Radius Recycling reports loss in Q1 of its 2024 fiscal year

Schnitzer Steel Industries Inc. dba Radius Recycling has reported a loss per share from continuing operations of 64 cents and a net loss of $18 million for the first quarter of fiscal 2024, which ended Nov. 30, 2023. Its adjusted loss per share from continuing operations was 64 cents and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $1 million.

The company says its operating performance in the first quarter reflected sequentially tighter supply flows for scrap, which, together with lower average net selling prices for its products, resulted in compressed metal spreads. Lower manufacturing activity in the U.S. and the impact of China’s economic slowdown across Asia, including elevated levels of Chinese steel exports, created challenging conditions for recycled metals during the quarter.

“While the current market environment is challenging, we have demonstrated our ability to navigate effectively through periods of volatility and tight scrap availability by focusing on what we can control,” Radius Recycling Chairman and CEO Tamara Lundgren says in the news release accompanying the company’s quarterly results. “This includes higher nonferrous volumes from our strategic investments and delivering on our $30 million productivity improvement program that we announced last October. We are well-positioned to benefit from near-term market improvements and the expected longer-term increased demand for recycled metals associated with decarbonization and low-carbon technologies.”

Lundgren also mentions the progress Radius has made in the area of sustainability, referencing the company’s 10^th annual “Sustainability Report,” which was released in December 2023. “The report showcases the progress towards our multiyear sustainability goals, including achieving our greenhouse gas emissions reduction target two years ahead of schedule. Additionally, we maintained our goal of 100 percent net-carbon-free electricity usage at our operations for a third consecutive year.”

Strategic priorities

In the company’s Jan. 4 conference call to share its quarterly results, Lundgren mentioned Radius’ strategic priorities that are aligned with long-term trends like decarbonization.

“First, we are investing in advanced technologies to increase recovery of nonferrous metals; generate more furnace-ready, higher-value products; and create product optionality,” she said, according to a transcript from Seeking Alpha. “Second, we remain highly focused on increasing our ferrous and nonferrous volumes in light of the positive long-term drivers of increased demand. Third, we are continuing to grow our trademark 3PR business line that supports a rapidly growing service and supply chain solution that enables our customers to increase their recycling rates, reduce material going to landfills, lower their carbon footprint and provide enhanced sustainability reporting. And fourth, we are committed to ongoing productivity initiatives as part of our continuous improvement culture.

“These market conditions won't last forever, and we are well-positioned to benefit from the expected increased demand for recycled metals associated with decarbonization and low-carbon technologies.”

Bright spots

Despite the challenges the company encountered in the first quarter of its 2024 fiscal year, Radius saw a 12 percent increase in nonferrous sales volumes year over year, which the company attributes to production from its nonferrous recovery technologies and an acquisition made in fiscal 2023. Its mill utilization rate in the quarter was 95 percent, and finished steel sales volumes were 10 percent higher year over year thanks to healthy nonresidential demand in the western U.S.

“Base metal index prices for aluminum and copper traded at strong levels during the quarter, supported by low warehouse inventories and forecasted supply disruptions from mines," Lundgren said during the conference call. "Tight nonferrous scrap supplies and the increased use of recycled nonferrous metals in support of decarbonization efforts have resulted in higher prices and a reduced discount to LME- [London Metal Exchange-] based metal prices.”

During the conference call, Radius Chief Financial Officer Stefano Gaggini said, “We sold our nonferrous products to 17 countries, with the major export destinations being India, Malaysia and China. Our product mix is highly diversified, with sales of products recovered from shredding operations representing slightly less than half of total nonferrous volumes.”

Nonferrous investments

Regarding the company’s nonferrous recovery technology investments, he said Radius’ focus is on completing the remaining systems, “which drive the incremental metal recovery and the majority of the expected contribution from our program.”

Gaggini said the systems are in various stages of commissioning and ramp-up, with two left to build on the West Coast, one of which awaits permitting approval, adding, "We are working closely with our technology vendors to address fabrication and installation delays we have experienced in connection with certain of these projects.

“We now project construction of the currently permitted systems to be completed by the end of the summer, with ramp-up to full operations to be reached by calendar year-end 2024. Once fully operational, we continue to expect substantial returns from these investments. Our advanced separation systems which are already operational give us the ability to process the mixed aluminum metal zorba into higher grade twitch and other furnace-ready materials, providing access to an expanded customer base.”

Sales volumes and prices

First-quarter average net selling prices for ferrous, nonferrous and finished steel products were lower sequentially by 1 percent, 3 percent and 3 percent, respectively, according to the company. During the conference call, Gaggini added that platinum group metals (PGMs) prices decreased by 11 percent, “reaching their lowest level in five years.” On a year-over-year basis, he said, PGMs prices were down more than 50 percent because of lower demand from the U.S. and global auto industry.

“[T]he further tightening of scrap flows during the fall continued to constrain our ability to adjust scrap purchase prices to reflect a lower price environment,” he said, while “the timing of the improvement in ferrous market prices during November was a significant contributor to metal spread headwinds as we recognized sales contracted at lower prices before the market rebounded.”

On a sequential basis, sales volumes for ferrous were higher by 4 percent, lower for nonferrous by 11 percent given the timing of sales and lower for finished steel products by 15 percent because of seasonality, according to the company.

Further financial review and analysis

Results for the first quarter included an adverse impact from average inventory accounting of approximately $1 per ferrous ton compared with a detriment of $5 per ferrous ton in the fourth quarter of fiscal 2023.

First-quarter performance reflected initial benefits of approximately half the quarterly run rate associated with the $30 million annual productivity initiatives announced in October 2023, which more than offset cost inflation in the quarter, Radius says. The company recognized insurance recoveries of $4 million in the first quarter compared with $41 million in the fourth quarter of fiscal 2023, in connection with previously submitted claims related to certain property damage and business interruption matters that occurred in prior periods.

The first quarter had nearly break-even operating cash flow, benefiting from working capital management despite the typical seasonality headwinds, Radius says. Total debt was $284 million at the end of the quarter, and debt, net of cash, was $280 million (for a reconciliation of adjusted results and debt, net of cash, to U.S. generally accepted accounting principles). Capital expenditures were $25 million in the quarter, including investments in metal recovery technologies, maintaining the business and environmental-related projects.

During the first quarter, Radius returned capital to shareholders through its 119th consecutive quarterly dividend, which totaled 18.75 cents per common share, payable Feb. 20, to shareholders of record on Feb. 5. The company says it has paid a dividend every quarter since going public in November 1993.

Radius Recycling is one of the largest manufacturers and exporters of recycled metal products in North America, with operating facilities in 25 states, Puerto Rico and western Canada. Radius has seven deep water export facilities on the East and West coasts and in Hawaii and Puerto Rico. Its integrated operating platform includes 50 stores that sell used auto parts from salvaged vehicles and receive more than 4 million annual retail visits. Its steel manufacturing operations produce finished steel products, including rebar, wire rod and other specialty products.