Schnitzer Steel Industries Inc., Portland, Oregon, has reported third-quarter losses in its Auto Metal Recycling (AMR) division compared with the same period in 2019, according to the company’s latest earnings report released July 1. However, operating income for its Cascade Steel and Scrap (CSS) division increased in the third quarter of 2020 when compared with the second quarter of 2020.
Reflecting on the impact of the COVID-19 pandemic, the company reported a loss per share from continuing operations for the third quarter of 2020 of 18 cents and adjusted earnings per share of 5 cents compared with second quarter reported and adjusted earnings per share of 14 cents and 31 cents, respectively. Comparatively, third-quarter 2019 reported and adjusted earnings per share from continuing operations were 56 cents and 65 cents, respectively.
Schnitzer Steel’s AMR division achieved operating income in the third quarter of $3 million, or $3 per ferrous ton, and adjusted operating income of $5 million, or $6 per ferrous ton, both of which include an adverse impact from average inventory accounting of about $3 per ferrous ton.
The company reports that the COVID-19 pandemic resulted in an economic slowdown and ferrous selling prices fell sharply through mid-April before prices partially recovered in the second half of the quarter. Supply flows also declined significantly during the quarter amid the lower levels of economic activity.
On a sequential basis, average ferrous selling prices and ferrous sales volumes both fell by 8 percent in the third quarter of 2020, while average nonferrous selling prices and sales volumes both decreased by 2 percent, Schnitzer Steel reports. AMR’s sequential performance also reflected higher revenues from retail sales and benefits from productivity initiatives implemented in fiscal year 2020, which offset the sequential decline in the price of platinum group metals.
Export customers accounted for 73 percent of total ferrous sales volumes for the third quarter of 2020, with Bangladesh, Turkey and Vietnam representing the top export destinations for ferrous shipments. Schnitzer Steel reports that AMR’s ferrous and nonferrous sales were shipped to 21 countries despite weaker global markets as a result of the company’s global sales diversification strategy.
The company’s CSS division achieved operating income in the third quarter of $7 million, almost double the operating income achieved in the second quarter of 2020. The improved CSS operating performance was driven by margin expansion due to the lower cost of raw materials, higher utilization and the benefits of productivity initiatives.
On a sequential basis, operating performance for the company’s CSS division benefited from margin expansion as a result of lower costs for steelmaking raw materials, coupled with slightly higher average net selling prices for finished steel products. Schnitzer Steel reports that finished steel sales volumes for the third quarter of 2020 were only 4 percent lower sequentially, as the impact on construction demand in the West Coast market from COVID-19 was limited. Higher utilization and benefits from productivity initiatives also contributed to the sequentially improved operating performance.
In addition, the company implemented productivity initiatives announced in October 2019 ahead of schedule, targeting realized benefits of $15 million in fiscal 2020 and annualized benefits of $20 million. Consolidated results in the third quarter of 2020 reflected about $6 million of benefits from these measures, with total benefits achieved through the first nine months of fiscal 2020 of about $12 million. In connection with ongoing productivity initiatives, the company incurred restructuring charges and other exit-related costs of about $3 million in the quarter.
In the third quarter, the company generated positive cash flow of $39 million. Total debt at the end of the quarter was $428 million and debt, net cash, was $121 million. The company has an evolving credit facility of $700 million and CAD $15 million. In order to preserve financial flexibility amid uncertainty from the COVID-19 outbreak, the company increased its borrowings under the revolving credit facility by $250 million, contributing to its cash position of $308 million as of May 31.
“During one of the most challenging quarters in recent times, we kept our focus on optimizing our sales, both wholesale and retail, aligning our operating costs with supply and production volumes, and moving ahead with our strategic investments. As a result, CSS almost doubled its operating income sequentially, and AMR delivered solid results in a market environment where ferrous scrap prices dropped to levels not seen since 2016,” says Tamara Lundgren, chairman and CEO of Schnitzer Steel.
She says working capital management had enabled the company to deliver strong operating cash flow and reduce net debt.
“While the near-term environment remains subject to uncertainty, we are encouraged by the gradual restart of economic activity in the U.S. and globally,” Lundgren says. “Our team has worked tirelessly through this pandemic, serving our customers and communities, and supporting our suppliers, demonstrating the critical and essential role of our business. Early on, we deployed health, safety and wellness protocols in all our facilities in order to protect the health of our employees and all who visit our sites. I am very proud of how our employees have responded to the COVID-19 crisis, and our results can be attributed to their swift actions and agility.”
Schnitzer Steel announced in the second quarter of 2020 that it plans to transition from its multidivisional organizational structure to a functionally based integrated operating model. As a result, the company will consolidate its operations, sales, services and other functional capabilities at the enterprise level. The company states that it anticipates the new structure to result in a more agile organization. It expects to complete this transition and report its financial results in a single operating segment in the first quarter of fiscal 2021.