Earlier in this series, we mentioned that Commercial Metals Company (CMC) runs steel mills in the United States and Poland. The company also maintains operations in metals recycling as well as international marketing and distribution.
CMC’s America Mills segment
The chart above shows the contribution that CMC’s America Mills segment has made to the company’s total operating income. America Mills has garnered about 80% of CMC’s total operating income for the last five quarters. However, America Mills has contributed only around a quarter of CMC’s total revenue.
America Mills supplies raw materials to CMC’s fabrication operations in the United States. The financial performance of CMC’s fabrication segment has been subdued for several quarters. Fabrication operations contribute around a quarter of CMC’s total revenue. The fabrication segment posted losses for the last three quarters. It reported an operating loss of $3 million during the most recent quarter.
Almost two thirds of CMC’s shipments from its US mills are to its fabrication operations. CMC makes these shipments at market-based pricing.
The company’s fabrication operations mainly produce fabricated rebar products. CMC competes with other fabricators who have access to cheap imports, especially from Turkey. Rebar imports increased by over 40% in 2014. This has negatively impacted the profit margins of CMC’s fabrication operations.
Several other categories of steel saw a phenomenal rise in imports last year. You can read more about it in our recent investor’s guide to US steel imports.
Steel imports are the single biggest risk faced by steel plays like ArcelorMittal (MT), AK Steel (AKS), and US Steel Corporation (X). The SPDR S&P Metals and Mining ETF (XME) seeks to build a diversified portfolio of these companies.
The next part of this series will analyze the performance of CMC’s international business.