Schnitzer Reports First Quarter 2013 Financial Results
Schnitzer Reports First Quarter 2013 Financial Results
Delivers Positive Operating Income and Expands Auto Parts Business Platform by Ten Stores
PORTLAND, Ore.--(BUSINESS WIRE)-- Schnitzer Steel Industries, Inc. (NAS: SCHN) today reported adjusted operating income of $3 million, an adjusted loss per share of $0.02 and a loss per share of $0.06 for its fiscal 2013 first quarter ended November 30, 2012. Adjusted results for the quarter exclude a $2 million pre-tax restructuring charge associated with cost reduction initiatives announced in August 2012. All three of the Company's business segments generated positive operating income. Reported results for the first quarter include the adverse impact of a noncash valuation allowance on deferred tax assets of approximately $2 million, which equates to $0.06 per share, and the $2 million restructuring charge, which equates to $0.04 per share. In the fourth quarter of 2012, the Company reported a loss per share of $0.02.
During the first quarter, export and domestic sales prices for recycled ferrous metals dropped approximately $50 per ton from August levels driven by significantly lower domestic utilization rates and weak global economic conditions which continued to adversely impact overall steel demand. In addition, the supply of scrap continued to be constrained by low US GDP growth, and supply volumes were negatively impacted by the lower price environment. The combination of declining trend in selling prices, the impact of constrained supply volumes on production costs and the timing of shipments resulted in lower sales volumes and compressed margins during the quarter.
Summary Results | ||||||||||||||||||
($ in millions, except per share amounts) | ||||||||||||||||||
Quarter | ||||||||||||||||||
1Q13 | 4Q12 | Change | 1Q12 | Change | ||||||||||||||
Revenues | $ | 593 | $ | 762 | (22 | )% | $ | 812 | (27 | )% | ||||||||
Operating Income (Loss) | $ | 1 | $ | (1 | ) | NM | $ | 15 | (92 | )% | ||||||||
Restructuring Charges | 2 | 5 | (68 | )% | — | — | ||||||||||||
Adjusted Operating Income(1) | $ | 3 | $ | 4 | (23 | )% | $ | 15 | (81 | )% | ||||||||
Net Income (Loss) attributable to SSI | $ | (2 | ) | $ | — | NM | $ | 7 | NM | |||||||||
Restructuring Charges, net of tax | 1 | 3 | (67 | )% | — | — | ||||||||||||
Adjusted Net Income (Loss) attributable to SSI(1) | $ | (1 | ) | $ | 3 | NM | $ | 7 | NM | |||||||||
Net Income (Loss) per share attributable to SSI | $ | (0.06 | ) | $ | (0.02 | ) | NM | $ | 0.25 | NM | ||||||||
Restructuring Charges, net of tax, per share | 0.04 | 0.12 | (67 | )% | — | — | ||||||||||||
Adjusted diluted EPS attributable to SSI(1) | $ | (0.02 | ) | $ | 0.10 | NM | $ | 0.25 | NM | |||||||||
(1) Adjusted for restructuring charges. See Non-GAAP Financial Measures for reconciliation to U.S. GAAP. | ||||||||||||||||||
NM = Not meaningful | ||||||||||||||||||
"As anticipated, during the first quarter of fiscal 2013 we continued to face difficult market conditions for recycled metals, including a sharp drop in both ferrous sales prices and volumes, due to soft demand resulting from slowing global growth and the weak domestic economic environment which continues to impact scrap generation. Despite these challenges, each of our business segments remained profitable and our Auto Parts and Steel Manufacturing businesses improved operating margins sequentially," said Tamara Lundgren, President and Chief Executive Officer. "We are on track with our restructuring initiatives to adjust our cost base to reflect the current market environment, while preserving our ability to take advantage of stronger future demand and improved scrap flows."
"Recently, our Auto Parts Business added 10 new stores through a combination of acquisitions and organic investment, seven of which are in geographic proximity to our major metals recycling export facilities. These new stores will increase the number of stores by 20% and are consistent with our growth initiatives in the Auto Parts Business which maximizes value throughout the automotive recycling process while enhancing ferrous and nonferrous supply for our Metals Recycling Business. As we continue to deliver enhanced synergies between our Metals Recycling and Auto Parts businesses, our strong balance sheet, reduced cost base and export-focused platform strategically position us to benefit from an improvement in economic conditions domestically and abroad."
Key business drivers during the first quarter of fiscal 2013:
Metals Recycling Business (MRB) shipped 955 thousand ferrous tons and 119 million nonferrous pounds. The sequential volume declines reflected softer demand, reduced flows of raw materials and the timing of shipments.
Auto Parts Business (APB) generated a 9% operating margin on 79 thousand cars purchased. Operating margins expanded sequentially primarily due to lower inventory costs.
Steel Manufacturing Business (SMB) achieved $3 million in operating income on sequentially flat selling prices and volumes, primarily due to improved utilization and lower raw material costs.
Metals Recycling Business
Summary of Metals Recycling Business Results | ||||||||||||||||||
($ in millions, except selling prices; Fe volumes 000s long tons; NFe volumes M lbs) | ||||||||||||||||||
Quarter | ||||||||||||||||||
1Q13 | 4Q12 | Change | 1Q12 | Change | ||||||||||||||
Total Revenues | $ | 494 | $ | 652 | (24 | )% | $ | 728 | (32 | )% | ||||||||
Ferrous Revenues | $ | 370 | $ | 485 | (24 | )% | $ | 578 | (36 | )% | ||||||||
Ferrous Volumes | 955 | 1,178 | (19 | )% | 1,232 | (23 | )% | |||||||||||
Avg. Net Ferrous Sales Prices ($/LT)(1) | $ | 358 | $ | 378 | (5 | )% | $ | 432 | (17 | )% | ||||||||
Nonferrous Revenues | $ | 117 | $ | 158 | (26 | )% | $ | 142 | (18 | )% | ||||||||
Nonferrous Volumes | 119 | 169 | (30 | )% | 137 | (13 | )% | |||||||||||
Avg. Net Nonferrous Sales Prices ($/lb)(1) | $ | 0.95 | $ | 0.90 | 6 | % | $ | 1.00 | (5 | )% | ||||||||
Operating Income(2) | $ | 6 | $ | 13 | (57 | )% | $ | 13 | (57 | )% | ||||||||
(1) Sales prices are shown net of freight | ||||||||||||||||||
(2) Operating income does not include the impact of restructuring charges | ||||||||||||||||||
Sales Volumes: Ferrous sales volumes of 955 thousand tons in the first quarter decreased 19% from fourth quarter levels, primarily due to reduced flows of raw materials resulting from the lower price environment as well as the timing of shipments. Nonferrous sales volumes of 119 million pounds decreased 30% sequentially, primarily due to the impact of lower beginning inventories and raw material flows.
Export customers accounted for 71% of total ferrous sales volumes in the first quarter. Our ferrous and nonferrous products were shipped to 14 countries, with Turkey, South Korea, Taiwan and Indonesia being the top ferrous export destinations.
Pricing: Demand softened in the export markets in September and October, driving average net ferrous selling prices down 5% from fourth quarter levels. Nonferrous prices increased 6% sequentially primarily due to slightly higher demand for nonferrous commodities and product mix.
Margins: Operating income per ferrous ton was $6, a decline of 46% sequentially. Overall, the first quarter was significantly impacted by a sharp decline in selling prices and lower volumes.
Auto Parts Business
Summary of Auto Parts Business Results | ||||||||||||||||||
($ in millions) | ||||||||||||||||||
Quarter | ||||||||||||||||||
1Q13 | 4Q12 | Change | 1Q12 | Change | ||||||||||||||
Revenues | $ | 70 | $ | 72 | (3 | )% | $ | 84 | (17 | )% | ||||||||
Operating Income(1) | $ | 6 | $ | 2 | 295 | % | $ | 10 | (39 | )% | ||||||||
Car Purchase Volumes (000s) | 79 | 81 | (2 | )% | 85 | (7 | )% | |||||||||||
Locations (end of quarter) | 51 | 51 | — | 50 | 2 | % | ||||||||||||
(1) Operating income does not include the impact of restructuring charges | ||||||||||||||||||
Revenues: Revenues in the first quarter decreased 3% sequentially due to lower shipped volumes and lower commodity prices.
Margins: Operating margins during the first quarter increased sequentially to 9%, primarily due to lower average inventory costs which more than offset the negative impact of lower commodity prices on sales.
New Stores: Since the end of the first quarter, APB has invested in 10 new self-service retail stores:
Acquired four stores in Richmond and Surrey, British Columbia, expanding our presence in Western Canada near our Metals Recycling facility in Surrey, British Columbia;
Developing a greenfield location in Calgary, Alberta, further enhancing our North American supply;
Acquired two stores in the Kansas City metropolitan area, MO and KS, and developing a greenfield location in Springfield, MO, expanding APB's presence in the Midwestern U.S.; and
Acquired two stores in Massachusetts, establishing a new Auto Parts presence in the Northeast near our Metals Recycling facilities.
These growth initiatives further penetrate core markets for our Auto Parts Business, leveraging existing operational resources and enhancing scrap flows available to our Metals Recycling Business.
Steel Manufacturing Business
Summary of Steel Manufacturing Business Results | ||||||||||||||||||
($ in millions, except selling prices; volume in thousands of short tons) | ||||||||||||||||||
Quarter | ||||||||||||||||||
1Q13 | 4Q12 | Change | 1Q12 | Change | ||||||||||||||
Revenues | $ | 92 | $ | 90 | 2 | % | $ | 80 | 15 | % | ||||||||
Operating Income | $ | 3 | $ | (3 | ) | NM | $ | 1 | 179 | % | ||||||||
Avg. Net Sales Prices ($/ST) | $ | 680 | $ | 685 | (1 | )% | $ | 722 | (6 | )% | ||||||||
Finished Goods Sales Volumes | 130 | 126 | 3 | % | 107 | 22 | % | |||||||||||
NM = Not meaningful | ||||||||||||||||||
Sales Volumes: Finished steel sales volumes of 130 thousand tons increased 3% from the fourth quarter of fiscal 2012.
Pricing: Average net sales prices for finished steel products of $680 approximated the fourth quarter.
Margins: Steady market conditions, combined with improved utilization of 70% and reduced costs of raw materials, resulted in operating income of $3 million during the first quarter.
Cost Reductions
In August, we announced initiatives to generate greater synergies from our fiscal 2011 investments and to realign our organization by further integrating our Metals Recycling and Auto Parts Businesses, streamlining our corporate functions, and reducing organizational layers. In the first quarter, SG&A was 14% lower as compared to the prior year first quarter. First quarter SG&A improved slightly as compared to the fourth quarter of fiscal 2012 excluding nonrecurring benefits of approximately $4 million in the fourth quarter from changes in environmental reserves and accrued compensation expense.
In aggregate, cost reduction initiatives are expected to lower annual pre-tax operating costs by $25 million through a combination of lower production and administrative expenses and be substantially complete by the end of fiscal 2013. Total pre-tax restructuring charges are expected to be approximately $11 million. During the first quarter, we incurred $2 million of the restructuring charge. In aggregate, we have incurred $7 million of the total $11 million anticipated restructuring charge, and we expect to recognize the balance during the remainder of fiscal 2013.
Corporate Items
Corporate expense in the first quarter was $2 million higher sequentially due to nonrecurring benefits in the fourth quarter of fiscal 2012 from a reduction in compensation expense. In addition, intercompany profit eliminations were slightly higher in the first quarter due to higher inventories arising from the timing of shipments.
Income tax expense included the impact of a noncash valuation allowance on deferred tax assets of a foreign subsidiary of approximately $2 million.
Total debt increased by $20 million to $355 million, primarily reflecting higher working capital related to increases in accounts receivable and replenishing inventories to support second quarter sales volumes.
Analysts' Conference Call:First Quarter of Fiscal 2013
A conference call and slide presentation to discuss results will be held today, January 8, 2013, 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 is provided in the following tables. The slides and related materials will be available prior to the call on the website.
SCHNITZER STEEL INDUSTRIES, INC. | ||||||||
For the Three Months Ended | ||||||||
November 30, 2012 | November 30, 2011 | |||||||
REVENUES: | ||||||||
Metal Recycling Business: | ||||||||
Ferrous sales | $ | 370,476 | $ | 578,024 | ||||
Nonferrous sales | 116,601 | 142,290 | ||||||
Other sales | 7,384 | 8,124 | ||||||
TOTAL MRB SALES | 494,461 | 728,438 | ||||||
Auto Parts Business | 69,555 | 84,054 | ||||||
Steel Manufacturing Business | 92,029 | 79,902 | ||||||
Intercompany sales and eliminations | (63,225 | ) | (80,218 | ) | ||||
Total Revenues | $ | 592,820 | $ | 812,176 | ||||
OPERATING INCOME: | ||||||||
Metal Recycling Business | $ | 5,654 | $ | 13,099 | ||||
Auto Parts Business | 6,364 | 10,442 | ||||||
Steel Manufacturing Business | 3,404 | 1,218 | ||||||
Segment operating income | 15,422 | 24,759 | ||||||
Corporate expense | (11,144 | ) | (10,296 | ) | ||||
Intercompany eliminations | (1,472 | ) | 507 | |||||
Adjusted operating income | 2,806 | 14,970 | ||||||
Restructuring charges | (1,593 | ) | — | |||||
Total operating income | $ | 1,213 | $ | 14,970 | ||||
SCHNITZER STEEL INDUSTRIES, INC. | ||||||||
For the Three Months Ended | ||||||||
November 30, 2012 | November 30, 2011 | |||||||
Revenues | $ | 592,820 | $ | 812,176 | ||||
Cost of goods sold | 541,884 | 742,215 | ||||||
Selling, general and administrative | 47,995 | 55,992 | ||||||
Loss (Income) from joint ventures | 135 | (1,001 | ) | |||||
Restructuring charges | 1,593 | — | ||||||
Operating income | 1,213 | 14,970 | ||||||
Interest expense | (2,017 | ) | (3,271 | ) | ||||
Other income (expense), net | 321 | (393 | ) | |||||
Income (loss) before income taxes | (483 | ) | 11,306 | |||||
Income tax expense | (960 | |||||||
