Commercial Metals (CMC) Q2 Earnings: What's In The Cards?

Commercial Metals Company (NYSE:CMC) is scheduled to report second-quarter fiscal 2019 results on Mar 21, before the opening bell.

In the last reported quarter, Commercial Metals reported earnings of 35 cents per share, missing the Zacks Consensus Estimate by around 8%. However, the figure improved by 13% year over year. In the trailing four quarters, the company lagged the Zacks Consensus Estimate on two occasions, surpassing in one while missing the other. The company recorded average positive earnings surprise of 2.68% over the trailing four quarters.

Let’s see how things are shaping up prior to this announcement.

Commercial Metals Company Price and EPS Surprise

Key Factors to Consider

There has been improvement in farm equipment manufacturing activity, construction machinery and energy related spending of late. Strong bid activity has led to significant growth in the company’s backlog. However, holidays and winter weather conditions traditionally slow down construction activity in the second quarter of fiscal 2019. This is likely to lead to lower shipment rates in the to-be-reported quarter. Nevertheless, the Zacks Consensus Estimate for revenues for the quarter reflects year-over-year growth of 38.8% to $1.46 billion.

The Zacks Consensus Estimate for revenues for the Americas Recycling segment is at $284 million, reflecting estimated year-over-year drop of 12%. The segment is expected to report operating profit of $9.6 million, 21% lower than the prior-year quarter’s figure of $12.2 million.

For the Americas Mills segment, the Zacks Consensus Estimate for revenues is at $790 million which is projected to grow 85% from the prior-year quarter’s revenues of $426 million. The segment’s operating profit is projected at $93 million, a whopping improvement of 195% from $32 million in the prior-year quarter. Benefit from the acquisition of certain U.S. rebar steel mill and fabrication assets from Gerdau S.A and incremental shipments from the new micro mill in Durant, OK will aid results.

The Americas Fabrication segment is anticipated to report revenues of $498 million, up 59% from the $313 million in the second quarter of fiscal 2018. Rebar fabrication bidding activity remains strong. However, the segment is expected to report operating loss of $55 million compared with the prior-year quarter’s loss of $27 million. Increased input and production costs are likely to hurt the segment’s profitability.

The Zacks Consensus Estimate for revenues for the International Mill segment is currently pegged at $186 million, down 12% from the prior-year quarter. The Zacks Consensus Estimate for the segment’s operating income is $15 million, down 39% year over year.

However, inflationary pressures on manufacturing costs owing to a tight labor market, consumable raw material prices is likely to dent the company’s margins.

The Zacks Consensus Estimate for earnings per share is pegged at 25 cents for the to-be-reported quarter, indicating year-over-year decline of 3.85%.

Earnings Whispers

Our proven model does not conclusively show that Commercial Metals is likely to beat on earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate Estimate of 24 cents and the Zacks Consensus Estimate of 25 cents, is -1.27%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Commercial Metals currently carries a Zacks Rank of 3. While this increases the predictive power of ESP, we also need to have a positive ESP to be confident about an earnings surprise.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Share Price Performance

Commercial Metals’ shares have dipped 1.8% in the past month, compared with the industry’s decline of 3.0%.

Stocks Worth a Look

Here are a few stocks worth considering as these have the right combination of elements to post an earnings beat this quarter.

Darden Restaurants, Inc. (NYSE:DRI) has an Earnings ESP of +1.07% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ollie's Bargain Outlet Holdings, Inc. (NASDAQ:OLLI) has an Earnings ESP of +1.34% and a Zacks Rank #2.

Lithium Americas Corp. (TO:LAC) has an Earnings ESP of +28.57% and a Zacks Rank #2.

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