Commercial Metals (CMC) Down 7.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Commercial Metals (CMC). Shares have lost about 7.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Commercial Metals due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Commercial Metals Earnings Beat Estimates in Q1, Up Y/Y

Commercial Metals reported first-quarter fiscal 2020 (ended Nov 30, 2019) adjusted earnings per share of 73 cents, beating the Zacks Consensus Estimate of 56 cents. The figure also surged 109% year over year. The company delivered stellar fiscal first-quarter results driven by continued growth in the U.S. non-residential construction sector, which contributed to strong performances in the Americas Mills and Fabrication segments.

Including one-time items, the company reported net income of 69 cents per share in the fiscal first quarter compared with the prior-year quarter’s 16 cents.

Net sales for the reported quarter increased 8% year over year to $1,385 million. However, the reported figure missed the Zacks Consensus Estimate of $1,446 million.

Cost of goods sold in the reported quarter improved around 2.5% year over year to $1,146 million. Gross profit surged 50% year over year to $239 million in the quarter. Core EBITDA was $174 million in the fiscal first quarter compared with the year-ago quarter’s $98 million.

Financials

Commercial Metals exited the fiscal first quarter with cash and cash equivalents of $224.8 million compared with $192.4 million recorded at the end of fiscal 2019. The company’s long-term debt reduced to $1,179 million at the end of the quarter from $1,227 million recorded as of the end of fiscal 2019. Cash flow from operating activities were $146 million during the first quarter of fiscal 2020 compared with cash usage of $357 million in the prior quarter.

On Jan 2, the company’s board announced a quarterly dividend of 12 cents per share. This dividend will be paid on Jan 30, to shareholders of record on Jan 15, 2020.

Outlook

The company expects solid construction and infrastructure demand. However, construction activity might be affected by seasonality related to holidays and winter weather conditions during the fiscal second quarter. While the company expects metal margin to remain above the historical average, the same might decline from the prior-quarter levels.

Its optimization efforts and expanded domestic mill network during the reported quarter will yield benefits in the days ahead. Further, Commercial Metals expects Fabrication will remain profitable and the Recycling business is likely to benefit from the recent rebound in ferrous scrap prices.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Commercial Metals has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Commercial Metals has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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