SCHN

Schnitzer Steel Industries, Inc. (SCHN)

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Schnitzer Steel Industries, Inc. (SCHN)

Q2 2010 Earnings Call

April 7, 2010 5:00 pm ET

Executives

Rob Stone – VP & Treasurer

Tamara Lundgren – President & CEO

Richard Peach – SVP & CFO

Analysts

Eric Glover – Unspecified Company

Brent Thielman – D.A. Davidson

Timna Tanners – UBS

Torin Eastburn – CJS Securities

Sal Tharani – Goldman Sachs

Rob Moffett – Longbow Research

Mark Liinamaa – Morgan Stanley

Lloyd O’Carroll – Davenport & Company

Presentation

Operator

Welcome to the Schnitzer Steel Industries second quarter earnings call. (Operator Instructions) And now I’d like to turn the conference over to Rob Stone, Vice President, and Treasurer.

Rob Stone

Good afternoon everyone, as the operator indicated I’m Rob Stone, the company’s Treasurer and primary Investor Relations contact. I would like to thank everyone for taking time out of their busy afternoon to join us today.

In addition to the audio comments that we’re making we have prepared a set of slides which were made available concurrently with our earnings release. You can access those slide through our website at www.schn.com.

Before we get started I’m obligated to call your attention to the detailed Safe Harbor statements included in our press release of today, in the slides accompanying this presentation, in the company’s Form 10-K for the fiscal year ended August 31, 2009, and in the Quarterly Report on Form 10-Q which will be filed later.

These statements in summary say that in spite of management’s good faith current opinions on various forward-looking matters circumstances can change and not everything we think will happen always happens.

In addition we have guidance regarding our outlook for the third quarter of 2010 in our press release and in this presentation and subsequent to this call we will not be under any obligation to update our outlook.

With that let me turn the call over to Tamara Lundgren, our Chief Executive Officer. She is going to be joined on the call today by Richard Peach, our CFO.

Tamara Lundgren

Thank you Rob, and good afternoon everyone. We’re pleased to share with you today our strong second quarter results. We saw improvements in all of our businesses and as we look ahead, our outlook is positive.

As you review these results I’d like to emphasize three points. First, global demand for recycled scrap metal, our largest product, is strong. During 2009 a year that included some of the worst economic conditions since the Great Depression, the US exported 3.3% more scrap metal than it did in 2008.

And our company’s exports exceeded this increase in growth. This demand was driven by infrastructure projects throughout the developing world, and has continued despite the downturn. We believe the underlying drivers of this demand are likely to remain in place for the foreseeable future.

Second, we’re positioned to continue to outperform the market just as we did this quarter and during the downturn. Our very strong operational performance helped up capitalize on the favorable macroeconomic trends that I just mentioned.

And third, we have a track record of translating this outperformance into shareholder value. But before I get into the details of the quarter, I want to take a moment to thank our employees for continuing their record of strong performance and productivity.

Their focus and their dedication enabled us to achieve our highest earnings since the downturn began. Now let me turn to the results and then Richard will take you through the financials. We’ll follow the slides that we’ve posted on our website and we’ll start with slide number four.

We generated our third consecutive quarter of income and our highest level of earnings since Q4 of our fiscal 2008. We also set a new record for sales volumes of ferrous metals for any second quarter in our history.

The results demonstrate that global demand for recycled metals remains broadly based. Its not just about China. Its about supplying steel makers in emerging economies around the world, from Thailand to Turkey. This was also a good quarter for our other businesses.

Our auto parts business generated record second quarter operating income and our steel manufacturing business which continued to face a very weak domestic market moved closer to break-even thanks to improved pricing, and cost containment programs.

Now, let’s go through the operating results for each of our businesses and we’ll start with our metals recycling business on slide six. This business accounted for more than 80% of our revenues and delivered an operating profit in the second quarter of $29 million, nearly double our first quarter results.

We set a record, a record for second quarter ferrous sales volumes and exports accounted for 79% of those sales. We expanded our operating profit margins by 15% to $24.00 per ferrous tons, up from $21.00 in the first quarter. And lastly, we continued to maintain a steady intake of raw materials.

You can see the details of this performance starting on slide seven. Here on slide seven it shows that in the second quarter of 2010 our metals recycling revenues were essentially in line with the second quarter of fiscal 2007.

That’s important because that shows that we’re at the levels before the surge in demand and pricing occurred in 2008. And importantly we improved our operating margins quarter over quarter. We expanded these margins through improved productivity, through our continued focus on cost containment, and by optimizing the spread between our selling prices and the cost of acquiring raw materials.

Read the rest of this transcript for free on seekingalpha.com