Schnitzer Unveils 2Q Outlook

Schnitzer Steel Industries Inc. ( SCHN - Snapshot Report ) has provided its market outlook for the second quarter of fiscal 2013, ended Feb 28, 2013. The company expects results to improve sequentially in the quarter.

Excluding restructuring charges, earnings per share are expected to be in the range of 20 cents to 26 cents in the quarter. The company is expected to incur a pre-tax restructuring charge of roughly $2 million or 4 cents a share.

In the Metals Recycling Business (MRB) unit, ferrous sales volumes increased roughly by 15% to 20% sequentially in the second quarter. Ferrous export selling prices were strong during the quarter

Non-ferrous average selling prices remained flat sequentially, but non-ferrous sales volumes increased roughly by 10%. Increased sales volume coupled with higher selling price are expected to raise operating income per ferrous ton by around 100% sequentially to roughly $12 in the second quarter.

For the Auto Parts Business (APB) unit, Schnitzer Steel expects revenues to increase roughly 10% on higher commodity prices, stronger car purchases and incremental volume contribution from acquisitions. Ten new locations were added in this business division during the second quarter, which is expected to result in nearly $2 million of transaction, integration and start-up costs, negatively impacting operating margin.

In the Steel Manufacturing Business (SMB) unit, sales volumes are expected to reduce 25% sequentially on higher raw materials costs, lower utilization rate resulting from planned maintenance and a typical seasonal slowdown in demand in the quarter, which will further result in an operating income of about $1 million.

Schnitzer Steel expects effective tax rate for the second quarter to include tax credits and other benefits in the range of $1 million to $2 million.

The company envisions increasing synergies between its MRB and APB units in the second quarter. Testing of the MRB’s newly constructed shredder started in Feb and is expected to be operational by the third quarter of fiscal 2013.

Schnitzer Steel’s APB division expanded its business with the launch of two greenfield development projects in the second quarter and completion of 8 acquisitions as declared previously. The greenfield development projects are expected to increase APB’s stores by 20% and annual car purchase volumes by 15%. These new extended locations are expected to boost APB’s presence in core markets by providing synergistic sources of supply to MRB.

Schnitzer Steel retains a short-term (1 to 3 months) Zacks Rank #5 (Strong Sell).

Other steel producing companies worth considering are Companhia Siderurgica Nacional ( SID - Analyst Report ) , Commercial Metals Company ( CMC - Snapshot Report ) and Gibraltar Industries, Inc. ( ROCK - Analyst Report ) . All of them hold a Zacks Rank #2 (Buy).