Schnitzer Warning... More Steel Sector Pain Ahead? (SCHN, AKS, X)

Schnitzer Steel Industries, Inc. (NASDAQ: SCHN) is set to report earnings on January 9, 2012, but the company has already telegraphed that the results will be a stinker.  It has lowered guidance “to reflect the impact of significant market volatility during the quarter… due to weaker than anticipated global market conditions for recycled metals.”

Operating margins contracted more than anticipated during the quarter and earnings are expected to be in the range of $0.18 to $0.25 EPS for its fourth quarter.  Unfortunately, Thomson Reuters had estimates at $0.55 EPS.  The company further cited higher fears of a global recession, mostly from the European debt crisis, being responsible for a significant buying pattern slowdown as well as a sharp decline in sales prices.

Operating income in the Metals Recycling Business per ferrous ton is expected to be approximately 50% lower than the $21 per ton seen during the first quarter of 2011, while the Auto Parts Business is going to see operating income about 30% lower.

The only good news is that Schnitzer did note, “Sales prices began to strengthen towards the end of the quarter, but the improvements are not expected to benefit results until later in the second quarter.”

Schnitzer had already lost more than one-third of its value from the 2011 high.  Now shares are down almost 6% at $43.10 versus a 52-week range of $37.00 to $69.43.

United States Steel Corporation (NYSE: X) is actually up almost 1% at $26.11 and AK Steel Holding Corporation (NYSE: AKS) is up 1.7% at $7.65 in early trading.

 JON C. OGG