Globe Specialty Metals announces operating results

Nov. 18, 2010 - Globe Specialty Metals Inc has a market cap of USD 1.22 billion its shares were traded at around USD 16.39 with a P/E ratio of 44.3 and P/S ratio of 2.6. The dividend yield of Globe Specialty Metals Inc stocks is 1%.
GSM is in the portfolios of Ron Baron of Baron Funds, NWQ Managers of NWQ Investment Management Company, Pioneer Investments, Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates.
Highlight of Business Operations:
Income before provision for income taxes totaled USD 7,212,000 in the quarter ended September 30th 2010 and included start up costs described above of approximately USD 3,200,000. This compares to income before provision for income taxes in the preceding quarter ended June 30th 2010 of USD 7,959,000 which included a pre tax loss of USD 3,192,000 from the sale of our Brazilian manufacturing operations, USD 1,625,000 pre tax gain from a retroactive power price adjustment, pre tax transaction costs of USD 140,000 and pre tax start up costs of USD 3,105,000.
Net sales increased USD 31,894,000 or 30% from the prior year to USD 137,352,000 primarily as a result of 46% increase in metric tons sold offset by 13% decline in our average selling price. The increase in metric tons sold resulted in an increase in net sales of USD 40,447,000 and was related to 13% increase in silicon metal and 106% increase in silicon based alloy metric tons sold. Silicon metal volume sold was higher due to increased demand which led us to reopen our Niagara Falls, New York facility in November 2009, which contributed approximately 4,400 tonnes and our Selma, Alabama facility in January 2010 which contributed approximately 4,000 tonnes sold during the Q1 of fiscal year 2011. These increases were offset by the decrease in volume due to the timing of the sale of our Brazilian manufacturing operations on November 5th 2009.
Subsequent to this divestiture, remaining Globe Metais sales relate only to the fulfillment of certain retained customer contracts with product purchased from our former Brazilian manufacturing operations at a purchase price equal to our sales price. The increase in silicon based alloy volume includes the impact of the Core Metals Group Holdings LLC acquisition which contributed approximately 10,500 tonnes of ferrosilicon in fiscal year 2011. Additionally, end market demand for ferrosilicon and magnesium ferrosilicon increased in the Q1 of fiscal year 2011 due to the economic recovery, particularly in steel and automotive production. The decline in average selling price resulted in decreased net sales of approximately USD 13,089,000 and was a result of 12% decrease in the average selling price of silicon based alloys and a 7% decrease in the average selling price of silicon metal.
The decline in silicon-based alloy pricing was due to the acquisition of Core Metals in the fourth quarter of fiscal year 2010 which resulted in a mix shift towards the production of ferrosilicon which is our lowest priced alloy and also has the lowest cost of production. The decrease in silicon metal pricing was primarily due to the impact of shipping 49% of our Alloy joint venture output at cost to Dow Corning Corporation, offset by favorable annual contracts and higher spot pricing in the Q1 of fiscal year 2011. Other revenue increased by USD 4,536,000 as a result of USD 4,548,000 of other sales from Core Metals in the Q1 of fiscal year 2011.
The decrease in selling, general and administrative expenses of USD 512,000 or 4% was due to a decrease of approximately USD 1,621,000 at Globe Metais due to the timing of the sale of our Brazilian manufacturing operations as well as a decrease of USD 287,000 and USD 826,000 in bonus and salary expense at GMI and Corporate, respectively, offset by the impact of the acquisition of Core Metals which increased expense by USD 755,000 and an increase in audit and other professional fees including Sarbanes Oxley Act compliance related expenditures and due diligence costs of USD 819,000 and USD 172,000 respectively at Corporate. Additionally, travel costs increased by approximately USD 307,000 at Corporate and GMI primarily to support the reopened Niagara Falls and Selma plants, as well as the acquired Core Metals business.
Other income decreased by USD 2,476,000 due primarily to a foreign exchange gain of USD 2,645,000 at Globe Metais in the Q1 of fiscal year 2010. The foreign exchange gain at Globe Metais consisted of foreign exchange gains of USD 1,829,000, primarily associated with the revaluation of long term reais denominated tax liabilities and a gain of USD 816,000 on our foreign exchange forward contracts. These foreign exchange fluctuations no longer occur following the sale of our Brazilian manufacturing operations on November 5th 2009. The impact of this prior year gain was offset by a year over year increase in income from GMI s Norchem affiliate of USD 193,000.
Operating income decreased by USD 767,000 from the prior year quarter to USD 12,098,000. This decrease was primarily due to lower average selling prices for silicon-based alloys. Cost of goods sold increased by 85% while volumes increased by only 77%. This caused an increase in the cost per ton sold, which reflects start up costs of approximately USD 3,200,000 at our Niagara Falls plant. The addition of Core Metals contributed USD 755,000 to selling, general and administrative expenses in the Q1 of fiscal year 2011 and the reopening of the Niagara Falls plant resulted in increased travel expenses at GMI.
Operating income decreased by USD 2,075,000 or 102% from the prior year to USD 43,000. The decrease was primarily due to the timing of the sale of our Brazilian manufacturing operations which led to lower sales volumes, as well as the impact of reduced margins on the sale of product purchased from our former Brazilian manufacturing operations. Selling, general and administrative expenses decreased by USD 1,621,000 primarily due to the timing of the sale of our Brazilian manufacturing operations on November 5th 2009.