News Releases

Schnitzer Steel Reports Fourth Quarter Net Income

PORTLAND, Ore.--(BUSINESS WIRE)--Oct. 27, 2009-- Schnitzer Steel Industries, Inc. (Nasdaq: SCHN) today reported revenues of $556 million and net income of $10 million, or $0.36 per diluted share, for the fiscal fourth quarter ended August 31, 2009. During the quarter the Company generated $46 million in cash from operations, bringing the total cash from operations for the fiscal year to $288 million.

                     
  Fourth   Fourth   Third   Fiscal   Fiscal

(in millions, except per-

Quarter Quarter Quarter 2009 2008

share data)

  2009   2008   2009        
Revenues   $ 556   $ 1,314   $ 412     $ 1,900     $ 3,642
Operating Income (Loss)   $ 16   $ 200     ($ 6 )     ($ 58 )   $ 402
Net Income (Loss)   $ 10   $ 126     ($ 2 )     ($ 32 )   $ 249
Diluted EPS   $ 0.36   $ 4.38     ($0.05 )     ($ 1.14 )   $ 8.61
 

“We are pleased to report that all three operating businesses reported positive operating income and showed their third consecutive sequential improvement in quarterly results, resulting in a profitable fourth quarter,” said Tamara Lundgren, President and Chief Executive Officer. “The performance by our Metals Recycling Business was driven by broad-based demand from the export markets, indicative of the economic recovery and continuing infrastructure-related growth in our primary export markets in Asia. Sales volumes were strong, just off the record volumes in the fourth quarter of last year. We were able to increase these sales volumes and improve profitability despite on-going domestic challenges in the cost of raw materials and a weak U.S. domestic economy. Our Auto Parts Business benefited from an improvement in the flow of scrapped vehicles and higher commodity prices, and our Steel Manufacturing Business took advantage of customer inventory restocking to increase production and sales volumes and achieve positive operating income,” she continued.

“As we look back on fiscal 2009, we see significant accomplishments. For the year as a whole, the Company utilized its strong cash flow generation to invest $182 million in capital expenditures and acquisitions and to repurchase 600,000 shares of its common stock, all while further lowering its leverage ratio by reducing outstanding debt by $73 million. Our quick actions to reduce costs and to cut production output and purchase prices in order to maintain positive metals spreads allowed us to generate these strong cash flows and to strengthen our balance sheet, all in the face of a severe economic downturn. We continued to invest in technology to improve operating efficiencies and also completed five acquisitions, which expanded our access to supply and added additional deep water export capability,” added Lundgren.

“Looking ahead to fiscal 2010, we continue to be encouraged by the level of economic activity in the primary overseas markets served by our Metals Recycling Business. We expect our October 2nd acquisition in the Auto Parts Business to enhance our self-service used auto parts platform while increasing the benefits from vertical integration with our Metals Recycling Business. To be sure, challenges remain, as the weak U.S. domestic economy continues to negatively impact both the demand for finished steel products as well as the flow of recycled metals. However, we believe our export platform and strong balance sheet have positioned us well to take advantage of growth opportunities during 2010 and beyond.”

Metals Recycling Business

The Metals Recycling Business continued to utilize its bi-coastal export platform to take advantage of improving demand in the world’s developing economies.

                     

($ in millions, except selling

         

prices; ferrous volume in

thousands of long tons, non-

Fourth Fourth Third

ferrous volumes in millions of

Quarter Quarter Quarter Fiscal Fiscal

pounds)

  2009   2008   2009   2009   2008
Total Revenues   $ 452   $ 1,174   $ 318   $1,508   $3,063
Ferrous Revenues   $ 371   $ 1,038   $ 268   $1,249   $2,591
Ferrous Volumes (Processing/Trading)   1,290/0   1,489/8   1,037/0  

4,189/0

 

4,754/444

Avg. Net Ferrous Sales Prices ($/LT)(1)

(Processing/Trading)

 

$ 251

  $623/590   $ 223  

 

$264

 

 

$442/370

Nonferrous Volumes   123   126   90   397   439
Avg. Net Nonferrous Sales Prices ($/LB)(1)  

$0.63

  $ 1.05   $ 0.51  

$ 0.61

 

$ 1.03

Operating Income(2)

  $ 21   $ 182   $ 6   $ 13   $ 357
 

(1) Sales prices are shown net of freight

(2) Includes operating income from joint ventures

 

Revenues from the Metals Recycling Business increased 42% over the third quarter of fiscal 2009, driven by a 24% increase in ferrous sales volumes and a 13% increase in ferrous net sales prices. Processing ferrous sales volumes of 1.3 million tons were the second highest quarterly total in the Company’s history, surpassed only by the record volumes in the fourth quarter of fiscal 2008. In addition, nonferrous sales volumes increased 36% and nonferrous net sales prices increased 24%, both compared to the third quarter of fiscal 2009.

Year over year quarterly revenues declined 62%, primarily as a result of declines of 60% and 13% in ferrous net selling prices and ferrous processing sales volumes, respectively, and a 40% decline in nonferrous net sales prices. Fourth quarter nonferrous volumes approximated the volumes during the same period during fiscal 2008. The year-over-year decline in quarterly ferrous volumes is primarily related to lower sales to domestic customers, including the Steel Manufacturing Business. For full fiscal 2009, export sales volumes from the Company’s processing facilities exceeded similar volumes during 2008 by 225 thousand tons, or 7%.

Operating income increased 240% over the third quarter of fiscal 2009, primarily due to the higher ferrous and nonferrous sales volumes and higher prices for nonferrous materials recovered as a byproduct of the Company’s shredding processes. During the quarter, while raw material flows improved, purchase costs increased more than net ferrous selling prices, limiting the expansion of margins. Operating income declined 89% compared to the record earnings in the fourth quarter of fiscal 2008 due to lower volumes and substantially lower margins attributable to more restricted flows of raw materials and lower nonferrous prices.

Auto Parts Business

The Auto Parts Business recorded its third consecutive sequential increase in operating income due to higher flows of scrapped vehicles and improved commodity prices.

                     
  Fourth   Fourth   Third    

($ in millions, except

Quarter Quarter Quarter Fiscal Fiscal

locations)

    2009     2008     2009     2009     2008
Revenues   $ 75   $ 103   $ 66   $ 266   $ 353
Operating Income (Loss)   $ 8   $ 16   $ 3    

($3)

  $ 47
Locations (end of quarter)     57     56     57    

57

   

56

 

Revenues for the Auto Parts Business increased 14% over the third quarter of 2009, primarily as a result of higher core and scrap prices and improved flows of scrapped vehicles which led to higher car purchases. Revenues decreased 27% on a year-over-year basis due to lower car volumes and lower prices for cores and scrap.

Fourth quarter operating income increased 185% over the third quarter of 2009 due to higher scrap and core prices and higher car volumes. Operating income declined 46% from the record achieved during the fourth quarter of 2008 due to lower volumes and lower prices for recycled metals.

Steel Manufacturing Business

The Steel Manufacturing Business also recorded its third consecutive sequential improvement in its financial results as sales volumes increased due to inventory restocking by customers.

                     

($ in millions, except selling

  Fourth   Fourth   Third    

prices; volume in thousands

Quarter Quarter Quarter Fiscal Fiscal

of tons)

    2009     2008     2009     2009     2008
Revenues   $ 66   $ 182   $ 47   $ 263   $ 603
Avg. Net Sales Prices ($/T)   $ 509   $ 958   $ 524  

$

617

 

$

728

Sales Volume     115     182     85     381     776
Operating Income (Loss)   $ 1   $ 22     ($ 5)     ($ 42)   $ 72
 

Revenues for the Steel Manufacturing business rose 41% compared to the third quarter of fiscal 2009, primarily due to a 35% increase in sales volumes. At the beginning of the quarter, customer inventory levels were low, and the higher sales volumes were attributable to inventory restocking. Despite these higher sales volumes, overall demand for finished steel products in the west coast markets remained weak. Compared to the fourth quarter of fiscal 2008, revenues declined 64% on a 37% decline in sales volumes and a 47%, or $449/ ton, decline in net average sales prices.

Operating income for the quarter was positive and improved $6 million compared to the third quarter operating loss due to higher sales volumes which enabled higher utilization of the melt shop and rolling mills. The higher utilization and lower unit costs were partially offset by raw material costs which increased despite the lower sales prices. Year over year operating income declined due to the significantly lower sales volumes, sales prices and metal spreads.

Share Repurchases

During the quarter, the Company repurchased 600,000 shares of its Class ‘A’ common stock. Since November 2006, the Company has repurchased 3.8 million shares, or approximately 13% of the total shares outstanding. Under the authority granted by its Board of Directors, the Company may repurchase an additional 3.9 million shares.

Outlook

The Company said the factors, which are forward-looking statements and subject to uncertainty as discussed below, that may affect its results in the first quarter of fiscal 2010 include:

Metals Recycling Business:

Pricing. Average ferrous and nonferrous net sales prices for the first quarter as a whole are expected to increase slightly from the fourth quarter of fiscal 2009, although market prices for the forward sales of ferrous scrap have declined in recent weeks in both the domestic and export markets.

Sales volumes. Due to the near record volume of shipments in the recently completed fourth quarter and a first quarter softening in demand, first quarter ferrous sales volumes are expected to decline approximately one-third on a quarter over quarter basis. Nonferrous sales volumes are also expected to decline approximately 15-20% compared to the fourth quarter. As always, quarterly sales volumes are highly dependent upon the timing of shipments.

Margins. First quarter margins are expected to approximate the margins in the recently completed fourth quarter as the increase in average sales prices is expected to be offset by an increase in average inventory costs.

Auto Parts Business:

Effective October 2, 2009, the Company completed a transaction in which it sold 17 locations operated by Greenleaf, its full-service used auto parts business, and acquired six self-service used auto parts stores. The purchase by the Company of four of the self-service stores was effective in October, and the purchase of two of the stores is expected to occur in January 2010. During fiscal 2009, Greenleaf generated revenues of $116 million while recording an operating loss of $6 million, excluding corporate allocations. First quarter operating results in the Auto Parts Business are expected to be impacted by this transaction, as described below.

Revenues. The overall revenues of the Auto Parts Business are expected to decrease compared to the fourth quarter due to the divestiture of the 17 Greenleaf full-service locations. The loss of the Greenleaf revenues is expected to be partially offset by the contribution of the four self-service stores acquired in October as well as the impact of higher car volumes from the Cash for Clunkers legislation. The overall quarter-over-quarter decline in revenues is expected to be 30-35%.

Margins. The self-service distribution channel has historically had higher margins than the full-service distribution channel and the disposition of the Greenleaf operation is expected to result in overall margin improvement for the Auto Parts Group compared to the fourth quarter. Self-service margins in the fourth quarter of fiscal 2009 were 18%. First quarter margins from continuing operations are expected to decline slightly from that level, primarily due to integration expenses.

Disposition of Greenleaf. As a result of the sale of Greenleaf, in the first quarter of fiscal 2010 the Company expects to record a non-cash loss from the disposition, which will be separately reported within discontinued operations. While the calculation of the loss is still subject to the completion of purchase accounting, it is currently estimated to be not less than $(15) million, primarily reflecting the write-off of goodwill.

Steel Manufacturing Business:

Pricing. Continued weak demand for finished steel products in the west coast markets is expected to result in sales prices which approximate the levels seen during the fourth quarter of fiscal 2009.

Sales Volumes. Sales volumes are expected to decline approximately 20-30% from the volumes in the fourth quarter of 2009. The Company continues to see little indication of any impact from government stimulus spending on demand for finished steel products.

Margins. Due to the impact of low production volumes as a result of weak customer demand and higher cost scrap purchased before the recent market decline, average inventory costs are expected to rise. As a result, first quarter margins are expected to be negative, and lower than the margins in the third quarter of fiscal 2009 when sales volumes were are at comparable levels.

Fourth Quarter 2009 Conference Call

A conference call and slide presentation to discuss results will be held today, October 27, 2009, at 11:30 a.m. EDT, hosted by Tamara Lundgren, President and Chief Executive Officer, and Richard Peach, Chief Financial Officer. The call and the slides will be webcast and are 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 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. The Company’s auto parts business sells used auto parts through its 43 self-service facilities located in 14 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 104th year of operations in fiscal 2010.

This news release, particularly the Outlook section, 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 outlook for the business and statements as to expected pricing, sales volume, operating margins and operating income. 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 countries; foreign currency fluctuations; competition; seasonality, including weather; energy supplies; freight rates and availability of transportation; loss of key personnel; 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; adverse impact of climate changes; and business disruptions resulting from installation or replacement of major capital assets, 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.
FINANCIAL HIGHLIGHTS
(in thousands, except per share amounts)
(Unaudited)
           
For the Three Months Ended For the Twelve Months Ended
August 31, August 31, August 31, August 31,
2009 2008 2009 2008
 
REVENUES:
 
Metals Recycling Business:
Ferrous sales 371,247 1,037,530 1,249,308 2,590,796
Nonferrous sales 79,452 134,842 251,508 460,639
Other sales   1,417     2,029     6,839     11,415  
Total sales 452,116 1,174,401 1,507,655 3,062,850
 
Auto Parts Business 74,770 102,545 266,203 352,682
Steel Manufacturing Business 65,891 182,333 263,269 603,189
Intercompany sales eliminations   (36,548 )   (145,240 )   (136,901 )   (377,171 )
Total $ 556,229   $ 1,314,039   $ 1,900,226   $ 3,641,550  
 
 
INCOME (LOSS) FROM OPERATIONS:
 
Metals Recycling Business: 20,505 181,780 12,552 356,873
Auto Parts Business 8,489 16,260 (2,922 ) 46,734
Steel Manufacturing Business 643 22,024 (42,000 ) 72,300
Corporate expense (12,254 ) (17,119 ) (38,352 ) (63,990 )
Intercompany eliminations   (1,159 )   (3,118 )   13,112     (9,634 )
Total $ 16,224   $ 199,827   $ (57,610 ) $ 402,283  
 
 
NET INCOME (LOSS) $ 10,265   $ 126,382   $ (32,229 ) $ 248,683  
 
BASIC EARNINGS (LOSS) PER SHARE $ 0.37   $ 4.49   $ (1.14 ) $ 8.79  
 
DILUTED EARNINGS (LOSS) PER SHARE $ 0.36   $ 4.38   $ (1.14 ) $ 8.61  
 
SHARE INFORMATION (THOUSANDS):
Basic shares outstanding   28,098     28,165     28,159     28,278  
 

Diluted shares outstanding

  28,415     28,834     28,159     28,894  
 

SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(Unaudited)
       
For the Three Months Ended For the Twelve Months Ended
August 31, August 31, August 31, August 31,
2009 2008   2009   2008
 
 
Revenues $ 556,229   $ 1,314,039   $ 1,900,226   $ 3,641,550  
 
 
Cost of goods sold 489,588 1,053,393 1,781,114 3,013,853
Selling, general and administrative 50,076 67,091 184,657 237,723
Environmental matters (666 ) (796 ) (6,746 ) (603 )
(Income) loss from joint ventures   1,007     (5,476 )   (1,189 )   (11,706 )
 
 
Operating income (loss) 16,224 199,827 (57,610 ) 402,283
 

Other income (expense):

Interest expense

 

(519 ) (1,946 ) (3,342 ) (8,649 )

Other income

 

  619     1,055     7,405     2,644  

Other income (expense)

 

  100     (891 )   4,063     (6,005 )
 
 
Income (loss) before income taxes and minority interests 16,324 198,936 (53,547 ) 396,278
 
Income tax benefit (expense)   (5,907 )   (71,477 )   21,817     (144,203 )

 

Income (loss) before minority interests and pre-acquisition interests

 

10,417 127,459 (31,730 ) 252,075
 
Minority interests, net of tax (152 ) (1,077 )   (499 ) (3,392 )
 
Net income (loss) $ 10,265   $ 126,382   $ (32,229 ) $ 248,683  
 
 
Basic earnings (loss) per share $ 0.37   $ 4.49   $ (1.14 ) $ 8.79  
 
Diluted earnings (loss) per share $ 0.36   $ 4.38   $ (1.14 ) $ 8.61  

Schnitzer Steel Industries, Inc.                    
Selected Operating Statistics
(Unaudited)
  Total Total

Q1 FY09

Q2 FY09

Q3 FY09

Q4 FY09

FY09

Q1 FY08

Q2 FY08

Q3 FY08

Q4 FY08

FY08

Metals Recycling Business
Ferrous Processing Selling Prices ($/LT)(1)
Domestic(2) $ 371 $ 209 $ 186 $ 250 $ 275 $ 279 $ 321 $ 464 $ 583 $ 416
Exports 353 259 228 251 262 280 329 463 637 455
Average 359 253 223 251 264 280 327 463 623 442
 
 
Ferrous Processing Sales Volume (LT)(2)
Cascade 145,493 29,761 55,162 104,428 334,844 179,686 170,221 186,696 200,523 737,126
Domestic 129,620 99,275 86,555 101,972 417,422 178,833 210,824 226,961 188,801 805,419
Export   503,635     954,003     895,167     1,083,472     3,436,277   642,142     746,736     722,973     1,099,203     3,211,054
Total Processed   778,748     1,083,039     1,036,884     1,289,872     4,188,543   1,000,661     1,127,781     1,136,630     1,488,527     4,753,599
 
Ferrous Trading Sales Volume (LT)
Trading - - - - - 134,957 148,899 151,324 8,407 443,587
                                   
Total Ferrous Sales Volume (LT)(2)   778,748     1,083,039     1,036,884     1,289,872     4,188,543   1,135,618     1,276,680     1,287,954     1,496,934     5,197,186
 
Nonferrous Average Price ($/pound)(1) $ 0.78 $ 0.45 $ 0.51 $ 0.630 $ 0.61 $ 1.00 $ 0.98 $ 1.07 $ 1.05 $ 1.03
 
Nonferrous Sales Volume (pounds, in thousands) 107,359 76,822 90,226 122,649 397,056 88,808 96,278 128,858 125,525 439,469
 
 
Steel Manufacturing Business
Sales Prices ($/NT)(1)(3)
Average $ 864 $ 570 $ 524 $ 509 $ 617 $ 601 $ 616 $ 744 $ 958 $ 728
 
Sales Volume (NT)(3)
Rebar 46,917 56,588 52,749 70,542 226,796 108,856 127,732 128,597 104,926 470,111
Coiled Products 45,051 19,332 25,798 36,949 127,130 49,343 57,096 74,270 65,397 246,106
Merchant Bar and Other 6,235 6,783 6,820 7,343 27,181 16,031 17,332 15,033 11,576 59,972
Total 98,203 82,703 85,367 114,834 381,107 174,230 202,160 217,900 181,899 776,189
 
Auto Parts Business
Number of self-service locations at end of quarter 38 40 39 39 39 35 35 35 38 38
Number of full-service sites at end of quarter 18 18 18 18 18 17 17 17 18 18
 
(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)
     
 
  August 31, 2009   August 31, 2008

Assets

Current assets:
Cash and cash equivalents $ 41,026 $ 15,039
Accounts receivable, net 117,666 314,993
Inventories, net 184,455 429,061
Other current assets   67,867   20,433
Total current assets 411,014 779,526
 
Property, plant and equipment, net 447,228 431,898
 
Goodwill and other assets   409,991   343,429
 
Total assets $ 1,268,233 $ 1,554,853
 

Liabilities and Shareholders’ Equity

Current liabilities:
Short-term borrowings $ 1,317 $ 25,490
Other current liabilities   138,812   319,432
Total current liabilities 140,129 344,922
 
 
Long-term debt 110,414 158,933
 
Other long-term liabilities 94,940 68,447
 
Minority interests 3,383 4,399
 
Shareholders’ equity   919,367   978,152
 
Total liabilities and shareholders’ equity $ 1,268,233 $ 1,554,853

Source: Schnitzer Steel Industries, Inc.

Schnitzer Steel Industries, Inc.
Rob Stone, 503-224-9900
ir@schn.com

Data provided by Thomson Reuters