Scrap-metal recycler Schnitzer Steel
What analysts say:
- Buy, sell, or waffle? The three analysts covering Schnitzer have apparently recycled each other's opinions: All three say hold.
- Revenues. Revenues are expected to rise by 31% over last year, to $511.9 million.
- Earnings. Earnings, however, will take a dip, coming in at just $0.99 a share, down from the $1.34 posted last year.
What management says:
The company made a number of acquisitions during 2006, which boosted the size of its operations substantially. Overall, the company has been experiencing increased volumes as a result of the acquisitions. But it has seen the price of processed ferrous metals -- such as iron and steel -- drop due to slowing demand in Asia, though they started to rebound toward the end of the year. Non-ferrous metals, like copper, tin, and aluminum, were strong for most of last year, but began to slide and may affect results in this quarter. Copper in particular has slid from its highs last May, while aluminum has recovered some.
What management does:
Margins across the board have been steadily sliding on lower prices. It's probably a trend that will continue, unless another surge in demand starts pushing up prices for metals worldwide. Moreover, if manufacturing slows domestically, as is expected to be reported for the months of November and December, then that will translate into lower prices as well. Prices in base metals of copper, zinc, nickel, and aluminum are all expected to correct this year. Copper is already down 30% from year-ago levels, and is forecast to undergo even further declines.
|
Margin % |
08/05 |
11/05 |
02/06 |
05/06 |
08/06 |
|---|---|---|---|---|---|
|
Gross |
27.7 |
23.3 |
19.9 |
18.3 |
17.7 |
|
Op. |
27.7 |
19.0 |
14.1 |
11.2 |
9.6 |
|
Net |
17.2 |
14.6 |
11.0 |
8.8 |
7.7 |
One Fool says:
Softness in the U.S. economy, coupled with a bit of a breather being taken in China, could push Schnitzer Steel's margins further as it does not achieve the volumes or prices it has previously experienced. China has been the driver for growth in many industries, and while it is still a net user of raw materials across the board, any slackening of demand would reverberate throughout many industries. Don't expect Schnitzer to be sent to the scrap heap, but don't expect it to recycle the strong performance of the past few years, either.
Competitors:
- Nucor
(NYSE:NUE) - Oregon Steel Mills
(NYSE:OS) - Steel Dynamics
(NASDAQ:STLD) - Commercial Metals
(NYSE:CMC) - Gerdau Ameristeel
(NYSE:GNA) - Metal Management
(NASDAQ:MTLM)
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Schnitzer Steel is a five-star company at Motley Fool CAPS, the Fool's new stock-rating service. Join today to see why investors think this company is still a scrappy performer. It's free!
Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
