Shares in scrap metal processor, Sims Metal fell 12% at one stage yesterday after it warned that first-quarter earnings would be a bit light on.
The company told the ASX in a brief update that earnings for the first quarter of 2018-19 will be between $58 million and $63 million, which is lower than the final quarter of the previous year.
But the company said the result “would be a significant improvement over 1Q FY18 underlying EBIT of $45 million, but less than 4Q FY18.”
The shares fell to a low of $11.80 for the day before recovering to end at $11.86, down 10.6%.
Sims is blaming its 50-50 joint venture US-based SA Recycling (SAR) which will deliver earnings $10 million to $15 million lower this quarter.
Sims says SA’s intake is lower than expected and Zorba sales are down. (Zorba is a mix of shredded and pre-treated non-ferrous scrap metals)
SA Recycling is installing new equipment to try and produce a higher quality Zorba.
“Two main issues are driving SAR’s lower than anticipated earnings in the current quarter.
“Firstly, while intake volumes for 1Q FY19 are higher than 1Q FY18, they are lower than 4Q FY18 and lower than expected.
“Trading volatility within, and between, quarters is not unusual, and it does not inevitably lead to a full year impact. A number of initiatives are being pursued to increase volumes in SAR’s catchment areas over the balance of FY19.
“Secondly, Zorba sales have posed a challenge to SAR in the current market. To counteract this, SAR has commenced installing upgraded equipment, enabling it to produce a higher quality Zorba, which will assist in facilitating sales in the current market. The equipment is expected to be operational before 31 December 2018,” the company said yesterday.
A further update on trading conditions and outlook will be provided at the Company’s 2018 Annual General Meeting on November 8.
