Commercial Metals (CMC, Financial) saw a 5% rise today following its Q1 results. Although adjusted EPS met expectations, revenue declined 4.7% year-over-year to $1.91 billion, surpassing analyst predictions. The company cited economic uncertainty impacting new construction activity, affecting steel pricing and margins.
- While CMC did not provide specific guidance, it expects Q2 results to decline from Q1. However, management remains optimistic about future quarters, buoyed by positive customer interactions. Both large and small business confidence has seen significant improvement recently, suggesting current market softness is temporary.
- In North America, Q1 demand was strong, driven by late-season construction efforts compensating for weather-related delays. Finished steel product shipments rose 4.4% year-over-year. The construction pipeline remains robust, as indicated by CMC's downstream bidding activity. Despite strong demand, the segment's adjusted EBITDA margin dropped to 12.4% from 16.8% a year ago.
- The European segment continues to face challenges, with long-steel consumption below historical levels. While Polish demand improved, it was countered by increased imports from neighboring countries seeking new markets.
- The Emerging Businesses Group reported a 4.4% sales decline, impacted by a higher sales mix of lower-margin products and delays in large projects within the Tensar division, now expected to start in FY25. Additionally, a slowdown in the truck and trailer market affected earnings in CMC's Impact Metals business.
Recent cautious guidance from Nucor (NUE, Financial) and Steel Dynamics (STLD, Financial) likely led to low expectations from investors, who seem relieved the results were not worse. While Q2 is expected to be challenging, investors are encouraged by CMC's optimistic outlook for subsequent quarters. CMC's focus on steel rebar, crucial for construction and infrastructure projects like roads and bridges, positions it well for anticipated infrastructure spending in 2025.
