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September 08, 2008


CMC posts lower Q2 profit

Commercial Metals Co announced that it has posted a 40% YoY drop in Q2 profit due to unexpected inventory charges. CMC reported a net earnings of USD 39.8 million on net sales of USD 2.3 billion for the Q2 ended February 2008 as compared to with net earnings of USD 65.9 million on net sales of USD 1.9 billion for the Q2 0f 2006. Its Q2 included after tax LIFO expense of USD 38.3 million as compared with expense of USD 12.3 million in Q2 of 2007. Selling, general and administrative expenses in the second quarter included USD 14.7 million of pre tax costs associated with the investment in the global deployment of SAP software.

CMC also said that “During the Q2, we repurchased 3.7 million of our shares at an average price per share of USD 27.36. This represented 3.1% of the shares outstanding at the beginning of the quarter. For the six months we have purchased 5,412,238 shares at an average price of USD 28.00 per share.”

CMC’s net earnings for the six months ended February 29th 2008 were USD 108.9 million on net sales of USD 4.4 billion as compared to USD 151 million on net sales of USD 3.8 billion same period of last year. For the six months ended February 29th 2008, after tax LIFO expense was USD 35.5 million compared with an expense of USD 18.9 million last year. For the six months ended February 29th 2008, Selling, general and administrative expenses was USD 25.0 million and other costs of USD 9.2 million were capitalized during the quarter.

Mr Murray R McClean president & CEO of CMC said that "Market conditions improved steadily throughout the quarter. December ended excess inventory hangovers and the quarter saw an unanticipated USD 97 per short ton spike in ferrous scrap pricing followed by an USD 85 per ton increase in rebar and merchants by quarter end. Management's outlook had not anticipated a LIFO effect for the quarter; however, the dramatic increase in pricing inevitably led to a huge LIFO expense of USD 0.32 a share, a record quarterly charge. Our Americas Recycling segment, propelled by ferrous scrap pricing, had a strong second quarter. Our Americas Mills segment, on the strength of higher production and shipment levels, overcame a temporary metal margin squeeze. The Americas Fabrication and Distribution operations felt the margin squeeze and the effect of a massive LIFO charge although underlying operations remain solid. The International Mills were at extremes. CMCZ (Poland) shook off lethargic pricing early in the quarter to achieve excellent results in the second half of the period. CMCS (Croatia) remained in turnaround mode. International Fabrication and Distribution showed continued strength in raw materials inter Asian trade and European markets."