In fact, CMC sort of doubled down on the rebar/construction market in 2018 when it acquired US-based rebar steel mill and fabrication assets from Brazilian steelmaker, Gerdau (GGB) for $600 mln in cash. The deal added 33 rebar fabrication facilities in the US as well as several steel mills with annual rolling capacity of 2.5 mln tons. The deal provided CMC with a significantly expanded geographic footprint in the largest construction regions in the US.
The Q2 (Feb) results were a bit mixed. Adjusted EPS rose 12% yr/yr to $0.29, which was a bit better than expected. However, revenue rose 33.1% yr/yr to $1.40 bln, which was a bit shy of market expectations. Such a big revenue jump for a steel company may seem surprising, however, a lot of that is from the Gerdau asset purchase.
CMC is echoing what Nucor (NUE) said in its guidance last week about unprecedented rainfall levels in FebQ in many of CMC's markets hurting construction activity which resulted in lower shipments in the quarter. Despite the weakness this quarter in construction, CMC says it's very encouraged by its progress in terms of integrating the rebar assets acquired from Gerdau last year. CMC is confident the assets will provide the anticipated benefits.
With the stock trading higher despite a mixed result, that tells us that investors had already priced in a weak construction market in FebQ. The good news is that CMC remains optimistic on the second half of fiscal 2019 (MayQ and AugQ). Also, CMC says the acquired assets have performed better than expected. Looking ahead, CMC is optimistic that the upcoming construction season will be strong both in the US and Poland.