Horsehead Holding Corp. Q2 2010 Earnings Call Transcript

Horsehead Holding Corp. Q2 2010 Earnings Call Transcript
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Horsehead Holding Corp. (ZINC)

Q2 2010 Earnings Conference Call

August 9, 2010 11:00 AM ET

Executives

Ali Alavi – VP, Corporate Administration, General Counsel and Secretary

Jim Hensler – Chairman, President and CEO

Bob Scherich – VP and CFO

Analysts

Carter Driscoll – CapStone Investments

Mitesh Thakkar – FBR Capital Markets

Robert Howard – Prospector Partners

Paul Massaud – Stifel Nicolaus

Albert Sebastian – Prospect Advisors

Scott Blumenthal – Emerald Advisers

Eric Prouty – Canaccord Genuity

Presentation

Operator

Welcome to the second quarter 2010 earnings conference call. (Operator instructions) As a reminder today’s conference call is being recorded.

I would now like to turn the conference over to Ali Alavi. Please go ahead.

Ali Alavi

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Thank you. Good morning everyone, and thank you for joining us on our second quarter 2010 earnings release conference call. My name is Ali Alavi and I am Horsehead’s Vice President of Corporate Administration, General Counsel and Secretary.

Before I turn the call over to Jim Hensler, I would like to quickly remind everyone that this communication may include forward-looking statements about our company, our market and our prospects that are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

These risks and uncertainties include a variety of factors, some of which are beyond our control. These forward-looking statements speak as of today and you should not rely on them as representing our views in the future. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after this communication. You should refer to our filings with the U.S. Securities and Exchange Commission, including our most recent Annual Report on Form 10-K filed on March 16, 2010, for a more detailed description of the risk factors that may affect our results.

With that, I am pleased to introduce Jim Hensler, our President and CEO. Jim?

Jim Hensler

Thanks, Ali. I would like to welcome you to this conference call to discuss the second quarter 2010 results. I’ll spend a portion of my time reviewing the performance of our operations in markets during the quarter and then discuss the recent incident at our Monaca plant and its impact on the business going forward. Following my comments Bob Scherich, our CFO will review the financial results.

The second quarter’s results reflected a continued increase in demand for our products and services. Net income for the quarter was $5.7 million or $0.13 per share versus a net loss of $9.3 million or negative $0.26 per share in the second quarter of 2009. Bob will provide a detailed analysis of the quarter but the primary factors affecting the comparison of the two quarters are higher shipment volumes and higher LME zinc prices in this quarter versus the prior year quarter. We also realized the added benefit of owning INMETCO this year, which we did not owned last year.

Earnings in this quarter were off slightly versus the first quarter of this year primarily due to lower LME zinc prices and due to the fact that INMETCO took their annual outage in the second quarter which we reported on last quarter. We also incurred startup related cost at Barnwell during the quarter.

We operated our recycling facilities at full capacity during the quarter and we started the first of two kilns at the Barnwell plant in April. Our zinc smelting operation returned to full production in March and remained at six furnace operating level throughout the quarter. EAF dust receipts increased 63% compared to the prior year quarter to 139,000 tons. Domestic steel production averaged 73.2% of capacity utilization during the quarter which is up substantially from 44.6% during the prior year quarter and up slightly from 67.6% compared to the first quarter of this year.

In response to the stronger output levels from the steel industry and with the help our new kiln in Barnwell, South Carolina, we processed a record 138,000 tons of EAF dust during the quarter. Operations at Barnwell gradually ramped up during the quarter as training of crews and debugging of equipment progressed. We are completing the final work on the second kiln which we expect to startup within the next few weeks.

We spent approximately $59 million on the Barnwell project through the end of the second quarter. We continued to estimate that we’ll be able to complete the project for approximately $65 million of which $5.9 million will come from the new market tax credit financing reported on earlier. Market demand for our zinc products continued to improve this quarter. Zinc product shipments increased 29% compared with the prior year’s second quarter.

On a sequential quarter basis, comparing the second quarter of this year to the first quarter, zinc products shipments increased 10.3% to 36,860 tons. Zinc oxide shipments were up 47% from the prior year’s quarters and 11% from the first quarter of this year. While zinc metal shipments increased 16% compared to the prior year’s second quarter and 9% since the first quarter of this year.

Demand for PW zinc metals strengthened during the quarter as we entered into more active construction season and as general economic conditions improved slightly and zinc oxide demand strengthened primarily of tire producers as we entered the quarter.

Moving on to discuss the zinc pricing environment, the all new zinc price average $0.92 per pound during the quarter which was 37% higher than the prior year quarter at $0.67 per pound but 12% lower than the first quarter of 2010 average of a $1.04. Zinc prices moved lower as we exited the second quarter but have recently rebounded and are trading in the mid $0.90 per pound range. As reported earlier, we purchased put options for 2011 at a strike price of $0.65 per pound on about 25% of our requirements during the second quarter. With the recent rebound in the zinc prices, we’ve restarted buying put options to complete our requirements for the first half of next year.

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