Commercial Metals (CMC) Signals Strong Growth Ahead
Commercial Metals ((CMC)) has held its Q4 earnings call. Read on for the main highlights of the call.
Commercial Metals Co. delivered a confident and upbeat earnings call, underscoring powerful profit growth, wider margins and tangible gains from its TAG efficiency program. Management struck a notably optimistic tone on infrastructure and nonresidential demand, while acknowledging near-term headwinds from soft residential markets, European energy costs and ramp-up expenses tied to the new West Virginia mill.
Core Earnings Surge and Margin Expansion
Full-year core EBITDA jumped to about $1.4 billion in fiscal 2026, up sharply from $837 million in fiscal 2025. The core EBITDA margin improved by 380 basis points to 14.5%, signaling stronger pricing power and operating efficiency across the portfolio.
Fourth-Quarter Strength Led by North America and TAG
Fourth-quarter core EBITDA rose 35.1% year over year to roughly $394 million, with the margin climbing to 14.8%. Management credited robust performance from the North American Steel Group and growing benefits from the TAG transformation program for the strong finish.
Safety Metrics Near Historic Lows
CMC reported that its fiscal 2026 total recordable incident rate remained near a historic low and better than industry averages. The company also emphasized extending its safety-first culture into newly acquired Precast operations, reinforcing risk management alongside growth.
North American Steel Group Delivers Higher Margins
Adjusted EBITDA for the North American Steel Group increased 25.2% sequentially to $317 million, reflecting healthier spreads and volumes. Metal margin improved $42 per ton to $652, finished steel shipments rose 7.1%, and the adjusted EBITDA margin expanded to 16.4%.
Downstream Volumes and Backlog Point to Solid Demand
Downstream product volumes grew 8.5% year over year in the fourth quarter, highlighting steady activity beyond basic steel. Backlog increased 15.5% from a year earlier and 5% sequentially, supported by large, complex projects in energy, reshoring, data centers and institutional markets.
Construction Solutions Group Scales Rapidly
The Construction Solutions Group posted a 94.5% year-over-year jump in net sales, with adjusted EBITDA more than doubling. Its margin improved by 80 basis points, suggesting that scale benefits and mix are starting to translate into sustainable profitability.
TAG Efficiency Program Adds Hundreds of Millions
CMC exited fiscal 2026 with over $250 million in gross run-rate benefits from TAG, its companywide improvement initiative. Management sees a clear path to another $100 million in run-rate gains by the end of fiscal 2027, driven by better yields, scrap optimization, logistics and commercial execution.
Precast Integration On Track With Improving Indicators
Precast operations generated $57.1 million of adjusted EBITDA in the quarter and around $150 million since acquisition, excluding accounting impacts. Synergies are meeting or exceeding expectations, while bookings rose 12.6% sequentially and backlog grew roughly 3% year over year with firmer pricing.
Precast EBITDA Target Reaffirmed Despite Housing Weakness
Management maintained its goal of reaching about $240 million to $250 million of annualized Precast EBITDA. While residential volumes are subdued, nonresidential and infrastructure projects are helping fill the gap, and pricing has continued to move higher across the portfolio.
Strategic Growth Investments Near Completion
CMC has deployed nearly $1.5 billion to modernize and build a coast-to-coast mill footprint. The new Steel West Virginia mill is moving through commissioning, Tensar’s GeoGrid line in Oklahoma is well into startup, and GalvaBar Tennessee is slated to begin production in November, more than doubling capacity.
Balance Sheet Strength and Improving Cash Outlook
Adjusted net leverage fell to 1.9x, below the company’s 2x target, in under a year, giving CMC more financial flexibility. Capital expenditures are expected to drop from about $580 million in fiscal 2026 to roughly $400 million in fiscal 2027, supporting stronger free cash flow in 2027 and 2028.
Share Repurchases Set to Accelerate
CMC has roughly $700 million remaining under its expanded share repurchase authorization and plans to speed up buybacks. Management views the current share price as attractive relative to the company’s cash-generation profile, signaling confidence in long-term value creation.
Tax and Depreciation Tailwinds Support Cash Generation
The company expects meaningful cash tax savings through much of fiscal 2027 from government programs and accelerated depreciation. It guided to an effective tax rate of about 24% for fiscal 2027, which should further support free cash flow.
Infrastructure and Nonresidential Markets Stay Strong
Infrastructure demand remains elevated, underpinned by federal and state funding and a multi-year project pipeline. Nonresidential activity in data centers, power generation, utilities, semiconductor plants and institutional markets is solid, with the Dodge Momentum Index hovering near record levels.
Trade Environment Turning More Supportive for U.S. Steel
Existing Section 232 measures and recent trade case decisions have sharply reduced rebar imports from certain countries. South Korean volumes fell in September, and shipments from other affected sources are now a fraction of prior-year levels, helping create a more rational competitive landscape.
Merchant Bar Capacity Expansion Opportunity
Management sees potential to grow merchant bar shipments to as much as 1 million tons, adding roughly 150,000 to 200,000 tons. The West Virginia startup should free up South Carolina capacity for more merchant product, while about 150,000 tons of wire rod are already shipped annually.
Operational Improvement and Hedging Support in Europe
Business fundamentals in Poland have improved, with metal margin up $32 per ton year over year and average selling prices higher. About half of European electricity needs are hedged through long-term contracts, bolstering the mill’s competitiveness in a volatile energy market.
Constructive but Balanced Fiscal 2027 Outlook
CMC expects fiscal 2027 to be another solid year, albeit with some normal seasonality. For the first quarter, North American Steel Group EBITDA is expected to be roughly flat, Construction Solutions down sequentially, and European results up meaningfully.
Construction Solutions and Precast Fall Short of Hopes
Fourth-quarter results in the Construction Solutions Group missed internal expectations due to residential weakness in the Southeast. Lower volumes and regional margin mix weighed on results, while Precast EBITDA came in about $20 million below the level discussed on the prior call.
Residential Construction Still Muted
New single-family residential activity remains mostly subdued, pressuring parts of the Precast portfolio. Management said the residential component is operating at only about 50% to 60% of a normal environment, though nonresidential and infrastructure work help cushion the impact.
Seasonal First-Quarter Dip Expected at Precast
CMC anticipates typical seasonal softness in its Precast business during the first quarter. EBITDA is projected to decline by mid- to high-single digits versus the fourth quarter before resuming its upward trajectory over the year.
GalvaBar Outage Temporarily Weighs on Performance
Performance Reinforcing Steel results were lower after an unplanned outage at the GalvaBar facility disrupted shipments. The issue has been resolved, and management emphasized that customer demand remains strong as capacity ramps back up.
Higher European Energy Costs and Tough Credit Comparisons
The quarter did not benefit from prior CO2 credits, creating a year-over-year earnings headwind. Energy costs increased around $10 per ton and could rise another $10 to $15 per ton in the first quarter, pressuring European margins despite operational improvements.
West Virginia Startup Costs and Ramp-Up Plan
Weather delayed construction at the West Virginia mill, and CMC expects another $3 million to $5 million of startup costs in the first quarter after incurring about $9 million in the fourth. Startup should unfold over roughly 12 months, with production below 200,000 tons this year and EBITDA breakeven in about six months.
Seasonality and Economic Uncertainty in Europe
Management noted that Germany’s economy has not improved as hoped, adding a cautious tone to the European outlook. Seasonal patterns and inventory tied to CBAM and tariff-quota changes may take four to six months to normalize, limiting near-term upside.
Scrap and Diesel Costs Add Near-Term Pressure
Scrap prices are expected to stay relatively steady but face some upward pressure linked to higher diesel costs. Management warned that first-quarter results will feel this cost squeeze, though better selling prices should largely offset the impact.
Pretax Charges and Backlog Amortization Elevate Expenses
CMC recorded about $26.8 million of pretax expenses excluded from adjusted earnings in the fourth quarter, including $19.8 million of noncash backlog amortization. It expects roughly $20 million of acquired backlog amortization in the first quarter and around $2 million in the second.
Forward-Looking Guidance and Capital Allocation Plans
Management guided to another solid year in fiscal 2027, with flat early North American steel earnings, softer seasonal Construction Solutions and stronger European results helped by CO2 credits. Precast is expected to reach $240 million to $250 million of annual run-rate EBITDA, capex will drop to about $400 million, West Virginia will ramp over 12 months, free cash flow will improve through 2028 and share repurchases will accelerate.
CMC’s earnings call painted a picture of a company leaning into demand for infrastructure and advanced nonresidential projects while tightening its cost structure. Investors heard a blend of strong current performance, disciplined capital spending and clear expansion plans, tempered by near-term residential softness and European energy headwinds but framed within an overall optimistic outlook.
