segment compared to a $30.7 million profit in the third quarter of last year.
