Schnitzer Steel Industries, Inc. reported net income of $18.5 million on revenues of $161.6 million for the second fiscal quarter. In comparison, the company reported net income of $8.4 million on revenues of $124.7 million for the same time last year.
For the first six months of fiscal 2004, Schnitzer Steel reported net earnings of $30.7 million on revenues of $290 million. These amounts compare to net income of $11.3 million on revenues of $215.3 million for the same time last year.
"The second quarter of fiscal 2004 was a strong quarter for Schnitzer Steel," said Robert Philip, chairman and CEO. "In fact, our quarterly net income achieved record levels and our income from operations exceeded the forecasted range we provided in our last earnings release. The quarter's results were led by the exceptional performance of our wholly owned Metals Recycling Business. Overall, markets for recycled ferrous metal were strong and rising throughout the second quarter. Demand continued to remain good in Asia, but the domestic market seemed to show the greatest improvement as demand and prices for finished steel products rose. Partially offsetting the higher ferrous metal selling prices were sharp rises in the amounts paid for both unprocessed metal and export shipping costs. The second quarter of fiscal 2004 was also highlighted by the return to profitability of our Steel Manufacturing Business and the announced expansion of our Pick-N-Pull Auto Parts Business."
The company's wholly owned Metals Recycling Business reported operating income of $13.2 million for the second quarter, an improvement of $4.7 million over the same quarter last year.
The improved operating margins were primarily driven by higher average selling prices, which rose by 42 percent and 13 percent, over the second quarter of fiscal 2003 and the first quarter of 2004, respectively.
Partially offsetting the higher selling prices were lower sales volumes and increases in amounts paid for unprocessed metal and ocean charters. Ferrous sales volumes amounted to 501,000 tons in the second quarter, compared to 555,000 tons in last year's second quarter.
Income from Joint Ventures amounted to $8.7 million for the second quarter of fiscal 2004 compared to $6.2 million in last year's second quarter. The increase in the joint ventures' quarterly income came primarily from a significant margin improvement in our global trading joint venture that has been growing its market share and is now serving additional markets and customers.
The processing joint ventures, mainly based in the northeastern U.S. and southern California, experienced similar gross selling prices as the company's West Coast-based wholly owned Metals Recycling Business; however, our East Coast-based joint ventures' export shipping costs were significantly higher than was experienced by the West Coast businesses, which constrained profits.
“In addition, sales volumes from the joint venture processors of recycled metal declined 12 percent from the prior year quarter due primarily to the fact that last year's second quarter volume was near record levels and was the result of customer order delays from the first quarter of fiscal 2003.
The Steel Manufacturing Business reported an operating profit of $2.7 million in the second quarter of fiscal 2004, which compares to an operating loss of $1.4 million in the 2003 period.
Second quarter 2004 sales volumes rose 18 percent from the 2003 second quarter not only due to the increases in steel consumption, but also seemed to be caused by customers' efforts to buy ahead of announced price increases. Partially offsetting the higher prices and sales volume was an increase in the cost of raw materials resulting from increases in worldwide demand for recycled ferrous metal.
In an outlook, Philip noted, that “The ferrous recycled metal market continued to strengthen throughout the second quarter of fiscal 2004. However, the market for recycled metal continues to remain volatile and difficult to predict.
Ocean freight rates continue to remain high from a historical context, however, it appears freight rates are beginning to stabilize and may begin to show a modest decline in the coming months. The cost of unprocessed ferrous metal remains very competitive and volatile. We anticipate the cost of unprocessed metal to generally follow the trend of market selling prices.
“The joint venture processors in the metals recycling business are anticipated to experience similar market trends as the Company's wholly owned Metals Recycling Business; however, their financial results may vary depending on geographical locations, competition and other factors.
“The domestic economy appears to be improving, which has spurred an increase in demand for finished steel and has benefited the Company's Steel Manufacturing Business. Over the last few months, finished steel selling prices steadily rose across all product lines. Finished steel sales volumes traditionally increase in the third fiscal quarter due to seasonal improvements in demand. However, management believes that certain customers appear to have built inventories during the second quarter, which is expected to modestly reduce third quarter sales volumes. It's anticipated that third quarter sales volumes will be in excess of 150,000 tons. Market prices are expected to continue to rise throughout the third quarter. The higher selling prices are anticipated to be partially offset by higher raw material costs. Overall, it is estimated that the Steel Manufacturing Business will continue to be profitable in the third quarter of fiscal 2004. “