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Schnitzer Reports Third Quarter Fiscal 2012 Financial Results

Operating Income Increased 23% and Diluted EPS Increased 16% Sequentially

PORTLAND, Ore.--(BUSINESS WIRE)--Jun. 28, 2012-- Schnitzer Steel Industries, Inc. (Nasdaq:SCHN) today reported diluted earnings per share from continuing operations of $0.40 for its fiscal 2012 third quarter ended May 31, 2012, an increase of 16% from $0.35 reported in the second quarter of fiscal 2012. The Company generated $95 million in operating cash flow during the third quarter and reduced total debt to total capital to 24%, down from 27% at the end of the second quarter of fiscal 2012.

These results exceeded the third quarter market outlook we previously provided. In our Metals Recycling Business, operating income per ton of $13 was higher than anticipated due to benefits from higher production and lower cost of goods sold. Our Auto Parts Business and Steel Manufacturing Business also performed slightly better than the outlook. Corporate costs were lower by $1 million sequentially due to reduced compensation accruals.

 
Summary Results from Continuing Operations
($ in millions, except per share amounts)
  Quarter
3Q12   2Q12   % Change   3Q11
Revenues $ 880   $ 887   (1 )%   $ 981
Operating Income 22 18 23 % 55
Income from continuing operations attributable to SSI* 11 10 17 % 33
Net income per share from continuing operations attributable to SSI** $ 0.40 $ 0.35 16 % $ 1.17
 
* Excludes income attributable to noncontrolling interests
** Excludes results from discontinued operations
 

"Our consolidated third quarter operating income improved 23% from the second quarter, primarily due to our Auto Parts Business which benefited from higher parts sales and lower SG&A, achieving a 6% sequential growth in revenues and a 44% increase in operating income," said Tamara Lundgren, President and Chief Executive Officer. "In our Metals Recycling Business and Steel Manufacturing Business, results reflected relatively stable volumes and a flat selling price environment. However, all of our divisions continue to be impacted by challenging market conditions resulting from the global economic slowdown."

"Our ability to generate strong operating cash flow has enabled us to return capital to shareholders through share repurchases during the quarter and a substantial increase in our quarterly dividend which we announced last quarter. At the same time, we have been able to continue investing in growth projects while steadily reducing total debt outstanding," Lundgren said.

Metals Recycling Business

 
Summary of Metals Recycling Business Results
($ in millions, except selling prices; Fe volumes 000s long tons; NFe volumes M LB)
 
  Quarter
3Q12   2Q12   % Change   3Q11
Total Revenues $ 787   $ 782   1 %   $ 879
 
Ferrous Revenues $ 622 $ 613 2 % $ 703
Ferrous Volumes 1,353 1,353 % 1,464
Avg. Net Ferrous Sales Prices ($/LT)(1) $ 424 $ 421 1 % $ 440
 
Nonferrous Revenues $ 155 $ 159 (2 )% $ 168
Nonferrous Volumes 154 169 (9 )% 145
Avg. Net Nonferrous Sales Prices ($/LB)(1) $ 0.97 $ 0.91 7 % $ 1.12
 
Operating Income $ 18 $ 20 (11 )% $ 46
 
(1) Sales prices are shown net of freight
 

Sales Volumes: Ferrous sales volumes were 1.4 million tons, approximating the second quarter. Nonferrous sales volumes were 154 million pounds, a decline of 9% compared to the higher than normal second quarter level which included benefits of processing backlog material. On a year-to-date basis, ferrous volumes increased 4% and nonferrous volumes increased 22% compared to the prior year.

Export customers accounted for 77% of total ferrous sales volumes. Our ferrous and nonferrous products were shipped to 19 countries in the third quarter. The top ferrous export destinations were Turkey, South Korea and China. The top nonferrous markets were China, the United States and South Korea.

Pricing: Average ferrous prices were flat, compared to prices in the second quarter of fiscal 2012. Average nonferrous prices increased 7%, compared to prices in the second quarter of fiscal 2012.

Margins: Operating income was $18 million in the third quarter of fiscal 2012, which equates to operating income per ferrous ton of $13, a decrease of $2 compared to the second quarter fiscal 2012. Operating margins increased from our market outlook due to higher production and to lower than forecasted cost of goods sold, including purchase prices and freight costs, among other items. However, operating margins remain compressed as a result of the weak economic environment in the U.S.

Auto Parts Business

Our Auto Parts Business delivered increased volumes, revenues and operating income in the third quarter of fiscal 2012 as compared to the prior quarter.

 
Summary of Auto Parts Business Results
($ in millions, except locations)
 
  Quarter
3Q12   2Q12   % Change   3Q11
Revenues $ 83   $ 78   6 %   $ 87
Operating Income* 13 9 44 % 17
 
Car Purchase Volumes (000) 89 84 6 % 93
 
Locations (end of quarter) 51 51 % 50
 
* Excludes results from discontinued operations
 

Revenues: Revenues increased 6% from the prior quarter due to higher parts sales and admissions, while scrap and core revenues were essentially in line with the second quarter.

Margins: Operating margins of 15% reflected improved volumes sequentially, as well as seasonal benefits on parts sales and admissions, and lower SG&A expenses, as compared to the second quarter of fiscal 2012.

Steel Manufacturing Business

In the third quarter, our Steel Manufacturing Business achieved break-even operating income.

 
Summary of Steel Manufacturing Business Results
($ in millions, except selling prices; volume in thousands of tons)
 
  Quarter
3Q12   2Q12   % Change   3Q11
Revenues $ 79   $ 85   (7 )%   $ 91
Operating Income (Loss) $ $ (1 )

NM

$ 3
Avg. Net Sales Prices ($/NT) $ 734 $ 725 1 % $ 734
Finished Goods Sales Volumes 103 112 (8 )% 118
 
NM = Not Meaningful
 

Sales Volumes: Finished steel sales volumes of 103 thousand tons decreased 8% from the prior quarter.

Pricing: Average net sales prices for finished steel products increased slightly from the prior quarter due to product mix.

Margins: Slightly higher sales prices and lower production costs offset reduced sales volumes, resulting in break-even operating performance.

Market Conditions

Since the end of the third quarter, prices for recycled metals have declined significantly. As average inventory costs typically decline more slowly than the cash purchase costs for raw materials, this may negatively impact our fourth quarter results. The Company intends to provide its fourth quarter market outlook on expected pricing, volumes and margins during the second half of August 2012.

Corporate Items

The Company's effective tax rate for the third quarter was 39.3%, compared to 31.5% for the second quarter, primarily due to lower financial performance in foreign operations which are taxed at more favorable rates. The effective tax rate for the fiscal year is expected to be approximately 34%.

During the quarter the Company repurchased 555 thousand shares of its Class A Common Stock for a total cost of $15 million. Of the shares repurchased, 425 thousand ($12 million) settled in the third quarter, with the remainder to be reflected in our fourth quarter financial statements. Under authorities granted by our Board of Directors, 2.6 million shares remain available for repurchase.

Despite share repurchases and higher dividend payments, total debt decreased by $56 million to $358 million, in the third quarter from the second quarter reflecting strong operating cash flows.

Analysts' Conference Call: Third Quarter of Fiscal 2012

A conference call and slide presentation to discuss results will be held today, June 28, 2012, at 11:30 a.m. EST 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)
(Unaudited)
 
  For the Three Months Ended (1)   For the Nine Months Ended (1)
May 31, 2012   February 29, 2012   May 31, 2011   May 31, 2012   May 31, 2011
 
REVENUES:
 
Metals Recycling Business:
Ferrous sales $ 621,923 $ 612,603 $ 702,829 $ 1,812,550 $ 1,685,986
Nonferrous sales 155,265 158,997 167,812 456,552 406,526
Other sales 9,339   10,333   8,663   27,796   15,528  
TOTAL MRB SALES 786,527 781,933 879,304 2,296,898 2,108,040
 
Auto Parts Business 82,936 78,232 86,850 245,222 226,063
Steel Manufacturing Business 78,623 84,523 90,894 243,048 224,596
Intercompany sales eliminations (68,221 ) (58,076 ) (75,986 ) (206,515 ) (180,691 )
TOTAL $ 879,865   $ 886,612   $ 981,062   $ 2,578,653   $ 2,378,008  
 
 
OPERATING INCOME (LOSS):
 
Metals Recycling Business $ 17,817 $ 19,952 $ 45,693 $ 50,868 $ 112,918
Auto Parts Business 12,543 8,708 17,328 31,693 47,324
Steel Manufacturing Business 253 (868 ) 3,485 602 739
Corporate expense (8,751 ) (9,589 ) (10,582 ) (28,635 ) (32,249 )
Intercompany eliminations 216   (216 ) (592 ) 506   976  
TOTAL $ 22,078   $ 17,987   $ 55,332   $ 55,034   $ 129,708  
 
(1) Excludes discontinued operations
 

 
SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
 
  For the Three Months Ended (1)   For the Nine Months Ended (1)
May 31, 2012   February 29, 2012   May 31, 2011 May 31, 2012   May 31, 2011
Revenues $ 879,865   $ 886,612   $ 981,062   $ 2,578,653   $ 2,378,008  
Cost of goods sold 807,980 817,087 870,530 2,367,283 2,105,932
Selling, general and administrative 50,148 52,370 56,848 158,510 145,757
Income from joint ventures (341 ) (832 ) (1,648 ) (2,174 ) (3,389 )
Operating income 22,078 17,987 55,332 55,034 129,708
Interest expense (2,729 ) (3,472 ) (3,127 ) (9,473 ) (4,883 )
Other income (expense), net (154 ) 617   (31 ) 70   3,274  
Income from continuing operations before income taxes 19,195 15,132 52,174 45,631 128,099
Income tax expense (7,541 ) (4,767 ) (18,056 ) (15,870 ) (42,965 )
Income from continuing operations 11,654 10,365 34,118 29,761 85,134
Income from discontinued operations, net of tax     282     317  
Net income 11,654 10,365 34,400 29,761 85,451
Net income attributable to noncontrolling interests (413 ) (735 ) (1,372 ) (1,875 ) (3,804 )
Net income attributable to SSI $ 11,241   $ 9,630   $ 33,028   $ 27,886   $ 81,647  
Basic: (2)
Income per share from continuing operations attributable to SSI (1) $ 0.41 $ 0.35 $ 1.18 $ 1.01 $ 2.95
Income per share from discontinued operations     0.01     0.01  
Net income per share attributable to SSI $ 0.41   $ 0.35   $ 1.19   $ 1.01   $ 2.96  
Diluted: (2)
Income per share from continuing operations attributable to SSI (1) $ 0.40 $ 0.35 $ 1.17 $ 1.00 $ 2.91
Income per share from discontinued operations     0.01     0.01  
Net income per share attributable to SSI $ 0.40   $ 0.35   $ 1.18   $ 1.00   $ 2.92  
Weighted average number of common shares:
Basic 27,531 27,509 27,677 27,499 27,622
Diluted 27,795 27,781 27,998 27,748 27,952
Dividends declared per common share $ 0.188 $ 0.017 $ 0.017 $ 0.222 $ 0.051
(1) Excludes income attributable to noncontrolling interests
(2) Net income used in EPS calculation:
Income from continuing operations 11,654 10,365 34,118 29,761 85,134
Net income attributable to noncontrolling interests $ (413 )   $ (735 )   $ (1,372 )   $ (1,875 )   $ (3,804 )
Income from continuing operations attributable to SSI 11,241 9,630 32,746 27,886 81,330
Income from discontinued operations, net of tax     282     317  
Net income attributable to SSI $ 11,241   $ 9,630   $ 33,028   $ 27,886   $ 81,647  
 

 
SCHNITZER STEEL INDUSTRIES, INC.
SELECTED OPERATING STATISTICS
(Unaudited)
 
  1Q12   2Q12   3Q12   Fiscal YTD
2012
  1Q11   2Q11   3Q11   4Q11   Fiscal YTD
2011
Metals Recycling Business              
Ferrous Processing Selling Prices ($/LT) (1)
Steel Manufacturing Business $429 $432 $434 $431 $350 $408 $442 $435 $412
Other domestic 413 421 402 412 315 399 422 410 389
Exports 436     420     427     428   359     424     443     449     421  
Average $432 $421 $424 $426 $353 $419 $440 $443 $416
 
Ferrous Processing Sales Volume (LT)
SMB 135,512 90,510 115,633 341,655 90,537 95,774 122,238 95,351 403,900
Domestic 183,938 206,632 192,888 583,458 161,301 144,250 199,818 183,502 688,871
Export 912,939     1,055,237     1,044,063     3,012,239   979,063     860,005     1,142,156     1,254,708     4,235,932  
Total Processed 1,232,389 1,352,379 1,352,584 3,937,352 1,230,901 1,100,029 1,464,212 1,533,561 5,328,703
 
Nonferrous Average Price ($/LB) (1) $1.00 $0.91 $0.97 $0.96 $0.94 $1.04 $1.12 $1.08 $1.06
 
Nonferrous Sales Volume (LB, in 000s) 137,243 168,545 154,071 459,859 111,495 121,498 144,505 191,062 568,560
 
Steel Manufacturing Business
Sales Prices ($/NT) (1) (2)
Average $722 $725 $734 $727 $634 $687 $734 $721 $697
 
Sales Volume (NT) (2)
Rebar 62,487 51,141 55,378 169,006 63,668 51,569 45,494 61,411 222,142
Coiled Products 39,120 55,785 42,753 137,658 26,917 40,947 67,020 57,553 192,437
Merchant Bar and Other 5,030     5,097     4,812     14,940   7,071     6,322     5,811     5,290     24,494  
Total 106,637 112,023 102,943 321,604 97,656 98,838 118,325 124,254 439,073
 
Rolling mill utilization 60 % 54 % 54 % 56 % 48 % 52 % 68 % 57 % 56 %
 
Auto Parts Business
Number of self-service locations at end of quarter 50 51 51 51 45 50 50 50 50
Car purchase volumes (000) 85 84 89 258 82 81 93 97 353
 
(1) Price information is shown after a reduction for the cost of freight incurred to deliver the product to the customer
(2) Excludes billet sales
 

 
SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
 
  May 31, 2012   August 31, 2011   May 31, 2011

Assets

Current assets:
Cash and cash equivalents $ 56,470 $ 49,462 $ 32,801
Accounts receivable, net 149,720 229,975 245,785
Inventories, net 328,057 335,120 364,159
Other current assets 55,399   39,442   25,919
Total current assets 589,646 653,999 668,664
 
Property, plant and equipment, net 544,973 555,284 538,893
 
Goodwill and other assets 676,544   680,886   681,231
 
Total assets $ 1,811,163   $ 1,890,169   $ 1,888,788
 

Liabilities and Equity

Current liabilities:
Short-term borrowings $ 668 $ 643 $ 3,280
Other current liabilities 186,007   232,670   191,850
Total current liabilities 186,675 233,313 195,130
 
Long-term debt 357,065 403,287 468,611
 
Other long-term liabilities 142,283 133,280 131,503
 
Redeemable noncontrolling interest 19,865 19,053 19,647
 
Equity:
Total SSI shareholders' equity 1,099,804 1,094,712 1,067,953
Noncontrolling interests 5,471   6,524   5,944
Total equity 1,105,275   1,101,236   1,073,897
Total liabilities and shareholders' equity $ 1,811,163   $ 1,890,169   $ 1,888,788
 

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 58 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 51 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 106th year of operations in fiscal 2012. Schnitzer was named Scrap Company of the Year by American Metals Market's 2011 Awards for Steel Excellence. The awards recognize advancements rooted in pioneering and implementing business improvements that have delivered real change to the steel industry.

Safe Harbor for Forward Looking Statements

This press release, particularly the Outlook sections, contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, 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 volumes, operating margins, tax rates and benefits of acquisitions and processing technologies. 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 include: potential environmental cleanup costs related to the Portland Harbor Superfund site; volatile supply and demand conditions affecting prices and volumes in the markets for both our products and raw materials we purchase; difficulties associated with acquisitions and integration of acquired businesses; the impact of goodwill impairment charges; the inability of customers to fulfill their contractual obligations; the impact of foreign currency fluctuations; potential limitations on our ability to access credit facilities; the impact of the consolidation in the steel industry; the impact of imports of foreign steel into the U.S.; inability to realize expected benefits from investments in technology; freight rates and availability of transportation; product liability claims; costs associated with compliance with environmental regulations; the adverse impact of climate change; inability to obtain or renew business licenses and permits; compliance with greenhouse gas emission regulations; reliance on employees subject to collective bargaining agreements; and the impact of the underfunded status of multiemployer plans in which we participate, 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. All forward-looking statements we make are based on information available to us at the time the statements are made and we do not assume any obligation to update any forward-looking statements, 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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