Q1 2025 Commercial Metals Co Earnings Call

and certain subsidiaries.

Peter Matt: All will cover the first quarter's financial information in more detail, and I will conclude with our outlook for the second fiscal quarter of 2025. We will then open the call to questions. As a reminder, additional information regarding the quarter is provided in the supplemental slides that accompany this call, which can be found on CMC's Investor Relations website. DMC reported a net loss for the first quarter of $175.7 million. for a loss of $1.54 per diluted share on sales of $1.9 billion. The result included a $264 million after tax charge for litigation expense as a result of a verdict the company intends to appeal.

Paul will cover the first quarters financial information in more detail and I will conclude with our outlook for the second fiscal quarter of 2025, We will then open the call to questions.

As a reminder, additional information regarding the quarter is provided in the supplemental slides that accompany this call which can be found on <unk> investor Relations website.

DMC reported a net loss for the first quarter of $175 7 million.

Or a loss of $1 54 per diluted share on sales of $1 9 billion. The results included a $264 million.

After tax charge for litigation expense as a result of a verdict the company intends to appeal. Excluding this item adjusted earnings were $88 5 million or <unk> 78 per diluted share.

Peter Matt: Excluding this item, adjusted earnings were $88.5 million or $0.78 per diluted share. From an operational perspective, CMC's underlying financial performance remained historically strong, though down from recent periods. For the first quarter, we generated consolidated core EBITDA of $210.7 million, producing a core EBITDA margin of 11% and a trailing 12-month return on invested capital of 8.4%. Results in our North America Steel Group were impacted by economic uncertainty that has weighed on new construction activity and pressured steel pricing and margins. This was partially offset by strong late season demand for rebar as job sites worked to catch up from days lost to weather disruptions earlier in the year.

From an operational perspective, Cmc's underlying financial performance remains historically strong though down from recent periods for the first quarter, we generated consolidated core EBITDA of $210 7 million producing a core EBITDA margin of 11% and a trailing 12 month return.

On invested capital of eight four.

Percent.

Results in our North America Steel group were impacted by economic uncertainty that has weighed on new construction activity and pressured steel pricing and margins. This was partially offset by strong late season demand for rebar as job sites worked to catch up from days lost to weather.

<unk> earlier in the year.

Peter Matt: Our Europe Steel Group returned to profitability on the receipt of an annual CO2 credit, while underlying business conditions remained challenging, similar to recent quarters. Excellent cost management continues to be a bright spot, and I would like to commend our team for their ongoing efforts. Profitability for CMC's Emerging Businesses Group softened during the first quarter, driven largely by dynamics we view as temporary in nature, including a lower margin sales mix and project delays encountered in our Tensar division and a slower truck and trailer market affecting Impact Metals. We do expect to recapture the earnings impact from the tensile factors later in fiscal 2025.

Our Europe steel group returned to profitability on the receipt of an annual C. O two credit while underlying business conditions remained challenging similar to recent quarters excellent cost management continues to be a bright spot and I would like to commend our team for their ongoing efforts.

Profitability for Cmc's emerging businesses group softened during the first quarter driven largely by dynamics, we view as temporary in nature, including a lower margin sales mix and project delays encountered in our tents, our division and a slower trucking trail.

All of our market affecting impact metals.

We do expect to recapture the earnings impact from the 10th Saar factors later in fiscal 2025.

Peter Matt: Some of the first quarter weakness was offset by healthy activity in our CMC Construction Services Division and in our Performance Reinforcing Steel Division. Returning now to CMC's markets in North America, demand for finished steel products was robust during the first quarter, with shipments reaching the highest level since the third quarter of fiscal 2023. As mentioned previously, construction activity was stronger further into the calendar year in several geographies than is seasonally typical. The stretch of favorable weather across much of the country in October and November provided an opportunity for many job sites to play catch-up after enduring weather-related disruptions during the spring and summer months.

Some of the first quarter weakness was offset by healthy activity in our CMC construction services division and in our performance reinforcing steel division.

Turning now to Cmc's markets in North America demand for finished steel products was robust during the first quarter with shipments, reaching the highest level since the third quarter of fiscal 2023 as mentioned previously construction activity was stronger further into the calendar year.

In several geographies than is seasonably seasonally typical the stretch of favorable weather across much of the country in October and November provided an opportunity for many job sites to play catch up after enduring weather related disruptions during the spring and summer months.

Peter Matt: In fact, shipments remained higher than expected into the first few weeks of December and only cooled off with the arrival of the holidays. While shipment volumes, due to ongoing construction projects, were strong during the first quarter, we continued to feel the impact of market uncertainty. Customers remain hesitant to award new contracts, which has resulted in an overhang on steel pricing and margin. We mentioned this reluctance to finalize new work during our fourth quarter conference call, and we saw little change during the first quarter. Though uncertainty related to the outcome of the U.S. election has been resolved, questions remain about the future path of interest rates and The Nature and Speed of Policy Implementation by the Incoming Presidential Administration.

In fact shipments remained higher than expected into the first few weeks of December and only cooled off with the arrival of the holidays.

While shipment volumes due to ongoing construction projects were strong during the first quarter. We continued to feel the impact of market uncertainties customers remain hesitant to award new contracts, which has resulted in an overhang on steel pricing and margins. We mentioned this reluctance.

To finalize new work during our fourth quarter conference call and we saw little changed during the first quarter.

Though uncertainty related to the outcome of the U S election has been resolved questions remain about the future path of interest rates and.

The nature and speed of policy implementation by the incoming presidential administration as a result of new construction projects being fewer and slower to award competition has increased for the work that does come to the market putting pressure on pricing and margins for our steel products.

Peter Matt: As a result of new construction projects being fewer and slower to award, competition has increased for the work that does come to the market, putting pressure on pricing and margins for our steel products. This hesitancy is widespread across most segments of the construction markets, with the notable exception of publicly funded work such as infrastructure. I should note, however, that the market signals can be difficult to interpret during the seasonally slower period we are currently in, particularly around the winter holidays. The next few months will be key to watch for signs of recovery as we will enter the typical season for contracting new construction work.

This hesitancy is widespread across most segments of the construction markets with the notable exception of publicly funded work such as infrastructure.

I should note however that the market signals can be difficult to interpret during the seasonally slower period. We're currently in particularly around the winter holidays.

The next few months will be key to watch for signs of recovery as we will enter the typical season for contracting new construction new construction work.

Peter Matt: As we mentioned during our last call, we believe these market conditions are transient in nature and will subside once greater clarity emerges, allowing strong underlying fundamentals to return. CMC's downstream bidding activity has remained resilient, which points to a solid pipeline of potential future projects. Our internal data is mirrored by external data points, such as the Dodge Momentum Index, and insights from recent customer conversations. The Dodge Momentum Index, or DMI, measures the monthly value of construction projects entering the planning phase. Though off from its recent all-time high, the index remains 55% above its pre-pandemic average and appears to indicate that project owners are confident that construction activity will rebound as we move through 2025 and are building a sizable pipeline in preparation to act once conditions improve.

As we mentioned during our last call. We believe these market conditions are transient in nature and will subside once greater clarity emerges, allowing strong underlying fundamentals to return cmc's downstream bidding activity has remained resilient which points to a solid pipe.

Line of potential future projects.

Our internal data is mirrored by external data points, such as the Dodge momentum index and insights from recent customer conversations the Dodge momentum index or <unk> measures the monthly value of construction projects entering the planning phase.

So off from its recent all time high the index remains 55% above its pre pandemic average and appears to indicate that project owners are confident that construction activity will rebound as we move through 2025 and are building a sizable pipeline in preparation to act once.

Conditions improve.

Peter Matt: A meaningful shift in business sentiment gives us hope that we may be nearing a turning point in our markets. As slide six of the supplemental presentation illustrates, optimism across many sectors has improved sharply over the last two months, driven by expectations for an improved regulatory environment, tax reforms, and policies. support U.S. manufacturing and job creation. In particular, the outlook among construction firms has improved notably, as evidenced by ENR's Construction Confidence Index, which recently hit its highest reading in over two years. I would also note that our recent conversations with customers indicate similar optimism about the future.

A meaningful shift in business sentiment gives us hope that we may be nearing a turning point in our markets as slide six of the supplemental presentation illustrates optimism across many sectors has improved sharply over the last two months driven by expectations for an improved.

Regulatory environment tax reforms and policies to.

To support U S manufacturing and job creation in particular the outlook among construction firms has improved notably as evidenced by E. N ours construction confidence index, which recently hit its highest reading over the over two years in over two years I would also note that our.

Our recent conversations with customers indicate similar optimism about the future.

Peter Matt: Outside of the construction industry, both large and small businesses are feeling more confident about the months and quarters ahead. The NFIB's gauge of small business optimism registered the third strongest monthly increase in its 50-year history during November, while two separate measures of corporate CEO confidence also moved up meaningfully. These positive signals give us confidence that it is a matter of when and not if our markets return to growth. As we have discussed at length in the past, powerful structural trends will benefit the U.S. construction markets, including infrastructure investment, reshoring of manufacturing, energy transition, and transmission build-out, as well as measures to address chronic housing shortages.

Outside of the construction industry, both large and small businesses are feeling more confident about the months and quarters ahead. The nfib's gauge of small business optimism registered the third strongest monthly increase in its 50 year history. During November while two separate measures of corporate CEO.

Confidence also moved up meaningfully.

These positive signals give us confidence that it is a matter of when and not if our markets returned to growth.

As we have discussed at length in the past powerful structural trends will benefit the U S construction markets, including infrastructure investment re shoring of manufacturing energy transition and transmission build out as well as measures to address chronic housing shortage as well.

Peter Matt: We believe these trends are in their early stages and will propel construction activity for years to come. Shifting gears to our Europe Steel Group, conditions were similar to recent quarters. Benefits from an improving Polish macroeconomic environment and supply discipline among domestic long steel producers have been offset by the influx of excess material from neighboring countries, namely Germany. Total imports of rebar are up 50% on a calendar year-to-date basis, while flows from Germany have increased by 75%. This foreign supply has more than matched the incremental demand from a growing residential construction market and supply restraint from domestic players.

We believe these trends are in their early stages and will propel construction guy.

Instructions activity for years to come.

Shifting gears to our Europe steel group conditions were similar to recent quarters benefits from an improving Polish macroeconomic environment and supply discipline among domestic long steel producers have been offset by the influx of excess material from neighboring countries.

Namely Germany.

Total imports of rebar are up 50%.

On a calendar year to year year to date basis, while flows from Germany have increased by 75%.

This foreign supply has more than match the incremental demand from growing residential construction market and supply restraint from domestic players.

Peter Matt: As a result, margins remain under pressure. Amidst these difficult conditions, our team in Poland has performed commendably to manage all aspects of its business that can be controlled, taking an opportunistic commercial approach and aggressively managing costs.

As a result margins remain under pressure amidst these difficult conditions our team in Poland has performed commendably to manage all aspects of its business that can be controlled taking an opportunistic approach.

Commercial approach and aggressively managing costs based on our current view of the landscape, we would not anticipate a meaningful positive change in either of the overall market environment or CMC as Europe steel group's earnings.

Peter Matt: Based on our current view of the landscape, we would not anticipate a meaningful positive change in either the overall market environment or CMC's Europe Steel Group's earnings.

Until an economic recovery develops in Germany, or new sources of demand emerge such as the rebuild of Ukraine.

Peter Matt: Next, I would like to provide an update on a few of CMC's strategic initiatives. As we have discussed in the past, CMC is taking active steps to achieve our ambitious vision to drive the next phase of value-accretive growth. As outlined on slide 9, our aim with this strategy is threefold. First, to achieve sustainably higher, less volatile through-the-cycle margins that are fortified by our operational and commercial excellence initiatives. Second, to execute on attractive organic growth opportunities, and third, in a disciplined manner, to pursue inorganic growth opportunities that broaden CMC's commercial portfolio of early stage construction products, improve our customer value proposition.

Next I would like to provide an update on a few of CMC strategic initiatives.

As we have discussed in the past CMC is taking active steps to achieve our ambitious vision to drive the next phase of value accretive growth as outlined on slide nine our aim with this strategy is threefold first to achieve sustainably higher less volatile through the cycle.

Margins that are fortified by our operational and commercial excellence initiatives.

To execute on attractive organic growth opportunities and third in a disciplined manner to pursue inorganic growth opportunities that broaden cmc's commercial portfolio of early stage construction project products improve our customer value proposition.

Peter Matt: and meaningfully extend our growth runway. Last quarter, we introduced Transform, Advance and Grow, or TAG as we call it, our enterprise-wide operational and commercial excellence initiative with the goal of generating a permanent improvement in our margin profile. This program is unlike any ever launched at CMC due to the breadth and depth of its reach as well as the visibility and the accountability structures built to support it. Every line of business and every support function has been involved in identifying and quantifying opportunities that now include over 150 different initiatives. Currently, we are executing on the first wave of these initiatives and are seeing very strong early results.

And meaningfully extend our growth runway.

Last quarter, we introduced transform advancing grow or tag as we call. It our enterprise wide operational and commercial excellence initiative with the goal of generating a permanent improvement in our margin profile. This program is unlike any ever launched at CMC due.

The breadth and depth of its reach as well as the visibility and the accountability structures built to support it.

Every line of business and every support function has been involved in identifying and quantifying opportunities that now include over 150 different initiatives.

Currently we are executing on the first wave of these initiatives and are seeing very strong early results.

Peter Matt: One such initiative is a program to reduce alloy consumption and weight. The effort is being led by process experts in coordination with melt shop operators from across our mill footprint. Our team is working to minimize LI costs while continuing to meet product quality specifications. We expect the efforts to date will produce a sustainable benefit of approximately $5 million annually. we are working to improve our melt shop yields through enhanced technical knowledge sharing, measurements and waste, and more disciplined process execution. We expect this effort to produce sustained benefits of between 5 and 10 million annually. These programs are just two of the larger initiatives that are being executed in the first wave and should provide a useful template for understanding the nature of these initiatives, how they are being delivered, and the overall scope and scale of CMC's broader TAG program.

One such initiative is a program to reduce alloy consumption and waste.

The effort is being led by process experts in coordination with melt shop operators from across our mill footprint.

The team is working to minimize alloy costs, while continuing to meet product quality specifications. We expect the efforts to date will produce a sustainable benefit of approximately $5 million annually.

In another initiative, we are working to improve our melt shop yields through enhanced technical knowledge sharing increased scrutiny around measurements and waste and more disciplined process execution.

We expect this effort to produce sustained benefits of between five and $10 million annually. These programs are just two of the larger initiatives that are being executed in the first wave and should provide a useful template for understanding the nature of these initiatives how they are being done.

Levered and the overall scope and scale of Cmc's broader tag program.

Peter Matt: We have several other major operational and commercial work streams now underway that are intended to drive and sustain higher margins through a variety of pathways, including optimized logistics, lower insurance Commercial Excellence, and many more. Progress to date gives us confidence that our TAG-related efforts should provide financial benefit in fiscal 2025, with more to come in the years ahead. We are making solid progress on CMC's key organic growth projects, particularly at our new Arizona II facility. As a reminder, this plant is the first micromill in the world capable of producing both rebar and merchant bar product, and we are navigating the unique challenges that invariably come with any breakthrough technology.

We have several other major operational and commercial work streams now underway that are intended to drive and sustain higher margins through a variety of pathways, including optimize logistics lower insurance premiums commercial excellence and many more progress.

Progress to date gives us confidence that our tag related efforts should provide financial benefit in fiscal 2025 with more to come in the years ahead.

We are making solid progress on Cmc's key organic growth projects, particularly at our new Arizona two facility. As a reminder, this plant is the first micro mill in the world capable of producing both rebar and merchant bar product and we are navigating the unique.

Challenges that invariably come with any breakthrough technology, good advancement as evidenced by the fact that our team was able to achieve two consecutive monthly production records at the end of the first quarter.

Peter Matt: Good advancement is evidenced by the fact that our team was able to achieve two consecutive monthly production records at the end of the first quarter. Output levels should continue to increase as we move through fiscal 2025, and we expect to exit the year at a run rate near nameplate capacity of 500,000 tons annually. Meanwhile, progress at CMC's steel West Virginia site remains on track, and we are currently on target for commissioning for the commissioning process to begin in late calendar 2025. On the inorganic front, we remain interested in entering attractive adjacencies for our business, where we believe we have a clear right to play and an opportunity to offer immediate value, given CMC's current customer knowledge, market positioning, and operational capability.

Output levels should continue to increase as we move through fiscal 2025, and we expect to exit the year at a run rate near nameplate capacity of 500000 tons annually.

Meanwhile, progress at Cmc's Steel West Virginia site remains on track and we are currently on target for commissioning for the commissioning process to begin in late calendar 2025.

On the inorganic front, we remain interested in entering attractive adjacencies for our business, where we believe we have a clear right to play and an opportunity to offer immediate value given cmc's current customer knowledge market positioning and operational capabilities.

Peter Matt: We are targeting segments of the 150 billion early stage. Markets should also benefit from megatrends that are expected to drive construction activity for years to come, which include infrastructure investment, reshoring, the general scarcity of labor, and environmental changes driving increased extreme weather conditions.

We are targeting segments of the 150 billion early stage construction.

But it should also benefit from Mega trends that are expected to drive construction activity for years to come which include infrastructure investment re shoring the general scarcity of labor and environmental changes driving increased.

Extreme weather conditions.

Peter Matt: Before I turn things over to Paul, I would like to make a brief comment on the litigation between CMC and Pacific Steel Group. In its complaint filed in the California Courts in 2020, Pacific Steel Group claimed, among other things, various restraints on trade by CMC. A trial on Pacific Steel Group's claims concluded with a jury verdict and judgment in favor of Pacific Steel Group in an amount of $110 million, which was subsequently trebled as a matter of law. CMC is very confident in how we conduct our business practices, and we were very surprised and deeply disappointed by the outcome of this trial.

Speaker Change: Before I turn things over to Paul I would like to make a brief comment on the litigation between CMC and Pacific Steel group and its complaint filed in the California courts in 2020 Pacific Steel group claimed among other things various restraints on trade by CMC.

A trial on Pacific Steel group's claims concluded with a jury verdict.

Speaker Change: And judgment in favor of Pacific Steel group, and an amount of $110 million, which was subsequently troubled as a matter of law.

Speaker Change: CMC is very confident in how we conduct our business practices and we were very surprised and deeply disappointed by the outcome of this trial.

Peter Matt: We are vigorously pursuing all appropriate avenues to appeal the decision. Because this litigation is ongoing, we are very limited in what we can discuss about the case or the potential outcome of the appeal process.

Speaker Change: We are vigorously pursuing all appropriate avenues to appeal the decision because this litigation is ongoing we are very limited in what we can discuss about the case or the potential outcome of the appeal process Paul.

Paul Lawrence: Thank you, Peter, and good morning to everyone on the call. As noted earlier, we reported a fiscal first quarter 2025 net loss of $175.7 million, or a loss of $1.54 per diluted share, compared to net earnings of $176.3 million and net earnings per diluted share of $1.49 in the prior year period. Excluding an approximate $265 million after-tax charge related to the litigation accrual, adjusted earnings for the quarter totaled $88.5 million, or $0.78 per diluted share, compared to $176.3 million. and $1.49 per diluted share respectively in the prior year period. Consolidated core EBITDA was $210.7 million for the first quarter of 2025, representing a decline from $313.7 million generated during the prior year period.

Paul: Thank you Peter and good morning to everyone on the call.

Paul: As noted earlier, we reported our fiscal first quarter 2025, net loss of 70, $575 7 million or a loss of $1 54 per diluted share compared to net earnings of $176 3 million and net earnings per diluted share of $1 49 in.

Paul: The prior year period.

Paul: Excluding an approximate 265 million after tax charge related to the litigation accrual adjusted earnings for the quarter totaled $88 5 million or <unk> 78 per diluted share compared to $176 3 million and $1 49 per diluted.

Paul: <unk> share respectively in the prior year period.

Paul: Consolidated core EBITDA was $210 7 million for the first quarter of 2025, representing a decline from $313 7 million generated during the prior year period.

Paul Lawrence: Slide 12 of the supplemental presentation illustrates the year-to-year changes in CMC's quarterly performance. Profitability at our North American Steel Group was negatively impacted by lower margins over scrap, while adjusted EBITDA at our Europe Steel Group declined on lower energy refills. Results for CMC's Emerging Business Group were hindered by lower contributions by our Tensar and Impact Metals. Solidated core EBITDA margin of 11% remained above historical levels and compared to 15.7% in the prior year period. CMC's North American Steel Group generated a justity of $188.2 million for the quarter, equal to $164 per ton of finished steel shipped.

Paul: Slide 12 of the supplemental presentation illustrates the year to year changes in Cmc's quarterly performance.

Paul: Profitability at our North American Steel group was negatively impacted by lower margins over scrap.

Paul: Adjusted EBITDA at our Europe Steel group declined on lower energy rebate.

Thoughts for CMC is emerging business group were hindered by lower contributions by our 10 fire and impact metals divisions.

Paul: The holiday that core EBITDA margin of 11% remained above historical levels and compared to 15, 7% in the prior year period.

Paul: Cmc's North American Steel group generated adjusted EBITDA of $188 2 million for the quarter equal to $164 per ton a finished steel shipped.

Paul Lawrence: Segment-adjusted EBITDA decreased 29% compared to the prior year period, driven primarily by lower margin over scrap cost on steel and downstream products. Controllable cost per ton of finished steel shipped improved on both a sequential and year-over-year basis. helped by lower freight costs, better cost performance at our Arizona 2 micromill, and improved fixed cost leverage across CMC's mill footprint. The adjusted EBITDA margin for the North American Steel Group of 12.4% compares to 13.5% in the fourth quarter of 2024. As Peter indicated earlier, demand for long steel products was strong during the quarter. Finish Steel shipments increased by 4.4% compared to a year ago, and we're up 2.3% on a sequential basis.

Paul: Segment, adjusted EBITDA decreased 29% compared to the prior year period, driven primarily by lower margin over scrap cost on steel and downstream products.

Paul: <unk> cost per ton of finished steel shipped improved on both a sequential and year over year basis helped by lower freight cost better cost performance at our Arizona Micro mill and improved fixed cost leverage across CMC as mill footprint.

Paul: The adjusted EBITDA margin for the North American steel grip, a 12.4% compares to 13, 5% in the fourth quarter of 2024.

Paul: As Peter indicated earlier demand for long steel products was strong during the quarter Fitch.

Paul: Finished steel shipments decreased by $4 four increased sorry by four 4% compared to a year ago and were up two 3% on a sequential basis.

Paul Lawrence: which compares to a normal fourth quarter to first quarter seasonal reduction of between four and seven percent. Turning to slide 14 of the supplemental deck, our Europe Steel Group reported adjusted EBITDA of $25.8 million for the first quarter of 2025, compared to $38.9 million in the prior year period. Production was driven by lower receipts from energy cost rebate programs. During this year's first quarter, total receipts amounted to $44.1 million. who came solely from an annual CO2 credit. Compared to receipts in the prior year period of $66.3 million from two different programs, $27.7 million from the annual CO2 credit, and $38.6 million related to a temporary energy cost reimbursement program.

Paul: Which compares.

Paul: Compares to a normal fourth quarter to first quarter seasonal reduction of between four and 7%.

Paul: Turning to slide 14 of the supplemental deck are Europes steel group reported adjusted EBITDA of $25 8 million for the first quarter of 2025 compared to $38 9 million in the prior year period.

Paul: The reduction was driven by lower receipts from energy costs rebate programs.

Paul: During this year's first quarter total receipts amounted to $44 1 million and came solely from an annual C. O two credit compared to receipts in the prior year period of $66 3 million from two different programs $27 7 million from the annual C O two credit and.

Paul: $38 6 million related to a temporary energy cost reimbursement program.

Paul Lawrence: polluting the impact of energy rebate Europe Steel Group's financial performance improved by $9.2 million from the prior year period as strong cost management efforts more than offset a 9% decline in shipment and stagnant metal markets. Results for the quarter include approximately $4.7 million in costs related to planned maintenance overhauls and a $1.2 million expense associated with early retirement and layoff costs. Employee-related costs are expected to drive further improvements in controllable costs at the facility as we move forward. Margin levels have been range-bound between roughly $270 per ton and $290 per ton for the last six quarters, despite an improving Polish economic environment and positive developments within the Polish construction sector.

Paul: Excluding the impact of energy rebates.

Paul: Europe steel group's financial performance improved by $9 2 million from the prior year period as strong cost management efforts more than offset a 9% decline in shipment and stagnant metal margins.

Paul: Results for the quarter include approximately $4 7 million in costs related to planned maintenance overhauls and a $1 2 million expense associated with early retirement and lay off costs.

Paul: Boy related costs are expected to risk to drive further improvements in controllable cost at the facility as we move forward.

Paul: Margin levels have been range bound between roughly $270 per ton and $290 per ton for the last six quarters, Despite an improving Polish economic environment and positive developments within the Polish construction sector.

Paul Lawrence: We would expect margins to remain under pressure until the level of rebar imports begins to recede.

Paul: Would expect margins to remain under pressure until the level of rebar imports begins to recede a scenario that would likely require an economic recovery in Germany or new sources of demand such as the rebuild in Ukraine.

Paul Lawrence: Transcripts by Transcription Outsourcing, LLC. Merging Business Group first quarter net sales of $169.4 million decreased by 4.4% on a year-over-year basis. While Adjusted EBITDA of 22.7 million declined by 26.6%. The decline was driven by lower margin product mix and project delays within our Tensar division. as well as reduced truck and trailer sales at CMC's Impact Metals. We believe that the reduced profits in the Tensar division ed during the quarter should be largely recaptured later in fiscal 2025, primarily in the third and fourth quarters. Internally, our annual outlook for the emerging business group is unchanged in the wake of the first quarter disappointing results.

Paul: Emerging business group first quarter net sales of $169 4 million decreased by four 4% on a year over year basis, while adjusted EBITDA of 22, 7%.

Paul: Sorry, $22 7 million declined by 26, 6%.

Paul: The decline was driven by a lower margin product mix and project delays within our <unk> division as well as reduced truck and trailer sales at Cmc's impact metals Division.

Paul: We believe that the reduced profits in the tenths or division incurred during the quarter should be largely recaptured later in fiscal 2025, primarily in the third and fourth quarters.

Paul: Internally, our annual outlook for the emerging business group is unchanged in the wake up the first quarter disappointing results.

Paul Lawrence: Strong project-related shipments of performance-reinforcing steel and healthy activity levels in our construction services business help to offset some of the softness elsewhere in the EBG group. Weaker sales mix during the first quarter led to a 400 basis point decline in the adjusted EBITDA margin compared to the first quarter of 2024, but we expect recovery for the remainder of the year. As of November 30th, cash and cash equivalents totaled $856.1 million. In addition, we had approximately $815 million of availability under our credit and accounts receivable facilities, bringing total liquidity to just under $1.7 billion. During the quarter, we generated $213 million of cash from operating activities, which included a $26.2 million release of cash from working capital.

Paul: <unk> project related shipments of performance reinforcing steel and healthy activity levels in our construction services business helped to offset some of the softness elsewhere in the EG group.

Paul: A weaker sales mix during the first quarter led to a 400 basis point decline in the adjusted EBITDA margin compared to the first quarter of 'twenty 'twenty four, but we expect to recovery for the remainder of the year.

Paul: As of November 30, <unk> cash and cash equivalents totaled $856 1 million.

Paul: In addition, we had approximately $815 million of availability under our credit and accounts receivable facilities, bringing total liquidity to just under $1 7 billion.

Paul: During the quarter, we generated $213 million of cash from operating activities, which included a $26 2 million release of cash from working capital.

Paul Lawrence: Capital expenditures of $118.2 million were largely driven by construction activity related to a steel West Virginia micromill project. DMC's leverage metrics remain attractive. and have improved significantly over the last several fiscal years. As can be seen on slide 19, for the first fiscal quarter of 2025, our net debt to adjusted EBITDA ratio now sits at just 0.6 times. Well, net debt to capitalization is only 6%. We believe our robust balance sheet and overall financial strength provide us the flexibility to finance our strategic, organic growth projects and pursue opportunistic M&A while continuing to return cash to shareholders.

Paul: Capital expenditures of $118 2 million were largely driven by construction activity related to our west steel West Virginia Micro mill projects.

Paul: Amc's leverage metrics remain attractive.

Paul: And have improved significantly over the last several fiscal years.

Paul: As can be seen on slide 19 for the first fiscal quarter of 2025, our net debt to adjusted EBITDA ratio now sits at just <unk> six times.

Paul: <unk> net debt to capitalization is only 6%.

Paul: We believe our robust balance sheet and overall financial strength provide us the flexibility to finance, our strategic organic growth projects and pursue opportunistic M&A, while continuing to return cash to shareholders.

Paul Lawrence: We looked towards fiscal 2025 capital spend outlook. We expect to invest between $630 and $680 million in total. outside of normal sustaining investments of approximately $250 million.

Paul: As we look towards fiscal 2025 capital spend outlook, we expect to invest between 630 and $680 million in total.

Paul: Outside of normal sustaining investments of approximately $250 million in capex.

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Paul: As a reminder, approximately $200 million of spending related to this project was deferred from fiscal 'twenty four into 2025.

Paul Lawrence: Kappa X. Our 2025 includes substantial dollars related to the construction of Steel West Virginia. As a reminder, approximately $200 million of spending related to this project was deferred from fiscal 24 into 2025.

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Paul: As outlined on past earnings call CMC targets, a prudent and balanced approach to capital allocation. Our first priority is value accretive growth that furthers, our strategy and strengthens our business.

Paul Lawrence: Coming in, coming in a close second is providing our shareholders with an attractive level of cash distributions in the form of both dividends and share repurchase. To this end, CMC returned approximately $71 million to our shareholders during the first quarter as we repurchased approximately 919,000 shares at an average price of $54.83 per share. As of November 30th, we had $353.4 million available for repurchase under our current authorization.

Paul: Coming coming in a close second is providing our shareholders with an attractive level of cash distributions in the form of both dividends and share repurchases.

To this end CMC returned approximately $71 million to our shareholders. During the first quarter as we repurchased approximately 919000 shares at an average price of $54 83 per share.

Paul: As of November 30, we had $353 4 million available for repurchase under our current authorization.

Peter Matt: I'll now turn the call back over to Peter for additional comments on CMC's financial outcomes. Thank you, Paul. We expect consolidated financial results in our second quarter of fiscal 2025 to decline from the first quarter level. Finished steel shipments within the North American Steel Group are anticipated to follow normal seasonal trends, while the adjusted EBITDA margin is expected to decrease on lower margins over scrap costs on steel and downstream products. Justin Ibada for our Europe Steel Group should be in line with the prior year second quarter as stringent cost management efforts continue to offset a weak market environment.

Peter Fitch: I'll now turn the call back over to Peter for additional comments on <unk> financial outlook.

Speaker Change: Thank you Paul we expect consolidated financial results and our second quarter of fiscal 2025 to decline from first quarter from the first quarter level finish.

Speaker Change: Finished steel shipments within the North American steel group are anticipated to follow normal seasonal trends, while the adjusted EBITDA margin is expected to decrease.

Speaker Change: Lower margins over scrap cost on steel and downstream products.

Speaker Change: Adjusted EBITDA for our Europe Steel group should be in line with the prior year second quarter as stringent cost management efforts continued to offset a weak market environment financial results for our emerging businesses group are anticipated to decline due to normal seasonality and be in line with.

Peter Matt: Financial results for our Emerging Businesses Group are anticipated to decline due to normal seasonality and be in line with prior year results. We are very encouraged by our conversations with customers and the optimism they have voiced about the coming quarter. Key indicators of the construction pipeline also point in a positive direction. Outside of construction, measures of business confidence, both large and small, have improved significantly over the last two months. The palpable shift in sentiment gives us confidence that the current softness is transient and that we should soon enter a period of renewed strength in our core market.

Speaker Change: Prior year results.

Speaker Change: We are very encouraged by our conversations with customers and the optimism they have voiced about the coming quarters key indicators of the construction pipeline also point in a positive direction.

Speaker Change: Outside of construction measures of business confidence, both large and small have improved significantly over the last two months.

Speaker Change: <unk> shift in sentiment gives us confidence that the current softness as transient and that we should soon enter a period of renewed strength in our core markets.

Peter Matt: Before we open the call to questions, I want to reiterate how excited we are about the potential to reach new heights in the future as we execute on our key strategic priorities and deliver significant value for our shareholders. As we move past near-term uncertainty, CMC is well positioned to benefit from powerful structural trends in North America that should drive construction activity for years to come.

Speaker Change: Before we open the call to questions I want to reiterate how excited we are about the potential to reach new heights in the future as we execute on our key strategic priorities and deliver significant value for our shareholders.

Speaker Change: We move past near term uncertainty CMC is well positioned to benefit from powerful structural trends in North America that should drive construction activity for years to come.

Peter Matt: I would also like to thank our customers for their trust and their confidence in CMC and all of our employees for delivering yet another quarter of very solid safety and operational performance. Thank you.

Speaker Change: I would also like to thank our customers for their trust and their confidence in CMC and all of our employees for delivering yet another quarter of very solid.

Speaker Change: And operational performance.

Speaker Change: Operator.

Speaker Change: Thank you and at this time, we will now open the call up to questions.

Unknown Executive: And at this time, we will now open the call up to questions. To ask a question, you may press star and one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.

Unknown Executive: If at any time your question has been addressed and you would like to withdraw your question, please press star then two. In the interest of time, please limit yourself to one question and one follow-up.

Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker Change: In the interest of time, please limit yourself to one question and one follow up.

Unknown Executive: At this time, we will pause momentarily to assemble our roster.

At this time, we will pause momentarily to assemble our roster.

Okay.

Sathish Kasinathan: The first question today comes from Sathish Kasinathan with Bank of America. Please go ahead. Yeah, hi, good morning. Thanks for taking my questions. My first question is on the North American steel product shipments. You mentioned that you saw some late season construction activity in Q1, which continued into first two weeks of December. And with the Arizona 2 mill ramping up, how should we look at the steel product shipments for Q2 compared to last year? Yeah, I think I think what you should expect is to see a normal seasonal trend between Q1 and Q2 going into our second quarter for 2025.

Speaker Change: The first question today comes from Turkish Kathy Nathan with Bank of America. Please go ahead.

Kathy Nathan: Yes, hi, good morning, Thanks for taking my questions. My first question is on the North American steel coated shipments.

Speaker Change: You mentioned that you saw some late season construction activity in Q1, which continued into first two weeks of December.

Speaker Change: And with the Arizona mill that being up how should we look at these deepwater shipments will Q2 compared to last year.

Speaker Change: Yeah.

Speaker Change: Yes, I think I think what you should expect us to see a normal seasonal trend between Q1, and Q2 going into our second quarter for 2025.

Peter Matt: So that's generally about 5 to 10% lower. That's right, Sathish.

Speaker Change: So generally it looks like were 10% lower.

Speaker Change: That's right <unk>.

Sathish Kasinathan: Okay, um, verging, verging on the higher end, given that we starting from a higher place. Okay, understood.

Speaker Change: Okay.

Speaker Change: Urging verging on the higher end given that we starting from a higher place.

Speaker Change: Okay understood. Thank you.

Sathish Kasinathan: Thank you.

Paul Lawrence: My next question is on the emerging business group. So you talked about several large project delays for Tensor and can you provide more color on what's driving these delays? Is it limited to Europe or are you seeing more broad-based delays across all regions? No, I think, well, first of all, thanks for the question. I think in this instance, the, the delays are really pretty broad based, both in North America, and in the rest of the world, we're seeing kind of some project delays, I think, you know, it turned out in North America, some of these projects, they're, they're lumpy projects, and the delay of these projects has, has really kind of impacted the earnings in the quarter.

Speaker Change: My next question is on the emerging business group. So you talked about several large project delays for tens and.

Speaker Change: Can you provide more color on what's driving these delays is it limited to Europe.

Or are you seeing more broad based delays across all regions.

Speaker Change: No I think.

Speaker Change: Well first of all thanks for the question I think in this instance, the delays are really pretty broad based.

Speaker Change: Both in North America, and in the rest of the world that we're seeing.

Speaker Change: Project delays I think.

Speaker Change: It turned out in North America, some of these projects, they're lumpy projects and.

Speaker Change: The delay of these projects has has really kind of impacted the earnings in the quarter, but as.

Paul Lawrence: But as we said, in the prepared remarks, we fully expect that these projects are going to move forward. We've got, you know, kind of a number of data points around them that give us confidence in that fact. And so it's a matter of the earning the revenue and the earnings coming in just later in the year. And given that these projects are mostly lumpy, should we assume that that the recovery will be more meaningful and on an annual basis, probably the impact is not that significant. Yeah, I think, again, we expect Tensar to grow nicely this year.

As we said in the prepared remarks, we fully expect that these projects are going to move forward. We've got kind of a number of data points around them. They give us confidence in that fact.

So it's a matter of the earning the revenue and the earnings coming in just later in the year.

Speaker Change: And given that these projects are mostly lumpy.

Speaker Change: Should we assume that that would go to will be more meaningful than on <unk>.

Speaker Change: Annual basis, probably the impact is not that significant.

Speaker Change: Yeah, I think again, we expect tenths or to grow nicely. This year. So we're really shifting what might've been some revenue and EBITDA in Q1 into Q3 or Q4. So when you look at it on an annual basis, we should see some nice growth.

Paul Lawrence: So we're really shifting what might have been some revenue in EBITDA in Q1 into Q3 or Q4. So when you look at it on an annual basis, we should see some nice growth in Tensar this year. Given that tents are really soil stabilization occurs at the outset of the projects, you know, projects that get pushed from the fall generally are not going to start up until the springtime. That's why Peter outlined, you know, really it will be Q3 and Q4, not necessarily a pull up in Q2. Okay, thanks, Peter. Thanks, Paul.

Speaker Change: Intense are this year.

Speaker Change: Given given that tenants are really soil stabilization occurs at the outset of the projects.

Peter Fitch: No projects that got pushed from the from the fall generally are not going to start up until the spring time, that's why Peter outlined really it'll be Q3, and Q4, not not necessarily a pull up in Q2.

Speaker Change: Okay. Thanks, Peter Thanks, Paul.

Unknown Executive: Thank you.

Peter Fitch: Cities.

Katja Jancic: The next question comes from Katja Jancic with BMO Capital Market. Please go ahead.

Peter Fitch: The next question comes from.

Peter Fitch: Kim with BMO capital markets. Please go ahead.

Katja Jancic: Hi, and Happy New Year, everyone. Maybe first on Peter, you mentioned two initiatives under TAG that should generate, I think, combined 10 to 15 million in annualized benefits. Is this going to be generated in fiscal year 25? Or how should we think about this? So these are those numbers are kind of run rate estimates for what we think we can get to. What I will tell you, Katja, is we expect or we we will we expect we had tag benefit in Q1. And we clearly expect tag benefits in fiscal 2025. What we've not done is we've not quantified precisely what 2025 will be in totality from TAG.

Kim: Hi, and happy new year, everyone.

Kim: Maybe first on Peter you mentioned Q.

Speaker Change: Initiatives on their tag that should generate I think combine 10 to 15 million in annualized benefit is this going to be generated in fiscal year 'twenty five or how should we think about this.

Speaker Change: So these are those numbers are kind of run rate estimates for what we think we can get to.

Speaker Change: What I will tell you caught Joe's we expect or we will we expect we had a tax benefit in Q1, and we clearly expect tag benefits in fiscal 2025.

Speaker Change: What we've not done is we've not quantified precisely what 2025 will be in totality from tag and that's purposeful we are.

Peter Matt: And that's purposeful. We are, you know, we kind of built this program, we're in the middle of a number of phase one initiatives and we're wanting to kind of pressure test what we're doing here before we outline in great detail the program for you. But the intent of this was to give you some perspective on the potential magnitude of initiatives. We said these are some larger initiatives. But remember, we have a backlog of 150 different initiatives, right? So hopefully that gives you some perspective that this can be a meaningful contributor and not a meaningful contributor in isolation.

Speaker Change: We are kind of built this program we are in the middle of a number of phase one initiatives and we're wanting to kind of pressure test.

Speaker Change: What we're doing here before we outline in great detail the program for you, but the intent of this was to give you some perspective on the potential magnitude of initiatives. We said these are.

Speaker Change: Some larger initiatives, but remember we have a backlog of 150 different initiatives right. So.

Speaker Change: Hopefully that gives you some perspective that this can be a meaningful contributor and not a meaningful contributor in isolation. What we're trying to do is we're trying to elevate the margin overtime of our business. So that we will through the cycle generate higher margins and I think this tag program as a as a.

Peter Matt: What we're trying to do is we're trying to elevate the margin over time of our business so that we will, through the cycle, generate higher margins. And I think this TAG program is a critical piece of that exercise.

Speaker Change: Critical piece of that exercise.

Peter Matt: Can you let us know, of those 150 initiatives, how many of those are considered larger? You know, the 5 to 10 million type of initiatives? No, we're not going to do that at this point. It's a clever question, but we're going to stop short of that. Look, what we've said is, and based on my comments, hopefully you can gather, this is a meaningful effort. And if it's going to elevate our margins meaningfully over the duration of this project, there need to be some serious initiatives here, and we're confident that we have them.

Speaker Change: Can you, let us know of those 150 initiatives.

Speaker Change: Many of those are considered larger.

Speaker Change: The five to 10 million type of initiatives.

No no we're not going to do that at this point, it's clever question, but where.

Speaker Change: We're going to stop short of that look.

Speaker Change: What we've said is and based on my comments hopefully you can gather this is a meaningful effort and if it's going to elevate our margins meaningfully overtime over the duration of this project.

Speaker Change: There need to be some serious initiatives here and we're confident that we have them, but we need to we need to spend the time and understand this and execute on these before we before we share too much about detail with all of you.

Peter Matt: But we need to spend the time and understand this and execute on these before we share too much of that detail with all of you.

Paul Lawrence: And then maybe on the capital allocation, you know, when I look at the past few quarters, you've been spending about $50 million per quarter on share buybacks. Is this level sustainable over the next few quarters, given that CapEx is expected to move higher? We think so. We've been, you know, we've been very purposeful in kind of coming up with a balanced capital allocation strategy. And what we aim to do is to be consistent. And we set this program up when we set the share repurchase program up, we said we would execute it over, you know, kind of roughly three years.

Speaker Change: And then maybe on the capsule all the case and you know when I look at the past few quarters <unk> been spending about $50 million per quarter on share buybacks.

Speaker Change: Is this level sustainable over the next few quarters, given that Capex is expected to move higher.

Speaker Change: So we think so we have been.

Speaker Change: We've been very purposeful in our kind of coming up with a balanced capital allocation strategy and what we aim to do is to be consistent.

Speaker Change: And we set this program up when we set the share repurchase program up we said, we would execute it over kind of roughly three years and that's our intent to do so so we intend to be in the market on a regular basis buying our shares.

Paul Lawrence: And that's our intent to do so. So we intend to be in the market on a regular basis, buying our shares, and, and barring any kind of unusual circumstance, that's what we'll do.

Speaker Change: And and barring any kind of unusual circumstance, that's what we'll do.

Paul Lawrence: Perfect. Thank you very much. Thank you.

Speaker Change: Perfect. Thank you very much thank you.

Phil Gibbs: The next question comes from Phil Gibbs with KeyBank Capital Markets. Please go ahead. Hey, good morning.

Speaker Change: The next question comes from Phil Gibbs with Keybanc capital markets. Please go ahead.

Phil Gibbs: Hey, good morning.

Speaker Change: Hey, Phil.

Phil Gibbs: Questions is kind of about the second half of the fiscal year in terms of expectations for recovery and just construction overall and what's driving driving that in terms of specific areas what where it be an industrial or energy or Tammies, just trying to understand some of the conversations that you're having, what you're seeing in your order book, that sort of thing, in terms of the viewpoint. Yep. Great question, Phil. Thank you. So we are optimistic for the back half of our fiscal year, as you note, and I think we are kind of queuing off of some of the general optimism that we're seeing all around us.

Speaker Change: Question is just kind of about the second half of the fiscal year in terms of.

Expectations for recovery and we're just construction.

Speaker Change: Overall.

Speaker Change: What's driving.

Speaker Change: Rivaling driving that in terms of specific areas, where it would be industrial or energy or.

Tommy: Tommy's I'm, just trying to understand that.

Tommy: For some of the conversations that youre, having what youre seeing in your order book that sort of thing in terms of the.

Tommy: The viewpoint.

Phil Gibbs: Great question, Phil Thank you.

Tommy: <unk>.

Tommy: So we are optimistic for the back half of our fiscal year as you note and I think we are kind of queuing off of some of the general optimism that we're seeing all around us you'll note that we introduced a number of additional indices.

Peter Matt: You'll note that we introduced a number of additional indices to kind of project the confidence that we feel, and so we're seeing that in general around us. And then in our order books, we are seeing a high level of bidding activity. We're seeing backlogs maintained. If we tick through some of our end markets, infrastructure is here, right? The spending is on the ground. I can give you an anecdotal conversation I had with a Southern State DOT representative who told me that based on the backlog of activity that they have, they're going to be busy for years to come.

Project the confidence that we feel.

Tommy: And so we're seeing that in general around us and then in our order books.

Tommy: We are seeing a high level of bidding activity, we're seeing backlogs maintained and if we tick through some of our end markets.

Tommy: This structure is here right. The spending is on the ground I can give you an anecdotal conversation I had with a a southern state representative who told me that based on the backlog of activity that they have they're going to be busy for years to come. So this is kind of.

Peter Matt: So this is kind of the multi-year trend that we've been talking about. If you move to non-residential, we have been seeing an elevated level of spending in manufacturing and that seems to have some renewed momentum in it. There's a number of projects in the Gulf, LNG projects, that are now moving forward. Some of the chip projects, particularly in the West, appear to be moving forward again. So you're getting some more of this kind of reshoring energy transition activity that these are big consumers of rebar. And if we look at the Dodge Momentum Index from an outsider's perspective, what we see is that it's been at an elevated level for the past, really the past year, and that indicates that we should be coming into the period when some of these kind of design phase projects start to become kind of real.

Tommy: Multiyear trend that we've been talking about if you move to nonresidential.

Tommy: We have been seeing a elevated level of spending in manufacturing and that seems to be a kind.

Tommy: That seems to have some renewed momentum in it there's a number of projects in the Gulf LNG projects that are now moving forward.

Tommy: Some of the chip projects, particularly in the west appear to be moving forward again, so youre getting some more of this kind of re shoring energy transition activity that these are big consumers of rebar.

And if we look at the Dodge momentum index from an outsider's perspective, what we see is that it's been at an elevated level for the past really the past year.

Tommy: And that indicates that we should be coming into the period. When some of these these kind of design phase projects start to become.

Kind of real.

Peter Matt: So, and conversations that we have with our contractor customers suggest that they're also very busy. So, while, you know, there are some sectors of the non-residential space that we think will remain a little bit lackluster, we think in general the demand is setting us up for, again, in this case, kind of multi-year strong demand. And lastly, even in residential, I know there's been a lot of conversation about interest rates, but interest rates are moving down, and we do have this deficit of 2 to 4 million homes in North America that needs to get addressed at some point.

Tommy: So and.

In conversations that we have with our contractor customers suggests that they are also very busy so while.

Tommy: There are some sectors of the nonresidential and residential space that we think will remain a little bit lackluster. We think in general the demand is setting us up for again in this case kind of multi year strong demand.

Tommy: And lastly, even in residential I know theres been a lot of commentary.

Tommy: Conversation about interest rates, but interest rates are moving down and we do have this.

Tommy: Deficit of two to 4 million homes in North America that needs to get addressed at some point. So again these are data points, but they suggest to us that the.

Phil Gibbs: So, again, these are data points, but they suggest to us that the tipping point is near, and we're very optimistic about that. Thanks.

Tommy: Tipping point is near and we're very optimistic about that.

Speaker Change: Thanks, and then secondly, just on the market.

Phil Gibbs: And then secondly, just on the market conditions as we come into the new year, any visibility on where you think scrap may settle out over January here? Well, it's interesting. We, I will say scrap has been a bit of an enigma for us. We, we've been thinking that it was hitting bottom for a while. We were surprised to see scrap down in December. The latest indications that I've heard are, you know, flat to up 20 for January, but that remains to be seen. I think the, you know, as we've gotten closer to these data points, it seems like the, it seems like they grow negative over time.

Additionally, as we come into the new year any visibility on where you think scrap may may settle out over and.

Speaker Change: Over January here.

Speaker Change: Well.

Speaker Change: It's interesting we I will say scrap has been a bit of an enigma for us we've been thinking that it was hitting bottom for a while we were surprised to see scrap down in December.

Speaker Change: The latest indications that I've heard are flat to up 20 for January but that remains to be seen I think the.

Speaker Change: As we've gotten closer to these data points it seems like the.

Speaker Change: It seems like they grow negative over time, so but flat to up 20 is what we've heard we do still believe that we are very close to the bottom on scrap.

Phil Gibbs: So, but flat to up 20 is what we've heard. We do still believe that we are very close to the bottom on scrap. And, and obviously, a change in the direction of scrap would be a nice catalyst for us in terms of inflecting, inflecting rebar pricing and merchant pricing. Thank you. Thank you, Phil.

Speaker Change: And and obviously a change in the direction of scrap would be a nice catalyst for us in terms of inflect in inflicting rebar pricing in merchant pricing.

Speaker Change: Thank you.

Phil Gibbs: Thank you Phil.

Speaker Change: Yeah.

Unknown Executive: As a reminder, if you have a question, please press star then 1 to be joined into the question queue.

Speaker Change: As a reminder, if you have a question. Please press Star then one can be joined into the question queue.

Mavis Liu: The next question comes from Mavis Liu with BNP, please go ahead. Hi, good morning. Happy New Year. Thank you for taking my questions. My first question is on the rebar demand outlook. Within the presentation, you commented on the highway projects and also the housing shortages and their impacts on the rebar demand. Just on the timeline, when do you expect those to start having an impact? Yeah, thank you very much for the question. So on highway demand, it's here. It's happening now. We are, we are very busy on the infrastructure side. And again, given the structure of the program, we expect that to grow over time.

Speaker Change: The next question comes from MS. Lu with BNP. Please go ahead.

Ms. Lu: Hi, Good morning, happy New year. Thank you for taking my question.

Ms. Lu: My first question is on the rebar demand all Fox we've seen the presentation you commented on that.

Ms. Lu: Highway projects and also the housing shortage yet.

Ms. Lu: And their impact on the rebar demand just from a timeline when do you expect those to start have an impact.

Ms. Lu: Yes. Thank you very much for the question. So on highway demand. It's here it's happening now.

Ms. Lu: We are a we are very busy on the infrastructure side.

And again, given the structure of the program, we expect that to grow over time.

Peter Matt: And that is going to be a, you know, kind of the for the next three to five years, we're going to have strong demand on that front on the residential front. So in 2024, demand was was mixed, single family wasn't so bad, multifamily was weaker. If we if we look at most of the forecasters, including Dodge, what they seem to indicate is that residential will shift back into the positive in 2025. And kind of a small positive uptake in 25 and much stronger uptick in 26. So, you know, exactly when that occurs, it's it's not entirely clear, but but we're optimistic that the demand there is going to be inclined to pull things forward.

Ms. Lu: And that is going to be a.

Ms. Lu: For the next three to five years, we're going to have a strong demand on that front.

On the residential front.

Ms. Lu: In 2024 demand was mixed.

Ms. Lu: <unk> mixed single family wasn't so bad multifamily was weaker.

Ms. Lu: If you if we look at most of the forecasters, including Dodge.

Ms. Lu: What they seem to indicate is that residential will shift back into the positive.

Ms. Lu: In 2025.

Ms. Lu: And kind of a small positive up slight up tick in 'twenty, five and a much stronger uptick in 2006 so.

Ms. Lu: Exactly when that occurs it's not entirely clear, but we're optimistic that the demand there is going to be.

Ms. Lu: Be inclined to pull things forward.

Mavis Liu: Yeah, thank you. That's very clear.

Speaker Change: Yes. Thank you that's very clear.

Peter Matt: Just a bit follow up on that. So actually, we are expecting for some new rebar supply capacity to come online later this fiscal year. What's your view on those additional supply? And also, do you think the additional demands on rebar can offset those additional supply? Yeah, we so when we look, we look very carefully at this, as you can imagine. We believe that the kind of the real new supply in the market by kind of new competitors in the market, so to speak, is not such a big number. There is obviously high bars going to be starting up.

Ms. Lu: Follow up on that so.

Ms. Lu: So actually we are expecting for some new rebar supply capacity to come online later this fiscal year.

Ms. Lu: What's your view on those additional supply and also do you think the additional.

Ms. Lu: Demands on rebar.

Ms. Lu: Those additional supply.

Ms. Lu: Yeah. So.

Ms. Lu: So when we look we look very carefully at this as you can imagine.

We believe that the kind of the real new supply in the market.

Ms. Lu: By kind of new competitors in the market. So to speak is not such a big number.

Ms. Lu: There is obviously high bar is going to be starting up that's a that's one increment.

Peter Matt: That's, that's one increment. And that's going to happen in the second half of 2025. There's an increment that's been put in the market by a group called Optimist. That's already in the market today. So that's not new capacity as we sit here today. And then the rest of it is, you know, kind of Nucor and ourselves putting in capacity. And in most instances, we believe that is replacing existing capacity. So we are sanguine about the ability to absorb the incremental capacity given the demand profile that we see. And if you think about what we've said in the prepared materials, you can see that from the market that we have today, we expect there to be over a million tons of incremental demand over the next several years.

Ms. Lu: And that's going to happen in the second half of 2025.

Ms. Lu: There's an increment that's been put in the market by a group called Optimists, that's already in the market today.

Ms. Lu: So that's not new capacity as we sit here today and then the rest of it is.

Speaker Change: Nucor and ourselves putting in putting in capacity and in most instances, we believe that is replacing existing capacity.

Speaker Change: So we are sanguine about the ability to absorb the incremental capacity.

Speaker Change: Given the demand profile that we see.

Speaker Change: And if you think about what we've said in the prepared materials you can see that from the market that we have today, we expect there to be over a million tons of incremental demand over the next several years.

Mavis Liu: Thank you very much.

Speaker Change: Yes. Thank you very much thank you.

Alex Hacking: The next question comes from Alex Hacking with Citi. Please go ahead. Yeah, good morning. And thanks for the call. I just had one question.

Alex Hacking: Your next question comes from Alex Hacking with Citi. Please go ahead.

Yes, good morning, and thanks for the call I just had one question I guess just following up on your last comment there pizza.

Peter Matt: I guess it's following up on your last comment there, Peter, your commercial metals are sold around four and a half million tons or so in North America for the last five, six years. You know, you're adding a million tons of capacity between Arizona and West Virginia. How should we think about the mix of that between, you know, growth in capacity and replacement capacity? And if and if rebar demand grows strongly, you know, can CMC ultimately sell five and a half million tons, or there's a chunk of it that's just going to be a replacement? Thank you very much.

Speaker Change: Commercial metals are sold around four.

Speaker Change: Million tons or so in North America for the last five six years.

Speaker Change: You're adding 1 million tons of capacity between Arizona and West Virginia.

Speaker Change: How should we think about the mix of that between.

Speaker Change: Growth in capacity and replacement capacity.

Speaker Change: And if rebar demand grows strongly.

Speaker Change: CMC ultimately sell five 5 million tonnes or there's a chunk of it that's just going to be a replacement. Thank you very much yeah. Thank you very much.

Peter Matt: Yep, thank you very much.

Peter Matt: So Arizona, let's just start with Arizona. First, Arizona, if you go back a few years, you know, we have a plant in California, which we kind of idled and then ultimately sold the property on right. So Arizona, too, is really the rebuild of that capacity. So we don't view that as kind of incremental capacity from CMC. We're kind of replacing obsolete capacity that we had. And if you look at the, the kind of split of what we're expecting to do in Arizona to 350,000 tons are expected to go to rebar, the 150,000 tons are expected to go to merchant.

Speaker Change: Arizona, Let's just start with Arizona.

Speaker Change: Arizona If you go back a few years you know we had a plant in California, which we kind of idled and then ultimately sold the property on right. So Arizona two is really the rebuild of that capacity. So we don't view that as kind of incremental capacity from <unk>.

Speaker Change: <unk>, we're kind of replacing.

Speaker Change: Obsolete capacity that we had.

Speaker Change: And if you look at the the.

Speaker Change: Kind of a split of what were expecting to do in Arizona to 350000 tonnes are expected to go to rebar.

Speaker Change: Hundred 50000 tonnes are expected to go to merchants. So it's it's exactly offsetting the California capacity.

Peter Matt: So it's, it's exactly offsetting the California capacity.

Peter Matt: If we, if we go to West Virginia, the Northeast is an area where we are kind of underrepresented from a share perspective. And so our perspective on that market is there is room, given the demand and the likely demand growth for in that market for us to expand capacity a bit with our existing footprint. So there is some expansion in the in the case of the of the West Virginia business. But again, we think it's manageable when we look at our share around the rest of the country relative to that region. Thanks, sir.

Speaker Change: If we are if we go to West Virginia. The northeast is an area, where we are kind of under represented from a share perspective.

And so our perspective on that market as there is room, given the demand and the likely demand growth for <unk>.

In that market for.

Speaker Change: For us to expand capacity a bit with our existing footprint. So.

Speaker Change: There is some expansion in the in the case of the of the West Virginia business, but again, we think it's manageable when we look at our share.

Speaker Change: The rest of the country relative to that region.

Speaker Change: Thanks, I guess just following up.

Peter Matt: I guess just following up, you know, Roger, Roger Kukamonga has been closed for a while now, right? So there's still an incremental million, I guess. You know, if Are you planning on idling other capacity, I guess, is more of my question, so that or if, you know, we get strong rebar demand, as we expect over the next several years, you know, you would be able to grow into both Arizona and West Virginia. Yeah, what I'd say is, we are expecting, as hopefully you gather from my prior comments, Alex, that we are expecting rebar demand to grow.

Speaker Change: Roger Roger.

Speaker Change: We're actually Cook among has been closed for a while now right. So there's still an incremental million I guess.

Speaker Change: Yeah.

Speaker Change: <unk>.

Speaker Change: Are you planning on idling other capacity I guess is more of my question, so that or if we get strong rebound in mind as we expect over the next several years.

Speaker Change: You would be able to grow into both Arizona and West Virginia.

Speaker Change: Yeah, what I'd say is we are expecting as hopefully you gathered from my prior comments, Alex that we are expecting rebar demand to grow.

Peter Matt: And so, and we are the natural kind of party to fulfill that need. And so, yeah, it's really built on the expectation that we have a growing market. To the extent that we do not have a growing market, or the market doesn't grow as quickly as we think, we have a system here. And what we like about our system is that we can flex our system up and down to meet the demands in the market. And one thing that I want to be really clear about is that our focus is on value over volume. So we are going to flex our system to meet the demand in the market.

Speaker Change: And so and we are the natural kind of party to fulfill that need.

Speaker Change: And so yes, it's really built on the expectation that we have a growing market.

To the extent that we do not have a growing market or the market doesn't grow as quickly as we think we have a system here and what we like about our system is that we can flex our system up and down to meet the demands in the market and one thing that I want to be really clear about it.

Speaker Change: Is that our focus is on value over volume. So we are going to flex our system to meet the demand in the market and I think that will result in a good outcome for us.

Peter Matt: And I think that will result in a good outcome for us. Thank you very much. Thank you.

Speaker Change: Thank you very much thank you.

Matt Duchesne: The next question comes from Matt Duchesne with Wolf Research. Please go ahead. Hey, guys.

Speaker Change: The next question comes from Matt <unk> with Wolfe Research. Please go ahead.

Matt: Hey, guys happy New years, Hey, Matt.

Peter Matt: Happy New Year's. So just curious on Europe, let's say demand is structurally damaged longer term. And you know, just for some reason, German demand doesn't fully bounce back. You know, if that is the case, what levers you have to pull just beyond the tag initiatives or anything else you have in mind? Well, again, we've done a lot of work so far. There's always more to do. We have, as Paul noted in his remarks, we've been right-sizing the operation from a manning perspective. In the event that we were, you know, kind of structurally, for some reason, structurally damaged over there or could not see a recovery, we could do some, you know, we could do some more reductions on that front.

So just curious on Europe, let's say demand is structurally damaged longer term.

Matt: And just for some reason German demand doesn't fully bounce back.

Matt: That is the case, what levers you off the pool, just beyond the tag initiatives or anything else you have in mind.

Matt: Well again, we've done a lot of work so far there's always more to do.

Matt: We have as Paul noted in his remarks, we've been right sizing the operation from a Manning perspective in the event that we were.

Matt: Kind of structurally for some reason structurally damaged over there or could not.

Matt: See a recovery we could do some we could do some more reductions on that front.

Peter Matt: And I think we'd have to, we'd have to, you know, kind of turn over more stones and get to get to just a more bare bones structure until we see a recovery.

Matt: And I think we'd have to we'd have to kind of turnover more stones and get to get.

Matt: Get to just a mere more bare bones structure until we see a recovery now just.

Peter Matt: Now, just the positive side of this is that We don't think the scenario you're positing is the scenario. We believe the scenario is that Germany is going to recover, Europe is going to recover, there is going to be an end to the war in Ukraine, and that's going to create some demand here. And given the cost position that we built in Poland, which we are very confident is a low cost position, when those conditions occur, we're going to see profitability inflect nicely up well before what you might expect. And the other thing that I would say is that when you look at Poland, and we always talk about break even, we want to get the business to break even.

Matt: The positive side of this is that we.

Matt: We don't think the scenario you're positing as the scenario. We believe that the scenario is Germany is going to recover Europe is going to recover there is going to be an end to the war in Ukraine.

Matt: And that's going to create some demand here.

Matt: Given the cost position that we built in Poland, which we are very confident in this low cost position when that those conditions occur we're going to see profitability inflect nicely up well before what you might expect.

Matt: And the other thing that I would say is that.

Matt: When you look at Poland.

Matt: And we always talk about breakeven, we wanted to get the business to breakeven and when we're talking about breakeven we're talking about breakeven excluding all of these energy credits and so forth that we've been getting if we factor those energy credits in we're actually generating a profit there.

Peter Matt: And when we're talking about break even, we're talking about break even excluding all of these energy credits and so forth that we've been getting. If we factor those energy credits in, we're actually generating a profit there, and we are cash flow positive there. So our perspective is this business is a business that has contributed a tremendous amount. To your point on TAG, the Polish team is, they're great steel makers, and they've given us a lot of really powerful ideas that can help our network across North America. So it's a business that we're really proud of what they've done, and we think there's a bright future.

Matt: We are cash flow positive there so.

Matt: Our perspective is.

Matt: This business is a business that has contributed a tremendous amount to your point on tag.

Matt: <unk> team is they're great steelmakers, and they've given us a lot of really powerful ideas that can help our network across North America. So so it's a it's a business that we're really proud of what they've done and we think there's a bright future for them.

Unknown Executive: That's all super helpful, Cutler.

Matt: That's all Super helpful color I'll leave it there. Thank you.

Unknown Executive: I'll leave it there. Thank you.

Matt: Matt.

Unknown Executive: At this time, there appear to be no further questions.

Matt: At this time there appear to be no further questions. Mr. Matt I'll now turn the call back over to you my closing remarks.

Peter Matt: Mr. Matt, I'll now turn the call back over to you for closing remarks. Thank you. At CMC, we remain confident that our best days are ahead. The combination of the structural demand trends we have noted, operational and commercial excellence initiatives to strengthen our through-the-cycle performance, and value-accretive growth opportunities create an exciting future for our company. We are committed to a balanced capital allocation strategy that includes investments in our company's future and a return of capital to our shareholders.

Matt: Thank you at CMC, we remain confident that our best days are ahead. The combination of the structural demand trends, we have noted operational and commercial excellence initiatives to strengthen our through the cycle performance and value accretive growth opportunities create an exciting future for our company.

Matt: We are committed to a balanced capital allocation strategy that includes investments in our company's future and a return of capital to our shareholders. Thank you for joining us on today's conference call. We look forward to speaking with many of you during our investor calls in the coming days and weeks. Thank you very much.

Peter Matt: Thank you for joining us on today's conference call. We look forward to speaking with many of you during our investor calls in the coming days. Thank you very much.

Matt: Yeah.

Unknown Executive: This concludes today's CMC conference call. You may now disconnect.

Matt: This concludes today's CNC conference call you may now disconnect.

Matt: Yeah.

Matt:

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