Schnitzer Provides Outlook for Third Quarter of Fiscal 2013
05/31/2013 - Schnitzer Steel Industries said the combination of declining selling prices, continued constrained supply trends, and lower tax benefits are expected to result in sequentially lower consolidated net income during the third quarter of fiscal 2013 ending 31 May 2013.
Schnitzer Steel Industries, Inc. announced its outlook for the third quarter of fiscal 2013 ending 31 May 2013. During the third quarter, ferrous export selling prices declined steadily throughout the quarter with market prices at the end of May approximately US$50 per ton lower than at the end of the second quarter of fiscal 2013 driven primarily by lower export demand. The combination of declining selling prices, continued constrained supply trends, and lower tax benefits are expected to result in sequentially lower consolidated net income.
In its Metals Recycling Business, average net ferrous sales prices for shipments during the third quarter are expected to decrease approximately US$5 per ton from the second quarter of fiscal 2013 which is less than the decline in current market prices due to the impact of higher priced sales orders before the market dropped. Ferrous sales volumes are expected to increase 5% to 10%. Nonferrous average sales prices are expected to approximate the second quarter while sales volumes are expected to increase approximately 10% due to higher production. In the declining selling price environment that we are currently experiencing, average inventory costs did not decline as quickly as cash purchase costs for raw materials resulting in margin compression. As a result, operating income per ferrous ton is expected to be in the range of US$6 to US$8, which includes a significant adverse impact from average inventory costs as compared to the second quarter. Absent the impact from average inventory accounting, operating income per ferrous ton was in line with the second quarter.
In the Auto Parts Business, seasonally stronger car purchases, admissions and part sales, and the incremental volume contribution of acquisitions, are expected to result in an increase of approximately 10% in revenues from the second quarter of fiscal 2013. Car purchase volumes are expected to increase sequentially by approximately 9%. APB’s operating margin, excluding the impact of new locations added since the first quarter, is expected to be approximately 12%, a sequential increase over the second quarter’s performance. During the second quarter, APB added ten new locations which, as anticipated, will result in approximately US$2 million of integration and startup costs during the third quarter. These costs will impact APB’s reported operating margin which is expected to be approximately 9% for the third quarter.
During the quarter, Schnitzer continued with the integration of its ten new Auto Parts locations in Western Canada, the Midwest and New England and with construction activity on the Metals Recycling project in Western Canada. It expects these projects, which provide synergistic sources of supply to MRB and strengthen APB’s presence in core markets, to be accretive in fiscal 2014.
In the Steel Manufacturing Business, average selling prices are expected to decrease slightly from the second quarter while sales volumes are expected to be approximately 30% higher due to gradually improving end markets in the third quarter, and scheduled maintenance and seasonally lower sales which occurred in the second quarter. Operating income is expected to be approximately breakeven in the third quarter.
In the first three quarters of fiscal 2013, consolidated SG&A, excluding the impact of recent acquisitions, is expected to be approximately 9% lower as compared to the prior year period, which is on track with the restructuring program announced in August 2012. In the third quarter, the company expects to incur a pre-tax restructuring charge of approximately US$1 million in connection with our August 2012 restructuring program. The company’s full year tax rate for fiscal 2013 is anticipated to be approximately 33%. However, due to the anticipated low level of operating income in the third quarter, it anticipates the third quarter effective tax rate will be significantly higher than the anticipated full year rate. Actual financial performance may be materially different based on, among other factors, market conditions and the timing of shipments.
