Schnitzer Reports First Quarter 2019 Financial Results
Schnitzer Steel Industries, Inc. (Nasdaq: SCHN) today reported results for its first quarter of fiscal 2019 ended November 30, 2018. The Company reported earnings per share from continuing operations of $0.57 and adjusted earnings per share of $0.58. In the first quarter of fiscal 2018, the Company reported earnings per share from continuing operations of $0.64 and adjusted earnings per share of $0.63. For a reconciliation of the adjusted results to U.S. GAAP, see the Non-GAAP Financial Measures provided after the financial statements in this document.
Auto and Metals Recycling (AMR) achieved operating income of $23 million, or $25 per ferrous ton, compared to operating income in the first quarter of the prior year of $35 million, or $44 per ferrous ton. AMR’s year-over-year performance included benefits from 15% higher ferrous sales volumes and 18% higher nonferrous sales volumes, which were more than offset by operating margin compression resulting primarily from a 19% decline in average net selling prices for nonferrous products that outpaced the reduction in purchase costs for raw materials.
Cascade Steel and Scrap (CSS) achieved first quarter operating income of $12 million, an increase of 41% year-over-year. CSS’s operating performance improvement was driven primarily by a 25% year-over-year increase in finished steel average net selling prices, which significantly outpaced the increase in the cost of steel-making raw materials. Finished steel sales volumes were 6% lower year-over-year primarily due to lower production resulting from the combination of a temporary disruption to a major external natural gas pipeline and downtime related to the implementation of mill equipment upgrades aimed at improving productivity.
In the first quarter of fiscal 2019, consolidated financial performance included Corporate expense of $12 million, a decrease of $4 million from the prior year first quarter, which had included a charge for a legacy environmental liability of $4 million.
“In challenging market conditions that saw a significant decline in the net selling prices for our nonferrous products, AMR delivered solid operating performance with significant year-over-year improvement in ferrous and nonferrous volumes, demonstrating the benefits of our sales diversification strategy and our commercial initiatives to increase supply volumes. Looking forward, we are expanding the scope of our productivity initiatives aimed at improving AMR’s operating margins in the current market environment, while continuing to invest in advanced nonferrous technologies to support our strategic objectives to lower processing costs, increase recovery rates, and further develop our product optionality so we continue to meet our customers’ needs,” commented Tamara Lundgren, President and Chief Executive Officer. “CSS continued to deliver excellent results, reflecting a 41% year-over-year increase in operating income, underpinned by significant operating margin expansion through higher steel prices and improved productivity. Our strong balance sheet provides us with the ability to invest in capital projects, while continuing to return capital to our shareholders through both our share repurchases and quarterly dividend.”
| Summary Results | ||||||||||||||||||
| ($ in millions, except per share amounts) | ||||||||||||||||||
| Quarter | ||||||||||||||||||
| 1Q19 | 1Q18 | Change | 4Q18 | Change | ||||||||||||||
| Revenues | $ | 564 | $ | 483 | 17 | % | $ | 670 | (16 | )% | ||||||||
| Operating income | $ | 23 | $ | 26 | (14 | )% | $ | 38 | (40 | )% | ||||||||
| Other asset impairment charges (recoveries), net | — | — | NM | 1 | NM | |||||||||||||
| Restructuring charges and other exit-related activities | — | — | NM | (1 | ) | NM | ||||||||||||
| Recoveries related to the resale or modification of certain previously contracted shipments | — | — | NM | — | NM | |||||||||||||
| Adjusted operating income(1) | $ | 23 | $ | 26 | (12 | )% | $ | 38 | (39 | )% | ||||||||
| Net income attributable to SSI | $ | 16 | $ | 18 | (12 | )% | $ | 60 | (73 | )% | ||||||||
| Net income from continuing operations attributable to SSI | $ | 16 | $ | 18 | (12 | )% | $ | 59 | (73 | )% | ||||||||
| Adjusted net income from continuing operations attributable to SSI(1) | $ | 16 | $ | 18 | (9 | )% | $ | 59 | (72 | )% | ||||||||
| Diluted earnings per share attributable to SSI | $ | 0.57 | $ | 0.64 | (11 | )% | $ | 2.09 | (73 | )% | ||||||||
| Diluted earnings per share from continuing operations attributable to SSI | $ | 0.57 | $ | 0.64 | (11 | )% | $ | 2.08 | (72 | )% | ||||||||
| Adjusted diluted earnings per share from continuing operations attributable to SSI(1) | $ | 0.58 | $ | 0.63 | (8 | )% | $ | 2.06 | (72 | )% | ||||||||
| (1) | See Non-GAAP Financial Measures for reconciliation to U.S. GAAP. | |
| NM = Not Meaningful | ||
Auto and Metals Recycling
| Summary of Auto and Metals Recycling Results | |||||||||||||||||||
| ($ in millions, except selling prices and data per ton; Fe volumes 000s long tons; NFe volumes Ms lbs) | |||||||||||||||||||
| Quarter | |||||||||||||||||||
| 1Q19 | 1Q18 | Change | 4Q18 | Change | |||||||||||||||
| Total revenues | $ | 436 | $ | 398 | 10 | % | $ | 532 | (18 | )% | |||||||||
| Ferrous revenues | $ | 299 | $ | 255 | 17 | % | $ | 362 | (17 | )% | |||||||||
| Ferrous volumes | 919 | 797 | 15 | % | 1,032 | (11 | )% | ||||||||||||
| Avg. net ferrous sales prices ($/LT)(1) | $ | 306 | $ | 292 | 5 | % | $ | 321 | (5 | )% | |||||||||
| Nonferrous revenues | $ | 104 | $ | 110 | (6 | )% | $ | 134 | (22 | )% | |||||||||
| Nonferrous volumes(2) | 153 | 129 | 18 | % | 167 | (8 | )% | ||||||||||||
| Avg. net nonferrous sales prices ($/lb)(1)(2) | $ | 0.59 | $ | 0.73 | (19 | )% | $ | 0.69 | (14 | )% | |||||||||
| Cars purchased for retail (000s) | 94 | 108 | (13 | )% | 105 | (10 | )% | ||||||||||||
| Operating income | $ | 23 | $ | 35 | (35 | )% | $ | 34 | (32 | )% | |||||||||
| Operating income per Fe ton | $ | 25 | $ | 44 | (43 | )% | $ | 33 | (24 | )% | |||||||||
| Adjusted operating income(3) | $ | 23 | $ | 35 | (34 | )% | $ | 34 | (33 | )% | |||||||||
| Adjusted operating income per Fe ton | $ | 25 | $ | 44 | (42 | )% | $ | 33 | (25 | )% | |||||||||
|
(1) |
Sales prices are shown net of freight. | |
| (2) | Excludes platinum group metals (PGMs) in catalytic converters. | |
| (3) | See Non-GAAP Financial Measures for reconciliation to U.S. GAAP. | |
Volumes: Ferrous sales volumes in the first quarter increased 15% compared to the prior year first quarter, primarily due to stronger domestic demand and commercial initiatives to increase our supply flows. Ferrous sales volumes decreased 11% sequentially primarily due to seasonality. Nonferrous sales volumes were 18% higher compared to the prior year first quarter, mainly due to higher supply flows and 8% lower sequentially, primarily due to seasonality.
Export customers accounted for 63% of total ferrous sales volumes. Our products, including ferrous, nonferrous and recycled auto parts, were shipped to 22 countries in the first quarter of fiscal 2019, with Bangladesh, Turkey and Taiwan representing the top export destinations for ferrous shipments.
Pricing: Average ferrous net selling prices increased $14 per ton, or 5%, compared to the prior year first quarter, and were down $15 per ton, or 5%, sequentially. Average nonferrous net selling prices decreased 19% compared to the prior year first quarter and decreased 14% sequentially.
Margins: Operating income was $23 million in the first quarter, a decrease of $12 million, or 35%, compared to the prior year first quarter and $11 million, or 32%, lower sequentially. Operating income per ferrous ton of $25 represented a decrease of $19 per ton or 43% from the prior year first quarter and a sequential decrease of $8 per ton, or 24%. The margin compression in the first quarter of fiscal 2019 resulted primarily from the significant decline in selling prices for zorba and other nonferrous products that outpaced the reduction in purchase costs for raw materials, more than offsetting the benefits of operating leverage from higher ferrous and nonferrous sales volumes, and higher net ferrous selling prices. Selling, general and administrative (“SG&A”) expenses were $4 million higher than in the prior year as a result of higher employee-related expenses and $1 million in environmental-related expenses, and consistent sequentially. First quarter operating results include a neutral impact from average inventory accounting, consistent with the first quarter of the prior year and compared to an adverse impact of $2 million in the fourth quarter of fiscal 2018.
Cascade Steel and Scrap
| Summary of Cascade Steel and Scrap Results | ||||||||||||||||||||||
| ($ in millions, except selling prices) | ||||||||||||||||||||||
| Quarter | ||||||||||||||||||||||
| 1Q19 | 1Q18 | Change | 4Q18 | Change | ||||||||||||||||||
| Steel revenues | $ | 101 | $ | 80 | 26 | % | $ | 102 | — | % | ||||||||||||
| Recycling revenues | 29 | 10 | 205 | % | 42 | (31 | )% | |||||||||||||||
| Total revenues | $ | 130 | $ | 90 | 45 | % | $ | 144 | (9 | )% | ||||||||||||
| Operating income | $ | 12 | $ | 8 | 41 | % | $ | 14 | (12 | )% | ||||||||||||
| Finished steel average net sales price ($/ST) | $ | 747 | $ | 599 | 25 | % | $ | 741 | 1 | % | ||||||||||||
| Finished steel sales volumes (000s ST) | 119 | 127 | (6 | )% | 127 | (6 | )% | |||||||||||||||
| Rolling mill utilization | 87 | % | 95 | % | (8 | )% | 83 | % | 5 | % | ||||||||||||
| (1) | Price information is shown after netting the cost of freight incurred to deliver the product to the customer. | |
| NM = Not Meaningful | ||
Volumes: Finished steel sales volumes in the first quarter were 6% lower year-over-year and sequentially, primarily due to lower production in the first quarter of fiscal 2019 caused by a combination of a temporary disruption to a major external natural gas pipeline and downtime related to the implementation of mill equipment upgrades aimed at improving productivity. Recycling revenues were significantly higher year-over-year as a result of increased ferrous export sales due to increased supply flows, but down sequentially primarily due to seasonality.
Pricing: Average net selling prices for finished steel products increased 25% from the prior year first quarter and 1% sequentially, reflecting the impacts of reduced pressure from steel imports and higher steel-making raw material and other input costs.
Margins: Operating income for the first quarter of fiscal 2019 was $12 million, an improvement of 41% from the prior year first quarter. The improved year-over-year performance reflected an expansion in finished steel margins resulting from higher average net selling prices which significantly outpaced the increase in the cost of steel-making raw materials and offset the impact of lower finished steel sales volumes. Sequentially, operating income was $2 million lower driven primarily by the impact on sales volumes of the lower production and a $1 million adverse impact from the natural gas supply disruption.
Corporate Items
In the first quarter of fiscal 2019, consolidated financial performance included Corporate expense of $12 million, a decrease of $4 million from the prior year first quarter, which included a charge for a legacy environmental liability of $4 million.
The Company’s effective tax rate for the first quarter of fiscal 2019 was an expense of 19.8%, which includes a discrete tax benefit associated with share-based compensation.
Total debt at the end of the first quarter of fiscal 2019 was $169 million, and debt, net of cash, was $157 million compared to $107 million and $103 million, respectively, at the end of the fourth quarter of fiscal 2018 (refer to Non-GAAP Financial Measures provided after the financial statements in this document). The first quarter of fiscal 2019 reflected negative operating cash flow of $12 million, as positive cash flows associated with profitability were more than offset by an increase in working capital due to the timing of the annual cash payment of incentive compensation accrued in fiscal 2018 and the impact of the timing of shipments on the collection of receivables.
Pursuant to its ongoing authorized share repurchase program, the Company repurchased a total of 150,000 shares of its Class A common stock in open market transactions during the first quarter. The Company also returned capital to shareholders through its 99th consecutive quarterly dividend.
Analysts’ Conference Call: First Quarter of Fiscal 2019
A conference call and slide presentation to discuss results will be held today, January 9, 2019, at 11:30 a.m. EST hosted by Tamara Lundgren, President and Chief Executive Officer, and Richard Peach, Senior Vice President, Chief Financial Officer, and Chief of Corporate Operations. The call and the slides will be webcast and accessible on the Company’s website under Company > Investors > Event Calendar at www.schnitzersteel.com/events.
Summary financial data is provided in the following pages. The slides and related materials will be available prior to the call on the website.
About Schnitzer Steel Industries, Inc.
Schnitzer Steel Industries, Inc. is one of the largest manufacturers and exporters of recycled metal products in North America with operating facilities located in 23 states, Puerto Rico and Western Canada. Schnitzer has seven deep water export facilities located on both the East and West Coasts and in Hawaii and Puerto Rico. The Company’s integrated operating platform also includes auto parts stores with approximately 5 million annual retail visits. The Company’s steel manufacturing operations produce finished steel products, including rebar, wire rod and other specialty products. The Company began operations in 1906 in Portland, Oregon.
| SCHNITZER STEEL INDUSTRIES, INC. | ||||||||||||||
| FINANCIAL HIGHLIGHTS | ||||||||||||||
| (in thousands) | ||||||||||||||
| (Unaudited) | ||||||||||||||
| For the Three Months Ended | ||||||||||||||
|
November 30, |
August 31, |
November 30, |
||||||||||||
| REVENUES: | ||||||||||||||
| Auto and Metals Recycling: | ||||||||||||||
| Ferrous revenues | $ | 298,812 | $ | 362,051 | $ | 254,983 | ||||||||
| Nonferrous revenues | 104,181 | 133,758 | 110,343 | |||||||||||
| Retail and other revenues | 33,419 | 35,707 | 32,728 | |||||||||||
| Total Auto and Metals Recycling revenues | 436,412 | 531,516 | 398,054 | |||||||||||
| Cascade Steel and Scrap: | ||||||||||||||
| Steel revenues | 101,337 | 101,846 | 80,446 | |||||||||||
| Recycling revenues | 29,049 | 42,021 | 9,538 | |||||||||||
| Total Cascade Steel and Scrap revenues | 130,386 | 143,867 | 89,984 | |||||||||||
| Intercompany sales eliminations | (2,778 | ) | (5,806 | ) | (4,759 | ) | ||||||||
| Total revenues | $ | 564,020 | $ | 669,577 | $ | 483,279 | ||||||||
| OPERATING INCOME: | ||||||||||||||
| AMR operating income | $ | 23,017 | $ | 33,836 | $ | 35,172 | ||||||||
| CSS operating income | $ | 11,918 | $ | 13,604 | $ | 8,476 | ||||||||
| Consolidated operating income | $ | 22,689 | $ | 37,973 | $ | 26,423 | ||||||||
| Adjusted AMR operating income(1) | $ | 23,080 | $ | 34,368 | $ | 34,755 | ||||||||
| Adjusted CSS operating income(1) | 11,918 | 13,604 | 8,388 | |||||||||||
| Adjusted segment operating income(1) | 34,998 | 47,972 | 43,143 | |||||||||||
| Corporate expense | (12,205 | ) | (10,928 | ) | (16,644 | ) | ||||||||
| Intercompany eliminations | 161 | 539 | (481 | ) | ||||||||||
| Adjusted operating income(1) | 22,954 | 37,583 | 26,018 | |||||||||||
| Other asset impairment (charges) recoveries, net | (63 | ) | (532 | ) | 88 | |||||||||
| Restructuring charges and other exit-related activities | (202 | ) | 922 | (100 | ) | |||||||||
| Recoveries related to the resale or modification of certain previously contracted shipments | — | — | 417 | |||||||||||
| Total operating income | $ | 22,689 | $ | 37,973 | $ | 26,423 | ||||||||
| (1) See Non-GAAP Financial Measures for reconciliation to U.S. GAAP. | ||||||||||||||
| SCHNITZER STEEL INDUSTRIES, INC. | ||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||
| (In thousands) | ||||||||||||||
| (Unaudited) | ||||||||||||||
| For the Three Months Ended | ||||||||||||||
|
November 30, |
August 31, |
November 30, |
||||||||||||
| Revenues | $ | 564,020 | $ | 669,577 | $ | 483,279 | ||||||||
| Cost of goods sold | 490,132 | 582,608 | 406,251 | |||||||||||
| Selling, general and administrative | 51,419 | 50,011 | 51,043 | |||||||||||
| (Income) from joint ventures | (485 | ) | (625 | ) | (450 | ) | ||||||||
| Other asset impairment charges (recoveries), net | 63 | 532 | (88 | ) | ||||||||||
| Restructuring charges and other exit-related activities | 202 | (922 | ) | 100 | ||||||||||
| Operating income | 22,689 | 37,973 | 26,423 | |||||||||||
| Interest expense | (1,906 | ) | (2,160 | ) | (2,059 | ) | ||||||||
| Other income, net | 23 | 495 | 849 | |||||||||||
| Income from continuing operations before income taxes | 20,806 | 36,308 | 25,213 | |||||||||||
| Income tax (expense) benefit | (4,116 | ) | 23,620 | (5,957 | ) | |||||||||
| Income from continuing operations | 16,690 | 59,928 | 19,256 | |||||||||||
| Income (loss) from discontinued operations, net of tax | (72 | ) | 273 | (35 | ) | |||||||||
| Net income | 16,618 | 60,201 | 19,221 | |||||||||||
| Net income attributable to noncontrolling interests | (430 | ) | (532 | ) | (857 | ) | ||||||||
| Net income attributable to SSI | $ | 16,188 | $ | 59,669 | $ | 18,364 | ||||||||
| Net income per share attributable to SSI: | ||||||||||||||
| Basic: | ||||||||||||||
| Income per share from continuing operations attributable to SSI | $ | 0.59 | $ | 2.17 | $ | 0.66 | ||||||||
| Income (loss) per share from discontinued operations attributable to SSI | — | 0.01 | — | |||||||||||
| Net income per share attributable to SSI | $ | 0.59 | $ | 2.18 | $ | 0.66 | ||||||||
| Diluted: | ||||||||||||||
| Income per share from continuing operations attributable to SSI | $ | 0.57 | $ | 2.08 | $ | 0.64 | ||||||||
| Income (loss) per share from discontinued operations attributable to SSI | — | 0.01 | — | |||||||||||
| Net income per share attributable to SSI | $ | 0.57 | $ | 2.09 | $ | 0.64 | ||||||||
| Weighted average number of common shares: | ||||||||||||||
| Basic | 27,505 | 27,427 | 27,695 | |||||||||||
| Diluted | 28,364 | 28,524 | 28,662 | |||||||||||
| Dividends declared per common share | $ | 0.1875 | $ | 0.1875 | $ | 0.1875 | ||||||||
| SCHNITZER STEEL INDUSTRIES, INC. | ||||
| SELECTED OPERATING STATISTICS | ||||
| (Unaudited) | ||||
| 1Q19 | ||||
| SSI Total Volumes(1) | ||||
| Total ferrous volumes (LT) | 1,079,705 | |||
| Total nonferrous volumes (000s LB) | 166,977 | |||
| Auto and Metals Recycling | ||||
| Ferrous selling prices ($/LT)(2) | ||||
| Domestic | $ | 290 | ||
| Export | $ | 314 | ||
| Average | $ | 306 | ||
| Ferrous sales volume (LT) | ||||
| Domestic | 339,879 | |||
| Export | 578,976 | |||
| Total | 918,855 | |||
| Nonferrous average price ($/LB)(2)(3) | $ | 0.59 | ||
| Nonferrous sales volume (000s LB)(3) | 152,869 | |||
| Car purchase volume (000s)(4) | 94 | |||
| Auto stores at end of quarter | 51 | |||
| Cascade Steel and Scrap | ||||
| Finished steel average sales price ($/ST)(2) | $ | 747 | ||
| Sales volume (ST) | ||||
| Rebar | 81,470 | |||
| Coiled products | 37,418 | |||
| Merchant bar and other | 316 | |||
| Finished steel products sold | 119,204 | |||
| Rolling mill utilization(5) | 87 | % | ||
| (1) Ferrous and nonferrous volumes sold externally by AMR and CSS and delivered to our steel mill for finished steel production. |
| (2) Price information is shown after a reduction for the cost of freight incurred to deliver the product to the customer. |
| (3) Excludes PGM metals in catalytic converters. |
| (4) Cars purchased by auto parts stores only. |
| (5) Rolling mill utilization is based on effective annual production capacity under current conditions of 580 thousand tons of finished steel products. |
| SCHNITZER STEEL INDUSTRIES, INC. | ||||||||||||||||||||
| SELECTED OPERATING STATISTICS | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| Fiscal | ||||||||||||||||||||
| 1Q18 | 2Q18 | 3Q18 | 4Q18 | 2018 | ||||||||||||||||
| SSI Total Volumes(1) | ||||||||||||||||||||
| Total ferrous volumes (LT) | 912,145 | 1,062,260 | 1,118,743 | 1,205,803 | 4,298,951 | |||||||||||||||
| Total nonferrous volumes (000s LB) | 141,046 | 144,024 | 162,667 | 188,359 | 636,096 | |||||||||||||||
| Auto and Metals Recycling | ||||||||||||||||||||
| Ferrous selling prices ($/LT)(2) | ||||||||||||||||||||
| Domestic | $ | 259 | $ | 278 | $ | 314 | $ | 303 | $ | 291 | ||||||||||
| Export | $ | 306 | $ | 327 | $ | 347 | $ | 328 | $ | 328 | ||||||||||
| Average | $ | 292 | $ | 314 | $ | 337 | $ | 321 | $ | 317 | ||||||||||
| Ferrous sales volume (LT) | ||||||||||||||||||||
| Domestic | 237,464 | 239,571 | 293,323 | 314,974 | 1,085,332 | |||||||||||||||
| Export | 559,154 | 656,738 | 690,019 | 716,834 | 2,622,745 | |||||||||||||||
| Total | 796,618 | 896,309 | 983,342 | 1,031,808 | 3,708,077 | |||||||||||||||
| Nonferrous average price ($/LB)(2)(3) | $ | 0.73 | $ | 0.72 | $ | 0.74 | $ | 0.69 | $ | 0.72 | ||||||||||
| Nonferrous sales volume (000s LB)(3) | 129,137 | 129,549 | 146,043 | 166,976 | 571,705 | |||||||||||||||
| Car purchase volume (000s)(4) | 108 | 102 | 109 | 105 | 424 | |||||||||||||||
| Auto stores at end of quarter | 53 | 53 | 53 | 52 | 52 | |||||||||||||||
| Cascade Steel and Scrap | ||||||||||||||||||||
| Finished steel average sales price ($/ST)(2) | $ | 599 | $ | 619 | $ | 703 | $ | 741 | $ | 666 | ||||||||||
| Sales volume (ST) | ||||||||||||||||||||
| Rebar | 84,243 | 79,718 | 91,603 | 81,182 | 336,746 | |||||||||||||||
| Coiled products | 40,928 | 43,056 | 46,673 | 43,878 | 174,535 | |||||||||||||||
| Merchant bar and other | 2,049 | 1,937 | 1,945 | 1,950 | 7,881 | |||||||||||||||
| Finished steel products sold | 127,220 | 124,711 | 140,221 | 127,010 | 519,162 | |||||||||||||||
| Rolling mill utilization(5) | 95 | % | 83 | % | 91 | % | 83 | % | 88 | % | ||||||||||
| (1) Ferrous and nonferrous volumes sold externally by AMR and CSS and delivered to our steel mill for finished steel production. |
| (2) Price information is shown after a reduction for the cost of freight incurred to deliver the product to the customer. |
| (3) Excludes PGM metals in catalytic converters. |
| (4) Cars purchased by auto parts stores only. |
| (5) Rolling mill utilization is based on effective annual production capacity under current conditions of 580 thousand tons of finished steel products. |
| SCHNITZER STEEL INDUSTRIES, INC. | |||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
| (In thousands) | |||||||
| (Unaudited) | |||||||
| November 30, 2018 | August 31, 2018 | ||||||
|
Assets |
|||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 11,216 | $ | 4,723 | |||
| Accounts receivable, net | 193,439 | 169,418 | |||||
| Inventories | 200,562 | 205,877 | |||||
| Other current assets | 41,455 | 68,341 | |||||
| Total current assets | 446,672 | 448,359 | |||||
| Property, plant and equipment, net | 422,686 | 415,711 | |||||
| Goodwill and other assets | 239,846 | 240,747 | |||||
| Total assets | $ | 1,109,204 | $ | 1,104,817 | |||
|
Liabilities and Equity |
|||||||
| Current liabilities: | |||||||
| Short-term borrowings | $ | 1,156 | $ | 1,139 | |||
| Other current liabilities | 192,872 | 253,538 | |||||
| Total current liabilities | 194,028 | 254,677 | |||||
| Long-term debt | 167,394 | 106,237 | |||||
| Other long-term liabilities | 71,799 | 73,793 | |||||
| Equity: | |||||||
| Total Schnitzer Steel Industries, Inc. (“SSI”) shareholders’ equity | 671,914 | 666,078 | |||||
| Noncontrolling interests | 4,069 | 4,032 | |||||
| Total equity | 675,983 | 670,110 | |||||
| Total liabilities and equity | $ | 1,109,204 | $ | 1,104,817 | |||
Non-GAAP Financial Measures
This press release contains performance based on adjusted net income and adjusted diluted earnings per share from continuing operations attributable to SSI and adjusted consolidated, AMR and CSS operating income, which are non-GAAP financial measures as defined under SEC rules. As required by SEC rules, we have provided reconciliations of these measures for each period discussed to the most directly comparable U.S. GAAP measure. Management believes that presenting these non-GAAP financial measures provides a meaningful presentation of our results from business operations excluding adjustments for other asset impairment charges net of recoveries, restructuring charges and other exit-related activities, recoveries related to the resale or modification of certain previously contracted shipments, and the income tax expense (benefit) allocated to these adjustments, items which are not related to underlying business operational performance, and improves the period-to-period comparability of our results from business operations. Adjusted operating results in fiscal 2015 excluded the impact from the resale or modification of the terms, each at significantly lower prices due to sharp declines in selling prices, of certain previously contracted bulk shipments for delivery during fiscal 2015. Recoveries resulting from settlements with the original contract parties, which began in the third quarter of fiscal 2016 and concluded in the first quarter of fiscal 2018, are reported within selling, general and administrative expense in the quarterly statements of income and are also excluded from the measures. Further, management believes that debt, net of cash is a useful measure for investors because, as cash and cash equivalents can be used, among other things, to repay indebtedness, netting this against total debt is a useful measure of our leverage. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, the most directly comparable U.S. GAAP measures.
| ($ in millions) | Quarter | |||||||||||||
| 1Q19 | 1Q18 | 4Q18 | ||||||||||||
| Consolidated operating income: | ||||||||||||||
| Operating income | $ | 23 | $ | 26 | $ | 38 | ||||||||
| Other asset impairment charges (recoveries), net | — | — | 1 | |||||||||||
| Restructuring charges and other exit-related activities | — | — | (1 | ) | ||||||||||
| Recoveries related to the resale or modification of certain previously contracted shipments | — | — | — | |||||||||||
| Adjusted consolidated operating income | $ | 23 | $ | 26 | $ | 38 | ||||||||
| AMR operating income: | ||||||||||||||
| Operating income | $ | 23 | $ | 35 | $ | 34 | ||||||||
| Other asset impairment charges (recoveries), net | — | — | 1 | |||||||||||
| Recoveries related to the resale or modification of certain previously contracted shipments | — | — | — | |||||||||||
| Adjusted AMR operating income(1) | $ | 23 | $ | 35 | $ | 34 | ||||||||
| CSS operating income: | ||||||||||||||
| Operating income | $ | 12 | $ | 8 | $ | 14 | ||||||||
| Other asset impairment charges (recoveries), net | — | — | — | |||||||||||
| Adjusted CSS operating income | $ | 12 | $ | 8 | $ | 14 | ||||||||
| (1) May not foot due to rounding. | ||||||||||||||
| Net income from continuing operations attributable to SSI | ||||||||||||||
| ($ in millions) | Quarter | |||||||||||||
| 1Q19 | 1Q18 | 4Q18 | ||||||||||||
| Net income from continuing operations attributable to SSI | $ | 16 | $ | 18 | $ | 59 | ||||||||
| Other asset impairment charges (recoveries), net | — | — | 1 | |||||||||||
| Restructuring charges and other exit-related activities | — | — | (1 | ) | ||||||||||
| Recoveries related to the resale or modification of certain previously contracted shipments | — | — | — | |||||||||||
| Income tax expense (benefit) allocated to adjustments(1) | — | — | — | |||||||||||
| Adjusted net income from continuing operations attributable to SSI | $ | 16 | $ | 18 | $ | 59 | ||||||||
| (1) Income tax allocated to the aggregate adjustments reconciling reported and adjusted net income from continuing operations attributable to SSI is determined based on a tax provision calculated with and without the adjustments. |
| Diluted earnings per share from continuing operations attributable to SSI | ||||||||||||||
| ($ per share) | Quarter | |||||||||||||
| 1Q19 | 1Q18 | 4Q18 | ||||||||||||
| Diluted earnings per share from continuing operations attributable to SSI | $ | 0.57 | $ | 0.64 | $ | 2.08 | ||||||||
| Other asset impairment charges (recoveries), net | — | — | 0.02 | |||||||||||
| Restructuring charges and other exit-related activities | 0.01 | — | (0.03 | ) | ||||||||||
| Recoveries related to the resale or modification of certain previously contracted shipments | — | (0.01 | ) | — | ||||||||||
| Income tax expense (benefit) allocated to adjustments(1) | — | — | (0.01 | ) | ||||||||||
| Adjusted diluted earnings per share from continuing operations attributable to SSI | $ | 0.58 | $ | 0.63 | $ | 2.06 | ||||||||
| (1) Income tax allocated to the aggregate adjustments reconciling reported and adjusted diluted earnings per share from continuing operations attributable to SSI is determined based on a tax provision calculated with and without the adjustments. |
| Debt, net of cash | |||||||
| ($ in thousands) | |||||||
| November 30, 2018 | August 31, 2018 | ||||||
| Short-term borrowings | $ | 1,156 | $ | 1,139 | |||
| Long-term debt, net of current maturities | 167,394 | 106,237 | |||||
| Total debt | 168,550 | 107,376 | |||||
| Less: cash and cash equivalents | 11,216 | 4,723 | |||||
| Total debt, net of cash | $ | 157,334 | $ | 102,653 | |||
Forward-Looking Statements
Statements and information included in this press release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Except as noted herein or as the context may otherwise require, all references in this press release to “we,” “our,” “us,” “Company,” “Schnitzer,” and “SSI” refer to Schnitzer Steel Industries, Inc. and its consolidated subsidiaries.
Forward-looking statements in this press release include statements regarding future events or our expectations, intentions, beliefs and strategies regarding the future, which may include statements regarding trends, cyclicality and changes in the markets we sell into; the Company’s outlook, growth initiatives or expected results or objectives, including pricing, margins, sales volumes and profitability; strategic direction or goals; targets; changes to manufacturing and production processes; the cost of and the status of any agreements or actions related to our compliance with environmental and other laws; expected tax rates, deductions and credits and the impact of federal tax reform; the impact of tariffs, quotas and other trade actions; the realization of deferred tax assets; planned capital expenditures; liquidity positions; ability to generate cash from continuing operations; the potential impact of adopting new accounting pronouncements; obligations under our retirement plans; benefits, savings or additional costs from business realignment, cost containment and productivity improvement programs; and the adequacy of accruals.
Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and often contain words such as “outlook,” “target,” “aim,” “believes,” “expects,” “anticipates,” “intends,” “assumes,” “estimates,” “evaluates,” “may,” “will,” “should,” “could,” “opinions,” “forecasts,” “projects,” “plans,” “future,” “forward,” “potential,” “probable,” and similar expressions. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking.
We may make other forward-looking statements from time to time, including in reports filed with the Securities and Exchange Commission, press releases, presentations and on public conference calls. All forward-looking statements we make are based on information available to us at the time the statements are made, and we assume no obligation to update any forward-looking statements, except as may be required by law. Our business is subject to the effects of changes in domestic and global economic conditions and a number of other risks and uncertainties that could cause actual results to differ materially from those included in, or implied by, such forward-looking statements. Some of these risks and uncertainties are discussed in “Item 1A. Risk Factors” in Part I of our most recent Annual Report on Form 10-K, as supplemented by our subsequently filed Quarterly Reports on Form 10-Q. Examples of these risks include: potential environmental cleanup costs related to the Portland Harbor Superfund site or other locations; the cyclicality and impact of general economic conditions; changing conditions in global markets including the impact of tariffs, quotas and other trade actions; volatile supply and demand conditions affecting prices and volumes in the markets for both our products and raw materials we purchase; imbalances in supply and demand conditions in the global steel industry; the impact of goodwill impairment charges; the impact of long-lived asset and equity investment impairment charges; inability to achieve or sustain the benefits from productivity, cost savings and restructuring initiatives; difficulties associated with acquisitions and integration of acquired businesses; customer fulfillment of their contractual obligations; increases in the relative value of the U.S. dollar; the impact of foreign currency fluctuations; potential limitations on our ability to access capital resources and existing credit facilities; restrictions on our business and financial covenants under our bank credit agreement; the impact of consolidation in the steel industry; inability to realize expected benefits from investments in technology; freight rates and the availability of transportation; the impact of equipment upgrades, equipment failures and facility damage on production; product liability claims; the impact of legal proceedings and legal compliance; the adverse impact of climate change; the impact of not realizing deferred tax assets; the impact of tax increases and changes in tax rules; the impact of one or more cybersecurity incidents; environmental compliance costs and potential environmental liabilities; inability to obtain or renew business licenses and permits or renew facility leases; compliance with climate change and greenhouse gas emission laws and regulations; reliance on employees subject to collective bargaining agreements; and the impact of the underfunded status of multiemployer plans in which we participate.
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