NEW YORK Schnitzer Steel Industries Inc. is continuing to grow its auto parts business through acquisitions and greenfield developments as it targets expansion of its scrap supply chain, president and chief executive officer Tamara Lundgren told analysts during an April 3 conference call.
Schnitzer invested in 10 new auto parts sites during its fiscal second quarter ended Feb. 28 and now has a total of 59 operational facilities, with western Canada a key growth area, the Portland, Ore.-based steel and scrap company said.
Schnitzer also began operations at its new shredder in western Canada during the quarter, enabling it to export ferrous scrap directly from British Columbia, Lundgren said.
The company now has 17 metal recycling and auto parts locations in western Canada "in various stages of development," she said, noting that the expanded western reach gives the company a presence "in a region where our products and services have not been available before."
As a result of the growth, fiscal second-quarter vehicle purchases increased by 11 percent, with about half coming from the new locations, according to Richard D. Peach, chief financial officer and senior vice president.
But while the increased raw material flow has contributed to improved margins in the auto parts business, excluding the impact of new stores, the new facilities continue to incur start-up costs, he said.
"We will see in the (fiscal) third quarter something similar in terms of start-up costs in auto parts because were converting some of the acquired stores to self-service facilities and were also developing our new greenfield locations. So we do have some costs associated with labor, supplies, building of inventory and the customer base in those locations. But that will quickly pass, we hope," Peach said, noting that Schnitzer expects to see a 15-percent boost in auto parts purchase volumes after the integration of the new sites is complete.
Fiscal second-quarter sales of $78.1 million by Schnitzers auto parts business were flat compared with the same period a year earlier, while the companys overall revenue dropped 25.3 percent to $662.2 million (amm.com, April 3).