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Schnitzer Steel Industries, Inc. (NASDAQ:SCHN)

F2Q2012 Earnings Conference Call

April 5, 2012 11:30 AM ET

Executives

Alexandra Deignan - Investor Relations

Tamara Lundgren - President and Chief Executive Officer

Richard Peach - Senior Vice President and Chief Financial Officer

Analysts

Luke Folta – Jefferies

Timna Tanners - Bank of America Merrill Lynch

David Lipschitz – CLSA

Brent Thielman - D.A. Davidson

Bridget Freas - Morningstar

Dan Whalen – Auriga USA

Operator

Good day ladies and gentlemen and welcome to the Schnitzer Steel Second Quarter 2012 Earnings Release. (Operator Instructions)

I would now like to introduce our host today Ms. Alexandra Deignan, Vice President of Investor Relations. Ma’am, please go ahead.

Alexandra Deignan

Thank you, Karren. Good morning, I am Alexandra Deignan, the company’s Investor Relations contact. I would like to thank everyone for taking the time to join us today. In addition to today’s audio comments, we have prepared a set of slides that you can access on our website at www.schnitzersteel.com or www.schn.com.

Before we get started, let me call your attention to the detailed Safe Harbor statements on slide 2, which are also included in our press release as of today and in the company’s most recent Form 10-K. These statements, in summary, say that in spite of management’s good faith, current opinions on various forward-looking matters, circumstances can change and not everything we think will happen always happens.

Please note that we will be discussing some non-GAAP measures during our presentation today. We have included a reconciliation of those metrics to GAAP in the appendix of our slide presentation.

Now, let me turn the call over to Tamara Lundgren, our Chief Executive Officer. She will host the call today with Richard Peach, our Chief Financial Officer.

Tamara Lundgren

Thanks, Ally. Good morning everyone and welcome to our second quarter earnings call for fiscal 2012. I will start it off this morning by discussing some highlights from our Q2 results and our assessment of market trends and I will update you on our recent dividend announcement. Richard will then provide more detailed information on our segment performance and our financial metrics. I will conclude with some remarks about current market conditions.

So if you will join me by turning to slide 4 we can get started. As we noted in this morning’s press release, we delivered $0.35 of EPS this quarter, up nearly 40% from the first quarter but clearly reflecting the headwinds of uncertainty and weakness in the global markets. Export demand for recycled metals improved in the second quarter and we saw an increase in ferrous sales volumes of 10% and an increase in nonferrous sales volumes of 23%. We believe that the long-term demand for recycled metals remained strong and we are optimistic about the prospects for our business. But in the near term, our markets remained challenging; in particular, we continue to be impacted by tight supply conditions for raw materials driven by the low US GDP growth rate and flat selling prices.

As expected, December shipments were the trough for the quarter and reflected the lower priced shipments that carried over from the weak markets we saw in October and November as a result of the European financial crisis. Prices drove more than $50 on early January shipments but then weakened. Softer selling prices in the later part of the quarter reflected continued concerns over the global economy. The mild winter weather also contributed to the softer selling prices as customer concerns ease regarding the availability of materials for sale during the quarter.

Our operating income grew by 20% and our operating income per ton increased approximately 40% versus Q1, primarily driven by higher volumes and lower SG&A. Our operating income and margins however were both down from last year. Although average selling prices didn’t change much year-over-year, last year’s second quarter benefited from rising selling prices rather than the weakening that we saw this year. During the past quarter, in order to better leverage our platform across geographies and across divisions, we undertook a comprehensive SG&A review and as a result our SG&A levels are now running approximately 10% below the average run rates for the last three quarters.

So now let’s turn to slide 5 to take a deeper dive into our performance. Volumes improved in each of our segments during Q2, which is typically a seasonally weaker quarter due to winter weather condition. In our Metals Recycling Business, operating income increased more than 50% versus Q1 due to higher sales volumes and lower SG&A, but margins were compressed versus last year due to the weak market conditions and the supply issues we just discussed. In our Auto Parts Business we experienced strong year-over-year growth in revenues, mainly due to increased parts sales and admissions. However, we normally see a sequential decline in sales and admissions in our second quarter due to weather and holidays and this second quarter was no different. APB’s operating income and margins during the quarter were also impacted by softer commodity prices and higher legal expenses. Our Steel Manufacturing Business continues to be negatively impacted by weak demand on the West coast for construction related materials like rebar and wire rod.

During the quarter, our consolidated operating margins improved month-over-month, benefitting from higher volumes and lower variable cost as we leveraged our operating efficiencies across our expanded platform and reduced SG&A. We also generated strong operating cash flow which when coupled with our ability to access credit provides us with ample room for capital investments, acquisitions, dividends, and share repurchases.

So now let’s turn to slide 6 and we can continue. Broader base demand returned to the ferrous export markets in our second quarter. We exported to nine countries in Q2 versus six countries in Q1. Turkey, South Korea and China were our top export destinations. Steel production in the emerging markets has increased year-over-year. While there has been plenty of debate as to where growth rates in China and the rest of the emerging markets will end up in 2012 and beyond, we believe that it’s more important to focus on the absolute level of demand which remains high, rather than a change of 50 or 100 basis points in projecting GDP growth rates. We believe it’s unlikely that absolute levels of steel production will move significantly lower on a sustainable basis as it will take decades to complete the industrialization and the urbanization desired by the governments in the emerging markets.

In addition, there has been a significant expansion of global EAF capacity which will continue to accelerate demand for scraps. Most notably, Turkey intends to increase EAF capacity by 9 million tons by 2015 and they are already one of the largest importers of ferrous scrap in the world. We also expect to see continued demand by blast furnaces in order to decrease their greenhouse gas emissions. And Chinese government, in particular, has announced its intention to increase the use of scraps in order achieve the emissions targets.

There is one other point that I would like to highlight and that’s currency. In the past, currency fluctuations between the dollar and the euro didn’t have much of an impact on the US ferrous export markets, really marginal at best. During Q2, we saw a bit of a change here. The extreme weakness in euro resulted in less European domestic demand and a bit of a supply push into the typical export markets. And the euro weakness drove some imports into the US in January and February. Both of these activities may have contributed in Q2 to the tempering of export prices notwithstanding both increased demand and increased sales volumes. We believe that this is balancing out in the short term and we remain focused on inherit and long term growth in demand that is expected to continue to outpace supply. Now, most of this demand comes from the emerging markets where our competitive advantages are first and our strategic port access on both the East and West coast in Canada and in Puerto Rico which enables us to ship products to wherever demand is greatest. And second, our ability to maximize metal’s recovery from the raw materials we’ve processed through our state-of-the-art shredders and our nonferrous extraction technologies. All of this gives us the confidence to continue to invest in our growth businesses and to deliver enhanced value to our shareholders.

So now let’s move to slide 7. This slide gives you a clear sense of the strength of our operating cash flow generation since September 2008 which was the beginning of our 2009 fiscal year and when the impact of the global financial crisis hits the metals, recycling and steel industries. We generate strong operating cash flow in a variety of economic environments and we are able to maintain a strong balance sheet while investing aggressively in acquisitions and CapEx to enhance our market position, expand our franchise, and improve our operating performance. In fiscal 2012, we anticipate spending approximately $100 million in CapEx, about half of which has been spent through the second quarter. We also anticipate making further acquisitions to continue our strategy of solidifying our supply chain in our Metals and our Auto Parts businesses.

Now let’s turn to slide 8 for a look at our capital deployments. Over the last five years we’ve significantly increased our operating platform in our two growth business, Metals Recycling and Auto Parts. While pursuing our growth strategies, we have returned capital to shareholders through share repurchases and a regular dividend. Since 2006 we have repurchased 15% of our shares outstanding and we have 3 million shares authorized for repurchase under our existing Board approvals. We intend to continue our practice of repurchasing shares. The Board’s recent decision to increase the company’s annual dividend to $0.75 reflects our confidence in the long-term fundamentals of our business. Our capital deployment strategy will continue to prioritize strategic growth initiatives to enable us to enhance our market position and our operating performance, to maintain a healthy capital structure and to deliver tangible shareholder returns through dividends and share repurchases. This March the 72nd consecutive quarter that the company has paid a dividend since it became a public company in 1993 and it’s the Board’s intention to maintain this dividend and to increase it as the company continues to grow and performance improves.

Now before I turn the call over to Richard I would like to discuss a recent addition to our executive leadership team. Pat Christopher, who many of you have met, has been promoted to President of our Metals Recycling Business. Pat has been the Chief Operating Officer of MRB for the past five years. He has been a terrific leader in driving our continuous improvement program, our “no excuses” safety program and of course our technology investments. Pat will lead a team of very strong operating executives who have significant experience in all aspects of our industry. This promotion along with the number of others that we have recently made is a reflection of the details [ph] that we’ve developed over the years at Schnitzer.

Now, I am going to turn it over to Richard who will provide more information on our company’s financial results for the second quarter. Richard?

Richard Peach

Thank you Tamara, and good morning. I will start my presentation on slide 9 with a review of our segment highlights for the second quarter. MRB’s operating income increased sequentially to $20 million, which was up by $7 million over the first quarter. The key drivers were benefits to gross margins from higher sales volumes and reductions in SG&A expense. Operating income per ton was $15, a sequential increase of $4. As a result of carryover effects from the market debt in the first quarter, December shipments were at old prices which impacted MRB’s overall performance for the second quarter. APB’s operating income was $9 million, slightly down on the first quarter. The key drivers were seasonally lower parts sales and higher SG&A and legal expense. Absent the SG&A item, the operating margin would have been higher by approximately 200 basis points. APB’s margins were compressed in both the first and the second quarters due to the impact of lower commodity prices and a tight supply of end-of-life vehicles. SMB had a small operating loss of $1 million, which was impacted by cost of planned maintenance which also restricted production volumes during the quarter.

Now turning to slide 10 for a discussion of market trends impacting MRB. The two graphs on this slide show market prices on a published market index and MRB’s trend on average selling prices. The published market index shows market prices for both the East and West coasts from December through February. Trends on both coasts were the same with the lowest prices at the start of the quarter were same rebounded in December to benefit January shipments. Market prices then retreated in the second half of January which affected our shipments in February. Moving to the chart on MRB’s average selling prices, the consequence of the lower priced December shipments was at the second quarter average was $11 lower than first. Freight rates declined in the second quarter and were on average $71 per ton.

Now moving to slide 11 to review ferrous sales volumes. As a result of improved demand, ferrous sales volumes were 1.4 million tons, a sequential increase of 10%. MRB’s year-to-date sales volumes of 2.6 million tons are also up 10% year-on-year. Of the increase of 254,000 tons, around half was attributable to incremental sales volumes from acquisitions in fiscal 2011. This contribution was in line with our expectations.

Turning to slide 12, I will now cover nonferrous. Nonferrous sales volumes were up significantly to a 169 million tons, a sequential increase of 23%. The key driver was increased production using our sorting technologies, including benefits from processing and accumulated backlog of approximately 10 million tons. On a year-to-date basis nonferrous sales volumes are up by 32%. Of this increase of 74 million tons, just less than two thirds is incremental from our acquisitions in fiscal 2011. Average selling prices for nonferrous declined sequentially by 9% primarily due a product mix shift at the sold more mixed material arising from our higher production activity.

Now shifting to Auto Parts on slide 13, car purchase volumes for the second quarter were flat sequentially, but up 4% year-on-year. On a year-to-date basis purchase volumes were up by 6,000 cars, due mainly to the incremental impact of our fiscal 2011 acquisitions. Compared to last year second quarter, parts sales and admissions were up by 16% through a combination of marketing initiatives, milder winter weather, and contributions from last year acquisitions. The improved contribution from part sales helped mitigate the adverse impact of softer commodity prices and a tighter car supply.

Moving to slide 14, we will turn to the steel manufacturing business. Sales prices were flat sequentially, but sales volumes increased by 5%. On a year-to-date basis SNB sales volumes are up by 11%. Rolling mill utilization was 54% lower by the first quarter by 600 basis points, primarily due to the planned maintenance which took place in December.

Now turning to our cash flow and capital structure, let’s move to slide 15. Second quarter operating cash flow was positive $128 million, the primary driver was the higher sales volumes which reduced inventories by $88 million. Year-to-date operating cash flow is $41 million. This is double, what we achieved by last year second quarter. As a result of the second quarter strong cash flow, our net debt was reduced to $362 million and our net debt leverage of 24% is less by 540 basis points on a sequential basis.

In summary, we continue to maintain a strong balance sheet which gives us the ongoing flexibility to grow our business. Now, I will turn the call back over Tamara who will provide some concluding remarks.

Tamara Lundgren

Thanks Richard. As we mentioned in our press release, issued earlier this morning, in order to provide our investor with increased visibility in the quarterly results, going forward we will be providing our outlook on expected pricing, volumes, and margins later in the quarter. For the third quarter, we will provide specific guidance during the later part of May. But today, we can provide some commentary on what we have seen so far.

In the ferrous export market, we have seen some incremental improvement in sales prices since the beginning of March and we characterize it as relatively steady. So still reflecting some cautious buying from customers and quicker delivery time. Supply flows into our facilities are steady. The third in pent-up supply that we often see after the end of winter is not expected due the mild weather we experienced in January and February.

In our Metals Recycling Business, we are seeing operating income for ton margins trending higher than the second quarter. In our Auto Parts Business, we are seeing rising admissions in parts sales as we would expect in the third quarter. Commodity prices are improving and demand for end of life vehicles continue. We are also seeing improved margins in our Auto Parts Business versus Q2.

In our Steel Manufacturing Business, however we are not seeing any change in demand, as sales prices and utilization remained flat. Well volatile pricing resulted in margin compression during the last six months. Long term global demand for recycled steel continued to be strong. Evidenced by the growth in US export activity, capacity expansions of electric arc furnaces and increasing use of scrap metal. We have expanded our operating platform to take advantage of these positive long term trends.

While the global economy continues to face headwinds that have impacted our performance in the short term, we are confident in our ability to continue to positively grow our business. And to deliver enhanced value to our shareholders.

So, operator let’s open up the call for questions.

Question-and-Answer session

Operator

Thank you. (Operator Instructions). Our first question comes from the line of Luke Folta from Jefferies

Luke Folta – Jefferies

Good morning everyone.

Tamara Lundgren

Good morning.

Luke Folta – Jefferies

Hi, first I had a question it was kind of more of a longer question. The bare case on Schnitzer right now and I guess the recycling space as whole is been, there has been a lot of shredder capacity added, and it is -- it is sort of an intensifying competitive environment for input scrap and that because of these there has been some structural shift in the industry that will result in margins being structurally lower this cycle then they were last cycle and I just want to, I kind of want to understand what your view on this is looking forward? And to the extent that you do expect this fees margins come up from current levels, you know what kind of gives you the confidence that that’s going happen overtime?

Tamara Lundgren

Sure, well, let’s put the quarter in perspective and remember that we absorbed some big externalities, the industry absorbed some externalities which was really the European financial crisis, which for us hit us both in Q1 and Q2 and that was a big driver obviously to supply flows to demand and the prices. And so, when we look at this we look back at fiscal year ’11 and we look at what happened in January, February, and March and how do we look at, we had calendar quarter, you would have seen our margins clearly well below the average for our fiscal ’11, clearly within high-low range of fiscal ’11. So the European financial crisis was a big shock to the market, but we don’t believe that the last two quarters signal a permanent shift in the business and what we are commenting on in March and alike is we are seeing steady supply flows into our facilities and we are seeing improving demand and increasing prices.

Luke Folta – Jefferies

Okay and Richard, may be you can, -- can you give us some sense of what the monthly trend in margins were in the recycling business? And just looking forward into the third quarter, if to accept that we get a flat scrap price in May, I guess would be probably it looks like it is down a bit, you think your operating profit starts for the two on a per ton basis?

Richard Peach

Well, we are not actually giving any guidance to this as you know, what I can say about the second quarter is that most of our profit came in the last two months of the quarter and I think you could perhaps do the arithmetic yourself there, that is a good way of looking at it.

Luke Folta – Jefferies

So, December kind of about, around a break even number?

Richard Peach

I would like comment on one single month. But, I will reiterate my comment, the most of the profit in the second quarter came in the last two months of the quarter.

Luke Folta – Jefferies

Okay, and just another one. On the Auto Parts Business, you incurred, I think about $2 million in legal expenses in the quarter, is that something you think persists into the second half?

Tamara Lundgren

No, we don’t, there was a variety of legal expenses that randomly hit all in the second quarter.

Luke Folta – Jefferies

Okay, all right guys, thank you and I will get back in the line.

Tamara Lundgren

Thanks.

Operator

Thank you sir and our next question comes from the line of Timna Tanners from Bank of America Merrill Lynch.

Timna Tanners - Bank of America Merrill Lynch

Yeah, hi good morning guys.

Tamara Lundgren

Good Morning

Richard Peach

Good morning

Timna Tanners - Bank of America Merrill Lynch

I want to maybe take a different path to Luke's question on the per margin per ton, as you pointed out on Slide 10, which is super helpful, a year ago you had a sharp increase in scrap prices, so if we look at the second quarter of 2011 probably not representative at $36 a ton, but this quarter you know things drifted a bit, a little bit more sideways and we had $14 a ton. So, we would have to assume, I think, and correct me if I am wrong, that something in the middle is normal for the current environment at least and I just wanted to talk on accessing[ph] $36 a ton represented a massive increases in scrap prices from like you say $353 to $419, but if you have a flat scrap price environment, seems to me like it's somewhere in the middle, how do we think about that? What other factors might I be missing?

Tamara Lundgren

Clearly that is sort of a high-low range that you saw in fiscal '11 and a couple of things that we need to keep our eye on, is still the overall economic environment, and that is probably the biggest driver Timna with respect to improvement in supply flows.

And you can really see that in today's world, in terms of looking at the supply flows for prime scrap for example and PNS which is driven by improved manufacturing activity and some improved demolition and you still see a higher supply on shreddables which is driven by underlying GDP growth demand. So, I think the other thing for you to keep your eye on is the improving economic environment.

Timna Tanners - Bank of America-Merrill Lynch

Okay, I mean we are hearing like really good demand for the auto side, machinery side, so demolition is definitely a piece that’s missing. What about the pig iron price coming down as well, can you talk about how that's affected your business?

Tamara Lundgren

Well the pig iron import affected primarily more than obsolete scrap and we saw that a bit in, towards the end of the first quarter really in some deliveries in the beginning of the second quarter. But, it affects probably more than it affects the shreddables.

Timna Tanners - Bank of America-Merrill Lynch

Okay and then lastly, I mean is there anything else that you are signaling with dividend increase because it seems like you are getting back more in line with peers and so it's a good signal, but I mean does it say anything about where you expect growth to come from going forward, you are still talking about other sort of uses of cash but is there anything else that you would be signaling here with the dividend increase at this time?

Tamara Lundgren

What we are signaling with the dividend increase is that we have been through a variety of economic cycles over the past five years and we have shown that we can consistently generate cash while growing significantly and maintaining a healthy balance sheet. So the increased dividend, just because you pointed out, makes us more competitive in the market but it does not hamper or handicap at all our commitment to continuing to grow. And as I said in my formal remarks, we anticipate continuing to make acquisitions, continuing to invest in technology, and continuing to buy back shares as well as to maintain and to increase this dividend as we continue to grow when performance improves.

Timna Tanners - Bank of America-Merrill Lynch

Okay, thank you.

Tamara Lundgren

Thanks

Operator

Thank you and our next question comes from the line of Dave Lipschitz from CLSA.

Tamara Lundgren

Good morning.

David Lipschitz – CLSA

Well, good morning, yes. Question again on your growth strategy and things like that, are you happy with your acquisitions that you have done over the last year or two because, did they add to earnings this year, would earnings have been that much worse so far, if you hadn't made those acquisitions?

Tamara Lundgren

But, I think what you can see in the acquisitions is that we have grown our market share and expanded our volumes. Obviously the market externalities that I mentioned, the European financial crisis, very specifically, has impacted the performance in the entire industry and business, but yes, we are very pleased with the acquisitions that we have made and the volumes in market share improvements are on track.

David Lipschitz – CLSA

And then not to beat a dead horse from the last two questions, but just a quick questions, has the internet increasing technology information flows, has that hurt your margins do you think going forward in terms of people know what real-time data what scrap prices are and things like that?

Tamara Lundgren

Well, I think that as the industry has basically gained more visibility because of globalization because of the expansions, our steelmaking capacity in the emerging markets. More information, more focus is very natural, but at the end of the day this is a physical market and where we sit and where we buy and sell scrap continues to be the basic source of information and the supply flows and margin implications are much more driven by underlying economic activity than they are about internet and media.

David Lipschitz – CLSA

Thank you

Operator

Thank you and our next question comes from the line of Brent Thielman from D.A. Davidson

Tamara Lundgren

Good morning Brent.

Brent Thielman - D.A. Davidson

Hi good morning. Also I am going to ask just a question on the margins per ton, , but coming out of the first quarter and I guess initially looking at the second quarter, you guys were thinking MRB with margin per ton in the low 20s and I guess my question is if you hadn’t seen the markets turn the way it did in late January and in February would that still been achievable, I mean I know December was tough, but did you see enough evidence in January in the business that sort of suggest you were at those types of margins are better?

Tamara Lundgren

Yes, we did.

Brent Thielman - D.A. Davidson

Okay and then on the auto parts side, I had just taken from your comments, but has the availability of sort of end-of-life vehicles gotten worse from your perspective compared to where you stood a year ago? (inaudible) type of margins we should get used to in the flat pricing environment.

Tamara Lundgren

Well, I remember the margins that we posted for this quarter did have that 200-basis point impact, so you need to keep that in mind, but there have been fewer cars available for purchase on a holistic basis because we are in this lower GDP environment that people are holding on to their cars longer. As the recent statistics that I saw, average age of vehicles is about 11 years and average miles per vehicle on the road is about 130,000 miles. So, these are high numbers historically. So, I think there are fewer cars available today because of the GDP low growth environment, but end-of-life vehicles have a natural end of life. So, we anticipate that will strengthen over time.

Richard Peach

One other thing, I will just add is that the second quarter was seasonally affected by lower parts sales and as we come out of the winter period we always expect our parts sales to increase the revenues from parts to increase and we don’t expect this year to be any different and that is one of the reasons why we expect the third quarter NAPB to improve over our second quarter.

Brent Thielman - D.A. Davidson

Okay. I appreciate that and then on the steel side, and I do appreciate that is tough business right now, but I heard from others that activities are picking up a little bit on the construction side. Can you talk a little bit about your backlog there? Do you have any better visibility than you had a year ago? Just a little bit more commentary on that market there would be helpful.

Tamara Lundgren

Well. The West Coast market is still weak and performance is contingent on an economic recovery in the West while there is slight improvement year over year, but short term extension from the highway build and in general cost, budgets issues going on up and down the West Coast in governments still makes that a flat environment.

Brent Thielman - D.A. Davidson

Okay. Thank you.

Tamara Lundgren

You are welcome.

Operator

Thank you and our next question comes from the line of Bridget Freas from Morningstar.

Bridget Freas - Morningstar

Hi good morning and thank you for taking my question. Just a followup on the auto parts business. The second quarter tends to be the weakest perhaps from a revenue perspective, but it is usually much stronger on a margin basis even without the legal expenses. So, I am just trying to get a better understanding of this tighter supply of end-of-life vehicles because I think in the past we have talked about warm weather in the summer tends to cause a tighter supply with fewer admission. So, are we facing a greater structural challenge or the last couple of quarters just a temporary phenomenon. What it’s going to take to get the auto parts business back into the 20% margin range?

Tamara Lundgren

Well. Let me clarify one thing. We’re talking admissions in parts sales versus supply of vehicles. So, Richard can comment quarter-to-quarter in terms of our admissions and parts sales trends, but regarding the supply of vehicles, we see that expanding as the market as the general economy improves and that is surely the main driver for us seeing higher supplies as I mentioned average miles driven are at an all-time high and average age as well. So, we do expect that supply to loosen up and you can see new car sales are increasing and we will get the trickledown effect of that as you see more of that new supply go in to the market.

Richard Peach

Yes. Hi Bridget, it’s Richard. I’ll add a couple of things. When you look at last year’s Q2 in auto parts which had a 22% operating margin about 4% of that came from average inventory accounting benefit because we were in a rising market, but then the declines occurred and then secondly I just reiterate the point from earlier part sales that machines are up almost 16% year on year. And we’ve really got a strong focus on retail marketing and APB as well as the commodity side and that means really maximizing the yield that we get over the cars that we bring in there. And a really strong focus on marketing initiatives on new products and bringing people into the yards and we see that as a strong initiative that is bearing results for us as evidenced by the year-on-year improvement in these areas.

Bridget Freas - Morningstar.

Okay, that’s helpful. Thanks a lot.

Tamara Lundgren

Thank you

Operator

Thank you. And our next question comes from the line of Dan Whalen from Auriga USA

Dan Whalen – Auriga USA

Yeah. Just another question on the acquisition front, just looking at the difficult operating environment over the past couple of quarters and some of your competitors could possibly being less well capitalized as you, does that really generate a catalyst for further acquisitions or what’s the landscape looking like now?

Tamara Lundgren

Well, we’ve got active acquisition pipeline and as you know, the acquisitions that we look at are privately held companies and their motivations for sales, really vary and they range from succession planning to economic environment, but we’re seeing a continued active pipeline. We did 10 acquisitions last year and I think you can expect to see us do some acquisitions towards the second half of the year, but clearly the operating environment lends itself right now to technology investments, capital investments, and those are our investments that some of the smaller capitalized companies don’t have the appetite for.

Dan Whalen – Auriga USA

Would you say incrementally, has your acquisition pipeline increased over the last quarter or not really significantly changed?

Tamara Lundgren

Well, these are transactions that take multiple months, in some cases multiple years, because they tend to be family owned businesses. So, you don’t typically see noticeable change quarter over quarter, and so it continues to be active.

Dan Whalen – Auriga USA

Okay, I appreciate the color.

Tamara Lundgren

Okay.

Operator

Thank you and this concludes our question and answer session. I would now turn the conference back to Schnitzer Steel for any final remarks.

Tamara Lundgren

Thank you. Before we close the call today, I’d like to make one final announcement regarding our management team. Gary Schnitzer, after 47 years of tremendous service to the company and to the Metals Recycling Industry has announced his retirement. Gary’s contributions to this company are too broad and too deep to fully recount here. But we expect to continue to seek his very wise counsel and advice and thank him for everything that he has done for the company.

And thanks everyone for joining us today. We look forward to speaking to you again when we report our third quarter results. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may now disconnect. Everyone have a good day.

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