Schnitzer Steel Industries Inc., based in Portland, Ore., has reported a loss for the fourth quarter of its 2012 fiscal year compared with a profit for the same time in 2011.
For the 2012 fiscal year, Schnitzer reported $3.3 billion in revenue compared with $3.5 billion in revenue for fiscal 2011. Despite the loss, in prepared comments, the company says that financial results exceeded its expectations because of higher than anticipated operational performance in the company’s metals recycling and auto parts businesses in August.
The company says its quarterly loss was caused by a rapid decline in selling prices at the beginning of the quarter while the supply of scrap was constrained by weak growth in the U.S. gross domestic product. As a result, average inventory costs did not decline as quickly as cash purchase costs for raw materials, resulting in margin compression, according to Schnitzer. Average inventory costs adversely affected consolidated operating income by about $30 million compared with the third quarter, with nearly two-thirds of this impact affecting Schnitzer’s metals recycling business.
Despite the loss, Schnitzer says it plans to seek ways to maximize the value of its metals recycling and auto parts businesses in 2013.
“In fiscal 2013, we will continue to focus on maximizing value through our growth strategy of expanding our metals recycling export platform and our auto parts business and enhancing performance through advanced technologies, operational synergies and continuous improvement initiatives," Tamara Lundgren, Schnitzer CEO, says.
Schnitzer reports that its metals recycling business shipped 5.1 million tons of ferrous scrap and 629 million tons of nonferrous scrap for fiscal year 2012 while continuing to grow its recent investments in its western Canada facilities. The company also notes that it is achieving higher nonferrous yields and delivering enhanced operational synergies.
The company’s auto parts business, which has 51 locations, generated an 11 percent operating margin on an aggregate of 339,000 cars purchased in 2012.
Schnitzer’s steel manufacturing business achieved slightly below break-even operating performance.
For the fourth quarter, Schnitzer reported ferrous sales volumes of 1.2 million tons, a 13 percent decreased from the prior quarter, primarily because of reduced raw material flow. Nonferrous scrap volumes increased by 10 percent to 169 million pounds from the prior quarter. The company attributed the upswing to increased shipments in August.
Export customers accounted for 78 percent of total ferrous sales volumes in the fourth quarter, Schnitzer reports.
Demand softened in the export markets in early June, driving average ferrous net sales prices in the fourth quarter down $46 per ton, or 11 percent, from third quarter levels. Nonferrous prices decreased 7 percent in the fourth quarter sequentially primarily because of lower commodity prices.
Operating margins during the fourth quarter were compressed by the significant negative impact from average inventory accounting as well as from the effects of falling commodity prices on sales and the seasonal impact of hot weather on admissions. Operating performance exceeded Schnitzer’s fourth quarter market outlook in light of higher than anticipated ferrous and nonferrous sales volumes, the company says.