Prompt:
Human: We hope you and your families are continuing to stay safe and well.
Before we get started, I want to let you know that we're making some changes to how we present our results.
Today, Linda will start by providing some overall key takeaways for the year.
Next, I'll follow up with some highlights from each of our segments.
Kevin will then address our financial results as well as our outlook for fiscal year '22.
And finally, Linda will return to offer her perspective, and we'll close with Q&A.
Now a few reminders before we go into results.
These statements are based on management's current expectations but may differ from actual results or outcomes.
In addition, we may refer to certain non-GAAP financial measures.
Fiscal '21 was an extraordinary year for Clorox, with the pandemic putting us through the ultimate test of volatility, including rapid changes in consumer demand and significant cost inflation, which was reflected in our Q4 results.
Despite the complexities we faced, we delivered 9% sales growth for the fiscal year on a reported and organic basis, reflecting growth in all four reportable segments.
This was on top of the reported 8% increase we delivered in fiscal '20.
On a two-year stack basis, we delivered 17% sales growth.
With rising cost pressures, we experienced declines in gross margin, particularly in Q4, resulting in a decrease of 200 basis points for the fiscal year, which we will discuss in more detail.
Fiscal year '21 adjusted earnings per share decreased 2% to $7.25.
Recognizing the immediate priorities before us, I would like to reinforce what matters most: long-term profitable growth.
With a business that's significantly larger than before the pandemic and a portfolio of trusted brands exposed to more tailwinds, we have clarity in our strategic imperatives, and I have every confidence in our ability to continue delivering long-term value creation for our shareholders.
When I look at fiscal '21, our performance has shown the strength of our people, brands and products as well as the resilience of our category as we work tirelessly to supply consumers with products across our portfolio.
As a result, we experienced significant growth in demand and strengthened our position among global consumers, with strong household penetration, supported by higher repeat rates across new and existing users.
The last 12 months have also demonstrated the need to accelerate our IGNITE Strategy to address near-term headwinds and capitalize on long-term opportunities.
The industry environment remains dynamic, with significant inflationary pressure and continuing uncertainty.
In the face of these conditions, our top priority is strong execution to mitigate the impact of elevated cost headwinds and continue to improve market share.
The pandemic has also highlighted areas where additional investments can help us be as agile as possible in the future.
We are clear on the opportunities ahead of us to differentiate Clorox and build a stronger, more resilient and more profitable company.
This includes driving our growth runways and making investments to enhance our digital capabilities and drive productivity improvements, which I will discuss shortly.
We are confident that strong execution of our IGNITE Strategy will enable us to achieve our 3% to 5% long-term sales target and deliver long-term shareholder value.
For Q4, faster-than-expected moderating demand for cleaning and disinfecting products had a pronounced impact on sales growth as we moved through the peak of the pandemic and lapped the unprecedented demand we experienced last year.
The magnitude of this quarter's gross margin contraction was a result of faster-than-expected sales moderation, acceleration of inflationary headwinds and improvements in supply, which led to broader product assortment, including the reintroduction of value packs.
I'll discuss shortly the actions we're taking to address these headwinds.
Now let me share a few highlights of our progress on our IGNITE Strategy.
First, with fuel growth being a critical focus to help address elevated cost pressures and ensure the long-term health of our brands, I'm pleased we delivered over $120 million in cost savings in the fiscal year, surpassing our annual target.
Second, we made strong progress on our 2025 goal to know 100 million people, crossing the halfway mark to our goal this fiscal year.
Our higher investment in personalization has led to significantly improved ROI.
It has been one of the contributors to increasingly strong payouts, driving our confidence in continued investments in our brands.
Third, with innovation at the heart of our strategy, we doubled our innovation investments in fiscal '21, and new products were a bigger contributor to our top line, which we expect to continue in fiscal '22.
Next, as consumers have increased their digital usage during the pandemic, we leaned into digital marketing and commerce, resulting in our e-commerce business nearly doubling in the last two years, which today represents about 13% of total company sales.
Finally, we continue to make progress on our ESG goals.
For example, we advanced our commitment to climate action and submitted our proposal on science-based targets for our operations and Scope three emissions to the Science Based Targets initiative in June.
And as a people-centric company, we continue to focus on the wellbeing of our teammates and our values-based inclusive culture.
I'm particularly proud that during this trying year, we achieved our best safety score in recorded history, with a recordable incident rate of 0.26, significantly lower than the 3.3 industry average.
I'm also pleased that in fiscal '21, we continued to have high employee engagement of 87%, putting us at the top quartile of Fortune 500 companies.
Now let me turn to fiscal '22.
We expect inflationary pressure to persist, along with continued moderating demand as we lap COVID-19-related demand surges in the first half of fiscal '21.
While this is reflected in our fiscal '22 outlook, which Kevin will discuss, by the second half of the year, we expect to be within the lower end of the range of our long-term sales targets.
Like others in our industry and beyond, we are experiencing significant increases in input and transportation costs across all categories in our portfolio, which have accelerated since Q3.
And we're holistically and dynamically managing this with a laser focus on rebuilding margin.
We implemented pricing on Glad and announced actions on our Food, Cleaning and International businesses.
This represents about 50% of our portfolio.
We're also pursuing pricing in additional parts of our portfolio, which we'll communicate at the right time.
Based on the constructive conversations we're having with our retail partners and importantly, the strength of our brands, we feel confident about our ability to execute our pricing plans.
In addition, we will continue to drive our hallmark cost savings program.
We expect sequential gross margin improvements as we progress through fiscal '22, with our assumption for gross margin expansion by Q4.
In terms of market share, as we've discussed previously, we have experienced some declines due to supply challenges, but have made notable progress.
With strong investments in internal and external production capacity, including additional manufacturing lines and a significant expansion of our production team, in June, we achieved our highest case fill rate since the start of the pandemic.
I'm pleased to see that in the latest 13-week data, ending July 17, we saw market share gains in seven out of nine businesses.
Certainly, we recognize there's more work to do in parts of the portfolio, such as Glad Trash, and we have adjusted our plans to drive market share improvements over time.
Despite these near-term headwinds, we remain focused on our long-term priorities rooted in our IGNITE Strategy to deliver our long-term growth aspirations.
While some pandemic-related behaviors may revert over the next 12 months, we continue to believe there's been a shift in behaviors that will advantage Clorox longer-term, including a focus on health, wellness and hygiene, more time at home as well as increased adoption of e-commerce and digital platforms.
The pandemic also revealed the urgency to upgrade our digital infrastructure and capabilities.
Last year, I brought in Chief Information and Enterprise Analytics Officer, Chau Banks, who has extensive experience in business-driven digital transformation, to conduct a fresh assessment of our own program that was already underway before the pandemic.
With that assessment now complete, we are accelerating our transformation through planned investments of about $500 million over the next five years to enhance our digital capabilities and drive productivity improvements, including replacing our ERP.
This will enhance our supply chain to better position Clorox to meet customer needs, yield efficiencies and support our digital commerce, innovation and brand-building efforts.
Prior to the pandemic, we were already adapting our business to differentiate Clorox from a digital perspective.
We'll continue to invest in e-commerce and digital marketing across our portfolio, leveraging data-driven insights to engage with consumers in more relevant ways.
Innovation continues to be a key focus area for me and our new Chief Growth Officer, Tony Matta, who joined last October.
Tony has more than 20 years of brand-building experience with leading consumer companies.
Ensuring we have stickier innovation delivering multiyear value, we're driving lasting new product platforms, such as Fresh Step Clean Paws and Scentiva, which continue to grow.
In addition, we're extending innovation by leveraging external partners to create new revenue streams.
We're continuing to support our brands, especially margin-accretive innovation, with disciplined high-ROI advertising and sales promotion investments to build and strengthen consumer loyalty.
We also remain very focused on driving our growth runways to build Clorox into a global cleaning and disinfecting brand.
We are still in the early stages of a multiyear journey, but continue to believe they can become a meaningful contributor to growth longer-term.
And as we execute on all these initiatives, we will continue to drive the strategic link between our societal impacts and long-term value creation as we live our purpose and keep our ESG commitments front and center in our decision-making every day.
Now turning to our segment results.
In Health and Wellness, Q4 sales decreased 17% for the quarter, while full year sales were up 8%, with growth across all businesses.
On a two-year stack basis, Q4 sales grew 16% and full year sales grew 22%.
In Cleaning, sales were down by double digits compared to double-digit growth in the year ago quarter, primarily due to the deceleration of demand across various cleaning and disinfecting products.
On a full year basis, Cleaning sales grew behind a strong front half performance.
While demand fell faster than anticipated, it remains higher than it was pre-pandemic, with strong repeat rates among new buyers.
Importantly, our supply and product assortment are almost fully restored, which is reflected in our market share improvement, especially in wipes and sprays.
As consumer demand migrated to more preferred forms and value packs, we also saw a negative impact to price mix, which we expect to continue over the next few quarters.
Going forward, we'll be focused on strengthening our merchandising activities, especially for the back-to-school period.
Sales in Professional Products were down by double digits versus year ago period, when we experienced double-digit growth.
For the full year, Professional Products sales were up by double digits, fueled by an exceptional front half performance.
Demand started moderating in Q3 and continued into Q4 as customers worked through high inventory levels, especially of Clorox T 360 electrostatic sprayers.
In the short term, we expect results will continue to be volatile as we lap periods with unprecedented demand.
Longer-term, this business continues to be a strategic growth area for the company.
As part of our initiative to expand into new channels, we continue to add to our roster of out-of-home partnerships, including Live Nation, the world's leading live events company.
Lastly, within the Health and Wellness segment, our Vitamins, Minerals and Supplements business increased by double digits this quarter after lapping a double-digit decrease caused by a supply disruption related to COVID-19.
For the full year, sales were up as well.
Sales growth for the quarter was driven by a strong performance in the food, drug and mass channel and e-commerce.
Turning to the Household segment.
Q4 sales were down 8%.
Full year sales grew 10%, with growth across all three businesses.
On a two-year stack basis, Q4 sales grew 8% and full year sales grew 12%.
Glad sales decreased by double digits in Q4, lapping strong double-digit growth in the year ago quarter, which was impacted by initial stockpiling.
For the full year, sales were up.
Our efforts going forward are focused on managing base with the strong inflationary headwinds we're facing.
And as Linda mentioned, we still have more work to do in this business to restore market share.
Grilling sales decreased by double digits in Q4 as demand started moderating after four consecutive quarters of strong double-digit growth.
For the full year, sales grew by double digits, fueled by very strong consumption overall.
Our focus on expanding distribution of our latest innovation, Kingsford Pellets, continued with a nationwide launch, building on the product's initial success, while we're also introducing signature flavors made with 100% real spices that will be available in select retailers before Labor Day as we gear up for the 2022 grilling season.
This innovation is intended to help our business continue building consumption among multicultural millennials and other heavy grillers.
Cat Litter sales grew by double digits in Q4 driven by continued strong consumption.
For the full year, Litter sales also grew.
The result reflected strength in e-commerce, with Fresh Step becoming the number one brand online for the first time and positive overall category trends, boosted by record pet adoptions during the pandemic.
In our Lifestyle segment, sales were down 3% and full year sales grew 6%.
On a two-year stack basis, Q4 sales grew 13% and full year sales grew 16%.
Brita sales were down as demand continued to moderate from an extended period of elevated consumption.
Full year sales grew on top of double-digit growth in the prior year.
Despite the deceleration in Q4, business fundamentals are strong, especially now that our supply is mostly restored.
We're excited about the strong merchandising program we've put in place this year, including the largest back-to-college event ever for the brand.
The Food business was down, primarily due to lower shipments of Hidden Valley Ranch bottle dressings, with consumption moderating as consumer mobility improved.
Full year sales were up by double digits, on top of double-digit growth in the prior year.
The consumer fundamentals for this business are strong, with the brand growing market share and household penetration.
Burt's Bees sales increased by double digits this quarter as overall category consumption begin to recover.
Full year sales were down as category consumption was negatively impacted by store closures, mask mandates and stay-at-home measures.
We expect this business to continue to recover as people begin returning to their pre-pandemic shopping patterns and consumer mobility keeps improving.
We'll build on that momentum with our new "Lips To Love" campaign, supported by a strong innovation pipeline.
Lastly, turning to International.
Q4 sales grew 5%, reflecting the combined impact of the Saudi JV acquisition and benefit of price increases, partially offset by lower shipments due to the moderating demand after a period of elevated consumption.
Extended lockdowns in Canada also contributed to the decrease in shipments.
The results are on top of 12% growth in the year ago period, when we saw elevated consumption across our portfolio during the early stages of the pandemic.
Importantly, we continue to expand our global Disinfecting Wipes business, building on the dedicated international supply chain that was developed in five months and are making progress launching our Clorox Expert Disinfecting Wipes in existing countries as well as new markets.
For the full year, sales increased 14%, reflecting very strong growth for the majority of the year before moderating in Q4.
On a two-year stack basis, Q4 sales grew 17% and full year sales grew 19%.
As Linda mentioned, for fiscal year '21, we delivered 9% sales growth on top of 8% sales growth in fiscal year '20.
While this is lower than we anticipated in our outlook, we feel good about delivering another strong sales year.
Of course, we continue to manage through an extremely challenging cost environment, which impacted our fiscal year margins and earnings.
Importantly, we delivered another year of strong cash flow, which came in at $1.3 billion compared to a record $1.5 billion for fiscal year '20.
I'm pleased our strong cash flow allowed us to return almost $1.5 billion to our shareholders through our dividend and share repurchase program, representing an increase of about 90% in cash returned to shareholders versus fiscal year '20.
Before I review our Q4 results, I wanted to highlight a $28 million noncash charge we booked in Q4 related to a third-party supplier for our Professional Products business.
As we have shared previously, during the height of the pandemic, we worked with a number of third-party suppliers to support us in addressing unprecedented demand in the consumer and professional spaces.
We are reducing our reliance on one of these suppliers, and as a result, we took a charge in the fourth quarter.
Important to note, this noncash charge is included in our reported earnings per share and excluded from our Q4 adjusted earnings per share as it represents a nonrecurring item.
Turning to our fourth quarter results.
Fourth quarter sales decreased 9% in comparison to a 22% increase in the year ago quarter, delivering a two-year stack of 13% sales growth.
Our sales results reflect an 8% decline in organic volume and two points of unfavorable price mix, primarily in our Health and Wellness segment, as supply improvements resulted in a broader product assortment, including the reintroduction of value packs.
On an organic basis, fourth quarter sales declined 10%.
Fourth quarter sales were lower than expected, primarily in our Health and Wellness segment, as demand for cleaning and disinfecting products moderated more rapidly than we had previously anticipated.
While the cleaning and disinfecting category continues to moderate, we're pleased to see improving share as we've increased our ability to supply.
Gross margin for the quarter decreased 970 basis points to 37.1% compared to 46.8% in the year ago quarter.
Gross margin results were lower than anticipated, largely driven by higher input costs and lower sales.
The year-over-year change in Q4 gross margin was primarily driven by lower sales, resulting in lower manufacturing fixed cost absorption as well as significant cost headwinds, driving about 290 basis points of higher commodity costs, 180 basis points of increased transportation costs as well as 130 basis points of unfavorable mix.
Our fourth quarter gross margin also includes about 70 basis points of negative impact from the noncash charge I just mentioned.
These margin headwinds were partially offset by about 90 basis points of cost savings and 50 basis points of benefit from our pricing actions in our International division.
Selling and administrative expenses as a percentage of sales came in at 14.4% compared to 14.1% in the year ago quarter.
Advertising and sales promotion investment levels as a percentage of sales came in at about 12%, with U.S. spending at about 14% of sales.
Strong investments in Q4 supported our back half innovation program and reflected our continued focus on building loyalty among new consumers.
Our fourth quarter effective tax rate was 0%, primarily driven by a tax benefit from the exiting of a small foreign subsidiary, which was mostly offset by the charge we took to pre-tax book income associated with this decision as well as favorable return to provision adjustments.
On a full year basis, our effective tax rate was 20%.
Net of all these factors, adjusted earnings per share for the fourth quarter came in at $0.95 versus $2.41 in the year ago quarter, a decline of 61%.
Before I review the details of our outlook, let me provide perspective on the strategic investment Linda discussed.
We are planning to invest about $500 million over the next five years to enhance our digital capabilities and drive productivity improvements, including the replacement of our ERP.
In fiscal year '22, we plan to invest about $90 million in operating and capital expenditures, with about $55 million impacting our P&L and the remainder reflected in our balance sheet.
Beginning in Q1 and going forward, our adjusted earnings per share will exclude the portion of the $500 million investment that flows through our P&L to provide better insights into our underlying operating performance of our business.
Now turning to our fiscal year '22 outlook.
We anticipate fiscal year sales to be down 2% to 6%, reflecting ongoing demand moderation, primarily in our cleaning and disinfecting products in the front half of the fiscal year, in addition to the unfavorable mix and higher trade spending as we move to a more normalized supply and promotional environment.
We assume these factors will be partially offset by the pricing actions we're taking broadly across our portfolio.
Organic sales are expected to be down 2% to 6% as well.
We expect front half sales to decline high single to low double digits as we lap 27% growth in the front half of fiscal year '21, during the height of the pandemic.
Additionally, we expect Q1 sales to decline low double digits.
As we move to the back half of the year, we expect to return to the lower end of our long-term sales growth target.
Of course, we continue to operate in a dynamic and uncertain environment, which could impact our outlook.
We anticipate fiscal year gross margin to be down 300 to 400 basis points due to our assumption for significant ongoing headwinds from elevated commodity and transportation costs, which represent nearly $300 million in year-over-year cost increases.
We expect these headwinds to be more pronounced in the front half of the year, particularly in Q1, as we expect key commodity cost increases to reduce gross margin by about 500 basis points, driving our assumption for Q1 gross margin to decline 1,100 to 1,300 basis points.
For perspective, in Q1, we are lapping a modern gross margin record of 48%, reflecting over 400 basis points of favorable operating leverage on 27% sales growth in the year ago quarter.
This is based on our assumption that cost inflation will begin to moderate, and it will see the benefits from mitigating actions flow more fully through our P&L.
We expect fiscal year selling and administrative expenses to be about 15% of sales, which includes about one point of impact related to our investment to enhance our digital capabilities.
Additionally, we anticipate fiscal year advertising spending to be about 10% of sales, reflecting our ongoing commitment to invest behind our brands and build market share.
We expect our fiscal year tax rate to be about 22% to 23%.
The year-over-year increase primarily reflects lapping several onetime benefits in the prior fiscal year.
Net of these factors, we anticipate fiscal year adjusted earnings per share to be between $5.40 to $5.70.
As we start fiscal year '22, I would like to emphasize our priority to address elevated cost pressures from both commodities and transportation throughout the fiscal year.
We are focused on executing the pricing actions we discussed today.
We have implemented our announced price increase on our Bags and Wraps and are taking pricing on our Food, Cleaning and International businesses.
This represents about 50% of our portfolio.
We are also pursuing pricing in additional parts of our portfolio, which we'll announce at a later date.
While it's still early, we are confident in our ability to price given the strength of our brand and the constructive conversations we're having with retailers.
Consistent with our IGNITE Strategy, we're addressing short-term headwinds head-on, with an eye on the long-term health of our business.
We will continue to invest in our brands, including meaningful innovation to drive differentiation, which will help us continue to drive superior consumer value.
We are leaning into our cost savings program and productivity initiatives to help address ongoing cost pressures.
And we're accelerating investments in our digital transformation to drive increased capabilities, lower costs across our supply chain and improve innovation efforts and our brand engagement activities.
And finally, as Linda mentioned, our business is significantly larger than before the pandemic, and we're well positioned for the future.
Our global portfolio of trusted brands is more relevant than ever, and we're positioning ourselves to make the most of the changing consumer trends we see.
We have confidence in our strategic plans and our ability to execute to enable us to continue to create long-term value for our shareholders.
We're focused on strong execution in the face of dynamic conditions, including addressing significant cost headwinds and improving market share.
In addition, we have clarity on the strategic imperatives and executional mandate to differentiate Clorox and build a stronger, more resilient and more profitable company.
And as we accelerate and execute our IGNITE Strategy, we're confident that it will drive improved performance.
 Assistant:

Chosen response:
sees fy adjusted earnings per share $5.40 to $5.70.
starting in fy 2022, expects to invest about $500 million over next five years in its digital capabilities, productivity enhancements.
2022 fiscal year sales are projected to be down 2% to 6%.
in second half of fy 2022, sales are expected to normalize toward lower end of co's long-term sales growth target of 3% to 5%.
expects largest factor impacting its sales performance in fiscal year 2022 to be consumer demand, which remains uncertain.
fiscal year 2022 organic sales are projected to be down 2% to 6%.


Prompt:
Human: We generated earnings of $1.90 per share, and an ROE of 13.53% in the third quarter.
Our results included solid loan growth in a number of business lines, which was overshadowed by the headwinds from PPP loan forgiveness and reduced auto dealer loans due to supply constraints.
We continued to drive strong deposit growth, robust fee income, and excellent credit quality.
Revenue increased quarter-over-quarter and year-over-year, despite the low rate environment.
Our focus remains on managing expenses while supporting our revenue-generating activities.
Also during the quarter, we repurchased over 3 million shares, reducing our share count by over 2%.
We expect economic metrics remained relatively strong over the next year, which bodes well for growth.
Our corporate mission is to create shareholder value by providing a higher level of banking that nurtures long lasting relationships.
Key to achieving this mission is our dedication to our customers, employees and communities.
Our green loans and commitments continue to increase and totaled $1.5 billion at quarter end.
Recently, we launched a national Asian and Pacific Islanders resource grade.
We now have 10 employee resource groups covering all of our markets.
These groups support our diverse team members and strengthen relationships in our communities.
I encourage you to review our diversity equity and inclusion report, as well as our 13th Annual Corporate Responsibility related report, which were recently published.
These reports include updates on our strategies and progress in these important areas.
Turning to our third quarter financial performance on slide four.
Significant progress was made on PPP forgiveness, reducing these loans about $1.8 billion or 64% on a period-end basis.
Supply constraints continue to impact auto dealer floor plan loans, which average only $600 million relative to the historical run rate of about $4 billion.
Putting PPP and dealer side, the average loans and the remainder of our portfolio grew about $600 million or nearly 1.5% over the second quarter, including a 3% increase in general middle market.
Our pipeline is strong and loan commitments continue to increase.
Average deposits increased 5% or $3.6 billion to another all-time high.
This is due to our customers' solid profitability and capital markets activity as well as the liquidity injected into the economy through physical and monetary actions.
Net interest income increased $10 million, benefiting from an additional day in the quarter, higher loan fees and deployment of excess liquidity, partly offset by lower rates.
Credit quality was excellent with net charge-offs of only 1 basis points, and criticized loans have declined to well below our long-term average.
As a result, our reserve declined again and we had a negative provision.
Reserve ratio of 1.33% reflects the positive outlook for the economy and our portfolio.
Fee-generating activity remained robust.
Third quarter non-interest income was up 11% on a year-over-year basis.
On a quarter-over-quarter basis, record warrant income and commercial lending fees were offset by decline in card fees from elevated levels due to lower levels of government stimulus.
Our efficiency ratio held steady at 62%, as we continue to focus on supporting revenue generating activity.
This includes our technology investments, which help us attract and retain customers and colleagues by enhancing their overall experience and efficiency.
We remain focused on our digital transformation by enabling our business with products and services, modernizing our platform and building our digital future with the right talent, skills and strategy.
As we said earlier, we continue to manage our capital levels, keeping a close eye on long trends and capital generation.
Using our capital to support our customers and drive growth remains our top priority, while providing an attractive return to our shareholders.
We along with our customers and colleagues across our markets remain optimistic about the future.
We expect economic metrics remain relatively strong over the next year.
Our chief economist forecast real GDP to increase 4.5% in 2022, with each of our three primary markets of California, Texas, and Michigan above that level, which bodes well for growth.
Turning to slide five.
PPP loans decreased $1.8 billion to end [Phonetic] the quarter at $1 billion as the forgiveness process accelerated.
Excluding the decline in PPP loans, we had good momentum in several business lines.
Specifically, we've driven consistent growth in general Middle Market, Equity Fund Services, Environmental Services and Entertainment.
This growth was partially offset by decreases in National Dealer Services and Mortgage Banker.
Industry data shows that auto and dealer inventory levels are at a 20 to 25 day supply versus the typical 60 to 70 days due to challenges resulting from chip shortages, labor constraints and foreign nameplate shipping issues.
We believe our dealer floor plan balances are very close to the bottom and inventory levels should start to slowly rebuild.
Mortgage Banker loans also declined.
Of note, our mix is beneficial with 71% of our loans tied to purchase activity.
The expectation is that refi volumes should continue to fall as rates increase.
However, purchase activity should remain relatively strong.
As far as line commitments, we posted another strong quarter with an increase of over $800 million and growth in most business lines.
Usage also grew resulting in the line utilization rate holding steady at 47%.
Loan yields increased 14 basis points, including 14 basis points from the net impact of PPP loans and 3 basis points from higher non-PPP fees.
This was partly offset by a 3 basis point impact from lower rates, which included swap maturities.
Deposits continue to grow in nearly every business line, hitting a new record as shown on slide six.
The majority of our deposits are non-interest bearing and the average cost of interest bearing deposits remained at an all-time low just below 6 basis points.
Our total funding cost held steady at 7 basis points.
With strong deposit growth, our loan to deposit ratio decreased to 59%.
Slide seven provides details on our securities portfolio.
We deployed some of our excess liquidity by increasing the size of the securities portfolio by $1 billion or $566 million on average.
This allowed us to mitigate the rate headwinds resulting in approximately the same level of securities income quarter-over-quarter.
MBS purchases in the third quarter had average durations of around six years and yields of about 170 basis points.
With securities rolling off with rates over 200 basis points, the total portfolio yield declined to 1.76%.
Our goal is to continue to offset any pressure from lower reinvestment yields by gradually and opportunistically increasing the portfolio size.
Turning to slide eight.
Net interest income grew $10 million, primarily due to an increase in the contribution from loans.
However, the net interest margin declined 6 basis points due to the large increase in excess liquidity.
As far as the details, interest income on loans increased $7 million and added 6 basis points to the net interest margin.
This was driven by one additional day in the quarter, which added $4 million, higher loan fees and balances on non-PPP loans together added $5 million, and the impact of PPP with higher fees netted against more balances added $2 million.
This was partly offset by lower LIBOR and the swap maturity, which together had a $4 million unfavorable impact.
As I mentioned, we neutralized the drag from lower securities yields on interest income by increasing the portfolio size.
A $4.5 billion increase in average balances of the Fed combined with a 5 basis point increase in the rate paid on these balances added $3 million and had a 10 basis point negative impact on the margin.
Fed deposits remain extraordinarily high at over $20 billion and weighed heavily on the margin with the gross impact of approximately 65 basis points.
Given our asset sensitive balance sheet, the recent steepening of the yield curve is a positive sign for the future.
Our models estimate an 11% increase in annual net interest income in the first year when rates gradually rise 100 basis points.
And of course, the incremental income in year two compared to the year one increase would be yet higher.
Credit quality was excellent, as shown on slide nine.
Net charge-offs were only $2 million and included $16 million in net recoveries from our energy business line.
Non-performing assets decreased and remained low at 62 basis points of loans.
Also, criticized loans declined in nearly every business line and are now below 4% of total loans.
With help from the rise in oil and gas prices, the energy portfolio had significant decreases in both non-accrual and criticized loans.
Strong credit metrics combined with our growing confidence and sustainable economic growth resulted in a decrease in our allowance for credit losses.
Our total reserve ratio remains healthy at 1.33%.
Overall, our customers quickly adapted and navigated a very challenging environment.
However, we remain vigilant given the potential stress on our customers from supply chain disruptions, labor constraints and inflation.
Non-interest income declined modestly to $280 million following a very strong second quarter as outlined on slide 10.
Warrant-related income increased $7 million to an all-time high due to robust IPO and M&A activity.
Similarly, commercial lending fees were also a record driven by a large increase in syndication fees.
Deposit service charges grew $3 million as a result of an acceleration in customer activity.
Also BOLI income increased primarily due to the receipt of the annual dividend.
As expected, government card activity declined a stimulus-related volume waned.
However, this was partly offset by increases in merchant, consumer and commercial card activity.
Deferred comp asset returns, which is offset in non-interest expenses for less than $1 million compared to $6 million in the second quarter.
Also, derivative income declined $2 million due to reduced customer appetite for interest rate hedges, partly offset by robust energy derivative transactions with oil and gas prices hitting multiyear highs.
Fiduciary income decreased from a record level in the second quarter as continued strong equity market performance was more than offset by the absence of annual tax service fees.
In summary, we are pleased with another very strong quarter for fee income.
As shown on slide 11, expenses were up $2 million in the quarter.
Salaries and benefits increased $5 million, mainly due to an increase in performance-based incentives, which was partly offset by decline in deferred comp.
Also, we had higher software and consulting costs as we progressed on our digital transformation journey and occupancy expense was seasonally higher.
In line with lower card fee income, outside processing decreased $6 million.
Litigation cost decreased following the elevated second quarter levels.
And finally, FDIC insurance declined due to strong credit quality and higher capital ratios at the bank level.
Our stable efficiency ratio is consistent with our commitment to maintaining our strong expense discipline as we invest for the future.
Slide 12 provides details on capital management.
Our CET1 ratio decreased to an estimated 10.21%.
We repurchased 3 million shares in the third quarter under our share repurchase program.
We continue to closely monitor loan growth trends and capital generation as we manage our way toward our 10% CET1 target.
In addition, we have maintained a very competitive dividend yield.
Slide 13 provides our outlook for the fourth quarter relative to the third quarter.
Excluding PPP loans, we expect loan growth in several businesses, including general Middle Market and large corporate.
Partly offsetting this growth, we expect continued decline in Mortgage Banker due to lower refi volumes and seasonality.
Of note, we believe auto dealer floor plan loans were close to a bottom.
PPP forgiveness is expected to continue and the bulk should be repaid by year end.
As we look forward to next year, we believe loan growth from year-end '21 to year-end '22 should be relatively strong, supported by our robust pipeline and expectations that the economy will remain strong.
We expect the average deposits to remain elevated as customers continue to generate and maintain excess balances.
We expect net interest income in the fourth quarter to be impacted by a decrease in PPP-related income from $34 million in the third quarter to be $10 million to $15 million in the fourth quarter.
Ex-PPP, we expect net interest income to be relatively stable.
Lower fees from elevated third quarter levels and to a lesser extent maturing swaps are expected to mostly offset the benefit from non-PPP loan growth.
As far as next year, putting aside the headwind from the decline in PPP income, we expect to benefit from loan growth.
As I discussed earlier, we are highly sensitive to rate movements, so assumptions for rates are a key determinant for net interest income expectations, including the impact of maturing loan floors and swaps.
Credit quality is expected to remain strong.
Assuming the economy remains on the current path, we believe the allowance should continue to move toward our pre-pandemic day-one CECL reserve of 1.23%.
As far as fourth quarter non-interest income, we expect continued solid performance in several customer-driven fee categories such as deposit service charges, card and derivatives, particularly, foreign exchange.
More than offsetting this growth, we expect a decrease from record levels of warrant and commercial loan fees as well as elevated BOLI.
We expect 2021 non-interest income will be one of the highest we've ever recorded.
Certain line items such as card, warrants and derivatives, including CVA [Phonetic] may be difficult to repeat as we look in the next year.
And we assume deferred comp, which is offset in non-interest expense will not repeat.
However, we expect strength in growth across many other fee income categories.
We expect expenses in the fourth quarter to be relatively stable.
As we continue to invest for the future, technology investments are expected to rise as they typically do as we approach year end.
In addition, we expect seasonally higher occupancy, advertising and travel and entertainment expenses.
This is expected to be offset by a reduction from the third quarter elevated performance-based incentives.
Our planning process for next year is underway.
Big picture, we expect compensation to normalize in 2022.
However, inflationary pressures could impact a number of line items, including salaries.
Also, we are focused on product and market development, as well as driving efficiency, which means continued investment in technology.
This is particularly important to ensure we continue to be well positioned to assist customers and colleagues given the prospect of strong economic growth for the foreseeable future.
We expect the tax rate to be 22% to 23%, excluding discrete items.
And finally, as I indicated on the previous slide, we plan to continue managing toward our CET1 target as we monitor loan trends.
Overall, we are pleased with our results.
Many business lines showed good momentum with increases in loans, commitments in pipeline.
Also, fee income was robust, deposit growth was strong and credit quality was excellent.
This resulted in revenue growth and a steady efficiency ratio in spite of the low rate environment.
We continue to feel good about how well we are positioned for the future, particularly our ability to support our customers in this extraordinary environment.
With our expertise and experience, we are building long-term relationships.
Our unique geographic footprint provide significant growth opportunities.
We are located in seven of the top 10 fastest growing metropolitan areas, including the expansion of our Southeast presence earlier this year.
We are focused on delivering a more diversified and balanced revenue stream with an emphasis on fee generation.
We will continue to carefully manage expenses as we invest in our products and services and make progress on our ongoing digital journey.
Finally, our disciplined credit culture and strong capital base continue to serve us well.
These key strengths provide the foundation for creating long-term shareholder value.
 Assistant:

Chosen response:
compname posts q3 2021 net income of $262 mln, $1.90 per share.
third quarter 2021 net income of $262 million, $1.90 per share.
quarter-end common equity tier 1 capital ratio of 10.79% versus 10.84%.


Prompt:
Human: Hopefully, each of you had a wonderful holiday season.
I will begin today's call with a few highlights from the quarter and commentary on CMC's strategic growth projects.
Paul Lawrence will then cover the quarter's financial information in more detail, and I will conclude with a discussion of the current market environment and our outlook for the second quarter of fiscal 2022.
After which, we will open the call to questions.
I'm pleased to report that CMC's first quarter fiscal 2022 earnings were the best in our company's 106-year history.
Earnings from continuing operations were 232.9 million or $1.90 per diluted share on net sales of 2 billion.
Excluding the impact of a tax benefit related to an international reorganization, adjusted earnings from continuing operations were 199.2 million or $1.62 per diluted share.
CMC generated core EBITDA of 326.8 million, an increase of 109% from the year-ago period and an improvement of 28% from the prior quarter.
This was the third consecutive quarter in which our company has reported record bottom-line earnings, core EBITDA, and segment-level EBITDA.
These achievements are a result of the execution of our strategic plans presented to shareholders during our virtual investor day in August of 2020.
Strong market conditions and strong margins across several product lines certainly contributed to these exceptional results.
However, to put this performance into context, during the fiscal 2014 and 2015 time period, we experienced similar robust market conditions to what we enjoy today, and our 12-month EBITDA was between 375 million and 400 million with return on invested capital in the mid-single digits.
This significant improvement over the past six years underscores the enhanced earnings power of CMC today, and it is our objective to produce better returns with higher highs and lower lows through the economic cycle.
To back up this statement, CMC achieved an annualized return on invested capital of 25.1% during the first quarter and an annualized return on equity of 35.6%.
Our team members continue to tightly manage controllable costs, reflecting changes to costs on a per-unit basis, better than most industry and macro benchmarks we track.
We are certainly proud of CMC's record financial results delivered by strong execution of our strategic initiatives, as well as solid market fundamentals.
While we are proud of the performance to date, let me take a moment to explain why I believe CMC's best days are still ahead of us.
I'll start with sustainability.
Before we can responsibly talk about growth, we need to be certain that what we are growing is sustainable.
CMC was founded 106 years ago as a metals recycler, and we carry on that legacy today, operating possibly the cleanest portfolio of steel mills in the world.
We're also committed to further improvement as we make significant progress toward our 2030 environmental goals.
CMC's Scope 1 and 2 emissions are already well under the 2040 Paris Accords target, and our emissions have improved by 6.2% per ton of steel produced compared to our fiscal 2019 baseline.
This two-year improvement stands in stark contrast to the global industry, which increased its emissions intensity over the same time frame.
Since fiscal 2019, we've also improved our energy efficiency by 7.8%, while the global industry's performance has deteriorated by nearly 6%.
We are sourcing more renewable energy than ever before, and the proportion of green energy within our overall consumption has risen by roughly 3 percentage points over the last two years, and we continue to work every angle to move this figure higher.
Our commitment to renewable sourcing is demonstrated by the design of our future Arizona 2 micro mill now under construction in Mesa.
This exciting new plant will be capable of directly connecting to an on-site solar field, making micro mill steelmaking the world's cleanest steelmaking technology even cleaner.
In our industry, sustainability also means treating our people with the right way and keeping them safe on the job.
CMC's mission is that each day, every one of our employees finishes their shift in the same condition they started.
We have developed a unique safety culture that leans on innovative thinking, emphasizes shared accountability, and aims toward an ultimate goal of zero incidents.
Through this approach, CMC has achieved several consecutive years of improvement in our incident rates, including dramatic improvements at acquired facilities where we have instilled our CMC culture.
Across each line of business, we focus extensively at keeping our people safe and healthy.
Not only is this the right thing to do, but over the long term, we expect the care we have for our employees will lead to long-term retention of our exceptional workforce and make CMC an employer of choice within our industry.
I touched on only a few highlights of our ESG commitment, which is detailed in our sustainability report published in December 2021, and I encourage you to read the report.
To sum up, I would say that CMC is not just sustainable, but a sustainability leader.
Being a leader means always pushing further and never standing still.
In the years ahead, we will do just that.
And clearly -- our clearly sustainable platform gives us a solid foundation on which to grow.
I'd like to now discuss some of our exciting initiatives which are a result of the disciplined and deliberate execution of CMC's strategic plan.
These projects strengthen and reinforce our organization's core capabilities.
While extending CMC's growth runway into markets, customer groups, and applications, we already know well.
Recently, we announced a series of exciting growth initiatives, which have been under consideration for some time.
I'd like to emphasize that we have been disciplined in knowing the strategic direction and goals that most benefit our shareholders, disciplined in taking the next step in identifying opportunities that move our organization toward these goals, and then, acting decisively when these opportunities arise and the timing is right.
Let me begin with an update on CMC's third micro mill currently under construction in Mesa, Arizona.
This plant will be the first micro mill in the world capable of producing merchant bar and, as I mentioned earlier, will be among the greenest in the world.
Arizona 2, as we are calling it, provides significant strategic value to CMC.
It will replace the much higher cost and inefficient rebar capacity of the former Steel California operations.
The sale of which will fund over half the cost of our new plant.
Arizona 2 will also give CMC a coast-to-coast merchant bar footprint and serve several customers we already know well through our MBQ operations in Alabama, South Carolina, and Texas.
Importantly, Arizona 2 will help further optimize CMC's operational network and enhance customer service.
The new mill, dubbed MM4, will augment our operational footprint in the Eastern United States and enhance our ability to serve markets in the Northeast, Mid-Atlantic, and Midwest.
We expect significant internal synergies from this investment, including enhanced production flexibility among our Eastern U.S. mill network, improved customer service capabilities, as well as enhanced delivery times and logistical efficiencies in getting steel to its destination.
MM4 is a project we have studied for several years and now feel the time is right to execute.
MM4 will be rebar-centric with additional capabilities under consideration.
This investment further demonstrates our commitment to a sustainable future for CMC.
Both mill projects stand to benefit directly from the largest infrastructure package to be enacted in the U.S. in several decades.
The Infrastructure Investment and Jobs Act signed last November will provide 1.2 trillion in funding over five years and stimulate an estimated 1 million to 1.5 million tons of incremental annual rebar demand at full run rate.
This would add roughly 15% to current domestic consumption of around 8.5 million tons.
We expect the time between the bill's enactment and the commencement of significant construction activity to be in the range of 18 to 24 months, which lines up very well with the scheduled future commissioning of Arizona 2.
We further anticipate a late calendar 2024, early 2025 start-up of MM4, and this would coincide with infrastructure-related demand nearing full run rate.
Stepping beyond mill investments, CMC's agreement to acquire Tensar Corporation announced last month will add additional products and capabilities, which will make CMC a unique provider of value-added reinforcement solutions for the domestic and international construction markets.
This transaction represents CMC's entry into an adjacent and complementary product space through the purchase of a proven market and innovation leader.
The acquisition meaningfully extends CMC's growth runway and provides a platform for further expansion into high-margin, high customer service engineered solutions.
As we discussed in our call in December, Tensar's offerings provide best-in-class value propositions to customers, particularly against competing traditional reinforcing solutions but are underpenetrated in the marketplace.
We believe this combination of attractiveness to customers and large potential market opportunity will support significant organic growth at Tensar in the years ahead.
Tensar is already very well managed with a strong reputation and proven innovation and operational capabilities.
We believe these factors greatly reduce the execution risk of this transaction while providing CMC with solid commercial synergy opportunities out of the gate.
Currently, we expect to close on the acquisition during the fiscal third quarter.
The two U.S. mill expansions plus the Tensar acquisition, combined with our recently commissioned rolling line in Europe, should provide CMC with at least 200 million of sustainable through-the-cycle EBITDA once fully operational.
My belief that CMC's best days are ahead is based not just on our announced strategic investments but several other factors as well, including the quality of our people.
We've not discussed this topic much in the past, but it's vitally important to the future of CMC with a longer-term impact greater than any new capital project.
As we sit here today, I'm very confident regarding the new generation of leaders that are developing at every level of our organization.
Our bench strength has never been better.
CMC's transformational growth projects over the last several years have expanded our North American business by nearly 50%, necessitating organizational adjustment to accommodate such rapid growth.
Employees were provided with opportunities to take on new responsibilities and new roles across the company, giving each an expanded perspective of CMC's business and valuable experience in managing through change.
Additionally, the last two years have involved unprecedented challenges, first related to complications due to the pandemic, followed by high inflation, logistical issues, and labor shortages.
Our team has responded exceptionally well to the series of challenges, and we have all seen the outcome, a stronger company generating record financial results.
With hindsight, it's clear the events of the last several years has created an innovative, adaptable, stress-tested roster of current and future key leaders at CMC.
Lastly and while this is outside CMC's control, I'm confident about the future of our core geographical markets.
CMC has exposure to the most economically vibrant and rapidly growing regions in both the U.S. and Europe.
For more than a decade, population growth within CMC's key U.S. markets have outpaced the broader United States.
This trend has picked up pace considerably since early 2020 and has been reflected in new community formation and relocation of businesses.
Ultimately, population drives construction over the long term, and CMC is well-positioned to benefit.
The dividend will be paid on February 3, 2022.
This represents CMC's 229th consecutive quarterly dividend with the amount paid per share increasing 17% from a year ago.
As we announced last quarter, we are also committed to returning capital to shareholders through our share repurchase program, and Paul will give you an update on our activity this past quarter.
With that as an overview, I'll now turn the discussion over to Paul Lawrence, senior vice president and chief financial officer, to provide some more comments on the results for the quarter.
As Barbara noted, we reported record fiscal first quarter 2022 earnings from continuing operations of 232.9 million or $1.90 per diluted share, more than triple prior-year levels of 63.9 million and $0.53, respectively.
Results this quarter include a net after-tax benefit of 33.7 million, primarily related to a tax capital loss recognition on an international tax restructuring transaction, which took place in the quarter.
Excluding the impact of this item, the adjusted earnings from continuing operations were 199.2 million or $1.62 per diluted share.
Core EBITDA from continuing operations was 326.8 million for the first quarter of 2022, more than double the 156.6 million generated during the prior-year period.
Both our North America and Europe segments contributed significantly to year-over-year earnings growth, while core EBITDA per ton of finished steel reached a record level of $233 per ton.
The first quarter marked the 11th consecutive quarter in which CMC generated an annualized return on invested capital at or above 10%, which is in excess of our cost of capital.
Now, I will review our results by segment for the first quarter of fiscal '22.
The North American segment recorded adjusted EBITDA of 268.5 million for the quarter, an all-time high.
This compares to adjusted EBITDA of 155.6 million in the same period last year.
Largest driver of this 73% improvement was a significant increase in margins on steel products and raw materials.
Partially offsetting this benefit were higher controllable costs on a per ton of finished steel basis due primarily to increased unit pricing for freight, energy, and alloys.
Selling prices for steel products for our mills increased by $364 per ton on a year-over-year basis and $76 per ton sequentially.
Margin over scrap on steel products increased $202 per ton from a year ago and $82 per ton sequentially.
The average selling price of downstream products increased by $158 per ton from the prior year, reaching $1,092.
This increase was consistent with the rise in underlying scrap costs, resulting in unchanged margins over scrap relative to the prior period.
During our fourth quarter earnings call, I indicated that CMC's downstream backlog was expected to reprice higher throughout fiscal 2022 as new higher price work replaces older lower-priced work.
Through the first four months of the fiscal year, we are seeing the anticipated rate of repricing play out.
We continue to expect forward -- further upward movement in CMC's average backlog price through the remainder of the fiscal year, particularly in light of strong market demand and bid volume, which we are experiencing in our downstream geographies.
Shipments of finished product in the first quarter were essentially flat from a year ago.
End market demand for our mill products remained strong.
This is supported by our own shipment volume and industrywide data we track regarding consumption of rebar, merchant bar, and wire rod.
Downstream product shipments increased by nearly 8% from the prior period, driven by the beneficial impact of our growing construction backlog.
Turning to Slide 11 of the supplemental deck, our Europe segment generated record adjusted EBITDA of 79.8 million for the first quarter of 2022 compared to adjusted EBITDA of 14.5 million in the prior-year period.
This improvement was driven by expanded margins over scrap, the receipt of a 15.5 million energy credit, and strong profit contributions from our new rolling line.
Higher costs for energy and mill consumables partially offset these positive factors.
Energy credit received was for calendar 2020.
Legislation is currently before the Polish Parliament to extend this credit further.
Margins over scrap increased $236 per ton on a year-over-year basis and were up $120 per ton from the prior quarter.
Tight market conditions provided the backdrop to achieve the segment's highest average selling price in more than a decade, reaching $869 per ton during the first quarter.
This level represented an increase of $408 per ton compared to a year ago and $106 per ton sequentially.
Europe volumes climbed 8% compared to the prior year as a result of extensive planned maintenance performed at our rebar rolling line.
Shipments of merchant and other products were relatively unchanged as sales of higher-margin finished products replaced sales of semi-finished billets.
Demand conditions within Central Europe remained strong.
The Polish construction market continues to grow at a robust rate, with particular strength in the residential and infrastructure sectors.
Construction of our merchant and wire rod -- consumption of our merchant and wire rod products has been supported by expanding manufacturing activity as highlighted by several key macroeconomic indicators, including the Polish and German PMI readings and Polish new industrial orders.
The combination of good demand and strong pricing has provided an ideal backdrop for the start of our third rolling line.
This new asset is significantly outperforming the original investment case.
Turning to capital allocation, balance sheet, and liquidity, as of November 30, 2021, cash and cash equivalents totaled 415 million.
In addition, we had approximately 650 million of availability under our credit and accounts receivable programs, bringing total liquidity to nearly 1.1 billion.
In addition, as we announced last week, in late December, we closed on the sale of our Rancho Cucamonga California site and received gross proceeds of 313 million.
Proceeds received represent approximately 45% of the entire purchase price of the rebar acquisition we completed in 2019.
During the second quarter, we will record a pre-tax gain of approximately 275 million related to this transaction.
During the quarter, we generated 26 million of cash from operating activities despite a $252 million increase in working capital.
The rise in working capital was driven by the increase in average selling prices.
Looking beyond price factors, our days of working capital have decreased from a year ago.
Over the course of the past four quarters, CMC has invested roughly $500 million in working capital.
Our leverage metrics remain attractive and have improved significantly over the last two fiscal years.
As can be seen on Slide 15, our net debt-to-EBITDA ratio now sits at just 0.7 times, while our net debt to capitalization is 18%.
We believe our robust balance sheet and overall financial strength provides us the flexibility to finance our strategic organic growth projects and complete the acquisition of Tensar while continuing to return cash to shareholders.
CMC's effective tax rate was 11%, which was driven sharply below our typical statutory rates by the international reorganization performed during the quarter.
Absent the enactment of any corporate tax legislation that would impact fiscal 2022, we forecast our tax rate to be approximately 25% to 26% for the balance of the year.
With respect to CMC's fiscal 2022 capital spending outlook, we currently expect to invest 475 million to 525 million this year, roughly half of which will be attributable to Arizona 2.
Lastly, after approving the program in mid-October, CMC repurchased 159,500 shares during the first fiscal quarter of 2022 at an average price of $33.28 per share.
These transactions amounted to approximately 5.3 million, leaving 344 million remaining under the current authorization.
We expect share buyback activity to increase in the second half of the year.
Turning now to market conditions, first, in North America, we are seeing strong activity within nearly all of our end markets.
At the mill level, demand for rebar, merchant bar, and wire rods remains robust with total domestic consumption for each of these products growing on a year-over-year basis during CMC's fiscal first quarter.
Rebar and wire rod in particular are being supported by continued construction growth.
During CMC's first quarter, total domestic construction spending increased roughly 10% from the prior year, according to U.S. Census Bureau, driven by growth in both residential and private nonresidential categories.
While national spending was largely unchanged for infrastructure, activity within CMC's core geographies outperformed the national average during the first quarter, driven by healthier state-level budgets and the need to accommodate growing populations with expanded infrastructure networks.
Strength in construction activity has also benefited our merchant bar product lines which are used in various applications, including ceiling joists, industrial stairs and railings, and warehouse racking.
The industrial markets served by CMC's merchant products are healthy, and we are seeing particular strength among machinery and equipment manufacturers.
As you know, construction is by far CMC's largest end market, and our best leading indicator is our volume of downstream project bids.
Activity levels have been very strong for the last three quarters, driven by a good blend of private and public sector work.
Project owners are also awarding high volumes of new work, which has allowed CMC to grow our downstream backlog on a year-over-year basis for two consecutive quarters.
Work is entering our backlog at very attractive average price levels, which we expect to drive profitability when shipped in future quarters.
The picture is equally positive in Europe.
Construction activity is strong with new residential construction permits increasing by double-digit percentages on a year-over-year basis.
The Central European industrial sector continues to grow as reflected in the current 18-month trend of expansionary PMI readings for both Poland and Germany.
With production from our new rolling line, which allows our Polish operations to produce each of our three major product groups simultaneously, CMC is now even better positioned to capitalize on this growth.
In addition, supply congestions in Central Europe are tight, which has given -- has driven margins sharply upwards from the historical lows of fiscal 2020 and early fiscal 2021.
Regarding our outlook for fiscal 2022, we remain confident.
Based on our view of the marketplace and our internal indicators, we anticipate continued strong financial performance.
Signs point to robust demand in our key end markets, and we expect supply and demand conditions to remain favorable, supporting healthy margin levels.
The positive tone of our outlook is backed up by several key external construction forecasts and indicators.
The Portland Cement Association once again increased its expectation for cement consumption growth in 2022 and now anticipates an increase of 2.5% on a year-over-year basis.
Additionally, the Dodge Momentum Index, which measures the value of nonresidential projects entering the planning phase, remains near a 14-year high and shows strength in both its commercial and institutional components.
More near term, in the second quarter of fiscal 2022, we expect shipments to follow a typical seasonal trend, which has historically equated to a modest decline from Q1 levels.
Margins on steel products, as well as controllable cost per ton, should be generally consistent on a quarter-over-quarter basis.
And at this time, we will now open the call to questions.
 Assistant:

Chosen response:
q1 earnings per share $1.90 from continuing operations.
q1 adjusted earnings per share $1.62 from continuing operations excluding items.


Prompt:
Human: It's very good to be with you today, and I hope you and your families are coping well.
Despite these unprecedented times, CNA continues to operate effectively, as our underlying business performance improved once again this quarter as evidenced by the ongoing acceleration in rate achievement, as well as higher overall growth and growth in new business.
We also had an improved underlying loss ratio and a lower expense ratio for the quarter.
As we have done in previous years, we completed our annual Life & Group review in the quarter, which importantly includes the long-term care gross premium valuation or GPV analysis of our active life reserves.
As part of our analysis, we took strong action to address the lower interest rate environment we now face compared to a year ago by conservatively modifying our discount rate assumptions.
First, we have lowered our expectation for the normative 10-year treasury yield to 2.75%, a reduction of 100 basis points from last year.
Second, we extended the time period to grade up to that normative rate from six years to 10 years.
Since long-term care reserves are discounted, these changes reflect our ongoing prudent approach to reserving and our steadfast resolve to protect our capital and earnings in an ongoing low interest rate environment.
Al will provide you with much more details associated with this year's GPV review.
Our underlying combined ratio of 92.6% for the quarter improved by 2 points from a year ago and is the lowest underlying combined ratio for CNA in the last 10 years.
The underlying loss ratio improvement consisted of only 0.5 point benefit due to lower frequency from the ongoing economic downturn, with most of the improvement driven by our International business, which has steadily returned to profitability as a result of our reunderwriting efforts in our London operation over the last 18 months.
As I mentioned in the last quarter, we expected only a relatively modest impact from loss frequency benefit because a substantial portion of our portfolio consists of insureds in essential industries such as construction, healthcare and manufacturing that were not subject to shelter-in-place restrictions.
And we continue to assume a potential for higher severity and casualty lines, like auto and general liability, as the economy is restored over time.
So, we believe it is still early to react too favorably to the short-term trends.
The lower P&C expense ratio of 31.8% largely reflected our growing premium base, which contributed approximately 0.7 points of the improvement in our underlying combined ratio.
As I have said on prior calls, our strategy has been to simultaneously make substantial investments in talent, technology and analytics to position us for sustained success while streamlining our operation in order to keep our overall underwriting expenses flat.
Then, by growing the Company in a disciplined and prudent fashion, we would steadily decrease the expense ratio, which you can clearly see in this quarter as more of the growth earned in.
Turning to the dynamics of this hard market and starting with pricing, rate increases continued to accelerate as we achieved plus 12% in P&C overall, up 1 point from the second quarter.
Importantly, excluding workers' comp, which had slightly negative rate and our very profitable Affinity Programs, which had a small positive rate increase, the rate change was plus 17%, up 2 points from Q2 and 5 points from Q1.
Importantly, the increases apart from these two areas were broad-based at each business unit and essentially all product lines achieved higher rate.
The acceleration in our written rate increases over the last six quarters has led to four quarters of earned rate increases, now at plus 9%.
This compares to our long-run loss cost trend assumptions of slightly more than 4%, excluding our Affinity book.
As mentioned on our last call, we had previously increased our view of long-run loss cost trends in 2020, as we continued to feel the impact of social inflation on our portfolio, in particular in our aging services and auto portfolios.
In the quarter, we remained comfortable with our latest view and did not further need to increase them.
However, as I also mentioned last quarter, the impact of the pandemic could be up at scaling the social inflation dynamic.
The great news, however, is that all the dynamics fueling the hard market, which we and others have articulated repeatedly, should allow us to achieve strong rate increases well into 2021 so that the margin gap, all else equal, should continue to grow net of any added pressure from long-run loss cost trends in 2021.
And as we see this play out, over the next couple of quarters, we will then be in a better position to incorporate the benefit into our loss ratio picks.
In terms of growth, gross written premium, ex-captives, grew 9%, while net written premium growth was 7%, both higher than the second quarter.
Exposure continued to be a headwind to our growth as it was down 3 points compared to the third quarter last year.
As was the case in the second quarter, new business growth in the third quarter was again higher than the same period last year, which evidences our ability to provide strong service to our agents and brokers in this remote working environment.
The investments we made at the end of the first quarter to respond quickly to shorter time frames on submissions that I mentioned on the last call continued to pay dividends this quarter.
Retention declined 1 point from the second quarter to 82%, due to our reunderwriting efforts in our London operations, which will essentially be completed in the fourth quarter and to our targeted actions in the US to improve the profitability of certain lines within healthcare and manufacturing that I have spoken about previously.
Completing the picture for the quarter, our overall combined ratio was 100.9%, which included 0.4 points of favorable development and 8.7 points of loss activity from a series of natural catastrophe events.
In the quarter, there were no significant changes in the regulatory environment.
The claim notices we received in the third quarter have been modest and very little has been paid out.
Of course, that was our expectation all along, as we knew that claim outcomes from this event would play out slowly over time.
As a result, our previously established COVID-19 ultimate loss estimate of $195 million remains appropriate for all events that occurred through the third quarter, from which we believe claims will eventually emerge and our loss estimate is still virtually all in IBNR.
The overall portfolio fared well in the third quarter with the unrealized gain position increasing once again and net investment income was strong, driven by LP positions.
Despite this strong quarter, we continued to see a reduction in our net investment income from our fixed income portfolio supporting P&C, due to the lower interest rate environment that we believe is unlikely to change meaningfully anytime soon.
This is a key dynamic fueling my perspective for a protracted hard market, as it will take time for us in the industry to achieve an offsetting increase in underwriting income.
Finally, our core income for the third quarter was $193 million or $0.71 per share.
Net income was $213 million or $0.79 per share.
As Dino indicated, I will now provide details of our results by business segment.
Starting with Specialty, the combined ratio was 89.5% this quarter.
The combined ratio includes favorable prior-period development of 2 points and 1 point from catastrophe losses.
The favorable prior-period development was largely driven by continued strong profitability from the surety business, partially offset by unfavorable development in healthcare.
The underlying combined ratio for Specialty was 90.5% this quarter, 1.6 points of improvement compared to third quarter 2019.
The underlying loss ratio was 60%, and the expense ratio was 30.5%.
The expense ratio has improved by 1.3 points compared to third quarter 2019, due to both growth in net earned premium and lower expenses.
The gross written premium growth ex-captives was plus 11% in Specialty for the quarter and was 9% on net written premium.
Rates continued to increase at plus 13%, up from 11% last quarter.
Retention was 86% this quarter, which was flat to last quarter.
New business volume was strong with growth of 14% over the prior year's quarter.
The combined ratio for Commercial was 111.5% this quarter, which is 9.9 points higher than third quarter 2019 and includes 17 points of catastrophe losses and 0.6 points of unfavorable prior-period development.
The cat losses are attributable to severe weather-related events in the quarter, primarily Hurricanes Laura, Isaias, Sally and the Midwest derecho.
The underlying combined ratio for Commercial was 93.9% this quarter, 0.1 points higher than the third quarter of 2019, but 0.9 points improvement on a year-to-date basis versus prior.
The underlying loss ratio was 61%, compared to 61.5% in the prior year, reflecting a modest benefit from lower frequency in the quarter as Dino mentioned.
The expense ratio was 32.3% compared to 31.7% in the third quarter 2019.
The prior-year expense ratio included a release, especially with the state loss assessment fund, which is muting the favorable impact of current year net earned premium growth and lower expenses.
Gross written premium growth ex-captives was plus 7% in Commercial for the quarter and net was plus 4%.
The rate change of 11% was up 1 point from last quarter.
New business growth was down 3% versus prior quarter and up 8% on a year-to-date basis.
The combined ratio for International was 98.1% this quarter compared to 107.4% in the third quarter 2019.
The combined ratio includes 3 points of catastrophe losses for the quarter.
The underlying combined ratio for International was 95% this quarter, an improvement of 10.3 points compared to prior-year quarter.
The underlying loss ratio was 60.1%, and the expense ratio was 34.9%.
The underlying loss ratio improved 7.2 points, fueled by a reunderwriting execution, while expense ratio declined 3.1 points, driven by lower acquisition and underwriting expenses.
The gross written premium in International increased by 5% and net increased by 10%, both in comparison to the prior year.
The net written premium growth comparison to the prior period was impacted by a change in timing of our reinsurance treaty.
Rate change of 16% was up 2 points from prior quarter.
Retention was 70% this quarter, which is in line with 2019 levels and reflects the progression of the reunderwriting strategy.
More than five years ago, we commenced efforts focused on the active management of long-term care with the goal of reducing the risk of CNA, while also effectively serving our policyholders.
This encompass significant investment in the business and a commitment to proactively and effectively address risks.
We've made considerable progress on these objectives, including reducing risk across many dimensions of the block, achieving meaningful rate increases and taking pre-emptive actions on our reserving assumptions.
The actions we've taken with our 2020 annual review of our Life & Group reserves are reflective of this continued approach and commitment.
As a reminder, our annual Life & Group reserve reviews include the long-term care gross premium valuation or GPV of our active life reserves, as well as the long-term care claim reserve analysis.
In addition, we completed a claim reserve review for our structured settlements block, which I will also address.
Starting with the long-term care GPV review, the most significant change resulting from this review was an update of our discount rate assumptions.
These changes associated with the discount rate are detailed in Slides 14 and 15.
It is important to note that the discount rate is a function of the current investment portfolio yield as well as the reinvestment yield assumed for future investments.
The benchmark we use in reference to the risk-free reinvestment yield is the 10-year US Treasury.
While we're projecting risk-free rates over the short and intermediate term, we assume long-term rate or normative rate with a critical importance, given the duration of the liabilities.
In the previous two year's reserve reviews, we have reduced our expectations for the normative 10-year treasury yield by 105 basis points.
At our 2019 review, assuming that this benchmark rate will get to 3.75% by 2025, in light of the current interest rate environment and expectation with conditions persisting, we've taken several critical actions on our discounted assumptions.
First, we have lowered our expectation for the normative rate at 2.75%, a reduction of 100 basis points from last year and 205 basis points cumulatively over the last three years.
Second, we've extended the time period to grade up to a normative rate from six years to now 10 years.
This means that it's not until 2030 that we will assume the new 2.75% normative rate.
And finally, we are using the forward curve for the first three years of the projection and then we'll grade up to the normative rate over the remaining seven years.
You will see on Slide 15 that we're not assuming the tenure will get back to the 2% level until 2027, a significant change compared to our prior-year expectations.
I should also note, we did not make any meaningful changes to investment in spread assumptions or portfolio credit quality as part of this review.
The sum of all the assumption changes on the discount rate resulted in an unfavorable pre-tax impact of $609 million.
These discount rate changes, including the significant decrease in the normative rate, extended time frame to get to the new normative rate, and use of the forward curve over the next several years, reflects our prudent approach to reserving and meaningfully reduces the reinvestment risk assumed in these liabilities.
With that, I will move on to other key assumption changes, including morbidity, persistency and rate increases, all highlighted on Slide 16.
With respect to morbidity, along with the change in the level of interest rates, we also lowered our expectation of inflation.
This change impacts our assumption for cost of care for future claims and together with other morbidity assumptions, had a favorable pre-tax impact of $51 million.
With respect to persistency, the key assumption changes have increased the mortality rates for older age policyholders not on claim and reflective of our experience for this cohort.
Persistency changes had a favorable pre-tax impact of $152 million.
Finally, regarding future premium rate increases, as a reminder, our approach is to include rate increases that have been approved, filed but not approved, but that we plan to file as part of the current rate increase program.
Over the past year, our actual rate achievement has exceeded our prior-year expectations, contributing $200 million of favorable impacts.
In addition, we are continuing to file for additional rate increases under existing programs.
We are updating our assumptions to reflect our actual rate achievement in addition to the updates to existing programs at a total favorable pre-tax impact of $318 million.
And I should note that the weighted average duration to future rate increase approvals assuming annual reserves is only 1.5 years.
Overall, and as highlighted on Slide 17, our annual GPV analysis for long-term care [Indecipherable] reserve deficiency and charged earning of $74 million on a pre-tax basis.
While these changes and notably the change on the discount rate are significant, they reflect our continued approach to prudently and proactively address risks associated with this business.
In addition to the GPV analysis, we've also concluded our annual long-term care claim reserve review, which is the review of the sufficiency of our reserves covering our claim operation.
The impact from this review is favorable with a $37 million release of reserves, driven by lower expected claim severity, specifically with we reserved higher claim closure rates, most notably driven by claim recoveries.
I should note that this is the fifth year in a row that result of the claim review is favorable, which is a validation of our responsible approach to actuarial assumption setting.
Finally, and as indicated on the bottom of the Slide 17, we had an unfavorable impact associated with the claim reserve review for our structured settlements block.
These structured settlements agreement to provide six periodic payments to claimants associated with historic P&C claims.
Total reserves for our structured settlement block were approximately $550 million at the end of the third quarter.
Similar to our long-term care block, these reserves are held on our balance sheet on a present value basis and thus are subject to changes in assumed discount rates.
As well, many of these policies have life contingencies and thus are impacted by changes in mortality assumptions.
As part of our reserve review this year, we made adjustments to both the discount rate and mortality assumptions, resulting in a reserve strengthening of $46 million on a pre-tax basis.
Turning to Slide 18.
Overall, our Life & Group segment produced a core loss of $35 million in the quarter, with some of the reserve changes coming in both the long-term care and structured settlement blocks with a pre-tax charge of $83 million or $65 million after-tax.
With the efforts from the impacts of these reserve reviews, the segment produced core income from current operations of $30 million for the third quarter.
These results were favorable to our expectations and primarily driven by morbidity experience.
Specifically, we continue to experience lower-than-usual new claim frequency, higher claim terminations and more favorable claim severity that may be effects of COVID-19.
As referenced in the previous quarter, within the uncertainty of these trends, we are taking a cautious approach from a income recognition perspective and then holding a higher level of IBNR reserves.
In addition, as we continue to be in these trends which are temporary and short-term in nature, we did not incorporate this more recent experience into our GPV assumption setting efforts.
Our Corporate segment produced a core loss of $19 million in the third quarter.
Now let me turn to investments.
Pre-tax net investment income was $517 million in the third quarter, compared with $487 million in the prior quarter.
The results reflected favorable returns from our limited partnership and common equity portfolios, which produced pre-tax income of $71 million compared to $18 million during the same period last year.
Pre-tax net investment income from our fixed income portfolio was $443 million this quarter, compared to $462 million in the prior-year quarter.
The pre-tax effective yield on our fixed income holdings was 4.5% in the period.
The decrease was primarily in our P&C portfolio, which, as Dino mentioned, has been impacted by lower reinvestment rates.
Pre-tax net investment gains for the quarter were $27 million, compared to a gain of $7 million in the prior-year quarter.
The gain was primarily driven by the continued recovery of the mark-to-market on our non-redeemable preferred stock investments and higher net realized investment gains on fixed maturity securities, partially offset by a loss on the redemption of our $400 million of senior notes due August 2021.
Our unrealized gain position on our fixed income portfolio stood at $5 billion, up from $4.4 billion at second quarter.
The change in unrealized during the quarter was driven by the tightening of credit spreads across the market, while risk-free rates remained low.
Fixed income assets that support our P&C liabilities had an effective duration of 4.5 years at quarter-end, in line with portfolio targets.
The effective duration of the fixed-income assets that support our Life & Group liabilities was nine years at quarter-end.
Our balance sheet continues to be extremely strong.
At quarter-end, shareholders' equity was $12 billion or $44.30 per share, driven by the increase in our unrealized gain position during the quarter.
Shareholders' equity, excluding accumulated other comprehensive income, was $11.6 billion or $42.78 per share.
We continue to maintain a conservative capital structure with a low leverage ratio and a well-balanced debt maturity schedule.
As I noted in August, we issued $500 million of senior notes at a record low coupon of 2.05%, with tremendous demand for the paper and we subsequently redeemed our 2021 debt, a net of which will reduce our annual interest expense by nearly $13 million.
And at quarter-end, all of our capital adequacy and credit metrics remained above target levels, supporting our credit ratings.
In the third quarter, our operating cash flow was strong at $758 million, driven by higher premiums, and to a lesser extent, lower paid losses.
In addition to our positive operating cash flow, we continue to maintain liquidity in the form of cash and short-term investments and have sufficient liquidity holdings to meet obligations and withstand significant business variability.
And we are pleased to announce our regular quarterly dividend of $0.37 per share.
One last point of emphasis before we move on to the question-and-answer portion of the call.
Each quarter this year I have developed greater confidence in the strength and duration of the hard market because of the widespread industry awareness, and therefore increasing customer awareness of the adverse impact of the protracted low interest rate environment, social inflation dynamics, as well as years of depressed pricing and elevated catastrophe activity.
Increasingly, it is understood this will take more than a few additional quarters of correction to allow the industry to achieve required levels of return to responsibly protect the customer risks we assumed.
I am optimistic that we will be able to take full advantage of this correction period to achieve stronger pricing, better terms and conditions, growing our top line premium, as well as our share of high-quality new business and improving both our underlying loss and expense ratios.
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Chosen response:
cna financial q3 earnings per share $0.79.
compname announces third quarter 2020 net income of $0.79 per share and core income of $0.71 per share.
q3 core earnings per share $0.71.
q3 earnings per share $0.79.
book value per share at quarter end $ 44.30 at sept 30, 2020 versus $ 45.00 at dec 31, 2019.