Exhibit 99.1
Schnitzer Steel Announces a 94% Increase in
Its Fiscal Second Quarter Net Income
PORTLAND, Ore.--(BUSINESS WIRE)--April 6, 2005--Schnitzer Steel
Industries, Inc. (Nasdaq:SCHN) today reported net income of $36.0
million or $1.15 per diluted share on revenues of $215.7 million for
its fiscal 2005 second quarter that ended February 28, 2005. In
comparison, the Company reported net income of $18.5 million or $0.60
per diluted share on revenues of $161.6 million for the second quarter
of fiscal 2004.
For the first six months of fiscal 2005, Schnitzer Steel reported
net income of $78.9 million or $2.53 per diluted share on revenues of
$414.7 million. These amounts compare to net income of $30.7 million
or $0.99 per diluted share on revenues of $290.0 million that were
reported during the first half of fiscal 2004.
"Schnitzer Steel continued to report excellent profits and
shareholder returns during the second quarter of fiscal 2005," said
Robert W. Philip, Chairman and Chief Executive Officer. "The Company's
strong financial results came from all three of its primary business
segments. The most significant improvement came from our businesses
that process and sell recycled ferrous and nonferrous metals. These
businesses continue to benefit from excellent industry fundamentals as
well as from strategic coastal locations that give us the ability to
efficiently access both domestic and export markets. Our second
quarter results were also supported by our Steel Manufacturing and
Auto Parts Businesses that produced good operating income, despite
normal seasonal declines in demand. Overall, the Company remains
optimistic about the outlook for our businesses."
Metals Recycling Business
The Company's wholly-owned Metals Recycling Business' second
quarter 2005 operating income was $39.5 million compared to $13.2
million in the second quarter of fiscal 2004. The improved operating
margin resulted from significantly higher ferrous selling prices that
averaged a record $240 per ton in the most recent quarter, which was
$82 per ton or 52% above last year's second quarter and $4 per ton
higher than the first quarter of fiscal 2005. The benefits from the
higher average selling prices were reduced in part by lower sales
volumes and higher costs incurred to purchase unprocessed metal
coupled with a 17% increase in ocean freight costs. Second quarter
2005 sales volumes were 5% lower than the volume sold in last year's
second fiscal quarter, which was principally caused by normal
variations in the timing of when export orders are received and
ultimately shipped.
Joint Venture Businesses
Second quarter 2005 operating income from joint venture businesses
was $16.2 million, compared to $8.7 million reported for last year's
second quarter. The increase in operating profit was principally
caused by higher average selling prices and an increase in the
quarterly ferrous metal sales volumes. The Joint Venture Business'
average selling prices rose at rates similar to the Company's
wholly-owned Metals Recycling Business and were affected by similar
industry trends. Ferrous sales volumes for the processing joint
ventures increased 27% during the second quarter of fiscal 2005 as
compared to the same period in fiscal 2004. This volume growth was
driven by the combination of increased raw material intake and the
timing of when export orders are received and shipped. The higher
average selling prices and sales volumes were mitigated in part by
significant increases in the amounts paid to procure unprocessed
metal.
Auto Parts Business
During the second quarter of fiscal 2005, the Auto Parts Business
reported operating income of $7.2 million representing an increase of
42% over the second quarter of fiscal 2004. The earnings growth was
driven in part by the acquisition of seven new stores since the end of
the second quarter of last year, which represents a 30% increase. In
addition, four of these new stores were acquired in mid-January 2005
and thus, their full quarterly benefit was not reflected in the recent
quarter's results. Operating margins also improved due to increases in
same stores' wholesale revenues and to a lesser extent increases in
retail sales. The growth in wholesale revenues was due primarily to
the rise in prices for recycled metals. The higher revenues were
offset in part by the continuing increase in the cost to procure
inventory, which was principally driven by the rise in recycled metals
prices. Second quarter 2005 administrative expenses ran modestly ahead
of last year's run rate due to improvements in the business'
infrastructure to support the Company's strategic growth plans.
Steel Manufacturing Business
The Steel Manufacturing Business reported operating income of $5.4
million in the second quarter of fiscal 2005, compared to $2.7 million
reported for last year's second quarter. The higher operating profit
was the result of higher average selling prices. Prices averaged $517
per ton during the most recent quarter, which was 47% higher than the
2004 second fiscal quarter and was primarily the result of strong
world wide consumption of finished steel products. Selling prices for
finished steel declined 3% on average from the first quarter of fiscal
2005, which was principally caused by a change in product mix coupled
with a slight decline in market selling prices.
Sales volumes normally decline to their lowest levels during the
Company's second fiscal quarter of each year due to adverse weather
conditions that slow demand. In addition, as noted in the Company's
first quarter 2005 earnings release, certain customers who fabricate
and distribute finished steel began reducing purchases of inventory in
an effort to reduce their inventories built throughout most of fiscal
2004. As anticipated, second quarter 2005 sales volumes were lower
than the Company's normal seasonal levels due to the continued
rebalancing of inventories by distributors and fabricators; however,
we understand consumption remained strong. Sales volumes amounted to
125,000 tons during the second quarter of fiscal 2005, which compare
to an unusually high rate of 162,000 tons sold during last year's
second fiscal quarter. Since the end of the second fiscal quarter, the
Company has experienced strong demand for its finished steel products
and it currently anticipates sales volumes for the 2005 third fiscal
quarter to approximate the levels achieved in last year's third
quarter.
As previously announced, the Company's steel mill successfully
completed the installation of a new electric arc furnace in December
2004. It is anticipated that the new furnace will improve productivity
of the mill as well as reduce operating costs, including the
consumption of electricity. To date, the new furnace is performing
well and exceeding productivity expectations. The Company estimates
the temporary shut-down and start-up costs of the new furnace reduced
its fiscal second quarter 2005 operating income by approximately $5.0
million.
Environmental Matters
During the second quarter of fiscal 2005, the Company recorded an
environmental charge for additional estimated costs related to the
ongoing remediation of the head of the Hylebos Waterway adjacent to
the Company's Tacoma, Washington metals processing facility. An
estimate of this liability was initially recognized as part of the
1995 acquisition of the Tacoma facility. The cost estimate was based
on the assumption that dredge removal of contaminated sediments would
be accomplished within one dredge season during July 2004 -- February
2005. However, due to a variety of factors, including equipment
failures, dredge contractor operational issues and other dredge
related delays, the dredging was not completed during the first dredge
season. As a result, the Company increased its environmental accrual
by $7.7 million related to this project primarily to account for
additional estimated costs to complete this work during a second
dredging season. The Company has asserted a claim for relief from the
dredge contractor for a significant portion of the increased costs,
and is currently engaged in mediation of this dispute. However,
generally accepted accounting principles do not allow the Company to
recognize the benefits of any such relief until receipt is assured.
Third Quarter 2005 Outlook
Recycled metals markets continue to experience significant price
volatility; however, consumption remains 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 third quarter of fiscal 2005 are anticipated to be
slightly lower than the amounts reported in its second fiscal quarter
of fiscal 2005. The Metals Recycling Business' third quarter 2005
ferrous sales volume is anticipated to be in the 430,000 to 475,000
ton range. Ocean freight rates remain high from a historical context
and are expected to approximate second quarter 2005 levels. The cost
of unprocessed ferrous metal also remains very competitive and
volatile, which may adversely impact third quarter 2005 margins.
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 joint venture businesses located on the
Northeastern seaboard of the United States experienced unusually harsh
and prolonged winter weather over the last few months, which reduced
the inbound flow of recycled metal into the processing facilities. The
reduced flow is anticipated to reduce third quarter sales volumes.
The Auto Parts Business generally experiences one of its strongest
periods for retail demand during the Company's third fiscal quarter
due to improving weather conditions allowing customers greater access
to parts inventory. The Auto Parts Business continues to experience
increasing costs to procure inventory due to rising ferrous metal
prices. This trend is expected to continue into the third quarter of
fiscal 2005 and may impact margins.
The Steel Manufacturing Business's sales volumes have been
abnormally low over the last two fiscal quarters as its customers,
steel distributors and fabricators, reduced their inventories. During
this time, we understand end user consumption remained good. As
mentioned earlier, sales volumes during the first month of the
Company's third fiscal quarter rebounded and are strong today. It is
anticipated that third quarter 2005 sales volumes will approximate
last year's third quarter levels. Third quarter 2005 average sales
prices are anticipated to approximate the average prices realized
during the second quarter. Steel conversion costs are expected to
decline in the third quarter as production levels improve over the
second quarter; however, rising alloy, refractory and electrode costs
are expected to partially reduce the benefits received from the
increased productivity.
The Company's effective third quarter tax rate is expected to
approximate 35%.
The Company estimates its third quarter 2005 operating income to
be in the $46 million to $53 million range. This amount compares to
operating income of $67.3 million reported for the third quarter of
fiscal 2004.
Over the last few years, the Company has provided in its quarterly
earnings press release a range of its estimated operating income for
the next quarter to assist the public in understanding its business
trends. The Company recently assessed this practice in consultations
with its financial and legal advisers, reviewed reporting trends of
other publicly traded companies, and determined that it will no longer
provide quantitative earnings guidance beginning with future earnings
releases. It will however, continue to provide qualitative guidance in
future earnings press releases.
Second 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, April 6, 2005, at 11:30 a.m. EDT 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 30 locations in the U.S. and Canada, and manufacturer of
finished steel products. The Company, with its joint venture partners,
processes approximately 5.4 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 laws 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.
SCHNITZER STEEL INDUSTRIES, INC.
FINANCIAL HIGHLIGHTS
(in thousands, except per share amounts)
(Unaudited)
For the Three For the Six
Months Ended Months Ended
------------------- -------------------
Feb. 28, Feb. 29, Feb. 28, Feb. 29,
2005 2004 2005 2004
--------- --------- --------- ---------
REVENUES:
Metals Recycling Business:
Ferrous sales $133,647 $ 95,545 $260,479 $161,439
Nonferrous sales 16,943 12,078 32,597 24,487
Other sales 1,490 1,704 3,536 3,003
--------- --------- --------- ---------
Total sales 152,080 109,327 296,612 188,929
Auto Parts Business 24,448 17,245 47,834 34,905
Steel Manufacturing Business 66,820 59,861 136,842 113,080
Intercompany sales
eliminations (27,602) (24,830) (66,581) (46,935)
--------- --------- --------- ---------
Total $215,746 $161,603 $414,707 $289,979
========= ========= ========= =========
INCOME (LOSS) FROM OPERATIONS:
Metals Recycling Business $ 39,481 $ 13,162 $ 73,769 $ 23,085
Auto Parts Business 7,245 5,094 14,591 10,983
Steel Manufacturing Business 5,358 2,691 18,118 2,549
Joint ventures 16,205 8,684 36,669 14,621
Corporate expense (5,008) (3,018) (8,599) (5,664)
Intercompany eliminations 739 (2,396) (2,424) (3,252)
Environmental matter (7,725) - (8,225) -
--------- --------- --------- ---------
Total $ 56,295 $ 24,217 $123,899 $ 42,322
========= ========= ========= =========
NET INCOME $ 35,981 $ 18,549 $ 78,917 $ 30,726
========= ========= ========= =========
BASIC EARNINGS PER SHARE $ 1.18 $ 0.62 $ 2.60 $ 1.03
========= ========= ========= =========
DILUTED EARNINGS PER SHARE $ 1.15 $ 0.60 $ 2.53 $ 0.99
========= ========= ========= =========
SHARE INFORMATION (THOUSANDS):
Basic shares outstanding 30,422 30,021 30,386 29,800
========= ========= ========= =========
Diluted shares outstanding 31,195 31,104 31,170 31,045
========= ========= ========= =========
SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(Unaudited)
For the Three For the Six
Months Ended Months Ended
------------------- -------------------
Feb. 28, Feb. 29, Feb. 28, Feb. 29,
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues $215,746 $161,603 $414,707 $289,979
--------- --------- --------- ---------
Cost of goods sold 154,523 135,631 293,478 242,329
Selling 1,392 1,106 3,099 2,384
General and administrative 12,016 9,333 22,675 17,565
Environmental matter 7,725 - 8,225 -
--------- --------- --------- ---------
Income from wholly-owned
operations 40,090 15,533 87,230 27,701
Operating income from joint
ventures 16,205 8,684 36,669 14,621
--------- --------- --------- ---------
Operating income 56,295 24,217 123,899 42,322
Other income (expense):
Interest expense (346) (486) (630) (926)
Other income (expense), net 86 (50) (360) 154
--------- --------- --------- ---------
(260) (536) (990) (772)
--------- --------- --------- ---------
Income before income taxes and
minority interests 56,035 23,681 122,909 41,550
Income tax provision (19,500) (4,582) (42,772) (9,764)
--------- --------- --------- ---------
Income before minority
interests 36,535 19,099 80,137 31,786
Minority interests, net of tax (554) (550) (1,220) (1,060)
--------- --------- --------- ---------
Net income $ 35,981 $ 18,549 $ 78,917 $ 30,726
========= ========= ========= =========
Basic earnings per share $ 1.18 $ 0.62 $ 2.60 $ 1.03
========= ========= ========= =========
Diluted earnings per share $ 1.15 $ 0.60 $ 2.53 $ 0.99
========= ========= ========= =========
Schnitzer Steel Industries, Inc.
Selected Operating Statistics
(Unaudited)
Q1 FY05 Q2 FY05 FY05
----------- ----------- -----------
Metals Recycling Business
Ferrous Recycled Metal Sales
Prices ($/LT)
Domestic $ 221 $ 220 $ 221
Export $ 245 $ 247 $ 246
Average $ 236 $ 240 $ 238
Ferrous Sales Volume (LT)
Domestic Processed(a) 133,687 98,900 232,587
Domestic Brokered(a) 42,276 20,573 62,849
Export 294,900 356,607 651,507
---------- ---------- ----------
Total(a) 470,863 476,080 946,943
========== ========== ==========
(a) Includes sales to the Steel
Manufacturing Business 159,463 110,033 269,496
========== ========== ==========
Steel Manufacturing Business
Sales Prices ($/NT)
Average $ 534 $ 517 $ 525
Sales Volume (NT)
Rebar 55,956 62,302 118,258
Coiled Products 56,679 50,391 107,070
Merchant Bar and Other 13,703 11,957 25,660
---------- ---------- ----------
Total 126,338 124,650 250,988
========== ========== ==========
Joint Ventures Ferrous Recycled
Metal Sales Volume
Processed (LT) 929,667 1,049,572 1,979,239
Brokered (LT) 750,034 721,623 1,471,657
---------- ---------- ----------
1,679,701 1,771,195 3,450,896
========== ========== ==========
Auto Parts Business
Number of retail locations at
end of quarter 26 30 NA
Q1 FY04 Q2 FY04
---------- ----------
Metals Recycling Business
Ferrous Recycled Metal Sales
Prices ($/LT)
Domestic $ 135 $ 168
Export $ 144 $ 154
Average $ 140 $ 158
Ferrous Sales Volume (LT)
Domestic Processed(a) 99,781 105,371
Domestic Brokered(a) 73,366 40,658
Export 235,481 355,304
---------- ----------
Total(a) 408,628 501,333
========== ==========
(a) Includes sales to the Steel
Manufacturing Business 157,989 131,837
========== ==========
Steel Manufacturing Business
Sales Prices ($/NT)
Average $ 310 $ 351
Sales Volume (NT)
Rebar 91,204 89,699
Coiled Products 55,171 54,111
Merchant Bar and Other 16,219 18,499
---------- ----------
Total 162,594 162,309
========== ==========
Joint Ventures Ferrous Recycled
Metal Sales Volume
Processed (LT) 674,622 827,787
Brokered (LT) 677,395 623,077
---------- ----------
1,352,017 1,450,864
========== ==========
Auto Parts Business
Number of retail locations at
end of quarter 23 23
Q3 FY04 Q4 FY04 FY04
----------- ----------- -----------
Metals Recycling Business
Ferrous Recycled Metal Sales
Prices ($/LT)
Domestic $ 228 $ 186 $ 179
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 164,210 178,015 642,059
========== ========== ==========
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
========== ========== ==========
Auto Parts Business
Number of retail locations at
end of quarter 26 26 NA
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.
Financial Contact: Barry Rosen, 503-323-2720
Press Contact: Tom Zelenka, 503-323-2821
www.schnitzersteel.com