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Schnitzer cost-cutting to slice 300 jobs

Keywords: Tags  scrap, steel, Schnitzer Steel, cost-cutting, job cuts, Sean Davidson

NEW YORK — Schnitzer Steel Industries Inc. plans to eliminate 300 jobs, or about 7 percent of its work force, as part of a major restructuring and cost-cutting exercise, the company said Tuesday.

In addition to the companywide job cull, Schnitzer will look to further integrate its metals recycling and auto parts businesses, streamline its corporate structure and reduce "organizational layers," it said. These initiatives are expected to lower annual operating costs by $25 million and should be "substantially complete" by the end of the fiscal 2013 first quarter ending Nov. 30, the company said as it announced its fiscal fourth-quarter outlook.

Restructuring charges are expected to total some $12 million, with $5 million of that expected to be incurred in the fourth quarter of fiscal 2012, it said.

"The restructuring charges primarily represent costs connected with the elimination of approximately 300 positions, or 7 percent of our current work force, and contract termination costs, including from the consolidation of certain administrative offices," the company said.

Schnitzer’s aggressive cost-cutting efforts come at a time of challenging market conditions. In its fiscal fourth quarter ending Aug. 31, average ferrous scrap net selling prices are expected to fall between 10 and 15 percent from fiscal third-quarter levels, with ferrous scrap sales volumes expected to decline by the same amount due to reduced flows of raw materials, the company said. Nonferrous average selling prices and volumes are forecast to decline between 5 and 10 percent from the fiscal third quarter.

During the fiscal fourth quarter, the supply of scrap continued to be constrained by low U.S. gross domestic product growth, as well as by a lower price environment and unusually hot weather, the company said.

"As a result of these conditions, average inventory costs were not able to decline as quickly as cash purchase costs for raw materials. Average inventory costs are expected to adversely impact consolidated operating income by approximately $25 million compared to the third quarter, with approximately two-thirds of this impact affecting our metals recycling business," it added.

Schnitzer expects operating income per ferrous gross ton to be between $8 and $9, down about 35 percent from its fiscal third-quarter performance (, June 28). For fiscal 2012, Schnitzer said its metals recycling business is expected to achieve operating income per ferrous ton of about $12 on aggregate sales volumes of about 5 million ferrous tons and 600 million nonferrous pounds.

In total, the company expects to roughly break even on reported earnings for the quarter, before restructuring charges.

The company’s steel manufacturing business, in particular, appeared to log a weak quarter.

"Volume increases of approximately 15 percent are expected to be more than offset by a decline in average selling prices of slightly more than 5 percent from the third quarter," the company said.

Lower selling prices, combined with unscheduled downtime and an adverse impact of average inventory accounting are expected to result in an operating loss for the division of about $3 million. For fiscal 2012, operating performance at the steel manufacturing business is forecast to be slightly below breakeven, the company said.

In April, Schnitzer’s Cascade Steel Rolling Mills subsidiary suspended production at its McMinnville, Ore., facility after unionized workers launched a strike, which lasted more than two weeks (, April 24).

Meanwhile, Schnitzer’s auto parts business has felt the sharp drop in commodity prices during the quarter, and is projected to report a 15- to 20-percent drop in revenue from the fiscal third quarter. However, operating margins in the fiscal fourth quarter are expected to be about breakeven, the company said. For fiscal 2012, the auto parts business is expected to generate an operating margin of about 10 percent on an aggregate of 340,000 cars purchased, it added.

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