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Schnitzer Steel Reports 4th Quarter, Year-End Results
10/30/2007 - Schnitzer Steel Industries reports net income of $38 million on consolidated revenues of $749 million for the fiscal fourth quarter, and net income of $131 million on consolidated revenues of $2.6 billion for the year ended August 31, 2007.
Schnitzer Steel Industries, Inc. reported net income of $38 million on consolidated revenues of $749 million for the fiscal fourth quarter, and net income of $131 million on consolidated revenues of $2.6 billion for the year ended August 31, 2007. All three of the company’s operating divisions exceeded previous highs in revenues on both a quarterly and annual basis.
Fourth Quarter Results—Net income of $38 million ($1.28 per diluted share) compares to record net income of $50 million ($1.62 per diluted share) for the fourth quarter of fiscal 2006. Results in 2006 included a $1-million after-tax gain from the disposition of the company’s Hugo Neu joint venture assets: excluding the gain, fourth quarter 2006 net income would have been $49 million ($1.58 per diluted share). According to the company, the lower net income can be attributed primarily to the timing of certain SG&A expenses.
Full Year Results—Net income of $131 million ($4.32 per diluted share) compares to net income of $143 million ($4.65 per diluted share) for fiscal 2006.
2006 results included a $35-million (after tax) gain related to the disposition of the Hugo Neu joint venture assets, partially offset by $15 million of charges for reserves relating to the SEC and Department of Justice investigations into the company’s past payment practices in Asia. Excluding the gain and charges, fiscal 2006 net income for the comparable period would have been $122 million ($3.97 per diluted share).
Consolidated revenues of $2.6 billion reflect an increase of $718 million (39%) compared to revenues $1.9 billion in fiscal 2006. Results reflect record sales levels for the sixth consecutive year.
Management Comments—“All three of our businesses performed well, as we concluded another very successful year,” said John Carter, President and CEO. “At the beginning of the year we had expected solid annual increases in revenues and operating income, and we are pleased to have achieved those objectives. During the year we were able to leverage our global sales network and deep-water port facilities to reach a diversified world-wide customer base and achieve record revenues. In addition, we continued to reinvest in our businesses through capital improvements and value creating acquisitions and returned money to our shareholders through the repurchase of 8% of our outstanding shares.”
“Looking forward, the positive macro-economic trends supporting our businesses, including global increases in steel consumption and strong demand for raw materials, remain in place. We believe the operational platform we have established will allow us to continue to take advantage of the positive environment in which we operate, and we remain committed to achieving further growth, both through additional acquisitions and organically through improved productivity and investments in technology.”
“During the year, we remained focused on our objectives of increasing throughput, lowering conversion costs and using technology to provide value to our customers,” continued Tamara Lundgren, Executive Vice President and COO. “Ferrous and nonferrous sales volumes, steel products manufactured and scrapped vehicles purchased were all annual records. We saw operational improvements related to our investments in new equipment and infrastructure and our new shredders and sorting systems allowed us to produce a better quality of recycled metal for use in making steel. Our focus in these areas allowed us to overcome significant challenges related to higher raw material and transportation costs.”
Steel Manufacturing Results—Schnitzer’s Steel Manufacturing Business benefited from record revenues and posted its third-highest-ever quarterly operating income. Revenues for the full year were 10% higher than in fiscal 2006.
The market for steel products remained strong on the West Coast, and average net sales prices of $617/ton were a record. Revenues for the Steel Manufacturing Business increased 4% from the third quarter of 2007 and 13% from the fourth quarter of 2006, increases that the company says were driven by the higher prices. Average net sales prices increased $21/ton (4%) compared to the third quarter, and $67/ton (12%) from the fourth quarter of 2006. Volumes were relatively flat on both a quarter-over-quarter and year-over-year basis.
Operating income for this segment increased compared to the third quarter due to the higher sales prices partially offset by higher raw material costs. Operating income declines compared to the fourth quarter of 2006, however, as scrap and other raw materials increased more than net selling prices. Operating income in the fourth quarter of 2006 was the highest-ever for the Steel Manufacturing Business.
Outlook—Regarding its Metals Recycling Business, the company expects the international markets for scrap metal to remain strong and gross prices for ferrous scrap to increase from the recently completed fourth quarter. Ocean-going freight costs are rising significantly and while prices for scrap have historically adjusted for increases in freight, the company expects that the rapid rise in the cost of export shipments to result in a slight decline in ferrous average net selling prices (compared to fourth-quarter prices). Ferrous average net selling prices are expected to be significantly higher than the prices in the first quarter of 2007.
The company expects prices for nonferrous materials to trend down slightly from the strong levels experienced in the fourth quarter, and be comparable to the levels in the first quarter of last year.
Depending on the timing of shipments, the company expects first-quarter ferrous scrap volumes in the processing business to be between 1.1 and 1.2 million tons, down slightly from the fourth quarter, but up significantly on a year-over-year basis. Nonferrous sales volumes are expected to decline approximately 10% from the recently completed fourth quarter, but increase 15-20% compared to the first quarter of 2007.
Schnitzer expects the spread between export sales prices for recycled metals and the cost of purchasing materials to narrow during the quarter primarily due to the increased cost of ocean- going freight. As a result, the company also expects first-quarter margins to decline somewhat from the fourth quarter but remain well above the margins reported in the first quarter of 2007.
For its Steel Manufacturing Business, the company expects demand for steel products to remain good but soften from the fourth quarter. Based on current market conditions, the company expects average net sales prices to decline slightly in the coming quarter from the record prices realized in the recently completed fourth quarter, but remain significantly higher than prices realized in the first quarter of 2007.
Schnitzer expects Steel Manufacturing sales volumes to decline from the volumes shipped during the fourth quarter, and to approximate the volumes shipped during the first quarter of 2007. Operating margins are expected to decline on both a quarter-over-quarter and year-over-year basis as the cost of scrap and other raw materials continues to increase while sales prices decline slightly.
