News Releases
Schnitzer Steel Reports First Quarter Results
PORTLAND, Ore.--(BUSINESS WIRE)--Jan. 8, 2009--Schnitzer Steel Industries, Inc. (Nasdaq:SCHN) today reported a net loss
of $34 million, or $1.21 per diluted share, for the fiscal 2009 first
quarter ended November 30, 2008. The pre-tax operating loss of $50
million included non-cash inventory write downs of $52 million for the
quarter. During the quarter the Company used cash from operations to
reduce debt, net of cash, by $48 million, further strengthening its
balance sheet.
(in millions, except per-share First Quarter First Quarter Fourth Quarter
data)
2009 2008 2008
Revenues $ 499 $ 604 $ 1,314
Operating Income (Loss) ($ 50 ) $ 41 $ 200
Net Income (Loss) ($ 34 ) $ 25 $ 126
Diluted Earnings (Loss) Per Share ($ 1.21 ) $ 0.85 $ 4.38
"During the first quarter we faced difficult market conditions,
including an unprecedented drop in demand for recycled metals and
finished steel products," said Tamara Lundgren, President and Chief
Executive Officer. "The weak economic environment and the worldwide
financial crisis resulted in a rapid and precipitous drop in both sales
volumes and sales prices from those experienced in the previous quarter
in all of our businesses.
"In the face of this environment, we undertook a series of actions to
adjust our costs and production levels to meet the lower demand. We have
implemented a cost containment program which includes reducing full time
headcount by more than 10%, reducing production output, on average, by
approximately 40%, and lowering our SG&A costs, all compared to levels
at the end of the last fiscal year. These initiatives were put in place
mid-quarter, and we expect to realize the full benefit going forward. We
also reacted quickly to reduce our purchase costs for raw materials,
allowing us to maintain positive cash metal spreads. Our lower
production output will allow us to match our inventory with levels
appropriate for the current market conditions.
"As a result of these actions, we believe we have appropriately adjusted
the Company's cost base to reflect the current market environment, while
preserving our ability to take advantage of stronger and sustainable
future demand. In addition, through our continuous improvement program
and other initiatives, we expect to achieve further cost reductions and
efficiencies. During the quarter, we generated $70 million in cash from
operations and further reduced our leverage. We continue to believe our
strong balance sheet will allow us to pursue future opportunities which
may arise," added Lundgren.
Metals Recycling Business
($ in millions, except selling
prices; ferrous volume in First Quarter First Quarter Fourth Quarter
thousand long tons,
nonferrous volumes in million 2009 2008 2008
pounds)
Total Revenues $ 401 $ 481 $ 1,174
Ferrous Revenues $ 313 $ 388 $ 1,038
Ferrous Volumes 779/0 1,001/135 1,489/8
(Processing/Trading)
Avg. Net Ferrous Sales Price $ 359 $ 284 $ 623
($/LT) (1)
Nonferrous Volumes 107 89 126
Avg. Net Nonferrous Sales Prices $ 0.78 $ 1.00 $ 1.05
($/LB)(1)
Operating Income (Loss)(2) ($ 19 ) $ 30 $ 182
(1) Price information is shown after netting the cost of
freight incurred to deliver the product to the customer
(2) Includes operating income from joint ventures
Revenues for the Metals Recycling Business declined 66% from the record
revenues posted in the fourth quarter of fiscal 2008. The decline
reflected the collapse in demand for recycled metals related to the
worldwide economic and financial crisis which occurred during the
quarter.
Average net ferrous sales prices fell 42% and ferrous volumes fell 48%,
both on a quarter over quarter basis. Nonferrous volumes and prices were
also lower. Compared to the first quarter of fiscal 2008, revenues
declined 17% as lower ferrous sales volumes and nonferrous sales prices
more than offset higher average net ferrous sales prices and higher
nonferrous volumes.
Net sales prices declined throughout the first quarter, with average net
ferrous prices during November at levels approximately 40% less than the
quarterly average. Average price levels during the quarter were impacted
by a number of shipments scheduled for November which were cancelled by
customers and resold at lower prices than originally contracted.
Lower ferrous sales volumes on a year over year and quarter over quarter
basis were driven by lower demand for the raw materials used in the
production of steel products. In addition, quarterly sales volumes were
also impacted by deferrals and cancellations of customer contracts.
The operating loss for the quarter of $19 million included the impact of
contract cancellations that occurred in November, as well as a non-cash
inventory write down of $29 million. During the quarter, the Metals
Recycling Business was able to rapidly adjust purchase costs for raw
materials and maintain positive cash spreads on its raw material
purchases.
Auto Parts Business
First Quarter First Quarter Fourth Quarter
($ in millions, except locations)
2009 2008 2008
Revenues $ 67 $ 72 $ 103
Operating Income (Loss) ($ 9 ) $ 7 $ 16
Locations (end of quarter) 56 53 56
Revenues for the Auto Parts Business declined 35% compared to the record
revenues reported in the fourth quarter of fiscal 2008, reflecting the
significant decline in demand and pricing for recycled metals. All
categories of revenue were lower. Compared to the first quarter of
fiscal 2008, revenues declined 7%, as lower prices for cores and
scrapped vehicles, lower sales volumes and lower full-service parts
sales more than offset a slight increase in self-service parts sales.
The operating loss of $9 million was primarily attributable to the weak
revenue environment and inventory costs which declined more slowly than
prices for recycled metals. During the quarter the Auto Parts Business
was able to maintain positive cash spreads on its purchases of scrapped
vehicles, although that spread was lower than normal due to tight supply
conditions which caused buy prices to lag the drop in the market for
other recycled metals.
Steel Manufacturing Business
($ in millions, except selling First Quarter First Quarter Fourth Quarter
prices; volume in thousand tons)
2009 2008 2008
Revenues $ 99 $ 110 $ 182
Avg. Net Sales Prices ($/T) $ 864 $ 601 $ 958
Sales Volume 98 174 182
Operating Income (Loss) ($ 31 ) $ 14 $ 22
Revenues for the Steel Manufacturing Business declined 46% compared to
the fourth quarter of 2008 as demand for finished steel products
weakened considerably. Sales volumes dropped 46% to 98 thousand tons and
sales prices fell 10% to $864/ton, although current market prices are
significantly lower. Compared to the first quarter of fiscal 2008,
revenues declined 10%, as a 44% drop in sales volumes more than offset a
44% increase in average sales prices.
The operating loss of $31 million included a non-cash inventory write
down of $32 million. The lower operating income compared to the first
quarter of fiscal 2008 reflected the impact of lower sales volumes
caused by weaker economic conditions, a decline in inventory costs which
lagged the reduction in selling prices during the quarter and lower
anticipated future selling prices that resulted in the Steel
Manufacturing Business recording the non-cash inventory write-down. In
addition, the decrease in operating income reflected a $6 million charge
for production and maintenance shutdown costs that could not be
capitalized in inventory. The Company's strategy has been to reduce
finished goods production to levels reflective of current market
conditions and to reduce inventory levels.
Share Repurchase Program
The Company announced today that its Board of Directors has approved an
increase in the shares authorized for repurchase by 3.0 million,
bringing the total number of shares available for repurchase to 4.5
million. The Company repurchased no shares during the first fiscal
quarter of 2009.
Outlook
While market visibility has improved since the time of the Company's
fourth quarter earnings release on October 28, 2008, there still remains
uncertainty regarding near-term demand for steel and recycled metal.
Based on continued limited visibility, the Company said the factors that
will affect its results in the second quarter of 2009 include:
Metals Recycling Business:
Pricing. Pricing levels for ferrous metal appear to have
strengthened slightly from the levels seen in the last month of the
fiscal first quarter, although remaining at levels lower than the
average for the first quarter as a whole. Nonferrous prices also appear
to have stabilized at lower levels, and the average for the quarter is
expected to be less than the average for the second quarter of fiscal
2008.
Sales volumes. Due to shipments delayed from the first
quarter, second quarter 2009 ferrous volumes are expected to approximate
the volumes shipped in the second quarter of 2008. Nonferrous volumes
are expected to be 10% to 20% less than volumes shipped in the second
quarter of last year.
Margins. The Metals Recycling Business expects to produce
positive operating margins during the quarter. The continuing impact of
ferrous selling prices which have fallen faster than inventory costs and
significantly lower prices for nonferrous metals extracted from the
shredding process are expected to result in lower margins than those
achieved during the second quarter of 2008. However, cost containment
efforts should enable the Metals Recycling Business to attain an
operating margin per ton in future quarters that is generally consistent
with margins achieved in fiscal 2006 and 2007.
Auto Parts Business:
Revenue. Lower volumes of scrapped vehicles and lower prices for
ferrous and nonferrous metals are expected to offset higher self-service
parts sales and result in revenues which decline 20-25% compared to the
second quarter of fiscal 2008.
Margins. The combined impact of selling prices for cores and
scrap which have fallen faster than inventory costs and lower
full-service parts sales is expected to more than offset the benefits
from the cost containment program. As a result, margins in the Auto
Parts Business during the second quarter of fiscal 2009 are expected to
be negative, although improved from the first quarter. Cash metal
spreads are expected to remain positive.
Steel Manufacturing Business:
Pricing. Continued weak demand for finished steel products is
expected to result in average net sales prices lower than levels
realized in the second quarter of fiscal 2008.
Volumes. The continued weak demand is expected to result in sales
volumes approximately 20% less than the recently completed first quarter
and 60% less than the record second quarter sales volumes in fiscal 2008.
Margins. Expenses related to planned downtime and low production
volumes, are expected to result in negative margins in the Steel
Manufacturing Business in the second fiscal quarter as output has been
temporarily cut more than the drop in sales volumes in order to reduce
inventories. Cost containment efforts are expected to result in positive
margins after production is restored to levels consistent with expected
customer demand.
First Quarter 2009 Conference Call
A conference call to discuss results will be held today, January 8,
2009, at 11:30 a.m. EDT, hosted by Tamara Lundgren, President and Chief
Executive Officer, and Richard Peach, Chief Financial Officer. The call
will be webcast and is accessible on Schnitzer Steel's web site at www.schnitzersteel.com.
Schnitzer Steel Industries, Inc. 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. The
Company's auto parts business sells used auto parts through its 38
self-service facilities and 18 full-service facilities located in 16
states and in western Canada. With an annual production capacity of
nearly 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 103rd year of operations in fiscal
2009.
This news release contains forward-looking statements, within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") which are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include, without limitation, statements
regarding the Company's expected net loss, the expect amount of the
write down of its inventory values, the Company's outlook for the
business and statements as to expected pricing, sales volume, operating
margins and operating losses. Such statements can generally be
identified because they contain "expect," "believe," "anticipate,"
"estimate" and other words that convey a similar meaning. One can also
identify these statements as statements that do not relate strictly to
historical or current facts. Examples of factors affecting the Company
that could cause actual results to differ materially from current
expectations are the following: volatile supply and demand conditions
affecting prices and volumes in the markets for both the Company's
products and the raw materials it purchases; world economic conditions;
world political conditions; unsettled credit markets; the Company's
ability to match output with demand; changes in federal and state income
tax laws; government regulations and environmental matters; impact of
pending or new laws and regulations regarding imports and exports into
the United States and other foreign countries; foreign currency
fluctuations; competition; seasonality, including weather; energy
supplies; freight rates and availability of transportation; loss of key
personnel; expectations regarding the Company's compliance program; the
inability to obtain sufficient quantities of scrap metal to support
current orders; purchase price estimates made during acquisitions;
business integration issues relating to acquisitions of businesses; new
accounting pronouncements; availability of capital resources;
creditworthiness of and availability of credit to suppliers and
customers; business disruptions resulting from installation or
replacement of major capital assets; and the adverse impact of
climate changes, as discussed in more detail in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the
Company's most recent Annual Report on Form 10-K or Quarterly Report on
Form 10-Q. One should understand that it is not possible to predict or
identify all factors that could cause actual results to differ from the
Company's forward-looking statements. Consequently, the reader should
not consider any such list to be a complete statement of all potential
risks or uncertainties. The Company does not assume any obligation to
update any forward-looking statement.
For more information about Schnitzer Steel Industries, Inc., go to www.schnitzersteel.com.
SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended
November 30, November 30,
2008 2007
Revenues $ 498,565 $ 603,897
Cost of goods sold 513,760 519,378
Selling, general and administrative 43,082 44,891
Environmental matters (5,613 ) -
(Income) from joint ventures (2,256 ) (1,741 )
Operating income (loss) (50,408 ) 41,369
Other income (expense):
Interest expense (1,354 ) (2,348 )
Other income (expense), net 279 614
(1,075 ) (1,734 )
Income (loss) before income taxes and minority (51,483 ) 39,635
interests
Income tax expense 17,234 (14,225 )
Income (loss) before minority interests and (34,249 ) 25,410
pre-acquisition interests
Minority interests, net of tax 247 (698 )
Net income (loss) $ (34,002 ) $ 24,712
Basic earnings (loss) per share $ (1.21 ) $ 0.87
Diluted earnings (loss) per share $ (1.21 ) $ 0.85
SCHNITZER STEEL INDUSTRIES, INC.
FINANCIAL HIGHLIGHTS
(in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended
November 30, November 30,
2008 2007
REVENUES:
Metals Recycling Business:
Ferrous sales $ 312,755 388,282
Nonferrous sales 86,517 89,606
Other sales 1,912 3,583
Total sales 401,184 481,471
Auto Parts Business 67,304 72,163
Steel Manufacturing Business 98,632 109,689
Intercompany sales eliminations (68,555 ) (59,426 )
Total $ 498,565 $ 603,897
INCOME (LOSS) FROM OPERATIONS:
Metals Recycling Business $ (19,249 ) $ 29,637
Auto Parts Business (8,948 ) 7,214
Steel Manufacturing Business (31,286 ) 14,344
Corporate expense (5,583 ) (9,512 )
Intercompany eliminations 14,658 (314 )
Total $ (50,408 ) $ 41,369
NET INCOME (LOSS) $ (34,002 ) $ 24,712
BASIC EARNINGS (LOSS) PER SHARE $ (1.21 ) $ 0.87
DILUTED EARNINGS (LOSS) PER SHARE $ (1.21 ) $ 0.85
SHARE INFORMATION (THOUSANDS):
Basic shares outstanding 28,016 28,529
Diluted shares outstanding 28,016 29,055
Schnitzer Steel Industries, Inc.
Selected Operating Statistics
(Unaudited)
Total Total
Q1 FY09 FY09 Q1 FY08 Q2 FY08 Q3 FY08 Q4 FY08 FY08
Metals
Recycling
Business
Ferrous
Recycled
Metal Sales
Prices
($/LT)(1)
Domestic $ 371 $ 371 $ 279 $ 321 $ 464 $ 583 $ 416
Export 353 353 286 331 459 636 444
Average 359 359 284 328 460 622 436
Ferrous
Processing
Sales Volume
(LT)(2)
Cascade 145,493 145,493 179,686 170,221 186,696 200,523 737,126
Domestic 129,620 129,620 178,833 210,824 226,961 188,801 805,419
Export 503,635 503,635 642,142 746,736 722,973 1,099,203 3,211,054
Total 778,748 778,748 1,000,661 1,127,781 1,136,630 1,488,527 4,753,599
Processed
Ferrous
Trading
Sales Volume
(LT)
Trading - - 134,957 148,899 151,324 8,407 443,587
Total
Ferrous 778,748 778,748 1,135,618 1,276,680 1,287,954 1,496,934 5,197,186
Sales Volume
(LT)(2)
Nonferrous
Average $ 0.784 $ 0.784 $ 1.000 $ 0.980 $ 1.069 $ 1.053 $ 1.030
Price
($/pound)(1)
Nonferrous
Sales Volume 107,359 107,359 88,808 96,278 128,858 125,525 439,469
(pounds, in
thousands)
Steel
Manufacturing
Business
Sales Prices
($/NT)(1)(2)
(3)
Average $ 864 $ 864 $ 601 $ 616 $ 744 $ 958 $ 728
Sales Volume
(NT)(3)
Rebar 46,917 46,917 108,856 127,732 128,597 104,926 470,111
Coiled 45,051 45,051 49,343 57,096 74,270 65,397 246,106
Products
Merchant
Bar and 6,235 6,235 16,031 17,332 15,033 11,576 59,972
Other
Total 98,203 98,203 174,230 202,160 217,900 181,899 776,189
Auto Parts
Business
Number of
self-service
locations at 38 38 35 35 35 38 38
end of
quarter
Number of
full-service 18 18 17 17 17 18 18
sites at end
of quarter
(1) Price information is shown after a reduction for the cost of freight incurred to deliver the
product to the customer.
(2) Includes sales to the Steel
Manufacturing Business for all
quarters.
(3) Excludes billet sales.
SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share amounts)
November 30, 2008 August 31, 2008
Assets
Current assets:
Cash and cash equivalents $ 10,039 $ 15,039
Accounts receivable, net 109,097 314,993
Inventories 328,929 429,061
Other current assets 44,630 20,433
Total current assets 492,695 779,526
Property, plant and equipment, net 439,280 431,898
Goodwill and other assets 341,932 343,429
Total assets $ 1,273,907 $ 1,554,853
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 25,537 $ 25,490
Other current liabilities 128,688 319,432
Total current liabilities 154,225 344,922
Long-term debt 106,107 158,933
Other long-term liabilities 65,729 68,447
Minority interests 4,010 4,399
Shareholders' equity 943,836 978,152
Total liabilities and shareholders' $ 1,273,907 $ 1,554,853
equity
CONTACT:
Schnitzer Steel Industries, Inc.
Investor Relations:
Rob Stone, 503-224-9900
or
Press Relations:
Tom Zelenka, 503-323-2821
Website: www.schnitzersteel.com
Email: ir@schn.com
Source: Schnitzer Steel Industries, Inc.