Schnitzer Steel Industries Inc., Portland, Oregon, has released financial results for the third quarter of its 2022 fiscal year, which ended May 31. The company calls the results the best third-quarter earnings in its history.
The company says its third-quarter performance benefited from strong global demand for recycled metals and robust West Coast market conditions for finished steel products. This was reflected in higher average selling prices for ferrous, nonferrous and finished steel products. Average ferrous and nonferrous selling prices in the quarter were at or near multiyear highs, while average finished steel selling prices were the highest on record.
“Our record results this quarter reflected excellent operational performance during a quarter marked by strong movements in demand and prices, reflecting both short-term disruptions and underlying positive structural trends supporting increased use of recycled metals in manufacturing,” says Tamara Lundgren, chairperson and CEO of Schnitzer. “At the end of April, we acquired the assets of Encore Recycling in Georgia, including our first metal shredding operation in the Southeast, which increases our Southeast regional footprint to 24 facilities across five states. We expect this region to see an increase in steelmaking and in auto and industrial manufacturing in the coming years.”
The company is reporting net income of $76 million and adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) of $119 million in the third quarter of fiscal 2022. This reflected significantly higher year-over-year average net selling prices for ferrous, nonferrous and finished steel products.
Schnitzer says the strong performance is because of year-over-year sales volumes increasing for nonferrous metals and an expansion in metal spreads on certain ferrous sales contracted before the market price declines that occurred during the end of the quarter. In addition, contributions from recent acquisitions and productivity initiatives helped to partially offset inflationary pressure on operating costs. The benefit from average inventory accounting was approximately $4 per ferrous ton in the quarter compared with $7 per ferrous ton in the prior-year quarter.
According to the report, ferrous sales volumes were up 5 percent sequentially, supported by contributions from acquisitions, but down 7 percent year-over-year arising from the impact of market volatility on demand in the second half of the quarter, which delayed contracting and shipping bulk cargoes. Nonferrous sales volumes were up 29 percent year over year, benefiting from strong global demand and an easing of supply chain and logistics disruptions. Average ferrous and nonferrous net selling prices were up year over year by 35 percent and 15 percent, respectively, supported by strong global demand.
Finished steel sales volumes were down year over year by 12 percent, reflecting ongoing logistics challenges, but up sequentially 27 percent as sales volumes benefited from an improvement in supply chain disruptions and the resolution in April of the Seattle concrete industry drivers' strike. The mill achieved an average utilization of 96 percent in the quarter. Average net selling prices for finished steel products increased year over year by 41 percent.
Schnitzer reports that operating cash flow in the quarter was $45 million, as cash flows associated with profitability more than offset the increase in working capital resulting primarily from the higher price environment and inventories. Capital expenditures were $29 million in the quarter, including investments in advanced metal recovery technologies, and maintaining the business and environmental projects. Total debt at the end of the quarter was $322 million and debt, net of cash, was $306 million.
Schnitzer says the increase in debt in the third quarter was primarily driven by the acquisition of the assets of Columbus Recycling and Encore Recycling and higher working capital.
During the third quarter, the company returned capital to shareholders through its 113th consecutive quarterly dividend and the repurchase of 243,792 shares, or 0.9 percent, of its Class A common stock in open market transactions under its authorized share repurchase program.
“The use of recycled metals, which require less carbon to produce than mined metals, provides an important solution for companies, industries and governments that are focused on carbon reduction and are committed to reducing material directed to landfills," Lundgren says. "Our investments in advanced metal recovery technology systems and the expansion of our operating platform are providing us with recycled ferrous and nonferrous products that can serve this increasing demand.”