Schnitzer (SCHN) Q3 Earnings In Line, Revamps Operations

Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) reported a net income of $17 million or 60 cents per share in the third quarter of fiscal 2017 (ended May 31, 2017), higher than earnings of $11 million or 40 cents recorded a year ago.

Barring one-time items, the earnings came in at 56 cents per share for the reported quarter, in line with the Zacks Consensus Estimate.

Revenues rose roughly 36% year over year to $477 million in the third quarter, on the back of higher sales volumes and average net selling prices.

Segment Highlights

The Auto and Metals Recycling (AMR) unit recorded total revenues of $430 million, up roughly 40% year over year. Operating income rose 11% year over year to $30 million. The results were supported by increased supply flows, higher sales volumes, seasonality, sustained benefits from productivity and cost savings initiatives, and no significant impact from average inventory accounting.

Steel Manufacturing Business (SMB) recorded total revenues of $82 million, up roughly 16% year over year. The segment gained from increased sales volume of finished steel and seasonally higher construction activity.

Financials

Schnitzer exited the third-quarter 2017 with cash and cash equivalents of $15.2 million, a 43.3% decline year over year from $26.8 million.

Long-term debt in the third-quarter was $183.8 million, declining about 0.2% year over year.

The company generated operating cash flow of $45 million in the reported quarter, driven by improved profitability and low working capital requirements.

Outlook

According to Schnitzer, the results in the reported quarter can be attributed to continued focus on profitable growth while operating income were driven by multi-year productivity initiatives. Meanwhile, the company continued to strengthen the balance sheet by generating robust operating cash flows that enabled it to reduce debt, invest in operations and return capital to shareholders.

Notably, Schnitzer has integrated the operations of AMR's Oregon metals recycling with SMB segment, forming a new division, Cascade Steel and Scrap (CSS). The move is aimed at enhancing its flexibility, generating internal synergies, improving customer service and to more effectively respond to changes across recycling and steel production market. Moving ahead, the company expects to report the results of CSS operations as a single reportable segment starting in the fourth quarter of fiscal 2017.

Price Performance

Schnitzer’s shares have gained 9.7% in the last three months against the Zacks categorized Steel-Producers industry’s loss of 10.3%.

Zacks Rank & Other Key Picks

Schnitzer currently sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked companies in the basic materials space include The Sherwin-Williams Company (NYSE:SHW) , Iamgold Corporation (TO:IAG) and The Chemours Company (NYSE:CC) . All the three stocks sport a Zacks Rank #1. You can see the complete list of today’s Zacks Rank #1 stocks here.

Sherwin-Williams has expected long-term earnings growth rate of 11.4%.

Iamgold has expected long-term earnings growth rate of 3%.

Chemours has expected long-term earnings growth rate of 15.5%.

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