Horsehead Holding Management Discusses Q2 2012 Results - Earnings Call Transcript

Horsehead Holding (ZINC)

Q2 2012 Earnings Call

August 06, 2012 11:00 am ET

Executives

Gary R. Whitaker - Vice President, General Counsel and Secretary

James M. Hensler - Chairman, Chief Executive Officer and President

Frank Vallelunga

Analysts

Paul Forward - Stifel, Nicolaus & Co., Inc., Research Division

Daniel Moore - CJS Securities, Inc.

Kuni M. Chen - CRT Capital Group LLC, Research Division

Mitesh Thakkar - FBR Capital Markets & Co., Research Division

Carter W. Driscoll - Capstone Investments, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Horsehead Holding Corp. Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Gary Whitaker. Please go ahead.

Gary R. Whitaker

Good morning, everyone, and thank you for joining us on our second quarter 2012 earnings release conference call.

My name is Gary Whitaker and I am Horsehead's Vice President, 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 markets 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 9, 2012, 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?

James M. Hensler

Thanks, Gary. I'd like to welcome you to this conference call to discuss the results of the second quarter of 2012. I will review the performance of our operations and markets, while Frank Vallelunga, our Controller, will review the financial results. Bob Scherich, our CFO, who normally joins me on these calls, is unable to be with us today due to a personal matter.

The consolidated net earnings for the quarter were a loss of $1.7 million, or a $0.04 loss per share. This compares to a loss of $3.7 million, or an $0.08 loss per share for the second quarter of 2011. Consolidated net earnings, excluding noncash charges related to hedges and a lower of cost per market adjustment to inventory for the second quarter of 2012, were $1.5 million or $0.03 per share.

For the same period in 2011, on the same basis, consolidated net earnings were $5.5 million or $0.13 per share. The primary change between the quarters was a 14% lower zinc price this year which reduced earnings by an estimated $0.13 per share.

In addition, at INMETCO, lower nickel prices combined with higher maintenance and repair costs due to 2 unplanned equipment outages contributed to a $0.04 per share decline in earnings compared with the second quarter of 2011.

While I'm pleased with the operating levels of our businesses, lower commodity prices had a noticeable effect on our earnings when compared to the same quarter last year. However, when you eliminate the impact of hedge write-offs, mark-to-market adjustments and LCM adjustments, our operating results were positive despite the lower commodity prices compared with the prior year.

And the quarter had many bright spots compared with the same quarter last year. Zinc product shipments were up 29% including the impact of Zochem. EAF dust receipts were up 17%. EAF dust processed was up 11%. Smelter output was up 7.7%, and the realized premium for zinc products on a zinc contained basis was up about $0.07 per pound.

I'd now like to discuss these operating results in more detail. We processed 160,600 tons of EAF dust during the quarter, an 11% increase from the same quarter last year. EAF dust receipts increased from the prior year second quarter from 138,000 tons to 161,700 tons, a 17% increase. The combination of higher steel production levels and new service contracts that started in 2012 were the primary factors leading to this increase. According to industry statistics, domestic steel industry capacity utilization averaged approximately 79% during the second quarter, which is up slightly from 78% during the first quarter of 2012 and up from just shy of 75% in the second quarter of 2011.

We believe dust receipt levels will be slightly lower in the third quarter of 2012 as steel production levels appear to have softened. However, we expect to run our EAF dust recycling plants at full capacity through the end of the third quarter. If this recent softening in steel production persists, we will consider idling one of our kilns prior to the end of 2012.

We continue to pursue additional EAF dust service contracts because processing additional dust provides more low-cost feed for our current zinc production and will be the primary source of feed for our new zinc plant in North Carolina. We are happy to see zinc recovered from EAF dust made up about 77% of the feed mix for the smelter during the most recent quarter, compared to 74.6% for the same quarter last year.

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