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Schnitzer Steel Reports Second Quarter 2013 Financial Results

04/03/2013 - Schnitzer Steel Industries said higher commodity prices, together with significant improvements in sales volumes in its Metals Recycling Business and car purchase volumes in its Auto Parts Business, drove improved performance sequentially in the quarter as it reported its results for its fiscal 2013 second quarter ended 28 February 2013.

Schnitzer Steel Industries, Inc. reported its results for its fiscal 2013 second quarter ended 28 February 2013.
Adjusted earnings per share were US$0.36 and earnings per share were $0.32. Adjusted results for the quarter exclude a $2 million pre-tax restructuring charge associated with cost reduction initiatives announced in August 2012. Performance exceeded its second quarter market outlook issued in February due to better than anticipated operational performance in the Metals Recycling and Auto Parts Businesses, lower corporate expenses and additional tax benefits. In the first quarter of 2013, the company reported an adjusted loss per share of $0.02 and a loss per share of $0.06.
During the second quarter, ferrous export selling prices strengthened with average prices for February shipments approximately $40 per ton higher than average prices for shipments at the end of the first quarter. Higher commodity prices, together with significant improvements in sales volumes in the Metals Recycling Business and car purchase volumes in the Auto Parts Business, drove improved performance sequentially in the second quarter.
“Our operating performance improved significantly during our second quarter, led by rising commodity prices, improved volumes in both our Metals Recycling and Auto Parts Businesses, and the operational efficiencies we have gained through the implementation of our cost reduction program,” said Tamara Lundgren, president and chief executive officer. “During the first half of fiscal 2013, our restructuring initiatives delivered an 11% reduction in SG&A year over year while we continued to advance our strategic growth initiatives. In the second quarter, our Auto Parts Business significantly improved its sequential operating margin to 11% for stores owned more than a year and added ten new sites which will provide access to additional supply in our core markets. In our Metals Recycling Business, we completed testing of our new shredder which will provide increased processing capabilities in Western Canada during the third quarter of fiscal 2013. Embedded in both growth initiatives is the opportunity to generate enhanced synergies between our Metals Recycling and Auto Parts Businesses. As 2013 progresses, we will continue to focus on delivering improved operational performance, maintaining our strong balance sheet and optimizing our cost base, while continuing to pursue our growth strategy.”
Key business drivers during the second quarter of fiscal 2013:
·         Metals Recycling Business (MRB) generated operating income per ferrous ton of approximately $13, an increase of 117% from the first quarter of fiscal 2013, due to a combination of higher selling prices and sales volume for both ferrous and nonferrous products.
·         Auto Parts Business (APB) improved its operating income margin from the first quarter, excluding the adverse impact related to the new sites added during the quarter which include transaction, integration and startup costs. In addition, APB increased its car purchase volume to 88 thousand cars, reflecting an 11% sequential increase which includes a partial quarter contribution from new sites.
·         Steel Manufacturing Business (SMB) generated $1 million in operating income on sequentially lower selling volumes, primarily due to the typical seasonal slowdown in demand during the second quarter.
Metals Recycling Business
Sales Volumes: Ferrous sales volumes of 1.1 million tons in the second quarter increased 16% from first quarter levels, primarily due to higher demand in the export markets and the timing of sales. Nonferrous sales volumes of 126 million pounds increased 6% sequentially, primarily due to the impact of higher production levels and the timing of sales.
Export customers accounted for 76% of total ferrous sales volumes in the second quarter. Our ferrous and nonferrous products were shipped to 14 countries, with Turkey, China and South Korea being the top ferrous export destinations.
Pricing: Demand strengthened in the export markets for February shipments, resulting in a 4% increase in average net ferrous selling prices from first quarter levels. Nonferrous prices were in line with the prior quarter.
Margins: Operating income per ferrous ton was $13, a sequential increase of $7 per ton, or 117%, due to a combination of higher ferrous export selling prices and sales volumes and the timing of sales. The supply of scrap continued to be constrained by low US GDP growth which moderated the overall improvement to margins.
Auto Parts Business
Revenues: Revenues in the second quarter increased 12% sequentially due to higher commodity prices and higher sales volumes.
Margins: During the second quarter, operating margins, excluding the impact of new sites, increased sequentially to 11% primarily due to the impact of higher commodity prices on scrap sales, higher car purchase volumes and lower SG&A costs. During the second quarter, APB incurred $2 million of operating losses, including transaction, integration and startup costs, related to the new sites added during the quarter which lowered APB's reported operating margin to 9%. See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.
New Sites: During the second quarter, APB invested in ten new sites through a combination of acquisitions and greenfield developments which, in the aggregate, will increase the number of our total stores by 20% and are expected to increase annualized car purchase volumes by approximately 15%. These new sites will expand APB's position in our core markets and further enhance operational synergies with our Metals Recycling Business.
Steel Manufacturing Business
Sales Volumes: Finished steel sales volumes of 96 thousand tons decreased 26% from the first quarter of fiscal 2013.
Pricing: Average net sales prices for finished steel products of $690 per short ton approximated the first quarter.
Margins: Compared to the first quarter, higher costs for raw materials, a lower utilization rate resulting from planned maintenance and a typical seasonal slowdown in demand during the quarter resulted in operating income of $1 million.
Cost Reductions
During the first half of fiscal 2013, SG&A was 11% lower as compared to the prior year. In August we announced cost reduction initiatives which are expected to lower annual pre-tax operating costs by $25 million and are anticipated to be substantially implemented by the end of fiscal 2013. Total pre-tax restructuring charges are expected to be approximately $13 million. During the second quarter, we incurred a $2 million expense related to the restructuring charge. In aggregate, we have incurred $8 million of the total $13 million anticipated restructuring charge, and we expect to recognize the balance during the remainder of fiscal 2013.
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 16 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.