Commercial Metals Earnings: An Early Look

Earnings season is just about over, with almost all companies already having reported their quarterly results. But there are still a few companies left to report, and Commercial Metals (CMC -0.20%) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Commercial Metals is in the middle of a tough industry, with its emphasis on steel and metal products. But the company's unique angle gives it a big advantage over most of its peers. Let's take an early look at what's been happening with Commercial Metals over the past quarter and what we're likely to see in its quarterly report on Thursday.

Stats on Commercial Metals

Source: Yahoo! Finance.

Will Commercial Metals cash in this quarter?
Analysts have given a mixed picture of earnings prospects for Commercial Metals over the past few months, reducing their calls for the most recent quarter by a nickel per share but raising full-year fiscal 2013 estimates by $0.03 per share. The stock has taken the more bullish view, rising about 10% since late December.

The steel industry has been a tough place to make money lately, both for companies that make steel and those that provide raw materials for steel production. Iron ore and metallurgical coal producer Cliffs Natural Resources (CLF 0.19%) has been one of the hardest-hit stocks of 2013, losing nearly half its value after slashing its dividend by more than 75% due to low prices and negative prospects. Similarly, steel produce U.S. Steel (X 0.65%) has had to navigate weak end-markets that are suffering from worldwide slowdowns in construction activity and questionable economic futures for the countries that have until now had the heaviest demand for steel.

But Commercial Metals has a different approach. In addition to maintaining its own mills, Commercial Metals also collects and processes scrap metal for use by its customers in making new metal products. That's not a guaranteed money-making strategy, but because the prices it pays for scrap tend to track what it can receives in revenue, Commercial Metals has been more consistently profitable than traditional producers.

Commercial Metals faces a big challenge because of its substantial debt. Without plentiful free cash flow to maintain that debt, Commercial Metals has to hope that a recovery in its end-markets will boost its prospects.

In its quarterly report, watch for Commercial Metals to discuss the trends among its steel-producing customers. Many investors are pointing to the housing recovery as reason to boost construction-related stocks, but until greater activity migrates to the commercial building sector, Commercial Metals isn't likely to reap the full rewards of any upturn.

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