Horsehead Holding (ZINC)
Q4 2009 Earnings Call
February 26, 2010 11:00 am ET
Ali Alavi - VP Corporate Administration, General Counsel, and Secretary
Jim Hensler - President and CEO
Bob Scherich - VP and CFO
Carter Driscoll - Capstone Investments
Mitesh Thakkar - FBR Capital Markets
Paul Forward - Stifel Nicolaus
Eric Prouty - Canaccord Capital
Robert Howard - Prospector Partners
David Shapiro - Aegis Financial
Previous Statements by ZINC
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I would now like to turn the conference over to Ali Alavi. Please go ahead.
Good morning, everyone, and thank you for joining us on our fourth quarter 2009 earnings release conference call. My name is Ali Alavi and I am Horsehead's Vice President of Corporate Administration, General Counsel and Secretary. Before I turn the call over to Jim Hensler, I would like to quickly remind everyone that this communication may include forward-looking statements about our company, our market and our prospects that are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.
These risks and uncertainties include a variety of factors, some of which are beyond our control. These forward-looking statements speak as of today and you should not rely on them as representing our views in the future. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after this communication. You should refer to our filings with the US Securities and Exchange Commission, including our most recent annual report on Form 10-K filed on March 16, 2009 for a more detailed description of the risk factors that may affect our results. With that, I am pleased to introduce Jim Hensler, our President and CEO. Jim?
Thanks, Ali. I would like to welcome you to this conference call to discuss the fourth quarter 2009 results. I will review the performance of our operations and markets and then turn it over to Bob Scherich, our CFO who will review the financial results.
The fourth quarter's results reflected an improvement over the third quarter of 2009 as our cost reduction initiatives and the improvement in commodity prices continue to be realized. Product shipments improved modestly and we began to operate our recycling facilities at full capacity once again. Net income was positive for the first time this year even though it was negatively impacted by $5.5 million charge before taxes related to hedging and the INMETCO acquisition. This compares very favorably to the prior year quarter in which we had a net loss of $17.2 million after adjusting for favorable hedge effects.
While reported domestic steel production increased by 8% from the prior year's quarter, our EAF dust receipts increased by 36%, reflecting the growth in our business. Our primary focus during the quarter was to restart idle capacity at our Rockwood, Tennessee recycling facility to match growing steel output and completing the acquisition of INMETCO. INMETCO is a leading recycler of EAF dust and other nickel bearing waste generated by stainless steel and specialty steel producers and a leading processor of nickel containing batteries. We closed on the INMETCO transaction on December 31st and we expect this acquisition to be accretive in 2010. We're very exited about the additional growth platforms that this acquisition brings to the company.
Market demand for our products increased during the quarter. On a sequential quarter basis, comparing the fourth quarter to the third quarter of 2009, sales revenue before the effective hedges increased 19% as the LME zinc price increased 26%. The increase in zinc price was not fully realized in the quarter due to the lag effect in some of our oxide contracts and in part due to the rapid increase in metals prices not being fully realized in the quarter. Product shipments increased by 3% compared with the third quarter even though December's shipments, which are typically low due to our customers controlling year, end inventories, were the lowest of the year. EAF dust receipts decreased by 8.5% reflecting outages taken by mini mills at the end of last year and the restart of production at many integrated steel producers, which reduced the share of steel produced by electric furnace steel makers during the quarter.
During the fourth quarter, we restarted the second kiln in our Rockwood, Tennessee facility and began operating all of our dust recycling facilities at full capacity. The 133,000 tons of EAF dust processed during the quarter outpaced our level of receipts by about 16,000 tons. Steel capacity utilization has increased steadily since the beginning of 2010 and is currently operating at a rate of about 67% according to AISI statistics compared to an average rate of 63% during the fourth quarter of 2009. As a result, dust receipts are expected to increase in the current quarter compared with the fourth quarter of last year.
Construction of our new EAF dust processing facility in South Carolina continues to progress according to plan. The recent trend in steel production supports our decision to continue to move forward with this project. We expect to start the first kiln in the second quarter in this year. We continue to realize cost savings in the construction of this plant from our original estimates. Our current estimate is that we will be able to complete the project for approximately $65 million, and we expect to spend about 25 million to complete the project in 2010, $6 million of which will come from the new market tax credit financing we reported on last year. The starting date of the second kiln will be dictated by market conditions.