UPDATE 2-Schnitzer Steel posts surprise Q3 loss; shares drop
* Q3 loss $0.05/shr vs est. of EPS $0.11
* Q3 revenue more than halves to $411.8 mln
* Sees higher sales vols, prices & margins in Q4
* Shares drop as much as 10 pct (Recasts, adds details, analysts' comments, share movement)
By Antonita Madonna Devotta
BANGALORE, June 30 (Reuters) - Schnitzer Steel Industries Inc (SCHN.O) swung to a third-quarter loss, primarily due to a steep decline in ferrous selling prices and weak demand, sending its shares down as much as 10 percent.
The steel industry has been grappling with plummeting prices and shrivelling demand following a boom period of China-fueled growth.
Schnitzer stock was pricing in better results and as investors see the disappointing guidance, continued pressure is expected on the stock in comparison to its peer group, analyst Dana Guido of Merriman Curhan Ford & Co said.
For the quarter ended May 31, the recycler of ferrous and non-ferrous metals posted a net loss of $1.5 million, or 5 cents a share, compared with a profit of $61.7 million, or $2.14 a share, a year ago.
Revenue dropped 58 percent to $411.8 million, weighed down by a 52 percent decline in average ferrous net selling prices and a 9 percent drop in ferrous processing sales volumes.
Analysts on average were looking for earnings of 11 cents a share, before items, on revenue of $382.6 million, according to Reuters Estimates.
The drag on the results is in line with the crisis in the macro environment, said Canaccord Adams analyst Eric Prouty, adding that weaker-than-expected margins weighed down on the results.
"Weak demand in the non-residential and infrastructure construction markets is expected to continue through the fourth quarter," the company said.
The supply of raw materials is expected to continue to put pressure on metal spreads, the company added.
Average prices in the company's steel manufacturing segment are also expected to be slightly lower than that in the third quarter.
Analyst Guido said she expects the company to disappoint analysts' consensus estimates in the fourth-quarter as well.
RESPITE SEEN IN METALS RECYCLING SEGMENT
The company said near-term demand for ferrous scrap had improved from the third quarter and expects average selling prices, sales volumes and margins to rise in its core metals recycling business during the fourth quarter.
"Given the state of the U.S. economy, the steel business remains weak but both the recycling and auto parts business of the company is looking for some decent sequential improvement," analyst Prouty said.
Schnitzer said it reduced its inventory level to more than half in the third quarter, thereby aiding a rise in production that should help future operating results.
Ferrous processing sales shipments are expected to rise 100,000 tons to 200,000 tons, sequentially, in the fourth-quarter, it said.
The company's auto parts segment is also expected to yield higher revenue in the fourth-quarter amid improved part sales and and car volumes.
Other companies catering to similar end-markets, including Commercial Metals (CMC.N) Steel Dynamics Inc (STLD.O) and AK Steel Holding Corp (AKS.N), have reported a marginal rise in order entry and prices in June.
Shares of the Portland, Oregon-based company were trading down 9.5 percent at $54.44 in Tuesday morning on Nasdaq. They dropped to $54.36 earlier in the session. (Reporting by Antonita Madonna Devotta in Bangalore; Editing by Maju Samuel, Dinesh Nair)
