Assessing the TAG Program's Impact on CMC's Margin Trajectory

The core of Commercial Metals' strategy is its multi-year CMC Transform, Advance, Grow (TAG) program. Launched in 2024, the initiative is explicitly aimed at driving sustainable margin expansion, with a clear target: an annualized EBITDA benefit of $150 million in fiscal 2026. This isn't a one-off cost cut but a comprehensive drive to improve through-the-cycle profitability, cash flows, and return on invested capital.

The scale of execution underscores its ambition. The program encompasses more than 150 individual projects spanning all business segments and support functions. This breadth signals a company-wide commitment to optimization, targeting logistics, input consumption, costs, and energy efficiency. The early operational evidence is promising. The program has already aided improvements in key production areas like melt shops and rolling mills, enabling the company to produce higher volumes of product while maintaining the same levels of energy and raw material consumption. This demonstrates tangible progress in operational leverage.

Yet, the full impact remains a work in progress. While the program is gaining momentum, as noted in the first fiscal quarter, its ultimate success hinges on flawless execution across all these projects. The $150 million target for fiscal 2026 represents a significant milestone, but the company expects the program to yield significant and lasting transformation on its margin profile beyond that point. For now, the TAG program is a major lever for margin expansion, but its story is still unfolding.

Financial Performance: Evidence of Margin Expansion

The financial results for the first quarter of fiscal 2026 provide clear evidence that the company's strategic pivot is translating into improved profitability. Consolidated core EBITDA surged to $316.9 million, marking a robust 52% year-over-year increase and resulting in a core EBITDA margin of 14.9%. This performance follows a strong 33% year-over-year jump in fourth-quarter fiscal 2025 core EBITDA, indicating a multi-quarter trend of margin improvement rather than a one-time event.

The turnaround in earnings power is even more dramatic. The company posted net earnings of $177.3 million for the period, a stunning reversal from a loss of over $175 million in the same quarter a year earlier. This substantial year-over-year earnings turnaround underscores the effectiveness of both operational execution and the early benefits from the TAG program.

Management attributes this success to capitalizing on favorable market conditions, solid operational execution, and enhanced commercial discipline. The sequential improvement in steel product margins, which reached their highest level in nearly three years, further supports the narrative of a strengthening underlying business. While market conditions provided a tailwind, the magnitude of the improvement aligns with the company's stated goal of exiting fiscal 2026 with an annualized run-rate EBITDA benefit of $150 million from the TAG program. The financials show the program is not just a future promise but is actively contributing to the bottom line today.

Specific TAG Initiatives and Their Impact

The TAG program's early financial success stems from concrete operational changes across the production chain. The company is systematically attacking its largest cost inputs and inefficiencies through targeted projects.

A primary focus is optimizing the core raw material-scrap. The program is driving continued success in optimizing scrap, improving yield and cost mix. This involves refining the scrap selection process and blending techniques to maximize the value extracted from each ton, directly lowering the effective cost of input. Simultaneously, initiatives are aimed at reducing alloy consumption, which further trims material costs for specific product grades.

Logistics is another major lever. The program is designed to optimize logistics across the network, targeting transportation costs and delivery efficiency. While specific project details are not outlined, the goal is to streamline the movement of scrap to mills and finished goods to customers, reducing fuel use, vehicle wear, and delivery times. This network-wide optimization complements the raw material gains.

Perhaps the most tangible early wins are in energy-intensive production. The program has already aided improvements in melt shops and rolling mills, with a clear outcome: the ability to produce higher volumes of product while maintaining the same levels of energy and raw material consumption. This is a direct measure of enhanced efficiency. Energy efficiency improvements in these critical areas are enabling the company to run more product through its existing capacity without a proportional rise in utility bills, a key driver of margin expansion.

These initiatives-scrap optimization, logistics streamlining, and mill efficiency-are the operational engines behind the reported EBITDA surge. They represent a shift from simply reacting to market prices to proactively controlling costs and boosting output, which is the essence of the TAG program's promise.

Operational Levers and Commodity Dynamics

The margin expansion story is built on a foundation of operational efficiency and favorable market conditions. At its core is CMC's technological edge: its network of electric arc furnace (EAF) mills. Unlike traditional integrated producers reliant on blast furnaces and basic oxygen furnaces, CMC's EAFs use 100% recycled scrap. This fundamental process choice provides a key cost and sustainability advantage, as it requires significantly less energy. The company's commitment to energy intensity is evident, with its energy consumption intensity decreasing by 6.2% since 2019, surpassing its own goal. This efficiency is further enhanced at its micro mills, which employ a continuous manufacturing process that eliminates the need for natural gas reheat furnaces, driving down both costs and emissions.

This green, low-cost production footprint is being actively expanded. The company is building a fourth micro mill in West Virginia, which is expected to start up at the end of calendar 2025. This new facility will add another node to its strategically located network, further boosting its capacity for high-efficiency, localized steelmaking. The cumulative effect of these assets is a business model that is inherently more resilient to swings in raw material prices and energy costs, providing a stable base for margin improvement.

On the market side, the company is capitalizing on a favorable dynamic. Management notes that steel product margins increased sequentially for the third consecutive quarter, reaching their highest level in nearly three years. This upward trend has been supported by a sequential price increase of $53 per ton and a stable scrap cost environment. The company sees this as a potential runway, stating margins have the potential to move higher based on favorable market dynamics. This outlook is bolstered by a healthy pipeline of construction projects, as indicated by the elevated Dodge Momentum Index, which suggests underlying demand remains robust.

The bottom line is that CMC's margin trajectory is being pulled in two directions. The operational levers-its energy-efficient EAF technology, scrap optimization, and expanding micro mill footprint-are providing a powerful, structural tailwind. At the same time, the current market environment is offering a favorable price-cost spread. This combination of internal efficiency gains and external demand support creates a strong setup for the TAG program's $150 million EBITDA target. The challenge will be sustaining this momentum through seasonal softness and any future shifts in the scrap price cycle.

Competitive Context and Margin Expansion Potential

CMC's path to margin expansion is distinct from its peers, built on a technological foundation and a targeted operational program that sets it apart. The company's focus on electric arc furnace (EAF) technology and 100% scrap-based production offers a fundamentally lower-cost and more flexible model compared to traditional integrated producers. This isn't just a process choice; it's a strategic advantage that has driven a 6.2% decrease in energy consumption intensity since 2019, a figure that surpasses industry averages. This green, efficient footprint provides a stable base for profitability, insulating the company somewhat from the volatility of iron ore and coking coal prices that plague integrated mills.

This operational edge is being systematically amplified by the TAG program. While other mini-mill operators also pursue efficiency, CMC's initiative stands out for its specificity and scale. The program is explicitly designed to deliver an annualized EBITDA benefit of $150 million in fiscal 2026, a concrete, measurable target that guides execution across more than 150 projects. This contrasts with broader industry cost-reduction efforts, such as Cleveland-Cliffs' goal to lower steel unit costs by $150 per ton over three years, or Steel Dynamics' focus on developing new low-carbon facilities. CMC's approach is a comprehensive, company-wide drive to optimize logistics, inputs, and energy, aiming for a lasting transformation of its margin profile.

The competitive landscape includes other established mini-mill operators like Cleveland-Cliffs and Steel Dynamics, which also employ efficient, low-cost models. However, CMC's strategy appears more focused on internal operational leverage through its TAG program, while peers may emphasize different capital deployment paths-whether it's integrating lower-cost assets like Stelco or building new, specialized facilities. This divergence in strategy means CMC's margin expansion potential is being pulled by a unique combination of its inherent EAF cost advantage and a highly targeted, $150 million operational improvement program. The sustainability of this edge will depend on the flawless execution of the TAG initiatives and the company's ability to maintain its technological lead in energy efficiency as it expands its micro mill network.

Catalysts, Risks, and What to Watch

The path to meeting and sustaining the TAG program's ambitious target hinges on a few clear forward-looking factors. The primary catalyst is the full-year fiscal 2026 result. The company has explicitly stated it expects an annualized EBITDA benefit of $150 million in fiscal 2026. This is the definitive benchmark. Investors must watch the company's guidance and quarterly updates to see if the program's benefits are materializing at the required pace to hit that run-rate target by year-end.

A key near-term risk is the potential for a volume headwind. Management has noted a 2-3% volume reduction in the North America Steel Group could pressure margins if not fully offset by the program's cost savings. This volume softness, if it persists, would test the program's ability to deliver pure margin expansion without a corresponding sales decline. It underscores that the TAG program's success isn't just about cutting costs-it must also protect or grow the top line.

For now, the best indicators of execution quality and sustainability are quarterly EBITDA margins and the progress of the 150+ TAG projects. The company's first-quarter performance, with a core EBITDA margin of 14.9%, shows strong momentum. However, the real test is consistency. Investors should monitor whether margins can hold or expand in subsequent quarters, especially if volume trends remain mixed. More broadly, tracking the rollout of the program's initiatives-like scrap optimization and logistics streamlining-will provide a real-time gauge of whether the promised $150 million benefit is being realized across the business.

The bottom line is that the TAG program is a multi-year initiative, but fiscal 2026 is its make-or-break year. Success will be measured by hitting that specific EBITDA target, while the risk of volume pressure serves as a reminder that operational excellence must be coupled with commercial strength.