COMMERCIAL METALS Q2 FY26 earnings call CMC

CMC successfully integrated the CP&P and Foley acquisitions, marking its entry into the Precast concrete business. The first 100 days saw strong cultural fit and retention of key leadership, with integration progress on schedule. Efforts include centralizing support functions, in-sourcing rebar supply, benchmarking KPIs, and aligning on operational excellence projects. Early commercial wins include a unified go-to-market strategy and expansion into product lines like dry utility structures for data centers.

The enterprise-wide TAG program is a pivotal initiative in fiscal 2026, aiming for a durable step change in margins, earnings, cash flows, and ROIC. It is now being executed across all lines of business and segments, including commercial opportunities and SG&A efficiencies. The program is generating momentum, with initiatives like improved logistics fleet utilization and enhanced recycling network margins exceeding initial expectations. CMC is confident in exceeding its goal of $150 million annualized run rate EBITDA benefit by fiscal year-end.

The North American early-stage construction market continues to exhibit healthy underlying demand, with finished steel shipments virtually unchanged year-over-year despite weather challenges^🌐. Metal margins on steel products were stable sequentially, ticking up by $2 per ton, reaching a three-year high. Key market segments like public works, institutional buildings, energy projects, and data centers show strong activity. CMC is strategically positioned to capitalize on the 'red hot' data center construction, particularly in the Mid-Atlantic and South Central U.S., and the build-out of supporting energy infrastructure.

Preliminary findings from the International Trade Commission's rebar trade case against Algeria, Bulgaria, Egypt, and Vietnam are encouraging. Combined antidumping and countervailing duties range from 50% to 200% (Algeria), establishing durable protection for five years. This addresses predatory behavior, as exemplified by Algeria's peak shipments of nearly 0.5 million tons into the U.S. market, and acts as a deterrent to other unfair trading practices. Final determinations are expected in the summer.

Market conditions in Europe were mixed, with resilient merchant bar demand but temporarily disrupted rebar volumes due to pre-CBAM imports and cold weather. Despite this, average rebar selling prices increased, and new orders trended upward. While natural gas price increases could raise production costs by $15 to $20 per ton, CMC's Polish operations are well-hedged (50% long-term PPAs) and less exposed than peers. Green shoots include signals of residential construction recovery and anticipated benefits from CBAM and the Steel Action Plan, which could significantly restrict imports by mid-calendar year 2026.

CMC has made meaningful progress in deleveraging post-acquisition, with adjusted net leverage now at 2.3x, down from 2.7x. The company is confident in reaching its target of 2x or below, aided by strong free cash flow from the Precast platform, winding down of Steel West Virginia capital expenditures, and significant cash tax savings from 48C tax credits. Share repurchase activity has been temporarily reduced to offset dilution but is expected to return to prior levels once leverage targets are met. The Board also demonstrated confidence by increasing the quarterly dividend by $0.02 per share to $0.20, an 11% increase.