Schnitzer Sees Narrower Loss for Quarter

Schnitzer Steel Industries reported a loss of $7.8 million for the fiscal first quarter, compared to a loss of $34.4 million for the same time last year. Revenue for the quarter was $394.3 million, a decrease of 17 percent from the same time last year.

"This is our second consecutive quarter of profitability from continuing operations, and it marks an improvement in our results on a year-over-year basis," says Tamara Lundgren, president and CEO of the company. "As we look across our global markets, we are seeing stronger and more broad-based demand than we saw at this time last year. Sequential margins improved in both our Metals Recycling and Auto Parts Businesses, where we continue investing in projects and acquisitions to enhance our competitive advantages."

The company’s metals recycling business generated operating income of $16 million for the quarter, compared with a loss in the prior year.

“We saw significant price volatility throughout the course of the quarter with strengthening prices toward the end of November,” says Lundgren. “Although sales volumes were lower compared  with the fourth quarter, our raw material purchases were at comparable levels, which allowed us to build inventories to meet the expected rebound in sales volumes and prices in the coming quarter.”

Sales volumes in the quarter declined as expected and were slightly lower than last year’s first quarter.
Ferrous scrap prices started rising toward the end of the quarter after a sharp drop in late October and early November. The increase reflected strengthening demand, particularly in the export markets. Nonferrous prices also strengthened during the quarter.

Looking forward, the company feels ferrous sales volumes should improve due to improving market activity and higher beginning inventories available for sale. Ferrous sales volumes should increase 40 to 50 percent over the levels in the first quarter, primarily resulting from higher export sales. Nonferrous sales volumes should remain steady with first quarter numbers.

Ferrous scrap prices for shipments have been rising in recent weeks. On average, ferrous net selling prices in the second quarter are expected to rise slightly compared with the first quarter of fiscal 2010. Nonferrous markets also are improving, which is expected to support higher prices for nonferrous metals compared with the first quarter.
The flow of raw materials is expected to be impacted by normal seasonal declines heading into the winter months. As a result, raw material purchase costs are expected to increase. However, the rising sales price environment and increased sales volumes are expected to more than offset the purchase cost increases.

For its auto parts business, Schnitzer noted that the division recorded its fourth consecutive sequential increase in operating income from continuing operations.

In discussion, Lundgren notes that the acquisitions in both the Pacific Northwest and the Dallas-Fort Worth, Tex., area should boost the company’s business and complement the company’s metals recycling business.
Operating margins for the auto parts business increased due to improved parts sales and core and scrap prices, which increased at a greater rate than the cost of scrapped vehicles.

“The Auto Parts Business had a strong quarter, reporting record first quarter operating income. The business benefitted from improvements in commodity prices and parts sales and increases in the purchases of scrapped vehicles from the Cash-for-Clunkers program,” says Lundgren.

The Steel Manufacturing Business continued to be impacted by weak demand for finished steel products in its West Coast markets.

“As expected, first quarter sales volumes declined quarter-over-quarter as customers completed the inventory restocking that we saw in the fourth quarter of fiscal 2009. In addition, the competitive pressures of the weak markets did not permit us to pass through increases in raw material costs in the form of higher prices. This, along with reduced production volumes, resulted in negative operating margins,” sayd Lundgren. “In light of the weak demand, we continue to reduce our operating costs. We believe that, with our reputation for high-quality finished steel products, the mill remains well-positioned to benefit when demand increases from government-funded infrastructure spending and a general pick-up in economic activity.”

The average net sales prices for finished steel declined 40 percent, compared with the same time last year. This drove a 30 percent decline in revenues compared with last year’s first quarter. Prices saw only modest changes from the fourth quarter of fiscal 2009.

Looking toward the second quarter of the year, Schnitzer forecasts that the weak demand experienced through last year should result in a decline in finished steel sales volumes of 20 percent from the volumes in the first quarter of 2010.

As a result of higher costs for raw materials, average net selling prices are expected to rise during the quarter despite continued weak demand for long products in the West Coast markets.

Second quarter margins are expected to improve from the margins achieved in the first quarter due to the impact of higher sales prices and continued cost containment actions, but to remain negative.