10-K: Commercial Metals Faces Litigation Hit, Pursues Acquisitions

Commercial Metals Company reports an 83% drop in net earnings for fiscal 2025 due to a significant litigation expense, while actively pursuing two major precast concrete acquisitions.

Summary

• Net sales decreased 2% to $7.798 billion in 2025 from $7.926 billion in 2024.
• Net earnings plummeted 83% to $84.7 million in 2025 from $485.5 million in 2024, primarily due to a $362.3 million litigation expense.
• Diluted earnings per share fell to $0.74 in 2025 from $4.14 in 2024.
• The North America Steel Group experienced a 4% decrease in net sales and a 21% decrease in Adjusted EBITDA, mainly due to metal margin compression.
• The Emerging Businesses Group saw a 4% increase in net sales and a 6% increase in Adjusted EBITDA, driven by performance reinforcing steel products and CMC Construction Services.
• The Europe Steel Group demonstrated strong recovery with an 8% increase in net sales and a 208% increase in Adjusted EBITDA, benefiting from increased shipment volumes, improved metal margins, and government assistance programs.
• The company is constructing a fourth EAF micro mill in Berkeley County, West Virginia, with melt shop production expected to begin during 2026.
• Two significant acquisitions in the precast concrete solutions sector are pending: Concrete Pipe & Precast, LLC (CP&P) for $675.0 million and Foley Products Company, LLC (Foley) for approximately $1.84 billion.
• The Board authorized a $500.0 million increase to the existing share repurchase program in January 2024, with $205.0 million remaining authorization as of August 31, 2025.
• The quarterly cash dividend increased to $0.18 per share in March 2024, with the 244th consecutive dividend declared on October 15, 2025.

Sentiment

Score: 4

Explanation: While strategic acquisitions and strong performance in the European segment offer future growth potential and diversification, the significant litigation expense ($362.3 million) and the resulting 83% drop in net earnings for the fiscal year are major negative factors. North American steel operations also faced margin compression. The future outlook is mixed with growth initiatives balanced against market uncertainties and ongoing legal challenges.

Positives

• The Emerging Businesses Group showed growth with a 4% increase in net sales and a 6% increase in Adjusted EBITDA, driven by proprietary performance reinforcing steel products and CMC Construction Services.
• The Europe Steel Group demonstrated strong recovery, with an 8% increase in net sales and a 208% increase in Adjusted EBITDA, attributed to higher shipment volumes, improved metal margins, and government assistance.
• The company is expanding its production capacity with a fourth EAF micro mill under construction in West Virginia, expected to begin production in 2026, advancing sustainable steelmaking.
• Strategic acquisitions of CP&P ($675.0 million) and Foley ($1.84 billion) are pending, aiming to expand the precast concrete solutions portfolio and add scale and margin strength.
• The 'Transform, Advance and Grow' (TAG) initiative has delivered significant results through melt shop and rolling mill yield optimization, scrap cost optimization, logistics optimization, and reduced alloy consumption.
• The company improved its safety record, achieving the lowest total recordable incident rate (TRIR) in company history for the third consecutive year.
• Received $50.0 million in government assistance during 2025 for the West Virginia micro mill construction, with $75.0 million total expected.
• Issued $150.0 million in tax-exempt Series 2025 Bonds to partially offset construction costs for the West Virginia micro mill.
• The One Big Beautiful Bill Act (OBBBA) enacted in July 2025, expanding bonus depreciation and accelerating R&D expensing, had no material impact on income tax expense or effective tax rate for fiscal 2025.

Negatives

• Net earnings decreased significantly by 83% year-over-year, primarily due to a $362.3 million litigation expense.
• The North America Steel Group experienced a 4% decrease in net sales and a 21% decrease in Adjusted EBITDA, mainly due to metal margin compression.
• The Tensar division's Adjusted EBITDA declined by $4.9 million due to challenging conditions in the Eastern Hemisphere and project delays.
• CMC Impact Metals' Adjusted EBITDA declined by $4.2 million due to lower tons shipped from persistently weak demand in truck, trailer, and armor-related markets.
• Incurred approximately $3 million of startup costs associated with CMC Bridge Systems in 2025.
• Selling, General and Administrative (SG&A) expenses increased by $31.8 million (5%) in 2025, driven by employee-related expenses, information technology, and supply costs.
• The jury verdict in the PSG antitrust lawsuit resulted in a $110.0 million award, trebled by the court, leading to a $362.3 million litigation expense, which could materially adversely affect liquidity and financial condition if not overturned.
• The second PSG lawsuit, alleging unfair competition, seeks $29 million in compensatory damages and injunctive relief, with no liability recorded yet, but an unfavorable resolution could have an adverse effect.
• Excess capacity and over-production by foreign steel producers, exacerbated by new U.S. steelmaking capacity, could lead to lower domestic steel prices.
• Uncertainty regarding tariffs and trade policies has contributed to delays in the awarding of projects.

Risks

• Scrap and other inputs for the business are subject to significant price fluctuations and limited availability, which may adversely affect business, results of operations, and financial condition.
• Reliance on large amounts of electricity and natural gas, with disruptions in delivery or substantial increases in energy costs potentially impacting operations and profitability.
• Potential for labor disputes and shortages for skilled labor and/or qualified employees in operational positions, which could adversely impact operations and increase costs.
• The loss of, or inability to hire, key employees may adversely affect the ability to successfully manage operations and meet strategic objectives.
• The business, financial condition, and results of operations may be adversely impacted by the effects of inflation, increasing overall cost structure.
• Difficulty competing with companies that have a lower cost structure or access to greater financial resources, including larger domestic and foreign competitors.
• Operating and startup risks, as well as market risks associated with the commissioning of micro mills, could prevent the realization of anticipated benefits and result in a loss of investments.
• Steel mills require continual capital investments that the company may not be able to sustain due to insufficient internally generated cash or acceptable external financing.
• Unexpected equipment failures may lead to production curtailments or shutdowns, adversely affecting business, results of operations, and financial condition.
• Vulnerability to economic conditions in the regions where operations are concentrated, potentially affecting demand for products and profitability.
• Information technology interruptions and breaches in data security could adversely impact business, results of operations, and financial condition.
• Increasing attention to ESG matters, including any targets or other ESG, environmental justice, or regulatory initiatives, could result in additional costs or risks or adverse impacts on the business.
• Subject to litigation, potential liability claims, and contract disputes, which could adversely affect business, results of operations, and financial condition (e.g., PSG antitrust lawsuits).
• Potential limitations on the ability to access credit, or the ability of customers and suppliers to access credit, may adversely affect business, results of operations, and financial condition.
• Geopolitical conditions, including political turmoil and volatility, regional conflicts, terrorism, and war, have caused disruptions in the global economy, energy supplies, and raw materials, which may continue to negatively impact business and operations.
• The potential impact of customers' non-compliance with existing commercial contracts and commitments, due to insolvency or for any other reason, may adversely affect business, results of operations, and financial condition.
• Agreements governing notes and other debt contain financial covenants and impose restrictions on business, with a breach potentially resulting in acceleration of debt.
• May not be able to successfully identify, consummate, or integrate acquisitions, and acquisitions may adversely affect financial leverage.
• Goodwill or other indefinite-lived intangible asset impairment charges in the future could have a material adverse effect on business, results of operations, and financial condition.
• Impairment of long-lived assets in the future could have a material adverse effect on business, results of operations, and financial condition.
• Competition from other materials (e.g., aluminum, plastics, cement) may have a material adverse effect on business, results of operations, and financial condition.
• Operations present significant risk of injury or death to employees, customers, or other visitors.
• Business, financial condition, results of operations, cash flows, liquidity, and stock price may be adversely affected by global public health epidemics.
• Fluctuations in the value of the U.S. dollar relative to other currencies may adversely affect business, results of operations, and financial condition.
• Operating internationally carries risks and uncertainties which could adversely affect business, results of operations, and financial condition.
• Hedging transactions may expose the company to losses or limit potential gains.
• No assurance that shares of common stock will be repurchased at all or in any particular amounts, and stock market volatility may affect repurchases.
• Excess capacity and over-production by foreign producers in the steel industry, as well as the startup of new steelmaking capacity in the U.S., could result in lower domestic steel prices.
• Enhanced U.S. tariffs, import/export restrictions, or other trade barriers may have a negative effect on global economic conditions, financial markets, and business.
• Rapid and significant changes in the price of metals could adversely impact business, results of operations, and financial condition.
• Physical impacts of climate change could have a material adverse effect on costs and results of operations.
• Compliance with and changes in environmental laws and regulations and remediation requirements could result in substantially increased capital obligations and operating costs; violations could result in material adverse effects.
• Increased regulation associated with climate change could impose significant additional costs on both steelmaking and metals recycling operations.
• Subject to governmental regulatory and compliance risks that expose the company to potential litigation and disputes regarding violations.
• Changes in tax legislation and regulations in the jurisdictions in which the company operates may adversely affect financial condition or results of operations.

Future Outlook

The company expects to begin melt shop production at its fourth micro mill in Berkeley County, West Virginia, during 2026. Current cash balances, cash flows from operations, and available liquidity are anticipated to be sufficient for short and long-term goals, including operations, capital expenditures, litigation expenses, micro mill development, dividends, and opportunistic share repurchases. Estimated capital spending for 2026 is approximately $600 million. The elimination of Section 232 tariff exemptions is expected to provide a favorable backdrop to the domestic long steel market, though uncertainty regarding its duration and scope remains. Tariffs are viewed as part of a broader program to stimulate domestic investment, which could benefit construction activity. The ultimate resolution of the PSG litigation is uncertain, and if not overturned or significantly reduced, the losses would materially adversely affect liquidity and financial condition. An unfavorable resolution of the second PSG lawsuit could also adversely affect financial results.

Management Comments

• "At CMC, we believe 'its whats inside that counts.' This reflects the nature of our products, which are found in critical infrastructure worldwide, and also applies to our culture and employees."
• "Our focus on safety and talent development allows us to run a great company and achieve operational and commercial excellence across our business."
• "We provide differentiating value for our customers through our industry-leading customer service with a low cost, high-quality production process."
• "We have achieved market leadership through our commitment to transformation, advancement and long-term growth by investing in our business and in our people."
• "Through a combination of both value-accretive organic growth that captures available internal synergies, and capability-enhancing inorganic growth that broadens our portfolio, we aim to provide our customers with a comprehensive solution."
• "The safety of every employee is, and has always been, one of our top values. We strive to provide a safe working environment where facilities achieve zero work-related injuries or illnesses."
• "With continued focus on safety in 2025, we improved our already exceptional safety record to achieve the lowest total recordable incident rate ('TRIR') in our Company's history."
• "The CP&P Acquisition aligns with our strategy to pursue inorganic growth by expanding CMCs portfolio of early-stage construction solutions through the addition of precast capabilities."
• "The Foley Acquisition aligns with our strategy to pursue inorganic growth by adding scale, margin strength and regional leadership to our precast platform."
• "Our Transform, Advance and Grow ('TAG') operational and commercial excellence program... is designed to deliver meaningful and sustained enhancements to our margins, cash flow generation and return on capital."
• "We are confident we conducted our business appropriately and intend to vigorously pursue all reasonably available avenues to have the verdict and judgment overturned." (Regarding PSG litigation)
• "We aim to execute a capital allocation strategy that prioritizes both value-accretive growth and competitive cash returns to stockholders."

Industry Context

The global steel industry is characterized by cyclicality and intense competition, with global overcapacity often leading to competition from imports. Trade enforcement measures, such as the Section 232 tariffs, are in place to support domestic production, but their long-term impact remains uncertain. The addition of new Electric Arc Furnace (EAF) capacity in the U.S. could further intensify domestic competition. The company's vertically integrated business model provides a strategic advantage in managing costs and demand. The pending acquisitions in the precast concrete solutions market represent a strategic diversification into adjacent construction sectors, aligning with broader industry trends towards comprehensive construction solutions. Increasing focus on ESG and sustainable practices is also a key industry trend, which the company addresses through its EAF technology and recycled material use.

Comparison to Industry Standards

• We believe our recycling operations are among the largest engaged in the recycling of nonferrous scrap metals in the U.S.
• We produce a significant percentage of the total U.S. output of rebar and merchant bar through our EAF steel mills.
• In the U.S., we believe we are the largest manufacturer and fabricator of rebar, the largest manufacturer of steel fence posts and among the largest manufacturers of merchant bar.
• In Poland, we believe we are the second largest producer of rebar and wire rod, and the largest producer of merchant bar for the products we manufacture.
• Our Tensar geogrid technology is inherently sustainable, extending road service life, conserving water resources, controlling soil erosion, and reducing aggregate consumption.
• Our Mesa, Arizona micro mill utilizes advanced EAF power supply systems for greater energy efficiency and reduced environmental impact compared to traditional steelmaking methods, with the same technology planned for the Berkeley County, West Virginia micro mill.
• Achieved the lowest total recordable incident rate (TRIR) in company history in 2025, marking the third consecutive year of reduction, and comparing favorably to the 2023 average for Steel Product Manufacturing (NAICS code 3311) from the U.S. Bureau of Labor Statistics.

Management Changes

Corporate Governance

Legal Proceedings

• **Pacific Steel Group (PSG) Antitrust Lawsuit (Northern District Court of California)**: Filed October 30, 2020, alleging federal and California state antitrust violations. A jury returned a $110.0 million verdict in favor of PSG on November 5, 2024, which was subsequently trebled by the court. The company recorded a $362.3 million litigation expense in 2025. CMC's motion for a new trial was denied on September 29, 2025. CMC intends to appeal the verdict and judgment.
• **Pacific Steel Group (PSG) Second Lawsuit (Southern District Court of California)**: Filed March 13, 2022, alleging California state antitrust and unfair competition violations by bidding below costs. PSG seeks approximately $29 million in compensatory damages and injunctive relief. CMC's motion for summary judgment was denied on September 29, 2025. No trial has been scheduled. CMC believes it has substantial defenses and has not recorded any liability.
• **Environmental Matters**: The company is involved in the investigation and remediation of several properties and has been named as a Potentially Responsible Party (PRP) at ten federal and state Superfund sites. Total accrued environmental liabilities were $3.4 million as of August 31, 2025. Management believes the outcome of these matters will not have a material adverse effect.

Related Party Transactions

• The company is acquiring Concrete Pipe & Precast, LLC (CP&P) from Eagle Corporation and ECPP, LLC, which are related parties to the acquired company.
• Pre-Closing Real Estate Transfers involved deeds of gift dated September 1, 2025, from the Company to ECPP for five real property locations.
• Lease Agreements, the Eagle HQ Lease Agreement, and the Harrisonburg (Beery Rd) Lease Agreement are between the Company and ECPP/Eagle Real Estate, LLC (Affiliates of the sellers).
• A Transition Services Agreement is in place between the Sellers and the Company.
• All other Affiliate Arrangements are to be terminated and canceled without further liability to the Company by the Closing Date, except for specific agreements listed in the Company Disclosure Letter.

Stakeholder Impact

• **Shareholders**: Experienced a significant drop in net earnings and EPS due to a large litigation expense, but continue to receive quarterly dividends and benefit from a share repurchase program. Future growth is anticipated from strategic acquisitions and micro mill expansion, though uncertainty from ongoing litigation remains.
• **Employees**: The company maintains a strong focus on safety and talent development. Changes in employment terms are expected for employees of acquired companies. Labor disputes and shortages are identified as potential risks.
• **Customers**: The company aims to provide comprehensive construction solutions through diverse product offerings and expansion into precast concrete. Demand may be impacted by tariffs and broader economic conditions.
• **Suppliers**: The company's operations are dependent on the availability and pricing of raw materials. The creditworthiness of suppliers is a monitored risk.
• **Creditors**: The outcome of the significant PSG litigation could materially affect the company's liquidity and financial condition, impacting its ability to meet debt obligations, although the company believes it is in compliance with all debt covenants.

Next Steps

• Close the CP&P Acquisition in December 2025, subject to customary regulatory review and closing conditions.
• Close the Foley Acquisition by the end of calendar 2025, subject to customary regulatory review and closing conditions.
• Begin melt shop production at the Berkeley County, West Virginia micro mill during 2026.
• File an appeal with the U.S. Court of Appeals for the Ninth Circuit to overturn the PSG antitrust verdict and judgment.
• Vigorously defend against PSG's second lawsuit in the U.S. District Court for the Southern District of California.
• Continue to monitor geopolitical situations and develop contingency plans for business disruptions.
• Continue to evaluate the One Big Beautiful Bill Act legislation.
• Make estimated capital spending of approximately $600 million in 2026, primarily for the West Virginia micro mill.
• Make anticipated capital expenditures for new environmental projects of approximately $2 million in 2026.
• The Board currently intends to continue regular quarterly cash dividends, with future determinations depending on profitability, financial condition, and other factors.
• Continue to execute the Transform, Advance and Grow (TAG) operational and commercial excellence program.
• The ITC will conduct further investigation into the dumping petition against steel concrete reinforcing bar from Algeria, Bulgaria, Egypt, and Vietnam.

Key Dates

Recommendation

The company faces a substantial one-time litigation expense that severely impacted fiscal 2025 net earnings and EPS. While strategic acquisitions in precast concrete and strong performance in the European segment offer future growth potential and diversification, the ongoing legal challenges and broader macroeconomic uncertainties in the steel industry warrant caution. The stock is likely to experience volatility as the market digests the litigation outcome and assesses the integration and benefits of the new acquisitions. A 'Hold' recommendation allows investors to monitor the appeal process for the PSG lawsuit and the successful integration of the acquired businesses before making further investment decisions.

Keywords

Steel, Metals, Construction, Recycling, Rebar, Micro Mill, Precast Concrete, Acquisitions, Litigation, Financial Results, SEC Filing, 10-K, Commercial Metals Company, CMC, ESG, Tariffs, Capital Expenditures, Debt, Share Repurchase, Dividends, Corporate Governance