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Schnitzer Steel: Schnitzer Reports Second Quarter 2016 Financial Results And Third Quarter Outlook

The following excerpt is from the company's SEC filing.

PORTLAND, Ore.--(BUSINESS WIRE)--April 6, 2016--Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) today reported financial results for its fiscal 2016 second quarter ended February 29, 2016. Significantly weaker export demand in the latter half of the second quarter led to ferrous and nonferrous sales prices falling to multi-year lows during the quarter. The lower price environment adversely impacted scrap flows and compressed metal spreads. At the end of February, export ferrous sales prices for shipments in the third quarter began to improve and continued to sho w strength through March.

Summary Consolidated Performance

For the second quarter fiscal 2016, the Company announced an adjusted loss per share from continuing operations of $0.25. This compares to second quarter fiscal 2015 adjusted loss per share from continuing operations of $0.28. The improvement in adjusted loss per share from continuing operations compared to the second quarter of fiscal 2015 was primarily due to higher AMR adjusted operating income and decreased corporate expense, partially offset by lower SMB performance. Adjusted earnings per share excludes the impact of goodwill and other asset impairment charges, restructuring and other exit-related costs and, in the second quarter of fiscal 2015, the impact of reselling or modifying the terms of certain previously contracted bulk ferrous shipments.

The Company reported a loss per share from continuing operations of $1.48 for the second quarter of fiscal 2016. This includes non-cash impairment charges of $9 million, or $0.33 per share, to the carrying value of the goodwill in the Auto and Metals Recycling Business, $18 million of other asset impairments, or $0.68 per share, and $5 million in restructuring and exit-related costs, or $0.23 per share, representing a combined $1.23 per share in the second quarter. This compares to a reported loss per share from continuing operations of $7.08 in the second quarter of fiscal 2015. For a reconciliation to the adjusted results, please see a description of the non-GAAP financial measures provided after the financial statements.

“The combination of weak export demand, constrained supply conditions, seasonal slowdowns and the higher level of steel imports contributed to a challenging second quarter. Our focus on productivity and cost reduction initiatives enabled us to improve our results compared to last year’s second quarter in an environment in which our average ferrous sales prices were down over 40% and near ten-year lows,” commented Tamara Lundgren, President and Chief Executive Officer. “As market conditions strengthen, we anticipate these productivity and cost reduction initiatives will contribute to expanded margins and improved financial performance,” added Lundgren.

Third Quarter Outlook

Although markets remain volatile, for the third quarter, the Company currently anticipates ferrous sales volumes to increase approximately 10% sequentially, subject to timing of shipments. As a result, AMR’s operating income for the third quarter of fiscal 2016 is expected to be approximately double the adjusted operating income in the third quarter of fiscal 2015 of $5.5 million, reflecting stronger ferrous sales prices and retail activity compared to the second quarter, benefits from higher cost savings and no material impact from average inventory accounting. SMB is expected to deliver positive operating income on higher sales volumes and additional cost reductions.

Summary Results

($ in millions, except per share amounts)

Change

Revenues

289

437

(34

321

(10

Operating Loss

(37

(201

(82

(4

NM

Goodwill impairment charge

9

141

(94

Other asset impairment charges

18

44

(58

Restructuring charges and other exit-related costs

5

(2

2

175

Resale or modification of previously contracted shipments

1

Adjusted Operating Loss

(1)(3)

(9

(52

113

Net Loss attributable to SSI

(41

(196

(79

(5

679

Net Loss from continuing operations attributable to SSI

(40

(191

669

Adjusted Net Loss from continuing operations attributable to SSI

(7

(8

(11

87

Net Loss per share attributable to SSI

(1.52

(7.24

(0.20

677

Net Loss per share from continuing operations attributable to SSI

(1.48

(7.08

(0.19

667

Adjusted diluted EPS from continuing operations attributable to SSI

(0.25

(0.28

(12

(0.13

86

(1) Adjusted operating income excludes the impact of goodwill and other asset impairment charges, restructuring, and other exit-related costs, and, in the second quarter of fiscal 2015, the resale or modification of certain previously contracted ferrous bulk shipments. See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.

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

(3) May not foot due to rounding.

NM = not meaningful

AMR segment results and operating statistics reflect integrated auto and metals recycling operations for all periods presented.

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)

Total Revenues

250

389

(36

273

Ferrous Revenues

140

252

(44

163

(14

Ferrous Volumes

737

788

(6

805

Avg. Net Ferrous Sales Prices ($/LT)

169

290

(42

179

Nonferrous Revenues

84

106

(21

81

4

Nonferrous Volumes

124

111

11

Avg. Net Nonferrous Sales Prices ($/lb)

0.59

0.77

(23

0.63

Cars Purchased for Retail (000s)

70

78

77

Operating Income (Loss)

(26

(189

(86

Operating Income (Loss) per Fe ton

(239

(85

3

Adjusted Operating Income (Loss)

(3

(57

Adjusted Operating Income (Loss) per Fe ton

(53

(1) Sales prices are shown net of freight.

(2) Operating income does not include the impact of restructuring charges and other exit-related costs.

(3) Adjusted operating income excludes the impact of goodwill and other asset impairment charges, restructuring and other exit-related costs and, in the second quarter of fiscal 2015, the resale or modification of certain previously contracted ferrous bulk shipments. See Non-GAAP Financial Measures for reconciliation to U.S. GAAP.

Volumes:

Ferrous sales volumes in the second quarter declined 8% from the first quarter, primarily due to weaker global demand and the impact of the lower price environment on supply flows. Improvements in market conditions since late February are expected to benefit shipments in the third quarter. Nonferrous sales volumes increased 11% sequentially, reflecting the timing of shipments of processed material. Cars purchased for AMR’s auto stores decreased 9% from the first quarter due to a continuation of tight supply conditions driven by the lower commodity price environment.

Export customers accounted for 62% of total ferrous sales volumes in the second quarter. Our ferrous and nonferrous products were exported to 14 countries, with India, Turkey and Thailand the top export destinations for ferrous shipments.

Pricing:

Export demand weakened in the latter half of the quarter which led to declines in ferrous selling prices sequentially, reaching near ten-year lows. Average ferrous net selling prices for shipments during the quarter decreased $10 per ton, or 6% from first quarter levels. Nonferrous prices weakened 6% sequentially with market prices for copper and aluminum reaching seven-year lows in the second quarter.

Margins:

Adjusted operating income of $1 per ferrous ton in the second quarter decreased sequentially due to the lower price environment which adversely impacted the spread between direct purchase costs and selling prices of recycled metal and also further constrained the supply of scrap metal, including end-of-life vehicles. Benefits from cost reductions and productivity...


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