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Schnitzer Reports Strong Second Quarter Fiscal 2011 Financial Results and Continues Investment in Growth

Second Quarter Revenues Up 28%, Operating Income Up 61% and Diluted EPS Up 77% to $1.10

PORTLAND, Ore., Apr 04, 2011 (BUSINESS WIRE) --

Schnitzer Steel Industries, Inc. (Nasdaq:SCHN) today reported diluted earnings per share from continuing operations of $1.10 for its fiscal 2011 second quarter ended February 28, 2010. This compares with diluted earnings per share of $0.62 during the second quarter of fiscal 2010.

Schnitzer reported second quarter fiscal 2011 revenues of $722 million, an increase of 28% from the second quarter of fiscal year 2010.

Summary Results from Continuing Operations
($ in millions, except per share amounts)
Second Second First
Quarter Quarter Quarter
2011 2010* % Change 2011 % Change
Revenues $ 722 $ 564 28 % $ 675 7 %
Operating Income $ 46 $ 29 61 % $ 28 62 %
Income from continuing operations attributable to SSI**
$ 31 $ 18 76 % $ 18 73 %

Net income per share attributable to SSI

$ 1.10 $ 0.62 77 % $ 0.64 72 %

* Excludes results from discontinued operations
** Excludes the income attributable to noncontrolling interests

"Building on the momentum generated during the first quarter, we delivered our strongest second quarter performance since fiscal 2008. Year-over-year, our revenues grew by 28%, our operating income grew by 61% and our earnings per share grew by 77%," said Tamara Lundgren, President and Chief Executive Officer. "Each of our segments delivered higher revenues and improved operating income margins and we continued to execute on our growth strategy through acquisitions and capital expenditures focused on improving our operating efficiencies and production yields."

"Our strong balance sheet and access to capital enabled us to complete the acquisition of six metals recycling businesses and four auto parts stores while funding continued investments in new technologies and operational efficiencies," said Lundgren.

Key business drivers during the second quarter of fiscal 2011 included the following:

  • Metals Recycling Business (MRB) grew operating income by 45% as compared to last year's second quarter, reflecting strong global demand and higher sales prices for both ferrous and nonferrous metals. In addition, aggregate ferrous volumes over the last four quarters continue to approximate the record volumes achieved in fiscal 2008 and nonferrous volumes are trending at a record run rate.
  • Auto Parts Business (APB) achieved record second quarter operating income, generating 24% growth as compared to last year's record second quarter results. In addition, we actively pursued our growth strategy with the acquisition of four stores, including one in Texas and three in Washington. Car purchase volumes also increased significantly from the prior year, reflecting the benefits from both organic and acquisition growth.
  • Steel Manufacturing Business (SMB) delivered year-over-year financial improvement with near break-even operating income despite weak demand and highly competitive market conditions.

Metals Recycling Business

In the second quarter, our Metals Recycling Business shipped ferrous volumes of 1.1 million tons and nonferrous volumes of 121 million pounds and generated operating income of $42 million, a $16 million improvement over first quarter fiscal 2011 results.

Summary of Metals Recycling Business Results

($ in millions, except selling prices; Fe volumes 000s long tons; NFe volumes M lbs)

Second Second First
Quarter Quarter Quarter
2011 2010 % Change 2011 % Change
Total Revenues $ 637 $ 489 30 % $ 592 8 %
Ferrous Revenues $ 502 $ 400 26 % $ 481 4 %
Ferrous Volumes 1,100 1,174 (6 %) 1,231 (11 %)
Avg. Net Ferrous Sales Prices ($/LT)(1) $ 419 $ 297 41 % $ 353 19 %
Nonferrous Volumes 121

105 16 % 111 9 %
Avg. Net Nonferrous Sales Prices ($/lb)(1) $ 1.04 $ 0.80 30 % $ 0.94 10 %
Operating Income $ 42 $ 29 45 % $ 26 63 %
(1) Sales prices are shown net of freight

"During the second quarter, we achieved operating income per ferrous ton of $38, nearly double the prior quarter, largely driven by improved market conditions, steady intake of scrap and increasing contributions from our nonferrous operations," said Lundgren. "Demand in the export market continued its upward trend from the first quarter and the domestic ferrous markets rebounded, reflecting improving utilization at domestic mills."

Sales Volumes: As anticipated, ferrous sales volumes of 1.1 million tons declined 6% as compared to the prior year, primarily due to the timing of shipments. Nonferrous sales volumes increased 16% as compared to the prior year, benefiting from increased production from enhanced processing technologies and early contributions from our recent acquisitions.

Export customers accounted for 78% of total ferrous sales volumes. Our ferrous and nonferrous products were shipped to 19 countries in the second quarter. The top export destinations were China, Egypt and South Korea.

Pricing: Higher demand in both the export and domestic markets contributed to higher average ferrous net sales prices during the second quarter as compared to the prior year and first quarter. Nonferrous prices also improved during the quarter due to strengthening demand for copper and aluminum in particular. Average ferrous and nonferrous prices during the quarter were 41% and 30% higher, respectively, than comparable prices in the second quarter of fiscal 2010.

Revenues increased 30% year-over-year and 8% sequentially, driven by higher average selling prices for both ferrous and nonferrous metals.

Margins: Operating income per ferrous ton was $38 in the second quarter of fiscal 2011, an increase from $21 in the first quarter of fiscal 2011. Operating income per ferrous ton during the second quarter benefited from higher selling prices and lagging average inventory costs for raw materials in the first half of the quarter, steady intake of scrap and increasing contributions from our nonferrous operations. In addition, transaction expenses associated with our recent acquisitions were more than offset by favorable customer contract settlements.

Metals Recycling Business: Outlook

The following summary of management's outlook for the Metals Recycling Business in the third quarter of fiscal 2011 is subject to uncertainty that may affect future results.

Sales Volumes: Ferrous sales volumes are expected to increase by approximately 10% to 20% from second quarter levels due to normal seasonal improvements in supply flows. Nonferrous volumes are also expected to increase 10% to 15% from second quarter levels due to increased production and enhanced contributions from processing technologies. Both ferrous and nonferrous sales volumes will be positively impacted by the contributions from the recently completely acquisitions. As always, quarterly sales volumes are highly dependent upon the timing of shipments.

Pricing: Ferrous net selling prices, on average, are expected to approximate second quarter averages. Nonferrous prices are also expected to remain in line with second quarter levels.

Margins: Operating income per ferrous ton is expected to be slightly lower than the second quarter of fiscal 2011.

Auto Parts Business

Our Auto Parts Business delivered strong operating results, achieving operating income growth of 24% as compared to last year's record second quarter.

Summary of Auto Parts Business Results
($ in millions, except locations)
Second Second First
Quarter Quarter Quarter
2011* 2010* % Change 2011* % Change
Revenues $ 73 $ 55 32 % $ 67 9 %
Operating Income $ 16 $ 13 24 % $ 14 14 %
Locations (end of quarter) 50 45 11 % 45 11 %
* Excludes results from discontinued operations

"Our Auto Parts Business continued to generate higher revenues and operating income and to deliver strong margins while growing car purchase volumes 16%," said Lundgren. "In addition to improved operating efficiencies, we continued to build scale with expanded operations in Washington, California and Texas. In particular, our Washington acquisition provides a new franchise opportunity in the Pacific Northwest as well as synergies with our Metals Recycling Business."

Revenues: Revenues increased 32% from the prior year quarter and 9% sequentially. Both comparisons reflect the impact of higher commodity prices on revenues from scrap and core sales and the partial benefit from the acquisitions completed during the quarter.

Margins: Operating margins of 22% approximated the strong results achieved in both the first quarter of fiscal 2011 and the second quarter of fiscal 2010.

Auto Parts Business: Outlook

The following summary of management's outlook for the Auto Parts Business in the third quarter of fiscal 2011 is subject to uncertainty that may affect future results.

Revenues: Revenues are expected to increase 10% to 15% from the second quarter of 2011 due to normal seasonal improvements in admissions and parts sales and the full quarter impact of new stores.

Margins: Third quarter operating margins are expected to approximate the second quarter of 2011.

Steel Manufacturing Business

In the second quarter, our Steel Manufacturing Business continued to be negatively impacted by weak demand for finished steel products in its West Coast markets.

Summary of Steel Manufacturing Business Results

($ in millions, except selling prices; volume in thousands of tons)

Second Second First
Quarter Quarter Quarter
2011 2010 % Change 2011 % Change
Revenues $ 70 $ 56 26 % $ 64 10 %
Avg. Net Sales Prices ($/T) $ 687 $ 556 24 % $ 634 8 %
Finished Goods Sales Volumes 99 96 3 % 98 1 %
Operating Income (Loss) $ (1 ) $ (2 ) NM $ (2 ) NM
NM - not meaningful

"Our Steel Manufacturing Business generated improved year-over-year performance despite ongoing weak demand in the West Coast construction markets," said Lundgren. "We expect to benefit from the normal seasonal improvement in construction during the summer months and to continue to maximize value from our product diversification and operational efficiencies."

Sales Volumes: Finished steel sales volumes of 99 thousand tons improved 3% from the prior year quarter and 1% sequentially.

Pricing: Average net sales prices for finished steel products increased by 24%, as compared to the prior year quarter, and 8%, as compared to the first quarter of fiscal 2011.

Margins: Higher sales prices resulted in improved operating margins on both a year-over-year and sequential basis.

Steel Manufacturing Business: Outlook

The following summary of management's outlook for the Steel Manufacturing Business in the third quarter of fiscal 2011 is subject to uncertainty that may affect future results.

Sales Volumes: Sales volumes are expected to be slightly higher than the second quarter of fiscal 2011 due to normal seasonal increases in construction activity.

Pricing: Average net sales prices are expected to increase from the second quarter fiscal 2011 as domestic demand continues to improve.

Margins: Third quarter operating margins are expected to improve slightly due to higher throughput and higher average pricing as compared to the second quarter.

Corporate Items

Other income included $3 million from unrealized transaction gains relating to foreign currency forward contracts associated with a Canadian acquisition which closed after the end of the second quarter.

The Company's effective tax rate for the quarter was 33%, which is consistent with the expected tax rate for the remainder of the fiscal year.

Total debt increased from the first quarter by $141 million to $321 million, primarily reflecting the cost of acquisitions during the second quarter.

The Company closed an amended $650 million credit facility which increases our line of credit from $450 million, extends the maturity until 2016 and includes a $30 million Canadian facility to support our expansion in Western Canada. The successful completion of this financing provides additional flexibility to continue our strategy of investing capital to improve operating performance and to grow our geographic platform in order to benefit from the positive trends for recycled metals worldwide.

Analysts' Conference Call:Second Quarter of Fiscal 2011

A conference call and slide presentation to discuss results will be held today, April 4, 2011, at 5:00 p.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 accessible on the Company's website at www.schnitzersteel.com.

Summary financial data provided in the following pages. The slides and related materials will be available prior to the call on the website.

SCHNITZER STEEL INDUSTRIES, INC.
FINANCIAL HIGHLIGHTS
(in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended
February 28, November 30, February 28,

2011(1)

2010 (1)

2010 (1)

REVENUES:
Metals Recycling Business:
Ferrous sales $ 502,289 $ 480,868 $ 399,995
Nonferrous sales 130,441 108,273 87,748
Other sales 4,298 2,567 1,607
TOTAL MRB SALES 637,028 591,708 489,350
Auto Parts Business 72,533 66,681 54,803
Steel Manufacturing Business 70,068 63,634 55,544
Intercompany sales eliminations (57,787 ) (46,919 ) (35,369 )
TOTAL $ 721,842 $ 675,104 $ 564,328
INCOME FROM CONTINUING OPERATIONS:
Metals Recycling Business $ 41,691 $ 25,533 $ 28,671
Auto Parts Business 15,957 14,039 12,871
Steel Manufacturing Business (711 ) (2,035 ) (2,124 )
Corporate expense (11,100 ) (10,563 ) (10,431 )
Intercompany eliminations 100 1,466 (450 )
OPERATING INCOME 45,937 28,440 28,537

(1) Excludes discontinued operations

SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended
February 28, November 30, February 28,
2011 2010 2010
Revenues $ 721,842 $ 675,104 $ 564,328
Cost of goods sold 632,856 602,546 496,582
Selling, general and administrative 44,033 45,075 39,661
Environmental matters 0 (200 ) (532 )
(Income) loss from joint ventures (984 ) (757 ) 80
Operating income 45,937 28,440 28,537
Other income (expense):
Interest expense (1,157 ) (598 ) (695 )
Other income 3,088 216 471
Other income (expense) 1,931 (382 ) (224 )
Income from continuing operations before income taxes 47,868 28,058 28,313
Income tax expense (15,745 ) (9,164 ) (9,736 )
Income from continuing operations 32,123 18,894 18,577
Income (loss) from discontinued operations, net of tax 11 23 (72 )
Net income 32,134 18,917 18,505
Net income attributable to noncontrolling interests (1,309 ) (1,123 ) (1,046 )
Net income attributable to SSI $ 30,825 $ 17,794 $ 17,459
Basic:
Income per share from continuing operations attributable to SSI (1) (2) 1.12 0.65 0.63
Income (loss) per share from discontinued operations attributable to SSI 0.00 0.00 (0.00 )
Net income per share attributable to SSI $ 1.12 $ 0.65 $ 0.63
Diluted:
Income per share from continuing operations attributable to SSI (1) (2) 1.10 0.64 0.62
Income (loss) per share from discontinued operations attributable to SSI 0.00 0.00 (0.00 )
Net income per share attributable to SSI $ 1.10 $ 0.64 $ 0.62
Weighted average number of common shares:
Basic 27,627 27,563 27,873
Diluted 27,944 27,871 28,117
Dividends declared per common share $ 0.017 $ 0.017 $ 0.017
(1 ) Excludes income attributable to noncontrolling interests
(2 ) Net income used in EPS calculation:
Income from continuing operations $ 32,123 $ 18,894 18,577
Net income attributable to noncontrolling interests (1,309 ) (1,123 ) (1,046 )
Income from continuing operations attributable to SSI 30,814 17,771 17,531
Income (loss) from discontinued operations, net of tax 11 23 (72 )
Net income attributable to SSI $ 30,825 $ 17,794 $ 17,459
SCHNITZER STEEL INDUSTRIES, INC.
SELECTED OPERATING STATISTICS
(Unaudited)

Fiscal Year

Fiscal Year
Q1 FY11 Q2 FY11 2011 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 2010
Metals Recycling Business
Ferrous Processing Selling Prices ($/LT)(1)
Domestic(2) $ 327 $ 402 $ 364 $ 271 $ 294 $ 368 $ 339 $ 322
Exports 359 424 389 280 298 382 343 330
Average 353 419 384 277 297 378 342 328
Ferrous Processing Sales Volume (LT)(2)
SMB 90,537 95,774 186,311 122,171 80,728 139,404 115,869 458,172
Domestic 161,301 144,250 305,551 134,595 160,424 197,226 158,487 650,732
Export 979,063 860,005 1,839,068 499,899 933,123 838,766 849,863 3,121,651
Total Processed 1,230,901 1,100,029 2,330,930 756,665 1,174,275 1,175,396 1,124,219 4,230,555
Nonferrous Average Price ($/LB)(1) $ 0.94 $ 1.04 $ 0.99 $ 0.73 $ 0.80 $ 0.94 $ 0.84 $ 0.83
Nonferrous Sales Volume (LB, in 000s) 111,495 121,498 232,993 110,247 104,892 124,283 139,063 478,485
Steel Manufacturing Business
Sales Prices ($/NT)(1)(3)
Average $ 634 $ 687 $ 660 $ 520 $ 556 $ 635 $ 618 $ 587
Sales Volume (NT)(3)
Rebar 63,668 51,569 115,237 55,875 42,588 52,792 66,047 217,302
Coiled Products 26,917 40,947 67,864 38,051 47,660 70,738 44,233 200,682
Merchant Bar and Other 7,071 6,322 13,393 6,249 6,147 7,840 5,296 25,532
Total 97,656 98,838 196,494 100,175 96,395 131,370 115,576 443,516
Auto Parts Business
Number of self-service locations at end of quarter 45 50 50 43 45 45 45 45
(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 (SMB) for all quarters.
(3) Excludes billet sales.
SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share amounts)
February 28, 2011 August 31, 2010 February 28, 2010
Assets
Current assets:
Cash and cash equivalents $ 48,245 $ 30,342 $ 33,573
Accounts receivable, net 161,015 126,156 160,483
Inventories, net 356,559 268,103 203,564
Other current assets 38,975 36,193 22,143
Total current assets 604,794 460,794 419,763
Property, plant and equipment, net 488,328 460,810 429,545
Goodwill and other assets 566,668 421,814 419,620
Total assets $ 1,659,790 $ 1,343,418 $ 1,268,928
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 700 $ 1,189 $ 1,161
Other current liabilities 190,595 158,924 134,878
Total current liabilities 191,295 160,113 136,039
Long-term debt and capital lease obligations 320,112 99,240 100,143
Other long-term liabilities 111,235 104,433 96,535
Equity:
Total Schnitzer Steel Industries, Inc. ("SSI") Shareholders' equity 1,031,629 975,326 931,939
Noncontrolling interests 5,519 4,306 4,272
Total equity 1,037,148 979,632 936,211
Total liabilities and shareholders' equity $ 1,659,790 $ 1,343,418 $ 1,268,928

About Schnitzer Steel Industries, Inc.

Schnitzer Steel Industries, Inc. is one of the largest manufacturers and exporters of recycled ferrous metal products in the United States with 57 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 50 self-service facilities located in 14 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 105th year of operations in fiscal 2011.

Safe Harbor for Forward-Looking Statements

This news release, particularly the Outlook sections, 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 product demand, pricing, sales volumes, revenues, operating margins, operating income and benefits of acquisitions. 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; 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 change, including as a result of treaties, legislation or regulations; natural disasters and civil disturbances; 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" or "Risk Factors" 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, except as may be required by law.

SOURCE: Schnitzer Steel Industries, Inc.

Schnitzer Steel Industries, Inc.
Investor Relations:
Alexandra Deignan, 646-278-9711
adeignan@schn.com
or
Media Relations:
Chip Terhune, 503-265-6370
cterhune@schn.com
or
Company Info:
www.schnitzersteel.com
ir@schn.com

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