Q4 2024 Radius Recycling Inc Earnings Call
Speaker Change: Good day and thank you for sending by. Welcome to the Radiance Recycling's fourth quarter, 2024 earnings release call and webcast. At this time, Up participants are those in only mode. After this figure's presentation, there will be a question and answer session.
Speaker Change: Traffic Question during the session, you need to press star 101, I'll tell you a phone.
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Speaker Change: and Mr. Relations, please bear by the today's conference as being recorded. Now I can have the conference over to you for a speaker today. Michael Bennett and Mr. Relations, please go ahead.
Speaker Change: Thank you Victor and good morning. I'm Michael Bennett, the company's vice-president and best relations.
Speaker Change: and I'm happy to welcome you to Radius Recycling's earnings presentation for the fourth quarter of fiscal 2024. In addition to today's audio comments, we've issued our press release in posted a set of slides, both of which you can access on our website at RadiusRecycling.com.
Speaker Change: Before we start, let me call your attention to the detailed state hardware statement on slide 2, which is also included in our press release and in the company's form 10K, which we file later today.
Speaker Change: As we know it, I'm slide two. We may make four looking statements on our call today, such as our statements about our targets, volume growth and margins.
Speaker Change: Actual results may differ materially from those projected in our forward-looking statements.
Speaker Change: Additional Information Concerning Practice that could cause actual results to materially divert from those before looking statement is contained in slides too, as well as our press release of today and our form 10K.
Speaker Change: Please note that we will be discussing some non-gap measures during our presentation today. We've included a reconciliation of those metrics to gap, the appendix to our slide presentation.
Speaker Change: Now, let me turn the call over to Tamara Lundgren, our chairman and chief executive officer.
Tamara Lundgren: Thank you, Michael. Good morning everyone and welcome to our fourth quarter earnings call. I am joined today by our Senior Vice President and Chief Financial Officer Stefano Gaggini.
Tamara Lundgren: I'll start this morning's discussion with an overview of our fiscal 24th quarter, a review of market conditions and an update on the strategic actions we have underway to address current industry dynamics and create long-term value through the cycle.
Tamara Lundgren: Stephanie will then cover the quarterly financial and operating results in more detail. I'll wrap up and then we'll take your questions.
Tamara Lundgren: Before turning to the next slide, I'd like to take a moment to recognize our employees for delivering another year of improved safety performance.
Tamara Lundgren: in fiscal 24, which a day 16% year over year reduction in our total case incident, right? And almost 90% of our facilities had no lost time incidents.
Tamara Lundgren: Our year-over-year improvement reflects the commitment of all our employees to continue its improvement through actions like enhanced training and increased communications and re-engineering practices and processes to reduce operating risk.
Tamara Lundgren: Well, we still have work to do to achieve our goal of zero injuries. These results reflect our team's unwavering commitment to safety and their dedication to creating a safe work environment and a sustainable safety culture.
Tamara Lundgren: So now let's turn this light for to review our fourth quarter of highlights.
Tamara Lundgren: While the long-term trends were recycled metals are strong, market conditions remained challenging during the fourth quarter with tight scrap availability and softer global field demand creating significant headwinds.
Tamara Lundgren: Our Q4 results were significantly impacted by the ongoing sticking-ins and scrap purchase costs leading to margin compression and our financial results.
Tamara Lundgren: and I'm a member of the National Security Council. However, by focusing on actions within our control, lowering our costs operating efficiently.
Tamara Lundgren: and executing on our strategic priorities. Our team was able to mitigate some of these headwinds and deliver strong sequential quarterly improvements in both our operating and our financial results.
Tamara Lundgren: We nearly doubled our adjusted EBITDA at $17 million.
Tamara Lundgren: We successfully increased non-ferice sales volumes by 13% Faire sales volumes by 12% and finished the sales volumes by 11% Do in part the contributions from our metal recovery technology investments
Tamara Lundgren: New Commercial Initiative and Growth in our recycling services platform.
Tamara Lundgren: We delivered substantially the full quarterly run rate benefits from our cost savings and productivity improvement program announced earlier this year.
Tamara Lundgren: and we generated positive operating cash flow and returned capital to our shareholders through our 120 second consecutive quarterly dividend.
Tamara Lundgren: Looking forward, we expect continued reductions in U.S. interest rates to benefit consumer, manufacturing and construction activity, which in turn should lead to improved scrap supply flows and increase demand for finesse steel.
Tamara Lundgren: The long-term demand for recycled metals is supported by structural deficits for non-ferrous metal such as copper. The increased demand for manufacturers to maximize their use of recycled materials.
Tamara Lundgren: and the growth in electric arc furnace steel making capacity which uses various scrap as a primary raw material. Our strategic initiatives focused on metal recovery technologies, volume growth and expansion of our 3PR services are strongly aligned with these secular growth drugs.
Tamara Lundgren: Let's turn now on to slide five for deeper dive into market conditions.
Tamara Lundgren: During most of our fiscal year both finished steel and recycled ferrous metal prices soften.
Tamara Lundgren: The decline in domestic steel prices was underpin by both the continuing contraction in US manufacturing, which is reflected in manufacturing PMI remaining in contraction for 22 out the last 23 months. And important.
Tamara Lundgren: The Ferris price decline during the year were largely due to both the dampening effect of elevated levels of Chinese steel exports which reached multi-year highs and lower global manufacturing levels.
Tamara Lundgren: Nunker's prices reflected strong global demand, particularly for copper, with prices ending the year higher than where they started.
Tamara Lundgren: Average prices for copper, aluminum, and other non-fair products were up approximately 10% year over year. With copper reaching multi-year highs for a brief period in late spring.
Tamara Lundgren: Pricence of PGM metals were the exception. Down your over year by almost 10% do primarily to subdued auto production.
Tamara Lundgren: from a supply flow perspective compared to pre-pandemic levels.
Tamara Lundgren: Auto Production remains low in financing costs for new and use cars are still comparatively high, both of which have contributed to the average age of vehicles reaching their highest level on record, resulting in lower scrapage rates of end-of-life vehicles.
Tamara Lundgren: We expect that continued reductions in U.S. interest rates, along with the spending associated with the U.S. infrastructure bills, will be major catalyst leading to higher manufacturing, construction and consumer activity, and higher scrap flows.
Speaker Change: Listernault, just like you said, for an update on our strategic priorities and the longer-term outlook for recycled metals.
Speaker Change: Our strategic priorities are directly aligned with the long-term trends we just reviewed and can be summarized as follows.
Speaker Change: First, our cost reduction and productivity program.
Speaker Change: This quarter we achieved substantially the full quarterly run rate of benefits associated with our $70 million annual cost reduction and productivity improvement plan, which we announced earlier this fiscal year.
Speaker Change: As part of our continued focus on optimizing production efficiencies.
Speaker Change: We anticipate achieving new benefits in fiscal 25 through the monetization of certain discrete real estate assets in locations where we can both substantially consolidate or reposition our business activity and unlock the associated real estate value.
Speaker Change: Second, our investments in advanced metal recovery technologies.
Speaker Change: This is a multi-site, multi-year investment program. Focus on increasing the recovery of non-fair's metals from our shredding process, and creating product optionality by enabling us to create furnace-ready products based on demand and price.
Speaker Change: In fiscal 24 we achieved nearly a quarter of the anticipated annual benefits. The majority of the returns from these investments should come through our results in fiscal 25.
Speaker Change: We estimate these investments should return over $40 million and annual EBITDA after full deployment.
Speaker Change: Third, our trademark 3TR service and solutions business line.
Speaker Change: Our 3PR service offering enables our customers to increase their recycling rates, reduce material going to landfills, lower their carbon footprint and provide enhanced sustainability reporting.
Speaker Change: This is an asset-like business, typically with multi-year contracts that can provide a counterbalance to our more cyclical core recycling operations and is highly aligned with secular growth trends.
Speaker Change: Reflecting steady growth, our 3PR business line is now contributing over 10% to our recycled metal volumes.
Speaker Change: and fourth, increasing our volumes.
Speaker Change: Despite the tight supply environment, we increase ourselves a recycled metals in fiscal 24 compared to fiscal 23.
Speaker Change: Our focus on commercial initiatives to increase our organic ferrous and non-ferrous volumes gives us the opportunity to create operating leverage, using the 1 million tons of capacity that we currently have available.
Speaker Change: We are also investing in digital tools that are pick and pull franchise to capture previously uncapped sources of car flows and related revenue streams.
Speaker Change: which are especially important as new auto production remains below pre-pandemic levels and demand for salvage auto parts remains solid.
Speaker Change: Well, benefits from these initiatives are already contributing to our financial performance. Their full positive effect on our operating margins is currently being masked by the impact of the headwinds we've been experiencing.
Speaker Change: As these abate, we expect the benefits of our actions to become much more visible in our margins and EBITDA, and to provide a substantial boost to future financial results. So now, let me turn the presentation over to Stefano.
Stefano Gaggini: Thank you, Tamara, and good morning.
Stefano Gaggini: Contrary to the adjusted EBDA in the fourth quarter was $17 million. Compared to $9 million in the prior quarter, which had included $7 million in insurance recoveries.
Stefano Gaggini: The biggest drivers of the improved results were higher sales volumes for all of our products, stronger non-ferrous demand and prices, an expansion in recycled mill spreads and the ramp up in benefits associated with our cost reduction and productivity program.
Stefano Gaggini: Cosmic, cosessing and productivity measures are critical levers within our control to mitigate operating margin pressure from the current market conditions and inflationary headwinds.
Stefano Gaggini: Our program reflects a number of structural initiatives that generates sustained benefits independent of changes in market conditions or volumes.
Stefano Gaggini: Our fiscal 24 program has benefits that aggregate to $70 million on an annualized basis, of which approximately a third are saving through resulting from a targeted 10% reduction of HUNA expense.
Stefano Gaggini: Designative, the primarily comprised of production cost reductions yield increases, optimization of transportation and logistics.
Stefano Gaggini: The crisis in non-trade procurement spend adjustments in head counts and other employee-related expenses and the reduction in discretionary activities such as travel and use of professional and other outside services.
Stefano Gaggini: Looking more specifically at SGNA expense in the fourth quarter adjusted SGNA cost were down 7% compared to the prior year, reflecting the benefits from the measures we implemented during the year.
Stefano Gaggini: However, does benefit for partially offset by elevated costs for certain ongoing legal matters in the fourth quarter which we expect to be temporary and received later in fiscal 25.
Speaker Change: As part of our continuous improvement, we routinely review our operating platform and the locations in which we do business. As Tamara mentioned, this process includes identifying opportunities to monetize certain discrete, realistic assets.
Speaker Change: Walsh substantial repositioning the existing material flows to a nearby facility.
Speaker Change: This monetization opportunity does not involve meaningfully modifying our operating footprint. Today we have executed two contracts to sell own-relisted properties and expect to generate
Speaker Change: with our good closing of these transactions during the second half of this call 25 subject to customary terms.
Speaker Change: Let's move to slide eight to discuss various sales in the market dynamics.
Speaker Change: Ferracels volumes were up 12% sequentially reflecting in equal parts, seasonality on flows of material and the focus on commercial initiatives, as well as benefits from timing of shipments.
Speaker Change: The share of domestic fellowshipments was 40%. Our top sales destinations for fairies exports were Bangladesh, Turkey and India.
Speaker Change: Benefiting from the seasonally higher flows in the above parity expert prices, we were able to expand salesmen off-pred sequentially, which together we'd operate in leverage created by the increased process volumes, resulted in higher contribution to performance in the quarter.
Speaker Change: The impact of average event of accounting was a small detriment of $1 per third stone in the fourth quarter compared to a detriment of $3 per third stone in the prior quarter.
Speaker Change: Ferris Ovarage and Etc. were substantially flat sequentially.
Speaker Change: As Tamara mentioned, we continue to see pressure on the global scrap market from elevated levels of Chinese teleexports.
Speaker Change: As the graph on the bottom right shows in the first nine months of calendar year 24, China's finished selects for its increase nearly 20% year over year and reached an eight year hockey, impacting still production and ferrous crop demand, particularly in the Asian markets.
Speaker Change: Now let's move to slide 9 to discuss non-ferrous sales and provide an update on our non-ferrous investments.
Speaker Change: Nonferrous sales volumes were up 13% sequentially reflecting the benefits of seasonal items loads, higher production associated with our nonferrous recovering investments and timing of shipment.
Speaker Change: We sold our non-ferrous products to 13 countries with the major export destinations in Malaysia, India and China.
Speaker Change: Average nettering prices for our recycled non-terostrolex were up 4% sequentially on strong demand.
Speaker Change: We continue to progress our investment in primary non-ferrous recovery systems.
Speaker Change: which strived the increment of metal recovery and the majority of the expected contribution from these technologies.
Speaker Change: We further advanced our ramp-up activities on several of these primary systems during the quarter.
Speaker Change: We project completion of construction and start of ramp up of the last of the current permitted primary systems by the end of calendar year 24. We have two primary systems, less to start construction on the west coast, which remain subject to permitting approval.
Speaker Change: Ovaro, the contribution to performance from this system is positive in the fourth quarter.
Speaker Change: We expect it to be a trend of increasing returns from this investment in the remainder of calendar 24 and target full ramp up of the permitted systems by early calendar 25.
Speaker Change: Once fully operational, we continue to expect substantial returns from our investment of approximately $10 EBDA per service town.
Speaker Change: Now let's move to like 10 to discuss our steel mill performance.
Speaker Change: Finished Steel sales volumes of 140,000 tons in the fourth quarter were up to 11% sequentially, as we benefited from a solid pick-up in seasonal construction activity.
Speaker Change: Average rolling mil utilisation was 97% up from 88% in the prior quarter and also well above the US average of 78% for the period.
Speaker Change: Average net selling prices for finish deal were down 3% compared to the prior quarter. We believe our meal stands to benefit from the anticipated demand associated with US infrastructure build.
Speaker Change: Now let's move to slide 11.
Speaker Change: O'Pretty and Cashflow for the fourth quarter was positive at $4 million, reflecting the higher EBD results, sequentially.
Speaker Change: The impact on working capital of the higher volumes for all of our products created a detriment to network in capital in the quarter.
Speaker Change: The benefit to fairer sales volumes from timing of shipment we saw in the quarter was offset by the timing of collection on bulk cargo.
Speaker Change: Capital Expandatures in the fourth quarter were $20 million.
Speaker Change: For the full fiscal 24, CapEx was 76 million dollars. This was a reduction of more than a third compared to fiscal 23, as we aligned the level of our CapEx investments to current performance trends.
Speaker Change: Looking ahead, we currently project our fiscal 25s capex investments to remain at similar levels and be approximately $80 million.
Speaker Change: Around 20% of this will be for growth projects, including investments to support the continued expansion of recycling services and completion of our non-fero-technology initiatives.
Speaker Change: with the remaining spend for maintaining the business and environmental related capital projects.
Speaker Change: Net that was $49 million at the end of the fourth quarter.
Speaker Change: Harcourt Pacity is a capacity of 800 million dollars in a maturity date of August, 2027.
Speaker Change: Under our creative agreement, interest costs are linked to shorter market rates. As a result, we benefit from short term interest rate cuts by the US Federal Reserve, such as the 50-bit point reduction that of your September.
Speaker Change: The effective tax rate for the fourth quarter was a benefit of 10% on reported pre-tax results, which reflected a 2-up charge of 5 million dollars to the valuation allowance on the third tax assets, driven by the goodwill impermanent charge taking in the prior quarter.
Speaker Change: The tax rate on our non-gap results, which exclude the impermanent charge and it rated tax impact, was a benefit of 33% in the fourth quarter.
Speaker Change: Looking ahead, because of the significant estimates involved in the computation of the diverse tax valuation allowance position, we expect our tax rate to potentially be subject to quarters to quarter volatility in fiscal 25.
Speaker Change: We do not expect to be a cash-stuck spayer in fiscal 25, even the availability of net operating loss carry forward.
Speaker Change: We pursue a balanced capital allocation focused on reinvesting in the business, supporting our strategic initiatives, returning capital to shareholder through our core 3-Dividend and maintaining a flexible balance sheet.
Speaker Change: Looking ahead, we expect to experience typical first quarter seasonality in our recycling and finished steel sales volumes.
Speaker Change: At the time in the quarter, uncertainty remain with respective various market factors that can impact prices and flows, so it is too early to provide a first quarter quantitative outlook.
Speaker Change: and with that I'll turn the cold back over to Tamara.
Tamara Lundgren: Thank you Stefano.
Tamara Lundgren: I want to commend our team for not just waiting for the markets to improve, but for successfully focusing on the things that we can control.
Tamara Lundgren: A results this quarter benefited from our significant cost savings and productivity improvement programs and our success in increasing ferrous, non-ferrous and finished steel sales volumes.
Tamara Lundgren: Today's market conditions will last forever. And as we've discussed earlier, we are well positioned to benefit from demand trends associated with decarbonization, infrastructure investment, and stronger global manufacturing activity.
Tamara Lundgren: While we don't control the pace of improvement in market conditions, we've seen in the past how quickly the cycle can turn.
Tamara Lundgren: We expect the decline in U.S. interest rates to help improve manufacturing and construction activity and benefits scrap supply flows. Improved scrap supply flows should provide us with significant operating leverage benefits as volumes are covered.
Tamara Lundgren: Independent of the timing of that recovery, our strategic initiatives, including investments and metal recovery technologies, expansion of our recycling services platform.
Tamara Lundgren: and continued focus on productivity and cost control. Will position our company to benefit from both an improvement in market conditions and the structural tailwinds for recycled metals?
Tamara Lundgren: Before we open the call for questions I'd like to thank our team for their dedication and our customers, suppliers and the communities in which we operate for their partnership and support.
Tamara Lundgren: In fiscal 24, we were certified for the fourth consecutive year as a great place to work. This certification is a testament to the positive experiences of our employees and the strong workplace culture we have built together.
Tamara Lundgren: and working together, we continue to demonstrate the critical and essential role of our business in our local economies and across the globe.
Tamara Lundgren: and now Victor, let's take some questions.
Victor: Thank you. At the time we'll conduct a question and answer session. As a reminder to have a question you need to press star 11 on your telephone and wait for it to be announced to withdraw a question please press star 11 again. Please stand by for our first question. One moment.
Speaker Change: A first question of confeline of Martin Englert from C.Port Research Partners, your line is open.
Martin Englert: Good morning everyone. Good morning morning.
Martin Englert: Question on unit profitability improvement quarter on quarter. Is there any way that you can help parse out this sequential change and eat a job, the volume contribution, price costs?
Martin Englert: on a unit basis and anything else. I know there was a component of reduced inventory holding losses, but the other components would be helpful to the extent that you can speak to.
Stefano Gaggini: Hi Bartender, this is Stefano.
Stefano Gaggini: So when we think about the drivers of the 15 million dollars sequential improvement in underlying evid performance, so this is regarding for a moment the insurance reimbursement is recognized in the up.
Stefano Gaggini: in the prior quarter.
Speaker Change: In terms of sizing those drivers, I would say the individual largest component, making up slightly less than half of that sequential result improvement, is from the increase in volumes for all of our products.
Speaker Change: including the creation of operating leverage from the Zire volumes.
Speaker Change: The second component, I would say is the ramp up in cosceedings and productivity benefits to the full quarterly run rate of our 70 million or a program. And that I would say makes up around a third of the overall sequential improvement.
Speaker Change: and then the rest is from a combination of higher non-ferrous prices due to the strong demand and the expansion of the recycled mill spreads, including what you mentioned, the lesser detriment from average inventory accounting compared to the future.
Speaker Change: Okay, appreciate that. Did you see any?
Speaker Change: Nizer will change in the tightness on scrap flows during the quarter or since exiting or is it still kind of the same fundamental backdrop when it comes to flows.
Speaker Change: We haven't seen any loosening.
Speaker Change: and yet there's a supply closure, obviously impacted by suit's melody.
Speaker Change: So, right now the changes in supply flows, any changes we see are really a function of seasonality, then they are any benefits yet from interest rate reductions or interest rate reductions.
Speaker Change: or any change in manufacturing or durable goods in the Tory levels or the like.
Speaker Change: Okay, I appreciate that. Can you provide a brief update? What you're seeing as far as Ferris X4 FTB in demand here in October and I guess more recent history.
Speaker Change: Sure, well as you can follow in the domestic market. The domestic prices increased by about $20, not October which led to bringing domestic and export into parity. And that increased that occurred in the domestic October trade was the first time.
Speaker Change: and Calenzer year 24.
Speaker Change: If we look at the East Coast export activity, deep sea ferris scrap demand from Turkey, has remained generally stable since the end of our Q4 amid fight.
Speaker Change: Availability in both the US and Europe.
Speaker Change: and sentiment on the west coast or off the west coast, export demand off the west coast. The sentiment in the Asian steel and scrap vertical remains mixed as overall weak steel fundamentals in the high.
Speaker Change: and the volumes of Chinese, semi and finished steel exports continue to pressure that region. And I think that they are cautiously awaiting the skills of the impact of Chinese stimulus on both Chinese steel production.
Speaker Change: and Chinese export levels to see whether either production decreases or exports decrease because of higher absorption within the Chinese domestic market.
Speaker Change: Okay, appreciate it and nice job on the volume to the quarter.
Speaker Change: Alright, next question, I'm from Fernando Samu, McKinley, from Keybank Capital Market. Your line is open.
Fernando Samu: Hi, good morning, Tamara Lundgren, Stefano.
Speaker Change: Good morning.
Fernando Samu: Sticking in the Ferris volumes and they were really surprised to the upside in the fourth quarter, buoy by those export numbers. But I understand supply was seasonally better during the summer months, but can you dig into the dynamics around the benefits from timing of shipments that you noted in the release?
Speaker Change: Yes, I'll take that. So we said, you know, during the prepare remarks that the increase in ferrets was used, you know, more or less in equal parts.
Speaker Change: to the United Factor in the summer and the other half, approximately, was from the timing of shipment on the ferris on bald cargo. So those would be the two components that drove that increase of 12 percent sequentially.
Speaker Change: I guess what I'm asking is when you say benefits from timing of shipment. I mean in the past I know the late cargo's have caused volumes to maybe seep in the later quarters but what were the benefits from the timing of shipment?
Speaker Change: What I mean, there was a reduction in inventories, sequentially, and that's the benefit from the timing of shipment. As you know, timing of shipment to give in the size of the cargo can make a different in our federal sales volumes and in this current quarter there was a reduction in inventories, sequentially. Okay, understood.
Speaker Change: Thank you.
Speaker Change: And then in non-fairists, I mean, you've cited the type premium of Twitch over Zorber has made conversion sometimes less attractive. With the Zorber prices still sitting around $90 a pound, can you talk to us about how that premium has evolved in recent months and how you're viewing that market into the fiscal year 25?
Speaker Change: Let me start a couple and then go ahead, Tamara.
Speaker Change: A rebound recovery and auto production which is filled below pre-pandemic levels. It's really weighing on twitch levels.
Speaker Change: and that compresses the spread between Twitch and Zorba.
Speaker Change: One of the strategic reasons why we have made the Federal Recovery Investments that we've had is to provide the product optionality that Lexus access markets at different points in the
Speaker Change: Let's say refinement of the metal process so that we can capture the highest profits. So that spread, we anticipate widening as auto production recovers as the main driver.
Speaker Change: Stefano, you might want to dig in deeper to the specifics.
Stefano Gaggini: I agree Tamara and Sam. That product optionality allows us to basically process the material into higher value depending on the prices that we get on the sale. So if there is enough of a premium between...
Stefano Gaggini: between those grades of material, we will process them, or else we don't have to. We can sell, for example, our Zorba products straight to export. So that product optionality is important, and currently we are not utilizing it because of the compressed spreads.
Speaker Change: I appreciate the detail on that answer. That was very helpful. Thank you.
Speaker Change: And then lastly for me
Speaker Change: Fourth quarter rebar and coil volumes improved solidly again off the third quarter that benefited from the solid seasonal pickup and West Coast non-res demand.
Speaker Change: I think you had some rain issues in the second quarter, but can you provide some more detail on the specific construction drivers that led to the fourth quarter volume uptick? Was it more that West Coast non-res demand?
Speaker Change: Very, very much so. Okay. Yeah, very much so.
Speaker Change: and Michael Bennett. Thank you. Thank you.
Speaker Change: We still anticipate that the West Coast market will benefit and has yet to experience any real benefits from the infrastructure.
Speaker Change: funds.
Speaker Change: that are expected to flow probably, you know, mid...
Speaker Change: long-term perspective, we anticipate continued strong demand in the West Coast. You can see our utilization rate at 97 percent continues to be strong.
Speaker Change: All right, thank you both.
Speaker Change: Thank you. Thank you, Sam.
Speaker Change: Thank you. I'm not showing any further questions at this time. I would now like to turn it back over to Tamara Lundgren from 4 Close Inworks.
Tamara Lundgren: Thank you, Victor. Thank you, everyone, for your time today. We look forward to speaking with you again when we report our first quarter results in January. In the interim, stay safe and stay well.
Tamara Lundgren: Thank you.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
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Speaker Change: Good day and thank you for standing by. Welcome to the Radius Recycling's fourth quarter 2024 earnings release call and webcast.
Speaker Change: At this time, all participants are in listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.
Speaker Change: Please be advised that today's conference is being recorded. Now I'd like to hand the conference over to your first speaker today, Michael Bennett, Investor Relations. Please go ahead.
Speaker Change: Thank you, Victor, and good morning. I'm Michael Bennett, the company's Vice President of Investor Relations.
Speaker Change: I'm happy to welcome you to Radius Recycling's earnings presentation for the fourth quarter of fiscal 2024. In addition to today's audio comments, we've issued our press release and posted a set of slides, both of which you can access on our website at radiusrecycling.com.
Speaker Change: Before we start, let me call your attention to the detailed safe harbor statement on slide 2, which is also included in our press release and in the company's form 10-K, which will be filed later today.
Speaker Change: As we note on slide 2, we may make forward-looking statements on our call today, such as our statements about our targets, volume growth, and margins.
Speaker Change: Our actual results may differ maturely from those projected in our forward-looking statements.
Speaker Change: Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statement is contained in slide 2, as well as our press release of today and our Form 10-K.
Speaker Change: Please note that we will be discussing some non-GAP measures during our presentation today. We've included a reconciliation of those metrics to GAP in the appendix to our slide presentation.
Speaker Change: Now, let me turn the call over to Tamara Lundgren, our Chairman and Chief Executive Officer.
Tamara Lundgren: Thank you, Michael. Good morning, everyone, and welcome to our fourth quarter earnings call. I am joined today by our senior vice president and chief financial officer, Stefano Gaggini.
Tamara Lundgren: I'll start this morning's discussion with an overview of our fiscal 24 fourth quarter, a review of market conditions, and an update on the strategic actions we have underway to address current industry dynamics and create long-term value through the cycle.
Tamara Lundgren: Stefano will then cover the quarterly financial and operating results in more detail. I'll wrap up and then we'll take your questions.
Tamara Lundgren: Before turning to the next slide, I'd like to take a moment to recognize our employees for delivering another year of improved safety performance.
Tamara Lundgren: In fiscal 24, we achieved a 16% year-over-year reduction in our total case incident rate and almost 90% of our facilities had no lost time incidents.
Tamara Lundgren: Our year-over-year improvement reflects the commitment of all our employees to continuous improvement through actions like enhanced training and increased communications and re-engineering practices and processes to reduce operating risk.
Tamara Lundgren: While we still have work to do to achieve our goal of zero injuries, these results reflect our team's unwavering commitment to safety and their dedication to creating a safe work environment and a sustainable safety culture.
Tamara Lundgren: So now let's turn to slide four to review our fourth quarter highlights.
Tamara Lundgren: While the long-term trends for recycled metals are strong, market conditions remained challenging during the fourth quarter, with tight scrap availability and softer global steel demand creating significant headwinds. Our Q4 results were significantly impacted by the ongoing stickiness in scrap purchase costs, leading to margin compression in our financial results.
Tamara Lundgren: However, by focusing on actions within our control, lowering our costs, operating efficiently, and executing on our strategic priorities, our team was able to mitigate some of these headwinds and deliver strong, sequential quarterly improvements in both our operating and our financial results.
Tamara Lundgren: We nearly doubled our adjusted EBITDA to $17 million.
Tamara Lundgren: We successfully increased non-ferrous sales volumes by 13%, ferrous sales volumes by 12%, and finished steel sales volumes by 11% due in part to contributions from our metal recovery technology investments.
Tamara Lundgren: New commercial initiatives and growth in our recycling services platform.
Tamara Lundgren: We delivered substantially the full quarterly run rate benefits from our Cost Savings and Productivity Improvement Program announced earlier this year.
Tamara Lundgren: and we generated positive operating cash flow and returned capital to our shareholders through our 122nd consecutive quarterly dividend.
Tamara Lundgren: Looking forward, we expect continued reductions in U.S. interest rates to benefit consumer manufacturing and construction activity, which in turn should lead to improved scrap supply flows and increased demand for finished steel.
Tamara Lundgren: The long-term demand for recycled metals is supported by structural deficits for nonferrous metals such as copper. The increased demand from manufacturers to maximize their use of recycled materials.
Tamara Lundgren: and the growth in electric arc furnace steelmaking capacity, which uses ferrous scrap as its primary raw material. Our strategic initiatives, focused on metal recovery technologies, volume growth, and expansion of our 3PR services, are strongly aligned with these secular growth trends.
Tamara Lundgren: Let's turn now to slide 5 for a deeper dive into market conditions.
Tamara Lundgren: During most of our fiscal year, both finished steel and recycled ferrous metal prices softened.
Tamara Lundgren: The decline in domestic steel prices was underpinned by both the continuing contraction in U.S. manufacturing, which is reflected in manufacturing PMI remaining in contraction for 22 out of the last 23 months, and imports.
Tamara Lundgren: The fairest price declines during the year were largely due to both the dampening effect of elevated levels of Chinese steel exports, which reached multi-year highs, and lower global manufacturing levels.
Tamara Lundgren: Non-ferrous prices reflected strong global demand, particularly for copper, with prices ending the year higher than where they started.
Tamara Lundgren: Average prices for copper, aluminum, and other non-ferrous products were up approximately 10% year-over-year, with copper reaching multi-year highs for a brief period in late spring.
Tamara Lundgren: Prices of PGM metals were the exception, down year over year by almost 10% due primarily to subdued auto production.
Tamara Lundgren: From a supply flow perspective, compared to pre-pandemic levels.
Tamara Lundgren: Autoproduction remains low and financing costs for new and used cars are still comparatively high, both of which have contributed to the average age of vehicles reaching their highest level on record, resulting in lower scrappage rates of end-of-life vehicles.
Tamara Lundgren: We expect that continued reductions in U.S. interest rates, along with the spending associated with the U.S. infrastructure bills, will be major catalysts leading to higher manufacturing, construction, and consumer activity, and higher scrap flows.
Tamara Lundgren: Let's turn now to slide 6 for an update on our strategic priorities and the longer-term outlook for recycled metals.
Tamara Lundgren: Our strategic priorities are directly aligned with the long-term trends we just reviewed and can be summarized as follows.
Tamara Lundgren: First, our Cost Reduction and Productivity Program.
Tamara Lundgren: This quarter we achieved substantially the full quarterly run rate of benefits associated with our $70 million annual cost reduction and productivity improvement plan, which we announced earlier this fiscal year.
Tamara Lundgren: as part of our continued focus on optimizing production efficiencies.
Tamara Lundgren: We anticipate achieving new benefits in Fiscal 25 through the monetization of certain discrete real estate assets in locations where we can both substantially consolidate or reposition our business activity and unlock the associated real estate value.
Tamara Lundgren: Second, our investments in advanced metal recovery technologies.
Tamara Lundgren: This is a multi-site, multi-year investment program focused on increasing the recovery of nonferrous metals from our shredding process and creating product optionality by enabling us to create furnace-ready products based on demand and price.
Tamara Lundgren: In fiscal 24, we achieved nearly a quarter of the anticipated annual benefits. The majority of the returns from these investments should come through our results in fiscal 25.
Tamara Lundgren: We estimate these investments should return over $40 million in annual EBITDA after full deployment.
Tamara Lundgren: Third, our trademark 3PR Service and Solutions business line.
Tamara Lundgren: Our 3PR service offering enables our customers to increase their recycling rates, reduce material going to landfills, lower their carbon footprint, and provide enhanced sustainability reporting.
Tamara Lundgren: This is an asset-light business, typically with multi-year contracts, that can provide a counterbalance to our more cyclical core recycling operations, and is highly aligned with secular growth trends.
Tamara Lundgren: Reflecting steady growth, our 3PR business line is now contributing over 10% to our recycled metals volumes.
Tamara Lundgren: and fourth, increasing our volumes. Despite the tight supply environment, we increased our sales of recycled metals in fiscal 24 compared to fiscal 23.
Tamara Lundgren: Our focus on commercial initiatives to increase our organic ferrous and non-ferrous volumes gives us the opportunity to create operating leverage using the 1 million tons of capacity that we currently have available.
Tamara Lundgren: We are also investing in digital tools at our pick-and-pull franchise to capture previously untapped sources of car flows and related revenue streams, which are especially important as new auto production remains below pre-pandemic levels and demand for salvaged auto parts remains solid.
Tamara Lundgren: Well, benefits from these initiatives are already contributing to our financial performance. Their full positive effect on our operating margins is currently being masked by the impact of the headwinds we've been experiencing.
Tamara Lundgren: As these abate, we expect the benefits of our actions to become much more visible in our margins and EBITDA, and to provide a substantial boost to future financial results. So now, let me turn the presentation over to Stefano.
Stefano Gaggini: Thank you, Tamara, and good morning.
Stefano Gaggini: Consolidated Adjusted EBITDA in the fourth quarter was 17 million dollars compared to 9 million dollars in the prior quarter which had included 7 million dollars in insurance recoveries.
Stefano Gaggini: The biggest drivers of the improved results were higher sales volumes for all of our products.
Stefano Gaggini: Stronger non-ferrous demand and prices, an expansion in recycled metal spreads, and a ramp-up in benefits associated with our cost reduction and productivity program.
Stefano Gaggini: Cost savings and productivity measures are critical levers within our control to mitigate operating margin pressure from the current market conditions and inflationary headwinds.
Stefano Gaggini: Our fiscal 24 program has benefits that aggregate to 70 million dollars on an annualized basis.
Stefano Gaggini: These initiatives are primarily comprised of production cost reductions, yield increases, optimization of transportation and logistics.
Stefano Gaggini: Decreases in non-trade procurement spend, adjustments in headcount and other employee related expenses, and a reduction in discretionary activities such as travel and use of professional and other outside services.
Stefano Gaggini: Looking more specifically at SG&A expense, in the fourth quarter adjusted SG&A costs were down 7% compared to the prior year, reflecting the benefits from the measures we implemented during the year.
Stefano Gaggini: However, those benefits were partially offset by elevated costs for certain ongoing legal matters in the fourth quarter, which we expect to be temporary and received later in fiscal 25.
Stefano Gaggini: As part of our continuous improvement, we routinely review our operating platform and the locations in which we do business. As Tamara mentioned, this process includes identifying opportunities to monetize certain discrete real estate assets.
Stefano Gaggini: We target closing of these transactions during the second half of fiscal 25 subject to customary terms
Speaker Change: Let's move to slide 8 to discuss Federal Sales and the Market Dynamics.
Speaker Change: Federal sales volumes were up 12% sequentially, reflecting in equal parts seasonality on flows of material and the focus on commercial initiatives, as well as benefits from timing of shipments.
Speaker Change: The share of domestic ferrous shipments was 40%. Our top sales destinations for ferrous exports were Bangladesh, Turkey and India.
Speaker Change: Benefiting from the seasonally higher flows and the above parity export prices, we were able to expand ferrous metal spreads sequentially, which together with operating leverage created by the increased process volumes, resulted in higher contribution to performance in the quarter.
Speaker Change: The impact of average inventory accounting was a small detriment of $1 per first ton in the fourth quarter, compared to a detriment of $3 per first ton in the prior quarter.
Speaker Change: Paris average net selling prices were substantially flat sequentially.
Speaker Change: As Tamara mentioned, we continue to see pressure on the global scrap market from elevated levels of Chinese steel experts.
Speaker Change: As the graph on the bottom right shows, in the first 9 months of calendar year 24, China's finished steel exports increased nearly 20% year-over-year and reached an 8-year high, impacting steel production and ferrous craft demand, particularly in the Asian markets.
Speaker Change: Now let's move to slide 9 to discuss non-ferrous sales and provide an update on our non-ferrous investments.
Speaker Change: Non-ferrous sales volumes were up 13% sequentially, reflecting the benefits of seasonality on flows, higher production associated with our non-ferrous recovery investments, and timing of shipments.
Speaker Change: We sold our non-ferrous products to 13 countries, with the major export destinations being Malaysia, India and China.
Speaker Change: Average net selling prices for our recycled non-ferrous products were up 4% sequentially on strong demand.
Speaker Change: We continue to progress our investment in primary non-ferrous recovery systems.
Speaker Change: which drive the incremental metal recovery and the majority of the expected contribution from these technologies.
Speaker Change: We project completion of construction and start of ramp-up of the last of the currently permitted primary systems by the end of calendar year 24. We have two primary systems left to start construction on the west coast which remain subject to permitting approval.
Speaker Change: Overall, the contribution to performance from these systems was positive in the fourth quarter.
Speaker Change: We expect to see a trend of increasing returns from these investments in the remainder of calendar 24 and target full ramp-up of the permitted systems by early calendar 25.
Speaker Change: Once fully operational, we continue to expect substantial returns from our investments of approximately $10 EBITDA per ferrous ton.
Speaker Change: Now let's move to slide 10 to discuss our steel mill performance.
Speaker Change: Finnish steel sales volumes of 140,000 tons in the fourth quarter were up 11% sequentially as we benefited from a solid pickup in seasonal construction activity.
Speaker Change: Average rolling mill utilization was 97% up from 88% in the prior quarter and also well above the US average of 78% for the period.
Speaker Change: Average net selling prices for finished steel were down 3% compared to the prior quarter. We believe our mill stands to benefit from the anticipated demand associated with U.S. infrastructure bills.
Speaker Change: Now, let's move to slide 11.
Speaker Change: Operating cash flow for the fourth quarter was positive at 4 million dollars, reflecting the higher EBITDA results sequentially.
Speaker Change: The impact on working capital of the higher volumes for all of our products created a detriment to networking capital in the quarter.
Speaker Change: The benefit to Ferrocells volumes from timing of shipments we saw in the quarter was offset by the timing of collection on bulk cargoes.
Speaker Change: Capital expenditures in the fourth quarter were 20 million dollars.
Speaker Change: For the full Fiscal 24, CapEx was $76 million. This was a reduction of more than a third compared to Fiscal 23, as we aligned the level of our CapEx investments to current performance trends.
Speaker Change: Looking ahead, we currently project our fiscal 25 CapEx investments to remain at similar levels and be approximately $80 million.
Speaker Change: Around 20% of this will be for growth projects, including investments to support the continued expansion of recycling services and completion of our non-ferrous technology initiatives.
Speaker Change: with the remaining spend for maintaining the business and environmental-related capital projects.
Speaker Change: Net debt was $409 million at the end of the fourth quarter.
Speaker Change: Our credit facility has a capacity of $800 million and a maturity date of August 2027.
Speaker Change: Under our credit agreement, interest costs are linked to short-term market rates. As a result, we benefit from short-term interest rate cuts by the U.S. Federal Reserve, such as the 50 basis points reduction that occurred in September.
Speaker Change: The effective tax rate for the fourth quarter was a benefit of 10% on reported pre-tax results, which reflected a two-up charge of $5 million to the valuation allowance on deferred tax assets driven by the goodwill impairment charge taken in the prior quarter.
Speaker Change: The tax rate on our non-GAAP results, which exclude the impairment charge and its related tax impact, was a benefit of 33% in the fourth quarter.
Speaker Change: We do not expect to be a cash taxpayer in Fiscal 25, even the availability of net operating loss carry-forwards.
Speaker Change: We pursue a balanced capital allocation focused on reinvesting in the business, supporting our strategic initiatives, returning capital to shareholders through our quarterly dividend, and maintaining a flexible balance sheet.
Speaker Change: Looking ahead, we expect to experience typical first quarter seasonality in our recycling and finished steel sales volumes.
Speaker Change: At this time in the quarter, uncertainties remain with respect to various market factors that can impact prices and flows, so it is too early to provide a first quarter quantitative outlook.
Speaker Change: And with that, I'll turn the call back over to Tamara.
Tamara Lundgren: Thank you, Stefano.
Tamara Lundgren: I want to commend our team for not just waiting for the markets to improve, but for successfully focusing on the things that we can control.
Tamara Lundgren: Our results this quarter benefited from our significant cost savings and productivity improvement programs and our success in increasing ferrous, non-ferrous, and finished steel sales volumes.
Tamara Lundgren: Today's market conditions won't last forever, and as we've discussed earlier, we are well positioned to benefit from demand trends associated with decarbonization, infrastructure investment, and stronger global manufacturing activity.
Tamara Lundgren: Well, we don't control the pace of improvement in market conditions. We've seen in the past how quickly the cycle can turn.
Tamara Lundgren: We expect the decline in U.S. interest rates to help improve manufacturing and construction activity and benefit scrap supply flows. Improved scrap supply flows should provide us with significant operating leverage benefits as volumes recover.
Tamara Lundgren: Independent of the timing of that recovery, our strategic initiatives, including investments in metal recovery technologies, expansion of our recycling services platform.
Tamara Lundgren: and continued focus on productivity and cost control will position our company to benefit from both an improvement in market conditions and the structural tailwinds for recycled metals.
Tamara Lundgren: Before we open the call for questions, I'd like to thank our team for their dedication and our customers, suppliers, and the communities in which we operate for their partnership and support.
Tamara Lundgren: In fiscal 24, we were certified for the fourth consecutive year as a great place to work. This certification is a testament to the positive experiences of our employees and the strong workplace culture we have built together.
Tamara Lundgren: and working together, we continue to demonstrate the critical and essential role of our business in our local economies and across the globe.
Speaker Change: And now, Victor, let's take some questions.
Victor: Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for a name to be announced. To withdraw your question, please press star 11 again. Please stand by for our first question. One moment.
Victor: Thank you. Bye.
Victor: Thank you. Thank you.
Speaker Change: Our first question will come from Martin Englert from Seaport Research Partners. Your line is open.
Martin Englert: Good morning. Good morning. Everyone. Good morning. Morning.
Martin Englert: Question on unit profitability improvement quarter on quarter. Is there any way that you can help parse out the sequential change in EBITDA, the volume contribution, you know, price, cost?
Martin Englert: on a unit basis and anything else. I know there was a component of reduced inventory holding losses, but the other components would be helpful to the extent that you can speak to it.
Stefano Gaggini: Hi Martin, this is this is Stefano
Speaker Change: So when we think about the drivers of the $15 million sequential improvement in underlying EBITDA performance, so disregarding for a moment the insurance reimbursements we recognized in the prior quarter, in terms of sizing those drivers, I would say the individually largest component making up slightly less than half of that sequential result improvement.
Speaker Change: is from the increase in volumes for all of our products, including the creation of operating leverage from those higher volumes.
Speaker Change: The second component, I would say, is the ramp up in cost savings and productivity benefits to the full quarterly run rate of our $70 million program. And that, I would say, makes up around a third of the overall sequential improvement.
Speaker Change: And then the rest is from a combination of higher non-ferrous prices due to the strong demand and the expansion of the recycled metal spreads, including what you mentioned, the lesser detriment from average inventory accounting compared to Q3.
Speaker Change: Okay, appreciate that. Did you see any measurable change in the tightness on scrap flows during the quarter or since exiting or is it still kind of the same fundamental backdrop when it comes to flows?
Speaker Change: We haven't seen any loosening.
Speaker Change: and Michael Bennett. Thank you. Thank you.
Speaker Change: Okay, I appreciate that. Can you provide a brief update what you're seeing as far as ferrous export activity in demand here, you know, in October and I guess more recent history?
Speaker Change: Sure. Well, as you can follow in the domestic market,
Speaker Change: availability in both the U.S. and in Europe.
Speaker Change: and sentiment on the West Coast, or off the West Coast, export demand off the West Coast.
Speaker Change: The Asian steel and scrap vertical remains mixed as overall weak steel fundamentals and the high
Speaker Change: volumes of Chinese semi- and finished steel exports continue to pressure that region and I think that they are cautiously awaiting details of the impact of Chinese stimulus on both Chinese steel production and
Speaker Change: Chinese export levels to see whether either production decreases or exports decrease because of higher absorption within the Chinese domestic market.
Speaker Change: Okay, appreciate it and nice job on the volume to the quarter
Speaker Change: Thank you. Thank you. One moment for our next question.
Speaker Change: Our next question will come from Samuel McKinley from KeyBank Capital Markets. Your line is open.
Samuel McKinley: Hi, good morning Tamara and Stefano.
Speaker Change: Good morning.
Samuel McKinley: sticking in the Ferris volumes and they were really a surprise to the upside in the fourth quarter buoyed by those export numbers but I understand supply was seasonally better during the summer months but can you dig into the dynamics around the the benefits from timing of shipments that you noted in the release?
Speaker Change: Yes, I'll take that, Sam. So we said, you know, during the prepared remarks that the increase in fares was, you know, more or less in equal parts.
Speaker Change: to that seasonality factor.
Speaker Change: in the summer, and the other half approximately was from the timing of shipments on the Ferris on bulk cargo. So those would be the two components that drove that increase of 12% sequentially.
Speaker Change: I guess what I'm asking is when you say benefits from timing of shipments, I mean in the past I know delayed cargos have caused volumes to maybe seep into later quarters, but what were the benefits from the timing of shipments?
Speaker Change: What I mean, Sammy, there was a reduction in inventory sequentially, and that's the benefit from the timing of shipments. As you know, timing of shipments, given the size of the cargoes, can make a difference in our fairer sales volumes. And in this current quarter, there was a reduction in inventory sequentially. Okay, understood. Thank you.
Speaker Change: And then in non-ferrous, I mean, you've cited the tight premium of tWitch over Zorba has made conversions sometimes less attractive. With Zorba prices still sitting around $90 a pound, can you talk to us about how that premium has evolved in recent months?
Speaker Change: and how you're viewing that market into the fiscal year 25.
Speaker Change: Let me start, and then why don't you add, you know, I think that auto production
Speaker Change: A Rebound Recovery and Auto Production, which is still below pre-pandemic levels, is really weighing on Twitch levels.
Speaker Change: and that compresses the spread between Twitch and Zorba.
Speaker Change: One of the strategic reasons why we have made the metal recovery investments that we've had is to provide the product optionality that lets us access markets at different points in the, let's say, refinement of the metal process so that we can capture the highest profits.
Speaker Change: So that spread we anticipate widening as auto production recovers as the main driver.
Speaker Change: Stefano, you might want to dig in deeper to the specifics.
Stefano Gaggini: I agree Tamara and Sam, right, that product optionality allows us to basically process the material into higher value depending on the prices that we get on the sales. So if there is enough of a premium between...
Stefano Gaggini: between those grades of material, we will process them, or else we don't have to and we can sell, for example, our Zorba products straight to export. So that product optionality is important, and currently we are not utilizing it because of the compressed spread.
Speaker Change: I appreciate the detail on that answer. That was very helpful. Thank you.
Speaker Change: And then lastly for me...
Speaker Change: Fourth quarter rebar and coil volumes improved solidly again off the third quarter that benefited from the solid seasonal pickup and West Coast non-res demand.
Speaker Change: I think you had some rain issues in the second quarter, but can you provide some more detail on the specific construction drivers that led to the fourth quarter volume uptick? Was it more that West Coast non-res demand?
Speaker Change: Very, very much so. Okay. Yeah, very much so.
Speaker Change: You know, we still, you know, anticipate that, um...
Speaker Change: 2025. You know, we can continue to see, you know, bidding activity. You can look at the, you know, Dodge Momentum Index, and year over year, it's significantly higher. I think it's decreased a bit from August to September. But from a, you know, from a
Speaker Change: you know long-term perspective you know we anticipate uh... continued strong demand in the west coast and you can see our utilization rate at uh... uh... uh... ninety seven percent is uh... it continues to be strong
Speaker Change: All right. Thank you both.
Speaker Change: Thank you.
Speaker Change: Thank you. I'm not showing any further questions at this time. I would now like to turn it back over to Tamara Lundgren from 4 Clause Remarks.
Tamara Lundgren: Thank you, Victor. Thank you everyone for your time today. We look forward to speaking with you again when we report our first quarter results in January. In the interim, stay safe and stay well.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.