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Commercial Metals Company (CMC) |
| Revision as of 21:03, June 29, 2009 (edit) Wikinvest MaintenanceBot - Sr. Director (Talk | contribs) (Hiding Logos) ← Previous diff |
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| *'''There are Rewards (and Risks) Associated with CMC's Recent International Acquisitions:''' CMC's recent movements into the Polish and Croatian [[Steel industry|steel]] markets offer the company an interesting position in the worldwide [[steel industry]].<ref>CMC 2007 10k pg 4</ref><ref>CMC 2007 Annual Report pg 14</ref> The company now occupies a strategic position in central Europe, offering more direct exposure to European customers and insulating the company from potential decreases in demand in the United States. CMC has capitalized on this situation, with European revenues increasing by 41% from 2006 to 2007.<ref>CMC 2006 10k pg 26</ref> Considering the current development and emergence of many of Central Europe's economies, this location will allow CMC significant chances for growth and profits. As CMC's profits become more dependent on this sector of its business, however, the firm runs the risk that political or economic instability in these distant countries could have a major negative effect on its balance sheet. | *'''There are Rewards (and Risks) Associated with CMC's Recent International Acquisitions:''' CMC's recent movements into the Polish and Croatian [[Steel industry|steel]] markets offer the company an interesting position in the worldwide [[steel industry]].<ref>CMC 2007 10k pg 4</ref><ref>CMC 2007 Annual Report pg 14</ref> The company now occupies a strategic position in central Europe, offering more direct exposure to European customers and insulating the company from potential decreases in demand in the United States. CMC has capitalized on this situation, with European revenues increasing by 41% from 2006 to 2007.<ref>CMC 2006 10k pg 26</ref> Considering the current development and emergence of many of Central Europe's economies, this location will allow CMC significant chances for growth and profits. As CMC's profits become more dependent on this sector of its business, however, the firm runs the risk that political or economic instability in these distant countries could have a major negative effect on its balance sheet. | ||
| + | |||
| + | == Market Share== | ||
| + | |||
| + | {| border="2" style="text-align:center;background:#F7F7F7;" | ||
| + | |+ '''Global Steel Industry Market Share by Crude Steel Production (Q2, 2009)''' | ||
| + | |- | ||
| + | | align="center" style="background:#87cefa;"|'''Manufacturer''' | ||
| + | | align="center" style="background:#87cefa;"|'''Crude Steel Production (Thousands of Tons)''' | ||
| + | | align="center" style="background:#87cefa;"|'''Market Share<ref name=Q2globalsteelproduction>[http://www.steelonthenet.com/production.html Steel on the Net - World Steel Review, August 2009]</ref>''' | ||
| + | | align="center" style="background:#87cefa;"|'''YOY % Change in Production''' | ||
| + | |- | ||
| + | | [[US Steel]]<ref>[http://www.sec.gov/Archives/edgar/data/1163302/000119312509156797/d10q.htm X, Q2 2009, 10-Q, Item 4, Page 58]</ref> | ||
| + | ||3,023||.96%||-60% | ||
| + | |- | ||
| + | | [[Nucor]]<ref>[http://www.sec.gov/Archives/edgar/data/73309/000119312509108168/d10q.htm NUE, Q2 2009, 10-Q, Item 2, Page 19]</ref> | ||
| + | ||2,808||.89%||-53% | ||
| + | |- | ||
| + | | [[SCHN]]<ref>[http://www.sec.gov/Archives/edgar/data/912603/000119312509141495/d10q.htm SCHN, Q3 2009, 10-Q, Item 2, Page 30]</ref> | ||
| + | ||1,037||.33%||-19% | ||
| + | |- | ||
| + | | [[Steel Dynamics]]<ref>[http://www.steeldynamics.com/investor_info/sec_filings/8-k_7.27.2009_Earnings_Release_Q_2009.pdf AKS, Q2 2009, Quarterly Earnings Release]</ref> | ||
| + | ||886||0.28%||-45% | ||
| + | |- | ||
| + | | [[AK Steel]]<ref>[http://www.sec.gov/Archives/edgar/data/918160/000091816009000029/form10-q.htm AKS, Q2 2009, 10-Q, Item 2, Page 27]</ref> | ||
| + | ||740||0.23%||-57% | ||
| + | |- | ||
| + | | [[CMC]]<ref>[http://ccbn.10kwizard.com/xml/download.php?repo=tenk&ipage=6259925&format=PDF CMC, Q2 2009, 10-Q, Item 2, Page 25]</ref> | ||
| + | ||435||0.14%||-42% | ||
| + | |} | ||
| ==Competition== | ==Competition== | ||
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| {{clr}} | {{clr}} | ||
| - | <autowikidata/> | + | |
Revision as of 14:41, August 12, 2009
Commercial Metals Company (NYSE:CMC) is primarily a recycler of scrap metal, using discarded material to make new finished steel products. CMC owns groups of steel mini-mills in the U.S. and in Poland which melt down scrap metal to make steel.[1] In addition to the recycling and manufacture of steel products, the company also manufactures specialized metals and copper tubing.[2]
CMC owns the recycling centers that break down old products into scrap and the mini-mills that turn scrap into steel. This vertical integration helps shield the company from volatility in the iron ore market. CMC also protects itself by operating in multiple countries - less than 60% of its 2007 sales were in the U.S. In 2003, the company expanded its operations to Central Europe in order to counter fierce foreign competition in the American market, acquiring the CMCZ group of Polish mini-mills. This acquisition has boosted CMC's return on invested capital to over 21% in the last three years, up from an average 6.7% in the ten years prior to 2004.[3]
Increased international demand for steel, especially from China, has led to a global boom in steel prices . The flourishing industry has allowed CMC to earn handsome margins, and cash dividends for shareholders have increased fourfold in the past two years. The firm’s recent success will help it to deal with the significant risk factors in its market, including elevated international competition, rising raw material costs, and weakening domestic construction and automobile industries.
Contents |
Business Financials
CMC divides its operations into five different sectors:
- Domestic steel mills
- CMCZ (a Polish subsidiary steel mill)
- domestic fabrication of specialized steel products
- metal recycling
- marketing and distribution.[4]
Steel products accounted for 74% of the company’s 2007 sales, comparable to 73% in 2006.[5] CMC’s steel shipments totaled 2.25 million tons in 2007, down from 2.49 million tons in 2006.[6] This 9% decrease in shipments during 2007 was due to steel distribution centers (a primary customer of the company) overbuying in 2006 and consequently buying less during 2007.[7] Revenues still increased due to higher global steel prices.[8] Revenue and operating income have grown in each of the past five years, in part due to voracious international demand for steel and the resulting skyrocketing steel prices.
Breakdown of Sales by Sector
Commercial Metal Company's domestic mills are the most profitable segment of the company. The company's Polish operation, acquired in 2005, has produced handsome returns on invested capital.
Operating Income by Segment (million $US)
| Company Segment | 2005 | 2006 | 2007 | ||
|---|---|---|---|---|---|
| Domestic Mills | $232.8 | $301.1 | $275.0 | ||
| CMCZ (Polish mill) | -$.2 | $52.8 | $112.2 | ||
| Domestic Fabrication | $101.9 | $96.0 | $89.0 | ||
| Recycling | $70.8 | $100.0 | $89.8 | ||
| Marketing and Distribution | $90.4 | $69.8 | $84.9 | ||
Source: CMC 2006 10k[10]
Geographic Breakdown of Sales
Customers located in the United States accounted for 59% of CMC’s 2007 sales.[11] Europe was the company’s second largest consumer, accounting for 21% of the company’s 2007 sales.[12] While sales to domestic customers grew 10% from 2006 to 2007, sales to European customers grew by 41% over that same period, as can be seen below.[13]
Revenue Generated by Geographic Region 2005-2007 (thousand $US)
| Geographic Region | 2005 | 2006 | 2007 | ||
|---|---|---|---|---|---|
| North America | $3,566,479 | $4,485,816 | $4,932,097 | ||
| Europe | $1,237,527 | $1,221,371 | $1,720,771 | ||
| Asia | $845,022 | $801,393 | $918, 483 | ||
| Australia/New Zealand | $403,696 | $446,481 | $472,583 | ||
| Other | $207,614 | $257,091 | $285,082 | ||
| Total | $6,260,338 | $7,212,152 | $8,329,016 | ||
Source:CMC 2006 10k[14]
Key Trends & Forces
- Climbing Steel Prices Boost CMC's Revenues: Demand for steel has been at historic levels recently, mainly due to rapid industrialization in developing countries, and especially in China. The elevated international demand for steel has caused steel prices to skyrocket and has led to impressive profits from steel makers around the world. This allowed CMC to post record net income of $356 million in 2006 and $355 million in 2007.[15]
- Globalization of Steel Production Creates Acquisition Opportunities for CMC: CMC's international acquisitions, such as CMCZ in Poland, allow it to take advantage of lower labor and energy costs in Central Europe. Since international demand for steel is high, CMC's international producers have generated big returns and boosted revenues. But international production has been increasing rapidly as well, and new competitors are entering the market. China is expected to become a net exporter of steel, and the production of China's state-owned steel mills and huge consumption of iron ore make a Chinese presence in steel exporting a major risk factor for CMC.
- Demand Volatility in the U.S. Steel Industry Affects CMC's Revenues: The steel industry has enjoyed a number of very successful years recently, given the wealth of buyers and related high prices in the business. However, ongoing problems in the domestic automobile industry may affect U.S. demand for steel as companies like Ford and GM may cut production. In addition, the subprime lending crisis has depressed home construction, and if the woes of the residential housing market trickle down to the commercial real estate industry, builders may require less steel, less often as they work on fewer projects.
- There are Rewards (and Risks) Associated with CMC's Recent International Acquisitions: CMC's recent movements into the Polish and Croatian steel markets offer the company an interesting position in the worldwide steel industry.[16][17] The company now occupies a strategic position in central Europe, offering more direct exposure to European customers and insulating the company from potential decreases in demand in the United States. CMC has capitalized on this situation, with European revenues increasing by 41% from 2006 to 2007.[18] Considering the current development and emergence of many of Central Europe's economies, this location will allow CMC significant chances for growth and profits. As CMC's profits become more dependent on this sector of its business, however, the firm runs the risk that political or economic instability in these distant countries could have a major negative effect on its balance sheet.
Market Share
| Manufacturer | Crude Steel Production (Thousands of Tons) | Market Share[19] | YOY % Change in Production |
| US Steel[20] | 3,023 | .96% | -60% |
| Nucor[21] | 2,808 | .89% | -53% |
| SCHN[22] | 1,037 | .33% | -19% |
| Steel Dynamics[23] | 886 | 0.28% | -45% |
| AK Steel[24] | 740 | 0.23% | -57% |
| CMC[25] | 435 | 0.14% | -42% |
Competition
Although CMC competes with regional, national and foreign manufacturers of steel and copper products, the company does not hold a substantial market share in any of its domestic productions. The company claims that CMCZ is the second largest supplier of wire rod and rebar in the Polish market. CMC also asserts that it is one of the largest recyclers of nonferrous (non-iron) metal in the domestic market.[26]
| Total Global Steel Production | Total Sales | Cost of Sales | Operating Income | ||||
|---|---|---|---|---|---|---|---|
| (mmt) | (bil) | (bil) | (bil) | ||||
| Commercial Metals Company | 2.25 | $8.32 | $7.77 | $.56 | |||
| Nucor (NUE) | 22.12 | $14.75 | $12.05 | $2.7 | |||
| US Steel (X) | 21.63 | $15.72 | $13.93 | $1.79 | |||
| Arcelor Mittal (MT) | 110.5 | $58.87 | $51.37 | $7.50 | |||
Source: 2006 Company Reports
References
- ↑ CMC 2007 10k pg 1
- ↑ CMC 2007 10k pg 3
- ↑ CMC 2007 10k pg 4
- ↑ CMC 2007 10k pg 1
- ↑ CMC 2007 10k pg 63
- ↑ CMC 2007 10k pg 2
- ↑ CMC 2007 Annual Report pg 2
- ↑ CMC 2007 10k Pg 24
- ↑ CMC 2007 10k pg 24
- ↑ CMC 2006 10k pg 26
- ↑ CMC 2007 10k pg 63
- ↑ CMC 2007 10k pg 63
- ↑ CMC 2007 10k pg 63
- ↑ CMC 2006 10k pg 26
- ↑ [CMC 2006 10k pg 24
- ↑ CMC 2007 10k pg 4
- ↑ CMC 2007 Annual Report pg 14
- ↑ CMC 2006 10k pg 26
- ↑ Steel on the Net - World Steel Review, August 2009
- ↑ X, Q2 2009, 10-Q, Item 4, Page 58
- ↑ NUE, Q2 2009, 10-Q, Item 2, Page 19
- ↑ SCHN, Q3 2009, 10-Q, Item 2, Page 30
- ↑ AKS, Q2 2009, Quarterly Earnings Release
- ↑ AKS, Q2 2009, 10-Q, Item 2, Page 27
- ↑ CMC, Q2 2009, 10-Q, Item 2, Page 25
- ↑ CMC 2007 10k pg 8
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