Schnitzer Steel Industries, Inc. reported net income of $42.5 million on revenues of $193.8 million for the third quarter. In comparison, the company reported net income of $15.0 million on revenues of $127.9 million for the same time last year.
For the first nine months of fiscal 2004, Schnitzer Steel reported net earnings of $73.2 million on revenues of $483.7 million. These amounts compare to net income of $26.3 million on revenues of $343.3 million during the first nine months of fiscal 2003.
"It's a pleasure to report another record quarter for Schnitzer Steel," said Robert Philip, chairman and CEO. "The quarter's results even exceeded our revised earnings guidance; however, what's especially pleasing about the third quarter's results was the fact that not just one business, but all of our major business segments reported record profits during the period.
The company's quarterly performance was led by our metals recycling business segments that include both our wholly-owned and joint venture businesses. Combined, the metals recycling businesses increased their operating profits by 219 percent over last year's third quarter. These businesses continue to benefit from our strategic export locations along the West Coast and Northeastern seaboards of the United States that allow us to efficiently access both export and domestic customers."
"During the third quarter of fiscal 2004 we also saw our Auto Parts Business segment grow its operating profit into record territory, which was due in part to the March 2004 acquisition of three new stores in Canada. This acquisition has gone well and is performing as we anticipated. Our Steel Manufacturing Business is also producing excellent results. During the most recent quarter, the steel mill reported its most profitable quarter ever as it continues to benefit from the improving economy, rising steel consumption and higher finished steel prices."
The Metals Recycling Business's third quarter 2004 operating income amounted to $32.5 million, representing an improvement of 221 percent over the third quarter of last year. The increase was primarily driven by higher selling prices and sales volumes. Ferrous metal sales prices averaged a record $237 per ton during the recent quarter, which compares to $133 per ton reported in last year's third quarter and $158 per ton recognized in the second quarter of fiscal 2004. Many of the sales reported in the third quarter of fiscal 2004 were the result of orders taken late in the second quarter when market selling prices for ferrous metals rose to record levels. Third quarter 2004 sales volumes amounted to 445,000 tons, which were 3 percent higher than the volume shipped in the third quarter of fiscal 2003.
The higher sales prices were offset in part by sizable increases in the cost of unprocessed metal as well as export shipping costs that continued to rise due to record ocean charter rates. During the third quarter of fiscal 2004, the company's average export shipping costs rose 80 percent above the levels experienced in the third quarter of 2003 and 17 percent above the amounts reported in the second quarter of 2004. The rise in ocean charter costs has been primarily driven by the improving world economy resulting in increased demand.
Income from joint ventures amounted to $28.0 million in the third quarter of fiscal 2004, representing a 217 percent improvement over the prior year period. The improvement came almost entirely from the joint ventures in the metals recycling business that experienced similar market changes as the company's wholly owned Metals Recycling Business. Sales volumes rose to record levels during the recent quarter and totaled 1.8 million tons, representing a 42 percent increase over last year's third quarter. The majority of the volume improvement came from the joint venture brokerage business, which has continued to grow its market share. In addition, the processing joint ventures shipped a record 1.1 million tons in the third quarter of 2004, representing a 23 percent increase over the 2003 quarter. The higher sales volumes shipped by the processing joint ventures were caused in part by the sale of inventory that had temporarily built up during the first half of the year and was sold during the recent quarter.
The Steel Manufacturing Business reported an operating profit $7 million in the third quarter, which compares to an operating loss of $0.3 million in the same 2003 period.
Selling prices averaged $448 per ton in the most recent quarter, representing 53 percent and 28 percent increases over the third quarter of 2003 and the second quarter of 2004, respectively. Last year's average quarterly selling price reflected the depressed market conditions that remained near the low point in the last market cycle. In contrast, the Steel Manufacturing Business is currently participating in an improving market where prices are rising due primarily to increases in world wide steel consumption, including the domestic West Coast market.
The consumption of finished steel improved during the quarter; however, as anticipated we saw third quarter 2004 sales volumes fall short of last year's third quarter level due to a significant increase in sales volumes during the second quarter of 2004 as customers bought ahead of announced price increases. Third quarter 2004 sales volumes amounted to 155,000 tons, which was 6 percent and 5 percent lower than the volumes shipped in the third quarter of fiscal 2003 and the second quarter of fiscal 2004, respectively. The higher selling prices were also offset by increases in the cost to produce finished steel, most of which were driven by sharply higher raw material costs related to the rise in recycled metal prices.
During the third quarter of fiscal 2004 ferrous recycled metal selling prices began to ease from the record highs that were achieved for orders received in early March 2004.
The company believes that the decline was caused by a number of factors, including concerns over the impact of the Chinese government's recent attempt to slow its economy coupled with Asian steel mills buying metal ahead in anticipation of higher prices.
Today, the uncertainty continues; however, market prices for ferrous metal have recently firmed and remain high from an historical perspective. The Metals Recycling Business normally accepts export orders 60 to 90 days before shipment. Based upon the Metals Recycling Businesses' current order backlog, contracted selling prices that are expected to be shipped in the fourth quarter are, on average, above the average realized in the first nine months of fiscal 2004, but below the record average prices in the third quarter of fiscal 2004. Fourth quarter 2004 ferrous metal sales volumes are anticipated to be in the 475,000 to 500,000 ton range. Ocean freight rates also remain relatively high; however, rates have receded from levels incurred by the Company in the third quarter of fiscal 2004. 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.