SCHN - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen, and welcome to the Schnitzer Steel's Second Quarter 2018 Earnings Release Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Gaggini. Stefano begin. may you Sir,

Stefano Gaggini

presentation. you, Amanda. Company's Officer. Stefano the XXXX I to Good President, Corporate morning. earnings fiscal Vice quarter Accounting Steel's am Controller Schnitzer Gaggini, second Thank and Welcome Principal

press In addition to access of posted audio comments, on both our set slides, you www.schnitzersteel.com release or issued of www.schn.com. we a which and have today's our can website at

also the included get be let our XX-Q, X, me detailed to Safe started, attention Slide Form Harbor we and Before which filed release your are in press Company's in on statements call later the today. will which

As our X, call Slide about we on as such forward-looking our statements statements targets we note today, and our may in outlook make growth. for

differ statements. from our materially in may projected forward-looking those actual Our results

concerning release note XX-Q. statements in is from during cause to actual Additional that non-GAAP some well today contained press our Form will of could and forward-looking presentation measures results Please as those today. the information that materially factors we our be in discussing as Slide X differ our

those included to reconciliation of to metrics presentation. have We appendix GAAP in our slide a the

Now let Lundgren, will Chief Richard Tamara the over me call She Chief with Financial Officer. Peach, Operations. turn call today Chief Officer to host our Executive and our Corporate the of

Tamara Lundgren

against some and initiatives. I’ll structure, will performance, our underlying wrap on our our taxes. Thank On trends sharing each capital growth our your quarterly Thank interest to review then then in your appreciate all our macroeconomic you, up our and our for our Richard details look call of Good and conference and with morning, forward questions. take call. We remarks you market progress you segment second businesses, I’ll our we'll closing Stefano. with everyone. the joining quarter provide and performance, this today, us on we results more Company morning. strategic

results. quarter tax from of fiscal earnings We These announced included the deferred So benefits Earlier and X. assets. this we of reform morning, allowances valuation $X.XX. second let's begin of XXXX $X.XX per by share tax turning financial our results reported tax release certain on to Slide discrete adjusted

Lower of contributed including ferrous Our than XXXX year’s synergies prices holidays. it's $XX benefits growth last second of last and versus our quarters results, continued market one steel quarter. slower since on This AMR’s and the our and integration were more in expansion all from market and income maintenance productivity efforts, margins higher operating XX% non-ferrous improved this respectively. a volumes second and XX% higher is from income and pretax and operation improvements million levels particularly quarter and conditions. delivered and $X mill CSS’ up rebar imports, On included strongest internal best year-over-year our quarterly volumes Oregon CSS its planned AMR’s weather focus of double fiscal our coupled improvements recycling our of also million. to reflecting a sales as performance and expansion adjusted These volumes and consolidated XX% performance. to with second productivity operating supportive improved sustained productivity to noteworthy due year's margin with typically volume improvements was of basis, conditions led

turn X market review let's further So steel a trends. now to Slide of for

this the of strengthening before announced, continued in raw of known market U.S. and lifting demand. year-over-year, quarter higher imports, since second the early duration March, by action quarter significantly XXX anticipation The have were industry significantly about these utilization with on announcement the pricing prices and had and increased outstripping our the the of during the impact exemptions being during announced end results, CSS’ steel driven of the have imports earlier Section are domestic in reduced product prices. tariffs and impact rebar at quarter, aluminum to Even costs, full imports this the including to and rise After tariffs steel up trade Since U.S. XXX aimed country rates. scrap tariffs, are led rebar domestic tariffs domestic further, improve the noted XX% with the the strong steel and As long material benefited products point construction not of CSS. U.S. the however, cases still negotiated. tariffs together At pricing. lower

has market now by reduction markets to domestic Ferrous steel exports, continued down the review export quarter growth are year-over-year. pricing semi-finished X Chinese scrap driven which about and turn in the upward in now Let's second global its XX% trend. primarily metal synchronous second both during trends. to and a been improvement Slide quarter This and finished

the and BOF During coking to XXX BOF coal competitive policies as remained in tracking lower China's contributed against is scrap the semi-finished the schedule. XX% steelmaking billets. of tons higher and XXXX premium to ore consumption to iron In capacity increase scrap reduce scrap, such pollution controls, of initiatives high to XX% China, mix charge. by higher quarter, all ahead goods a by coal price million quality from

steel curtailed production regions and to a structurally indicative to so reduce and in In number are steel actions this of a discipline of these supply Together, in do over China past addition, winter. sustainably. Chinese production

positive demand ferrous expect and actions we into recent trends, improved for derail not and continue export growth supply translates and to do global scrap stronger these domestic and as discipline demand trade future commodities. GDP Assuming reactions that for

tariffs we On on for and of to and Sword National products, has our supply hit during aluminum greater A demand a the metallic global in retaliatory processing into non-ferrous created the highs announced regulation. copper as front, stronger quarter, XXX Section multi-year days went effect. combination China's This aluminum were result by are a capabilities. of provide higher able regulations a China which imports content investments scrap. ago, advanced prices few driven X, by demand, On strong March both disruption, of

impact a for in number the can the include Long-term changes technologies. are practices purchase prices, of there scrap. These we to is actions to tariffs, still recycled adjust. is of too and full it in migrates of take invest While accessing markets in demand non-ferrous know our higher short-term alternative the to underlying these be to processing favor early to ferrous including expected production and sensitive world a continuing and environmentally to use as more our metals duration

move X strong reform to see fundamentals. demand and scrap Let's the the automotive, its improved review continued economic numbers durable confidence over for that impacting Through stronger leading U.S. can slide, goods steel now rise we've with driving indicators the near February, we industry. been the year-over-year On boost industrial to generation February which from display key Slide this industries leading to highs. to continue our the the highlighting production and and year, index, orders last which includes on indicators a index XX-year growth. up energy, Consumer GDP construction strong and tax getting the remains

flows, sales reform and March, as tax to domestic The vehicles. the the both of year-over-year While white the life end capital corporate and given average Also legislation rates. markets, light GDP tax the confidence of supply trends global are with growth, age and steel did lend slightly consumption supply the and long-term environment fall the vehicle tax from to should This lower should contributing growth domestic all prospects steel for aggressive finished prove high, support the reflected negative beneficial these and index the in markets continued investment is confidence higher recycled and economic spur personal impacts more federal stronger high metals in of individual and trajectory. spending. in shipment trend, tariffs, including used along to goods, remains pricing current road greater vehicles the also new products. expenditures, on stronger appliance supply incentives and lower its positive has for Barring potential considerable strong labor which both of demand rate

an our plan Let’s operating capital our year at announced cost businesses. strategic the execution now margins and three-year efficiencies on X to productivity pillars three this volumes our expand through of had the our deployment further time, Slide of leveraging for we are expansion, by successful and strategy, savings the a to developed our margin expand increase growth, we initiatives. initiatives. There and Last that turn formed volume framework our to update

half was by The increasing through operating our plan least volumes AMR's our income set XXXX targets We seen of ferrous expanding using and these flexibility the XX% fiscal grow three-year analytics and channels can founded initiatives of supply increase operating per approximately the clearly commercial to at to Companywide trends. first our results operating effectiveness. our platform, by in ton of Our also processing XX%. and on to be our increase sales

The already have stronger the our on our months sales been our target and ahead tracking market than achieving have volumes these we when growth reached year targets are ahead Our set fiscal conditions Companywide supportive our over ferrous of goal. targets. anticipated way XX XXXX we to margin slightly last

While tons XXXX, us assuming additional should and we in and volumes of also This goals, political and the economic our market operating sales continuation Companywide targeting generate platform. uncertainties successful plan to-date leverage the of by on impact of to X are and margins. our timing expand building enable the our fiscal further million trajectory utilizing of capacity existing the execution could our supportive conditions, the

Moving X. Slide now to

quickly to and in note our to trade While and developed actions us is uncertainty benefit to mitigate invested platform it arise. steps take they as to regarding headwinds important enable tailwinds clearly from to exists, that we've we've

in our us have non-ferrous the and can domestic and and strength finished weakness auto our another. equal we the of proportion. commercial supplier with our of purchase integration markets and focus ferrous to our in steel parts investment products, processing analytics, customer supply businesses, of through Through expanding chain our access directly to customer to offset from in margins. scrap enable logistics on one ability the retail, optimize all in we through By our Our to in adjust and part sales almost and both export base participating prices aspects supply improved to chain and volumes manufacturing base,

of steadily performance our successfully of delivering. are on have strong and a the quarter is we initiatives We been that executing trend strategic this continuation

Company to increase expect continue to customers, to products, our in efficiently. our our to enhance We operate platforms more even our and and offerings invest service technologies

to turn structure. our over a review performance segment I'll it our for and capital Now of Richard

Richard Peach

proportion In income to up our of XX% was reduced by for results to less quarter AMR’s reform second ferrous Adjusted our a global business. were to income sales Thank and of led Average the the with environment adjusted of supported for year year compared were operating million from were environment, and up Non-ferrous last per The XX% rates including its by from higher was Auto to This economic $XX of from X% was quarter, ferrous demand second commercial price non-ferrous quarter. selling AMR’s benefit their over review compared spreads, XX% was increased results side six year-over-year of were much average in car you, growth leverage while up per year, the both XX% the quarter. operating stronger driven up and driver to I'll steel. was by be and purchase income was quarter tons, East volumes, volumes of West metals. operating higher benefits primary Coasts. which $XX These improved from significant AMR’s growth, up represented which by higher result second performance current the in initiatives, in by sustained recycled increase the prior and the Recycling prices sales which inventory $X XX%. to it ton and year-over-year benefited improvements by were comparable global an China, respectively. U.S. in year-over-year has XXX,XXX also Metals continuing by period. metal in also volume Tamara. exports ton, the of The supply of positive trends, expanded price continued volumes, last in XX% best and second which volumes productivity year-over-year. quarter the and years. contributed export less start operating accounting, second increased

AMR’s as inventory to per by Non-ferrous any the volumes ahead further income volumes another uncertainty. third announced increase by retaliatory on quarter, a China recently although, look the to from quarter, subject ton expected last recycled sales below approximately higher of set expected including year, the be lower by to AMR’s average trade are ferrous products. prior is Compared approximately tariffs on sequentially to from third accounting. news XX%, we impacts expect year-over-year early further XX%. expected slightly strong actions results, the sales benefit to years are in aluminum daily While we creates expected be operating

the year, the the much cover and and strong to I'll performance was to prior year-over-year. period and from increased ferrous we’ve XX, included bulk operating from the million holiday trending Slide in Moving by higher to for export than income CSS benefit was results up CSS Scrap. operating was This an Adjusted had Compared which coming are the Cascade expected $X maintenance which production. CSS for also annual Steel of volumes additional $X million, benefits Asia. normal $X Synergy to an our integration shipment trends temporarily we planned are which million. benefits particularly seasonal given affected now

were demand and productivity volumes and steel product cost higher, by efficiency. are lower were commercial levels year-over-year a We Coast from seeing higher from management, XX% year-over-year from sales steel enhanced prices improvements Finished increased XX% quality, supplier imports. of and stronger sales initiatives in for integrated from and improvements up labor inventory finished also primarily of input of West selling scrap. rebar construction on by Average combination

the results. to expected the double a to range similar third year-over-year expect and around we year period. quarter significantly to is to be compared volumes sales ahead second metal and steel prior to finished spreads Operating quarter, expand be in our steel our income to increase Looking

let's of volumes. on, positive in our Slide review structure. Moving with the and quarter to capital a XX as outpacing our profitability, result working to prices Operating strong capital flow increased higher cash proceed was

X.Xx. leverage we our and maintained low of only adjusted debt net continues XX% balance Our to of of ratio to have EBITDA sheet

capital the Our million expect $XX million and the volumes, of processing we for this of will increased non-ferrous projects, include were capital range in anticipate to on technology, the frontline investment expenditures in second quarter our in $XX business. a We million. upgrades as invest year $XX equipment normal maintaining whole, replacement and investments to the spend support fiscal in environmental CapEx capital further to and

employees Items, Corporate one-time increased and were second to and based a performance, our expense the legal included corporate tax professional higher strong fees. quarter reform, following costs to million. bonus in Turning This accruals $XX incentive on special

to million. overall costs be Looking $X we to quarter, third sequentially expect the corporate lower by around

$X as releasing tax in million earnings Our second further of was from effective was the on as by per tax million a two XX%. Together, discrete driven $X.XX approximately benefit allowances of The these during tax rate reform rate assets. quarter a share. benefits well deferred approximately from items valuation $X discrete contributed certain the benefits in

of earlier. tax Looking while quarters that the of ahead mentioned in primarily whole fiscal and the to [indiscernible] our for to quarters third as to we lower each XXXX, fiscal range benefits be the XXXX for I expect rate these a be will discrete fourth effective due XX%, of

of Looking four the the to second over estimates the quarter note, further be course as XX%. the ahead rate and provisional of end XXXX, the we tax to Please our reform may of effective range of adjusted fiscal expect our next quarters. for tax the impact normalize accounting reflects in of

paid quarterly shares. dividend Finally, second the we consecutive repurchase quarter, our also of and in return we capital the XX XXX,XXX through

I’ll to the of summary our for over back Now remarks. Tamara turn presentation remainder her

Tamara Lundgren

Thank you, Richard.

notably headwinds. trade steel Over are several may we've and action highlighted quarter. In creating quarters, tailwinds trends our favorable very conditions economic We’ve scrap the some have create another improving leading massage today delivered last we great for also both Today, highlighted trends that markets. indicators and simple. that is and industry some,

ahead operating have of uncertainty. we the nimbly can leverage. we adjust our and goals tariff We're We're XXXX to delivering a We outlook. fiscal tracking believe strong

in our quarterly capital to capital We a and transactional organic have healthy ability retaining repurchases. while return our growth, for consistently the through continued and to investment the shareholders provides foundation which structure, maintained share dividend

whom performance we are our call many into and the firmly can listening our I special be savings of In further bonus to achieving tax and to from to our reward in and focused to reform. able on increase team award our employees, fiscal I'd a of goals were in We which to XXXX thank know shareholder We that our value control recent this pleased are closing, benefits with beyond. share controlling morning. tax like one-time

My is best-in-class one is our the to be to without delivered fiscal community we direct contributions, and to industry of performance over this wavering from recycling as Your result we many were ability foundation since each of cornerstones excellence and of stewardship, result, quarter continued in XXXX. have performance go of quarterly your you operational our Thanks customer the demonstrated the of a values core for you've this achievements environmental best century. Company's well drive as safety, our truly your our leader quality, and thanks integrity, to why service. a our

operator, the open questions. for call Now up let's

Operator

our Instructions]. [Operator you line question of And Korn Sachs. the Matthew Thank comes first from Goldman of

Your line is open.

Matthew Korn

Hi, good quarter. a morning, folks. Congratulations on

Tamara Lundgren

morning. Good you. Thank

Matthew Korn

morning. Good

So pushed that piece and operating a in you question ton point that’s there pointed any noted can big that out versus on op also also AMR, -- than past the you’ve that been as quicker been of et being that’s you cited target to AMR your notice has for factor Cascade? – supportive. per been the market cetera income operational the you’ve as you've expected, Has due that the on positive plan also to the leverage efficiencies, side, surprise you

Tamara Lundgren

just-in-time to have that internal outlined legacy success. Well, if but success achieve also to greater into those of that of we customer business snowballed I'll the things start development, and product course and did when add – some well. and as efficiencies, you we we APB, plans new and found outreach, plan in to set our that development, then we new will synergies integrate he number that But a Richard wants may up MRB internal

of we initial of you've is synergies has for those goals out. has you been success as achieve think by But factors plan because that out advance, our conditions it success. I market CSS in allowed point seen to where us all bred those supported so exceeded when in what stronger a And internally initial set combination than as well further obviously

Matthew Korn

you've to and for year I the X we've ton it, X is on Slide volumes. AMR seen XXXX, formalized Got there XXXX prompts the how that fiscal question, next target see realistic million what my what total that – ceiling given is is margin nice of expansion course you’ve higher into the that which ton pointing the you think that to learned and it is seen arrow then a expect angle, that markets up in metric at the ferrous per you've for XXXX?

Richard Peach

is that This enabled obviously increased, Richard margins. leverage here. operating as We've constant our our the seen have increase in created we've volumes

As conditions, from if costs, we supportive purchasing we integrated us get and more go supportive forward were that market model environment. we a to our more enable our to will in process business expect over the volume remain our ability market assuming where would spreading here, yields further auto the fixed expand sales shredding we we and have and margins

Matthew Korn

China the scrap had now today? engagement buyers your state look Has over me, numerous which uncertainties, that we the that. news last the offshore? on U.S. the have will trade more been it, you've one about policies, even. policy churn demand last the Got of seen mentioned trade for talk overseas Can of you The for regarding effect discernible couple weeks any of you policies? any Have

Tamara Lundgren

for weeks, but export seeing purchasing our still a this and consistent European in in of with the few they've market. based Yes. is broad buying the We're their out has established Turkey market market. patterns begun demand been

the the ferrous in So we're tariffs. behavior scrap in any not change of because markets seeing

Matthew Korn

deal. and that. like you. to Thanks luck it believe much I Good good

Tamara Lundgren

you. Thank

Operator

you. Thank

KeyBanc is Capital line next the of Tyler Our question of from Markets. Kenyon

line open. Your is

Tyler Kenyon

Hey, good morning.

Tamara Lundgren

morning. Good

Richard Peach

morning. Good

Tyler Kenyon

if $XX the AMR I ton ton. EBIT per kind arrive it that there XX% by way the leverage volumes? perhaps of when pretty exclude Is and to year-over-year a just look of to of profitability of accounting was in So inventory the improvement, I couch improvement driven Was I at something impact. just XX% any how at that improvement? much operating the that purely close

Richard Peach

initiatives there is and here. Yes, say our the of Richard a Tyler. obviously I’d market. that combination own It’s internal

we’ve market, portion of terms coming leverage. there's put the more and In down the operating certainly to of initiatives internal year-over-year, a meaningful own but from it our

some what our been contributed had really As expanded getting far metal too, the had firing initiatives productivity we year-over-year have the to we higher the as volumes fronts. improved we’ve pricing spreads, from then on so clearly sustained and better, all benefits

Tyler Kenyon

both think And then to domestic any stronger just some driven strong a ferrous finally export strength year-over-year, by of market? market was that Okay. perhaps the versus uplift just the in CSS quarter-over-quarter how in noticed volumes very much and about non-ferrous improvement and way

Tamara Lundgren

Are about…? export activity you talking are about CSS or export talking – you of the out

Tyler Kenyon

seeing correct that of operations? what kind Yes, in as maybe CSS versus you're of the just well domestically scrap

Richard Peach

there, two things driving Well. We’ve really got Tyler.

all, West the strong. markets particularly of have First export been Coast the of

has of So combination with export markets that demand channel initiatives recycling out doing strength have a base. steel force, through the drive flow prices, supplier and and is metals the in the then manufacturing and that and recycled increase out helped for the supply our and which together been brings higher steel Oregon the steel been own of own to our goes it's and operations, strength and higher routed so to strong our been thing the extremely more well, second mill scrap has mill

Tyler Kenyon

then And you. just last me. Thank one for

I in Just policy. addressed already around seen we've just as to given kind you've trade headlines the think well what it relates concern of as

to business for of are could mentioned think just – some potential those where about the the sending of had scrap of geographies where some or You you new kind you've you foresee anyway sometime, be ongoing some coming quite initiatives or potentially from? but of that other where

Tamara Lundgren

we develop of continue. alternative What in additional a processing situations increases? have processing for been aluminum scrap see either global some that and involved is and aluminum investments that in is valuable I technologies this that in only which Well, and to years will manufacturing one increases growth number try to for continues is like we a the will market markets as and and grow obviously product not scrap by value advance

have of unclear So that is will the it are buying now markets tariffs be and opportunity alternative will the I new with But I who would the will covered. all anticipate implemented grow. this how to preface be that still very

So see are to to I this watch the to patterns. significant whether think we while for changes want there buying a

Tyler Kenyon

for taking Thanks our questions.

Tamara Lundgren

Thank you. Q&A of End

Operator

this no I’m I'd turn showing the like back closing to to remarks. Lundgren time, further at And questions. conference CEO, over Tamara you. Thank for

Tamara Lundgren

on again everyone for Thank us call to in We and your in look you our when quarter speaking we you third Thank for today June with results. joining our forward interest Company. will be our reporting you.

Operator

and you in today's your conference. participation Ladies program. This the does thank for gentlemen, conclude

Everyone may great day. You now disconnect. have a

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