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Schnitzer Steel Reports Q1 Results
01/08/2010 - Schnitzer Steel Industries reports diluted earnings per share from continuing operations of $0.23 for its fiscal 2010 first quarter ended November 30, 2009. This compares with diluted loss per share from continuing operations of $1.16 during the first quarter of fiscal 2009.
Schnitzer Steel Industries, Inc. reported diluted earnings per share from continuing operations of $0.23 for its fiscal 2010 first quarter ended November 30, 2009. This compares with diluted loss per share from continuing operations of $1.16 during the first quarter of fiscal 2009.
Operating income in Q1 ’10 was $9 million, compared to a loss of $48 million in the same period of ’09.
The company also reported a loss from discontinued operations of $15 million ($0.53 per diluted share) in Q1. This loss, which was primarily non-cash, related to the previously announced sale of the company’s Greenleaf full-service used auto parts operations in October 2009. Including the loss from discontinued operations, the diluted net loss per share was $0.30 ($9 million) compared with a loss per share of $1.21 ($34 million) in the first quarter of 2009.
"This is our second consecutive quarter of profitability from continuing operations, and it marks an improvement in our results on a year-over-year basis," said Tamara Lundgren, President and CEO. "As we look across our global markets, we are seeing stronger and more broad-based demand than we saw at this time last year. Sequential margins improved in both our Metals Recycling and Auto Parts Businesses, where we continue investing in projects and acquisitions to enhance our competitive advantages."
Business Unit Results—The Metals Recycling Business reported first quarter ferrous sales volumes in line with the levels in the prior year’s first quarter, with significantly improved margins. Sequential revenues reflected declines consistent with the first quarters of recent years, according to Schnitzer.
The Auto Parts Business reported record first quarter operating income, capitalizing on higher volumes from the Cash for Clunkers stimulus program and completing an acquisition of four facilities that adds to its scale and focuses its continuing operations on the higher margin self-service business that complements the Metals Recycling Business.
Steel Manufacturing Business: Results—The Steel Manufacturing Business continued to experience the effects of weak demand for finished steel products and higher average inventory costs resulting from higher raw material costs and lower production volumes.
The business reported an $8 million operating loss in the first quarter vs. a loss of $31 million in last year’s first quarter and an operating income of $1 million in the fourth quarter of 2009.
Finished goods sales volumes, excluding billet sales, of 100,000 tons in the first quarter of 2010 compare to 98,000 for the same period last year, and 115,000 in the fourth quarter of 2009.
“As expected, first quarter sales volumes declined quarter-over-quarter as customers completed the inventory restocking that we saw in the fourth quarter of fiscal 2009. In addition, the competitive pressures of the weak markets did not permit us to pass through increases in raw material costs in the form of higher prices. This, along with reduced production volumes, resulted in negative operating margins,” said Lundgren.
“In light of the weak demand, we continue to reduce our operating costs. We believe that, with our reputation for high-quality finished steel products, the mill remains well-positioned to benefit when demand increases from government-funded infrastructure spending and a general pick-up in economic activity.”
Despite a 13% decrease in finished steel sales volumes compared with the previous quarter, revenues were approximately at fourth-quarter levels—$69 million vs. $66 million in Q4—as a result of an increase in billet sales.
The average net sales prices for finished steel products declined by 40%, or $344 per ton, compared with the first quarter of fiscal 2009. This drove a 30% decline in revenues compared with last year’s first-quarter posting of $99 million. Prices saw only modest changes from the fourth quarter of fiscal 2009.
The negative operating margins for the first quarter compare with margins that were slightly positive in the fourth quarter of fiscal 2009, reflecting both increases in scrap costs that could not be passed through to customers in the form of higher selling prices and lower production volumes.
Year-over-year quarterly operating margins improved due to the impact of the $32 million non-cash inventory write down recorded in the first quarter of fiscal 2009.
Steel Manufacturing Business: Outlook—Weak demand is expected to result in a decline in finished steel sales volumes of 20% in the second quarter from the volumes in the first quarter of 2010.
As a result of higher costs for raw materials, average net selling prices are expected to rise during the quarter despite continued weak demand for long products in the West Coast markets.
Second quarter margins are expected to improve from the margins achieved in the first quarter due to the impact of higher sales prices and continued cost containment actions, but to remain negative.
Schnitzer Steel Industries, Inc. 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.
