Horsehead Holding Corp. (OTC:ZINCQ) reported third-quarter results before the market opened this morning. The zinc producer reported revenue of $111 million but lost $7.5 million, or $0.15 per share, on an adjusted basis. Both numbers managed to beat analysts' estimates as strong zinc prices helped to overcome some of the start-up issues at Mooresboro.
A look at the numbers
Horsehead Holding's $0.15-per-share loss was actually two pennies better than analysts were expecting. However, the company's loss did widen from last year's third quarter, when it reported a loss of $2.7 million, or $0.06 per share. That wider loss was the direct result of production issues the company endured as it started up its new Mooresboro facility.
The company's loss wasn't just on paper, either, as operating activities consumed $5.1 million in cash in the quarter. In addition to that, it spent $23.6 million on capital projects. To bridge the gap, the company engaged in some financing activities to add $47.8 million in cash to its coffers to bolster its cash balance and bring it up to $72.2 million. That cash, along with the $2.4 million left on its credit facility, is believed to be more than enough liquidity to meet the capital needs of the business as it continues to ramp up production at Mooresboro.
Despite the loss, there were several positives in the third quarter. Revenue was about $5 million more than analysts were expecting, and it was 1.3% higher than last year's third quarter. Higher LME zinc and nickel prices both pushed revenue higher.
In addition to that, the company's Zochem and INMETCO subsidiaries both delivered strong quarters. Pre-tax income at Zochem surged 69% over last year's third quarter as a result of the full integration of the company's zinc oxide business into a single location. Meanwhile, INMETCO enjoyed a 52% jump in its pre-tax income before mark-to-market adjustments to hedge positions.
A look at outlook
Horsehead Holding appears to have put its start-up issues at Mooresboro behind it. While the company is still working out some kinks, it believes it can resolve these minor issues without adding any material costs. The company anticipates its recent strong production results from the facility will continue in the fourth quarter, and that it should be able to continue to ramp up production past the facility breakeven point, and onward to full capacity. That said, the company is not yet sure how quickly it can ramp up production.
Another positive note was that Royal Dutch Shell exercised its option to purchase Horsehead's site in Monaca. Horsehead has been demolishing the site as part of its option agreement and expects to complete demolition early next year. Once that is complete, the company will no longer have unreimbursed expenses associated with the site, which, in the third quarter, totaled $2.3 million to handle and transport zinc-bearing raw materials from Monaca to Mooresboro. Looking ahead, those expenses should be much lower in the fourth quarter, when the company completes its final shipment to Mooresboro.
Horsehead Holding appears to be past the initial start-up struggles of Mooresboro. Getting that facility ramped up to full production capacity is a key for the company, as it will lower the company's production costs in order to yield improved profitability.