Charges Drag Schnitzer Steel to Loss, Shares Down - Analyst Blog

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Shares of Schnitzer Steel Industries Inc. ( SCHN ) dropped around 7% during the trading session after the company reported wider-than-expected loss for first quarter of fiscal 2014 (ended Nov 30, 2013). The company's bottom-line was hurt by restructuring charges associated with its cost-saving measures. Its shares eventually closed at $30.06, losing around 3.2%.

The Oregon-based company posted a net loss of 23 cents per share in the first quarter as against year-ago quarter's loss of 6 cents per share. Excluding restructuring charges of $2 million, or 5 cents per share, adjusted loss came in at 18 cents a share, which was wider than the adjusted loss of 2 cents recorded in the year-ago quarter as well as the Zacks Consensus Estimate of loss of 7 cents per share.

Revenue and Margin

Revenues edged down 0.8% year over year to $588 million in the first quarter, trailing the Zacks Consensus Estimate of $919 million. Schnitzer Steel witnessed single-digit year-over-year declines across its Metal Recycling Business (MRB) and Steel Manufacturing Business (SMB) units in the quarter.

Gross margin decreased to 8.4% in the reported quarter from 9.4% a year ago. Operating loss in the third quarter came in at $3.6 million compared with operating income of $1.2 million recorded in the year-ago quarter.

Segment Highlights

Revenues from the MRB division slipped 1% year over year to $490 million in the quarter. Ferrous sales volumes were 978,000 tons, up 2% from the year-ago quarter but down 10% sequentially. Increased demand in the export market contributed to the sequential improvement.

Non-ferrous sales volumes increased 4% from the prior-year quarter to 124 million pounds. However, the results declined 12% sequentially. Improved export prices along with strong domestic market led to higher average net ferrous selling prices as compared to the previous quarter. Nonferrous prices were stable in the quarter.

Sales from the Auto Parts Business (APB) unit increased 14% year over year to $80 million from $70 million recorded in the year-ago quarter. The growth was due to incremental contributions from retail stores, which are being added since the first quarter of fiscal 2013. APB expanded its presence in the Pacific Northwest market with the acquisition of its fourth self-service retail store in the Seattle-Tacoma metropolitan area.

Revenues from Schnitzer Steel's SMB division slipped 4% year over year to $88 million. Finished steel sales volumes fell 1% year over year and 7% sequentially to 128,000 tons. The year-over-year decline reflected steady demand for construction products on the West Coast. Average net sales prices for finished steel products of $657 declined 3% year over year and 1% sequentially.

Financial Position

Schnitzer Steel ended the quarter with cash and cash equivalents of $29.9 million, up roughly 23% year over year. Long-term debt increased 12% year over year to $393.4 million. The company generated $26 million in operating cash flow in the reported quarter.

Restructuring Program

Schnitzer Steel, as a part of its continuing cost reduction initiatives, further reduced its annual operating expenses by $30 million. The company is expected to experience 70% of the reduction benefits in fiscal 2014 results, with the full annual benefit expected to be achieved in fiscal 2015. The cost reduction is expected to be achieved through a combination of headcount reductions, implementation of transportation efficiencies, reduced lease costs, and other productivity and non-trade procurement savings.

The company achieved a benefit of $4 million in the first quarter and expects benefit of $6 million in the second quarter.

Outlook

Schnitzer Steel's cost reduction initiative is underway and is expected to deliver a minimum of $20 million of savings in fiscal 2014. The company has continued to expand its APB business by acquiring a fourth store. This acquisition is expected to provide supply chain synergies to the MRB business. The company expects the full year tax rate for fiscal 2014 to be roughly 37%.

The company remains focused on increasing value through expansion of its metals recycling export platform and auto parts business, optimizing costs and boosting performance through sustained operational improvement initiatives.

Schnitzer Steel retains a Zacks Rank #5 (Strong Sell).

Other companies in the steel industry with favorable Zacks Rank are ArcelorMittal ( MT ), Companhia Siderurgica Nacional ( SID ) and AK Steel Holding Corp. ( AKS ). While Companhia Siderurgica and ArcelorMittal hold a Zacks Rank #1 (Strong Buy), AK Steel retains a Zacks Rank #2 (Buy).



AK STEEL HLDG (AKS): Free Stock Analysis Report

ARCELOR MITTAL (MT): Free Stock Analysis Report

SCHNITZER STEEL (SCHN): Free Stock Analysis Report

CIA SIDERUR-ADR (SID): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AKS , APB , MT , SCHN , SMB

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