Schnitzer Steel Provides Outlook

Schnitzer Steel Industries Inc. (SCHN - Snapshot Report) provided its outlook for the fourth quarter 2012 ending August 31, 2012. The company expects both prices and sales volumes at its metal recycling business to lag on a sequential basis. Ferrous sales volumes and prices are also expected to decline 10%-15% while non-ferrous sales volumes and prices are anticipated to slip 5%-10% from the third quarter of 2012.

Schnitzer Steel’s Auto Parts Business is also expected to witness a 15%-20% fall in revenues compared with the preceding quarter. However, volumes in the company’s Steel Manufacturing Business are expected to increase by 15% from the previous quarter but selling prices are expected to decline by 5% from the third quarter.

The company also announced some restructuring initiatives, including retrenching 300 jobs or about 7% of its current work force owing to falling metal prices. The company expects to break even on an adjusted basis, excluding restructuring charges of about 12 cents per share, in the current quarter. The company expects to incur a $5 million restructuring charge in the fourth quarter. It also expects to incur about $12 million in restructuring charges by the end of fiscal 2013.

The restructuring will help Schnitzer to improve efficiency and support future growth, while lowering costs and enhancing profits. The restructuring program also involves integrating parts of the metals recycling and auto parts business, streamlining some corporate functions, and reducing various organizational layers.

In June 2012, the company released its third quarter 2012 results. It delivered earnings per share (EPS) of 40 cents, 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 improved 16%.

Revenues in the quarter fell 10% year over year and 1% sequentially to $880 million, falling short of the Zacks Consensus Estimate of $904 million.

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 reused metals through its three integrated operating segments. It competes with the likes of Commercial Metals Company (CMC - Snapshot Report), Nucor Corporation (NUE - Analyst Report) and Sims Metal Management Limited (SMS).

Currently, the stock retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating. We currently have a long-term (more than 6 months) Neutral recommendation on the shares of Schnitzer Steel.