Mixed 4Q for Schnitzer Steel

Schnitzer Steel Industries Inc. ( SCHN - Snapshot Report ) posted fourth-quarter fiscal 2012 (ended August 31) adjusted earnings per share of 10 cents, outstripping the Zacks Consensus Estimate of a loss of a penny per share.

The adjusted earnings exclude a restructuring charge of $5 million (or 12 cents a share). Including that impact, the Oregon-based company posted a net loss of roughly $0.5 million (or 2 cents a share) compared with a profit of $36.7 million (or $1.31 a share) a year ago.

For fiscal 2012, adjusted earnings were $1.11 a share compared with $4.23 a year ago, beating the Zacks Consensus Estimate of $1.00.

Revenue and margin

Revenues slid 29.5% year over year to $762.3 million in the fourth quarter, falling short of the Zacks Consensus Estimate of $764 million. The company saw declines across the board in the quarter. The results were hurt by a sharp decline in selling prices.

For the full year, sales fell 3% year over year $3,341 million, missing the Zacks Consensus Estimate of $3,356 million.

Gross margin fell to 6.5% in the fourth quarter from 10.6% a year ago. The company registered an operating loss of roughly $1.4 million in the quarter versus an operating income of $56.3 million a year ago.

Segment Performance

Revenues from the Metal Recycling Business (MRB) division tumbled 32% year over year to $652 million in the quarter. Ferrous sales volumes were 1.2 million tons, down 13% from the third quarter, impacted by a weak pricing environment. Non-ferrous sales volumes were 169 million pounds, up 10% sequentially. Average ferrous prices declined 11% sequentially while average non-ferrous prices fell 7% in the quarter.

Auto Parts Business (APB) segment sales slipped 23% year over year to $72 million. Sales fell 14% sequentially due to lower commodity prices and admissions.

Revenues from the Steel Manufacturing Business (SMB) fell 3% year over year to $90 million. Finished steel sales volumes jumped 22% sequentially (essentially flat year over year) to 126,000 tons. Average net sales prices for finished steel products declined 7% sequentially as a result of lower raw material costs.

Financial Position

Schnitzer exited fiscal 2012 with cash and cash equivalents of $89.9 million, up roughly 82% year over year. Long-term debt declined 17% year over year to $334.6 million. Schnitzer repurchased 1.1 million shares during the year and returned $45 million to its shareholders through share buybacks and dividend payouts. The company generated operating cash flow of $245 million in fiscal 2012.

Restructuring Program

The company, in August 2012, announced some restructuring initiatives, including a reduction of about 7% of its workforce (around 300 positions). The restructuring program also involves integration of the metals recycling and auto parts businesses. The company expects total restructuring expenses of roughly $12 million.

The restructuring will help Schnitzer to improve efficiency and support future growth, while lowering costs and enhancing profits. The company anticipates pre-tax cost saving of $25 million from the move.

Outlook

Moving ahead, the company noted that it will continue to focus on increasing value in fiscal 2013 through expansion of its metals recycling export platform and auto parts business and boost performance through sustained operational improvement initiatives.

Schnitzer 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’s healthy cash flows and balance sheet has enabled it to return value to shareholders through share repurchases and higher dividend payouts. However, it remains exposed to challenging market conditions resulting from the global economic slowdown.

Schnitzer, which competes with the likes of Commercial Metals Company ( CMC - Snapshot Report ) and Nucor Corporation ( NUE - Analyst Report ) , retains a short-term Zacks #3 Rank (Hold).