Schnitzer Steel Industries, Inc. reported net income of $21 million on revenues of $510 million for the fiscal 2007 first quarter ended November 30, 2006.

The $21-million net income ($0.69 per diluted share) compares to net income of $41.5 million ($1.34 per diluted share) for the year-ago first quarter. Operating income was $34 million compared to $18 million in the first fiscal quarter of 2006, which included an $11-million charge related to the SEC and Department of Justice investigations.

Management Comments — “Even with the impact of the ongoing projects at our facilities to upgrade our equipment and improve our infrastructure and information technology, we are pleased to report a year-over-year increase in operating income,” said John D. Carter, President and CEO. “The long-term fundamentals and outlook for our businesses remain strong, and while the investments we are making have caused and will continue to cause short-term disruptions, we believe this focus on improving the efficiency of our operations will allow us to take maximum advantage of these favorable trends.”

“As expected, the installation of new mega-shredders at our Oakland and Boston area metals recycling facilities resulted in lower volumes and thus higher costs per ton, both of which depressed our operating income for the quarter. In the coming quarters, we expect to recover the volumes and see a positive impact from the new equipment. First-quarter margins were also impacted by higher costs for the purchase of raw materials, particularly in the Northeast, which resulted in an increase in average inventory values, and higher freight costs, particularly for shipments from the West Coast. It should be noted that the export markets for both ferrous and nonferrous materials remain strong, and we encourage our investors to continue to judge the results of the Metals Recycling Business over several quarters.”

“The Auto Parts Business was negatively impacted by lower vehicle purchases in the face of higher prices, resulting in lower inventory for retail parts sales as well as lower core and scrap sales. We have acted to adjust our model to maximize vehicle purchases where it makes economic sense to do so and anticipate this will contribute to improved financial performance for the remainder of the year.”

“The Steel Manufacturing Business continues to show good results.”

Metals Recycling Business Outlook — Schnitzer says the export markets for ferrous scrap metal remain strong and domestic prices appear to be strengthening. Based on sales made to date and current market conditions, the company expects higher gross sales prices to offset higher export freight costs, resulting in average net prices which are expected to approximate the prices obtained in the first quarter of 2007. The company says that the cost of freight (which is deducted from the company’s gross selling prices to arrive at net selling prices) has recently been on the rise and could result in downward pressure on average net selling prices. Nonferrous prices are expected to remain strong by historical standards, but could decline slightly from the average prices in the first quarter.

The company also expects ferrous scrap volumes in the domestic processing business to rebound in the second quarter, primarily due to the timing of export shipments and the resumption of processing at the Oakland export facility. For the second quarter, volumes shipped from the company’s domestic yards should increase from 868,000 tons in the first quarter to between 1.0 and 1.1 million tons. Volumes in the trading business should be slightly higher than the 320,000 tons shipped during the first quarter.

The company says that higher volumes on the West Coast (the result of the resumption of processing at the Oakland processing facility) should help improve overall margins. The company is seeing significant competition for the acquisition of raw materials in the mid-Atlantic and New England regions of the country, and the differential between purchase costs for the West Coast and the Boston and Rhode Island operations is expected to widen further during the quarter. In addition, while the mega-shredder installations in Oakland and Boston are complete, the company continues to work through normal start-up issues with the new equipment and related sorting systems. The company does not expect to realize full operating efficiencies until the process is complete later in the year.

Steel Manufacturing Business Outlook — The company says that West Coast consumption of finished steel long products continues to be firm. Based on current market conditions, the company expects average sales prices to be down only $10- $15 from the near-record prices in the first quarter. The company says that high West Coast prices continue to make imported products attractive, which could result in further downward pressure on sales pricing.

The company typically sees a reduction in second-quarter sales volumes due to the impact of winter weather on construction projects. While customer inventories remain low, normal seasonal factors are expected to reduce demand during the quarter. As a result, the company expects second-quarter sales volumes to decline approximately 10% from the first quarter.

The company says that lower volumes will, in turn, result in slightly higher conversion costs, which should result in margins slightly lower than in the first quarter of this year.

Schnitzer Steel Industries is one of the largest manufacturers and exporters of recycled ferrous metals products in the United States with 32 operating facilities located in 11 states throughout the country, including six export facilities located on both the East and West Coasts and in Hawaii. SSI's vertically integrated operating platform also includes its auto parts and steel manufacturing businesses. SSI's auto parts business sells used auto parts through its 35 Pick-n-Pull self service facilities and 17 Greenleaf full service facilities located in 14 states and western Canada. With an annual production capacity of 700,000 tons, Cascade Steel Rolling Mills (SSI's steel manufacturing business) produces finished steel products, including rebar, wire rod and other specialty products. SSI commenced its 100th year of operations in 2006.