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Schnitzer Steel Reports 4th Quarter Net Income
10/29/2009 - Schnitzer Steel reports net income of $10 million on revenues of $556 million for the fiscal fourth quarter, and a net loss of $32 million on revenues of $1.9 billion for the fiscal year ended August 31, 2009.
Schnitzer Steel Industries, Inc. reported net income of $10 million on revenues of $556 million for the fiscal fourth quarter, and a net loss of $32 million on revenues of $1.9 billion for the fiscal year ended August 31, 2009.
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Schnitzer’s Steel Manufacturing Business
Schnitzer’s Steel Manufacturing Business recorded its third consecutive sequential improvement in financial results as sales volumes increased due to inventory restocking by customers.
Revenues rose 41% compared to the previous quarter, primarily due to a 35% increase in sales volumes. At the beginning of the quarter, customer inventory levels were low, and the higher sales volumes were attributable to inventory restocking.
Despite the higher sales volumes, overall demand for finished steel products in the west coast markets remained weak. Compared to the year-ago fourth quarter, revenues declined 64% on a 37% decline in sales volumes and a 47% ($449/ ton) decline in net average sales prices.
Operating income for the quarter reflects a $6 million improvement compared to the previous quarter’s operating loss. The improvement is attributed to higher sales volumes, which enabled higher utilization of the meltshop and rolling mills. The higher utilization and lower unit costs were partially offset by higher raw material costs. Year-over-year operating income declined due to the significantly lower sales volumes, sales prices and metal spreads.
Steel Outlook — The company anticipates that demand for finished steel products in the west coast markets will continue to be weak, which is expected to result in sales prices close to the levels seen during the recent quarter. The company also expects sales volumes to decline approximately 20 to 30% from the volumes in the recent quarter, and continues to see little indication of any impact from government stimulus spending on demand for finished steel products.
The impact of low production volumes and higher cost scrap are expected to result in increased average inventory costs. As a result, the company expects first quarter margins to be negative, and lower than the margins in the third quarter of fiscal 2009 when sales volumes were are at comparable levels.
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Revenues of $556 million compare to revenues of $412 million in the previous quarter and revenues of $1.31 billion in the year-ago fourth quarter.
The company generated $46 million in cash from operations, bringing the total cash from operations for the fiscal year to $288 million.
Management Comments — “We are pleased to report that all three operating businesses reported positive operating income and showed their third consecutive sequential improvement in quarterly results, resulting in a profitable fourth quarter,” said Tamara Lundgren, President and CEO. “The performance by our Metals Recycling Business was driven by broad-based demand from the export markets, indicative of the economic recovery and continuing infrastructure-related growth in our primary export markets in Asia. Sales volumes were strong, just off the record volumes in the fourth quarter of last year. We were able to increase these sales volumes and improve profitability despite on-going domestic challenges in the cost of raw materials and a weak U.S. domestic economy. Our Auto Parts Business benefited from an improvement in the flow of scrapped vehicles and higher commodity prices, and our Steel Manufacturing Business took advantage of customer inventory restocking to increase production and sales volumes and achieve positive operating income,” she continued.
“As we look back on fiscal 2009, we see significant accomplishments. For the year as a whole, the company utilized its strong cash flow generation to invest $182 million in capital expenditures and acquisitions and to repurchase 600,000 shares of its common stock, all while further lowering its leverage ratio by reducing outstanding debt by $73 million. Our quick actions to reduce costs and to cut production output and purchase prices in order to maintain positive metals spreads allowed us to generate these strong cash flows and to strengthen our balance sheet, all in the face of a severe economic downturn. We continued to invest in technology to improve operating efficiencies and also completed five acquisitions, which expanded our access to supply and added additional deep water export capability,” added Lundgren.
“Looking ahead to fiscal 2010, we continue to be encouraged by the level of economic activity in the primary overseas markets served by our Metals Recycling Business. We expect our October 2nd acquisition in the Auto Parts Business to enhance our self-service used auto parts platform while increasing the benefits from vertical integration with our Metals Recycling Business. To be sure, challenges remain, as the weak U.S. domestic economy continues to negatively impact both the demand for finished steel products as well as the flow of recycled metals. However, we believe our export platform and strong balance sheet have positioned us well to take advantage of growth opportunities during 2010 and beyond.”
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. The company’s auto parts business sells used auto parts through its 43 self-service facilities located in 14 states and in western Canada. 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 104th year of operations in fiscal 2010.
