Schnitzer Steel Industries reported net income of $2.0 million on revenues of $68.4 million for the quarter ended November 30, 2001, which compares to net income of $1.4 million on revenues of $79.6 million for the first quarter of last fiscal year.
"We are pleased that, despite ongoing difficult market conditions, our overall results of operations showed such an improvement over last year," said Robert Philip, president and CEO. "Recycled metals prices world-wide continue to remain low and the slowdown in the domestic economy, in particular, has adversely impacted our Steel Manufacturing Business."
Operating income from the company's joint venture businesses increased by 317% from $1.2 million during the first quarter of fiscal 2001 to $4.9 million in the quarter just ended. The improvement predominantly came from the company's joint ventures in the metals recycling business, which primarily operate recycled metals facilities in the Northeastern and Southwestern U.S. These joint ventures sold 63% more tons of ferrous recycled metals during the first quarter of fiscal 2002 than in the same quarter of the prior year. "Despite low selling prices, the joint ventures have been able to significantly improve their operating margins by taking advantage of efficiency improvements and managing their unprocessed inventory buying prices," commented Philip. "In addition, this latest quarter's financial results were the strongest we have seen from these businesses since we purchased our interest in November 1996."
For the first quarter of fiscal 2002, the Company's wholly-owned Metals Recycling Business reported operating income of $0.9 million, which was $1.4 million lower than last year's first quarter. Sales volume remained relatively unchanged and average selling prices declined 5 percent compared with last year's first quarter. "The Pacific Northwest market has become increasingly competitive over the past year," said Philip. "As a result, our margins have compressed. We are however, continuing to aggressively look for ways to improve the financial performance for these businesses."
The company's Steel Manufacturing Business realized a loss from operations of $0.3 million for the first quarter of fiscal 2002, compared with operating income of $1.0 million for the first quarter last year. "We are disappointed with the results from this segment of our business, which over the last 18 months has been increasingly affected by the slowdown in the U.S. economy combined with severe competition from low cost steel imports," Philip stated.
"Our average selling prices dropped by $10 per ton and $12 per ton between the first quarter and fourth quarter of fiscal 2001, respectively. Sales of finished steel products declined by over 20% from last year's first quarter. Much of the volume decline came from lower sales volumes of wire rod products. We chose not to reduce our prices for wire rod products to compete with low priced imports as we could not produce and sell these products for a profit. In response to these challenging market conditions, management decided that it was in the company's financial best interest for the Steel Manufacturing Business to further curtail production of most of its products. However, curtailing production negatively impacts our margins because the mill's fixed costs are spread across fewer tons produced.
Additionally, the mill's electricity rates increased nearly 40% beginning in October 2001, adding to the cost of production. Despite the drop in earnings, the Steel Manufacturing Business generated $6.3 million in cash flow from operations, predominantly by selling inventory it produced when electricity prices were lower." Under the mill's current electricity contract, the provider may adjust rates every six months. "We are optimistic that we may see some modest relief when our electricity rates are adjusted in the spring of 2002," Philip stated.