Schnitzer Steel (SCHN) Announces Preliminary Q2 Results

Schnitzer Steel Industries, Inc. (Nasdaq: SCHN) today announced preliminary results for its second quarter of fiscal 2018 ended February 28, 2018. Schnitzer expects reported and adjusted second quarter earnings per share from continuing operations to be in the range of $1.25 - $1.31, which amounts are expected to include discrete tax benefits of $0.38 per share associated with the recently enacted tax reform legislation and the release of valuation allowances on certain deferred tax assets. Second quarter consolidated results are expected to be significantly improved compared to the prior year second quarter results of $0.40 earnings per share and $0.37 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.

For the second quarter of fiscal 2018, Auto and Metals Recycling (AMR) is expected to report operating income in the range of $42 - $44 million, or operating income per ferrous ton of $47 - $49, compared to operating income of $25 million, or operating income per ferrous ton of $34, in the prior year second quarter. Ferrous and nonferrous sales volumes are expected to increase by approximately 21% and 13%, respectively, compared to the prior year second quarter, and average ferrous and nonferrous selling prices are expected to increase by approximately 27% and 13%, respectively, compared to the same period in the prior year. AMR's higher second quarter performance is expected to benefit from expanded metal spreads, operating leverage from higher volumes, increased average net selling prices and sustained contributions from productivity improvements. AMR's second quarter results are expected to include a favorable impact from average inventory accounting of $4 million, consistent with the prior year second quarter.

Cascade Steel and Scrap (CSS) is expected to generate operating income of approximately $5 million, reflecting a significant improvement from the second quarter of fiscal 2017 operating loss of $1 million. Finished steel sales volumes are expected to be 18% higher than the prior year second quarter, and average selling prices for finished steel products are expected to increase by approximately 20% year-over-year. The expected improvement in CSS operating performance is primarily driven by the higher finished steel sales volumes and selling prices, higher export ferrous sales volumes and additional productivity improvements from the integration of our Oregon metal recycling and steel manufacturing operations. The prior year second quarter also included an adverse impact from higher beginning inventory costs following downtime for a major equipment upgrade in the preceding quarter.

Consolidated financial performance in the second quarter is expected to include Corporate expense of approximately $15 million, an increase of $4 million compared to the prior year second quarter driven primarily by higher incentive compensation accruals as a result of improved operating performance and a one-time special bonus to all employees below senior management level following the enactment of corporate tax reform, and higher legal and professional services expenses.

For the second quarter of fiscal 2018, the Company's effective tax rate is expected to be a benefit of approximately 21%. This effective tax rate is expected to include a discrete benefit of $7 million, or $0.26 per share, stemming from the revaluation of the Company's net deferred tax liability to reflect the lower Federal statutory corporate tax rate established by the recently enacted tax reform legislation as well as a discrete benefit of $4 million, or $0.12 per share, associated with the release of valuation allowances on certain deferred tax assets driven primarily by the Company's improved financial performance. In addition, the effective tax rate for the second quarter is expected to benefit from the application of the lower blended Federal statutory corporate tax rate to current year projected taxable income. The Company will provide an update on the effective tax rate expected to be applicable to the second half of its fiscal 2018 and to fiscal 2019 on the April 5, 2018 earnings call.

Operating cash flow is expected to be slightly positive in the second quarter of fiscal 2018 as cash flows associated with higher profitability are expected to more than offset an increase in net working capital from the higher volume and price environment. Total debt was $211 million as of the end of the second quarter, and debt, net of cash, was $196 million (for a reconciliation of debt, net of cash, see the table provided in the Non-GAAP Financial Measures section). Pursuant to its ongoing authorized share repurchase program, during the second quarter the Company repurchased a total of 100,000 shares of its Class A common stock in open market transactions.

The preliminary information provided above is based on the Company's current estimates of its financial results for the quarter ended February 28, 2018 and remains subject to change based on final review of the Company's second quarter financial results.

Schnitzer will report its second quarter fiscal 2018 financial results on Thursday, April 5, 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 the Investor section 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.

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