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Text: I will begin the call with brief remarks regarding our third-quarter performance before offering some perspective on the current market environment.
I will also provide an update on CMC's key strategic growth initiatives.
I'm pleased to report that CMC's third-quarter fiscal 2021 financial results were the best in our company's 106-year history.
Earnings from continuing operations were $130.4 million or $1.07 per diluted share on net sales of $1.8 billion.
Excluding the impact of a gain on the sale of a small rail reclamation business, adjusted earnings from continuing operations were $127.1 million or $1.04 per diluted share.
CMC reported a core EBITDA of $230.5 million, generating an annualized return on invested capital of 18%.
This level of performance underscores CMC's enhanced earnings capability following our multi-year strategic repositioning.
Third-quarter volumes were exceptionally strong in North America and Europe, and the ability of our commercial operational logistics and support teams to respond to the rise in customer demand generated our strong financial performance.
and Poland set monthly shipment production records during the quarter, enabling us to capitalize on market conditions.
During the quarter, we also continued to execute on our previously discussed in-flight strategic initiatives and growth projects.
We are expanding our capability to serve the merchant bar market.
Customers appreciate CMC's expanded product range and service capabilities, and we're seeing our recent investments in handling and storage capacity pay off in increased volumes.
We expect more growth in the future, especially once our state-of-the-art Arizona 2 micro mill starts up in early 2023.
We continue to execute on our network optimization efforts.
And with recent actions firmly entrenched in our financial performance, CMC is roughly halfway to our longer-term goal of $50 million in annual cost efficiencies.
You can see the benefit of these efforts in our controllable cost performance on a per-ton basis.
Despite well-publicized inflationary pressures across the global economy, we were able to reduce this metric modestly on a year-over-year basis.
In April, we received the required air permit for Arizona 2, CMC's planned state-of-the-art micro mill at our Mesa, Arizona site.
This was an important milestone, enabling us to begin construction and we continue to anticipate an early 2023 start-up.
As a reminder, this plant will be the first micro mill in the world capable of producing merchant bar as well as rebar.
It will also be the first in North America with the capability to connect directly to an onsite renewable energy source.
These capabilities, combined with a micro mill's inherent low-cost and low-carbon footprint will define a new level of operational and environmental excellence in long products steelmaking.
In May, our team in Europe began hot commissioning their plant's third rolling line.
The start-up process is going very well, and we expect to begin commercial production late in the fourth quarter.
This project was delivered on time and under budget, a testament to our Polish team's ability to execute.
We will be ramping operations within a very strong market environment, which will help shorten the time to achieve our targeted annual run rate incremental EBITDA of $20 million.
I'd now like to provide an update on market conditions.
The encouraging trends we discussed during our second-quarter call continued and strengthened in the third quarter.
As I will detail, project owners have grown more confident as the economy has recovered and states have reopened, and they are now more willing to contract new work.
This view is supported by the strong level of new awards booked in the quarter.
The strength and new project opportunities is occurring in both the private and public sectors.
On the private side, CMC is seeing work related to the hardening of supply chains, as well as the trend toward investments in e-commerce infrastructure.
The ongoing global semiconductor shortage has spurred several very large investments within CMC's core geographical markets.
At the same time, public demand is solid, and we are experiencing good activity for highways, bridges, and other infrastructure-related applications.
Activity in residential markets also continues to be strong.
CMC is growing our participation in this area and our mills have capitalized on the increased demand.
The benefit to CMC of new housing investment and community formation is twofold.
The first phase is under way, and we are currently benefiting from direct demand from the residential sector.
We believe the next phase will include local infrastructure and commercial centers that support new communities.
Historically, the lag between new residential activity and the inflow of supporting non-residential investment has been 9 to 24 months.
Finally, domestic demand for merchant product continues to benefit from the ongoing recovery of industrial production, as well as a lean service center supply chain.
Looking further ahead at our markets, we see several positive long-term developments.
Over the last year, the population migration to the Southern States has accelerated with metro areas in our core Sunbelt geographies being the primary beneficiaries.
Various discussions regarding a potential long-term infrastructure package are also encouraging.
Several proposals are under consideration, any of which would provide a meaningful increase to annual federal infrastructure funding relative to current levels.
Based on our analysis, we believe the annual percentage increase to funding ranges from 30% to 60% across the various proposals.
Turning to Europe, demand for CMC's long products remained robust during the third quarter.
Like the U.S., construction activity in Poland is healthy and supporting strong volumes of rebar.
The residential market is an important driver of demand in the Polish market.
And new housing permits and units under construction are growing by double digits on a year-over-year basis.
Industrial activity continues to recover in Central Europe, driving consumption of CMC's merchant bar and wire rod products.
Germany's manufacturing PMI in May was among the strongest globally, while Poland's reading reached a new all-time high.
We will soon publish our latest corporate sustainability report, featuring greatly enhanced disclosures around three key pillars of environmental, social, and governance.
You will see that as CMC has improved its operational and financial performance, we have also improved our already industry-leading environmental performance.
That's what we mean when we say that good business and good environmental stewardship go hand in hand.
We will also be setting ambitious environmental goals in line with science-based targets.
I hope that once you read our upcoming report, you'll have a better understanding of the value we place and steps we've taken to serve our people, customers, communities, and environment.
The dividend will be paid on July 14, 2021.
This represents CMC's 227th consecutive quarterly dividend.
And with that as an overview, I will now turn the discussion over to Paul Lawrence, vice president and chief financial officer, to provide some more comments on the results for the quarter.
I am pleased to review with you the outstanding third-quarter results.
As Barbara noted, we reported record earnings from continuing operations of $130.4 million, or $1.07 per diluted share, roughly double the prior-year levels of $64.2 million and $0.53 per diluted share.
Results this quarter include a net after-tax benefit of $3.3 million related to the sale of a small rail reclamation business.
Excluding the impact of this, adjusted earnings from continuing operations were $127.1 million or $1.04 per diluted share.
Core EBITDA from continuing operations was $230.5 million for the third quarter of 2021, up 49% from the year-ago period and 35% on a sequential basis.
Both our North America and Europe segments contributed significantly to year-over-year earnings growth, while core EBITDA per ton of finished steel reached a record level of $144 per ton.
The third quarter marked the ninth consecutive quarter in which CMC generated an annualized return on invested capital at or above 10%, which is well above our cost of capital.
This translates into meaningful value created for our shareholders.
Now, I will review the results of our third quarter of fiscal 2021.
The North America segment recorded adjusted EBITDA of $207.3 million for the quarter, an all-time high, compared to adjusted EBITDA of $159.4 million in the same period last year.
The largest drivers of this 30% improvement were a significant increase in margins on steel products, strong volume growth, and expanded margins on sales of raw materials.
And continued management of controllable costs also allowed us to fully capitalize on the robust market conditions during the quarter.
These factors more than offset the impact of lower margin over scrap on downstream products.
Selling prices for steel products from our mills increased by $170 per ton on a year-over-year basis and $99 per ton sequentially.
Since bottoming in August 2020, our average monthly selling price has rebounded roughly $220 per ton.
Margin over scrap on steel products increased $40 per ton from a year ago and $74 per ton sequentially.
The average selling price of downstream products of $963 per ton shipped was essentially flat compared to the prior-year third quarter.
A flat selling price, coupled with higher underlying scrap costs, resulted in lower margins on downstream products.
In a period of elevated ferrous and nonferrous price -- scrap pricing, we realized higher margins on sales of raw materials, which as a result of our vertically integrated network of operations helped provide earnings stability to our consolidated results.
Shipments of finished product in the third quarter increased 9% from a year ago.
Both rebar and merchant bar volumes out of our mills reached record levels, increasing 8% and 28% respectively compared to the third quarter of fiscal 2020.
As Barbara noted, we experienced good activity in both public and private construction.
CMC also continued growing its president -- presence in residential construction, which added meaningfully to the year-over-year increase in rebar shipments.
Downstream product shipments were impacted by a reduced backlog and weather challenges in certain geographies, resulting in a 4% reduction in year-over-year volume decline.
The recent trend in North American margins, volumes, and cost performance can be seen on Slide 8.
Our continued focus on operational performance allowed us to achieve record North American financial results.
Our team was able to generate a modest reduction in controllable costs per ton of finished steel shipped compared to a year ago despite inflationary pressures in freight and certain other costs.
A quick glance at recent producer price index or manufacturing ISM reports should underscore the strength of this accomplishment.
The most significant benefit came from volume-driven efficiencies at our steel mills and recycling yards, as well as the impact of closing the former Steel California rolling operations.
Turning to Slide 9.
Our Europe segment generated adjusted EBITDA of $50 million in -- for the third quarter of 2021, compared to adjusted EBITDA of $14.3 million in the same period of the prior year.
The improvement was driven by expanded margins over scrap and strong volumes across all ranges of products.
Margins over scrap increased $90 per ton on a year-over-year basis and were up $84 per ton from the prior quarter.
Tight market conditions provided the backdrop to achieve the segment's higher -- highest average selling price in nine years, reaching $664 per ton during the third quarter.
This level represented an increase of $227 per ton compared to a year ago and $132 per ton sequentially.
Europe volumes increased 8% compared to the prior year and reached their highest third-quarter total in a decade.
The strength was driven primarily from the market for rebar.
Volumes of merchant and other products also grew on a year-over-year basis, supported by goods demand from industrial customers in Central Europe, as well as some opportunistic billet sales.
As Barbara mentioned, the demand environment during the quarter was robust, with indications that conditions should remain favorable in the near term.
Turning to our balance sheet and liquidity.
As of May 31, 2021, cash and cash equivalents totaled $443 million.
In addition, we had approximately $639 million of availability under our credit and accounts receivable programs.
In March, we upsized our revolving credit facility to $400 million from $350 million and extended the maturity till 2026.
During the quarter, we generated $94 million of cash from operating activities despite a $79 million increase in working capital.
The rise in working capital was driven by the significant increase in both scrap input costs and average selling prices.
We expect working capital balances to increase modestly heading into the end of the fiscal year.
Our leverage metrics remain attractive, and we have improved significantly over the last two fiscal years.
As can be seen on Slide 12, our net debt-to-EBITDA ratio now sits at 1.0 times, while our net debt to capitalization is just 20%.
We believe our robust balance sheet and overall financial strength provides us the flexibility to fund our strategic growth projects, navigate economic uncertainties, and pursue an opportunistic M&A.
CMC's effective tax rate for the quarter was 22.6%, which was both below our full-year effective rate forecast to be around 25%.
Lastly, I would like to provide that our current outlook for capital expenditures in fiscal 2021 remains between 200 million and 225 million of which roughly 100 million will be used for the new micro mill.
For comparison purposes, we have previously stated that our typical capital spend averages around 150 million annually.
We expect a strong finish to fiscal 2021.
The summer construction season is under way, and demand is robust across each of our major product lines in both North America and Europe.
We anticipate margins over scrap on steel products in both segments to be consistent or up modestly compared to the third quarter.
Our internal indicators such as bidding activity and backlog level support continued strength.
The recent recovery of leading national construction indicators such as the Architectural Billing Index dodged momentum index and the Portland Cement Association forecast each mirror our view.
These external measures also point to good conditions in the calendar year 2022.
And at this time, we will now open the call to questions.

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q3 adjusted earnings per share $1.04 from continuing operations excluding items.
q3 earnings per share $1.07 from continuing operations.
q3 sales $1.8 billion versus refinitiv ibes estimate of $1.7 billion.

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