Commercial Metals Q4 2026 Earnings Call: Complete Transcript
Commercial Metals (NYSE:CMC) held its fourth-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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Summary
Commercial Metals reported a strong fiscal 2026 with core EBITDA rising to approximately $1.4 billion, reflecting strategic progress in expanding margins and reducing leverage.
The fourth quarter saw a 35.1% year-over-year increase in core EBITDA, driven by strong North American Steel Group performance and operational excellence initiatives.
Strategically, the company will focus on growth investments, portfolio reshaping, and margin expansion through the Transform, Advance, and Grow program in fiscal 2027.
The Arizona 2 micro mill and West Virginia mill enhance production capabilities, while the precast business is integrating well and supporting portfolio diversification.
Management expressed confidence in the demand environment for early-stage construction products and emphasized disciplined capital allocation, including accelerated share repurchase plans.
Full Transcript
OPERATOR
Good morning and welcome to Commercial Metals Fiscal 2026 fourth quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.
Please note this event is being recorded. I would now like to turn the conference over to Andy Larkin, Vice President of Investor Relations. Please go ahead.
Andy Larkin, Vice President, Investor Relations
Hello and welcome to Commercial Metals Fiscal 2026 fourth quarter and year-end earnings call. Joining me on today's call are Peter Matt, Commercial Metals' President and Chief Executive Officer, and Paul Lawrence, Senior Vice President and Chief Financial Officer. Today's materials include the press release and supplemental slides that accompany this call, which can be found on Commercial Metals' investor relations website. As a reminder, today's call is being recorded.
Peter will begin our prepared remarks with a high-level overview of the year and fourth quarter and comment on the progress against our strategic objectives. Paul will then provide a detailed discussion of our quarterly results as well as capital allocation. Peter will wrap up with our view on the path ahead. We will then provide instructions for the question-and-answer session to follow. Today's discussion contains forward-looking statements, including with respect to economic conditions, effect of legislation and trade actions, U.S. steel import levels, construction activity, demand for finished steel products and precast concrete products, the expected capabilities, benefits, cost, and timeline for construction and commissioning of new facilities, the expected performance and integration of our recently acquired precast platform, the Company's operations, the Company's strategic growth plans and its anticipated benefits, the Company's ability to achieve its stated deleveraging targets within the anticipated timeframe, legal proceedings, the impact of tax credits on future results, the Company's future results of operations, financial measures and capital spending, including expected share repurchase activity. These statements reflect the Company's beliefs based on current conditions but are subject to risks and uncertainties. The Company's earnings release, most recent Annual Report on Form 10-K, and other filings with the U.S. Securities and Exchange Commission contain additional information concerning factors that could cause actual results to differ materially from those projected in forward-looking statements. Except as required by law, Commercial Metals does not assume any obligation to update, amend, or clarify these statements.
Some numbers presented will be non-GAAP financial measures, and reconciliations for such numbers can be found in the Company's earnings release, supplemental slide presentation, or on the Company's website. Unless stated otherwise, all references made to year or quarter end are references to the Company's fiscal year or fiscal quarter. With that, I would like to turn the call over to Commercial Metals' President and
Peter Matt, President and Chief Executive Officer
Thank you, Andy, and good morning to everyone joining us for today's call. We will discuss many accomplishments today, but none is more important than safety. I want to thank our employees for their continued focus and commitment to our most important company value. Our total recordable incident rate for fiscal 2026 remained near a historic low point and better than industry averages during the year. We put significant effort into embedding Commercial Metals' safety-first culture across our newly acquired precast operations and strengthening safety performance throughout the organization.
While we're proud of that progress, our standard is higher. Our goal is zero harm, and we will be relentless in striving for it. Now, stepping back, fiscal 2026 was a defining year for Commercial Metals. We made significant progress executing the strategy we laid out at our investor day, strengthening the quality and durability of our earnings profile, expanding margins, reducing leverage, enhancing free cash flow generation, and positioning the company for sustained shareholder value creation.
For the full year, core EBITDA increased to approximately 1.4 billion, up from 837 million for fiscal 2025, while core EBITDA margin expanded 380 basis points to 14.5%. These results reflect meaningful progress across each of our strategic priorities, including the execution of our Transform, Advance and Grow program, the advancement of key growth investments, and the ongoing successful integration of our precast acquisitions. Just as importantly, we have strengthened our balance sheet since completing our precast acquisitions.
We have reduced leverage, as adjusted for acquisitions, to below our target range, providing greater financial flexibility to invest in growth while returning capital to shareholders. Our momentum carried into the fourth quarter, with core EBITDA increasing 35.1% year over year to approximately 394 million, while core EBITDA margin expanded to 14.8%. Results in the quarter were driven by strong North American Steel Group performance, where execution against strategic priorities has created clear value for our business segment.
Margins increased 220 basis points sequentially, driven by strong TAG contributions, including operational and commercial excellence initiatives. We are also seeing that as the market and our customers pursue larger and more complex projects in energy, industrial, reshoring, data center and institutional sectors, Commercial Metals' scale, capabilities and network are increasingly making us a preferred partner. Our downstream expertise, with its customized solutions and customer-focused approach, has us positioned to win in this increasingly complex environment.
Downstream product volumes grew 8.5% year on year in the fourth quarter, with expanding margins reflecting this dynamic. At the same time, our Arizona 2 micro mill is enhancing our merchant production capabilities to support growth in demand. Shipments for merchant bar increased 27.5% year over year, demonstrating the capabilities of the Arizona 2 plant and the flexibility it provides to optimize product mix to capitalize on strong market conditions and balance supply with demand.
For our Construction Solutions group, fourth quarter results were below our expectations due primarily to our precast business, with residential softness in certain southeastern markets. Notably, we have seen the same regional softness in our fabrication book, though it is not visible externally given the geographic diversification of our fab footprint. As residential activity moderated, lower volumes and regional margin mix headwinds weighed on adjusted EBITDA performance.
Precast generated adjusted EBITDA of 57.1 million during the quarter and, excluding the purchase accounting impact, has contributed roughly 150 million of adjusted EBITDA since our acquisition. The leading indicators for the business remain positive. The demand environment, especially in nonresidential and infrastructure, remains healthy, with strong bidding activity in key markets like Atlanta. Picking up in recent months, bookings were up year over year and increased 12.6% sequentially.
Backlog levels are up roughly 3% versus the prior year and 4% versus Q3, while average backlog pricing has also trended higher. These factors position the business for solid performance in the year ahead. Strategically, as we close 2026 and look ahead to fiscal 2027, we are highly confident in our direction and in the three powerful drivers of value creation we laid out at our investor day. First, we will continue capturing the full potential of our business through TAG.
Second, we will begin harvesting returns from significant growth capital deployed over the last several years. And third, we will continue reshaping our portfolio as a leading provider of early-stage construction solutions. Together, these initiatives, which are within our control, will power a stronger Commercial Metals both operationally and financially. We have made significant progress in fiscal 2026 as TAG continued to evolve from a program into a core operating system for Commercial Metals.
Across the enterprise, we realized meaningful productivity gains through yield improvements, scrap optimization, logistics efficiencies, manufacturing excellence initiatives, and an increasing focus on commercial excellence. Looking ahead, the opportunity set remains substantial, with a full pipeline of initiatives that will drive additional earnings growth and margin expansion. We exited fiscal 2026 with more than 250 million of gross run-rate benefits achieved and a clear line of sight to an additional 100 million of run-rate benefits by the end of fiscal 2027.
We view TAG as a durable source of margin expansion and an increasingly important competitive advantage for Commercial Metals. Turning to growth investments, fiscal 2027 will mark an important transition. For several years we have invested significant capital to strengthen and modernize our asset base. Nearly 1.5 billion of capital has been deployed to modernize and complete our coast-to-coast mill network, both improving our competitiveness and providing network flexibility.
As we enter fiscal 2027, those investments increasingly shift from consuming capital to generating returns. At Steel West Virginia, commissioning and startup activities continue to progress well. The team is executing a disciplined commissioning process, keeping its focus on safely increasing production, developing the workforce, and realizing the full potential of the mill. As production increases, Steel West Virginia will strengthen the flexibility of our whole network, enabling us to flex and optimize production cost and product mix to better serve customer demand for different products across our footprint.
Before moving on, I'd like to recognize the team leading the construction and commissioning of our West Virginia micro mill. Their efforts have been outstanding and reflect the disciplined approach to capital deployment and project execution that defines Commercial Metals. At Tensar, the new geogrid line in Blackwell, Oklahoma is well into its startup and will increase geogrid production capacity, enhance service levels, and fuel growth in higher-value nonresidential and infrastructure applications.
We are equally encouraged by the construction progress at Galvar, Tennessee, where we expect first production of our Galvar corrosion-resistant product beginning this November. The facility is expected to more than double our Galvar production capacity, expanding our presence in this attractive higher-margin market segment. Beyond our organic growth investments, we are reshaping our portfolio and diversifying our earnings profile, most recently with our precast platform investments.
Turning to our precast business, integration activities remain on track and synergy capture is meeting or exceeding expectations. A great example of this is where, through best-practice sharing across our network, we have implemented several new operational practices that will improve our safety performance and eliminate millions of dollars of waste from our supply chain. To date, we have substantially completed the functional integration of the platform, creating a strong foundation to drive value creation.
Utilizing a TAG approach and mindset, we are advancing a broad range of operational excellence and commercial excellence initiatives and have identified further opportunities across operations, procurement, footprint optimization, and commercial execution that will enhance growth over time. Precast plays a critical role in strengthening Commercial Metals' position in early-stage construction solutions. The business enhances our portfolio with leading positions in attractive growth markets and in-demand infrastructure applications.
It brings compelling financial characteristics: stronger, more durable margins, lower capital intensity, and attractive free cash flow generation. Precast also expands our growth runway through both organic opportunities and acquisition opportunities in a highly fragmented industry. With sound execution, we expect precast to play a vital role in building a stronger Commercial Metals. Let's shift from our three value-creation levers to the current operating environment.
Regarding demand for early-stage construction products, the direction of travel remains unchanged. We see constructive conditions for all of our product categories across the majority of the markets we serve. Beginning with infrastructure, demand remains elevated. Significant federal and state funding continues to support a multi-year pipeline of projects, and with a substantial portion of available funding yet to be spent, we have strong visibility into future activity.
Nonresidential construction demand varies by market but remains a source of strength for Commercial Metals. Activity related to areas like data centers, power generation, utility infrastructure, semiconductor manufacturing, and institutional markets is solid, and the Dodge Momentum Index remains near record levels, suggesting a robust and extensive project pipeline. Many of these nonresidential projects are larger, more complex, and increasingly requiring diverse solutions.
As noted earlier, this plays directly to Commercial Metals' strengths. Our vertically integrated network, downstream capabilities, and broad early-stage construction portfolio are differentiators and position us to meet the complexity and scale of these mega-project opportunities better than ever before. While residential remains mostly muted, particularly in new single-family construction, we remain optimistic for this market over the long term, where the housing shortage in the U.S. will be a meaningful source of multi-year demand. On the steel supply side, our low-cost and flexible North American steel network is well positioned to win in this environment. The domestic rebar market remains highly consolidated, and the import landscape has materially improved compared to just a few years ago. Existing Section 232 measures have proven both effective and durable, while recently finalized trade cases against unfairly traded imports have effectively removed hundreds of thousands of tons from the market.
Importantly, rebar imports are beginning to show signs of moderation as arbitrage opportunities diminish. Notably, South Korean imports decreased in September, as we have been expecting, and the imports from other sources continue at a fraction of prior-year levels. Meanwhile, we continue to see heightened focus across the industry on trade enforcement and ensuring that imported material competes on a level playing field. Taken together, we believe these dynamics support a more rational and sustainable competitive environment where Commercial Metals can reap the benefits from its investments made and more fully capture the value we bring to the market. Now, before providing our outlook, I'll ask Paul to go through the quarter in more detail. Paul?
Paul Lawrence (Senior Vice President and Chief Financial Officer)
Thank you, Peter. I'll pick up on Slide 13. Briefly, at the consolidated level, CMC reported fourth quarter net earnings of approximately 213 million or $1.91 per diluted share. Similar to the third quarter, we incurred approximately 26.8 million of pre-tax expenses excluded from adjusted earnings, including 19.8 million of non-cash amortization related to acquired backlog. Adjusted earnings increased 21% sequentially. Core EBITDA margin remains an important indicator of the progress we are making.
The benefits of our portfolio diversification strategy and TAG initiatives are becoming increasingly evident in this metric. In the fourth quarter, core EBITDA margin increased 100 basis points year over year and 60 basis points sequentially, capping a very strong fiscal year and underscoring the enhanced earnings power of the business. Within the North American Steel Group, adjusted EBITDA increased 25.2% sequentially to 317 million, driven by TAG benefits, metal margin expansion and growth in merchant bar shipments.
Metal margin increased $42 per ton sequentially to $652, driven primarily by a $32 per ton increase in average selling price. The improvement in average selling price benefited from a richer product mix including higher merchant bar volumes which currently carry a meaningful premium to rebar prices. Meanwhile, scrap costs declined $10 per ton sequentially. Regarding scrap, we expect a relatively stable environment with some upward pressure in the near term correlated to the higher diesel costs we're incurring.
Finished steel shipments increased 7.1% sequentially, with strong growth across merchant products as well as downstream and rebar volumes. Our downstream backlog increased 15.5% year over year and 5% sequentially, demonstrating the value of our differentiated capabilities, particularly on large, more complex projects. North America Steel Group adjusted EBITDA margin expanded to 16.4%, an increase of 220 basis points sequentially and 160 basis points compared to the same period of the prior year.
For the Construction Solutions Group, net sales increased 94.5% year over year, adjusted EBITDA more than doubled and adjusted EBITDA margin expanded 80 basis points. Besides precast, which Peter discussed earlier, TENSAR delivered results that were largely consistent with both the prior quarter and the year-ago period, capping a strong fiscal 2026 in which profitability increased approximately 50%. This performance reflects solid commercial execution and healthy activity levels across its core end markets.
Construction Services and Impact Metals also delivered strong year-on-year revenue and EBITDA growth during the quarter. Performance in Reinforcing Steel results were lower due to an unplanned outage at our Galva bar facility that affected shipments during the period. The outage is now resolved and customer demand remains robust, with bookings, backlog and pricing trends continuing to support a positive outlook for the business. In Europe, adjusted EBITDA comparisons were affected by CO2 credits received in prior periods.
We received credits totaling 30.7 million in the fourth quarter of fiscal 2025 and 20.4 million in the third quarter of fiscal 2026. While the current quarter did not benefit from any credits, excluding these impacts, underlying business fundamentals in Poland continue to improve. Metal margin expanded $32 per ton year over year supported by strengthening steel prices. Average selling prices increased $44 per ton versus the prior year and $15 per ton sequentially in the fourth quarter, offsetting a portion of this benefit.
With energy costs increasing approximately $10 per ton in the quarter, we anticipate energy costs to remain elevated in the first quarter and could potentially increase by a further $10 to $15 per ton. Market conditions in Europe are becoming increasingly constructive. The implementation of the CBAM and enhancements to the tariff rate quota framework are helping create a more favorable trade environment. Combined with gradually improving demand fundamentals, these developments reinforce our confidence in a continued recovery toward mid-cycle profitability over time.
Lastly, a few comments on the balance sheet and capital allocation and key modeling considerations for fiscal 2027. Starting with the balance sheet, in less than a year, we have successfully reduced net leverage adjusted for acquisitions to below our target of 2 times, at 1.9 times. This represents significant progress from post-close levels and positions us to pursue our long-term balanced capital deployment priorities, growth and shareholder returns.
We expect the balance sheet to strengthen further in fiscal 2027 supported by improving cash flow. As capital expenditures moderate, in fiscal 26, total capital spend was approximately 580 million. For fiscal 27, we anticipate capital expenditures to decline by nearly 200 million to roughly 400 million as we cycle past the elevated investment levels associated primarily with the West Virginia Micro Mill project. Roughly a quarter of our anticipated 2027 spend is associated with growth CapEx that we expect will further decrease in 2028.
As a result, free cash flow and free cash flow conversion is expected to improve in fiscal 27 and again in fiscal 28. This increased financial flexibility creates opportunity to further enhance shareholder returns and reinforces a topic we first discussed at Investor Day. At that time, we announced a significantly expanded share repurchase authorization which currently has approximately 700 million remaining. Since then, our conviction has only strengthened.
With our strong cash generating capabilities and the opportunity we see in the current share price, we intend to accelerate our pace of activity under the program. This action reflects our confidence in CMC's outlook and our conviction that investing in our own shares represents a compelling value creation opportunity. Lastly, as you think about your fiscal 2027 models, there are two items worth noting. First, we have just over one-quarter remaining of the acquired backlog amortization.
This will amount to approximately 20 million in the first quarter and roughly 2 million in the second quarter. Second, CMC will continue to benefit from meaningful cash tax savings associated with the 48C program, bonus depreciation related to our West Virginia mill investment, and accelerated depreciation on assets acquired through the precast acquisitions. As a result, we do not anticipate paying significant US federal cash taxes through much of fiscal 2027.
For modeling purposes, we expect our effective tax rate to be approximately 24% for fiscal 2027. With that, I'll hand it back to Peter for our outlook.
Peter Matt, President and Chief Executive Officer
Thanks, Paul. As we look ahead to fiscal 2027, we are encouraged by both the external environment and the opportunities within our control. Domestic steel supply remains disciplined, demand for early stage construction products is supported by strong backlogs at attractive prices, and our value creation initiatives continue to gain momentum. TAG remains a significant source of earnings growth, our recent growth investments are transitioning from capital deployment to return generation, and our evolving portfolio is enhancing both the quality and the durability of our earnings.
Together, these factors support our confidence that fiscal 2027 will be another solid year for CMC. Specifically, for the first quarter, we continue to expect healthy operating performance across the portfolio, though normal seasonal factors and costs will impact results sequentially. Within our North American Steel Group, improved pricing is expected to largely offset higher scrap costs, startup expenses, and a slight seasonal decline in shipments, resulting in adjusted EBITDA that is expected to be nearly flat in comparison to the fourth quarter.
Within our Construction Solutions group, adjusted EBITDA is expected to be down sequentially, reflecting typical seasonal trends impacting the end market activity in this segment. In Europe, adjusted EBITDA is expected to meaningfully increase sequentially, benefiting from the improving operating conditions and a CO2 credit. All in all, we remain confident in the operating environment, animated by our priorities, and above all, eager to deliver on the financial and strategic opportunities ahead of us in fiscal 2027.
With that, I'll ask the operator to provide instructions before fielding your questions. Thank you very much.
OPERATOR
We will now begin the question and answer session. To ask a question, you may press Star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Samuel McKinney with KeyBanc Capital Markets, please go ahead.
Samuel McKinney, Analyst at KeyBanc Capital Markets
Hey, good morning, Peter and Paul. After a relatively soft third quarter you said was challenged by weather, the fourth quarter precast EBITDA number came in about 20 million short of the number you intimated on the last call. Just given the residential market challenges, is annual run rate EBITDA around that 240–250 million still the right way to be thinking about this business before you make any more acquisitions?
Peter Matt, President and Chief Executive Officer
Hey Sam, thank you very much for the question. We believe it is and we think that it's a good target for this year. When we look at the backlogs in the business, when we look at the progress we've had on integration and kind of overall momentum, we feel like we can achieve that. We will have some near term. By near term, I'm talking Q1, we will have some seasonal weakness. And that seasonal weakness probably leads to a Q1 that's going to be down mid to high single digits from where it is in Q4.
But overall we remain very positive on this business. I think one thing that's interesting about this is that as residential has declined, it's been filled in by a strong slug of non-residential and infrastructure. And so again, that's what's supporting our backlog and giving us a lot of confidence in this. And pricing remains very strong in the business. We continue to see pricing rising across the portfolio. So I guess all in all we remain very confident and we see this as a continuing strong contributor to our portfolio.
Samuel McKinney, Analyst at KeyBanc Capital Markets
Okay, and then you did mention that South Korean long product imports finally took a big step down in September. How do you think about the sustainability of these trends and do you expect any sort of government action now that South Korea has also made itself a meaningful importer of flat products this year?
Peter Matt, President and Chief Executive Officer
Yeah, well, I won't speak to flat products, but I'll kind of keep my comments on the products that impact our business. Yes, we did see this significant decrease. We expected it to be a little sooner, but it did happen. And I think the reality is that when you kind of stack up the costs in the current environment of getting rebar to the US from South Korea, it's not competitive with where our pricing is even with the current price increases that we've just recently put in place.
And so I think economics are taking care of them. It's taking care of the issue for us for the short term. As I've said in prior calls and engagements and at the Investor Day, where we see that someone is violating our trade laws, we are not going to be shy about going after them. But right now I think we're going to monitor the situation and we're comfortable with where things stand. I think it's also a further note that if you look at the countries Against whom we, or against which we, filed these anti-dumping and countervailing duty cases, they have effectively kind of gone away from the import market. Right. So we're not seeing any material imports from any of those countries, which I think kind of goes to support the point that I made at the Investor Day and I've made on calls before this, that this is durable supply management that we're working on. And again, I'll just remind the audience and you — I know you know this — but those anti-dumping and countervailing duty cases and the duties that come from them, they have a duration of at least 5 years and generally 10.
Samuel McKinney, Analyst at KeyBanc Capital Markets
Yep. I appreciate it. Thanks, guys.
OPERATOR
Thank you, Sam. The next question is from Sathish Kazinathan with Bank of America. Please go ahead.
Sathish Kazinathan, Analyst at Bank of America
Yeah, hi. Thank you. Good morning, Peter and Paul. Congrats on a strong finish to the year. My first question is on the guidance for the first quarter. Can you maybe walk us through some of the moving parts, especially how much CO2 credits do you expect in EU and what is the magnitude of startup cost you are assuming for the West Virginia mill in Q1?
Paul Lawrence (Senior Vice President and Chief Financial Officer)
Thanks. Yeah. Yeah, Satish, you know, as we look at Europe, I think we mentioned really two factors. The CO2 credit we are expecting at this stage somewhere between $10 and $15 million of CO2 credits. Offsetting that in Europe will be the higher energy costs that I cited. We've seen those so far throughout the quarter, around $10 to $15 a ton. And so that will erode a little bit into the earnings of the business. So those are the two drivers of the Europe space.
Overall expect, as we said, a meaningful increase in overall results, but guided by those two factors. And then on the startup cost for West Virginia mill — sorry — yes, and startup costs, as Peter said, we're making good progress on the commissioning space. We anticipate that in the first quarter we'll probably incur an extra $3 to $5 million of incremental cost. What we've incurred in the fourth quarter was in the $9 to $10 million range. So it's just a slight uptick from that as we start the operation up.
Sathish Kazinathan, Analyst at Bank of America
Thank you. Maybe one follow-up on the West Virginia mill. So can you maybe give some additional color on how you see the currents of ramp up? So when do you expect the first commercial shipments? And then are you still on track for maybe 250 to 300,000 tonnes of volumes from the mill that you previously guided to?
Peter Matt, President and Chief Executive Officer
Yeah, I think so. Again, remember on this we did have some construction weather delays, but we are kind of making great progress on the hot commissioning at this point. We have rolled our first billet and we are progressing with the startup. I think it's fair to say that we expect this startup to occur over kind of a 12-month period and we should be break-even after about six months. I think the, you know, when we look at the overall project, we're super pleased with the fact that we've been able to bring it in kind of effectively on time and effectively on budget.
And I think that's a testament to the, as I said in the prepared remarks, the great job that the team's done and the capital discipline that we have as a company overall.
Paul Lawrence (Senior Vice President and Chief Financial Officer)
To your question of the volume, Satish, I think it'll be a little less than what you indicated, just given that the commissioning is ongoing. And really we'll expect to start the true commission, the startup activities near the end of the first quarter. So we'll probably be a little under 200,000 tons of production in the current year.
Sathish Kazinathan, Analyst at Bank of America
Okay, thank you for the color.
OPERATOR
Thank you. The next question is from Bill Peterson with JP Morgan. Please go ahead.
Bill Peterson, Analyst at JP Morgan
Yeah, hi, good morning. Thanks for taking the questions. And again, really strong finish to the fiscal year. I wanted to come back to precast if I could. So I guess from a quarter, if you took the quarterly numbers and annualized that you were ahead of, let's say where you were or what you had talked about at the time of acquisition in terms of sales, but actually behind in terms of EBITDA. So I'm just trying to get a better sense of what's going on.
Maybe you can characterize it relative to the market, the markets you're operating in. It sounds like it's primarily residential, but also it sounds like your pricing is fine. But is there some cost pressures to call out? Is there some mix related areas to call out, especially on the profitability side?
Peter Matt, President and Chief Executive Officer
Yeah, great question, Bill, and we'll try to fill in some of the detail here. So as we said in the prepared remarks, this is really about weakness in residential and in the Southeast and it's really about volume weakness in that region in residential. And what I think is interesting to note is that the volumes are actually, if we look at the CPMP portfolio, volumes are up and actually almost offsetting all of the volume decline in the Southeast. So what that leads to is that you'll remember when we announced these transactions that there was a pretty sharp discrepancy between the margins on the Foley portfolio and the margins in the CPMP portfolio.
Again, this is one of the opportunities in CPMP that we saw is to bring those margins up. But as we're working through the integration, we haven't completed that yet. And so losing volumes in the Southeast was kind of painful from — it just magnified the EBITDA impact of the lost volume. As I said, the price is not the issue. The price has been going up. We have quarter-over-quarter price increases and year-over-year price increases. So you know, it's very disappointing.
It's kind of not how we would have written the script. But what I want to be categorically clear about is that we are not overly concerned. As the residential has slowed, the non-residential and the infrastructure have filled in the backlog. Our margins in spite of that volume loss remained at 30%, which is — again this is, remember we're on the front end of an acquisition so we've got some of the integration costs before we get the benefits of integration.
And a lot of the business indicators I think point us to confidence here. So bookings, as we noted, up 12.5% in fourth quarter and have continued to rise in the month of September. Pricing, again as I noted, up, backlog up 4% year over year, 3% in the fourth quarter with growth in September. And the other thing I would say is that the integration is, you know, has proceeded in a really nice way. I would say we are, if anything, ahead of plan. Our synergy — as we look at the business more, we see more opportunities to do things with it that are going to lead to, you know, kind of higher growth synergies.
So on balance this is a, you know, yes, there's some softness in the market. But one other final point that maybe I'll leave you with is that the residential portion of our portfolio is running at about 50% to 60% of kind of what a normal environment would be. So we feel like we've taken much if not all of the pain on the residential side. So I'm sorry, that's a long explanation but there's a lot to get in there.
Bill Peterson, Analyst at JP Morgan
No, that was good insight, I appreciate that, very helpful. So my next question is on North American Steel. You commented about MBQ. The mix is rich. It looks like shipments are at least at a five-year high. I'm trying to get a sense of is there further opportunities to shift more the mix to MBQ. And I guess how to take that into account as we look at this fiscal year in terms of the cadence of rebar versus MBQ, especially with West Virginia ramping, which is rebar.
So does that mean more AZ2 goes to MBQ, things like that?
Peter Matt, President and Chief Executive Officer
Yeah, no. Great question. And we see there's a nice opportunity in MBQ. And remember, one of the things that we've talked about over time is the fact that the portfolio that we have gives us latitude not only to control supply-demand by producing fewer rebar tons, but also by producing other products. And this is a perfect example of what we're able to do here with the demand on merchant, which is really kind of a broad-based response to overall strength in the economy.
And so we have been shipping materially more merchant bar. And as we start West Virginia, what that will do is it will free up South Carolina, for example, to produce more merchant products. So as we said in the Investor Day, we believe that, you know, as a starting objective — we think there could be more over time — but as a starting objective, we can get up to a million tons of merchant shipments and that would imply about 150,000 to 200,000 tons of incremental merchant shipments.
So again, it's a nice margin opportunity in the current environment and it's a nice way to keep the rebar market tighter.
Paul Lawrence (Senior Vice President and Chief Financial Officer)
Just one thing to add to Peter's comment. You know, when we disclose merchant bar and other, that's got our merchant bar and the wire rod, principally, that we produce at our Florida facility. So there's about 150,000 tons of wire rod that we're shipping on an annualized basis. So that supplements to the million tons target for merchant bar that we have.
Bill Peterson, Analyst at JP Morgan
Perfect. Thanks again for all the details and costs.
Peter Matt, President and Chief Executive Officer
Thank you, Bill.
OPERATOR
The next question is from Timna Tanners with Wells Fargo. Please go ahead.
Timna Tanners, Analyst at Wells Fargo
Hey, good morning, guys. Timna — wanted to touch base on the recent move up in October for number one heavy melt scrap. It looks like $27.50. Does that get fully passed through with the recent increase in rebar prices that you announced and, you know, any thoughts on the timing impact there into the November quarter?
Peter Matt, President and Chief Executive Officer
Hey. Yeah, so thank you, Timna, for the question. It will. And we feel confident that as we go into the November quarter, you're going to see a kind of a gradually improving top line from an ASP perspective and a gradually improving metal margin. So we believe we'll outpace the move in scrap as it filters through our portfolio.
Timna Tanners, Analyst at Wells Fargo
Okay, that's helpful. And then secondly, I wanted to shift over to Europe. And I know you talked about some recovery there from low levels, a couple of moving parts. Of course you talked about better demand, but also several favorable trade policies. What are you seeing there in terms of how much of that is volume driven and how much of that might be because of better demand and how much of that might be of the tariff actions?
Peter Matt, President and Chief Executive Officer
What I'd say is that the demand is good and it's been good in Poland. Right. So we've said that on several prior calls. The challenge has been really on the supply side, and that's where we've been optimistic about the impact of some of these trade policies. What we've seen, however, is that — so just kind of rewinding the clock to the beginning of the year — you had CBAM, but then kind of in front of CBAM, everyone imported a lot of steel into Poland.
So we had this two- to three-month period where we had to kind of deal with that, and then the market started to tighten up and we saw pricing and margins improve. So felt pretty good about that. And then the safeguards which took effect in July — same impact happened where people are kind of bringing material into Poland or into Europe in advance of that, and so we're kind of working our way through that. But we are optimistic that we are on the way to seeing an improving environment.
It would be great if we could see some general improvement in the European economies. The fact that the German economy has not improved the way we expected it to is maybe a little cautionary note. But we are optimistic that we can get this business back to $100 million — our quote unquote through-the-cycle number.
Paul Lawrence (Senior Vice President and Chief Financial Officer)
And Tim, to just add a little color, it really is a margin growth that we're looking for to get us to that $100 million level. Within TAG, a good portion of that, both in North America and in Europe, is commercial excellence. There's a strong commercial excellence process going on in Europe to really be selective around the volumes that we want to sell that drive the greatest margins for the business. So this is about us realizing a margin enhancement as opposed to a volume growth.
Timna Tanners, Analyst at Wells Fargo
Okay, great color. I'll hand it over. Thank you.
Peter Matt, President and Chief Executive Officer
Thank you, Timna.
OPERATOR
The next question is from Nick Cash with Goldman Sachs. Please go ahead.
Nick Cash, Analyst at Goldman Sachs
Hi, yes, thank you guys for taking my question. Just stepping back to the analyst day for a second. Can you help us bridge, I guess, you know, the 26 core EBITDA of, call, you know, 1.4 billion versus the 29 target of 1.65 to 1.8 billion? And can you also remind us, I guess, how much was West Virginia, precast, TAG and other? And does the precast weakness you're currently seeing in the mix shift change that mix at all?
Paul Lawrence (Senior Vice President and Chief Financial Officer)
Yeah, thanks, Nick. Great, great question. You know, we believe that we are, I think, demonstrating the capabilities of the business in the fourth quarter aligned to the targets that we have for 2029. The mass of the organic growth projects, whether that be West Virginia, whether that be through the merchant bar expansion that Peter said, whether it be the GalvaBar line or the geogrid line that we're constructing, all of that is, you know, close to $200 million of incremental EBITDA that we've talked about there.
We've got the ability or the strength in Arizona to continue to enhance the contributions. We've got the growth in the precast business, obviously from where it was in 2026, the full-year impact, but also the growth that we anticipate in that business, as well as the mid-teens growth in the rest of the Construction Solutions Group. So we think the $1.4 billion that we earned in the fourth quarter, recognizing that the scenario we laid out was a 25% tariff environment, but there is—we're well on our way with all of those growth opportunities to achieve that or, in today's environment, far exceed the low end of the range based on the way we're performing now and the markets that we're seeing.
Peter Matt, President and Chief Executive Officer
And Nick, can I just jump in on that to say, you know, you asked the question about does the precast softness change at all, and I want to categorically say it does not. If anything, as I said earlier, we have more conviction in precast and, and by 2029 we're confident that we're going to get to where we thought we could get to.
Nick Cash, Analyst at Goldman Sachs
No, that's extremely helpful. Thank you for the color and I'll pass it on.
OPERATOR
Thank you. The next question is from Richard Garcia Arena with Barclays. Please go ahead.
Richard Garcia Arena, Analyst at Barclays
Great. Thanks for taking my question. I believe on the prepared remarks that you mentioned that capex for fiscal 27 would be 400 million with 25% of that being growth capex. I was wondering if you could provide some color in terms of what are the key growth projects that you're going to be working on this year, particularly in the CSG and precastings, and then how should we think about that impacting potential growth in 28, fiscal 28 and beyond.
Paul Lawrence (Senior Vice President and Chief Financial Officer)
Yeah, thanks, Richard. The vast majority of the 100 million growth is West Virginia. There's a few payments related to performance targets that need to be made and we expect to make those in 27. So that's well over half of the spend and then the spend on the geogrid line and the GalvaBar line—both those will, well, all three of those will be in startup mode in 2027, so their EBITDA contribution will be limited as far as the long-term capabilities of those plants.
We expect the GalvaBar facility to begin commissioning late in calendar 26, and the geogrid line is continuing to be in the startup and commissioning time now. So that one's most likely to contribute in 2027. As Peter said, you know, we expect West Virginia to ramp up nicely and, within six months of the startup, be breakeven from an EBITDA perspective, so into Q3 for us on that one. And we expect, just to put a bow on that, again, as we think about maintenance, we've talked about maintenance in the past as 275.
So going forward, if you think about kind of $50-ish million of growth investments, that's the type of range we would be in for kind of ongoing capex. And again, I think one of the things that's really important that we're trying to do across the company is look for opportunities to invest in projects that make our operations more efficient and generate kind of high returns from that. So you'll see that's where we'll devote most of the growth to.
As we've said before, we're not building a new steel mill, anything like that. It'll all be investments in efficiency.
Richard Garcia Arena, Analyst at Barclays
Great. And maybe just sticking to capital allocation. Congrats on getting leverage down below your target level as you move forward. Obviously capex coming down as well. How should we think about share repurchases? Is that going to be the bulk of the target or are you looking to keep some dry powder for M&A? How should we think about that?
Peter Matt, President and Chief Executive Officer
Yeah, I mean, I think, look, we are definitely going to keep some dry powder for M&A. If we think about, we have built a pretty active M&A dialogue across the priority areas. We don't have anything that's significant to do right now, so—but we're, you know, that works fine because we've got a lot of work to still do on integration and optimizing the precast platform. But again, returns to shareholders are an important piece and, as you heard what Paul said in his prepared remarks about increasing our share repurchase, and I think looking at our free cash flow and seeing the strength of it and also looking at the share price, and it looks like it's a very compelling investment at this point. Price, it seemed like it made sense to accelerate the share repurchase. We had a—we announced an authorization of, or we increased our authorization to about 700 million with the—we increased it by 600, but to get to about a $700 million total authorization. We said we intended to do that over three years. What we're saying today is we're going to pull that forward. We'll see how that progresses.
But I think you should expect a meaningful increase in the amount of shares that we're buying.
Richard Garcia Arena, Analyst at Barclays
Great. Thank you.
OPERATOR
Thank you. The next question is from Tristan Gresser with BNP Paribas. Please go ahead.
Tristan Gresser, Analyst at BNP Paribas
Yes, hi. Thank you for taking my questions. The first one is on North America. If we put everything together, West Virginia, the product mix you just mentioned as well, and I don't know if there's some leftover from Arizona 2 for fiscal 2027. Are you able to share the percentage volume increase you have in mind for the fiscal year for the division? And if you have any, is there any difference between steel products or downstream products?
Peter Matt, President and Chief Executive Officer
Well, I guess what I'd start at with is demand, right. And so far this year we've seen demand growing. Year to date, I think it's over 4%. And so the good news is that we have the capability to flex our production to meet increased demand. And yes, there is additional capability in Arizona and there's obviously additional capability in West Virginia. But again, you know, I want to come back to remind everyone that our objective is to kind of keep supply and demand in balance and the flexibility of our network, given it's a high variable cost network, allows us to do that.
So I think we'll have to see how the market grows. But assuming that it continues at this pace, something of that order could be what we'd expect. I don't know, Paul, if you would add anything.
Paul Lawrence (Senior Vice President and Chief Financial Officer)
You know, I think what we're particularly proud about, because I think if you look as far as, as Peter said, the market is up 4% to 5% in terms of rebar consumption. Our downstream business, in which we have executed and demonstrated strong, strong commercial discipline in terms of really only looking to take on margin-accretive work for the business, and yet we're up 7% on a year-over-year basis. That speaks to the capabilities and the ability for us to do these large mega jobs that are really sustaining the construction activity right now.
And those are projects that are not just being done in 2026, but will be multi-year in length. And it gives us confidence as we look forward that those capabilities will be rewarded in terms of lower risk to the contractors, lower risk to the project owners of contracting with CMC, and continue to fuel a real sense of opportunity for us to grow margins and continue a strong downstream pull.
Tristan Gresser, Analyst at BNP Paribas
All right, that's very clear. And the second question is on Europe, a bit of the same question to start with on the volume outlook—if you expect to continue to gain market share and what we can expect for the year—and also just trying to understand a bit the margin development, you sound pretty constructive. But when I look at rebar prices—and maybe I should look at Polish rebar prices and just general European prices—but they've been pretty flat over the past couple of months and energy costs are through the roof.
So another, you know, long steel producer in the region has been forced to shut down. So what you're doing differently? Can you remind us how you procure your electricity, natural gas and maybe your hedging strategy you have in place, or maybe there's something different just about mix or something else that makes you a bit more resilient.
Peter Matt, President and Chief Executive Officer
Thanks, Tristan. So I'm going to start and then Paul can walk you through what we're doing in terms of energy procurement. But in terms of volumes, you know, we've said demand is good and we've been running at, I would say, a pretty high rate of utilization in our Polish operation recently. So we—and I would say we expect demand to be, you know, kind of stable, maybe modestly better in that marketplace. Pricing, you're right, has been—well, we saw, as I said earlier, we saw in the wake of CBAM, we saw a nice rise in pricing to the tune of 100 bucks a ton.
But then we saw, obviously, scrap kind of went up along with it. And with the safeguards coming in and the pre-buy there, you've seen us give some of that, a little bit of that, back. So we are still optimistic, though, that as the inventory pre-buy related to the safeguards filters through, that you're going to see margins expand in that market. So we're—and again, expand gradually in that market. We're not expecting any sea change, so to speak.
But maybe, Paul, you can talk about the energy side.
Paul Lawrence (Senior Vice President and Chief Financial Officer)
Yeah. On the cost side, earlier I spoke of the focus that team is doing on commercial aspects of TAG. Operationally, the team has done a phenomenal job of right-sizing and driving costs to where it needs to be from a competitive perspective in the tight market that exists in Europe. One of those areas that the team has always been focused on is electricity consumption, but also having the foresight to enter into longer-term energy contracts. And so we have around 50% of our electricity hedged through long-term purchase agreements.
These were entered into prior to the Ukraine war, prior to energy costs taking off in Europe, and so really competitively situate the mill in a positive environment. So, combination of a strong hedging process through those agreements, as well as a focus on consumption, that drives a significant competitive advantage and hence why we're able to withstand the costs where they are. As I said, we do anticipate energy costs continuing to rise, but expect to continue to be in a strong position economically from a margin perspective with those increases taken into consideration.
Peter Matt, President and Chief Executive Officer
And, Tristan, the last thing I would just say is just remember, as you kind of think forward the next couple quarters, we're coming into the difficult part of the year in terms of kind of the ultimate demand, right. So there's going to be some, likely, some seasonality to the numbers over the next couple quarters.
Tristan Gresser, Analyst at BNP Paribas
All right. No, that's very clear. And one quick follow-up, this inventory overhang you mentioned, would you see that clearing up already before year-end or it's going to take a bit much longer than that?
Peter Matt, President and Chief Executive Officer
Well, again, you know, if we think about, I would say what we saw in CBAM, it took longer than what we expected to clear up. So—and I would say to the tune of probably 4-ish. Yeah, yeah, 4 to 6. So I think we might see the same here. So by the end of the calendar year, we would expect the benefits really of CBAM and the tariff-rate quota to start being realized in a more meaningful way.
OPERATOR
This concludes our question and answer session. I would like to turn the conference back over to Peter Matt for any closing remarks.
Peter Matt, President and Chief Executive Officer
Well, thank you for the thoughtful questions and for joining us today. Every Commercial Metals employee should be proud of what we have accomplished in fiscal 2026 and even more excited about the opportunities ahead enabled by their efforts and our collective performance and a clear vision. We believe fiscal 2027 will be another great year for Commercial Metals. To our shareholders, we thank you for your support and we look forward to continuing the conversation over the weeks and months ahead.
Have a great day.
OPERATOR
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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