) profit slid in the third quarter of fiscal 2013 (ended May 31,
2013), bogged down by restructuring charges associated with its
cost saving initiatives and lower selling prices. The results
were also impacted by average inventory accounting, which
significantly reduced operating income in its core Metal
Recycling Business (MRB) division.
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The Ore.-based steelmaker logged a profit of roughly $0.8 million
or 3 cents per share in the reported quarter, down 93% year over
year. Excluding restructuring charges of $2 million, earnings
were 9 cents a share, missing the Zacks Consensus Estimate by 9
Revenue and margin
Revenues slipped 19% year over year to $710 million in the
quarter, missing the Zacks Consensus Estimate of $765 million.
Schnitzer Steel witnessed double-digit year-over-year decline in
its MRB division, partly offset by gains across Auto Parts
Business (APB) and Steel Manufacturing Business (SMB) units.
Ferrous export selling prices declined during the quarter, hurt
by lower export demand.
Gross margin was 8.2% in the reported quarter, flat year over
year. Operating income plummeted 67% year over year to roughly
Revenues from the MRB division clipped 23% year over year to $605
million in the quarter. Ferrous sales volumes were 1.2 million
tons, down 14% from the year-ago quarter but up 6% sequentially.
Increased domestic volumes contributed to the sequential
Non-ferrous sales volumes fell 12% from the prior-year quarter to
135 million pounds, while improving 8% sequentially on higher
The APB unit recorded sales of $86 million, up 4% year over year.
Sales rose 11% sequentially on higher admissions and parts sales
and increased contributions from acquisitions.
Revenues from Schnitzer Steel's SMB division climbed 18% year
over year to $93 million. Finished steel sales volumes jumped 21%
year over year and 31% sequentially to 125,000 tons. Average net
sales prices for finished steel products declined 6% year over
year, but were flat sequentially.
Schnitzer Steel ended the quarter with cash and cash equivalents
of $37 million, down roughly 35% year over year. Long-term debt
increased 16% year over year to $413.4 million. Schnitzer Steel
generated operating cash flow of $45 million during the reported
Schnitzer Steel, in Aug 2012, announced some restructuring
initiatives, including a reduction of about 7% of its workforce.
The restructuring program also involves integration of the metals
recycling and auto parts businesses. Schnitzer Steel expects
total restructuring expenses of roughly $14 million and
anticipates pre-tax cost saving of $25 million from the move.
Schnitzer Steel has already incurred restructuring charges of $10
million. It achieved a 10% reduction in selling, general and
administrative costs during the first nine months of fiscal 2013.
Schnitzer Steel expects tax rate for fiscal 2013 to be roughly
35%. Its APB division acquired its first store in Rhode Island
following the third quarter. The new store, which has increased
the company's combined regional presence to 16 sites, is expected
to strengthen APB's foothold in the core Northeastern market and
boost operational synergies with the MRB unit.
Schnitzer Steel remains focused on increasing value through
expansion of its metals recycling export platform and auto parts
business, optimizing costs and boost performance through
sustained operational improvement initiatives.
Schnitzer Steel retains a Zacks Rank #4 (Sell).
Other steel producing companies worth considering are
Kobe Steel Ltd.
Shiloh Industries Inc.
ArcelorMittal South Africa Limited
). While both Kobe Steel and Shiloh Industries hold a Zacks
Rank #1 (Strong Buy), ArcelorMittal South Africa retains a Zacks
Rank #2 (Buy).