Schnitzer Steel (SCHN) Prelim. Q3 EPS Tops Views

Schnitzer Steel Industries, Inc. (Nasdaq: SCHN) today announced preliminary results for its third quarter of fiscal 2018 ended May 31, 2018. Schnitzer expects third quarter earnings per share from continuing operations to be in the range of $1.27 - $1.33 and adjusted earnings per share to be in the range of $1.22 - $1.28. Third quarter consolidated results are expected to be significantly improved compared to the prior year third quarter results of $0.60 earnings per share and $0.56 adjusted earnings per share. For a reconciliation of adjusted results to U.S. GAAP, see the table provided in the Non-GAAP Financial Measures section.

(Streeet sees Q3 EPS of $0.98)

For the third quarter of fiscal 2018, Auto and Metals Recycling (AMR) is expected to report operating income in the range of $53 million - $55 million, or operating income per ferrous ton of $54 - $56, compared to operating income of $30 million, or operating income per ferrous ton of $36, in the prior year third quarter. Ferrous sales volumes are expected to increase by approximately 19% and nonferrous sales volumes are expected to decrease by approximately 3% compared to the prior year third quarter. Average ferrous and nonferrous net selling prices are expected to increase by approximately 31% and 14%, respectively, compared to the same period in the prior year. AMR’s higher third quarter performance is expected to benefit from expanded metal spreads, higher ferrous sales volumes, higher average ferrous and nonferrous net selling prices, benefits from commercial initiatives, and sustained contributions from productivity improvements.

Cascade Steel and Scrap (CSS) is expected to generate operating income of approximately $11 million, reflecting a significant improvement from the third quarter of fiscal 2017 operating income of $1 million. Finished steel sales volumes are expected to be consistent with the prior year third quarter, and average net selling prices for finished steel products are expected to increase by approximately 29% year-over-year. The expected improvement in CSS operating performance is primarily driven by the higher average net selling prices for finished steel products which significantly outpaced the increase in the cost of steelmaking raw materials, higher utilization, and the continued benefits of productivity improvements from the integration of our Oregon metal recycling and steel manufacturing operations.

Consolidated financial performance in the third quarter is expected to include Corporate expense of approximately $14 million, an increase of $3 million compared to the prior year third quarter driven primarily by higher professional service expenses and increased incentive compensation accruals as a result of improved operating performance. For the third quarter of fiscal 2018, the Company’s effective tax rate is expected to be an expense of approximately 21%.

Operating cash flow is expected to be in the range of $60 million - $65 million in the third quarter of fiscal 2018. Total debt was $173 million as of the end of the third quarter, and debt, net of cash, was $163 million (for a reconciliation of debt, net of cash, see the table provided in the Non-GAAP Financial Measures section). This represents a total debt reduction of $38 million sequentially. During the third quarter the Company repurchased a total of 166,013 shares of its Class A common stock in open market transactions pursuant to its ongoing authorized share repurchase program.

The preliminary information provided above is based on the Company’s current estimates of its financial results for the quarter ended May 31, 2018 and remains subject to change based on final review of the Company’s third quarter financial results.

Schnitzer will report its third quarter fiscal 2018 financial results on Tuesday, June 26, 2018 and will webcast a conference call to discuss the performance at 11:30 a.m. Eastern on the same day. The webcast of the call and the accompanying slide presentation may be accessed on Schnitzer’s website under Company > Investors > Event Calendar at www.schnitzersteel.com/events. The call will be hosted by Tamara L. Lundgren, President and Chief Executive Officer, and Richard D. Peach, Senior Vice President, Chief Financial Officer and Chief of Corporate Operations.

Replay Information

Toll Free Dial: (855) 859-2056

Toll Free International Dial: (404) 537-3406

Conference ID: 2184208

Replay Available: 06/26/2018 to 07/01/2018

About Schnitzer Steel Industries, Inc.

Schnitzer Steel Industries, Inc. is one of the largest manufacturers and exporters of recycled metal products in the United States 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.

Non-GAAP Financial Measures

This press release contains expected performance based on adjusted diluted earnings per share from continuing operations attributable to SSI which is a non-GAAP financial measure as defined under SEC rules. As required by SEC rules, the Company has provided a reconciliation of this measure for each period discussed to the most directly comparable U.S. GAAP measure. Management believes that presenting 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 this measure. 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.

Debt, Net of Cash

The following is a reconciliation of debt, net of cash (in millions):

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