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Schnitzer Steel Reports Fiscal First Quarter 2013 Results
01/08/2013 - For the quarter ended 30 November 2012, Schnitzer Steel Industries reported lower sales volumes and compressed margins due to the combination of declining trend in selling prices, the impact of constrained supply columes on production costs and the timing of shipments.
Schnitzer Steel Industries, Inc. reported adjusted operating income of US$3 million, an adjusted loss per share of $0.02 and a loss per share of $0.06 for its fiscal 2013 first quarter ended 30 November 2012. Adjusted results for the quarter exclude a $2 million pre-tax restructuring charge associated with cost reduction initiatives announced in August 2012. All three of the company's business segments generated positive operating income. Reported results for the first quarter include the adverse impact of a noncash valuation allowance on deferred tax assets of approximately $2 million, which equates to $0.06 per share, and the $2 million restructuring charge, which equates to $0.04 per share. In the fourth quarter of 2012, the company reported a loss per share of $0.02.
During the first quarter, export and domestic sales prices for recycled ferrous metals dropped approximately $50 per ton from August levels driven by significantly lower domestic utilization rates and weak global economic conditions which continued to adversely impact overall steel demand. In addition, the supply of scrap continued to be constrained by low U.S. GDP growth, and supply volumes were negatively impacted by the lower price environment. The combination of declining trend in selling prices, the impact of constrained supply volumes on production costs and the timing of shipments resulted in lower sales volumes and compressed margins during the quarter.
"As anticipated, during the first quarter of fiscal 2013 we continued to face difficult market conditions for recycled metals, including a sharp drop in both ferrous sales prices and volumes, due to soft demand resulting from slowing global growth and the weak domestic economic environment which continues to impact scrap generation. Despite these challenges, each of our business segments remained profitable and our Auto Parts and Steel Manufacturing businesses improved operating margins sequentially," said Tamara Lundgren, president and CEO. "We are on track with our restructuring initiatives to adjust our cost base to reflect the current market environment, while preserving our ability to take advantage of stronger future demand and improved scrap flows."
"Recently, our Auto Parts Business added 10 new stores through a combination of acquisitions and organic investment, seven of which are in geographic proximity to our major metals recycling export facilities. These new stores will increase the number of stores by 20% and are consistent with our growth initiatives in the Auto Parts Business which maximizes value throughout the automotive recycling process while enhancing ferrous and nonferrous supply for our Metals Recycling Business. As we continue to deliver enhanced synergies between our Metals Recycling and Auto Parts businesses, our strong balance sheet, reduced cost base and export-focused platform strategically position us to benefit from an improvement in economic conditions domestically and abroad."
Key business drivers during the first quarter of fiscal 2013:
· Metals Recycling Business (MRB) shipped 955,000 ferrous tons and 119 million nonferrous pounds. The sequential volume declines reflected softer demand, reduced flows of raw materials and the timing of shipments.
· Auto Parts Business (APB) generated a 9% operating margin on 79,000 cars purchased. Operating margins expanded sequentially primarily due to lower inventory costs.
· Steel Manufacturing Business (SMB) achieved $3 million in operating income on sequentially flat selling prices and volumes, primarily due to improved utilization and lower raw material costs.
Metals Recycling Business
Sales Volumes: Ferrous sales volumes of 955,000 tons in the first quarter decreased 19% from fourth quarter levels, primarily due to reduced flows of raw materials resulting from the lower price environment as well as the timing of shipments. Nonferrous sales volumes of 119 million pounds decreased 30% sequentially, primarily due to the impact of lower beginning inventories and raw material flows.
Export customers accounted for 71% of total ferrous sales volumes in the first quarter. Our ferrous and nonferrous products were shipped to 14 countries, with Turkey, South Korea, Taiwan and Indonesia being the top ferrous export destinations.
Pricing: Demand softened in the export markets in September and October, driving average net ferrous selling prices down 5% from fourth quarter levels. Nonferrous prices increased 6% sequentially primarily due to slightly higher demand for nonferrous commodities and product mix.
Margins: Operating income per ferrous ton was $6, a decline of 46% sequentially. Overall, the first quarter was significantly impacted by a sharp decline in selling prices and lower volumes.
Auto Parts Business
Revenues: Revenues in the first quarter decreased 3% sequentially due to lower shipped volumes and lower commodity prices.
Margins: Operating margins during the first quarter increased sequentially to 9%, primarily due to lower average inventory costs which more than offset the negative impact of lower commodity prices on sales.
New Stores: Since the end of the first quarter, APB has invested in 10 new self-service retail stores:
· Acquired four stores in Richmond and Surrey, B.C., Canada, expanding itspresence in Western Canada near the Metals Recycling facility in Surrey, B.C.;
· Developing a greenfield location in Calgary, Alberta, further enhancing our North American supply;
· Acquired two stores in the Kansas City metropolitan area, Mo. and Kan., and developing a greenfield location in Springfield, Mo., expanding APB’s presence in the Midwestern U.S.; and
· Acquired two stores in Massachusetts, establishing a new Auto Parts presence in the Northeast near its Metals Recycling facilities.
These growth initiatives further penetrate core markets for itsAuto Parts Business, leveraging existing operational resources and enhancing scrap flows available to our Metals Recycling Business, the company said.
Steel Manufacturing Business (Cascade Steel Rolling Mills)
Sales Volumes: Finished steel sales volumes of 130,000 tons increased 3% from the fourth quarter of fiscal 2012.
Pricing: Average net sales prices for finished steel products of $680 approximated the fourth quarter.
Margins: Steady market conditions, combined with improved utilization of 70% and reduced costs of raw materials, resulted in operating income of $3 million during the first quarter.
Schnitzer Steel Industries, Inc. is one of the largest manufacturers and exporters of recycled ferrous metal products in the United States with 58 operating facilities located in 14 states, Puerto Rico and Western Canada. The business has seven deep water export facilities located on both the East and West Coasts and in Hawaii and Puerto Rico. The company's integrated operating platform also includes its auto parts and steel manufacturing businesses. The company's auto parts business sells used auto parts through its 59 self-service facilities located in 15 states and Western Canada. With an effective annual production capacity of approximately 800,000 tons, the company's steel manufacturing business produces finished steel products, including rebar, wire rod and other specialty products. The company commenced its 107th year of operations in 2013.
