Commercial Metals Company

Hello, welcome everyone to the fiscal 2026 first quarter earnings call for CMC. Joining me on today's call are Peter Matt, CMC's president and chief executive officer. And supplemental slides that accompany this call can be found on CMC's investor relations website. Today's call is being recorded. After the company's remarks we will have a question and answer session and we'll have a few instructions at that time. I would like to remind all participants that on today's discussion that will contain forward looking statements including with respect to economic conditions, effects of legislation and trade actions, U.S. steel import levels, construction activity, demand for finished steel products and precast concrete products, the expected capabilities, benefits, costs, and timeline for construction of new facilities, the expected benefits of recent acquisitions, the company's operations, the company's strategic growth plan and its anticipated benefits, legal proceedings, the company's future results of operations, financial measures, and capital spending. These statements reflect the company's beliefs based on current conditions but are subject to risks and uncertainties, the company's earnings release, most recent annual report, on Form 10-K and other filings with the U.S. Securities and Exchange Commissions contain additional information concerning factors that could cause actual results to differ materially from those projected in forward-looking statements. Except as required by law, CMC does not assume any obligation to update, amend, or clarify these statements. Some numbers presented will be non-GAAP financial measures And reconciliations for such numbers can be found in the company's earnings release, supplemental slide presentation, or on the company's website. Unless stated otherwise, all references made to year or quarter end are references to the company's fiscal year or fiscal quarter. And now for opening remarks and introductions, I will turn the call over to Peter.

Good morning, everyone, and thank you for joining CMC's first quarter earnings conference call. I hope each of you had a wonderful holiday season and a happy new year. CMC had an exceptional start to our fiscal year as we built on the strategic foundation laid in fiscal 2025, continuing to meaningfully and sustainably enhance our financial profile. The first quarter was one of the best in our company's history, serving as validation that our ambitious strategy is bearing fruit. Strategic actions taken over the last 12 to 18 months, including the launch of TAG, organizational realignment in critical areas, and the onboarding of key talent and resources to support growth areas are directly driving bottom line improvement. We are confident there is much more to come, particularly with the addition of CMC's large-scale precast platform. Our strategic focus remains on transforming CMC into an even stronger organization with higher, more stable margins, earnings, cash flows, and returns on capital. Now, let's jump into the first quarter results. For the quarter, CMC reported net earnings of $177.3 million, or $1.58 per diluted share. Excluding certain charges, which Paul will take you through in more detail, adjusted earnings were $206.2 million or $1.84 per diluted share. Our consolidated core EBITDA of $316.9 million grew by over 50% from a year ago and nearly 9% sequentially, reaching its highest level in two years. our core EBITDA margin of 14.9 percent likewise expanded both year over year and compared to the prior quarter. As outlined on slide five, this occurred against a good market backdrop with stable demand, limited imports, rising long steel metal margins, and attractive project opportunities within certain construction segments. Though CMC certainly benefited from these constructive conditions, Our results were meaningfully enhanced by solid execution that allowed us to capitalize on the opportunities we are seeing across our North American footprint. Let's review some highlights, starting with our North America steel group. CMC's mill network had a strong operational performance, which was critical to supporting customers in a relatively tight domestic supply environment and maintaining high levels of customer service. TAG initiative efforts, including the scrap optimization initiatives launched in fiscal 2025, contributed nicely to metal margin expansion. With the program now rolled out across all domestic mills, we are using less scrap per ton of steel produced and utilizing lower cost scrap blends, increasing the metal margin on each ton. Last quarter, I discussed new commercial rigor in the way CMC approaches opportunities within its downstream fabrication business. The positive impact of this change is only just beginning to be reflected in our financial results, but we are seeing it more significantly benefit our average price in backlog, which represents the work that will be shipped in future quarters. Encouragingly, despite enhanced selectivity in the projects we accept, the volume in CMC's downstream backlog increased modestly year over year and sequentially. We believe this is, at least in part, related to CMC's ability to leverage its unique and comprehensive portfolio of capabilities to win projects, particularly those that require specialized reinforcing solutions or large-scale resource deployment. A recent example has been the success we have had in the LNG space, which requires highly specialized cryogenic steel, the reliability of a large fabrication and logistics network, and expertise in project management, all of which we provide. Strong execution helped our construction solutions business, formerly known as our emerging businesses group, achieve a record first quarter adjusted EBITDA. Similar to our North America Steel Group, underlying market conditions were supportive, but our efforts to capitalize on these drove results to new heights. At Tensar specifically, we are seeing several important commercial and operational initiatives gain traction. Our team has moved to deepen relationships with key customers, improving our visibility into their upcoming product demands. We have also positioned ourselves to better address market demand across a full spectrum of GeoGrid solutions. Our highest value products are experiencing strong demand from mega projects such as LNG investments, but we are also capturing more opportunities in mid and lower tier portions of the market. Operationally, the Tensar team is doing an exceptional job managing costs and increasing production reliability ensuring that we have the product available where and when needed at a cost that optimizes margins. Our CMC construction services business achieved strong results during the quarter with revenue growth outpacing the broader market due to several impactful initiatives to acquire new customers, gain share of wallet through more proactive outreach, and standardized pricing and service levels across the footprint. This is just a sampling of the initiatives that we are undertaking to drive our business from good to great. Our success reflects the strategic efforts of CMC's leaders to push their businesses to new levels of performance. I mentioned earlier that we capitalized on a supportive environment in the quarter. Let me provide a bit more color on what we saw. In North America, we experienced healthy, stable underlying demand for our major products. This, in combination with a well-balanced supply landscape, supported volumes and margins during the quarter. Shipments of finished steel were virtually unchanged year over year and down less than a percentage point from fiscal Q4, compared to a more typical 4% to 5% seasonal sequential decline. Consistent with our guidance, metal margins increased sequentially as we were able to capitalize on the summer price announcements. Downstream bid volumes, our best gauge of the construction pipeline, remained healthy and were consistent with recent quarters with continued strength across key market segments, including public works, data centers, institutional buildings, and energy projects. We continue to see substantial pent-up demand, particularly within non-residential markets, a view supported by historic strength in the Dodge Momentum Index, or DMI, as well as recent conversations with many of our largest customers who are increasingly bullish as they experience a large inflow of project inquiries related to energy generation, reshoring, advanced manufacturing, and LNG infrastructure. The DMI leads construction activity by 12 to 18 months and increased by approximately 50% on a year-over-year basis in November, with the commercial segment growing by 57% and institutional by 37%. Even excluding data centers, a hotbed of growth in North America, commercials showed solid expansion rising 36% from a year ago. We remain confident that emerging structural drivers, including investment in U.S. infrastructure, reshoring industrial capacity, growth in energy generation and transmission, the build-out of AI infrastructure, as well as addressing a U.S. housing shortage, will support construction activity over the long term. As noted on slide 10 of the earnings presentation, nearly $3 trillion of corporate investments were announced across related areas in calendar 2025. Commencement of even a handful of these related megaprojects could provide a meaningful demand catalyst for CMC in the quarters ahead. Before I move on to our other segments, I would like to briefly update you on the status of the rebar trade case filed with the International Trade Commission or ITC back in June alleging exporters located in Algeria, Bulgaria, Egypt, and Vietnam are guilty of dumping material into the U.S. market. In December, the Department of Commerce provided a preliminary ruling against Algeria finding that producers based in that country are guilty of dumping and subjected them to the maximum duty sought by the domestic rebar industry which is 127%. While this margin rate could change once the Department of Commerce finalizes its investigation on Algeria in March, we are encouraged by the preliminary results and applaud the Department's defense of fair trade. Preliminary rulings are expected in March for anti-dumping duty investigations covering Egypt, Vietnam, and Bulgaria. Turning to our construction solutions group, current conditions are similar to those just described, with steady activity across most construction segments punctuated by a few hot areas like data centers and large energy projects. Our commercial teams continue to see encouraging signals regarding future activity, including healthy quoting levels and improved velocity of quote conversion to backlog. In addition to these broad indicators of potential demand, we are seeing an increase in attractive individual opportunities that require specialized reinforcement solutions, particularly among bridge and energy projects. Conditions for our Europe Steel Group softened modestly from the fourth quarter. Demand remained resilient on solid Polish economic growth, providing an outlet for healthy shipping volumes, but average price and margin levels were negatively impacted by the import flows. A portion of the price pressure experienced during the quarter may have been related to buyers of foreign material seeking to import product ahead of the European Union's Carbon Border Adjustment Mechanism, or CBAM, taking effect on January 1, 2026. We view this as a temporary overhang and expect prices in our primary markets to benefit from the launch of CBAM, which should increase the cost of some imports, particularly those that have historically been most aggressively priced. The green shoots we have noted in recent earnings calls continue to mature with more emerging. Recent market developments include signals of a coming recovery in residential construction activity driven by declining mortgage interest rates and a need for new housing stock. We are also more optimistic about the prospect of CBAM benefiting long steel pricing. With greater clarity regarding the terms and implementation now available, our team in Poland believes the program could increase the cost of some imported long products by at least $50 per ton and help support overall market price levels. Wrapping up my comments on the quarter, let me dive more deeply into TAG. This is our enterprise-wide operational and commercial excellence program aiming to drive a permanent step change improvement to our margins, earnings, cash flows, and ROIC. Fiscal 2026 will be a pivotal year as execution further permeates the organization and as the expected level of EBITDA benefit increases meaningfully. During fiscal 2025, TAG initiatives were primarily focused on domestic mill operations and logistics. This year, we are focused on operational initiatives in every line of business across each segment and are increasing our emphasis on key commercial opportunities. We are also targeting meaningful efficiencies in our SG&A expenses while maintaining our high level of performance. We are pleased with the execution on new initiatives so far in fiscal 2026 and have maintained solid momentum on programs launched in fiscal 2025, including the scrap optimization, mill yield, alloy usage, and logistics benefits that delivered approximately 50 million of EBITDA last fiscal year. Looking at fiscal 2026 and beyond, commercial excellence is a major opportunity where we see significant upside potential through achieving better margins and fuller value realization for CMC's industry-leading capabilities and service levels. For the mills, this comes in a variety of forms, including enforcing grade and size extras, applying appropriate premiums to pricing on special orders, and addressing areas of margin leakage such as delayed price implementation and freight recovery. It will also mean more definitive segmentation of our customer base with clear value propositions to the different customer segments and related commercial terms to ensure that all accounts generate acceptable margins. To our downstream fabrication business, we are pursuing enhancements to our margin structure through increased price discipline, a willingness to decline work that does not reach a suitable profit threshold, and improve terms and enforcement mechanisms in contracts. At the heart of our efforts is the ability to leverage CMC's unique capabilities and scale to achieve better margin outcomes on complex jobs that only a few fabricators can perform. Based on progress we are making across operational, commercial, and SG&A initiatives, I am confident that we will reach or exceed our ambitious goal of exiting fiscal 2026 with an annualized run rate EBITDA benefit of $150 million. In December, subsequent to the end of the first quarter, CMC closed on the acquisitions of CP&P and Foley products, and we are now operating one of the largest precast concrete businesses in the United States. This platform is transformational for us, broadening CMC's commercial portfolio in a way that increases our value proposition to customers, meaningfully enhancing our financial profile and extending our growth runway. Based on our initial observations over the last few weeks of owning these businesses, I am even more confident regarding their potential to strengthen CMC and create meaningful value for shareholders. Both CPMP and Foley are excellent cultural fits for our company and have talented teams in place at every level of their organizations, including very strong leadership groups that will remain in place and are fully aligned in executing CMC's strategic vision and delivering meaningful synergies. Discussions with precast leadership regarding the business outlook for fiscal 2026 have been positive. Backlogs are at good levels, featuring solid volumes and attractive average pricing, which should support healthy shipment levels as we enter the spring construction season. The outlook for underlying demand is positive for our core mid-Atlantic and southeastern geographies, bolstered by the expected growth in data centers, manufacturing facilities, and stormwater management systems. We look forward to providing further details on our second quarter earnings call, which will include financial results for our precast business within CMC's construction solutions segment. Having mentioned our construction solutions group a few times, I would like to highlight the reasons for renaming the segment. First, we believe that the title, Construction Solutions, better reflects the business composition of the segment, as more than 95 percent of the EBITDA will be derived from providing high-margin solutions to the construction market. Additionally, the new name more closely aligns with the strategic priorities of CMC. In particular, the aim to profitably grow our role in early-stage construction and build a commercial portfolio that makes us the preferred partner by our customers. Before turning the call over to Paul, I would like to recognize the efforts of our world-class employees. We have asked a lot of the team as we execute our ambitious vision for the future, and I am truly inspired by all that they have accomplished so far. Their efforts have been instrumental in laying the groundwork for years of success ahead, and I look forward to maintaining that momentum. With that, I'll turn the call over to Paul.

Thank you, Peter, and good morning and Happy New Year to everyone on the call. As noted earlier, we reported fiscal first quarter 2026 net earnings of $177.3 million, or $1.58 per diluted share, compared to a net loss of $175.7 million and a net loss per diluted share of $1.54 in the prior year period. During the quarter, we incurred approximately $36.7 million in pre-tax expenses with $24.9 million related to the acquisitions of CP&P and Foley, $3.7 million for interest on the judgment amount associated with the previously disclosed litigation, as well as an $8.1 million unrealized loss on undesignated commodity hedges. Excluding these expenses, which amounted to $28.9 million on an after-tax basis, adjusted earnings for the quarter totaled $206.2 million or $1.84 per diluted share, compared to $86.9 million and 76 cents per diluted share respectively in the prior year period. As a reminder, the prior year period included an adjustment for an estimated net after-tax charge of $265 million to reflect an adverse litigation verdict accrual. During the first quarter of fiscal 2026, CMC generated consolidated core EBITDA of $316.9 million representing a 52% increase from $208.7 million in the prior year period. DMC's North American Steel Group generated adjusted EBITDA of $293.9 million for the quarter, equal to $257 per ton of finished steel shipped. Segment-adjusted EBITDA increased 58% compared to the prior year period, driven primarily by higher margin over scrap costs on steel products, resulting in an EBITDA margin of 17.7% compared to 12.3% in the prior year period. Financial results also benefited from continued improved operational performance at Arizona II, as well as contributions from our TAG efforts. As Peter mentioned, we are driving continued gains from TAG initiatives launched during fiscal 25 and have more recently rolled out commercial initiatives to improve margin capture. The Construction Solutions Group first quarter net sales of 198.3 million grew by 17% on a year-over-year basis. Adjusted EBITDA of $39.6 million significantly increased by 75% year-over-year, driven by strong results from TENSAR and CMC construction services, as well as some improvement at CMC impact metals from the depressed levels of a year ago. TENSAR achieved its best first quarter financial performance under CMC ownership, benefiting from solid project demand positive impact of the sales initiatives mentioned by Peter in strong cost management efforts. CMC construction services likewise profited from self-help measures that drove EBITDA improvement on both a year-over-year and sequential basis. Contributions from our performance-reinforcing steel division remained historically strong but declined modestly from recent elevated levels. The Construction Solutions Group adjusted EBITDA margin of 20% improved by 6.6 percentage points compared to the prior year period. Our Europe Steel Group reported adjusted EBITDA of 10.9 million for the first quarter of 2026, down from 25.8 million in the prior year period. The decline was driven by a lower CO2 credit, which amounted to $15.6 million during the first quarter of 2026, compared to $44.1 million received during the year-ago period. The reduction in the CO2 credit was the result of the credit generated for calendar 2024 being separated into two tranches, one of which was received during the fourth quarter of fiscal 2025 while the remaining amount was received in the first quarter of fiscal 2026. By comparison, results for last year's first quarter reflected the entirety of the 2023 annual CO2 credit. Including the impact of energy cost rebates, adjusted EBITDA improved on a year-over-year basis on stronger shipping volumes and higher metal margins. Shipments grew by approximately 16% from the first fiscal quarter of 2025 as a result of continued Polish economic expansion and reduced import flows from Germany. Metal margins expanded by $37 per ton, largely driven by the same factors. During the quarter, Our Polish mill underwent an annual maintenance outage, which incurred approximately $10 million of costs. The team did an excellent job starting up efficiently following the plan downtime, and similar to recent quarters, continues to effectively manage costs across the organization. I will now discuss CMC's balance sheet and liquidity position as outlined on slide 13 of the supplemental presentation. As of November 30th, cash, cash equivalents, and restricted cash totaled $3 billion. This amount included approximately $2 billion in proceeds raised through a senior notes offering in November, most of which was earmarked to fund the company's purchase of Foley Products. In December, we closed both the CP&P and Foley acquisitions, and payments of approximately $2.5 billion were made. The table on the left-hand side of slide 13 provides an illustrative view of CMC's cash balance, net debt, and net debt to EBITDA, assuming both transactions had closed on November 30th. As you can see, net leverage stands at approximately 2.5 times using combined adjusted EBITDA for legacy CMC and our newly acquired precast business. This is lower than the 2.7 times pro forma figure shared at the time of the Foley acquisition, with the reduction resulting from the increased EBITDA generation of our business. We continue to be confident in our ability to return to our net leverage target of below two times within 18 months, and we'll prioritize de-levering in the quarters ahead. This effort will be aided by strong cash flow generation from the precast platform itself, the wind down of capital expenditures for the construction of steel West Virginia, and the significant cash tax savings generated by the 48C program and the one big beautiful bill. Additionally, we have reduced our share repurchases during this period of leverage reduction to amounts approximating our annual share issuance under our compensation programs. Subsequent to quarter end, CMC increased the capacity of our revolving credit facility from $600 million to $1 billion. This will ensure a strong liquidity position to support the execution of strategic goals going forward. Using the same adjustments to our November 30th balance sheet to give effect to the precast acquisitions and also giving effect to the upsized revolver, estimated available liquidity would have been slightly over $1.7 billion. CMC's effective tax rate was 3.1% in the first quarter. Looking ahead, we anticipate a full-year effective tax rate between 5% and 10% for fiscal 2026. As a result of several factors, including our 48C tax credit, bonus depreciation on our West Virginia mill investment, as well as accelerated depreciation on the assets of the acquisitions of Foley and CP&P, we do not anticipate paying any significant U.S. federal cash taxes in fiscal 2026 or for much of fiscal 2027. Turning to CMC's fiscal 2026 capital spending outlook, we anticipate spending approximately $625 million in total. Of this amount, approximately $300 million is associated with completing the construction of our steel West Virginia micro mill, as well as a handful of high return growth investments within our construction solutions group. and approximately 25 million in our newly acquired precast businesses. This concludes my remarks, and I'll turn it back to Peter for additional comments on CMC's financial outlook. Thank you, Paul.