Exhibit 99.1
Schnitzer Steel Reports Record Quarterly Earnings
PORTLAND, Ore.--(BUSINESS WIRE)--Jan. 6, 2005--Schnitzer Steel
Industries, Inc. (NASDAQ:SCHN) today reported net income of $42.9
million or $1.38 per diluted share on revenues of $199.0 million for
its fiscal 2005 first quarter that ended November 30, 2004. In
comparison, the Company reported net income of $12.2 million or $0.39
per diluted share on revenues of $128.4 million for the fiscal 2004
first quarter that ended November 30, 2003.
"I am very pleased with Schnitzer Steel's excellent first quarter
financial performance," said Robert W. Philip, Chairman and Chief
Executive Officer. "Our net income exceeded our previous record high
that was reported for the third quarter of fiscal 2004 and our
operating income finished near the high end of our guidance given in
our previous earnings release. The strong financial performance was
again the result of good market conditions for all of our business
segments; in particular we continued to experience excellent pricing
for our products, which is directly a result of strong worldwide
consumption of both recycled metal and finished steel products. What
is especially pleasing is that the market fundamentals remain healthy,
which should bode well for our businesses in the quarters to come."
Metals Recycling Business
The Metals Recycling Business' operating income amounted to $33.8
million in the first quarter of fiscal 2005 compared to $9.9 million
earned in the first quarter of fiscal 2004. The improved operating
margin was caused by strong worldwide demand for finished steel which
resulted in growing consumption of recycled ferrous metal and higher
selling prices. Selling prices for ferrous recycled metal averaged
$236 per ton during the first quarter of fiscal 2005, which compares
to $140 per ton reported in last year's first quarter and $199 per ton
for the fourth quarter of fiscal 2004. Also, first quarter 2005 sales
volume amounted to 471,000 tons, which was 15% above the first quarter
of fiscal 2004 due to the timing of when export orders are received
and ultimately shipped. Partially offsetting the higher average
selling prices and increased sales volumes were increases in our cost
of sales. During the quarter we saw the cost of unprocessed metal rise
sharply over the amount paid in the 2004 first fiscal quarter. Also,
first quarter 2005 ocean freight rates increased by 47% over the first
quarter of fiscal 2004, which was due to the combination of strong
Asian demand for dry bulk carriers and higher fuel costs.
Joint Venture Businesses
First quarter 2005 operating income from joint ventures amounted
to $20.5 million, which compares to $5.9 million reported for last
year's first quarter. The profit improvement was principally caused by
higher average selling prices resulting from the same factors
affecting the Company's wholly-owned Metals Recycling Business. Also
contributing to the profit improvement was a 38% increase in the
processing joint ventures' sales volumes. This volume growth was
driven by the combination of the increased raw material intake and
from the timing of when export orders are received and shipped. During
last year's first fiscal quarter, sales volume from the processing
joint ventures was adversely affected by delays in securing ocean
charters, which did not occur during the Company's most recent fiscal
quarter. The higher average selling prices and sales volumes were
offset in part by significant increases in the amounts paid to procure
unprocessed metal as well as increases in the cost of ocean charters.
Auto Parts Business
The Auto Parts Business reported operating income of $7.3 million
for the first quarter of fiscal 2005, which represents a 25% increase
over the prior year amount. The earnings growth was partially due to
the addition of three new stores in Canada that were purchased in
March 2004 as well as from higher wholesale revenues caused by
increasing recycled metal prices. These improvements were offset in
part by higher costs to procure inventory and increases in general and
administrative expenses incurred to support the anticipated growth of
the Auto Parts Business.
On January 4, 2005, the Company announced that it signed a
definitive agreement, subject to certain closing conditions, to
acquire four stores in St. Louis and Kansas City, Missouri, Columbus,
Ohio, and Virginia Beach, Virginia. The transaction is expected to
close on January 10, 2005. The St. Louis, Kansas City and Columbus
stores will increase the Company's existing midwest store base. The
Virginia Beach store is expected to provide Pick-n-Pull with an
eastern presence, giving it the ability to expand along the East
Coast. The four new stores will be operated under the Pick-n-Pull name
and will bring the total number of Pick-n-Pull stores to 30. The
Company believes this acquisition will be accretive to earnings in
fiscal 2005 and produce returns that exceed its cost of capital under
the Economic Value Added (EVA(R)) model used by the Company.
Steel Manufacturing Business
The Steel Manufacturing Business reported an operating profit of
$12.8 million in the first quarter of fiscal 2005, which compares to
an operating loss of $0.1 million in the first quarter of fiscal 2004.
The improved profitability was primarily caused by significant
increases in steel consumption resulting in higher average selling
prices. Selling prices averaged a record $534 per ton in the first
quarter of fiscal 2005, representing a 72% and 5% increase over the
first and fourth quarters of fiscal 2004, respectively. The higher
selling prices were offset in part by lower sales volumes and higher
raw material costs, including the cost of alloys and scrap metal.
The consumption of finished steel was strong during the first
quarter of fiscal 2005. However, the Steel Manufacturing Business'
sales volumes were unusually low during the same period due to
abnormally high inventory levels held by its customers who fabricate
and distribute steel. Throughout fiscal 2004, demand and selling
prices for finished steel grew rapidly. The rise in selling prices
caused many fabricators and distributors to buy ahead of end user
demand in anticipation of even higher prices. This buying pattern
resulted in unusually high market inventory levels of finished steel.
In anticipation of seasonal declines in consumption that occur in the
late fall and winter months, many distributors and fabricators reduced
their steel purchases to balance their inventories. Sales volumes of
certain products were also adversely affected by rising levels of
Japanese steel imports. As a result, first quarter fiscal 2005 sales
volumes amounted to 126,000 tons, which compares to 163,000 tons
shipped during the first quarter of fiscal 2004.
Second Quarter 2005 Outlook
Over the last three quarters, the Company saw recycled metal
markets experience unusual levels of price volatility. However,
consumption of recycled metal continued to remain strong. Based upon
the Company's wholly-owned Metals Recycling Businesses' current order
backlog, contracted average selling prices that are expected to be
shipped in the second quarter of fiscal 2005 approximate price levels
reported in the first quarter of fiscal 2005 and remain well ahead of
the averages realized during the second quarter of fiscal 2004. The
Metals Recycling Business' second quarter 2005 ferrous sales volume is
anticipated to be in the 430,000 to 475,000 ton range. Ocean freight
rates remain high from an historical context and are expected to
approximate first quarter 2005 levels. The cost of unprocessed ferrous
metal remains very competitive and is anticipated to generally follow
the trend of selling prices.
The joint venture processors in the metals recycling business are
expected to experience similar market trends as the Company's wholly
owned Metals Recycling Business; however, their financial results may
vary depending on geographical locations, competition and other
factors.
The Auto Parts Business generally experiences its weakest period
for retail sales in the second quarter of the fiscal year due to cold
and wet weather conditions slowing demand. The Auto Parts Business has
experienced increasing costs to procure inventory due to rising
ferrous metal prices. This trend is expected to continue into the
second quarter of fiscal 2005 and may impact margins.
During the second fiscal quarter of each year, demand for finished
steel declines due to the seasonal nature of the construction
industry. It is also expected that fabricators and distributors will
continue to reduce inventory levels and purchases of finished steel.
Importers of finished steel are anticipated to continue to
aggressively compete for certain product categories. Also, as planned,
in December 2004 the Company's steel mill temporarily shut down its
melt shop to replace its electric arc furnace. The furnace
replacement, completed in late December, reduced the production of
billets and caused production costs to rise. Raw material costs,
including the costs of alloys, are expected to increase modestly
relative to the first quarter of 2005.
The Company's effective second quarter tax rate is expected to
approximate 35%.
The Company estimates its second quarter 2005 operating income to
be in the $50 million to $56 million range. This amount compares to
operating income of $24.2 million reported for the second quarter of
fiscal 2004.
First Quarter 2005 Conference Call
In conjunction with this release, Schnitzer Steel invites you to
listen to its conference call that will be broadcast over the Internet
today, January 6, 2005, at 11:30 a.m. EST with Robert W. Philip,
Chairman and Chief Executive Officer, and Barry A. Rosen, Vice
President -- Finance and Chief Financial Officer. The call is being
webcast by CCBN and can be accessed on Schnitzer Steel's web site at
www.schnitzersteel.com.
Schnitzer Steel Industries, Inc. is one of the nation's largest
recyclers of ferrous metals, a leading self-service used auto parts
retailer with 26 locations in the U.S. and Canada, and manufacturer of
finished steel products. The Company, with its joint venture partners,
processes approximately 5.2 million tons of recycled ferrous metals
per year as well as brokers nearly 3.0 million tons through various
brokerage arrangements. In addition, the Company's steel mill has an
annual production capacity of approximately 700,000 tons of finished
steel products. The Company and its joint venture partners operate
primarily along the West Coast and Northeastern seaboard of the United
States.
This news release, particularly the "Outlook" section, contains
forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, which are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995. One can generally identify these forward-looking statements
because they contain "expect," "believe," "anticipate," "estimate" and
other words that convey a similar meaning. One can also identify these
statements as statements that do not relate strictly to historical or
current facts. Examples of factors affecting both Schnitzer Steel
Industries, Inc.'s consolidated operations and its joint ventures (the
Company) that could cause actual results to differ materially from
current expectations are the following: volatile supply and demand
conditions affecting prices and volumes in the markets for both the
Company's products and raw materials it purchases; world economic
conditions; world political conditions; changes in federal and state
income tax laws; impact of pending or new law and regulations
regarding imports and exports into the United States and other foreign
countries; foreign currency fluctuations; competition; seasonality,
including weather; energy supplies; freight rates; the
unpredictability of joint venture operating results and the possible
changes in relationships with joint venture partners; the inability to
complete expected large scrap export shipments in the current quarter;
consequences of the pending investigation by the Company's audit
committee into Far East payment practices; business integration issues
relating to acquisitions of businesses; and business disruptions
resulting from installation or replacement of major capital assets,
all as discussed in more detail under the heading "Factors That Could
Affect Future Results" in the Company's most recent annual report on
Form 10-K or quarterly report on Form 10-Q. One should understand that
it is not possible to predict or identify all factors that could cause
actual results to differ from the Company's forward-looking
statements. Consequently, the reader should not consider any such list
to be a complete statement of all potential risks or uncertainties.
The Company does not assume any obligation to update any
forward-looking statement.
For more information about Schnitzer Steel Industries, Inc. go to
www.schnitzersteel.com. EVA(R) is a registered trademark of Stern
Stewart & Company.
SCHNITZER STEEL INDUSTRIES, INC.
FINANCIAL HIGHLIGHTS
(in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended
November 30,
---------------------------
2004 2003
------------- -------------
REVENUES:
Metals Recycling Business:
Ferrous sales $126,832 $ 65,894
Nonferrous sales 15,654 12,409
Other sales 2,046 1,299
------------- -------------
Total Metals Recycling Revenue 144,532 79,602
Auto Parts Business 23,386 17,660
Steel Manufacturing Business 70,022 53,219
Intercompany sales eliminations (38,979) (22,105)
------------- -------------
Total Revenue $198,961 $128,376
============= =============
OPERATING INCOME (LOSS):
Metals Recycling Business $ 33,788 $ 9,923
Joint ventures 20,464 5,937
Auto Parts Business 7,346 5,889
Steel Manufacturing Business 12,760 (142)
Corporate expense (3,591) (2,646)
Intercompany eliminations (3,163) (856)
------------- -------------
Total Operating Income $ 67,604 $ 18,105
============= =============
NET INCOME $ 42,936 $ 12,177
============= =============
BASIC EARNINGS PER SHARE $ 1.41 $ 0.41
============= =============
DILUTED EARNINGS PER SHARE $ 1.38 $ 0.39
============= =============
SHARE INFORMATION (THOUSANDS):
Basic shares outstanding 30,350 29,582
============= =============
Diluted shares outstanding 31,143 30,947
============= =============
SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
For the Three Months Ended
November 30,
---------------------------
2004 2003
------------- -------------
(Unaudited)
Revenues $198,961 $128,376
------------- -------------
Operating expenses:
Cost of goods sold 139,455 106,698
Selling 1,282 1,278
General and administrative 11,084 8,232
------------- -------------
Income from wholly-owned operations 47,140 12,168
Operating income from joint ventures 20,464 5,937
------------- -------------
Operating income 67,604 18,105
Other income (expense):
Interest expense (284) (440)
Other income (expense), net (446) 204
------------- -------------
(730) (236)
------------- -------------
Income before income taxes and minority
interests 66,874 17,869
Income tax provision (23,272) (5,182)
------------- -------------
Income before minority interests 43,602 12,687
Minority interests, net of income taxes (666) (510)
------------- -------------
Net income $ 42,936 $ 12,177
============= =============
Basic earnings per share $ 1.41 $ 0.41
============= =============
Diluted earnings per share $ 1.38 $ 0.39
============= =============
Schnitzer Steel Industries, Inc.
Selected Operating Statistics
(Unaudited)
Q1 FY05 Q1 FY04 Q2 FY04
---------- ---------- ----------
Metals Recycling Business
Ferrous Recycled Metal Sales Prices
($/LT)
Domestic $ 221 $ 135 $ 168
Export $ 245 $ 144 $ 154
Average $ 236 $ 140 $ 158
Ferrous Sales Volume (LT)
Domestic Processed (a) 133,687 99,781 105,371
Domestic Brokered (a) 42,276 73,366 40,658
Export 294,900 235,481 355,304
---------- ---------- ----------
Total (a) 470,863 408,628 501,333
========== ========== ==========
(a) Includes sales to the Steel
Manufacturing Business 159,463 157,989 131,837
========== ========== ==========
Steel Manufacturing Business
Sales Prices ($/NT)
Average $ 534 $ 310 $ 351
Sales Volume (NT)
Rebar 55,956 91,204 89,699
Coiled Products 56,679 55,171 54,111
Merchant Bar and Other 13,703 16,219 18,499
---------- ---------- ----------
Total 126,338 162,594 162,309
========== ========== ==========
Joint Ventures Ferrous Recycled
Metal Sales Volume
Processed (LT) 929,667 674,622 827,787
Brokered (LT) 664,687 677,395 623,077
---------- ---------- ----------
1,594,354 1,352,017 1,450,864
========== ========== ==========
Q3 FY04 Q4 FY04 FY04
---------- ---------- ----------
Metals Recycling Business
Ferrous Recycled Metal Sales Prices
($/LT)
Domestic $ 228 $ 186 $ 184
Export $ 243 $ 208 $ 187
Average $ 237 $ 199 $ 184
Ferrous Sales Volume (LT)
Domestic Processed (a) 112,310 142,198 459,660
Domestic Brokered (a) 52,627 49,333 215,984
Export 280,493 298,484 1,169,762
---------- ---------- ----------
Total (a) 445,430 490,015 1,845,406
========== ========== ==========
(a) Includes sales to the Steel
Manufacturing Business 158,314 169,459 617,599
========== ========== ==========
Steel Manufacturing Business
Sales Prices ($/NT)
Average $ 448 $ 511 $ 404
Sales Volume (NT)
Rebar 71,069 88,462 340,434
Coiled Products 66,250 57,826 233,358
Merchant Bar and Other 17,510 16,039 68,267
---------- ---------- ----------
Total 154,829 162,327 642,059
========== ========== ==========
Joint Ventures Ferrous Recycled Metal
Sales Volume
Processed (LT) 1,086,024 993,326 3,581,759
Brokered (LT) 620,640 754,981 2,676,093
---------- ---------- ----------
1,706,664 1,748,307 6,257,852
========== ========== ==========
Note: Price information is shown after a reduction for the cost of
freight incurred to deliver the product to the customer.
CONTACT: Schnitzer Steel Industries, Inc., Portland
Financial Contact: Barry Rosen, 503-323-2720
Press Contact: Tom Zelenka, 503-323-2821
www.schnitzersteel.com