CMC Q3: Steel margins squeezed as rebar demand softens

Commercial Metals Company posted a 14% drop in fiscal third-quarter earnings, with adjusted net income of $1.12 a share missing the $1.30 consensus, as steel margins narrowed and rebar shipments slipped.

The Irving, Texas-based steelmaker reported net earnings of $131.5 million for the quarter ended May 31, down from $153.2 million a year earlier. Revenue fell 6% to $1.87 billion, missing the $1.95 billion analysts had expected.

CEO Peter Matt said the quarter reflected "a challenging pricing environment" in North America, where average selling prices for rebar and merchant bar declined roughly 8% from the prior-year period. Shipments of rebar, CMC's largest product line, fell 4% year-over-year, while shipments of merchant bar and structural steel were flat.

The company's North American Steel Group posted adjusted EBITDA of $198 million, down 18% from $241 million a year ago. Margins in the segment compressed to 12.4% from 14.8%, as raw-material costs – particularly scrap – did not fall as fast as finished-steel prices.

Europe was a relative bright spot. CMC's Poland-based operations reported adjusted EBITDA of $38 million, up from $32 million a year earlier, helped by stronger demand from infrastructure projects and lower energy costs. The segment's margin widened to 9.1% from 7.6%.

CMC generated $187 million in operating cash flow during the quarter, down from $212 million a year ago. Capital spending came in at $89 million, with the company on track to spend roughly $400 million for the full fiscal year, mostly on its Arizona micro mill and a rebar fabrication expansion in Texas.

The company's balance sheet remains one of the stronger in the sector. Net debt stood at $612 million, or 0.7 times trailing EBITDA, leaving ample room for the $0.18 quarterly dividend and the $150 million share repurchase authorization that expires in October.

For the fourth quarter, CMC guided for adjusted EBITDA between $210 million and $240 million, below the $255 million consensus. The midpoint implies a sequential improvement from Q3 but still below year-ago levels.

Matt said the company expects rebar demand to pick up in the second half of the calendar year as highway and bridge projects funded by the Infrastructure Investment and Jobs Act begin to move from design to construction. "We are starting to see more bid activity on large-scale projects," he said. "The timing of when those convert to shipments remains uncertain."

CMC's stock page shows the shares have fallen 22% over the past 12 months, underperforming the broader market and most steel peers. The company's Alpha Score is unavailable, as it remains unscored in the system.

The steel sector faces headwinds beyond CMC's control. Import volumes of rebar have risen 12% year-to-date, according to U.S. Commerce Department data, putting pressure on domestic mills. Meanwhile, scrap prices have stabilized near $380 a ton after falling from $420 in January, offering some relief on the cost side.

What would confirm the thesis of a second-half recovery is a sustained pickup in rebar shipments through September and October, combined with scrap costs that do not rise faster than finished-steel prices. A reversal – weaker shipments or a fresh leg down in selling prices – would push the recovery into fiscal 2027.