CMC Announces Increase to its Existing Share Repurchase Program

Rhea-AI Summary

Commercial Metals Company (CMC) announced an increase of $500 million to its existing common stock repurchase program, bringing the aggregate capacity to $850 million. Approximately $310 million of the Company's common stock has been repurchased since October 2021. The move reflects a well-balanced capital allocation strategy supported by strong earnings capability and cash flow profile. CMC intends to repurchase shares from time to time for cash in open market transactions or in privately-negotiated transactions in accordance with applicable federal securities laws.

Insights

Financial Analyst

An increased stock repurchase program often signals a company's confidence in its financial health and a commitment to enhancing shareholder value. In the case of Commercial Metals Company, the authorization to boost the repurchase program by $500 million to an aggregate of $850 million is a significant move. It suggests that CMC is generating robust free cash flow and possesses a solid balance sheet, enabling such a capital return to shareholders.

From a financial perspective, this action may be accretive to earnings per share (EPS) by reducing the number of outstanding shares, potentially leading to a higher EPS even if net income remains constant. However, one must consider the opportunity cost of this capital allocation decision. The funds used for share repurchases are not being invested in potential growth opportunities or used for debt reduction. Investors should weigh the immediate return of a repurchase against the foregone growth prospects.

It's also important to note that the actual impact on the stock price can vary. While buybacks can signal to the market that management believes the stock is undervalued, they do not guarantee stock price appreciation, particularly if broader market conditions are unfavorable or if the company's future earnings do not meet expectations.

Market Research Analyst

Stock repurchase programs are a tool that can reflect a company's strategic priorities. For CMC, the expansion of its repurchase program indicates a prioritization of shareholder returns over other uses of capital, such as acquisitions or research and development. This decision may resonate well with income-focused investors who value direct returns over potential growth.

However, market reaction to such news can be mixed, depending on the prevailing sentiment and the company's sector performance. In the steel and metals industry, where CMC operates, cyclical factors heavily influence profitability. If the industry is near a cyclical peak, the repurchase announcement could be viewed as a prudent use of capital. Conversely, if a downturn is anticipated, stakeholders might prefer the company to conserve cash.

It's also worth considering the signaling effect. A repurchase program of this magnitude could lead to a positive re-rating of the stock as it may be interpreted as a sign of undervaluation. Yet, if the repurchases are executed at prices above intrinsic value, it could lead to long-term underperformance relative to other capital allocation strategies.

Corporate Governance Expert

The governance implications of a stock repurchase program are multifaceted. On one hand, it can be seen as a commitment by CMC's management and Board of Directors to return excess capital to shareholders, which can be a positive signal of alignment with shareholder interests. On the other hand, the discretionary nature of buybacks, including timing and volume, grants significant power to management. This requires a high level of trust from investors in the company's leadership to execute the program without adversely affecting the company's long-term strategic goals.

Furthermore, while the program does not obligate CMC to repurchase a specific dollar amount or number of shares, the absence of such a requirement provides flexibility but also introduces uncertainty. The program's impact will ultimately depend on how it is implemented. Shareholders should monitor the execution of the repurchase program for indications of management's confidence in the company's valuation and its ability to sustainably generate free cash flow.

Lastly, it's essential for investors to consider the transparency and rationale provided by the company regarding the repurchase program. Clear communication about the program's objectives, the conditions under which shares will be repurchased and the expected impact on the company's financial metrics are all crucial for evaluating the program's governance quality.

IRVING, Texas, Jan. 10, 2024 /PRNewswire/ -- Commercial Metals Company (NYSE: CMC) (the "Company" or "CMC") today announced that its Board of Directors has authorized an increase of $500 million to the Company's existing common stock repurchase program, bringing the aggregate capacity of the program to $850 million.   Approximately  $310 million of the Company's common stock has been repurchased under the existing program since its authorization in October 2021. 

"Today's announcement reflects a well-balanced capital allocation strategy that is supported by CMC's strong earnings capability and cash flow profile," said Peter R. Matt, President and Chief Executive Officer.  "Our Company's excellent financial position provides the ability to continue to fund value-accretive growth, while returning a meaningful portion of CMC's free cash flow to shareholders."

CMC intends to repurchase shares from time to time for cash in open market transactions or in privately-negotiated transactions in accordance with applicable federal securities laws, including Rule 10b5-1 programs. The timing and the amount of repurchases, if any, will be determined by the Company's management based on its evaluation of market conditions, capital allocation alternatives and other factors. The share repurchase program does not require the Company to acquire any dollar amount or number of shares of CMC common stock and may be modified, suspended, extended or terminated by the Company's Board of Directors at any time without prior notice.

About CMC

CMC is an innovative solutions provider helping build a stronger, safer, and more sustainable world. Through an extensive manufacturing network principally located in the United States and Central Europe, we offer products and technologies to meet the critical reinforcement needs of the global construction sector. CMC's solutions support construction across a wide variety of applications, including infrastructure, non-residential, residential, industrial, and energy generation and transmission.

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of the federal securities laws with respect to the Company's capital allocation strategy and plans to repurchase shares of common stock under the authorized share repurchase program. The statements in this release that are not historical statements, are forward-looking statements. These forward-looking statements can generally be identified by phrases such as we or our management "expects," "anticipates," "believes," "estimates," "future," "intends," "may," "plans to," "ought," "could," "will," "should," "likely," "appears," "projects," "forecasts," "outlook" or other similar words or phrases, as well as by discussions of strategy, plans or intentions.

The Company's forward-looking statements are based on management's expectations and beliefs as of the time this news release was prepared. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Except as required by law, we undertake no obligation to update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or any other changes. Important factors that could cause actual results to differ materially from our expectations include those described in our filings with the Securities and Exchange Commission, including, but not limited to, in Part I, Item 1A, "Risk Factors" of our annual report on Form 10-K for the fiscal year ended August 31, 2023, as well as the following: changes in economic conditions which affect demand for our products or construction activity generally, and the impact of such changes on the highly cyclical steel industry; rapid and significant changes in the price of metals, potentially impairing our inventory values due to declines in commodity prices or reducing the profitability of downstream contracts within our vertically integrated steel operations due to rising commodity pricing; excess capacity in our industry, particularly in China, and product availability from competing steel mills and other steel suppliers including import quantities and pricing; the impact of the Russian invasion of Ukraine on the global economy, inflation, energy supplies and raw materials; increased attention to environmental, social and governance ("ESG") matters, including any targets or other ESG or environmental justice initiatives; operating and startup risks, as well as market risks associated with the commissioning of new projects could prevent us from realizing anticipated benefits and could result in a loss of all or a substantial part of our investments; impacts from global public health crises on the economy, demand for our products, global supply chain and on our operations; compliance with and changes in existing and future laws, regulations and other legal requirements and judicial decisions that govern our business, including increased environmental regulations associated with climate change and greenhouse gas emissions; involvement in various environmental matters that may result in fines, penalties or judgments; evolving remediation technology, changing regulations, possible third-party contributions, the inherent uncertainties of the estimation process and other factors that may impact amounts accrued for environmental liabilities; potential limitations in our or our customers' abilities to access credit and non-compliance with their contractual obligations, including payment obligations; activity in repurchasing shares of our common stock under our share repurchase program; financial and non-financial covenants and restrictions on the operation of our business contained in agreements governing our debt; our ability to successfully identify, consummate and integrate acquisitions and realize any or all of the anticipated synergies or other benefits of acquisitions; the effects that acquisitions may have on our financial leverage; risks associated with acquisitions generally, such as the inability to obtain, or delays in obtaining, required approvals under applicable antitrust legislation and other regulatory and third-party consents and approvals;  lower than expected future levels of revenues and higher than expected future costs; failure or inability to implement growth strategies in a timely manner; the impact of goodwill or other indefinite-lived intangible asset impairment charges; the impact of long-lived asset impairment charges; currency fluctuations; global factors, such as trade measures, military conflicts and political uncertainties, including changes to current trade regulations, such as Section 232 trade tariffs and quotas, tax legislation and other regulations which might adversely impact our business; availability and pricing of electricity, electrodes and natural gas for mill operations; our ability to hire and retain key executives and other employees; our ability to successfully execute leadership transitions; competition from other materials or from competitors that have a lower cost structure or access to greater financial resources; information technology interruptions and breaches in security; our ability to make necessary capital expenditures; availability and pricing of raw materials and other items over which we exert little influence, including scrap metal, energy and insurance; unexpected equipment failures; losses or limited potential gains due to hedging transactions; litigation claims and settlements, court decisions, regulatory rulings and legal compliance risks; risk of injury or death to employees, customers or other visitors to our operations; and civil unrest, protests and riots.

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SOURCE CMC

FAQ

What did Commercial Metals Company (CMC) announce recently?

CMC announced an increase of $500 million to its existing common stock repurchase program, bringing the aggregate capacity to $850 million.

How much of the Company's common stock has been repurchased since October 2021?

Approximately $310 million of the Company's common stock has been repurchased since October 2021.

How does CMC plan to repurchase shares?

CMC intends to repurchase shares from time to time for cash in open market transactions or in privately-negotiated transactions in accordance with applicable federal securities laws.

What factors will determine the timing and amount of repurchases?

The timing and the amount of repurchases, if any, will be determined by the Company's management based on its evaluation of market conditions, capital allocation alternatives, and other factors.

Can the share repurchase program be modified or terminated?

The share repurchase program does not require the Company to acquire any dollar amount or number of shares of CMC common stock and may be modified, suspended, extended, or terminated by the Company's Board of Directors at any time without prior notice.