Radius Recycling Inc (RDUS) 2011 Q4 法說會逐字稿

Welcome to the Schnitzer Steel's fourth quarter 2011 earnings release conference call. At this time all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, this conference may be recorded. Now I'll turn the call over to Alexandra Deignan. Please go ahead.

Thank you, Huey.

Good afternoon, I'm Alexandra Deignan, the Company's Investor Relations contact. I'd 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 which were made available concurrently with our earnings press release. You can access the slides through 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 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. In addition, we have guidance regarding our outlook for the first quarter 2012 in our press release and in this presentation. After this call, we will not be under any obligation to update our outlook. Finally, please note that we will be discussing some non-GAAP measures during our presentation today. We've 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.

Thanks, Allie, and welcome, everyone, to our fourth quarter and fiscal year 2011 earnings call. It was another great quarter in what has been a transformational year for our Company. So before I start, let me first thank all our Schnitzer teammates for delivering such excellent performance while working smart, and working safely. Operational excellence begins and ends with a culture of safety first, and our employees have done a tremendous job in keeping their eye on the ball where safety is concerned. In fiscal 2011, we delivered improved safety performance against all of our key metrics year-over-year. To all our colleagues at Schnitzer who are listening to this call, congratulations on a year of outstanding performance.

So now let's take a look at our financial performance. I'll start us off with a review of our quarterly and fiscal year consolidated results, and the operating highlights for each of our businesses. Then Richard will discuss the detailed results for our segments and review our cash flow and capital structure. I'll conclude with an outlook for our first quarter, and then we'll open up the call for questions. So let's get started by turning to slide 4. As you can see in the press release -- I think we're having a little bit of lag on our slide turning -- but I'll start in any event.

But as you can see in our press release we issued earlier today we delivered very strong performance against each of our key metrics in fiscal 2011. You may recall that in 2010, we recovered faster than most from the impacts of the global financial crisis. In 2011, we've continued to separate ourselves from the pack, adding substantial growth and profitability to an already strong foundation despite a faltering US economy, destruction in the Middle East, and natural disasters in Asia. Our 50% growth in revenues, operating income, EPS, and operating cash flow reflects a healthy combination of higher market demand, organic market share expansion, and investment growth. Our ability to achieve growth straight down to the bottom line demonstrates our disciplined approach to operational performance and investment return, and our robust cash flow generation enables us to make further investments.

So let's turn to slide 5 to review the highlights of our fiscal 2011. Our revenues, operating income and volumes all reflect significant growth. Global demand for steel continues to increase, as does demand for our products. However, as we all know, the US economic environment is still fragile, and so our strategy to invest in technology and to make the acquisitions that we did this past year countered that weakness and delivered very strong results. We added 10 new businesses, which increased our supply flows in each of our key regions, and extended our geographic reach into Western Canada, which adds a substantial new growth platform to our footprint. We brought online new non-ferrous extraction technologies, which contributed to our increased margin per ton and allowed us to be a better buyer of ferrous materials. And we generated significant operating cash flow, which enabled us to maintain a strong balance sheet, fund our growth investments, and opportunistically repurchase shares.

And because we closed the acquisitions over the course of fiscal year 2011, and because our technology investments came online throughout the year, we expect fiscal year 2012 to benefit from the full-year effects of these investments through growth in revenues and in earnings. Despite the near-term softness in some of our end markets, we're confident that in fiscal 2012 the macroeconomic fundamentals underlying demand for our products will continue. So let's turn to slide 6 and review these fundamentals. The 3 long-term macroeconomic trends that have been driving our market haven't changed. First, the demand for infrastructure investment in the developing world continues to be high. Second, the supply-demand balance of scrap continues to favor those platforms in the developed world that can source, process, and export scrap most efficiently to meet worldwide demand wherever it is greatest at any point in time. And third, electric arc furnace capacity additions, and the focus by blast furnaces on their need to reduce energy costs and improve their environmental footprint, continue to drive more demand for processed scrap.

So let's review each of these macro trends in a little bit more detail. While most forecasts are now highlighting a reduction in growth in the developing world, that reduction in growth needs to be put in perspective. The IMF still expects emerging Asia -- and that includes China and India -- to grow 7.7% next year, which is down from 8% previously forecast. So what does this mean for demand for our product? It means that the developing world is going to need more scrap next year than they do today. We believe that demand will continue to outstrip supply, which it's done consistently both before and since the onset of the global financial crisis, and we believe that demand will remain strong and steady.

And if we look solely at China, a lot of economists forecast China's GDP to rise by about 9% in 2011 and 8% in 2012. While certain types of fixed asset investment and construction spending in China may decrease, their need for social housing and related infrastructure is projected to increase. In addition, China's announced the desire to increase their use of scrap in order to reduce energy consumption and greenhouse gas emissions.

And it's important to remember that it is not just about China. We sell about 60% of our recycled metals to Asia. And 0.667 of that amount to non-China destinations -- Korea, Taiwan, Malaysia, Thailand, and Indonesia to name a few. Add to that the rebuilding efforts in Japan and India's growth expectations. So, while we have headlines in well respected publications crying woes for the emerging economies, we believe those woes can't be spread like peanut butter, and that it's important to look behind the headlines to determine those industries and those companies that will benefit from the growth that is continuing in the emerging markets. We believe that we are one of those companies.

It's also important to remember that infrastructure development is the most important stimulant to steel demand. Steel production has increased in the emerging markets where they are short raw materials like scrap. The deepest source of scrap is the US, which is where we operate. And lastly, in recent years, EAF capacity additions, energy efficiency goals, and the pressure to reduce greenhouse gas emissions, have all been significant forces driving higher demand for scrap. So while the equity markets are predicting and reacting to a near-term slowdown in growth, significant growth is still expected in the emerging markets -- growth levels which support high demand for our ferrous and non-ferrous scrap products.

So let's turn to slide 7 to look at the broad global demand. The graph on the left shows where US scrap exports have gone during the first 8 months of calendar 2011. The graph on the right shows that slightly more than 0.5 of our exports are destined for multiple countries in Asia, and approximately 20% are delivered to the Eastern Mediterranean and the Mid-East, including Turkey and Egypt. So now let's turn to slide 8 for a closer look at our recent quarterly results.

During the fourth quarter, our revenues increased 69% versus last year. Global demand continued to support high average ferrous prices, up about 30% from last year. But more importantly, our ferrous sales volumes increased by 36% versus last year, and our non-ferrous sales volumes increased by 18%. Our Auto Parts Business, increased car purchase volumes and admissions during Q4, which drove record Q4 sales performance. And at our steel mill, sale volumes increased 7%, and average sales prices increased 17%, reflecting an improved market versus last year. EBITDA growth in Q4 out paced revenue growth, increasing by 86%. And our EPS increased 112% versus last year, excluding a prior period tax benefit.

Now, let's turn to slide 9, and take a look at the full year performance for our fiscal 2011. Looking at the full year, our revenues, our operating income, and our EPS each grew by nearly 50%. For the full year, it's important to note that our increase in revenues was not just about higher prices. Volumes and operating income in each of our businesses increased. This bottom line performance affirms our strategy of expanding our platform to get closer to the sources of supply, and of investing in technology to increase our yield, and to contribute to our ability to increase our volumes. And as I mentioned before, fiscal year 2011 reflects only partial year results from our acquisitions and technology investments.

So let's move to slide 10 and we'll look at our use of capital during fiscal 2011. We invested $398 million during the year, in a combination of capital expenditures and strategic acquisitions, that enhanced our supply lines in each of our regions and expanded our geographic platform into western Canada. These significant investments provided incremental and synergistic value during our partial year of ownership, and as Richard will discuss in more detail, our strong operating cash flow of $140 million enabled us to lower our net debt to total cap ratio versus Q3.

So let's turn to slide 11 and take a look at the full year performance of each of our segments. For the full year, revenues in our Metals Recycling Business grew 55%, driven by record shipments of both ferrous and non-ferrous metals. Nearly 90% of this growth was organic, which provides good opportunities for further growth in fiscal 2012 from our acquisitions. Our fiscal year 2011 ferrous sales volumes now exceed our previous peak level, which was achieved in fiscal 2008. In the fourth quarter, we shipped our ferrous and non-ferrous products to 18 different countries. Our largest ferrous export destinations were China, Turkey, Malaysia, and Egypt; and on the non-ferrous side, China and the US continued to be our largest buyers. For the full year, our operating income increased 39%, reflecting strong volume growth, operating efficiencies, and the partial year benefits of our acquisitions and technology investments.

So let's now turn to slide 12 for a review our Auto Parts Business. Revenues in our Auto Parts Business grew by 33% in fiscal 2011, and operating income increased by 25% despite very little GDP growth in the US; which demonstrates APB's ability to deliver high performance in both strong and weak domestic economic environments. Our 5 new stores contributed meaningfully to APB's growth, and we intend to continue expanding our platform through acquisitions and greenfield developments. So let's turn to slide 13, to take a look at our Steel Manufacturing Business.

At SMB, higher volumes, higher prices, and continued benefits from operating efficiencies provided another quarter of operating income profit and a full year profit of $3 million. On average, the mill operated at 56% utilization for fiscal 2011. Although the mill's performance continued to reflect the weak demand in the US construction markets, through product diversifications and our focus on operating efficiencies we've been able to deliver profitable performance and are well situated to capitalize on the improvements in demand as they occur. We believe that there is the potential for significant upside at SMB when the domestic economy recovers and demand increases, leading to higher production levels. So let's turn now to slide 14.

In fiscal 2011, we expanded our market presence across all our major regions. Our strategic rationale is clear -- to align ourselves with the supply and demand dynamics of the global scrap and steel industries, and to use our deep water ports to access demand wherever it is greatest. We have both grown organically and acquired new sources of supply to meet the increasing demand for scrap from our end customers. In our view, it's the combination of identifying new sources of supply in underserved and high-growth regions, and staying at the forefront of continuous improvement practices, including the development and implementation of technology to improve yields, that are the keys to sustainable growth and strong margins. Before I turn it over to Richard, let me conclude by presenting a look at our key performance metrics.

So if you turn to slide 15. In a year of worldwide volatility, with steady and strong demand for all our products globally but a weak US economy, we were able to achieve significant growth in every key metric. Revenues, profits and operating cash flow all grew by around 50%. Ferrous and non-ferrous sales volumes and car purchase volumes all grew in the mid-teens or better. And we expect continued growth in our platform in fiscal 2012, both due to the benefits of full-year performance from our technology investments and our acquisitions, and due to a continuation of our successful strategy of growth.

Now, I'll turn it over to Richard, to highlight market trends in our segments and our current capital structure. Richard?

Thank you, Tamara. And good afternoon everybody.

I'll start my presentation with Metals Recycling on slide 16. As shown on the left, the average ferrous sales price for the fourth quarter was $443 net of freight. Compared to the same quarter of the prior fiscal year, this was an increase of 30%. On a sequential basis, selling prices were flat, as the fourth quarter continued the stable price trend we've seen in the last 3 quarters of this fiscal year. Looking at the graph on the right, ferrous sales volumes in the fourth quarter were a record 1.5 million tons. On a full-year basis we shipped a record 5.3 million tons, an increase of 26% compared to the prior year. Of the increased volumes, approximately 85% came from strong organic growth. This was driven by continuing high overseas demand, increased availability of supply, and the success of our purchasing process. The remaining growth came from the partial year contributions from the acquisitions completed during fiscal 2011.

Turning to slide 17, I'll review non-ferrous. As the chart on the left shows, average non-ferrous selling prices were $1.08 during the fourth quarter. This was an increase of 29% year-over-year, and a slight decline on a sequential basis. On the right, you can see fourth quarter sales volumes were 191 million pounds. This represented a significant sequential increase of 32%, and was up 37% compared to the same quarter in the prior year. Sales of non-ferrous benefited in the fourth quarter from the higher intake of raw materials, increased non-ferrous production, and contributions from the acquisitions. On a full-year basis, non-ferrous sales volumes increased 90 million pounds or 19%, to 569 million pounds. The main driver was acquisitions, which contributed nearly 60% of the increase, and the remainder came from a combination of higher non-ferrous purchases and increased non-ferrous yield from the shredding process. Overall, non-ferrous revenues were 20% of MRB's total revenues for fiscal 2011.

Turning to slide 18, I'll now summarize MRB's overall fourth quarter performance. Looking first at the graph on the left, MRB's fourth quarter operating income was $52 million. This continued the upward trend in quarterly performance with operating income up 13% on a sequential basis. We also achieved a 148% increase in operating income versus the prior year fourth quarter, which had been adversely impacted by a fall in the market. Operating income per ferrous ton is graphed on the right, and showed that we achieved $34 in the fourth quarter. This is 8% higher than the $31 we achieved in the third quarter, and came from a combination of productivity benefits from higher ferrous volumes, and higher relative level of non-ferrous production. On a full-year basis, we grew operating income per ton by 10%, while at the same time we generated significantly higher volumes and also grew our business.

Moving on to slide 19, we'll turn to the fourth quarter performance of our Auto Parts Business. Auto Parts also delivered strong fourth quarter operating results, increasing scrap and core sales as well as achieving higher inflows from car purchasing activities. As shown on the right, the fourth quarter car purchase volume of 97,000 cars, was 7% higher year-on-year. This level was also 5% higher sequentially, driven mainly by organic growth. On a full-year basis, we purchased 353,000 cars, which was growth of 7%. The increase was split equally between organic growth and the contribution from recent acquisitions.

On an adjusted basis the year-over-year growth was even higher, at 14%, when we exclude the one time benefit of 19,000 cars from the Cash For Clunkers program in 2010. APB's fourth quarter operating income was $17 million, which equates to a strong operating margin of 18%. Although car purchase volumes increased, the operating margin was slightly lower sequentially due to normal seasonal impacts on part sales and admissions. On a full year basis, the operating margin was 20%, which demonstrated our ability to achieve significant growth in volumes while at the same time maintaining high levels of profitability.

Moving to slide 20, we'll look at the performance of SMB. Demand for the steel mill's products increased in the fourth quarter, and sales volume of 124,000 tons, as shown on the right, was a 7% increase from the prior year quarter, and up 5% sequentially. For the full year, sales volumes were flat at 439,000 tons, as the market for [long] products on the US West coast remains soft. Average selling prices of $721 per ton increased 17% as compared to the prior year quarter, but declined slightly on a sequential basis. SMB's operating income was $3 million in the fourth quarter, and $3 million for the full year. The improvement from fiscal 2010 reflects increased ability to pass through higher scrap costs, which had driven the increased selling prices we've seen in this last year. From a Management perspective, we continue to exercise strong discipline on operating costs, inventory management, and ongoing levels of capital expenditure.

And now turning to slide 21 we'll take a look at our capital structure. During the fourth quarter we reduced our total debt by $68 million. We had positive operating cash flow of $128 million, which arose from our strong financial performance and our disciplined management of working capital. During fiscal 2011, we spent $293 million in cash on 10 acquisitions, and $105 million of capital expenditures; all of which was funded from our existing credit facilities. In addition, our strong fourth quarter cash flow enabled us to take the opportunity to spend $10 million on share repurchases. Our year-end leverage of 24% was down from 29% in the third quarter, and we continue to maintain a strong balance sheet and significant head room beneath our credit facility of $650 million.

Now let's take a closer look at our operating cash flow trends on slide 22. In fiscal 2011, we generated healthy operating cash flows of $140 million. This year-over-year improvement of 57% reflects our increased level of profitability, and strong focus on controlling working capital in a higher scrap price environment, all while growing our business. Standing back, our 5-year trend of operating cash flow demonstrates our track record of delivering strong cash flows in varying economic environments. It is this ability to turn our business performance into cash, which allows us to continue to invest in growing our business at the same time as maintaining a strong balance sheet position.

Now, I'll turn the call back over to Tamara, who will provide our outlook for first quarter 2012, and some concluding remarks.

Thank you, Richard.

Before I dive into our outlook, let's step back and take a look at the current market dynamics impacting our business. During the last couple of weeks, the ferrous scrap markets have become cautious. Our customers have a need for scrap, but they're watching world events and keeping inventories low. Ferrous prices have come down $30 to $40 from their recent peak levels, but that needs to be kept in perspective. This movement represents just about a 10% decline in net prices from recent peak levels, but the absolute price levels are still very strong. As you know, in our business, we're able to quickly adjust purchase prices to reflect forward sales movements. And as I noted on previous calls this year, prices have been unusually stable for the last 9 months. These current downward price movements are not at all unusual. The global demand for scrap continues to increase, and we expect that it will ultimately continue to assert upward pressure on prices and volumes.

So let's turn to our outlook for our Metals Recycling Business. Ferrous sales volumes are expected to approximate first quarter of fiscal 2011. It's worth noting that the sequential decline in sales volumes in Q1 versus Q4 is a reflection of current fluidity in the market. Non-ferrous volumes are expected to increase 20% from the first quarter of fiscal 2011, primarily due to incremental contributions from acquisitions and technology investments. Despite the recent drop in prices, ferrous average net selling prices are expected to be significantly higher than in the first quarter of last year, and non-ferrous average net selling prices are expected to be slightly higher than the first quarter of last year. Primarily because we anticipate a negative impact from average inventory costs, MRB's operating income per ferrous ton is expected to approximate the first quarter of fiscal 2011.

Turning now to slide 4, we'll review the outlook for our Auto Parts Business and our Steel Manufacturing Business. In our Auto Parts Business, revenues are expected to increase 20% to 30% from last year's first quarter, due to higher prices and increased sales of parts, cores and scrap, including incremental benefits from acquisitions. First quarter operating margins are expected to decline sequentially from Q4, due to the impact of lower commodity prices on scrap and core sales, as well as a negative impact from average inventory costing. And in our Steel Manufacturing Business, sales volumes are expected to increase slightly from the levels we saw in Q1 of last year. Average net sales prices are expected to approximate the levels we saw in Q4. First quarter operating margins are expected to improve versus last year, and should approximate break-even due to higher production levels.

So we can now conclude by turning to slide 25. As I said at the beginning of our call, fiscal 2011 was a year of significant accomplishments. Our results reflect confirmation of our strategy to profitably grow by expanding our geographic platform to serve the worldwide demand for scrap, and by investing in technology to extract more metals and value from the materials we process. Our results also reflect our ability to increase our profits and generate positive operating cash flow by our consistent and disciplined focus on continuous improvement.

Looking ahead to 2012, we expect the positive benefits of the investments and acquisitions we've made, as well as the overall increasing demand for scrap metals, to continue to result in enhanced earnings power. As you heard from our outlook, we are seeing some near-term softness in some of our end markets. We've demonstrated time and again our nimbleness and ability to adjust purchase prices quickly, to maintain both positive metal spreads and positive operating cash flow. Global steel production continues to increase, and barring any macroeconomic shocks, our end customers will need more scrap tomorrow than they did today, and we are very well positioned to deliver our products to meet that demand.

So now, we'll open up the call for a few questions

(Operator Instructions) Sal Tharani, Goldman Sachs.

I want to just understand the guidance for the first quarter. You have a much higher pricing and higher volume, but margins would be flattish from last year, and you mentioned inventory, but I thought that you were short inventory already? As scrap prices are coming down you actually tend to benefit because you are buying cheaper but you have booked lots of the orders at a higher price in the past?

So why don't I ask Richard to walk you through the impact of average inventory costing because that's the primary driver of the margin performance.

Okay.

Hi Sal, it's Richard. When the market changes the way it has, and recently in terms of our falling prices, of course, we adjust our purchase prices immediately to protect our cash spread, but when the market falls sharply, it means that the average inventory cost cannot come down as fast as the cash purchase price for scrap does. And as a consequence, we have an adverse hit to our results and that's what we expect in the first quarter. However I would comment that last year's Q1 fiscal 2010 which was -- fiscal 2011 which was more of a flat to rising market, did not have a negative inventory effect. So although we expect the margins for the first quarter of fiscal 2012 to approximate the first quarter of fiscal 2011 from a cash perspective, we should do better.

Okay. And also one of the other companies, 2 companies which has some scrap business mentioned that in September they had, they show -- saw heavy losses in their non-ferrous businesses because the prices of nonferrous drop dramatically, is that also accounted for in your guidance.

No, that's not. Our -- as we forecasted our sales are up, and our performance is being driven by acquisitions and technology investments and our business is really quite different, because it's based on high steady turn over and our ability just like in our ferrous business, our ability to adjust purchase prices to align with market demand. So no, that is not, that's not a similar performance.

So you're not going to face that kind of issue in your non-ferrous business?

No we will not.

Luke Folta, Jefferies.

Just to, I feel like I ask this question every quarter and I apologize, but, are you able to talk about the magnitude of the difference between your reported margin and that cash spread that we're seeing? I'm just trying to get a sense of, if we can quantify this inventory impact for the first quarter?

Yes, and I think we'll give you the similar answer to last time, because it's a non-GAAP measure, it's not something that we are able to provide. However, what I can say is that the impact of average inventory costing will be a significant one in the first quarter relative to the fourth, relative to other factors that may impact the change in margins.

Okay. And I appreciate the restrictions with GAAP, but I mean, to the extent that you can, in the future maybe provide some sort of quantification on that, I think it would help people to understand, how -- your underlying business as opposed to some of these factors, but again I appreciate what -- your comments. But in, again just to follow up on Sal's question on non-ferrous, so you're saying that there was zero inventory impact from the sharp fall off that we saw in non-ferrous prices?

Well, I think one of the things that's different from us, with others is we don't have a hedging program for non-ferrous in terms of financial hedges and therefore we are not impacted by the types of unrealized losses on mark to market that some others may be seeing in their business when prices fall. What Tamara indicated is, we really run our business on a cash basis and a cash spread basis so when sales prices fall, we immediately drop our purchase prices from a cash point of view to protect the positive margin.

Okay. But you're not saying that the fact that non-ferrous prices had pulled back sharply didn't have an impact on your business?

No. We're not saying that. That's one of the combination of factors that will lead to the decrease in margins from the fourth quarter to the first quarter, but it's not as big a reason as the average inventory costing effect.

Okay. Okay. And then the other question I had was with regards to acquisitions, with the recent pull back that we've seen in the market and the uncertainties, what sort of impact is that having on sellers -- the willingness of some of your potential future acquisition targets to sell their business? Is this pulled assess kind of off the market or are you actually starting to see maybe people willing to sell more because they're afraid of what might be coming?

Well, I would put this movement in context. I think that the change in movement as I mentioned is in the 10% range in terms of prices. And most people do move with the market. I mean, most of the acquisition candidates that we speak to run their businesses similarly to how we run our business, so I don't think this move, while it feels like it's a big move because in the last 9-months prices really didn't move very much. And we had commented on that on the last few calls that prices had stayed steady and hadn't moved. A 10% move feels a lot more than what it is if you look at the context of price movements over the last 5 years in the scrap market. So we're not -- this movement, we're not seeing impact our discussions with acquisition candidates, and I think that you should expect to see us in fiscal year 2012 continue on our strategy of making acquisitions in both our Metals Recycling Business and in our Auto Parts Business.

Okay. All right. And just one last one if I could. And if you had said this in the prepared remarks, I didn't catch it, but is share buyback somewhere on the list of potential uses of cash in the short-term?

Share buybacks have always been on our uses of cash. We did make some share repurchases in the fourth quarter. When we look at allocating our cash flow, we obviously look at growth first, because we are a growth Company. And that's both in terms of growth CapEx and acquisitions. We look at paying down debt, and we look at repurchasing shares, both to offset dilution and opportunistically. So we did do some buyback in the fourth quarter, but over the last 5 years, we've bought back quite a bit of stock.

Eric Glover, Canaccord.

I was wondering if you could comment on the operating margin performance in the Auto Parts Business this quarter? I don't believe that you mentioned it in the commentary. Why it decline sequentially.

Well, hi, Eric, it's Richard. Yes, it was 18% in the fourth quarter compared to 20% in the third and the reason is really a seasonal impact and due to hot weather in some of the regions where we're based it does have an impact seasonally on the amount of admissions in terms of folks coming into our yards and that then impacts the level of our parts sales and during that fourth quarter, which is the reason why our margin was slightly lower in the fourth quarter rather than the third, it's seasonal. But I would reflect that it was up very strong results and if you compare that to last year's fourth quarter -- last year's fourth quarter was actually up 15% margin, so we did a little better than last year, so we were very pleased.

Okay. Do you guys still think that, that's sort of long-term margin and that business is going to be sort of low 20% range?

Well, we're always seeking to improve and we have continuous improvement programs in all of our businesses. But we were very pleased with that 20% margin we have at the moment. But we're always seeking to improve it either through making more acquisitions or through further organic improvements in our existing operations.

And Eric, I think as Richard was saying, you'll see it move from quarter to quarter from a seasonal perspective with weather being the primary impact or influencer on that, but that's clearly around the range which we think is sustainable.

The low 20% range you're referring to?

Well, I think our average has been between 18% and 21%, I think was in Q4 in that range.

Yes. Okay. And then I'd like to get your comments on Sims expansion into Rhode Island. Previously I think you've said that there is shredding over capacity, it's a problem in certain markets. Really not the markets that you operate in, so I'm interested to know if you maintain that view now that Sims seems like they're going to install a mega shredder in Johnston, where you already have a facility?

Well, I think you're right, I think you have heard from us, that we are experiencing over capacity in the markets or the regions where we operate and our strategy is obviously to grow in regions where we don't create excess capacity. But as you're relating to what's going on in the northeast, we deal with competitors -- that competitor as well, every day in almost every region and we obviously believe we deal with our competitors successfully as our financial and operational performance is best in class in our peer group.

In the northeast, just to put in context for you, we have got a network of 13 facilities, we've been there since the mid 1960s. We've got a strong network of customers and community relationships, and actually that region has some of our most advanced facilities. So our strategy is based on entering regions that are under served and that are high growth and adding to our franchise platforms through synergistic acquisitions which we've done in the northeast quite successfully this past year. So we've been successful there and we expect that we'll be continuing to be successful.

I want to follow up. Have you, has the Company ever had a well capitalized competitor like Sims install a new mega shredder in a market in which you already operate?

We have competitors install shredders in, I mean, we've got strong well capitalized competitors in every region that we operate, so I'm not sure I can draw any further distinction between some quite well capitalized strong competitors. We've got all over the country. I think it comes down to how do you build your platform, how do you relate to your customers, how do you operate efficiently, and we, as I said, we've been competing for 105 years, and we think we've got a very strong business model, an excellent team, and together we've been able to deliver very strong results.

Torin Eastburn, CJS Securities.

My first question is on the volume guidance in MRB for ferrous. Can you provide any more detail on how the trend has been through the quarter and up to today, and also if, the trends you're seeing are any different by geography?

Yes. I'd be happy to. If we take a look at what's going on currently and maybe I'll just walk around the country for you if you'd like. If we start on the east coast, Turkey and you've probably seen these reports, Turkey after not buying has come back into the market and is active. I think there was a report recently issued that pointed to 5 or 6 region of sales, prices obviously dropped in October from recent peak, but inventories in Turkey are low. Their request is for prompt delivery, which affirms the understanding that we have that inventories are low, and longer term, Turkey is growing their steel making capacity via EAF, via electric arc furnaces and I think by 2015 their steel making capacity is supposed to increase by 20%. So they're in and out of the market. They were out, they're back in. We see that as an active market.

If I move to the west coast, sales prices there started strong in September, and they dropped in October. And we see our customers watching the market, but sales are occurring, I mean we've been selling with China all week this week. There is slower buying, and that is probably due to both the change in price that 10% movement that I was talking about that feels a lot stronger than it is analytically if you look over the last 5 or 6 years, and it was probably impacted by the volatile currency movements that we've seen as well. But bottom line is that business is being concluded on both sides of the market, albeit at levels that are below what they were in the peak.

All right. Thank you. Second question, your guidance for APB margins simply says that they'll decline, can you be any more specific at all?

Yes. I'll give a couple comments here a turn. APB will also be impacted by average inventory costing, just the drop in commodity prices, means that we are dropping our purchase prices for vehicles and it's that single lagging average that impacts us. So that together with the lower commodity prices themselves for scrap and cores are the reasons why we expect our margin to decline. But I would add that relative to last year, we should see higher volumes coming through, because of our acquisitions and consequently that will help to offset the effect of the declining margins in terms of our absolute profits.

All right. And last quick question, non-ferrous volumes this quarter were very good even accounting for the acquisitions, can you provide any detail on that? Thank you.

Yes. In terms of the non-ferrous volumes in the fourth quarter they were up 46 million pounds in Q3. In Q3 there was really two contributing factors for that. The first one was a continued incremental contribution from our acquisitions, which was about 20% of that increase. And then in addition, as a consequence of the strong supply inflows on the ferrous side, that means that we got more yield -- more non-ferrous yield from the shredding process, which was the remaining 80% of that increase, which then flowed through to these higher non-ferrous volumes.

Tim Hayes, Davenport & Company.

Two questions. On the guidance for the ferrous sales volumes for Q1 of 2012 approximating Q1 of last year, I guess on the surface I can take that, that means that, that might suggest that demand from emerging markets has slowed down noticeably. Is that true or what impact are you seeing from a weaker Euro, could that be also part of the reason for the sort of flattish ferrous sales volumes?

Well, let me address both of those. There are 2 questions or 2 comments embedded in your question. I think first, and we've said this before in other context, it's really important to look at volume growth and demand over more than one reporting period because you'll get ebbs and flows into the market at any point in time and that can effect timing of shipments, timing of orders and just what volumes looks like. So I think that while our Q1 outlook is always weaker -- the shape of our revenues and earnings is always one that has more power if you will in the second, third and fourth quarters because customers keep their inventories low and since the global financial crisis they've been keeping their inventories even lower, and that's probably expected through the calendar year-end for obvious reasons.

So I think that you shouldn't -- I wouldn't draw a long-term conclusion by this issue of sort of weaker demand in the middle of this quarter, and I'd take a look at what we're saying in terms of what we expect in fiscal year 2012. If I just address your currency questioning, or question, the strengthening of the dollar clearly has a short-term impact, but demand for ferrous scrap has to come to the US to be filled both for quantity and for quality. And so the question isn't whether you're in the queue and you've probably heard me say this before, so I apologize, but the question isn't whether you're in the queue, but where you are in the queue. Our bottom line, vis-a-vis the currency movement is that we think markets have adjusted to the new currency levels and we don't see a significant impact from that.

Okay. Second question is the recent rise in the freight rates, how is that sort of embedded into your, the first quarter guidance if it is, and what impact do you expect it to have?

Well not a lot. Freight's up a $1 or $2. The ships are, there's good availability. So we're not seeing a big impact from that.

Brent Thielman, D.A. Davidson.

Tamara, I guess just one more on the Q1 guidance for Metals Recycling. We're in mid October now, so presumably you've got some pretty good visibility on volumes for the quarter, would you say there are still opportunities to fill some scheduling holes at this point so to speak which might potentially provide some upside to your expectation?

Well, we've got sort of the same flow or same position that we normally have at this point. I think that we're giving you the guidance that we see at this point. The market's fluid and so it can turn pretty quickly, and our guidance today is the best that we can see at this point in time.

Okay.

What's interesting to us is what I mentioned before which is inventories are low off the east coast. We're looking at prompt delivery and we believe the inventories are low at many of our customers. And moving into the winter months where scrap starts to tighten for weather reasons and there's obviously the Black Sea in Russia deliveries get curtailed, we anticipate that with the onset of the winter, that typically results in upward pressure on volumes and prices because of the impact on flows.

Okay. Thanks for that. And then just given, I'd say sort of the relatively optimistic view of what you're seeing out there, how willing are you to sacrifice a little market share right now in anticipation of maybe a little bit of short-term pressure in the market but maybe some stronger pricing to come?

We don't speculate. I mean, if that's what you're asking, is whether we're going to take positions and speculate on the market, we don't speculate. We're quite focused on high inventory turns, adjusting prices to align with market demand, and -- so you see us returning quite consistent improvement in revenues, profits, cash flow, and earnings. That's how we run our business and I think we've been quite successful in doing so for many years and I think you saw us recovering more quickly than others, since the global financial crisis and I think this year's performance is a great reflection on our business platform and our business processes.

Okay. And then just on the Auto Parts Business, any sort of feel for admissions trends at your stores in the last few months or customers responding any differently to the macro environment in any way?

Well, admissions for fiscal year 2011 were about 5.5 million visits, which is extremely strong, and that business is a really interesting business because obviously in weaker economic environments, it drives admissions and part sales and in stronger economic environments, that would usually mean scrap prices and core prices are higher, you get that benefit. So we see continued growth in that business. Strong margins and we're looking to grow that business significantly.

Evan Kurtz, Morgan Stanley.

Just a question on sorting technology. From your guidance it sounds like your non-ferrous will be up 20% over the first quarter last year, on technology and acquisitions. Is that ratio that we're looking at now for ferrous and non-ferrous in the first quarter, is that a run rate or is there still more improvements that we can see as we move forward?

I think there's more improvements we can see as we move forward, Evan, because as you know during fiscal 2011 we were actually bringing these new technologies online during the year, and actually on average we had them online for only half a year. So when we stand back and look at our growth in non-ferrous sales from fiscal 2010 to fiscal 2011, they were actually up, and around 90 million pounds all of which -- around just over half of that came from the acquisitions, which we also only had for around just over half a year, about 7 months on average. Then all of the remainder, about half of that came from benefits from the new technology, so we're actually seeing quite a runway going forwards, and because of this part year effect we've had in fiscal 2011 we'll get the full year benefit in fiscal 2012.

Right, no, I get the average year certainly would be higher. Is the first quarter representative of the -- what you think the ratios will be for the full fiscal 2012 year, as far as ferrous to non-ferrous?

Ferrous to non-ferrous, in terms -- I don't think so in particular. I think you need to look at the annual performance in fiscal 2011 versus fiscal 2010, and then you need to look at the total increase in volumes from one to the other. I can give you the figures, non-ferrous just to repeat, of the 90 million increase in pounds, 50 million came from acquisitions and then the remainder came from additional non-ferrous either through purchasing or from the new technology. And on the ferrous side of things, in fiscal 2011, we had from our acquisitions 341,000 tons, of which 180,000 were incremental to our business. And if you remember from our previous call, we did see that in terms of our acquisitions we have purchased an annual amount of 625,000 ferrous tons of which 40% were incremental. And we had purchased just short of 100 million annualized non-ferrous tons all of which were incremental. So based on what we've delivered for the part year, in fiscal 2011 we're feeling as if we're very much on track in terms of delivering these additional annualized volumes. We think that's a good way to look at it rather than just focusing on Q1.

Okay. All right. Thank you. Also, just another question kind of on timing of price movements, and I know there's a couple of earlier questions on this but just so I'm clear. When we see prices fall, both ferrous and non-ferrous when does that actually start to impact earnings? I'm assuming that you're arranging, locking in prices, you don't actually book them until your FOB, what's generally the timing on that?

Well, in terms of -- well, what we do is, we adjust our purchase prices immediately against the forward market for sales and this is why we'll see in the first quarter, this adverse impact of averaging inventory costing because the accounting is based on the average and the average can't fall as quickly as the actual cash prices. Cash purchase prices fall, so the answer is, we adjust our cash prices immediately, but we have an earnings hit in the first quarter because the average inventory cost can't fall so quick. I think if we could go back to my slide, and I showed earlier on, on our cash flowed trends, which shows that we've been fairly good at managing this type of thing over the years in varying economic environments, because if you look in the last 5 years we have fairly strong positive cash flows every year and as we know we've had varying economic environments during that time.

And with that, that concludes our time for questions-and-answers. I'd like to turn the program back over to Ms Lundgren for any closing remarks.

Thank you. Thank you everyone for joining our call today. We appreciate your questions and interest in our Company. And we look forward to speaking to you in January. Thank you.

Ladies and gentlemen, this does conclude today's program, thank you for your participation and have a wonderful day.