Commercial Metals: Is This High-Yield Stock Worth the Price?

Source: Thinkstock

Source: Thinkstock

Commercial Metals Company (NYSE:CMC) is a moderately high dividend paying stock that has dropped about 15 percent in the last few months, sending the yield to almost 3 percent. Can this accidental high yielder be bought at these levels? To answer this question we must first understand what the business does and how it makes its money to know if it has the sustainable growth needed to be a rewarding investment.

The company itself manufactures, recycles, and markets steel and metal products. It has a few different segments, and I will discuss the performance of each in this article. The company’s Americas Recycling segment processes scrap metals for use as a raw material by manufacturers of new metal products through 31 scrap metal processing facilities to steel mills and foundries, aluminum sheet and ingot manufacturers, brass and bronze ingot makers, copper refineries and mills, secondary lead smelters, specialty steel mills, high temperature alloy manufacturers, and other consumers. Its Americas Mills segment operates 5 steel mills that produce reinforcing bars, angles, flats, rounds, small beams, fence-post sections, and other shapes as well as 2 scrap metal shredder and processing facilities. The company’s Americas Fabrication segment operates rebar and structural fabrication, fence post manufacturing plants, construction-related product facilities, and plants that bend, cut, weld, and fabricate steel. Its International Mill segment is engaged in mill, recycling, and fabrication operations through 2 rolling mini mills that produce reinforcing bar and merchant products.

Finally, the company’s International Marketing and Distribution segment is involved in the sale, distribution, and processing of steel products, industrial minerals, ores, metal concentrates, ferroalloys, and other industrial products to manufacturers in the steel, nonferrous metals, metal fabrication, chemical, refractory, construction, and transportation businesses. Now that we understand how the company operates, we begin to realize it is a company that relies on two things: higher metal prices and strong economic activity. While the latter is debatable, metal prices have been under pressure for some time. How has this impacted the business?

Well, in its most recent quarter, net earnings attributable were $23.6 million, or $0.20 per diluted share, on net sales of $1.8 billion. This compares to net earnings of $19.0 million, or $0.16 per diluted share, on net sales of $1.8 billion in the comparable prior-year quarter. Results for this year’s third-quarter included after-tax income of $5.3 million ($0.04 per diluted share), compared with after-tax income of $10.7 million ($0.09 per diluted share) for the third-quarter of fiscal 2013, an unfavorable change of $5.4 million ($0.05 per diluted share.) Adjusted operating profit was $57.2 million for the third-quarter of fiscal 2014, compared with adjusted operating profit of $55.8 million for the prior year’s third-quarter, so there was some growth here. Adjusted EBITDA was $90.0 million for the third-quarter of fiscal 2014, compared with adjusted EBITDA of $89.3 million for the prior year’s third-quarter. Very minimal growth indeed, although a year ago, share prices were essentially the same. But how is each segment performing?