It's not every day a company "beats earnings" soundly, reports high-double digit increases in both sales and earnings ... and sees its stock play possum. Sadly, that's just the kind of extraordinarily bad day Schnitzer Steel (NASDAQ:SCHN) encountered yesterday.
Bright and early Tuesday morning, this scrap steel tsar reported record revenues and profits for its fiscal third quarter of 2008. The $972 million in sales and $2.14 in per-share profit worked out to year-over-year increases of 37% and 46%, respectively.
So what?
That's how most investors seem to have reacted to Schnitzer's report. The cornucopia of good news had zero effect on the stock. So why did investors bother to read it in the first place?
I'm just guessing here, but maybe the answer is: "Because Schnitzer snitches." I mean, I'm not all that interested in the stock myself (and never have been). Pay 21 times earnings for an expected 10% grower? Pass. Me, I read Schnitzer's earnings reports more for what they tell us about trends in global steel -- before they happen. A few examples:
Global demand for recycled metals remained robust, driven by economic growth in developing countries.
And who are among the major players in recycled steel in the U.S.? Nucor (NYSE:NUE) and Steel Dynamics (NASDAQ:STLD). Expect both of those to do well this quarter:
Higher overseas prices and a weak U.S. dollar continue to limit the volume of finished steel products imported for sale in the U.S., resulting in price increases despite soft domestic demand.
So much for a U.S. recession KO'ing domestic steelmakers. If foreign firms like Mechel (NYSE:MTL) and ArcelorMittal (NYSE:MT) aren't interested in shipping steel here, then local shops get to keep most of the business to themselves.
Meanwhile, over at Schnitzer's Auto Parts business, we find: "higher prices for cores and scrap and improved parts sales" boding well for Q4's numbers. This one's more of a stretch, but logically, if auto parts are commanding higher prices this year than last, then wholesaling salvaged vehicles should be a sweet business to be in. Score one for Motley Fool Stock Advisor recommendation Copart (NASDAQ:CPRT)? The 40% profit we've already booked on Copart may be just the beginning.
So congrats on the quarter, Schnitzer, and thanks for the tips.
