Exhibit 99.1
Schnitzer Steel Reports First Quarter Earnings
PORTLAND, Ore.--(BUSINESS WIRE)--Jan. 8, 2007--Schnitzer Steel
Industries, Inc. (Nasdaq: SCHN) today reported net income of $21
million, or $0.69 per diluted share, for the fiscal 2007 first quarter
ended November 30, 2006. Operating income was $34 million compared to
$18 million in the first fiscal quarter of 2006, which included an $11
million charge related to the SEC and Department of Justice
investigations.
(in millions, except per-share data) First First Fourth
Quarter Quarter Quarter
2007 2006 2006
- ----------------------------------------------------------------------
Revenues $510 $341 $605
- ----------------------------------------------------------------------
Operating Income $34 $18(1) $77
- ----------------------------------------------------------------------
Net Income $21 $42 $50
- ----------------------------------------------------------------------
Diluted EPS $0.69 $1.34 $1.62
- ----------------------------------------------------------------------
Gain on Asset Disposition -- $34 $1
- ----------------------------------------------------------------------
Charge for Investigation Reserve -- $11 --
- ----------------------------------------------------------------------
Net Income excluding Gain on Asset
Disposition and Charge for
Investigation Reserve $21 $19 $49
- ----------------------------------------------------------------------
Diluted EPS excluding Gain on Asset
Disposition and Charge for
Investigation Reserve $0.69 $0.61 $1.58
- ----------------------------------------------------------------------
(1) Includes $ 11 million charge related to SEC and Department of
Justice Investigations
"Even with the impact of the ongoing projects at our facilities to
upgrade our equipment and improve our infrastructure and information
technology, we are pleased to report a year over year increase in
operating income," said John D. Carter, President and Chief Executive
Officer. "The long-term fundamentals and outlook for our businesses
remain strong, and while the investments we are making have caused and
will continue to cause short-term disruptions, we believe this focus
on improving the efficiency of our operations will allow us to take
maximum advantage of these favorable trends."
"As expected, the installation of new mega-shredders at our
Oakland and Boston area metals recycling facilities resulted in lower
volumes and thus higher costs per ton, both of which depressed our
operating income for the quarter. In the coming quarters, we expect to
recover the volumes and see a positive impact from the new equipment.
First quarter margins were also impacted by higher costs for the
purchase of raw materials, particularly in the Northeast, which
resulted in an increase in average inventory values, and higher
freight costs, particularly for shipments from the West Coast. It
should be noted that the export markets for both ferrous and
nonferrous materials remain strong, and we encourage our investors to
continue to judge the results of the Metals Recycling Business over
several quarters."
"The Auto Parts Business was negatively impacted by lower vehicle
purchases in the face of higher prices, resulting in lower inventory
for retail parts sales as well as lower core and scrap sales. We have
acted to adjust our model to maximize vehicle purchases where it makes
economic sense to do so and anticipate this will contribute to
improved financial performance for the remainder of the year."
"The Steel Manufacturing Business continues to show good results."
Metals Recycling Business
The Metals Recycling segment continues to see positive long-term
worldwide fundamentals for scrap metal producers.
($ in millions, except selling prices; First First Fourth
ferrous volume in thousand long tons, Quarter Quarter Quarter
nonferrous volumes in million pounds) 2007 2006 2006
- ----------------------------------------------------------------------
Total Revenues $400 $241 $487
- ----------------------------------------------------------------------
Ferrous Revenues $315 $208 $387
- ----------------------------------------------------------------------
Ferrous Volumes (Processing/Trading) 868/320 549/307 942/459
- ----------------------------------------------------------------------
Avg. Net Ferrous Sales Prices ($/LT) (1)
(Processing/Trading) $226/252 $205/216 $243/253
- ----------------------------------------------------------------------
Nonferrous Volumes 80 50 88
- ----------------------------------------------------------------------
Avg. Net Nonferrous Sales Prices ($/LB) (1) $1.02 $0.62 $1.08
- ----------------------------------------------------------------------
Operating Income (2) $25 $14 $62
- ----------------------------------------------------------------------
(1) Sales prices are shown net of freight
(2) Includes operating income from joint ventures
Revenues year-over-year from the Metals Recycling Business
increased 66% over the first quarter of 2006. The increase was a
result of higher ferrous and nonferrous scrap sales volumes,
principally due to the timing of shipments from the Company's West
Coast and Northeast metals recycling facilities, higher intercompany
sales to the Steel Manufacturing Business and higher ferrous scrap
prices. Compared to the fourth quarter of 2006, quarter-over-quarter
revenues declined 18% due to lower average ferrous and nonferrous
sales prices and lower volumes, primarily due to the shutdown of the
Oakland, California export facility for the installation of a new
mega-shredder.
Export markets for ferrous scrap metal remained strong, with
average prices significantly higher than the first quarter of 2006 and
only slightly lower than the near record prices in the fourth quarter
of 2006. In addition, nonferrous prices, although lower than during
the fourth quarter, remained strong for all grades of materials.
Operating income for the quarter was 79% higher than the first
quarter of 2006 due to a full quarter's impact of the acquisitions
which were only partially reflected in last year's first quarter
results. As expected, operating income declined significantly from the
strong performance in the fourth quarter of 2006, primarily due to the
reduced volumes in Oakland and higher unit costs related to the
disruption caused by the mega-shredder installations in Oakland and
Boston. Additionally, the results in the fourth quarter benefited from
a number of items, including inventory revaluations and the timing of
sales. Operating costs for the quarter, which included all costs
associated with operating the Oakland facility, were spread over lower
volumes, which resulted in the higher unit operating costs. In
addition, while the Boston area facility was able to operate during
the installation of the new equipment, the existing shredder
experienced operational problems during that time period, resulting in
higher costs to process ferrous material.
Ferrous processing volumes were down 74 thousand tons from the
fourth quarter of 2006. The decline in volumes from the Oakland
operations were partially offset by increased volumes in New England,
where high beginning inventories enabled the Boston area facility to
increase shipments despite lower processing volumes. Due to the timing
of shipments, however, sales volumes in the New England area
facilities did not increase as much as forecasted. In addition, due to
a lower cost of materials, West Coast operating margins per ton are
generally higher than experienced in other regions, and the lower West
Coast volumes resulted in a less favorable sales mix and significantly
lower operating margins.
Auto Parts Business
The Auto Parts Business continues to be impacted by the high cost
of purchased vehicles.
($ in millions, except First Quarter First Quarter Fourth Quarter
locations) 2007 2006 2006
- ----------------------------------------------------------------------
Revenues $61 $46 $64
- ----------------------------------------------------------------------
Operating Income $4 $8 $9
- ----------------------------------------------------------------------
Locations (end of quarter) 52 49 51
- ----------------------------------------------------------------------
Revenues for the Auto Parts Business increased 32% over the same
period last year, primarily as a result of a full quarter's impact of
the GreenLeaf acquisition which was only partially reflected in last
year's first quarter results, higher prices for the sale of cores and
scrapped autobodies and the impact of the five self-service conversion
stores, the latest of which opened in October 2006. Compared to the
fourth quarter of 2006, revenues declined approximately 5%, primarily
due to lower full-service sales.
Operating income declined 51% from the first quarter of 2006,
reflecting the impact of significantly higher costs for purchased
vehicles, which narrowed the margin from higher core and scrapped
vehicle sales. The Company continues to see strong competition for
vehicle purchases in all markets in which it operates. Compared to the
fourth quarter of 2006, operating income declined due to higher costs
for inventory, reduced scrap and core sales in the self-service
business due to lower inventories caused by reduced vehicle purchases
at higher prices and lower sales in the full-service business, all of
which were partially offset by improved performance in the
self-service conversion stores.
Steel Manufacturing Business
The Steel Manufacturing Business continued to benefit from strong
West Coast markets for steel products.
($ in millions, except
selling prices; volume First Quarter First Quarter Fourth Quarter
in thousand tons) 2007 2006 2006
- ----------------------------------------------------------------------
Revenues $96 $89 $104
- ----------------------------------------------------------------------
Avg. Net Sales Prices
($/T) $546 $517 $548
- ----------------------------------------------------------------------
Sales Volume 170 166 181
- ----------------------------------------------------------------------
Operating Income $15 $16 $21
- ----------------------------------------------------------------------
Revenues for the Steel Manufacturing Business rose 8% on a year
over year basis on a $29 per ton increase in average selling prices
and slightly higher sales volumes. During the quarter, demand for long
steel products remained good, although volumes were down from the
fourth quarter of fiscal 2006, reflecting a slight slowdown in
residential construction activity.
Operating income was slightly lower than in the same period last
year, primarily reflecting higher costs for the acquisition of scrap
metal and higher conversion costs due to increased costs for alloys
and electrodes and lower than expected finished tons off the rolling
mills. Compared to the fourth quarter of last year, operating income
declined due to lower sales volumes and higher scrap and conversion
costs, the latter related to lower production volumes.
Share Repurchase Program
During the quarter, the Company repurchased 250,000 shares under
the amended share repurchase program approved by its Board of
Directors in October 2006. The Company has approximately 4.4 million
shares available for repurchase under the amended program.
Outlook
The Company said the factors that will affect its results in the
second quarter of 2007 include:
Metals Recycling Business:
Pricing. The export markets for ferrous scrap metal remain strong
and domestic prices appear to be strengthening. Based on sales made to
date and current market conditions, higher gross sales prices are
expected to offset higher export freight costs, resulting in average
net prices which are expected to approximate the prices obtained in
the first quarter of 2007. The cost of freight, which is deducted from
the Company's gross selling prices to arrive at net selling prices,
has recently been on the rise and could result in downward pressure on
average net selling prices. Nonferrous prices are expected to remain
strong by historical standards, but could decline slightly from the
average prices in the first quarter.
Sales volumes. Ferrous scrap volumes in the domestic processing
business are expected to rebound in the second quarter, primarily due
to the timing of export shipments and the resumption of processing at
the Oakland export facility. For the second quarter, volumes shipped
from the Company's domestic yards should increase from 868,000 tons in
the first quarter to between 1.0 and 1.1 million tons. Volumes in the
trading business should be slightly higher than the 320,000 tons
shipped during the first quarter.
Margins. Higher volumes on the West Coast due to the resumption of
processing at the Oakland processing facility should help improve
overall margins. There is currently significant competition for the
acquisition of raw materials in the mid-Atlantic and New England
regions of the country, and the differential between purchase costs
for the West Coast and the Boston and Rhode Island operations is
expected to widen further during the quarter. In addition, while the
mega-shredder installations in Oakland and Boston are complete, the
Company continues to work through normal start-up issues with the new
equipment and related sorting systems; full operating efficiencies are
not expected to be realized until the process is complete later in the
year.
Auto Parts Business:
Revenue. Retail demand in the self-service Auto Parts Business is
affected by seasonal changes, with inclement winter weather in the
second quarter expected to result in a modest decline from the first
quarter in same store retail sales, offset by improved revenues in the
self-service conversion stores. Full-service revenues are expected to
improve as winter weather generally results in higher demand for parts
from autobody repair shops. Overall, revenues are expected to decline
slightly from the first quarter.
Margins. Margins in the second quarter are expected to improve
from the first quarter due to stronger performance in the full-service
business. This improvement will be somewhat offset by the seasonality
of the self-service business, coupled with the expectation that the
cost of purchased vehicles will remain competitive, resulting in
purchase costs similar to the first quarter of 2007. Compared to the
second quarter of 2006, margins are also expected to improve due to
higher scrapped vehicle and core revenues and improved results in the
full-service business, offset by significantly higher purchased
vehicle costs.
Steel Manufacturing Business:
Pricing. West Coast consumption of finished steel long products
continues to be firm. Based on current market conditions, the Company
expects average sales prices to be down only $10- $15 from the near
record prices in the first quarter. High West Coast prices continue to
make imported products attractive, which could result in further
downward pressure on sales pricing.
Volumes. The Company typically sees a reduction in second quarter
sales volumes due to the impact of winter weather on construction
projects. While customer inventories remain low, normal seasonal
factors are expected to reduce demand during the quarter. As a result,
second quarter sales volumes are expected to decline approximately 10%
from the first quarter.
As the cost of making steel is highly sensitive to production
volumes, the lower output during the quarter is expected to result in
slightly higher conversion costs, which should result in margins
slightly lower than in the first quarter of this year.
First Quarter 2007 Conference Call
A conference call to discuss results will be held today, January
8, 2007, at 11:30 a.m. EST, hosted by John Carter, Chief Executive
Officer and Greg Witherspoon, Chief Financial Officer. The call will
be webcast and is accessible on Schnitzer Steel's web site at
www.schnitzersteel.com.
Schnitzer Steel Industries, Inc. is one of the largest
manufacturers and exporters of recycled ferrous metals products in the
United States with 32 operating facilities located in 11 states
throughout the country, including six export facilities located on
both the East and West Coasts and in Hawaii. SSI's vertically
integrated operating platform also includes its auto parts and steel
manufacturing businesses. SSI's auto parts business sells used auto
parts through its 35 Pick-n-Pull self service facilities and 17
Greenleaf full service facilities located in 14 states and western
Canada. With an annual production capacity of 700,000 tons, SSI's
steel manufacturing business produces finished steel products,
including rebar, wire rod and other specialty products. SSI commenced
its 100th year of operations in 2006.
This news release includes two non-GAAP financial measures, "net
income excluding a gain on disposition of joint venture assets and
charge for investigation reserve" and "earnings per diluted share
excluding a gain on disposition of joint venture assets and charge for
investigation reserve". Management believes that by excluding the
impact of the gain and the charge for the investigation reserve, these
measures allow for better comparisons to prior periods and provide a
better insight into the Company's operating performance.
This news release, particularly the "Outlook" section, contains
forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act")
which are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements include, without limitation, statements regarding the
Company's outlook for the business and statements as to expected
pricing, sales volume, operating margin and operating income. Such
statements can generally be identified 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 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; loss of key personnel; the inability to complete expected large
scrap export shipments in the current quarter; business integration
issues relating to acquisitions of businesses; and business
disruptions resulting from installation or replacement of major
capital assets, as discussed in more detail in "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of
Operations: 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 Months Ended
--------------------------
November 30, November 30,
2006 2005
------------- ------------
REVENUES:
Metals Recycling Business:
Ferrous sales:
Processing $ 223,092 129,537
Trading 91,513 78,690
Nonferrous sales 81,994 31,526
Other sales 3,886 1,677
------------- ------------
Total sales 400,485 241,430
Auto Parts Business 60,807 45,922
Steel Manufacturing Business 96,060 89,156
Intercompany sales eliminations (47,498) (35,277)
------------- ------------
Total $ 509,854 $ 341,231
============= ============
INCOME (LOSS) FROM OPERATIONS:
Metals Recycling Business:
Processing $ 23,893 $ 13,522
Trading 951 212
Auto Parts Business 3,795 7,737
Steel Manufacturing Business 15,359 16,070
Corporate expense (9,695) (19,479)(1)
Intercompany eliminations (727) (529)
------------- ------------
Total $ 33,576 $ 17,533
============= ============
NET INCOME $ 21,158 $ 41,530 (2)
============= ============
BASIC EARNINGS PER SHARE $ 0.69 $ 1.36
============= ============
DILUTED EARNINGS PER SHARE $ 0.69 $ 1.34
============= ============
SHARE INFORMATION (THOUSANDS):
Basic shares outstanding 30,751 30,477
============= ============
Diluted shares outstanding 30,876 31,037
============= ============
(1) Includes a charge of $11 million related to investigation reserve
(2) Includes a gain on disposition of joint ventures of $54.6 million
pre-tax.
SCHNITZER STEEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(Unaudited)
For the Three Months Ended
---------------------------
November 30, November 30,
2006 2005
------------- -------------
Revenues $ 509,854 $ 341,231
------------- -------------
Cost of goods sold 434,706 285,106
Selling, general and administrative 42,858 40,344
------------- -------------
Income from wholly-owned operations 32,290 15,781
Operating income from joint ventures 1,286 1,752
------------- -------------
Operating income 33,576 17,533
Other income (expense):
Interest expense (1,061) (435)
Other income (expense), net 1,116 55,534 (1)
------------- -------------
55 55,099
------------- -------------
Income before income taxes and minority
interests 33,631 72,632
Income tax provision (12,071) (31,135)
------------- -------------
Income before minority interests 21,560 41,497
Minority interests, net of tax (402) (153)
Pre-acquisition interests, net of tax 186
------------- -------------
Net income $ 21,158 $ 41,530
============= =============
Basic earnings per share $ 0.69 $ 1.36
============= =============
Diluted earnings per share $ 0.69 $ 1.34
============= =============
(1) Includes a gain on disposition of joint ventures of $54.6 million
pre-tax.
Schnitzer Steel Industries, Inc.
Selected Operating Statistics
(Unaudited)
Total Q1 FY06
Q1 FY07 FY07 (2)(3) Q2 FY06
---------------------- ---------------------
Metals Recycling Business
Ferrous Recycled Metal
Sales Prices ($/LT)(1)
Domestic $ 219 $ 219 $ 207 $ 203
Exports 230 230 204 196
Total Processing 226 226 205 198
Trading 252 252 216 178
Ferrous Processing Sales
Volume (LT)
Cascade 191,090 191,090 154,146 147,986
Domestic 155,970 155,970 58,343 158,177
Export 521,200 521,200 336,712 605,386
---------------------- ---------------------
Total Processed 868,260 868,260 549,201 911,549
---------------------- ---------------------
Ferrous Trading Sales
Volume (LT)
Trading 320,018 320,018 306,716 154,387
---------------------- ---------------------
Total Ferrous Sales
Volume (LT) 1,188,278 1,188,278 855,917 1,065,936
====================== =====================
Nonferrous Average Price
($/pound)(1) $ 1.017 $ 1.017 $ 0.616 $ 0.742
Nonferrous Sales Volume
(pounds, in thousands) 79,728 79,728 50,035 71,800
Steel Manufacturing Business
Sales Prices ($/NT)(1)
Average $ 546 $ 546 $ 517 $ 522
Sales Volume (NT)
Rebar 98,491 98,491 98,101 89,114
Coiled Products 51,823 51,823 48,716 57,061
Merchant Bar and
Other 19,281 19,281 19,241 18,540
---------------------- ---------------------
Total 169,595 169,595 166,058 164,715
====================== =====================
Auto Parts Business
Number of self-service
locations at end of
quarter 35 30 31
Number of full-service
sites at end of quarter
(3) 17 19 18
Total
Q3 FY06 Q4 FY06 FY06
----------------------------------
Metals Recycling Business
Ferrous Recycled Metal Sales
Prices ($/LT)(1)
Domestic $ 215 $ 238 $ 217
Exports 206 245 214
Total Processing 210 243 215
Trading 222 253 226
Ferrous Processing Sales Volume
(LT)
Cascade 174,833 190,971 667,936
Domestic 176,339 130,164 523,023
Export 534,966 621,182 2,098,246
----------------------------------
Total Processed 886,138 942,317 3,289,205
----------------------------------
Ferrous Trading Sales Volume (LT)
Trading 351,173 459,323 1,271,599
----------------------------------
Total Ferrous Sales Volume (LT) 1,237,311 1,401,640 4,560,804
==================================
Nonferrous Average Price
($/pound)(1) $ 0.914 $ 1.083 $ 0.873
Nonferrous Sales Volume (pounds,
in thousands) 91,610 87,838 301,283
Steel Manufacturing Business
Sales Prices ($/NT)(1)
Average $ 523 $ 548 $ 528
Sales Volume (NT)
Rebar 103,623 98,765 389,603
Coiled Products 66,093 61,504 233,374
Merchant Bar and Other 20,783 21,188 79,752
----------------------------------
Total 190,499 181,457 702,729
==================================
Auto Parts Business
Number of self-service locations
at end of quarter 32 34
Number of full-service sites at
end of quarter (3) 18 17
(1) Price information is shown after a reduction for the cost of
freight incurred to deliver the product to the customer.
(2) The Company elected to consolidate results of two of the
businesses formed from the Hugo Neu Corporation separation agreement
as though the transaction had occurred at the beginning of the fiscal
year.
(3) Reflects the addition of Greenleaf Auto Recyclers to the Auto
Parts Business in the first quarter of 2006.
CONTACT: Schnitzer Steel Industries, Inc.
Investor Relations Contact:
Rob Stone, 503-224-9900
or
Press Relations Contact:
Tom Zelenka, 503-323-2821
Website: www.schnitzersteel.com
Email: ir@schn.com