Schnitzer Steel Reports Record 2nd Quarter Earnings Per Share
04/04/2008 - Schnitzer Steel Industries reports net income of $36 million on revenues of $751 million for the fiscal 2008 second quarter, and net income of $61 million on revenues of $1355 million for the six months ended February 29, 2008.
Schnitzer Steel Industries, Inc. reported net income of $36 million on revenues of $751 million for the fiscal 2008 second quarter, and net income of $61 million on revenues of $1355 million for the six months ended February 29, 2008.
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Schnitzer’s Steel Manufacturing Business
Schnitzer’s Steel Manufacturing Business achieved record sales volumes in the second quarter. Revenues rose 45% on a year-over-year basis, primarily due to an $80 per ton (15%) increase in average sales prices and a 25,000-ton (14%) increase in sales volumes for finished goods.
Sales volumes were a quarterly record, rising 31% over first-quarter revenues on higher prices and volumes despite softening demand, particularly in the Southwestern region of the U.S., as a significant decline in imported steel reduced the volume of finished steel products available for sale in the west coast markets.
Year-over-year operating income increased 11% as the higher volumes were only partially offset by a lower metal spread. Compared to the first quarter, operating income declined 8% as a lower metal spread and costs related to the planned shutdown of the meltshop and one of the rolling mills for heavy maintenance offset higher sales volumes achieved during the quarter.
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Management Comments—“Our second-quarter operating results were strong,” said John D. Carter, Schnitzer’s President and CEO. “All three of our operating businesses recorded year-over-year growth in both revenues and operating income. Driven by continued strong worldwide demand for recycled metals, prices for ferrous scrap reached unprecedented levels, and our export platform continued to provide us the ability to sell to the regions of the world where demand was greatest. Prices in our Metals Recycling Business not only more than offset freight price increases which occurred in the first quarter of this year but also outpaced increases in the cost of acquiring raw materials. As a result, we were able to expand margins both sequentially and compared to the prior year.”
“The Auto Parts Business continued to show year-over-year improvements in both revenues and operating income through our ongoing focus on increases in vehicle purchases,” added Carter. “The Steel Manufacturing Business benefited from positive supply and demand dynamics as selling prices increased due to shortages in finished steel resulting from a low level of imports,” he concluded.
Commenting on the second-quarter results, Tamara Lundgren, Schnitzer’s Executive Vice President and Chief Operating Officer said, “The results in our Metals Recycling Business were driven by our ability to maximize the benefits from the strong markets through operating efficiencies from our capital investment program as well as our overall scale. In our Auto Parts Business, the improved extraction and sales of cores helped offset the normal seasonal decline in self-service parts sales and in the Steel Manufacturing Business our ability to utilize our increased capacity during the first quarter allowed us to post record sales volumes despite planned maintenance shutdowns of the melt shop and largest rolling mill during the second quarter.”
Steel Manufacturing Business Outlook—The company expects market prices for finished steel products to remain strong despite soft domestic demand as the level of import activity continues to remain low. Higher raw material costs are also expected to contribute to higher selling prices as supply conditions permit steel manufacturers to pass on a portion of the higher costs. As a result of these conditions, the company expects net average selling prices to increase approximately 10-15% over net prices received in the second quarter.
The company also expects sales volumes to remain at relatively high levels, even approximating the record volumes shipped in the recently completed second quarter.
Compared to the third quarter of 2007, the company believes the spread between selling prices and scrap costs will likely narrow. Coupled with higher overall revenues, the narrower spread is expected to result in lower margins on a percentage basis. Compared to the recently completed second quarter, higher production volumes in both the melt shop and the rolling mills and the impact of costs incurred in the second quarter for planned maintenance are expected to offset a lower metals spread and result in improved margins.
Schnitzer Steel Industries is one of the largest manufacturers and exporters of recycled ferrous metal products in the United States with 36 operating facilities located in 11 states throughout the country, including six export facilities located on both the East and West Coasts and in Hawaii. The company’s vertically integrated operating platform also includes its auto parts and steel manufacturing businesses. With an annual production capacity of over 750,000 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 102nd year of operations in fiscal 2008.
