Schnitzer Steel Industries, Inc. (Nasdaq: SCHN) announced today its
market outlook for the second quarter of fiscal 2013 ended February 28,
2013. The Company expects to report a sequential improvement in its
consolidated financial performance in the second quarter of fiscal 2013.
For the second quarter, fully diluted earnings per share are expected to
be in the range of $0.20 – $0.26 before restructuring charges. In the
second quarter, we expect to incur a pre-tax restructuring charge in
connection with our announcement in August of approximately $2 million,
which equates to $0.04 earnings per share. Actual financial performance
may be materially different based on, among other factors, market
conditions and the timing of shipments.
In our Metals Recycling Business, ferrous export selling prices
strengthened throughout the quarter, with prices for February shipments
approximately $40 per ton higher than shipments at the end of the first
quarter, while domestic selling prices weakened slightly toward the end
of the quarter. The supply of scrap continued to be constrained by low
US GDP growth, resulting in high raw material costs which moderated the
overall improvement to margins. During the second quarter, ferrous
average net selling prices increased slightly from the first quarter of
fiscal 2013 and ferrous sales volumes increased approximately 15% – 20%.
Nonferrous average selling prices are in line with the first quarter
while volumes increased approximately 10%. The combination of higher
selling price and volumes trends are expected to generate operating
income per ferrous ton of approximately $12, an increase of 100% from
the first quarter of fiscal 2013.
In our Auto Parts Business, higher commodity prices, stronger car
purchases and the incremental volume contribution of acquisitions are
expected to result in an increase of approximately 10% in revenues from
the first quarter of fiscal 2013. APB’s operating margin, excluding the
impact of new locations added since the first quarter, is expected to be
approximately 10%, a sequential increase over the prior quarter’s
performance. During the second quarter, APB added 10 new locations
which, as anticipated, will result in approximately $2 million of
transaction, integration and startup costs which will impact APB’s
reported operating margin, expected to be approximately 7%, in the
quarter.
In our Steel Manufacturing Business, average selling prices are expected
to increase slightly from the first quarter while sales volumes are
expected to be approximately 25% lower than the first quarter. Higher
costs for raw materials, a lower utilization rate resulting from planned
maintenance and a typical seasonal slowdown in demand during the quarter
are expected to result in SMB operating income of approximately $1
million.
The effective tax rate for the second quarter is expected to include tax
credits and other benefits in the range of $1 – $2 million.
We continue to focus on cost reductions, strategic growth initiatives,
and increasing synergies between our Metals Recycling and Auto Parts
Businesses. In the first half of fiscal 2013, consolidated SG&A is
expected to be approximately 10% lower as compared to the prior year
period and is on track with our restructuring program announced in
August 2012. In February, our Metals Recycling Business successfully
commenced the testing of its newly constructed shredder near Vancouver,
BC, which is expected to be operational in the third quarter. As
previously announced, our Auto Parts Business completed eight
acquisitions and commenced two greenfield developments in the second
quarter, which will increase the number of APB stores by 20% and
increase annual car purchase volumes by approximately 15%. These new
locations, which include Western Canada, the Pacific Northwest and New
England, strengthen APB’s presence in core markets while providing
synergistic sources of supply to our Metals Recycling Business.
Annually in the second quarter we evaluate the carrying value of our
goodwill. Our assessment considers conditions in our markets,
macro-economic uncertainties, our market capitalization and other
factors. Accordingly, our market outlook for the second quarter, as
described above, does not reflect completion of our review. See
‘Critical Accounting Policies and Estimates’ within our Form 10-Q for
the first quarter of fiscal 2013 for a discussion of the evaluation of
goodwill.
Forward-Looking Statements
Statements and information included in this press release that are not
purely historical are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and are made pursuant
to the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995. Except as noted herein or as the context may
otherwise require, all references to “we,” “our,” “us” and “SSI” refer
to the Company and its consolidated subsidiaries.
Forward-looking statements in this press release include statements
regarding our expectations, intentions, beliefs and strategies regarding
the future, including statements regarding trends, cyclicality and
changes in the markets we sell into; strategic direction; changes to
manufacturing and production processes; the cost of compliance with
environmental and other laws; expected tax rates, deductions and
credits; the realization of deferred tax assets; planned capital
expenditures; liquidity positions; ability to generate cash from
continuing operations; the potential impact of adopting new accounting
pronouncements; expected results, including pricing, sales volumes and
profitability; obligations under our retirement plans; savings or
additional costs from business realignment and cost containment
programs; and the adequacy of accruals.
When used in this report, the words “believes,” “expects,”
“anticipates,” “intends,” “assumes,” “estimates,” “evaluates,” “may,”
“could,” “opinions,” “forecasts,” “future,” “forward,” “potential,”
“probable,” and similar expressions are intended to identify
forward-looking statements.
We may make other forward-looking statements from time to time,
including in reports filed with the Securities and Exchange Commission,
press releases and public conference calls. All forward-looking
statements we make are based on information available to us at the time
the statements are made, and we assume no obligation to update any
forward-looking statements, except as may be required by law. Our
business is subject to the effects of changes in domestic and global
economic conditions and a number of other risks and uncertainties that
could cause actual results to differ materially from those included in,
or implied by, such forward-looking statements. Some of these risks and
uncertainties are discussed in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in our most recent annual report on Form 10-K and quarterly
report on Form 10-Q. Examples of these risks include: potential
environmental cleanup costs related to the Portland Harbor Superfund
site; the impact of general economic conditions; volatile supply and
demand conditions affecting prices and volumes in the markets for both
our products and raw materials we purchase; difficulties associated with
acquisitions and integration of acquired businesses; the impact of
goodwill impairment charges; the realization of expected cost reductions
related to restructuring initiatives; the inability of customers to
fulfill their contractual obligations; the impact of foreign currency
fluctuations; potential limitations on our ability to access capital
resources and existing credit facilities; the impact of the
consolidation in the steel industry; the impact of imports of foreign
steel into the U.S.; inability to realize expected benefits from
investments in technology; freight rates and availability of
transportation; product liability claims; costs associated with
compliance with environmental regulations; the adverse impact of climate
change; inability to obtain or renew business licenses and permits;
compliance with greenhouse gas emission regulations; reliance on
employees subject to collective bargaining agreements; and the impact of
the underfunded status of multiemployer plans in which we participate.
Non-GAAP Financial Measures
This press release includes expected performance excluding expected
restructuring charges. Management believes that these non-GAAP financial
measures allows for a better understanding of our operating and
financial performance. These non-GAAP financial measures should be
considered in addition to, but not as a substitute for, the most
directly comparable US GAAP measures.
About Schnitzer Steel Industries, Inc.
Schnitzer Steel Industries, Inc. is one of the largest manufacturers and
exporters of recycled ferrous metal products in the United States with
58 operating facilities located in 14 states, Puerto Rico and Western
Canada. The business has seven deep water export facilities located on
both the East and West Coasts and in Hawaii and Puerto Rico. The
Company's integrated operating platform also includes its auto parts and
steel manufacturing businesses. The Company's auto parts business sells
used auto parts through its 59 self-service facilities located in 16
states and Western Canada. With an effective annual production capacity
of approximately 800,000 tons, the Company's steel manufacturing
business produces finished steel products, including rebar, wire rod and
other specialty products. The Company commenced its 107th
year of operations in fiscal 2013.