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Schnitzer Steel Reports 2nd Quarter Results
04/03/2009 - Schnitzer Steel Industries reports a net loss of $7 million on revenues of $434 million for the fiscal 2008 second quarter, and a net loss of $41 million on revenues of $932 million for the six months ended February 28, 2009.
Schnitzer Steel Industries, Inc. reported a net loss of $7 million on revenues of $434 million for the fiscal 2008 second quarter, and a net loss of $41 million on revenues of $932 million for the six months ended February 28, 2009.
Second Quarter Results—The $7 million net loss (- $0.25 per diluted share) compares to net income of $36 million ($1.25 per diluted share) for the year-ago second quarter. Revenues of $434 million compare to revenues of $751 million for the year-ago second quarter.
Despite the quarterly net loss, the company generated $91 million in cash from operations.
“The markets in the second quarter remained extremely challenging,” said Tamara Lundgren, President and CEO. “The global economic downturn continued, and the demand for finished steel products and the raw materials used in making steel remained weak. However, our export platform, which allows us to sell to the regions of the world where demand is greatest, continued to provide a benefit as we were able to take advantage of overseas markets which offered better net pricing than the domestic markets.
“We reduced our production output to match lower demand and, through our cost containment program, we have adjusted our cost structure accordingly. Controllable production and SG&A costs have been significantly reduced, including headcount reductions of nearly 500 employees, or 13% of the full-time workforce, and approximately 350 contractors. By controlling costs, reducing inventory levels and actively managing the cash spreads between our selling prices for recycled metal and steel products and the cost of purchasing raw materials, we were able to generate positive operating cash flows during the quarter of $91 million, a $21 million increase over the first quarter. These initiatives have strengthened our ability to weather the current market environment.
“During the second quarter, we completed four acquisitions which expanded our Metals Recycling operations into Puerto Rico and further enhanced our position on the West Coast and our Auto Parts Business presence in Northern California. We were able to make these acquisitions and additional capital improvements while increasing our debt, net of cash, by only $19 million compared to the end of the first quarter of fiscal 2009. Our strong cash flows and low leverage have enabled us to continue our growth strategy of investing in technology and infrastructure improvements and making value-enhancing acquisitions,” added Lundgren.
Steel Manufacturing Business Results—Revenues for the company’s Steel Manufacturing Business fell 64% on a year-over-year basis, primarily due to a 120,000-ton (59%) drop in finished goods sales volumes, and a $46/ton (7%) drop in finished goods net sales prices.
Compared to the first quarter of 2009, revenues declined 47% on a 34% drop in net sales prices and a 16% drop in sales volume. During the quarter, demand remained weak in the West Coast steel markets.
The second quarter operating loss of $6 million represented a $19 million decline in year-over-year operating income. Compared to the first quarter, the operating loss improved $25 million from the first quarter loss of $31 million. The second quarter loss included $6 million in expenses pursuant to FAS 151 which could not be capitalized into inventory as the Company curtailed production volumes to levels lower than sales volumes in order to reduce billet and finished goods inventories.
Steel Manufacturing Business Outlook—Regarding its outlook for the fiscal third quarter, the company said it expects demand for finished steel products in West Coast markets to remain weak, and average sales prices to decline from the levels in the recently completed second quarter. The company also said it expects sales volumes to approximate the volumes in the recently completed second quarter.
The company said that low production volumes and falling sales prices—both due to continued weak demand for finished steel products—are likely to result in negative margins for its Steel Manufacturing Business, although the margins should be improved from the recently completed second quarter.
Schnitzer Steel Industries is one of the largest manufacturers and exporters of recycled ferrous metal products in the United States with 42 operating facilities located in 13 states and Puerto Rico, including seven export facilities located on both the East and West Coasts and in Hawaii and Puerto Rico. 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.
