Schnitzer Steel Industries Inc.
) 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.
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
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%
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
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.
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
Companhia Siderurgica Nacional
AK Steel Holding Corp.
). 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
ARCELOR MITTAL (MT): Free Stock Analysis
SCHNITZER STEEL (SCHN): Free Stock Analysis
CIA SIDERUR-ADR (SID): Free Stock Analysis
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