Low Demand, Charges to Hurt Schnitzer in Q4 - Analyst Blog

Schnitzer Steel ( SCHN ) has unfurled its outlook for the fourth quarter of fiscal 2013 (ending Aug 31, 2013). The company envisions a loss in the quarter as it witnessed lower pricing and demand and expects to take restructuring, impairment and other charges. Schnitzer expects to post fourth-quarter results in the second half of October.

The Ore.-based steelmaker saw weak export demand for recycled metals during the quarter compared with the third quarter, manifested by a decline in shipping volumes and average selling prices. It witnessed a slower fall in average purchase prices for material shipped than selling prices during the fourth quarter, leading to margin compression on a sequential basis.

In the Metals Recycling Business (MRB), average ferrous sales prices are expected to fall 8-10% from the third quarter. Ferrous sales volumes are forecast to decrease 5-10% sequentially. Nonferrous average sales prices are expected to decline roughly 5% while sales volumes are expected to be at par with the third quarter. The division is expected to post an operating loss in the quarter on lower pricing and higher unit costs.

The MRB unit is also expected to record a non-cash goodwill impairment charge and non-cash deferred tax valuation allowance associated with overseas operations.

In Schnitzer's Auto Parts Business (APB), car purchase volumes are expected to be essentially flat in the fourth quarter compared with the third. The company expects volumes for the full year to rise 5% year over year in a weak operating backdrop, driven by new stores.

Sales volumes in Schnitzer's Steel Manufacturing Business (SMB) are expected to rise roughly 10% sequentially, aided by higher demand for finished steel in the Western U.S. Higher volumes are expected offset a modest decline in average selling prices, resulting from lower scrap costs.

Schnitzer, which currently retains a Zacks Rank #4 (Sell), 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.

The company expects positive cash flows from operations (boosted by strong working capital management) to result in a decrease in total debt outstanding in the fourth quarter, after paying quarterly dividend. Schnitzer completed the construction of its major capital projects in Canada and Puerto Rico during the fourth quarter, which is expected to meaningfully cut its capital expenditures in fiscal 2014.

Other steel producing companies with favorable Zacks Rank are Nippon Steel & Sumitomo Metal Corporation ( NSSMY ), Ternium S.A. ( TX ) and Kobe Steel Ltd. ( KBSTY ). While Nippon Steel maintains a Zacks Rank #1 (Strong Buy), Kobe Steel and Ternium each hold a Zacks Rank #2 (Buy).



SCHNITZER STEEL (SCHN): Free Stock Analysis Report

TERNIUM SA-ADR (TX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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