Commercial Metals CEO Discusses F4Q10 Results – Earnings Call Transcript

Commercial Metals CEO Discusses F4Q10 Results â¿¿ Earnings Call Transcript
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Commercial Metals Company (



F4Q10 (Qtr End 08/31/10) Earnings Conference Call

October 29, 2010 11 AM ET


Murray McClean – Chairman, President and CEO

Bill Larson – SVP and CFO

Joe Alvarado – COO


Luke Folta – Longbow Research

Timna Tanners – UBS

Sanil Daptardar – Sentinel Investments

Sal Tharani – Goldman Sachs

Evan Kurtz – Morgan Stanley

Charles Bradford – Affiliated Research Group

Tim Adler – Paradigm Capital

Brent Thielman – D.A. Davidson

Gregory Macosko – Lord Abbett



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Hello and welcome to today’s Commercial Metals Company fourth quarter 2010 earnings conference call. At this time all participants are in listen-only mode. After management’s remarks, we will conduct a question-and-answer session and instructions will follow at that time.

Please be advised that this call is being recorded today, October 29 and your participation implies consent to our recording of this call. If you do not agree to these terms, simply disconnect.

Your host for today’s call is Mr. Murray McClean, Chairman, President and Chief Executive Officer of Commercial Metals Company. Mr. McClean, you may begin your call.

Murray McClean

Good morning and welcome to CMC’s fourth quarter fiscal 2010 conference call.

With me is Bill Larson, our Chief Financial Officer and Joe Alvarado, our Chief Operating Officer.

I’ll begin the call with an overview of the fourth quarter and then ask Bill to provide further details. Finally, I’ll comment on the outlook for our first quarter fiscal 2011, after which Bill, Joe and I will be happy to answer any questions that you might have.

With reference to our fourth quarter fiscal 2010, overall, a modest profit but it’s certainly good to be in the black. Ferrous scrap prices have trended down since April, reaching a bottom in July before recovering in August. Rebar merchant prices have also trended down during this period.

We mentioned in our June call that restocking U.S. was largely over by late May. This held true during our fourth quarter, which impacted our U.S. mills capacity utilization rates.

In the U.S. non-residential construction continued to be very weak. Public non-residential construction in the U.S. was good, but lacked impact from the stimulus package unlike what has happened in China. In Europe, markets were mixed with good results coming from many European markets north of the Alps. In our case, Poland improved nicely over the quarter.

In Asia, China continued its strategies to slow down the economy from a 10% plus growth rate. The Chinese government clamped down many energy intensive industries including many steel mills by cutting off power or surveilling restricting supply. This had the immediate impact of (inaudible) on ore prices and increasing steel prices. The rest of Asia continued on the steady growth trend. Australia despite their elections continued to grow steadily in most sectors.

Four out of our five segments were profitable during the quarter, namely recycling Americas mills, international mills and marketing and distribution. Our Americas fabrication segment continued to make a significant loss.

I now ask Bill Larson to provide the details on the fourth quarter. Bill?

Bill Larson

Good morning. Let me call to your attention the detailed Safe Harbor statement included in our press release and in our August 31, 2009 10-K that in summary says that in spite of management’s good faith, current opinions on various forward-looking matters circumstances can change and not everything that we think will happen always happens.

In addition, we’ve given guidance regarding our outlook for the first quarter of fiscal 2011 in our press release. Subsequent to this call, we will not be under any obligation to update our outlook. In accordance with Regulation G of the Securities and Exchange Commission, you are aware of non-GAAP financial measures. Some of these have derived fairly straightforward from our financial statements or in common business use can be the subject of our discussion today and in our investor visits, but there are other items that may be outside of our ability for discussion. You may need to be patient with us if we defer comment. Our website has additional information at

There has been a significant turn in our prospects in Texas since early October, much has the recession has been a once in a career, currencies recovery has been equally dramatic. I am referring, of course, to the Texas Rangers playing in the World Series. I love our investors in the Bay Area and I still do even after the first two losses. I always loved Willie Mays, Juan Marichal, (inaudible). Stan Rabin was a huge Dodger fan. But hey, this is the home team. With the Cowboys on the Highway to Hell, which that’s by the way, that’s a great song by AC/DC, I have got get my antlers and claws up.

Hopefully we can in the future speak of a metal’s business dramatic upturn but for now the word is caution. Financially this means that we will continue to hold a strong cash position. At August 31, we had right at (ph) $400 million of cash and short-term investments. As a reminder, our accounts receivable are largely credit insured or backed by letters of credit, our inventories are on LIFO, our goodwill and intangibles are a smaller percentage of our assets, we remain financially strong.

After three years of large capital expenditures in 2007, 2008 and 2009, we set a budget of $150 million in 2010 and spent about $125 million. For fiscal 2011, we are again setting a targeted budget of $150 million but we will be constantly monitoring the business case for each project, safety and environmental though will not be delayed.

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