Schnitzer Turns to Loss in 1Q

Schnitzer Steel Industries Inc. ( SCHN - Snapshot Report ) turned to a loss in first-quarter fiscal 2013 (ended November 30, 2012) as weak economic conditions hurt demand for steel in the quarter. Its bottom line was also hit by restructuring charges associated with cost containment measures.

The Oregon-based company posted a net loss of $2 million or 6 cents per share in the first quarter versus a profit of $7 million or 25 cents a share recorded a year ago. Barring restructuring charges of $2 million, adjusted loss came in at 2 cents a share. Analysts polled by Zacks were expecting earnings of 4 cents a share on an average.

Revenue and margin

Revenues tumbled 27% year over year to $593 million in the first quarter, missing the Zacks Consensus Estimate of $627 million. Sales were hurt by lower selling prices. Moreover, constrained supply of scrap due to low domestic economic growth and weak consumer activity impacted the results.

Gross margin remained stable year over year at 8.6% in the first quarter. Operating income slid 92% year over year to roughly $1.2 million.

Segment Performance

Revenues from the Metal Recycling Business (MRB) division slipped 32% year over year to $494 million in the quarter. Ferrous sales volumes were 955,000 tons, down 19% from the fourth quarter, impacted by a weak pricing environment. Non-ferrous sales volumes were 119 million pounds, down 30% sequentially. Average net ferrous selling prices dropped 17% year over year in the quarter on low demand. Moreover, nonferrous prices fell 5% year over year.

Sales from the Auto Parts Business (APB) segment clipped 17% year over year to $70 million. Sales fell 3% sequentially due to lower commodity prices and volumes.

On a positive note, revenues from the Steel Manufacturing Business (SMB) climbed 15% year over year to $92 million. Finished steel sales volumes rose 22% year over year and 3% sequentially to 130,000 tons. Average net sales prices for finished steel products declined 6% year over year and 1% sequentially.

Financial Position

Schnitzer exited the quarter with cash and cash equivalents of $24.4 million, down roughly 10% year over year. Long-term debt declined 28% year over year to $345.7 million.

Restructuring Program

The company, in August 2012, announced some restructuring initiatives, including a reduction of about 7% of its workforce. The restructuring program also involves integration of the metals recycling and auto parts businesses. The company expects total restructuring expenses of roughly $11 million and anticipates pre-tax cost saving of $25 million from the move.

Outlook

Moving ahead, the company sees modest improvement in market conditions. It expects ferrous and non-ferrous shipments to increase in the second quarter on improving demand for recycled metals. The company’s APB division recently added 10 new retail stores through acquisitions and organic investments. It expects to incur startup and transaction costs of up to $2 million related to these stores in the second quarter.

Schnitzer also remains focused on increasing value through expansion of its metals recycling export platform and auto parts business and boost performance through sustained operational improvement initiatives.

Schnitzer, which competes with Commercial Metals Company ( CMC - Snapshot Report ) and Nucor Corporation ( NUE - Analyst Report ) , retains a short-term Zacks Rank #4 (Sell).