Schnitzer Reports Second Quarter 2020 Financial Results

Strong Sequential Improvement in Operating Performance and Positive Operating Cash Flow

Schnitzer Steel Industries, Inc. (NASDAQ: SCHN) today reported results for its fiscal second quarter ended February 29, 2020.

The Company reported earnings per share from continuing operations for the quarter of $0.14 and adjusted earnings per share of $0.31, a strong sequential improvement from the first quarter reported and adjusted loss per share of $0.26 and $0.17, respectively. Prior year second quarter reported and adjusted earnings per share from continuing operations were $0.46 and $0.50, respectively.

Auto and Metals Recycling (AMR) achieved operating income in the second quarter of $19 million, or $23 per ferrous ton, a significant improvement from an operating loss of $2 million in the first quarter. Cascade Steel and Scrap (CSS) achieved operating income in the second quarter of $4 million, in-line sequentially.

"Our strong second quarter results reflect the resiliency of our operations and the ability of our team to navigate well during an improving but still volatile quarter," said Tamara Lundgren, Chairman and Chief Executive Officer. "Both divisions achieved higher sales volumes and benefited from strong execution of the productivity initiatives we implemented during the quarter. In addition, our strong focus on working capital management enabled us to deliver positive operating cash flow notwithstanding higher prices for raw materials."

"During the COVID-19 national emergency, our facilities have continued operating, reflecting our inclusion in the critical infrastructure sector, as defined by the U.S. Department of Homeland Security. We have implemented additional steps to protect our employees and visitors to our sites and, where possible, our employees are working remotely. While near-term market conditions, including commodity prices and customer demand, remain subject to significant uncertainty and volatility, we have a strong balance sheet with low net leverage and significant cash on hand to weather declines in demand," she added.

The Company also announced that it will transition from its multi-divisional organizational structure to a functionally-based, integrated operating model. The Company will consolidate its operations, sales, services and other functional capabilities at an enterprise level. This new structure will result in a more agile organization and solidify the productivity improvement and cost reduction initiatives announced at the start of this fiscal year that have been substantially implemented. The Company expects to transition to the new operating model during the remainder of fiscal 2020 and to report its financial results in a single segment commencing with the first quarter of fiscal 2021.

In a separate announcement, the Company today also announced Board leadership changes, including the appointment of Ms. Lundgren to the additional position of Board Chairman, succeeding John Carter, who continues as a member of the Board and Chairman Emeritus, with Wayland R. Hicks continuing as Lead Independent Director.

Summary Results

($ in millions, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter

 

 

2Q20

 

 

1Q20

 

 

2Q19

Revenues

 

$

439

 

 

$

406

 

 

$

474

Operating income (loss)

 

$

8

 

 

$

(8

)

 

$

19

Charges for legacy environmental matters, net(1)

 

 

 

 

 

1

 

 

 

1

Restructuring charges and other exit-related activities

 

 

5

 

 

 

 

 

 

1

Business development costs

 

 

1

 

 

 

 

 

 

Asset impairment charges

 

 

 

 

 

2

 

 

 

Adjusted operating income (loss)(2)(3)

 

$

14

 

 

$

(4

)

 

$

20

Net income (loss) attributable to SSI shareholders

 

$

4

 

 

$

(7

)

 

$

13

Net income (loss) from continuing operations attributable to SSI shareholders

 

$

4

 

 

$

(7

)

 

$

13

Adjusted net income (loss) from continuing operations attributable to SSI shareholders(2)

 

$

9

 

 

$

(5

)

 

$

14

Diluted earnings (loss) per share attributable to SSI shareholders

 

$

0.14

 

 

$

(0.25

)

 

$

0.46

Diluted earnings (loss) per share from continuing operations attributable to SSI shareholders

 

$

0.14

 

 

$

(0.26

)

 

$

0.46

Adjusted diluted earnings (loss) per share from continuing operations attributable to SSI shareholders(2)

 

$

0.31

 

 

$

(0.17

)

 

$

0.50

(1)

Legal and environmental charges for legacy environmental matters, net of recoveries. The prior year periods have been recast for comparability. Legacy environmental matters include charges (net of recoveries) related to the Portland Harbor Superfund site and to other legacy environmental loss contingencies. See Note 5 - Commitments and Contingencies, "Portland Harbor" and "Other Legacy Environmental Loss Contingencies" in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of the Company’s 10-Q filed on April 2, 2020.

(2)

See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.

(3)

May not foot due to rounding.

Auto and Metals Recycling

Summary of Auto and Metals Recycling Results

 

 

 

 

 

($ in millions, except selling prices and data per ton)

 

 

 

 

 

 

 

Quarter

 

 

 

 

 

 

 

2Q20

 

1Q20

 

Change

 

2Q19

 

Change

Total revenues

 

$

338

 

 

$

313

 

 

 

8

%

 

$

386

 

 

 

(13

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ferrous revenues

 

$

222

 

 

$

192

 

 

 

16

%

 

$

257

 

 

 

(14

)%

Ferrous volumes (LT, in thousands)

 

 

850

 

 

 

830

 

 

 

2

%

 

 

858

 

 

 

(1

)%

Avg. net ferrous sales prices ($/LT)(1)

 

$

253

 

 

$

221

 

 

 

14

%

 

$

287

 

 

 

(12

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonferrous revenues

 

$

88

 

 

$

90

 

 

 

(2

)%

 

$

99

 

 

 

(12

)%

Nonferrous volumes (pounds, in millions)(2)

 

 

113

 

 

 

132

 

 

 

(14

)%

 

 

141

 

 

 

(20

)%

Avg. net nonferrous sales prices ($/pound)(1)(2)

 

$

0.55

 

 

$

0.54

 

 

 

2

%

 

$

0.58

 

 

 

(5

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cars purchased (in thousands)

 

 

85

 

 

 

83

 

 

 

2

%

 

 

89

 

 

 

(4

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

19

 

 

$

(2

)

 

NM

 

 

$

22

 

 

 

(11

)%

Operating income (loss) ($/LT)

 

$

23

 

 

$

(3

)

 

NM

 

 

$

25

 

 

 

(10

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating income (loss)(3)

 

$

20

 

 

$

(1

)

 

NM

 

 

$

22

 

 

 

(9

)%

Adjusted operating income (loss) ($/LT)

 

$

23

 

 

$

(1

)

 

NM

 

 

$

25

 

 

 

(9

)%

NM = Not Meaningful

LT = Long Ton, which is equivalent to 2,240 pounds

(1)

Price information is shown after netting the cost of freight incurred to deliver the product to the customer.

(2)

Excludes platinum group metals (PGMs) in catalytic converters.

(3)

See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.

AMR achieved operating income in the second quarter of $19 million, or $23 per ferrous ton, a significant improvement from an operating loss of $2 million in the first quarter. After reaching multi-year lows in October, ferrous selling prices rose significantly through mid-January, before softening in February. On a sequential basis, average ferrous net selling prices at AMR were 14% higher, outpacing the rise in purchase costs for raw materials and lifting operating results by expanding metal spreads. In the higher price environment, supply flows improved despite the adverse impact of winter seasonality, leading to a 2% sequential increase in ferrous sales volumes. Nonferrous sales volumes were down 14% sequentially due primarily to the timing of shipments.

AMR’s sequential performance reflected benefits from increases in the price of platinum group metals (PGM) products, as well as benefits from productivity initiatives implemented during FY20 which led to a reduction in selling, general and administrative (SG&A) expense. Second quarter operating results also included a benefit from average inventory accounting of approximately $4 million compared to an adverse impact of $4 million in the first quarter of fiscal 2020 and an adverse impact of $1 million in the second quarter of fiscal 2019.

Export customers accounted for 68% of total ferrous sales volumes for the quarter. Ferrous and nonferrous products were shipped to 20 countries in the second quarter, with Bangladesh, Turkey and Thailand representing the top export destinations for ferrous shipments.

Cascade Steel and Scrap

Summary of Cascade Steel and Scrap Results

 

 

 

 

 

($ in millions, except selling prices)

 

 

 

 

 

 

 

Quarter

 

 

 

 

 

 

 

2Q20

 

1Q20

 

Change

 

2Q19

 

Change

Steel revenues

 

$

86

 

 

$

77

 

 

 

11

%

 

$

74

 

 

 

16

%

Recycling revenues

 

 

19

 

 

 

17

 

 

 

10

%

 

 

16

 

 

 

14

%

Total segment revenues(1)

 

$

104

 

 

$

94

 

 

 

10

%

 

$

90

 

 

 

15

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

4

 

 

$

4

 

 

 

(17

)%

 

$

6

 

 

 

(39

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finished steel average net sales price ($/ST)(2)

 

$

627

 

 

$

643

 

 

 

(2

)%

 

$

737

 

 

 

(15

)%

Finished steel sales volumes (ST, in thousands)

 

 

129

 

 

 

114

 

 

 

13

%

 

 

94

 

 

 

37

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rolling mill utilization

 

 

72

%

 

 

85

%

 

 

(15

)%

 

 

76

%

 

 

(5

)%

ST = Short Ton, which is equivalent to 2,000 pounds

(1)

May not foot due to rounding

(2)

Price information is shown after netting the cost of freight incurred to deliver the product to the customer.

CSS achieved operating income in the second quarter of $4 million, in-line sequentially. Operating results benefited from increased recycling margins, higher finished steel sales volumes and productivity initiatives. Finished steel sales volumes in the second quarter were 13% higher sequentially amid robust construction demand in our West Coast markets during the quarter and relatively mild winter weather. Recycling revenues were 10% higher sequentially primarily due to the higher scrap price environment. These benefits were more than offset by the adverse impact of $1 million associated with planned maintenance in the quarter and margin compression caused by the decrease in average net selling prices for finished steel products which outpaced the decrease in purchase costs of steel-making raw materials.

Corporate Items

In the second quarter of fiscal 2020, consolidated financial performance included Corporate expense of $10 million and adjusted Corporate expense of $9 million, compared to $9 million and $8 million, respectively, in the first quarter of fiscal 2020. The Company’s effective tax rate for the second quarter of fiscal 2020 was an expense of 28.2%.

The Company made significant progress in implementing the productivity initiatives announced in October 2019 targeting realized benefits of $15 million in fiscal 2020 and annualized benefits of $20 million. Consolidated results in the second quarter reflected an estimated $4 million of benefits from these measures, with total benefits achieved through the first six months of fiscal 2020 of approximately $6 million. In connection with ongoing productivity initiatives, the Company incurred restructuring charges and other exit-related costs of approximately $5 million in the quarter.

In the second quarter, the Company generated positive operating cash flow of $6 million. Total debt at the end of the second quarter was $142 million and debt, net of cash, was $132 million (for a reconciliation of adjusted results and debt, net of cash, to U.S. GAAP, see the table provided in the Non-GAAP Financial Measures section). Capital expenditures were $13 million, including investments for advanced metal recovery technologies and other growth projects.

The Company has a revolving credit facility of $700 million and CAD$15 million which matures in 2023. In order to preserve financial flexibility in light of current uncertainties resulting from the COVID-19 outbreak, the Company increased its borrowings under the revolving credit facility by $250 million, bringing its cash position to approximately $300 million as of April 1, 2020.

During the second quarter, the Company returned capital to shareholders through its 104th consecutive quarterly dividend and the repurchase of 53 thousand shares of Class A common stock in open market transactions pursuant to its existing share repurchase program.

Analysts’ Conference Call: Second Quarter of Fiscal 2020

A conference call and slide presentation to discuss results will be held today, April 2, 2020, at 11:30 a.m. Eastern and will be hosted by Tamara Lundgren, Chairman and Chief Executive Officer, and Richard Peach, Executive Vice President, Chief Financial Officer and Chief Strategy Officer. The call and the slides will be webcast and accessible on the Company’s website under Company > Investors > Event Calendar at www.schnitzersteel.com/events.

Summary financial data is provided in the following pages. The slides and related materials will be available prior to the call on the above website.

About Schnitzer Steel Industries, Inc.

Schnitzer Steel Industries, Inc. is one of the largest manufacturers and exporters of recycled metal products in North America with operating facilities located in 23 states, Puerto Rico and Western Canada. Schnitzer has seven deep water export facilities located on both the East and West Coasts and in Hawaii and Puerto Rico. The Company’s integrated operating platform also includes 51 stores which sell serviceable used auto parts from salvaged vehicles and receive approximately 5 million annual retail visits. The Company’s steel manufacturing operations produce finished steel products, including rebar, wire rod and other specialty products. The Company began operations in 1906 in Portland, Oregon.

SCHNITZER STEEL INDUSTRIES, INC.

FINANCIAL HIGHLIGHTS

($ in thousands)

(Unaudited)

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

February 29,

2020

 

 

November 30,

2019

 

 

February 28,

2019

 

 

February 29,

2020

 

 

February 28,

2019

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto and Metals Recycling:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ferrous revenues

 

$

222,465

 

 

$

192,472

 

 

$

257,488

 

 

$

414,937

 

 

$

556,300

 

Nonferrous revenues

 

 

87,901

 

 

 

89,812

 

 

 

99,484

 

 

 

177,713

 

 

 

203,665

 

Retail and other revenues

 

 

27,303

 

 

 

30,473

 

 

 

29,093

 

 

 

57,776

 

 

 

62,512

 

Total Auto and Metals Recycling revenues

 

 

337,669

 

 

 

312,757

 

 

 

386,065

 

 

 

650,426

 

 

 

822,477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cascade Steel and Scrap:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel revenues(1)

 

 

85,539

 

 

 

77,325

 

 

 

74,025

 

 

 

162,864

 

 

 

175,362

 

Recycling revenues

 

 

18,620

 

 

 

16,941

 

 

 

16,373

 

 

 

35,561

 

 

 

45,422

 

Total Cascade Steel and Scrap revenues

 

 

104,159

 

 

 

94,266

 

 

 

90,398

 

 

 

198,425

 

 

 

220,784

 

Intercompany sales eliminations

 

 

(2,346

)

 

 

(1,439

)

 

 

(2,898

)

 

 

(3,785

)

 

 

(5,676

)

Total revenues

 

$

439,482

 

 

$

405,584

 

 

$

473,565

 

 

$

845,066

 

 

$

1,037,585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AMR operating income (loss)

 

$

19,304

 

 

$

(2,432

)

 

$

21,741

 

 

$

16,872

 

 

$

44,758

 

CSS operating income

 

$

3,524

 

 

$

4,237

 

 

$

5,768

 

 

$

7,761

 

 

$

17,686

 

Consolidated operating income (loss)

 

$

7,691

 

 

$

(7,910

)

 

$

19,036

 

 

$

(219

)

 

$

41,725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted AMR operating income (loss)(2)

 

$

19,688

 

 

$

(852

)

 

$

21,741

 

 

$

18,836

 

 

$

44,821

 

CSS operating income

 

 

3,524

 

 

 

4,237

 

 

 

5,768

 

 

 

7,761

 

 

 

17,686

 

Adjusted segment operating income(2)

 

 

23,212

 

 

 

3,385

 

 

 

27,509

 

 

 

26,597

 

 

 

62,507

 

Adjusted corporate expense(2)

 

 

(9,198

)

 

 

(8,017

)

 

 

(7,398

)

 

 

(17,215

)

 

 

(19,132

)

Intercompany eliminations

 

 

(36

)

 

 

174

 

 

 

158

 

 

 

138

 

 

 

319

 

Adjusted operating income (loss)(2)

 

 

13,978

 

 

 

(4,458

)

 

 

20,269

 

 

 

9,520

 

 

 

43,694

 

Charges for legacy environmental matters, net(3)

 

 

(451

)

 

 

(1,293

)

 

 

(697

)

 

 

(1,744

)

 

 

(1,168

)

Restructuring charges and other exit-related activities

 

 

(4,633

)

 

 

(467

)

 

 

(536

)

 

 

(5,100

)

 

 

(738

)

Business development costs

 

 

(801

)

 

 

 

 

 

 

 

 

(801

)

 

 

 

Asset impairment charges

 

 

(402

)

 

 

(1,692

)

 

 

 

 

 

(2,094

)

 

 

(63

)

Total operating income (loss)

 

$

7,691

 

 

$

(7,910

)

 

$

19,036

 

 

$

(219

)

 

$

41,725

 

(1)

Steel revenues include primarily sales of finished steel products, semi-finished goods (billets) and manufacturing scrap.

(2)

See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.

(3)

Legal and environmental charges for legacy environmental matters, net of recoveries. The prior year periods have been recast for comparability. Legacy environmental matters include charges (net of recoveries) related to the Portland Harbor Superfund site and to other legacy environmental loss contingencies. See Note 5 - Commitments and Contingencies, "Portland Harbor" and "Other Legacy Environmental Loss Contingencies" in the Notes to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of the Company’s 10-Q filed on April 2, 2020.

...
SCHNITZER STEEL INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands, except per share amounts)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

February 29,

2020

 

 

November 30,

2019

 

 

February 28,

2019

 

 

February 29,

2020

 

 

February 28,

2019

 

Revenues

 

$

439,482

 

 

$

405,584

 

 

$

473,565

 

 

$

845,066

 

 

$

1,037,585

 

Cost of goods sold

 

 

380,520

 

 

 

364,760

 

 

 

414,688

 

 

 

745,280

 

 

 

904,820

 

Selling, general and administrative

 

 

46,426

 

 

 

46,774

 

 

 

39,489

 

 

 

93,200

 

 

 

90,908

 

(Income) from joint ventures

 

 

(190

)

 

 

(199

)

 

 

(184

)

 

 

(389

)

 

 

(669

)

Asset impairment charges

 

 

402

 

 

 

1,692

 

 

 

 

 

 

2,094

 

 

 

63

 

Restructuring charges and other exit-related activities

 

 

4,633

 

 

 

467

 

 

 

536

 

 

 

5,100

 

 

 

738

 

Operating income (loss)

 

 

7,691

 

 

 

(7,910

)

 

 

19,036

 

 

 

(219

)

 

 

41,725

 

Interest expense

 

 

(1,320

)

 

 

(1,423

)

 

 

(2,067

)

 

 

(2,743

)

 

 

(3,973

)

Other (expense) income, net

 

 

(98

)

 

 

206

 

 

 

321

 

 

 

108

 

 

 

344

 

Income (loss) from continuing operations before income taxes

 

 

6,273

 

 

 

(9,127

)

 

 

17,290

 

 

 

(2,854

)

 

 

38,096

 

Income tax (expense) benefit

 

 

(1,770

)

 

 

2,534

 

 

 

(3,855

)

 

 

764

 

 

 

(7,971

)

Income (loss) from continuing operations

 

 

4,503

 

 

 

(6,593

)

 

 

13,435

 

 

 

(2,090

)

 

 

30,125

 

Income (loss) from discontinued operations, net of tax

 

 

1

 

 

 

28

 

 

 

(138

)

 

 

29

 

 

 

(210

)

Net income (loss)

 

 

4,504

 

 

 

(6,565

)

 

 

13,297

 

 

 

(2,061

)

 

 

29,915

 

Net income attributable to noncontrolling interests

 

 

(621

)

 

 

(430

)

 

 

(405

)

 

 

(1,051

)

 

 

(835

)

Net income (loss) attributable to SSI shareholders

 

$

3,883

 

 

$

(6,995

)

 

$

12,892

 

 

$

(3,112

)

 

$

29,080

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per share from continuing operations

attributable to SSI shareholders

 

$

0.14

 

 

$

(0.26

)

 

$

0.47

 

 

$

(0.11

)

 

$