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Schnitzer Steel Updates 1st Quarter Expectations
12/18/2008 - ABSTRACT: Schnitzer Steel updates its expectations for fiscal first quarter financial and operating results based on market weakening across all of its product lines, lower sales volumes, and reduced sales prices.
Schnitzer Steel Industries, Inc. has updated its expectations for financial and operating results for its fiscal 2009 first quarter ended November 30, 2008. The updated guidance reflects the impact of economic and market conditions since the company provided qualified guidance on October 28, 2008.
Market conditions weakened in all three of the company’s businesses in the final month of the fiscal first quarter. The effect of the weakening markets was exacerbated by a number of customer contract renegotiations, deferrals and cancellations, which led to lower sales volumes and reduced sales prices. The company anticipates these factors will result in a non-cash write-down of the value of the Company’s Metals Recycling and Steel Manufacturing inventories by an estimated $60 million. Because of the write-down, the company expects to report a net loss for the first quarter.
“While we continue to face weak demand, we have undertaken actions announced previously to adjust our costs and production levels to meet this reduced demand,” said Tamara L. Lundgren, President and CEO, commenting on the current business environment. “We have adjusted our buy prices for raw materials to maintain positive cash metal spreads while reducing our production output to match end demand. We have implemented a cost-containment program and have reduced headcount, reduced operating hours and eliminated non-essential overtime. Current production output in all three of our businesses, on average, has declined from average 2008 levels by approximately 40%. We have been able to undertake these cost reductions while preserving our ability to quickly increase production when stronger, sustainable demand returns to the market.”
“While we will be reporting a first quarter net loss, we are encouraged by the fact that the financial results for our Metals Recycling and Steel Manufacturing Businesses are expected to be approximately breakeven prior to the inventory write downs,” continued Lundgren. “Our actions to aggressively reduce purchase prices in our Metals Recycling Business have resulted in positive cash metal spreads and point to our ability to be profitable once the market stabilizes. Our Steel Manufacturing Business also continues to show positive cash metal spreads, but weak market conditions have led us to temporarily cut production more than the drop in demand in order to reduce inventories to levels consistent with current and anticipated demand. As expected, our Auto Parts Business will report an operating loss due to weak demand and the impact of inventory costs not falling as rapidly as sales prices,” added Lundgren.
“We generated positive operating cash flow during the first quarter and further reduced our debt levels,” said Richard Peach, Chief Financial Officer. “As of November 30, 2008, debt, net of cash, was approximately $121 million, compared to $169 million at August 31, 2008. We believe our strong balance sheet positions us well to take advantage of opportunities that may arise during this period of industry-wide weakness.”
The company said that it expects to issue full first quarter results on January 8, 2009, and expects to provide its outlook regarding the second fiscal quarter at that time. The company does not plan to provide any further updates prior to January 8, and does not intend to provide updated guidance in the future except when it releases full quarterly results.
Schnitzer Steel Industries is one of the largest manufacturers and exporters of recycled ferrous metal products in the United States with 39 operating facilities located in 12 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 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.
