Schnitzer Reports Quarterly Loss

Company's metals recycling business suffers write-offs and operating losses.

November 18, 2013
Recycling Today Staff

Schnitzer Steel Industries Inc., Portland, Ore., has reported a loss for its most recent financial quarter, citing impairments and other charges within its metals recycling division as the reasons. The financial quarter ending Aug. 31, 2013, was the final quarter in Schnitzer’s 2013 fiscal year.

In commentary accompanying its results, the company says challenging market conditions for ferrous scrap resulted in lower export selling prices and reduced sales volumes compared to both the third quarter of fiscal 2013 and the fourth quarter of fiscal 2012. In addition, purchase prices for raw materials did not decrease as much as selling prices during the quarter because of constrained supply, which contributed to operating margin compression in both the company’s metal recycling and auto parts businesses, Schnitzer says. 

In the fourth quarter, Schnitzer’s metals recycling business (MRB) took a noncash goodwill impairment charge of $321 million and other asset impairment charges of $13 million. Further, during the quarter Schnitzer’s MRB reported an adjusted operating loss of $6 per ton that excluded noncash goodwill impairment, other asset impairment charges and restructuring charges. MRB’s adjusted operating income includes an estimated adverse impact of $12 per ton from a combination of average inventory costing and other items related to inventory valuations, costs associated with fire damage at two facilities and a bad debt expense from a customer bankruptcy.

The company’s auto parts business generated operating margins of 7 percent in the fourth quarter before the impact of new stores opened in fiscal 2013. During the quarter, Schnitzer’s auto parts business incurred $2 million of operating losses related to the new sites added during fiscal 2013, which lowered the division’s reported operating margin to 4 percent.

Schnitzer’s steel manufacturing business (SMB) reported its best fourth quarter and full year performance since fiscal 2008, generating $2 million of quarterly operating income. The company says the better conditions were driven by slowly improving demand leading to increased sales volumes and by productivity improvements.

Tamara Lundgren, Schnitzer president and CEO, says, “While each of our businesses is well-positioned to achieve higher profitability when market conditions improve, this quarter was negatively impacted by a number of significant items and an adverse impact from average inventory costs. Notwithstanding the significant impact to reported earnings, we generated $38 million of operating cash flow in the fourth quarter and continued to invest in our business and to return capital to our shareholders through our quarterly dividend.”

Lundgren adds, “With slowly improving demand for steel driving increased sales volumes and with the benefits of productivity improvements, SMB delivered its best performance since fiscal 2008.”

The company says ferrous scrap sales volumes of 1.1 million tons in the fourth quarter decreased 7 percent from the third quarter, primarily because of softer export demand. Nonferrous sales volumes of 141 million pounds increased 4 percent sequentially.

Export customers accounted for 74 percent of Schnitzer’s total ferrous sales volumes in the fourth quarter. The company’s ferrous and nonferrous products were shipped to 14 countries, with Turkey, China and South Korea the top export destinations for ferrous shipments.