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Schnitzer Reports Second Quarter 2018 Financial Results

April 5, 2018

PORTLAND, Ore.--(BUSINESS WIRE)--Apr 5, 2018--Schnitzer Steel Industries, Inc. (Nasdaq: SCHN) today reported results for its second quarter of fiscal 2018 ended February 28, 2018. The Company’s reported and adjusted earnings per share from continuing operations were $1.42, which include discrete tax benefits of $0.52 per share associated with the recently enacted tax reform legislation and the release of valuation allowances on certain deferred tax assets. These results compare favorably to first quarter fiscal 2018 earnings per share from continuing operations of $0.64 and adjusted earnings per share of $0.63, and the prior year second quarter earnings per share from continuing operations of $0.40 and adjusted earnings per share of $0.37. For a reconciliation of the adjusted results to U.S. GAAP, see the Non-GAAP Financial Measures provided after the financial statements in this document.

Auto and Metals Recycling’s (AMR) operating income of $45 million, or operating income per ferrous ton of $50, represented a significant increase compared to the prior year second quarter operating income of $25 million, or $34 per ferrous ton. AMR’s improved operating performance year-over-year reflected the benefits of expanded metal spreads, operating leverage from 21% higher ferrous sales volumes, higher average ferrous net selling prices of 27%, and contributions from sustained productivity improvements. Second quarter results also included a favorable impact from average inventory accounting of $4 million, or $5 per ferrous ton, consistent with the prior year second quarter.

Cascade Steel and Scrap (CSS) delivered second quarter operating income of $5 million representing a significant improvement compared to the prior year second quarter operating loss of $1 million. CSS’ improved operating performance was driven primarily by higher finished steel sales volumes of 18% which benefited from lower levels of rebar steel imports, increased average selling prices of 20% which primarily reflected higher raw material costs, expanded metal spreads, higher export ferrous sales volumes, and additional productivity improvements from the integration of our steel manufacturing and Oregon metal recycling operations.

“In the second quarter of fiscal 2018, we delivered our strongest quarterly consolidated operating performance since fiscal 2011. In a market environment in which we saw strong demand and higher prices for recycled metals, AMR increased its ferrous sales volumes by over 20% compared to the prior year second quarter and achieved operating income per ferrous ton of $50, a level last reached during fiscal 2011 when both volumes and scrap prices were significantly higher than today. This performance demonstrates the operating leverage created in our platform by the success of our commercial initiatives to profitably grow volumes and our continued focus on increasing productivity,” commented Tamara Lundgren, President and Chief Executive Officer. “CSS also achieved significantly improved performance compared to the prior year second quarter, with operating margin expansion driven by higher volumes and prices and continuing productivity improvements. Reflecting our strong performance as well as the enactment of tax reform, during the second quarter we provided a special bonus to our employees.”

         
Summary Results
($ in millions, except per share amounts)
Quarter
2Q18 2Q17 Change 1Q18 Change
Revenues $ 559 $ 382 46 % $ 483 16 %
 
Operating income $ 33 $ 14 135 % $ 26 26 %
Other asset impairment charges (recoveries), net

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Restructuring charges and other exit-related activities

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Recoveries related to the resale or modification of previously contracted shipments    

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Adjusted operating income (1) $ 33 $ 13 152 % $ 26 29 %
 
Net income attributable to SSI $ 41 $ 11 272 % $ 18 123 %
 
Net income from continuing operations attributable to SSI $ 41 $ 11 267 % $ 18 122 %
 
Adjusted net income from continuing operations attributable to SSI (1) $ 41 $ 10 298 % $ 18 128 %
 
Diluted earnings per share attributable to SSI $ 1.42 $ 0.40 259 % $ 0.64 122 %
 
Diluted earnings per share from continuing operations attributable to SSI $ 1.42 $ 0.40 255 % $ 0.64 122 %
 
Adjusted diluted earnings per share from continuing operations attributable to SSI (1) $ 1.42 $ 0.37 285 % $ 0.63 125 %
 
(1) See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.
NM = Not Meaningful
 

 

PORTLAND, Ore.--(BUSINESS WIRE)--Apr 5, 2018--Auto and Metals Recycling

 
Summary of Auto and Metals Recycling Results
($ in millions, except selling prices and data per ton; Fe volumes 000s long tons; NFe volumes Ms lbs)
          Quarter
2Q18   2Q17   Change   1Q18   Change
Total revenues $ 450 $ 313 44 % $ 398 13 %
 
Ferrous revenues $ 308 $ 200 54 % $ 255 21 %
Ferrous volumes 896 739 21 % 797 13 %
Avg. net ferrous sales prices ($/LT) (1) $ 314 $ 247 27 % $ 292 8 %
 
Nonferrous revenues $ 110 $ 85 30 % $ 110 %
Nonferrous volumes (2) 130 114 13 % 129 %
Avg. net nonferrous sales prices ($/lb) (1)(2) $ 0.72 $ 0.64 13 % $ 0.73 (1 )%
 
Cars purchased for retail (000s) 102 96 6 % 108 (6 )%
 
Operating income (3) $ 45 $ 25 78 % $ 35 28 %
Operating income per Fe ton $ 50 $ 34 47 % $ 44 14 %
 
Adjusted operating income (4) $ 45 $ 25 81 % $ 35 30 %
Adjusted operating income per Fe ton $ 50 $ 34 50 % $ 44 15 %
(1) Sales prices are shown net of freight.
(2) Excludes platinum group metals (PGMs) in catalytic converters.
(3) Operating income does not include the impact of restructuring charges and other exit-related activities.
(4) See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.
 

Volumes: Ferrous sales volumes in the second quarter increased 21% compared to the prior year second quarter, and increased 13% sequentially, primarily due to stronger export and domestic demand for recycled metal and improved supply of raw materials. Nonferrous sales volumes were 13% higher compared to the prior year second quarter, benefiting primarily from higher production, and were in line compared with the previous quarter.

Export customers accounted for 73% of total ferrous sales volumes. Our products, including ferrous, nonferrous and recycled auto parts, were shipped to 22 countries in the second quarter of fiscal 2018, with Turkey, China and Vietnam the top export destinations for ferrous shipments.

Pricing: Average ferrous net selling prices increased $67 per ton, or 27%, compared to the prior year second quarter, reflecting stronger global demand, and were up $22 per ton, or 8%, sequentially. Average nonferrous net selling prices increased 13% compared to the prior year second quarter reflecting the stronger markets, while slightly decreasing by 1% sequentially.

Margins: Operating income of $45 million increased $20 million, or 78%, and operating income per ferrous ton of $50 increased 47% from the prior year second quarter. Sequentially, the increase was $10 million, or 28%, for operating income and $6, or 14%, for operating income per ferrous ton. The improved performance compared to the prior year second quarter was driven by stronger market conditions including metal spread expansion from higher priced shipments, operating leverage from higher volumes, ongoing initiatives aimed at broadening our supplier base, and sustained benefits from our productivity initiatives.

 

PORTLAND, Ore.--(BUSINESS WIRE)--Apr 5, 2018--Cascade Steel and Scrap

 
Summary of Cascade Steel and Scrap Results
($ in millions, except selling prices)
          Quarter
2Q18   2Q17   Change     1Q18 Change
Steel revenues $ 82 $ 58 40 % $ 80 1 %
Recycling revenues

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35  

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14   154 %

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10   269 %
Total revenues $ 117   $ 72   62 % $ 90   30 %
 
Operating income (loss) (1) $ 5 $ (1 )

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$ 8 (36 )%
Adjusted operating income (loss) (2) $ 5 $ (1 ) NM $ 8 (35 )%
 
Finished steel average net sales price ($/ST) (3) $ 619 $ 517 20 % $ 599 3 %
Finished steel sales volumes (000s ST) 125 106 18 % 127 (2 )%
 
Rolling mill utilization 83 % 89 % (7 )% 95 % (13 )%
(1) Operating income (loss) does not include the impact of restructuring charges and other exit-related activities.
(2) See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.
(3) Price information is shown after netting the cost of freight incurred to deliver the product to the customer.
NM = Not Meaningful
 

Sales Volumes: Finished steel sales volumes in the second quarter increased 18% from the prior year second quarter. Sequentially, finished steel sales volumes decreased 2% primarily due to seasonally lower demand.

Pricing: Average net sales prices for finished steel products increased 20% from the prior year second quarter, and 3% sequentially, primarily reflecting the impact of higher raw material prices and reduced pressure from low-priced rebar steel imports.

Margins: Operating income for the second quarter of fiscal 2018 was $5 million, a significant improvement of $7 million from the prior year second quarter. The improved year-over-year performance reflected higher finished steel sales volumes and average selling prices, and benefits to finished steel margins from lower levels of rebar imports. The second quarter also included the benefit of higher export ferrous sales volumes and additional productivity improvements resulting from the integration of our steel manufacturing and Oregon metal recycling operations. Second quarter results were lower sequentially, as operating margin improvements resulting from higher average selling prices were offset by the impact of seasonally lower sales volumes and production, including due to a planned maintenance shutdown.

Corporate Items

In the second quarter of fiscal 2018, consolidated financial performance included Corporate expense of $17 million, an increase of $6 million from the prior year second quarter, primarily driven by higher legal and professional services expenses and increased incentive compensation accruals as a result of improved operating performance and a one-time special bonus to employees below senior management level following the enactment of corporate tax reform.

The Company’s effective tax rate for the second quarter of fiscal 2018 was a benefit of 34%. This effective tax rate includes a discrete benefit of $7 million, or $0.26 per share, stemming from the revaluation of the Company’s net deferred tax liability to reflect the lower Federal statutory corporate tax rate established by the recently enacted tax reform legislation as well as a discrete benefit of $7 million, or $0.26 per share, associated with the release of valuation allowances on certain deferred tax assets driven primarily by the Company’s improved financial performance. The effective tax rate for the second quarter of fiscal 2018 also benefited from the application of the lower blended Federal statutory corporate tax rate to current year projected taxable income. The Company’s accounting for the impact of the recently enacted tax reform legislation, including the amounts discussed herein, reflects provisional estimates as of February 28, 2018, which may be adjusted over the course of the next four quarters.

In the second quarter of fiscal 2018, the Company generated operating cash flow of $5 million, as cash flows associated with higher profitability more than offset an increase in net working capital from the higher volume and price environment. Total debt at the end of the second quarter of fiscal 2018 was $211 million, and debt, net of cash was $196 million (refer to Non-GAAP Financial Measures provided after the financial statements in this document). Pursuant to its ongoing authorized share repurchase program, during the second quarter the Company repurchased a total of 100,000 shares of its Class A common stock in open market transactions. The Company also returned capital to shareholders through its 96th consecutive quarterly dividend.

Analysts’ Conference Call: Second Quarter of Fiscal 2018

A conference call and slide presentation to discuss results will be held today, April 5, 2018, at 11:30 a.m. EDT hosted by Tamara Lundgren, President and Chief Executive Officer, and Richard Peach, Senior Vice President, Chief Financial Officer, and Chief of Corporate Operations. The call and the slides will be webcast and accessible on the Company’s website at www.schnitzersteel.com.

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