Radius Recycling Q4 report shows weakened demand for recycled metals

Radius Recycling, formerly known as Schnitzer Steel Industries Inc., Portland, Oregon, has reported its results for the fourth quarter of fiscal year 2023, which ended Aug. 31. The company reports a net loss of $26 million, or $23 per ferrous ton, and a loss per share from continuing operations in the fourth quarter of 92 cents, all of which include a non-cash goodwill and other asset impairment charges of $45 million, or $1.61 per share.

By comparison, Radius reported a net income of $14 million, or $12 per ferrous ton, in the previous quarter.

Radius says the asset impairment charges include $1 million (5 cents per share before taxes) and $5 million (19 cents per share before taxes), respectively, of impairment and other adjustments of an equity investment to fair value reported within 'other loss, net' on the consolidated statement of operations.

Within its consolidated statement of operations for the most recently completed quarter, Radius reports a $273,000 loss in the “other loss, net” line item, in addition to a $704,000 loss attributed to income from joint ventures and a much more substantial $25.73 million loss from continuing operations.

Additionally, its adjusted earnings per share from continuing operations were 47 cents in the fourth quarter and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $49 million, or $44 per ferrous ton. The company generated an operating cash flow of $135 million in the fourth quarter.

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Radius says market conditions for recycled metals in the fourth quarter weakened on lower global steel demand. Sequentially, average net selling prices for recycled metals decreased, which, in combination with a further tightening of supply flows over the summer, led to significant metal spread compression, lower sales volumes and an adverse impact from average inventory accounting. These effects were substantially offset by the recognition of certain insurance recoveries during the quarter, according to the company.

“While market conditions for recycled metals in the fourth quarter reflected the impact of weaker demand fundamentals, driven by higher interest rates, a slower recovery in China and destocking in the domestic markets, accompanied by tighter supply flows, our performance benefited from strong operating cash flow and a continued focus on productivity initiatives,” Radius Chairman and CEO Tamara Lundgren says. “The long-term structural demand for recycled metals remains positive, supported by the increased focus on decarbonization, the transition to low-carbon technologies and the anticipated demand associated with the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, including Buy Clean provisions.”

Lundgren notes that the company unveiled its new corporate identity, Radius Recycling, during the quarter, and that it “better reflects the company’s role as one of North America’s largest metal recyclers, our position in the circular economy and our commitment to advance the recovery, reuse and recycling of the essential metals required to support global carbon reduction.

“Our work and our purpose have never been more relevant than they are today," she continues. "Radius Recycling is a name that represents our over 3,300 employees and a future in which recycled metals sit at the center of progress, seamlessly connecting all points within the circular economy.”

Operating performance in the fourth quarter reflected sequentially tighter supply flows for recycled metals, which, together with lower average net selling prices for Radius’ products, resulted in a compression of metal spreads, the company says. Results for the quarter include an adverse impact from average inventory accounting of approximately $5 per ferrous ton, compared to a benefit of $2 per ferrous ton in the third quarter.

Average net selling prices for ferrous and nonferrous products decreased by 14 percent and 7 percent, respectively, and average net selling prices for finished steel products were lower 7 percent. Ferrous and nonferrous sales volumes decreased by 4 percent and 2 percent, respectively, while finished steel sales volumes increased 7 percent.

The company notes that fourth quarter performance reflected the full achievement of the $10 million quarterly run rate of productivity initiatives announced in Oct. 2022 and the quarterly run rate of $5 million of selling, general and administrative (SG&A) savings initiatives announced in January of this year. Radius adds that the benefits from these initiatives mitigated the impact of lower recycled metal volumes and inflationary pressure on operating costs.

In the fourth quarter, the company recognized insurance recoveries of $41 million, of which $27 million was received in cash, in connection with previously submitted claims related to certain property damage and business interruption matters that had occurred in prior periods. The company’s highest profile such interruption involved a fire and subsequent idling of its auto shredding plant in Massachusetts in 2022.

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The fourth quarter had an operating cash flow of $135 million, including a benefit from working capital management, the company says. Its total debt decreased by over $100 million sequentially and was $249 million at the end of the quarter. Debt, net of cash, was $243 million. Capital expenditures were $28 million in the quarter, including investments in advanced metal recovery technologies, maintaining the business and environmental-related projects.

The effective tax rate for the fourth quarter of 2023 was a benefit of approximately 12 percent on generally accepted accounting principles (GAAP) results and an expense of approximately 32 percent on adjusted non-GAAP results. During the fourth quarter, the company returned capital to shareholders through its 118^th consecutive quarterly dividend.