Metal Management Inc.: Buying, Selling To Manage Growth

May 16, 2006
Scrap metal recycler looks past a tough third quarter with plans to continue making capital investments.

Scrap metal recycler Metal Management Inc. is poised to expand and increase production through acquisitions, capital investments and operations consolidation. The Chicago-based company -- one of IndustryWeek's IW 50 Best Manufacturers for 2006 -- has positioned itself for future purchases by receiving a five-year $300 million credit line from a consortium of lenders headed by LaSalle Bank N.A., the company said in a May 10 statement. The credit will be used to provide Metal Management with the flexibility to pursue various capital investments, including acquisitions, dividends or share repurchases.

Earlier in the year, the company purchased Morris Recycling Inc., a privately held recycler with 10 operating facilities, including a shredding plant on the Mississippi River, Metal Management said in a March 1 statement. At the time of the acquisition, Morris Recycling was handling approximately 240,000 tons of ferrous metals and 32 million pounds of nonferrous metals annually. The purchase will allow Metal Management to further serve the Mid-South region, according to Daniel Dienst, chairman, president and CEO of Metal Management.

"The Morris assets fit neatly into our existing footprint in the Mid-South region and advance our ambition to make Metal Management the largest, strongest and most-profitable scrap-metal recycler in North America," said Dienst in the March 1 statement. "We expect that this acquisition will be accretive to Metal Management's earnings per share and will provide us with additional facilities from which to serve our important customers and consumers."

Metal Management, Inc.
At A Glance

Metal Management, Inc.
Chicago, Ill.
Primary Industry: Primary Metals
Number of employees: 1,600
2004 In Review
Revenue: $1.7 billion
Profit Margin: 5.42%
Sales Turnover: 3.55
Inventory Turnover: 16.55
Revenue Growth: 57.09%
Return On Assets: 22.7%
Return On Equity: 45.48%
The buyout announcement came one month after Metal Management reported that profits declined 48% during the third quarter of 2006 from the year-earlier period. The company posted a profit of $15.3 million, or 60 cents per share, compared with $29.5 million, or $1.19 per share, in third-quarter 2005. The company attributed the profit loss to "a volatile pricing environment in the U.S. and weak international demand."

In the same statement, the company noted that it's engaged in a long-term strategy to improve the efficiency and profitability of its Chicago-area scrap yards. As part of that plan, the company has consolidated certain processing activities and increased utilization. The consolidation efforts resulted in a $1 million asset impairment charge in the third quarter.

Some of the company's capital investments during the third quarter include the installation of a metal analyzer in Memphis and state-of-the-art metal recovery technology at six shredding facilities, according to Dienst. The company's third-quarter capital investments totaled approximately $22 million, Dienst said. Depending on when a planned land purchase takes place to expand an existing facility, the company estimates total capital expenditures in 2006 to be between $30 million and $40 million..

"While prudently evaluating external investment opportunities, we intend to invest in technologies and other initiatives to increase the efficiency of our operations, retur n on capital to our shareholders through our dividend program and evaluate appropriate acquisition opportunities," Dienst said in a Feb. 2 statement.

During the third quarter, the company also sold its stake in Southern Recycling LLC, a recycler based in Covington, La., with 15 facilities in Louisiana, Alabama, Mississippi and Florida. Metal Management sold its 28.5% interest in Southern Recycling to European Recycling LLC for $161.4 million.

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"EMR's valuation presented an outstanding opportunity to realize a significant and immediate cash return on Metal Management's investment in Southern Recycling," Dienst said after the transaction was completed.

Southern Recycling incurred damages from Hurricane Katrina and was operating at 80% capacity shortly after the storm.

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