Schnitzer Steel (SCHN) Guides Q3 Profit Below Expectations; Offers Update

Schnitzer Steel Industries, Inc. (Nasdaq: SCHN) announced its outlook for its third quarter of fiscal 2014 ending May 31, 2014. Demand for recycled metals remained steady compared to the second quarter, however, selling prices for ferrous metals declined approximately $40 from the end of the second quarter, which is expected to result in a significant adverse average inventory impact to our Metals Recycling Business. Seasonal improvements in our Auto Parts Business and higher sales volumes in our Steel Manufacturing Business are expected to lead to sequential improvements in profitability in both businesses. Reported earnings per share in the third quarter are expected to be in the range of $0.10 - $0.15, including significant tax benefits. Adjusted earnings per share, adjusted for restructuring and other impairment charges, is expected to be less than reported earnings per share due to the allocation of tax benefits in the third quarter.

**** Consensus views were looking for Q3 EPS of $.18.

In the Metals Recycling Business, ferrous sales volumes are expected to approximate the second quarter and average ferrous selling prices are expected to decline approximately 5% sequentially with a 10% decline in peak to trough selling prices. Nonferrous sales volumes are expected to increase by approximately 5% and average nonferrous selling prices are expected to approximate the second quarter. Due to the significant fall in ferrous sales prices, adverse effects of average inventory costs in the third quarter are expected to more than offset the benefits from productivity improvements, cost reductions and increased nonferrous sales. As a result, we anticipate operating income per ton to be in the range of $3, subject to the timing of shipments.

In the Auto Parts Business, seasonally higher retail sales are expected to drive significantly higher operating income sequentially which is anticipated to more than offset the impact of lower commodity prices. Seasonal improvements are also expected to drive a 15% increase in car purchase volumes compared to the second quarter. Operating income is expected to increase significantly with operating margins anticipated to be in the range of 9% - 10%, which includes the impact of stores owned for less than a year.

In the Steel Manufacturing Business, sales volumes are expected to increase by approximately 15% sequentially. Average selling prices are expected to approximate the second quarter. Stronger demand and increased sales volumes during the third quarter are expected to more than offset approximately $1 million of operating expenses related to a planned maintenance outage. As a result, operating income is expected to be slightly above the second quarter.

The Company expects to report third quarter fiscal 2014 results toward the end of June.

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