Schnitzer Steel Industries, Inc. (Nasdaq: SCHN) announced its outlook for its fourth quarter of fiscal 2013 ending August 31, 2013. During the quarter, export demand for recycled metals weakened versus the third quarter as reflected by lower shipped volumes and lower average sales prices. Average purchase prices for material shipped during the quarter declined more slowly than sales prices resulting in lower margins compared to the third quarter. Positive operating cash flow, driven by a strong focus on working capital, is expected to result in a reduction of total debt outstanding in the fourth quarter, after payment of the Company’s quarterly dividend. During the fourth quarter, the Company completed the construction of its major capital projects in Canada and Puerto Rico which is expected to result in a significant reduction in capital expenditures in fiscal 2014.
In the Metals Recycling Business, ferrous sales volumes are anticipated to be 5-10% lower than the third quarter and average ferrous selling prices are expected to decline 8-10% sequentially. Nonferrous sales volumes are expected to approximate the third quarter while average nonferrous selling prices are expected to decline approximately 5%. Operating results in the fourth quarter are expected to be adversely impacted by the weaker market conditions, including the impact of average inventory costs which, in a declining selling price environment, do not decrease as quickly as cash purchase costs for raw materials, as well as higher unit costs resulting from lower anticipated volumes and a material increase in bad debt expense. These factors are expected to contribute to the Metals Recycling Business incurring an operating loss in the fourth quarter.
In the fourth quarter, the Metals Recycling Business also anticipates recording a material non-cash impairment charge to the carrying value of goodwill reflecting the broader impact of the weaker macroeconomic environment as well as other factors. In addition, the Company expects to record a non-cash deferred tax valuation allowance in the fourth quarter related to foreign operations in the Metals Recycling Business. The impairment charge and valuation allowance are not expected to impact the Company’s ability to continue the quarterly dividend or to repurchase shares.