Schnitzer Reports Third Quarter 2013 Financial Results
Schnitzer Reports Third Quarter 2013 Financial Results
Higher Volumes in all Businesses and Continued Expansion of Auto Parts Business
PORTLAND, Ore.--(BUSINESS WIRE)-- Schnitzer Steel Industries, Inc. (NAS: SCHN) today reported adjusted earnings per share of $0.09 and earnings per share of $0.03 for its fiscal 2013 third quarter ended May 31, 2013. This compares to adjusted earnings per share of $0.36 and earnings per share of $0.32 in the second quarter of 2013. Adjusted results for the third quarter exclude a $2 million, or $0.06 per share, restructuring charge associated with cost reduction initiatives announced in August 2012. Third quarter results were adversely impacted by average inventory accounting which significantly reduced operating income in our Metals Recycling Business by approximately $10 million, or $9 per ton, as compared to the second quarter. The Company's results in the second quarter included $0.10 per share of discrete tax benefits. The Company generated $45 million in operating cash flow during the third quarter and our total debt to total capital ratio at the end of the third quarter approximated the second quarter.
Ferrous export selling prices declined steadily throughout the third quarter, with market prices at the end of May approximately $50 per ton lower than at the end of the second quarter of fiscal 2013 driven primarily by lower export demand. The combination of declining selling prices, constrained supply, adverse impacts of average inventory accounting and lower tax benefits resulted in sequentially lower consolidated net income.
Subsequent to the third quarter, we acquired our first Auto Parts store in Rhode Island which is located near our existing Metals Recycling facilities. This new store adds to our supply chain in the Northeast, increasing our combined regional presence to 16 facilities.
Summary Results | |||||||||||||||||||
($ in millions, except per share amounts) | |||||||||||||||||||
Quarter | |||||||||||||||||||
3Q13 | 2Q13 | Change | 3Q12 | Change | |||||||||||||||
Revenues | $ | 710 | $ | 662 | 7 | % | $ | 880 | (19 | )% | |||||||||
Operating Income | $ | 7 | $ | 11 | (37 | )% | $ | 22 | (67 | )% | |||||||||
Restructuring Charges | 2 | 2 | 22 | % | — | NM | |||||||||||||
Adjusted Operating Income(1) | $ | 9 | $ | 13 | (30 | )% | $ | 22 | (59 | )% | |||||||||
Net Income attributable to SSI | $ | 1 | $ | 9 | (91 | )% | $ | 11 | (93 | )% | |||||||||
Restructuring Charges, net of tax | 1 | 1 | 49 | % | — | NM | |||||||||||||
Adjusted Net Income attributable to SSI(1) | $ | 2 | $ | 10 | (76 | )% | $ | 11 | (79 | )% | |||||||||
Net Income per share attributable to SSI | $ | 0.03 | $ | 0.32 | (91 | )% | $ | 0.40 | (92 | )% | |||||||||
Restructuring Charges, net of tax, per share | 0.06 | 0.04 | 50 | % | — | NM | |||||||||||||
Adjusted diluted EPS attributable to SSI(1)(2) | $ | 0.09 | $ | 0.36 | (75 | )% | $ | 0.40 | (78 | )% | |||||||||
(1) Adjusted for restructuring charges. See Non-GAAP Financial Measures for reconciliation to U.S. GAAP. | |||||||||||||||||||
(2) Second quarter of fiscal 2013 included tax benefits of $3 million, or $0.10 per share, relating to the release of a valuation allowance which had been recorded in the first quarter of fiscal 2013 and other discrete tax benefits. | |||||||||||||||||||
NM = Not meaningful | |||||||||||||||||||
"During the third quarter we achieved higher sales volumes in each of our businesses despite weaker market conditions. Operating income in our Metals Recycling Business was negatively impacted by the significant drop in ferrous selling prices which fell more quickly than purchase prices and offset some of the benefits from the increased volumes. Our major capital projects for fiscal 2013 in Canada and Puerto Rico continue to progress on schedule. In our Auto Parts Business, seasonal trends contributed to improved sequential results for stores owned more than one year and the integration of our 11 new sites added this fiscal year are on track. In our Steel Manufacturing Business, higher sales volumes reflected, in part, a market environment that is improving," said Tamara Lundgren, President and Chief Executive Officer. "We generated positive operating cash flow this quarter which enabled us to continue our growth investments and capital allocation priorities while maintaining a healthy balance sheet."
Key business drivers during the third quarter of fiscal 2013:
Metals Recycling Business (MRB) generated operating income per ferrous ton of approximately $8, which included an adverse impact from average inventory costs of $9 per ton, as compared to the second quarter. Ferrous volumes increased 6% and nonferrous volumes increased 8% sequentially from the second quarter.
Auto Parts Business (APB) operating income margin of 12%, excluding new sites added in fiscal 2013, reflected seasonally higher parts sales. APB increased its car purchase volumes 3% sequentially, excluding the contribution from new stores in fiscal 2013.
Steel Manufacturing Business (SMB) selling volumes increased 31% from the second quarter, primarily due to normal seasonal improvements in demand in the third quarter. Operating results were break-even in the third quarter.
Metals Recycling Business
Summary of Metals Recycling Business Results | |||||||||||||||||||
($ in millions, except selling prices; Fe volumes 000s long tons; NFe volumes M lbs) | |||||||||||||||||||
Quarter | |||||||||||||||||||
3Q13 | 2Q13 | Change | 3Q12 | Change | |||||||||||||||
Total Revenues | $ | 605 | $ | 576 | 5 | % | $ | 787 | (23 | )% | |||||||||
Ferrous Revenues | $ | 465 | $ | 443 | 5 | % | $ | 622 | (25 | )% | |||||||||
Ferrous Volumes | 1,164 | 1,103 | 6 | % | 1,353 | (14 | )% | ||||||||||||
Avg. Net Ferrous Sales Prices ($/LT)(1) | $ | 367 | $ | 372 | (1 | )% | $ | 424 | (13 | )% | |||||||||
Nonferrous Revenues | $ | 131 | $ | 125 | 4 | % | $ | 155 | (16 | )% | |||||||||
Nonferrous Volumes | 135 | 126 | 8 | % | 154 | (12 | )% | ||||||||||||
Avg. Net Nonferrous Sales Prices ($/lb)(1) | $ | 0.94 | $ | 0.97 | (3 | )% | $ | 0.97 | (3 | )% | |||||||||
Operating Income(2) | $ | 9 | $ | 14 | (38 | )% | $ | 18 | (51 | )% | |||||||||
(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 1.2 million tons in the third quarter increased 6% sequentially due to stronger domestic volumes and the timing of shipments. Nonferrous sales volumes of 135 million pounds increased 8%, primarily due to higher production levels and inventory draw down to satisfy customer demand.
Export customers accounted for 73% of total ferrous sales volumes in the third quarter. Our ferrous and nonferrous products were shipped to 13 countries, with China, Turkey and Malaysia being the top ferrous export destinations.
Pricing: Export prices declined steadily throughout the quarter as demand moderated. Higher priced sales orders before the market dropped resulted in average net ferrous selling prices which approximated second quarter levels. Nonferrous prices averaged slightly lower than the prior quarter.
Margins: Operating income per ferrous ton was $8, which included a significant adverse impact from average inventory costs of $9 per ton as compared to the second quarter. In the declining selling price environment, average inventory costs did not decline as quickly as cash purchase costs for raw materials, resulting in margin compression. Absent the impact from average inventory accounting, operating income per ferrous ton was in line with the second quarter.
Auto Parts Business
Summary of Auto Parts Business Results | ||||||||||||||||
($ in millions) | ||||||||||||||||
Quarter | ||||||||||||||||
3Q13 | 2Q13 | Change | 3Q12 | Change | ||||||||||||
Revenues | $ | 86 | $ | 78 | 11% | $ | 83 | 4% | ||||||||
Operating Income(1) | $ | 8 | $ | 7 | 23% | $ | 13 | (34)% | ||||||||
Car Purchase Volumes (000s) | 95 | 88 | 8% | 89 | 7% | |||||||||||
Locations (end of quarter) | 61 | 59 | 3% | 51 | 20% | |||||||||||
(1) Operating income does not include the impact of restructuring charges | ||||||||||||||||
Revenues: Revenues in the third quarter increased 11% sequentially due to seasonally stronger admissions and part sales and the incremental contributions from acquisitions.
Margins: During the third quarter, operating margins, excluding the impact of new sites, increased sequentially to 12%, due in part to the impact of normal seasonal improvements in part sales. During the third quarter, APB incurred $1 million of operating losses related to the new sites added during fiscal 2013, including integration and startup costs, which lowered APB's reported operating margin to 10%. (See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.)
New Sites: Subsequent to the third quarter, APB acquired its first store in Rhode Island. This location is near our Metals Recycling facilities and will expand APB's presence in our core Northeastern market and further enhance operational synergies with our Metals Recycling Business.
Steel Manufacturing Business
Summary of Steel Manufacturing Business Results | ||||||||||||||||
($ in millions, except selling prices; volume 000s of short tons) | ||||||||||||||||
Quarter | ||||||||||||||||
3Q13 | 2Q13 | Change | 3Q12 | Change | ||||||||||||
Revenues | $ | 93 | $ | 71 | 30% | $ | 79 | 18% | ||||||||
Operating Income (Loss) | $ | — | $ | 1 | NM | $ | — | NM | ||||||||
Avg. Net Sales Prices ($/ST) | $ | 687 | $ | 690 | —% | $ | 734 | (6)% | ||||||||
Finished Goods Sales Volumes | 125 | 96 | 31% | 103 | 21% | |||||||||||
NM = Not meaningful | ||||||||||||||||
Sales Volumes: Finished steel sales volumes of 125 thousand tons increased 31% from the second quarter of fiscal 2013 due to seasonal improvements in demand.
Pricing: Average net sales prices for finished steel products of $687 per short ton approximated the second quarter.
Margins: Operating results during the quarter approximated break-even levels. The decline in margins compared to the second quarter was due primarily to the impact on costs of goods sold from lower utilization levels as customer demand was partially met with inventories produced during the second quarter.
Cost Reductions
During the first nine months of fiscal 2013, SG&A was lower by 10%, or $16 million, as compared to the prior year, excluding the $3 million impact from new APB acquisitions. Our cost reduction initiatives announced in August 2012 are on track to lower annual pre-tax operating costs by $25 million and are anticipated to be substantially implemented by the end of fiscal 2013. During the third quarter, we incurred a $2 million expense related to the restructuring charge, which equates to $0.06 per share. In aggregate, we have incurred $10 million of the total $14 million anticipated pre-tax restructuring charge in fiscal 2013. During the fourth quarter of fiscal 2013, the balance of the restructuring charges will primarily reflect costs of consolidating administrative functions in a single headquarters location.
Corporate Items
The Company's full year tax rate for fiscal 2013 is anticipated to be approximately 35%. The tax rate in the third quarter was higher than the anticipated full year rate due to changes to projected pre-tax income from domestic and foreign operations.
The Company generated $45 million in operating cash flow during the third quarter from a combination of positive earnings and lower working capital. In the second quarter, the Company generated operating cash flow of $16 million. Total debt of $414 million at the end of the third quarter approximated the level at the end of the second quarter.
Analysts' Conference Call:Second Quarter of Fiscal 2013
A conference call and slide presentation to discuss results will be held today, June 27, 2013, at 10:00 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 accessible on the Company's website at www.schnitzersteel.com.
Summary financial data is 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 | For the Nine Months Ended | ||||||||||||||||||||
May 31, 2013 | February 28, 2013 | May 31, 2012 | May 31, 2013 | May 31, 2012 | |||||||||||||||||
REVENUES: | |||||||||||||||||||||
Metal Recycling Business: | |||||||||||||||||||||
Ferrous sales | $ | 465,194 | $ | 443,418 | $ | 621,923 | $ | 1,279,088 | $ | 1,812,550 | |||||||||||
Nonferrous sales | 130,600 | 125,255 | 155,265 | 372,456 | 456,552 | ||||||||||||||||
Other sales | 9,076 | 7,518 | 9,339 | 23,977 | 27,796 | ||||||||||||||||
TOTAL MRB SALES | 604,870 | 576,191 | 786,527 | 1,675,521 | 2,296,898 | ||||||||||||||||
Auto Parts Business | 86,439 | 78,082 | 82,936 | 234,075 | 245,222 | ||||||||||||||||
Steel Manufacturing Business | 92,943 | 71,247 | 78,623 | 256,219 | 243,048 | ||||||||||||||||
Intercompany sales and eliminations | (73,957 | ) | (63,310 | ) | (68,221 | ) | (200,490 | ) | (206,515 | ) | |||||||||||
Total Revenues | $ | 710,295 | $ | 662,210 | $ | 879,865 | $ | 1,965,325 | $ | 2,578,653 | |||||||||||
OPERATING INCOME (LOSS): | |||||||||||||||||||||
Metal Recycling Business | $ | 8,789 | $ | 14,158 | $ | 17,817 | $ | 28,602 | $ | 50,868 | |||||||||||
Auto Parts Business | 8,273 | 6,711 | 12,543 | 21,348 | 31,693 | ||||||||||||||||
Steel Manufacturing Business | (72 | ) | 1,041 | 253 | 4,373 | 602 | |||||||||||||||
Segment operating income(1) | 16,990 | 21,910 | |||||||||||||||||||
