Release Date: July 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Adjusted EBITDA of $9 million, a significant improvement from $3 million in the prior quarter.
- Meaningful increases in ferrous, non-ferrous, and finished steel sales volumes.
- 88% capacity utilization at the steel mill, significantly higher than the 77% US average.
- Achieved approximately 75% of the quarterly run rate for a $70 million cost reduction and productivity program.
- Continued investment in advanced metal recovery technologies expected to return over $40 million in annual EBITDA when fully deployed.
Negative Points
- Reported third-quarter loss of $6.97 per share, with $6.21 related to a non-cash goodwill impairment charge.
- Continued tight scrap supply flows contributing to compressed margins.
- Lower economic activity and constrained scrap supply flows for more than a year.
- Non-cash impairment charge of $216 million on goodwill due to challenging market conditions.
- Decline in ferrous prices leading to compression in metal spreads and a detriment from average inventory accounting.
Q & A Highlights
Q: If market fundamental trends persist over the foreseeable future, what are the levers and options that the company has to address this? Have you considered idling some ferrous facilities until the market turns around?
A: (Tamara Lundgren, CEO) We focus on three major areas: advanced metal recycling technology investments, cost reduction and productivity programs, and investments in our recycling services business line. These initiatives are expected to significantly improve margins and EBITDA. (Stefano Gaggini, CFO) We continuously evaluate our portfolio and consider asset monetization opportunities if necessary.
Q: Can you provide more details on the asset monetization process? Are you evaluating smaller businesses or larger assets like the steel mill business?
A: (Tamara Lundgren, CEO) We routinely assess our portfolio to ensure our sites are optimally located. This includes potential monetization and repositioning of assets, particularly in our Pick-n-Pull franchise. We also consider idling underperforming sites based on supply flows and long-term viability.
Q: The reported export ferrous price seemed weak relative to benchmark indices. Can you explain the markets you were selling into and if you had to sell at more competitive prices?
A: (Stefano Gaggini, CFO) Benchmark index prices are published on a gross basis before freight costs, while our net selling prices are after freight. The mix of sales destinations can create deviations from benchmark prices. Our top sales destinations were Bangladesh, Turkey, and India, and we sell to where demand is greatest.
Q: What was happening with freight rates, particularly to East Asia? How do they compare to historical rates?
A: (Tamara Lundgren, CEO) Freight rates for bulk were flat sequentially but up year-over-year due to the Panama and Suez Canal situations. These rates are pass-throughs for us, so there was no significant sequential impact.
Q: Is there anything unique about the regional markets where your ferrous recycling assets are located that makes scrap collections more challenging?
A: (Tamara Lundgren, CEO) Different regulatory environments across regions can impact operating costs. For example, the West Coast has a more stringent regulatory environment, which affects costs. Scrap collection is very local, so sub-regional market levels are the best benchmarks.
Q: Can you share some color on the underlying profitability of the steel mills business?
A: (Stefano Gaggini, CFO) We report results on a consolidated basis and do not provide separate contributions for the steel mill. However, the mill remains a significant contributor to our performance, with spreads remaining healthy in a historical context.
Q: Can you discuss the profitability of your various business lines?
A: (Stefano Gaggini, CFO) We have one integrated platform, and all our businesses contribute positively to results. We continuously evaluate our portfolio to ensure each business is contributing valuable performance.
Q: Despite headwinds from domestic consumption rates in Turkey and Chinese exports, your export volumes were solid. Can you frame up the impact of delayed cargo ships on your fiscal third quarter?
A: (Stefano Gaggini, CFO) The increase in ferrous volumes was driven by seasonality and delayed cargoes from the previous quarter. Approximately one-third of the sequential increase was due to delayed cargoes.
Q: How do you view the non-ferrous market as Zorba prices remain high?
A: (Stefano Gaggini, CFO) Higher Zorba prices positively impact our margins. We evaluate the additional contribution from processing Zorba into higher-value materials like Twitch based on market conditions. Currently, we are not processing Zorba into Twitch due to the compressed premium.
Q: Should we expect a similar CapEx range next year as this year's $75 million to $80 million?
A: (Stefano Gaggini, CFO) We have not provided a target for next year. CapEx is part of our balanced capital allocation, and we can adjust it based on market conditions and company performance. We continue to invest in advanced non-ferrous recovery systems and recycling services.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
