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Schnitzer Steel Reports 1st Quarter Results
01/12/2009 - Schnitzer Steel Industries reports a net loss of $34 million on revenues of $499 million for the fiscal 2009 first quarter ended November 30, 2008.
Schnitzer Steel Industries reported a net loss of $34 million on revenues of $499 million for the fiscal 2009 first quarter ended November 30, 2008.
The $34 million net loss ($1.21 per diluted share) compares to net income of $126 million ($4.38 per diluted share) in the previous quarter (fourth quarter 2008) and net income of $25 million ($0.85 per diluted share) in the year-ago first quarter. The company’s pre-tax operating loss, which included the effect of $52 million in on-cash inventory write-downs, was $50 million.
Revenues of $499 million compare to revenues of $1314 million in the previous quarter and revenues of $604 million in the year-ago first quarter.
During the quarter the company used cash from operations to reduce debt, net of cash, by $48 million, further strengthening its balance sheet.
Management Comments—“During the first quarter we faced difficult market conditions, including an unprecedented drop in demand for recycled metals and finished steel products,” said Tamara Lundgren, President and CEO. “The weak economic environment and the worldwide financial crisis resulted in a rapid and precipitous drop in both sales volumes and sales prices from those experienced in the previous quarter in all of our businesses.
“In the face of this environment, we undertook a series of actions to adjust our costs and production levels to meet the lower demand,” continued Lundgren. “We have implemented a cost-containment program which includes reducing full-time headcount by more than 10%, reducing production output, on average, by approximately 40%, and lowering our SG&A costs, all compared to levels at the end of the last fiscal year. These initiatives were put in place mid-quarter, and we expect to realize the full benefit going forward.
“We also reacted quickly to reduce our purchase costs for raw materials, allowing us to maintain positive cash metal spreads. Our lower production output will allow us to match our inventory with levels appropriate for the current market conditions.
“As a result of these actions, we believe we have appropriately adjusted the company’s cost base to reflect the current market environment, while preserving our ability to take advantage of stronger and sustainable future demand,” continued Lundgren. “In addition, through our continuous improvement program and other initiatives, we expect to achieve further cost reductions and efficiencies. During the quarter, we generated $70 million in cash from operations and further reduced our leverage.
“We continue to believe our strong balance sheet will allow us to pursue future opportunities which may arise,” added Lundgren.
Steel Manufacturing Business — The company’s Steel Manufacturing Business reported an operating loss of $31 million, which included a non-cash inventory write down of $32 million. The company said the lower operating income (vs. 1Q08) reflected the impact of lower sales volumes caused by weaker economic conditions, a decline in inventory costs which lagged the reduction in selling prices during the quarter, and lower anticipated future selling prices that resulted in the Steel Manufacturing Business recording the non-cash inventory write-down. The lower operating income also reflected a $6-million charge for production and maintenance shutdown costs that could not be capitalized in inventory. The company’s strategy has been to reduce both inventory and finished goods production based on current market conditions.
Steel Manufacturing Business Outlook — The company said that uncertainty persists regarding the near-term demand for steel and recycled metal, despite recent improvements in market visibility. The company expects continued weak demand for finished steel products to result in lower average net sales prices than the levels realized in the year-ago second quarter.
The company also expects that continued weak demand will result in sales volumes approximately 20% less than the recently completed first quarter and 60% less than the record second quarter sales volumes in fiscal 2008.
Expenses related to planned downtime and lower production volumes are expected to result in negative margins in the second fiscal quarter. In order to reduce inventories, the company said it will be forced to temporarily cut output even more than the drop in sales volumes. Once production is restored to levels consistent with expected customer demand, these cost-containment efforts are expected to result in positive margins.
Schnitzer Steel Industries is one of the largest manufacturers and exporters of recycled ferrous metal products in the United States with 39 operating facilities located in 12 states throughout the country, including six export facilities located on both the East and West Coasts and in Hawaii. The company’s vertically integrated operating platform also includes its auto parts and steel manufacturing businesses. With an annual production capacity of nearly 800,000 tons, the company’s steel manufacturing business—Cascade Steel Rolling Mills— produces finished steel products, including rebar, wire rod and other specialty products. The company commenced its 103rd year of operations in fiscal 2009.
