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Schnitzer Steel Industries (SCHN)

Participants
Michael Bennett VP, IR
Tamara Lundgren Chairman and CEO
Richard Peach CFO and CSO
Michael Leshock Keybanc Capital Markets
Call transcript
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Operator

Good day and thank you for standing by. Welcome to the Schnitzer Steel's Third Quarter 2022 Earnings Release Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Relations. Investor of Bennett Michael Mr. Bennett, the is yours. floor

Michael Bennett

for you, company's Vice and to you earnings morning. year of I good the Bennett, welcome presentation Steel's Schnitzer Michael I'm to third President XXXX. happy quarter fiscal Thank am Chris the of Relations. Investor

posted you to and can our at audio schniersteel.com. access press today's slides of addition we have on set In our both issued comments, release a of which website

two, Safe let the start, attention call is Harbor our statement in me slide which company's will in detailed we Before be today. to press on filed your which XX-Q and included also later the release Form

As we on our statements such note forward-looking as on margin. slide statements about may volume make call targets, today we our our two, and growth,

materially statements. from our differ in may projected forward-looking those results actual Our

that concerning release statements in is from discussing appendix to reconciliation cause to actual Additional that presentation. XX-Q. well today, to contained press the of of could in and forward-looking we a Form results as GAAP those the information will those materially included factors our in measures as note some during our slide presentation We've two, be differ Please our metrics today. our non-GAAP slide

Tamara turn today will Lundgren, me over Chief Officer. Officer. our and Strategy Richard Chairman the let Chief Executive call Peach, host and Chief Now, with our call to She the Financial Officer

Tamara Lundgren

morning welcome our quarter to Good call. fiscal and Michael. everyone third you, Thank earnings XXXX

of After like record this quarters presentation, team operational our I'd with our excellent first and begin we it Before the again. our year, and results of delivering congratulate another achievements. did employees formal to fiscal on for financial second quarter

third To you. our all employees, our XXX-year quarter's company's EBITDA in This quarter represents best thank adjusted the history.

financial we for will underway update I'll to exhibit affecting increasing have performance, quarterly demand your a then to initiatives Richard our services nimbleness, on I'll over have strategic and products of provide I'll capital and provide the to century. company our and our excellence financial the an wrap-up, then detail the for that also You on the review questions. value. our and commitment we'll our our On business. has take and more results today, trends long-term been structure. meet hallmarks call create to and continued resilience, investments,

So, to slide turn let's now five started. get to

As I often operate at we core been do and since how the say our it has sustainability XXXX. in what of is founding and we

the the the results Our as U.S. Agency's sustainability I'd In framework recognize like California is of on achieved Green progress planet Agency goals part of our significant during our of our Oakland, made are planet, people, foundation which Protection to May, Power Partnership. facility and profit and we examples Environmental the two upon quarter. the highlight third

participate on initial May, enough an green annually, to sites deploy fiscal I'm Power, XXX% recycling is our kilowatt-hours to also our than two-thirds progress facility carbon-free use. total XX pleased the choosing our we requirements, renewable to XXXX. million net more goal open of ISO environmental advance power Certified with facility's Our management meet helping are local above plus environmental we state we partnership environmental of audit from sites of on for programs use to passed provides Program, the four and and market deliver responsible power Through our been our ISO by to the sustainability next share these Evergreen begin officially have electricity carbon-free we our Options such Washington the of in, of process were to six to renewable advance majority Power the to In at hydropower. partnerships, development the rest electricity similar Green commitment with maintaining Utilities sources. end the Tacoma, able This is electricity certifying goal which XXX Green operations benefits system or our the electricity voluntarily of Public facility as Certified. Tacoma of By over two-stage uses years and our process here, to will other From the stewardship. operations. which extensive

on regarding see our profit can this You six, framework. slide website underpin our our encourage visit our people, latest view multi-year to sustainability detail that sustainability goals more and planet, I you to report.

of slide announced third our to review this record XX% turn earnings we third are per let's of results now, a almost quarter quarter and are double morning, higher results. a year our Earlier share So ago. seven $X.XX. quarter These adjusted second for than

recycled or with near from strong ferrous, steel demand all-time for prices non-ferrous, benefited selling global and metals, finished highs. results quarter average third at for Our products

and non-ferrous and and labor XX% constraints as XX%, by volumes logistics steel Our respectively finished improved. increased sequentially

sequentially Our slower planned lower increased latter the the than East X% occurred which due quarter. ferrous volumes off demand the during Coast of export were part to that the

end Georgia, southeast first we operation shredding in metal in acquired included Encore Our with the increased the southeast. margin which a Stronger operate XX recycling QX region. Recycling, acquired at the Columbus which our the end QX, facilities from ton EBITDA also of the Recycling, per conditions, expanding of of now company's with market together our of At including drove volumes, expansion in spreads EBITDA. and the we Combined assets the April, metal industrial was in Recycling Columbus history. $XXX benefits highest significant in we our

of positive through operating During shares and of shareholders quarter, issuance repurchase XXXth cash our quarterly X% consecutive almost generated the the flow we've and returned capital our our outstanding dividend. of the to

than eight. the set through for months nine things, next of forth record among decarbonization uses to which recycled and material; of shortages have recycled metal. other mining, transition of non-ferrous other like Infrastructure production, they're recycled in the the many increase as and of slide finished Our technologies technologies and the metals primary its performance U.S. higher materially fiscal XXXX and in increased metal-intensive underinvestment reflective raw metals in replacing; growth structural which trends BOS; created in are which and the demand the metals finished metals low-carbon is production steel Bill, first which expected ferrous underpinning is driving significant effects more the The metals recycled in manufacturing include of are structural on by processes; drivers low-carbon steel to copper; for trends, demand the which EAF demand use years industrial and

So, spending Coast now, growth. spend let's strength, the infrastructure particularly Demand showed during U.S. nine on rise by XX% pricing review reaching with with levels Non-residential prices almost their highest to trends. strong the to and year-over-year. for turn three-month to products Total show XXXX through slide to construction West continued record. April rising continue on total the long projects quarter,

is We the our to markets late strong activity to in remain see demand U.S. early continue robust and the rising expect to XXXX as XXXX. in Infrastructure books Bill construction customers to materialize expected related order

With this the meet increased demand. on well-positioned focus to our low-carbon steel, steel mill Oregon is

of electric carbon XX, launched source with pricing customers. made products, to non-ferrous very an the Green and a the metal primary industry energy whose average. furnace If arc evolving support primary exceptionally hydroelectricity. March, Our the raw use mill few low-carbon we of branded the in ever material, to In to we Steel our recycled line emissions slide of of is trends. net turn is review one needs impact compared steel the can has we ferrous zero our Combined as its as

prices the with to in China's since ton range also prices quarter levels due disruptions, at Supply consistent historically to the and economy metals. global the metal $XXX fears off of China's demand and of have range creating market and excess quarter, scrap Our were price tailwinds per levels recycled Turkey Since the East from $XXX prices Russian end of The stronger Russian initial of Copper a per prices. prices economic began multi-year the reaching the of non-ferrous. to inventories, demand, fuel and for the the significant in war for of Russian by to the quarter and higher the energy ferrous, China. benefiting the non-ferrous non-ferrous flows dropped associated by to COVID tough Turkey, ton, remain and quarter with environment Ukraine, primarily average. the changes ferrous high the lockdowns, the quarter prices seen West Similar of global billets, market ample scrap and recessionary declined war to prices with as had softened by quarter headwinds further global the supply or third and flows. chain XX-month per generally of based near impact in ton, quarter, Ukraine. high began aluminum of from quarter, largely the broad tightened quarter low-cost ferrous metals the markets. in part Since trade low of in slow purchases have feel their to disruption the $XXX a during inflation. but prices forefront at highs, the latter with prices the slightly By $XXX end $XXX of The and driven growth the end Coast. costs suppliers short-term the were unsteady off slower concerns the lower driven from lockdown, end we've higher during are Coast steady,

intensity electric governments steelmaking. demand demand on steel There to and vehicles, strong and it's as copper, increasing recycled important intact. However, remember efficient focus aluminum, for responsible remain and is the renewables, low-carbon that trends low-carbon others

from As QX the achieved QX quarter, to ton And we our sales average shipments move fourth prices, at to QX. year. we into impact significant what increase several planned accounting of volumes last expect resulting look we as drop for be the ferrous our sequentially in expect EBITDA we of in to inventory per similar sharp the excluding

we value. to structural are now create trends that strategic to these review positive slide have the let's to So, long-term actions turn underway aligned with XX

in strategic in copper to four construction investments operational operations summarized we are metal either technology XX recycling the permitting can Our to activities. process. planned, us systems the recovery enable and more the eight or at non-ferrous progress and including shredding major aluminum have metals Of with commissioning, buckets; advanced our priorities extract be first, our or in in from systems remainder

volume with XX-month is ferrous million fiscal million X.X XXXX Second, tons, tons. a our including annualized X.X of growth now rate, recent our target acquisitions run

of Greenfield to zero services and our reverse services demand and culture, the emissions, the products, we where And focus retailers. inflationary on and of our the such costs. us of logistics efficiencies procurement, on as launch processing, operating manufacturers net provide to we carbon recycled undertake meet four, improvement expansion has that evolving metals continuous products Third, to is for focus offset This in and pricing. as pressures productivity initiatives partially part our our enabled

me our financial the of and and let review it more detailed performance. from now a Richard our contributions for initiatives turn Richard? So, operating over to strategic

Richard Peach

with recycled an acquisition state-of-the-art and investments including of was recycling on Recycling, begin completed facilities I'll first Thank strategic southeast builds metro from which in the in a recycling acquisition you, of morning. establishes Georgia, Columbus update our purchase eight shredding operation Encore April parts metal Tamara our auto media of facilities, our center. Encore upon region October based operation and two of and XXth. good and on the Greater recent in other the area Macon, The our shredding including assets a heavy recent is Encore plant encompasses and Atlanta XXXX Recycling.

facilities In and Our Georgia, Kentucky, tons, multiple purchase forward XXXX, million, of $XX The XX,XXX Xx. facilities approximately assets pounds, XX non-ferrous Encore Tennessee. Alabama, less than for Southeast price comprises our vehicles. million regional and Encore's XX the earnings now across XX,XXX reflects ferrous footprint end-of-life which was processed recycling Mississippi,

let's initiatives. to slide technology XX discuss to progress metal Now, advanced recovery our turn on

aluminum includes U.S. as technology systems, recovery expected installation and commissioning which nearing We our includes non-ferrous advanced systems Construction Coast is both non-ferrous two continue system East primary the on copper our well system recovery the systems deployment, for advanced from in based of Western These as aluminum new operations. during progress start to completion on for of with month separation the and primary an separation July. to shredding a

When as country. aluminum of will We such have on vast give completed, two this ramp and value commissioning majority our optionality of side of each increased now into systems, advanced products products. up one will upgrade the the is furnace new to higher zorba system the ready mixed separation us non-ferrous

higher operational separation regions corporate which are us in provides Our completed such that fully as into upgrade copper quality advanced different jobs. optionality three to lower the country with the include systems and products, of commodities value systems corporate

that XXXX. means non-ferrous of for we performance targeting construction certain benefits and with amount Achieving with EBITDA our half of systems expectations. targeted of targeted This calendar run less We $XX periods by timescale rate will five our line new timelines, fiscal are and early benefits remaining with volumes in than are of be construction completing per for construction, these XXXX. installations up longer full and ramp in now commissioning our together permit fiscal require targeting for and system recovered slightly XXXX person maximum in to of

overall the $XX the capital in includes fourth balance quarter remaining to million $XXX in million. the million in fiscal $X range expect We of of be XXXX. the investment This and

to slide turn our ferrous the let's market and Now, to consolidated sales, XX dynamics. discuss results,

also from from non-ferrous, seasonally Our for volumes operating was inventory EBITDA in steel. benefits accounting, $XXX this energy, to late million on waste $XX a spreads primarily finished prices retail prices ever person disposal. primarily and costs, $X higher and by per included the metal best On increased impacts The our from ton. quarter $XXX quarter contracted represented quarter second our per of higher adjusted sequential increased at million in net sales sales in average included benefit addition for of expanded was The labor, ferrous quarter ferrous, result the for and and and logistics, basis, inflation by selling quarter. which higher compared higher and an previously and sales from third higher average driven was $X was

quarter, supply. improvements. ferrous in mitigate by up We After to increased selling improved lockdowns year global multi over sequentially included initiatives crisis, cost COVID by the and prices steel partially uncertainty other net the China. are quarter, ample from early has fuel due also levels cost and highs The higher Russia-Ukraine within and able prices shipments. benefited through ocean-going also to is procurement of results failed a cost our efficiencies, then of created by prices, were three prices [indiscernible] productivity and the volatility from XX% due our third scrap XX% operational in selling Average for and yields, demand reaching export in ferrous these the increases to year-over-year. of The

pushed into sales Our export shipping in a lower slowdown volumes by to fourth demand resulted and but quarter. in that by up contracting ferrous were X%, X%, the four delays cargoes up the year-over-year as sequentially bulk

of Encore sales sales of from year that XX% quarter sold our ferrous ownership volumes came from of quarter. the Reflecting to the Third first up in Columbus we the business, include and and of Recycling. volumes market Recycling of size U.S. our slowing our from contributions month export XX% increased prior domestic the

quarter and Our exports largest the South Korea, sales destinations ferrous Turkey, Bangladesh. in for were

an let's logistics. in and attractive the inventories were XX% non-ferrous volumes Now, the our volumes for by China then the impact Encore through our market on and lockdowns, and export both prices non-ferrous Recycling. were copper, Non-ferrous bigger mere pivot into countries, XX% Average aluminum, and and a and and products Korea. but market XX Recycling major sold which an recycled multi-year as adverse The sequentially global US of selling sales reflected to and were demand. up highs, contributions economics of had down extended We sell by the trended rose the destinations zorba to flat the to portion domestic year-over-year prices sales move by Columbus quarter, being increased net up selling based XX%, South for XX Coming Malaysia dynamics. India, sleep from non-ferrous non-ferrous for with update a on including year-over-year. COVID sequentially on better

non-ferrous XX% sales Our Zurich, of balance copper up others X% of metals. Twitch and and our XX%, other aluminum XX% the diversified, zorba volumes, making with including product mix stainless of was non-ferrous representing XX%, highly

for construction XX. West slide quarter reflecting finished Average performance, volumes which previous the delayed driver to Washington customers, some steel and and in by the up were move demand Coast year-over-year in demand. prices Finished discuss up sequential let's XXX,XXX quarter then of that strong the markets. steam XX%, To benefited from of tons selling were third mill reached was our the quarter. level. for from a the and highest of had utilization XX% concrete we April sales increase as mill a strong strike average sequentially resolution projects steel XX% construction Now, the represents by our rolling XX% the ever strong in for

to Encore as Now, offset than cash profitability cash and capital in environment increased the slide structure, working and XX% the flow, had discuss the totaled X.Xx. which of third of let's end, of fiscal adjusted higher $XXX Net EBITDA XX increase our was the capital price of move had for quarter, outlook net Recycling. sequentially, of in to expenditures up million, $XX quarter. we In $XX acquisition operating primarily at we was million, Net was flow to the the and year-to-date due inventories. debt assets more million. fourth ratio positive quarter's debt a leverage and to Capital due

For Around expect volume range XXXX investments our as be whole, growth expenditures thought projects. the [ph] XXXX million the of and CapEx fiscal investments for to balance to in for in and million. for I including maintaining growth, initiatives, environmental-related $XXX capital in of make $XXX capital a technology we on spot CapEx. post-acquisition fiscal will business is The projects,

we repurchased our approximately for Class million. stock A of approximately quarter, common $XX XXX,XXX the During

quarter due tax to Our results effective our was discrete our tax than rate on was from XX%. benefits lower credits. third adjusted This expectation

on and disruptions two turn reflect to flows, quarter, supply are in outlook or Although further the is not there now fourth which logistics. any months the I'll markets, current conditions based does to left our still for quarter, market

delayed benefits including expect from non-ferrous the ferrous and increase by bulk our XX% four year-over-year to quarter. cargoes ferrous third approximately We from volumes sales

year's be which sharp be was and market With expect line inventory $XX fire the range sequentially steel in prices, of average outage. fourth last impacted than drop method costing the in in to double significant finished quarter, expect accounting from by We more detriment ferrous ton. a our we volumes to sales per a

we our selling is immediately average market goods prices, purchase for that adjust just in used react While are cash changes for costs to the costs more inventory costs to scrap slowly. of sold calculating

Excluding strongly to ton ferrous be per working similar to was significant quarter. average last inventory to shipped higher and price factors Due fourth which we quarter, which of these $XX. third to for be expect year's we the ferrous accounting, above EBITDA well environment, our the to flow, volumes outlook the to to lower expect expect we operating benefits leading capital, cash create positive impact

We the expect our effective subject XX% to fourth rate quarter for be our tax financial performance. to

over which Given as model, flows platform, significant and conditions. to prices, sales our demonstrates produce outlook to changes positive of of diversified now well in the integrated operating turn a variety cash in resilience to business includes Tamara. markets, adjust as call our a purchase back our operations, I'll the ability market

Tamara Lundgren

Thank Richard. you,

Our our products we've and results our strong demand first our record customers. demand recycled headwinds, this our strategic increase operational current Despite steel made on positive finished of and structural products nine progress quarter offer for can we QX fiscal volumes for the our profitability XXXX outlook and and the months metal. financial market the services for reflects robust initiatives and significant and our to reflect

steel low-carbon driven Bill. recycled continued We intensity are and trends technologies, well-positioned of from U.S. the growth global metals EAF structural Infrastructure demand, steelmaking in of increased and by trillion capacity, additional U.S. metal decarbonization, global to $X.X and benefit the

be a to and and through capital to of balance of repurchases. dividend a delivering company, annual operating shareholders growth productivity demonstrated questions. have our while ability thank positive once returning and like sheet, our And recycling in our let's performance. an our In in flows, record to the the share the closing, why now have century. industry leader a employees their track to cash for a invest have open strong continued We outstanding for over again, for we operator, I'd They call

Operator

Leshock first of Instructions] Keybanc Markets. Capital [Operator question from comes you. Michael Thank Our

open. is Your line

Michael Leshock

Hey, good morning.

Tamara Lundgren

morning. Good

Michael Leshock

you're the when evaluating few seen use price commodity I you're at? to metrics volatility years, to evaluate you're XX,XXX less then million ask, given earnings your And the what in over purchase you the some valuations, timeframe M&A of wanted ferrous important to you five for said of for what normalized transaction? than most what had $XX do how look on on I think to And the tons, thinking about trying given more past looking just are we've M&A times going and wanted criteria fluctuations transactions, you that. Encore price forward ask historical criteria

Tamara Lundgren

by start Sure, generally. Michael, me addressing let it

of that look looking So, acquisitions through-the-cycle when and a on business valuation we light in at basis. at we're we're industry the in, and the

upon the an through really at the where it we're cycle. target when depends in acquisition So, are to looking determine cycle we

is, think that On Richard forward as and indicated in I is mentioned to seven. on the detail, historical Richard below multiple acquisition Encore X.X five EBITDA our multiple

below look opportunity So, our Encore the first our we In operations. transaction multiple case, Southeast. franchise it acquire this to the the and strong historical gave in for was us operation shredding

we've So, we southeast. tremendous now facility got leverage, creates And that anything that and to the want shredding to that? synergies facilities our XX add for facilities. support because us now a amount a recycling Richard, you that can have of operating in

Richard Peach

I'd got Yes. also Thanks your some question, we've that technology Michael. Southeast add the in new for additional is region. What

our in And about be the we the too. acquired Macon, XXX XX absorber a Georgia assets southeast new that’s offshore source miles heavy to the of supply away. operation plant a to So, that in have media only also Encore way will area

into So, building there's our Encore Southeast acquisition October. enlarged overall Recycling good technology of integrating last synergies the from well of our there, Columbus as on as operations

Michael Leshock

targeting? Maybe my about And enclosure, we as there initial How the to announced the investments, program. fiscal need the the then That's And with frame in also what's for you question. the out when recovery release, you Southeast CapEx? more building And much system, as refrigerant might go you investments? something additional that first about of those? infrastructure, had that you control to there stormwater and those see like CapEx in think do XXXX alluded you a timeline there? you your the strategy Is presence behind emissions is that shredder region? be M&A the associated Encore, are How are way for thinking you as

Tamara Lundgren

Sure.

first then I'll one. don't questions. Richard, take And the take the why you CapEx So,

the is activity what any to Michael opportunistic steelmaking time. the in -- in be activity as point available that particular, first, On do industrial southeast of is M&A We in in very believe at tends the terms strong.

clearly that that's to new. and a And And that for region to long So, accretive acquire a is time. why shredder that's targeting were at the excited we we've relatively been identify could attractive we particularly multiple. a have quite opportunity well-positioned, well-situated that an

Richard Peach

add, I'd that Those October. that criteria to year greater ownership of Yes, of with our will are for acquired cost our one looking we more will than be full spend. that any made fiscal announced year any achieve is when we and giving of CapEx mentioned, investments that Michael, the CapEx And we new environmental to one expect future returns and be post-acquisition XXXX investments our includes results you than expected business, period me. on update likely we on the over an our capital

Michael Leshock

supply constraints, And given shipments on pressures? and inflationary cadence Could for you of you're just the seeing of of some by there? they to the in the your what easing easing, seem to at some easing logistics be that on as seeing lastly, Maybe strong the and non-ferrous talk the front Okay. to the me, quarter. logistical extent, evidenced you're least

Tamara Lundgren

Sure.

of you in are part And QX, costs of activity. during containers. to availability as was availability sales so our know, freight attributed container a China's in easing fundamentally see and pass slowdown more that through did we So,

they that can you through adjust. coming those So, movements coming through see as

available. On the the been has unsteady side, bulk has freight and been

Michael Leshock

questions. Thanks my taking You got it. for

Tamara Lundgren

you. Thank

Richard Peach

Thank you.

Operator

this no turn am back questions for time. closing Thank Lundgren you. I the And Tamara to the conference in speakers, over will Ms. Instructions] queue [Operator I at seeing remarks.

Tamara Lundgren

the Thank forward October, stay In you. report in We your speaking Thank with fourth everyone, again look we when you interim, stay Thank our to well. and for quarter will safe you. you, today. time results.

Operator

and pleasant conference you may day. for disconnect now This Thank participating, concludes today's all a you have call.