Schnitzer Steel Industries, Inc.

Q1 2022 Earnings Conference Call


spk_0: britannic by and welcome to the slits or steal first quarter two thousand twenty two earnings release call and webcast at this time all participants artless normally mode after the speakers presentation there will be a question and answer session the ask the question during the session newly depressed star one on your telephone as a reminder to his program is being recorded and now i'd like to introduce your hospitality program michael bennett investor relations please go ahead sir
spk_1: thank you jonathan and good morning i'm michael bennett the company's vice president of in better relations i am happy to welcome you to snitch your steals earnings presentation for the first quarter of fiscal year twenty twenty two in addition to take audio common with issued a press release and posted a set of flies both of which you can access and our website and center steel dot com before we started let me call your attention to the detailed safe harbor statement on fly to which is also included in a press release and then the company's form thankyou which will be filed later today as we know it inside to we may make forward looking statements and are called today the to their statements about our targets by and growth and future margin expansion or actual results may differ materially from those projected enough for looking statements additional information concerning factors that could cause actual results to materially different from those in the poor looking statement is contained in flight to as on the press release of today and are formed and que please note that we will be discussing some non gap measure during a presentation today we've included a reconciliation of those metrics the gap in the appendix to slide presentation now let me turn the call over the tamarlane grim or chairman and chief executive officer she will host the called today with richard peach or chief financial officer and chief strategy officer
spk_2: thank you michael the morning everyone and welcome to our fiscal twenty two first quarter earnings call i hope you all had a good holiday break and like me are looking forward to a healthier safer and even stronger twenty twenty two the results that we will discuss today or sensors best first quarter earnings on record they would not have been possible without all our employees from our front line workers to that been working remotely living our core values of safety sustainability and integrity many of our employees are listening to this call today i'd like to congratulate you on your first quarter achievements and to thank you for your extraordinary efforts and serving our customers and supporting our suppliers in the face of significant coded related labor and logistics constraints our successes the direct result of how you have embraced these values and your performance reflects the collaboration innovation and resilience the define our culture and our company i'm very proud of what you've accomplished during these most challenging times on our call today our the you are quarterly financial results and the market a macroeconomic trends affecting our business i'll also provide an update on a strategic initiatives and investments we have under way to address evolving industry dynamics and create long term value through the cycle richard will then provide more detail on our financial performance capital investments and capital structure i'll wrap up and them will take your question so let's turn now to slide for to get started as one of north america's largest metal recyclers sustainability is at the core of what we do and how we operate and has been since our founding and nineteen and six in mid december we issued are eighth annual sustainability report which highlights or companies commitment to creating more sustainable future by supplying our customers with high quality low carbon recycled metal and finished still products this year sustainability report describes the significant progress we've made against our people planet and profit goals in fiscal twenty one among other accomplishments weird saved our the safest record our safest year on record we reach our goal of one hundred percent net carbon free electricity use that our facilities ahead of our fiscal twenty to target and we reduced our scope one and two emissions by nineteen percent versus are twenty nineteen baseline we were honored this year to be recognized by a number of organizations for our leading performance and sustainability i encourage you to visit our website to view our latest sustainability report which describes how we help conserve resources how we innovate use less water and energy into generate less waste how we create a safe ethical engaging and inclusive workplace and how we give back to the communities where we operate so now let's turn to slide five earlier this morning we announced our fiscal twenty two first quarter adjusted earnings per share of a dollar fifty eight almost tripled the results from a year ago and our best first quarter performance on record our first quarter results benefited from a strong global demand for recycled metals a robust west coast market for finished still products an average selling prices for ferris nonferrous and finish still products at or near multiyear highs our que one adjusted ebitda up her fairest on was sixty eight dollars far exceeding the thirty eight dollars per ton of a year ago or year over year ferris had non for itself volumes increase by nine percent and eleven percent respectively and benefited from our acquisition of the columbus recycling assets on october first are still mill continue to ramp up production during the quarter as operations resumed following the melt shop outage in late may rolling mel utilization was on an increasing trend throughout the quarter with november utilization weeks in ninety one person our balance sheet remain strong which enabled us to continue our uninterrupted record of returning capital to shareholders through the issuance of our hundred and eleven consecutive quarterly dividend our record results this quarter would have been even stronger had several contract shipments for november not slipped into december did a coven nineteen related supplied say disruption while we expect to see a strong year over year increase in contracted ferris a non ferrous sales and to to a volume levels consistent with you one the supply same impact on shipments is currently difficult to predict as a result we will provide are forward looking guidance later in the quarter around the end of february let's turn out the slide said for a review of pricing friends for recycle metals and finish still products as you can see on this slide market prices for ferentz grab during the one remained near mocha your highs these favorable pike price levels are supported by the cyclical and structural problems including the increased use recycled metals and the global focus on t carbonization export sales of the east coast for broad based during the quarter ferris prices peaked at multiyear highs and mid october than softened in mid november largely due to a slow down and demand from turkey however prices from still remained at historically strong levels prices for export cells off the west coast during the quarter trended similarly to the east coast with the mid november softening driven by lower still prices and lower billet and scrap import the man from china on the domestic front third scrap at demand and prices remain high as still capacity utilization least eighty five percent during the quarter exceeding pre pandemic levels copper an aluminum scrap prices traded at or near multiyear your highs benefiting from tight supplies shipping constraints and deploy and of low carbon technologies prices for ppm medals however fell during the quarter primarily due to reduced auto production demand for are still continued to increase with prices weeks you their highest levels on record supply flows remained robust and he one despite trucking and covert related labor shortages in certain market since the end of the quarter we have seen normal seasonality and supply flows with reported trading levels for ferris nonferrous and finish still products higher than a year ago let's turn out to slide said southern to us to discuss some of the longer term the man trends for recycled products and services as we have discussed on previous earnings calls decarbonization is a powerful structural driver of demand for recycled metal recycle metals require less carbon to produce than mine metals and many low carbon technologies are widely acknowledged to be more metal intensive the use of recycled metals is recognized as an as an important strategic solution for companies industries and governments that are focused on carbon reduction it's a differentiator for metal producers and fabricators and it is a critical part of every communities commitment to supporting a circular economy and decreasing material going to landfills we can see how some of these trials of translated into higher fares scrap metal uses in the u u us and globally by looking at the charts on the slide yea of filmmaking capacity which uses scrap as it's primary raw material has been expanding in the us and globally and is projected to increase even further increasingly use the recycled metals is a great example of how old economy tools can lead the way to decarbonization of the new economy was turned now the flight eight to review the strategic actions we have underway way which are aligned with these long cycle trim this quarter's results reflect benefits from our strategic actions to leverage be carbonization trends including increased customer demand for recycled metals and product optionality as well as productivity and volume growth initiative to the to drive expanded profitability there are three examples i'd like to highlight this morning first or acquisition of eight metals recycling facilities from columbus recycling which expands or platform in the robust se regional market with meaningful synergies combined with our existing facilities this acquisition increases or footprint to twenty two operating facilities in the southeast and a hundred and two across north america on an annual basis these operations should increase our total fares sales volumes by about seven percent we also continued to progress or technology investments in advanced metal recovery system at our major recycling operation extract be more non ferrous metals including copper and aluminum from our shredding activities is a significant value added process and as directly aligned with global demand from we expect the benefits from these projects to increase or non ferrous volumes and revenues to lower are operating costs and improve our margin to expand our product offerings and customer base and to support or sustainability objective of increasing recycling and reducing waste and third or productivity initiatives that we undertake of part of our continuous improvement culture this year or focus is on efficiencies and processing procurement and pricing to offset the inflationary environment that we're all experiencing or record first quarter results benefited from our team skill and focus on this third leg of our strategic plan now before turning it over to return i'd like to highlight that on december eighth weeks variance to fire at our metals recycling facility in everett massachusetts there were no injuries and property damage and laws were limited to our facilities shredder equipment and building there was also no impact or first quarter results because the incident occurred after the end of the quarter based on our current repair schedule we expect resumes reading operations within this quarter we also expect that are insurance for cover most of the repair or replacement costs and a significant amount of lost income sir now let me turn it over to richard for more detailed review of our financial and operating them richard
spk_3: thank you tomorrow morning i'll begin with and of the winner advanced me to recovery technology initiative we continue to progress the deployment of new technologies and simply in me to facilities the thirty new systems within or english the fiber implemented and operational with remainder and construction or in the permitting process in december we completed construction have an additional advanced cooper separation system that is no an operational tasting and that we expect to begin processing to you during the balance of the second quarter the new technology implemented to deeds had already increased their prudent optionality and during the first quarter we export it will million pounds of high quality new products including twitch and until cooper as we move more systems increase production extract more mental and refine or new products weeks make to increase the trains of additional nonferrous recovered from shredding mods or target of fifty million pounds per annum we could represent an increase in nonsense and trading of approximately twenty percent object to new for the cool the really to delete to construction or two remaining permits we're targeting rulers of all or remaining installations for the in the fiscal twenty twenty two we continue to expect to to capital investment in the range of one hundred and fifty million dollars including the final fifty million dollars in the remainder for school twenty two no less consciously team discuss are consolidated results were a seals on the market dynamics are adjusted ebitda was sixty dollars prepares ton on record for a fourth quarter one a you were year basis this result was hired by thirty dollars or seventy percent the improve performance was driven primarily by higher average selling prices increase sales volumes for fairness a nonferrous productivity improvements initial contributions from columbus recycling and a higher contribution from are steel mill including the billion dollars of in shoot recoveries recognized in the fourth quarter these benefits were partly offset by the impact of supply chain disruptions more prices go platinum good metals and increased tasty and he explains replacing higher inflation and a tight labor market average net selling places were up by sixty six percent year over year the last time fair of selling prices were at current levels was back in fiscal eleven computer bike lane or margins proton in the fourth quarter were over forty percent higher which can be primarily to attributed to a multiyear focus on productivity and the benefits of a commercial initiative when a by program and seals diversification supply chain disruptions contributed to several over contract to shipments or november been believe including her ferris nonferrous and finished new products the disruptions to both ships containers fucking and labour adversely impacted our ever done compute the basis of the quarterly outlook the we provided back in october ferris sales volumes were off year over year by nine percent with our own half of the increase coming from the first two months of operations of columbus recycling compared to our outlook the delete shipments of contracted seals for november had an adverse impact on our fairness volumes of approximately thirty seven thousand tons we saw recycled finish to seven countries with vietnam turkey and so korea been the largest seals destinations in the quarter the impact of average infantry accounting was neutral compute the benefits of two dollars per tone and a prior quarter
spk_4: no let's move to slay the eleven
spk_3: for not the for nonferrous seals on the market dynamics average net selling prices for non ferrous were up by sixty four percent year over year and recycled copper aluminum and zorba three the that prices know were at or near malta your height nonferrous sealed volumes rules year over year by eleven percent with our own half of the increase coming from columbus recycling however computer otley increase challenges in securing containers the lead shipments of twelve million pounds of contracted seals originally planned for november we sold our non ferrous products to fifteen countries with a meteor destinations being the united states india and malaysia no let's move to slate twelve to discuss of steel mill performance and were schools markets many steel sales volumes of ninety nine thousand tons were up sequentially by fifty three percent as we continue the production rumple the had begun in mid august average selling price is for finish the old were off year over year by fifty eight percent and in the first quarter reached their highest ever these price increases reflected robust west coast demand and the flu through of higher input costs including for scrap and for other consumables average moving more toys decent for the quarter courtroom seventy eight percent and reached ninety one percent in the month of november reflecting and increasing trained throat the quarter by the end of the fourth quarter we had need strong progress on rebuilding our inventory of bullets and funny speeds onyx back to the back to normal inventory level using the second quarter now let's move to sleep the of team and discuss cash new captain structure and our old for capital expenditures her first quarter past season lee more operating cash more due to the cash pm in november each year of incentive compensation accrued and the previous fiscal year the first quarter of fiscal twenty two was further impacted by the rebuild of infantry that the mil which added seventy million dollars to the increase in working capital during the quarter but the chart on the top lane shoes we have a multiyear track record of strongly positive operating cash flows on an annual basis based on our current performance levels we expect this annual trained to continue for fiscal year twenty twenty two net that increase to two hundred and forty one million dollars reflecting er investment of one hundred and forty million dollars to acquire assets from columbus recycling in the fourth quarter we received fifty million dollars of initial cash advances from our milled and shooters all this a modes forty million dollars has been recognized your income statement including three million dollars and the first quarter the recognition of the remaining sixteen million dollars through our income statement as expected to occur over several quarters net leverage of the quarter and was twenty two percent and a ratio of net debt adjusted ebitda four zero point seven x or flight school twenty twenty two as a whole we expect to make capital expenditures and the range of one hundred and fifty million dollars to one hundred and sixty million dollars just under half will be for group projects including completion of or technology initiatives investments to support volume growth and post acquisition can't think that columbus recycling the remaining fiscal twenty two callbacks will be for maintaining the business and for investments and environmental really to capital projects capital expenditures in the fourth quarter total fifty million dollars they have insurance recoveries or effective tax rate wasn't expense of nineteen percent on are adjusted fourth quarter results and included three million dollars of discreet tax benefits arising from face thing have previously award that she obese compensation we look forward to providing an update on are expected second quarter performance around the end of february i'll note on the presentation back over to tamra
spk_2: thank you red shirt the record first quarter operational and financial results when out this morning reflect our significant progress and expanding profitability increasing our volumes and investing in technology to support or sustainability objective of increasingly cycling reducing waste and enhancing our product offering we have a strong balance sheet a track record of delivering annual positive operating cash flows at a guilty to invest in the growth and productivity of our company at an uninterrupted record of returning capital to our shareholders start of it and we are well positioned to benefit from the continued growth in us and global ea of filmmaking capacity the global focus on decarbonisation the increased metal intensity of low carbon technologies an additional steel and recycled metals demand driven by the recently passed one point two trillion dollar us infrastructure built in closing i like to thank our employees once again for their their outstanding performance they've demonstrated why we have continued to be a leader in the recycling industry for over a century and now jonathan was have been up the call for question
spk_0: certainly lives in general if you have a question at this time please press star than one and you touch tone telephone if your question has been answered and you like to remove yourself from the queue please press the pound key our first question comes in line at my college or funky back your question please
spk_5: the as good morning as at first i just wanted to at gun the this what you're seeing years in the near term in this draft market in terms of price eight am just as of late news these gums them softening in paris and how should we think about the impact on the costs tied for spread been the deal business as we look into the second quarter all out cloth
spk_2: sure so let me and look at it our take you through it and it was the west coast if the well as you know on the domestic side domestic as pricing this week so i'm not gonna comment on domestic but on the export side if we look off the east coast really look at turkey demand buying patterns are remaining consistent and i'm sure that you've seen as i think he reported on twenty twenty one turkey's still production was up i think almost twenty percent which was at record highs so we're saying consistent buying patterns of the west coast demand is broad based and what's interesting is that normally we see a bit of softening this time of year due to the ripple effects of the chinese new year but this year inquiries are coming earlier due to buyers concerns regarding supply chain and path so i'm from that perspective on what we see is increased demand on a year over year basis strong fundamental for our business and the challenges is really in logistics not not a question of demand
spk_5: got it and then sticking with be am the the costs died in the field business out a wanted to ask on the cost pressures you're seeing and fiscal twenty two whether that be allied the lecture electrodes labored energy or or otherwise back in a if you could frame it potentially that the per tonne impact that you're expecting their on a year over year basis within skill in pit twenty two vs fiscal twenty one
spk_2: salami a i see if i can address it broadly and and then richer why don't you had any specific that you like broadly are we focus on our productivity initiatives to combat inflation and so as i mentioned in in the prepared remarks we have made an impact already this year in and i'm driving our benefits from our productivity initiatives to combat inflation the in primary areas that were saying it and as is for an entree procurement as you mentioned in labor i'm and obviously i'm very much an eye in transportation logistics richard if you want to have any sense
spk_3: yeah i know morning michael me i think it would just add the you know we're seeing am still prices you know record labels and know in in in the way schools than the you know these these these cost increases the were talking about i'm you know the the leaving for you know the past the one on on the precincts sites such as prefer for example i'm annette with also knew that as far as like energy cool school the and actually a very small proportion old were overall a cost of good sold ah at the mill so we're not seeing a i am a teams with some material on from us to you know merit calling out honestly
spk_5: okay and just last week for me i wanted to ask about the nonferrous trade dynamics given the the automotive supply chain issues that we've been paid think broadly and are you seeing any eating their and obliging bottleneck than the auto died in in wanted to get you take and a key that playing out over the course of the year as it is the impact your business
spk_2: thanks sort so on non ferrous in terms of our our purchases and sales i'm were obviously i'm at a loss as you mentioned earlier saying supplied same constraints of elderly of can of containers yeah be significant and it clearly contributed to a am delay and sit on ah into one but what you know what i'll reiterate is that demand continues to be strong as hell on a year over year basis it were were saying higher demand and expect to see higher taxes sales
spk_6: but some but there is your obviously of elderly come out containers you're just create a backlog inflows
spk_0: thank you thank you thank you
spk_2: once again if you have a question it is time please press star than one
spk_0: and this does conclude be question and answer session of pennies program i'd like to hear the program back to tamra language reading for the remarks

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