Schnitzer Steel Reports Third Quarter Results
07/01/2009 - Schnitzer Steel reports a net loss of $1.5 million on revenues of $412 million for the fiscal third quarter, and a net loss of $42 million on revenues of $1.344 billion for the nine months ended May 31, 2009.
Schnitzer Steel Industries, Inc. reported a net loss of $1.5 million on revenues of $412 million for the fiscal third quarter, and a net loss of $42 million on revenues of $1.344 billion for the nine months ended May 31, 2009.
Third Quarter Results—The $1.5 million ($0.05 per diluted share) net loss compares to a net loss of $7 million ($0.25 per diluted share) in the previous quarter, and net income of $62 million ($2.14 per diluted share) in the year-ago third quarter. Revenues of $412 million compare to revenues of $434 million in the previous quarter and revenues of $972 in the year-ago third quarter.
The company generated $80 million additional cash from operations in the third quarter, bringing the year-to-date cash from operations to $241 million.
Management Comments—“During the third quarter all of our businesses showed sequential improvements in operating income, reflecting a strengthening of demand for recycled metal in the export markets and the benefit of a full quarter of previously implemented cost containment actions,” said Tamara Lundgren, President and CEO. “As a result of our focus on managing working capital, the benefits from our cost-containment program and the flexibility of our platform which enables us to sell our products to the markets where demand and profitability are the greatest, we continued to generate strong cash flow and further reduce our debt levels,” she continued.
“Our Metals Recycling Business was able to increase its purchases of raw materials to support stronger overseas demand,” continued Lundgren. “Operating income in our Metals Recycling Business improved despite tighter conditions in the supply markets which pressured margins. Our Auto Parts Business returned to positive operating income performance through higher volumes of purchased vehicles, increased sales of recycled parts and the benefits of improved commodity prices.
“In the Steel Manufacturing Business, the operating loss narrowed, primarily due to higher sales volumes and higher production volumes,” added Lundgren. “During the quarter, we were able to continue to reduce finished steel inventories and, as a result, we are now able to increase production at the mill to levels which should help future operating results,” she continued.
“As we look forward, our strong balance sheet, positive cash flow and low leverage allow us to continue to undertake acquisitions and investments in technology as we have done throughout the year, enabling us to expand our access to supply and to improve our operating efficiencies,” Lundgren concluded.
Steel Manufacturing Business—Revenues for the company’s Steel Manufacturing Business decreased 10% compared to the previous quarter, primarily due to continued weakening of market conditions. The company noted, however, that market prices appeared to have bottomed in May. On a year-over-year basis, revenues fell 72% as weak demand led to a 61% decline from the record sales volumes achieved in the third quarter of 2008, coupled with a 30% decline in average net sales prices.
Operating income improved 22% compared to the previous quarter, due primarily to slightly higher sales volumes and a reduction in the impact of low production volumes, which offset lower average sales prices. During the third quarter, $3 million in production costs could not be charged to inventory, compared to $6 million in the second quarter.
Compared to the record operating income in the year-ago third quarter, operating income declined $28 million on significantly lower sales volumes and sales prices.
Outlook—Looking ahead, the company said that it expects average pricing for its Steel Manufacturing Business to be slightly lower than in the recently completed third quarter due to continued weak demand in the non-residential and infrastructure construction markets. The company said that it expects fourth quarter sales volumes to increase slightly compared to the third quarter, while higher production volumes are expected to result in improved margins as compared to the third quarter.
Schnitzer Steel Industries, one of the largest manufacturers and exporters of recycled ferrous metal products in the United States, has 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. The company commenced its 103rd year of operations in fiscal 2009.
