Commercial Metals Company 2026 Q4 Earnings Call

Please go ahead. Hello, and welcome to the Commercial Metals Company fiscal 2026 fourth quarter and year-end earnings call.

Joining me on today's call are Peter Matt, CMC's President and Chief Executive Officer, and Paul Lawrence, Senior Vice President and Chief Financial Officer. Today's materials include the press release and supplemental slides that accompany this call, which can be found on the CMC's Investor Relations website. As a reminder, today's call is being recorded. Peter will begin our prepared remarks with a high-level overview of the year and fourth quarter and comment on the progress against our strategic objectives. Paul will then provide a detailed discussion of our quarterly results as well as capital allocation. Peter will wrap up with our view on the path ahead. We will then provide instructions for the question and answer session to follow.

Today's discussion contains forward-looking statements, including with respect to economic conditions, effect 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, cost, and timeline for construction and commissioning of new facilities, the expected performance and integration of our recently acquired precast platform, the company's operations, the company's strategic growth plans and its anticipated benefits, the company's ability to achieve its stated deleveraging targets within the anticipated timeframe, legal proceedings, the impact of tax credits on future results, the company's future results of operations, financial measures and capital spending, including expected share repurchase activity. 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 Commission 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 reconciliation 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. With that, I would like to turn the call over to CMC's President and CEO, Peter Matt.

Thank you, Andy, and good morning to everyone joining us for today's call. We will discuss many accomplishments today, but none is more important than safety. I want to thank our employees for their continued focus and commitment to our most important company value. Our total recordable incident rate for fiscal 2026 remained near a historic low point and better than industry averages. During the year, we put significant effort into embedding CMC's safety-first culture across our newly acquired Precast operations and strengthening safety performance throughout the organization. While we are proud of that progress, our standard is higher. Our goal is zero harm, and we will be relentless in striving for it. Now, stepping back, fiscal 2026 was a defining year for CMC.

We made significant progress executing the strategy we laid out at our investor day, strengthening the quality and durability of our earnings profile, expanding margins, reducing leverage, enhancing free cash flow generation, and positioning the company for sustained shareholder value creation. For the full year, Core EBITDA increased to approximately $1.4 billion, up from $837 million for fiscal 2025, while Core EBITDA margin expanded 380 basis points to 14.5%. These results reflect meaningful progress across each of our strategic priorities, including the execution of our Transform, Advance and Grow program, the advancement of key growth investments, and the ongoing successful integration of our Precast acquisitions. Just as importantly, we have strengthened our balance sheet. Since completing our Precast acquisitions, we have reduced leverage as adjusted for acquisitions to below our target range, providing greater financial flexibility to invest in growth while returning capital to shareholders.

Our momentum carried into the fourth quarter with Core EBITDA increasing 35.1% year-over-year to approximately $394 million while Core EBITDA margin expanded to 14.8%. Results in the quarter were driven by strong North America Steel Group performance, where execution against strategic priorities has created clear value for our business. Segment margins increased 220 basis points sequentially, driven by strong TAG contributions, including operational and commercial excellence initiatives. We are also seeing that as the market and our customers pursue larger and more complex projects in energy, industrial reshoring, data center, and institutional sectors CMC's scale, capabilities, and network are increasingly making CMC a preferred partner. Our downstream expertise with its customized solutions and customer-focused approach has us positioned to win in this increasingly complex environment. Downstream product volumes grew 8.5% year-on-year in the fourth quarter, with expanding margins reflecting this dynamic.

At the same time, our Arizona 2 micro mill is enhancing our merchant production capabilities to support growth and demand. Shipments for merchant bar increased 27.5% year-over-year, demonstrating the capabilities of the Arizona 2 plant and the flexibility it provides to optimize product mix to capitalize on strong market conditions and balance supply with demand. For our Construction Solutions Group, fourth quarter results were below our expectations, due primarily to our Precast business with residential softness in certain southeastern markets. Notably, we have seen the same regional softness in our fabrication book, though it is not visible externally given the geographic diversification of our fab footprint. As residential activity moderated, lower volumes and regional margin mix headwinds weighed on adjusted EBITDA performance. Precast generated adjusted EBITDA of $57.1 million during the quarter, and excluding the purchase, accounting impact has contributed roughly $150 million of adjusted EBITDA since our acquisition.

The leading indicators for the business remain positive. The demand environment, especially in non-residential and infrastructure, remains healthy, with strong bidding activity in key markets like Atlanta picking up in recent months. Bookings were up year-over-year and increased 12.6% sequentially. Backlog levels are up roughly 3% versus the prior year and 4% versus Q3, while average backlog pricing has also trended higher. These factors position the business for solid performance in the year ahead. Strategically, as we close 2026 and look ahead to fiscal 2027, we are highly confident in our direction and in the three powerful drivers of value creation we laid out at our investor day. First, we will continue capturing the full potential of our business through TAG. Second, we will begin harvesting returns from significant growth capital deployed over the last several years.

Third, we will continue reshaping our portfolio as a leading provider of early-stage construction solutions. Together, these initiatives, which are within our control, will power a stronger CMC both operationally and financially. We have made significant progress in fiscal 2026 as TAG continued to evolve from a program into a core operating system for CMC. Across the enterprise, we realized meaningful productivity gains through yield improvements, scrap optimization, logistics that remains substantial with a full pipeline of initiatives that will drive additional earnings growth and margin expansion. We exited fiscal 2026 with more than $250 million of gross run rate benefits achieved and a clear line of sight to an additional $100 million of run rate benefits by the end of fiscal 2027. We view TAG as a durable source of margin expansion and an increasingly important competitive advantage for CMC.

Turning to growth investments, fiscal 2027 will mark an important transition. For several years, we have invested significant capital to strengthen and modernize our asset base. Nearly $1.5 billion of capital has been deployed to modernize and complete our coast-to-coast mill network, both improving our competitiveness and providing network flexibility. As we enter fiscal 2027, those investments increasingly shift from consuming capital to generating returns. At Steel West Virginia, commissioning and startup activities continue to progress well. The team is executing a disciplined commissioning process, keeping its focus on safely increasing production, developing the workforce, and realizing the full potential of the mill. As production increases, Steel West Virginia will strengthen the flexibility of our whole network, enabling us to flex and optimize production cost and product mix to better serve customer demand for different products across our footprint.

Before moving on, I'd like to recognize the team leading the construction and commissioning of our West Virginia micro mill. Their efforts have been outstanding and reflect the disciplined approach to capital deployment and project execution that defines CMC. At Tensar, the new geogrid line in Blackwell, Oklahoma is well into its startup and will increase geogrid production capacity, enhance service levels, and fuel growth in higher value non-residential and infrastructure applications. We are equally encouraged by the construction progress at GalvaBar Tennessee, where we expect first production of our GalvaBar corrosion-resistant product beginning this November. The facility is expected to more than double our GalvaBar production capacity, expanding our presence in this attractive, higher-margin market segment. Beyond our organic growth investments, we are reshaping our portfolio and diversifying our earnings profile, most recently with our Precast platform investments.

Turning to our Precast business, integration activities remain on track, and synergy capture is meeting or exceeding expectations. A great example of this is where, through best practice sharing across our network, we have implemented several new operational practices that will improve our safety performance and eliminate millions of dollars of waste from our supply chain. To date, we have substantially completed the functional integration of the platform, creating a strong foundation to drive value creation. Utilizing a TAG approach and mindset, we are advancing a broad range of operational excellence and commercial excellence initiatives and have identified further opportunities across operations, procurement, footprint optimization, and commercial execution that will enhance growth over time. Precast plays a critical role in strengthening CMC's position in early-stage construction solutions. The business enhances our portfolio with leading positions in attractive growth markets and in-demand infrastructure applications.