Schnitzer Steel Industries Inc
) delivered earnings per share (EPS) of 40 cents in its third
quarter ended May 31, 2012, surpassing the Zacks Consensus Estimate
of 24 cents. Results were disappointing when compared to the year
ago quarter's EPS of $1.17. However, on a sequential basis EPS
Revenues for the company plunged 10% year over year and 1%
sequentially to $880 million, falling short of the Zacks Consensus
Estimate of $904 million.
Costs & Margin Performance
Cost of goods sold decreased 1% sequentially to $808 million in the
quarter. Gross profit increased 3% to $72 million compared to the
second quarter and gross margin expanded 30 basis points to 8.2%.
Selling, general, administrative and engineering (SG&A)
expenses improved 4% year over year to $50 million.
Operating income was up 23% sequentially to $22 million with
operating margin expanding 50 basis points to 2.5%. The improvement
stemmed mainly from the Auto Parts Business attributed to higher
parts sales and lower SG&A expenses.
Metal Recycling Business:
Total revenue inched up 1% sequentially to $786 million in the
quarter. Ferrous sales volumes were 1.4 million tons, flat
compared with second quarter and non-ferrous sales volumes were 154
million pounds, down 9% from the second quarter.
It should be noted that second quarter level was abnormally high
as it included benefits of processing backlog material. Average
ferrous prices at $424 were flat sequentially, while average
non-ferrous prices increased 7% to $0.97. Operating profit declined
11% sequentially to $18 million in the quarter.
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Auto Parts Business:
Higher part sales led to a 6% sequential increase in revenues to
$83 million. Segment operating profit surged 44% sequentially to
$13 million due to higher volumes, as well as seasonal benefits on
parts sales and, admissions and lower SG&A expenses.
Steel Manufacturing Business:
Revenues dipped 7% to $79 compared to the second quarter of fiscal
2012 as finished steel sales volumes decreased 8% to 103,000 tons.
Average net sales prices for finished steel products were up
slightly compared with the prior quarter due to product mix. The
business reported a break-even quarter as slightly higher sales
prices and lower production costs offset lower sales volumes.
Schnitzer had cash and cash equivalents of $56.5 million as of May
31, 2012, up from $32.8 million as of May 31, 2011 and $51.7
million as of February 29, 2012. As of May 31, 2012,
debt-to-capitalization ratio further improved to 25% from 27% as of
February 29, 2012 and 30% as of May 31, 2011. During the quarter,
Schnitzer repurchased 555,000 shares of its Class A Common Stock
for a total cost of $15 million. The company has 2.6 million shares
available for repurchase.
The company stated that the price of recycled metals are trending
downwards and as average inventory costs generally decline at a
slower rate than the cash purchase costs for raw materials, its
fourth quarter results may be negatively impacted. Schnitzer will
provide its fourth quarter market outlook during the second half of
The company's sound cash flow and balance sheet has enabled it to
return capital to shareholders through share repurchases during the
quarter and a substantial increase in quarterly dividend in the
second quarter as well as invest in growth projects. However, all
of its divisions remain impacted by challenging market conditions
resulting from the global economic slowdown. The stock retains a
quantitative Zacks #5 Rank (short term Strong Sell rating) over the
Portland, Oregon-based Schnitzer Steel Industries, Inc., is one of
the nation's largest recyclers of scrap metal, a leading provider
of used and recycled auto parts and a manufacturer of finished
steel products. The company represents the complete cycle of reuse
through its three integrated operating segments. It competes with
the likes of
Commercial Metals Company
Sims Metal Management Limited