Steel Dynamics Reports Fourth Quarter and Annual 2017 Results
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FORT WAYNE, Ind., Jan. 22, 2018 /PRNewswire/ --

Annual 2017 Results:

  • Record company-wide safety performance
  • Record steel shipments of 9.7 million tons
  • Record fabrication shipments of over 627,000 tons
  • Record net sales of $9.5 billion
  • Record operating income of $1.1 billion and pretax income of $935 million
  • Record EBITDA of $1.4 billion

Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced fourth quarter and annual 2017 financial results.  The company reported fourth quarter 2017 net sales of $2.3 billion and net income of $305 million, or $1.28 per diluted share, which includes the following items:

  • Lower pretax earnings of $7 million, or $0.02 per diluted share, related to debt refinancing and repayment charges,
  • Lower pretax earnings of approximately $27 million, or $0.07 per diluted share, related to the company's two flat roll division planned outages, which resulted in higher costs and lower value-add shipments, as indicated in the company's December 15, 2017 guidance press release,
  • A tax benefit of approximately $16 million, or $0.07 per diluted share, related to certain discrete valuation allowance reductions, state tax refunds and equity-based compensation, and  
  • An additional one-time tax benefit of $181 million, or $0.76 per diluted share, resulting from the company's revaluation of its deferred tax assets and liabilities in connection with the recently enacted U.S. Federal "Tax Cuts and Jobs Act of 2017" (TCJA).  The company currently estimates the related reduction in its corporate tax rate will result in an effective tax rate of between 24 percent and 25 percent for 2018.

Comparatively, prior year fourth quarter net sales were $1.9 billion, with net income of $20 million, or $0.08 per diluted share, which included non-cash goodwill and asset impairment charges of $0.31 per diluted share and debt refinancing and repayment charges of $0.04 per diluted share.  Sequential third quarter 2017 net sales were $2.4 billion, with net income of $153 million, or $0.64 per diluted share, which includes debt refinancing and repayment charges of $0.02 per diluted share. 

Annual 2017 net income was $813 million, or $3.36 per diluted share.  Excluding the one-time TCJA tax benefit and debt refinancing costs, the company still achieved record annual net income of $641 million, or $2.65 per diluted share.  Comparatively, annual 2016 net income was $382 million, or $1.56 per diluted share.  Excluding charges related to litigation settlements, non-cash goodwill and asset impairment, and debt refinancing, annual 2016 adjusted net income was $472 million, or $1.92 per diluted share.

"The performance of the entire Steel Dynamics team was exceptional this year," said Mark D. Millett, President and Chief Executive Officer.  "We performed at the top of our industry, both operationally and financially, and most importantly, we did it safely.  We achieved numerous annual records, including steel and fabrication shipments, operating income of $1.1 billion, and EBITDA of $1.4 billion.  Based on our strong cash flow generation from operations of $740 million in 2017, we maintained near-record liquidity of over $2.2 billion, while simultaneously investing in our company through organic growth, a sustained positive dividend profile and the continuation of our share repurchase program.  We have a firm foundation for our continued growth. In recognition of the team's tremendous achievements during the year, we were pleased to award each non-executive employee a special cash performance bonus in December which totaled $7 million.  

"In spite of the continuation of elevated levels of steel imports, which were over 15 percent higher than in 2016," continued Millett, "the domestic steel industry benefited in 2017 from an improvement in underlying demand, as the automotive sector remained strong, and the construction and energy sectors continued to improve.  Our steel operations achieved record annual operating income of $1.1 billion.  Supported by improved domestic steel utilization, the metals recycling team maintained volume, increased metal spread and reduced costs throughout the year, resulting in annual 2017 operating income of $85 million, more than double last year's performance. 

"Our fabrication platform also had a solid year with annual 2017 operating income of $87 million, achieving record shipments which substantially offset margin compression caused by higher average raw material steel costs," said Millett. "Our fabrication order backlog and customer sentiment remains strong.  We believe this is a positive indication that the non-residential construction market is continuing to strengthen."

Fourth Quarter 2017 Comments

Fourth quarter 2017 operating income for the company's steel operations decreased 26 percent to $207 million sequentially, based on a four percent decline in shipments, product mix shift, and metal spread compression.  During October, the company successfully completed an equipment upgrade and facility expansion at the Butler Flat Roll Division and an equipment upgrade with additional value-add product opportunities at the Columbus Flat Roll Division.  However, the longer than typical planned outages resulted in higher costs and lower value-add shipments, reducing fourth quarter 2017 pretax earnings by approximately $27 million.  The company's average overall steel product price decreased more than consumed raw material scrap costs, resulting in steel metal spread compression.  The fourth quarter 2017 average product selling price for the company's steel operations decreased $17 to $761 per ton.  The average ferrous scrap cost per ton melted decreased $5 to $300 per ton. 

Fourth quarter 2017 operating income attributable to the company's flat roll products decreased 30 percent when compared to the sequential third quarter, based on lower shipments, the prolonged outages, and metal spread compression.  Operating income from long products decreased eight percent as a result of lower shipments, as merchant steel volumes remained under pressure from prefabricated steel imports and excess domestic production capability.  Prefabricated steel imports increased more than 80 percent in a five year timeframe.  The company's steel production utilization rate was 89 percent in the fourth quarter 2017, compared to 92 percent in the sequential third quarter and compared to the domestic industry utilization rate of approximately 73 percent.    

Fourth quarter 2017 operating income from the company's metals recycling operations was $22 million, compared to $21 million in the sequential third quarter.  Despite decreased shipments and lower average quarterly ferrous pricing, ferrous metal spread remained steady and non-ferrous metal spread improved.

The company's fabrication operations fourth quarter 2017 operating income was $22 million, consistent with sequential third quarter results.  The fabrication group achieved another quarter of record shipments and maintains a strong order backlog. 

During the second half of 2017, the company successfully refinanced $350 million of senior notes, reducing its ongoing interest burden, extending its debt maturity profile, and further supporting continued growth.  These actions reduced third and fourth quarter 2017 pretax income by $8 million and $7 million, respectively, due to the required call premium and other associated finance expenses, and are expected to provide an estimated annual interest savings of approximately $8 million.

Annual 2017 Comparison

Annual 2017 net sales were a record $9.5 billion compared to $7.8 billion in 2016.  Each of the company's three operating platforms achieved higher average annual selling values and the steel and fabrication operating platforms also each achieved record shipments.  Annual 2017 operating income was a record $1.1 billion compared to adjusted 2016 operating income of $861(which excludes non-cash goodwill and asset impairment charges of $133 million).  The improvement in annual earnings resulted from record results for the company's steel operations and significant increase in the metals recycling financial performance.  The average 2017 selling price for the company's steel operations increased $107 to $765 per ton.  The average 2017 ferrous scrap cost per ton melted increased $73 to $293 per ton.  

Outlook   

"We remain confident that current and anticipated macroeconomic and market conditions are in place to benefit domestic steel consumption in 2018," said Millett.  "Domestic steel inventory levels have moderated.  World steel demand and pricing have structurally improved and domestic steel demand remains healthy.  We believe North American automotive steel consumption will be steady, and we continue to gain momentum in that sector.  We also believe that there will be continued additional growth in the construction and energy sectors.  We believe the recent tax reform will also provide a stimulus for additional domestic fixed asset investment and growth.  In combination with our own SDI expansion initiatives, we believe there are firm drivers for growth in 2018."

"We continue to strengthen our financial position through strong cash flow generation and the execution of our long-term strategy. We are well-positioned for growth, and remain focused on delivering shareholder value through organic and strategic growth opportunities," concluded Millett.

Conference Call and Webcast

Steel Dynamics, Inc. will hold a conference call to discuss fourth quarter and annual 2017 operating and financial results on Tuesday, January 23, 2018, at 10:00 a.m. Eastern Time.  You may access the call and find dial-in information on the Investors section of the company's website at www.steeldynamics.com.  A replay of the call will be available on our website until 11:59 p.m. Eastern Time on January 28, 2018.

About Steel Dynamics, Inc.

Steel Dynamics, Inc. is one of the largest domestic steel producers and metals recyclers in the United States based on estimated annual steelmaking and metals recycling capability, with facilities located throughout the United States, and in Mexico.  Steel Dynamics produces steel products, including hot roll, cold roll, and coated sheet steel, structural steel beams and shapes, rail, engineered special-bar-quality steel, cold finished steel, merchant bar products, specialty steel sections and steel joists and deck.  In addition, the company produces liquid pig iron and processes and sells ferrous and nonferrous scrap.

Note Regarding Non-GAAP Financial Measures

The company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). Management believes that Adjusted Operating Income, Adjusted Net Income, Adjusted Diluted Earnings Per Share, EBITDA and Adjusted EBITDA, non-GAAP financial measures, provide additional meaningful information regarding the company's performance and financial strength. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the company's reported results prepared in accordance with GAAP.  In addition, because not all companies use identical calculations, EBITDA included in this release may not be comparable to similarly titled measures of other companies.

Forward-Looking Statements

This press release contains some predictive statements about future events, including statements related to conditions in the steel and metallic scrap markets, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new or existing facilities. These statements, which we generally precede or accompany by such typical conditional words as "anticipate," "intend," "believe," "estimate," "plan," "seek," "project" or "expect," or by the words "may," "will," or "should," are intended to be made as "forward-looking," subject to many risks and uncertainties, within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These statements speak only as of this date and are based upon information and assumptions, which we consider reasonable as of this date, concerning our businesses and the environments in which they operate. Such predictive statements are not guarantees of future performance, and we undertake no duty to update or revise any such statements. Some factors that could cause such forward-looking statements to turn out differently than anticipated include: (1) the effects of uncertain economic conditions; (2) cyclical and changing industrial demand; (3) changes in conditions in any of the steel or scrap-consuming sectors of the economy which affect demand for our products, including the strength of the non-residential and residential construction, automotive, appliance, pipe and tube, and other steel-consuming industries; (4) fluctuations in the cost of key raw materials (including steel scrap, iron units, and energy costs) and our ability to pass-on any cost increases; (5) the impact of domestic and foreign import price competition; (6) unanticipated difficulties in integrating or starting up new or acquired businesses; (7) risks and uncertainties involving product and/or technology development; and (8) occurrences of unexpected plant outages or equipment failures.

More specifically, we refer you to Steel Dynamics' more detailed explanation of these and other factors and risks that may cause such predictive statements to turn out differently, as set forth in our most recent Annual Report on Form 10-K under the headings Special Note Regarding Forward-Looking Statements and Risk Factors, in our quarterly reports on Form 10-Q or in other reports which we from time to time file with the Securities and Exchange Commission. These are available publicly on the SEC website, www.sec.gov, and on the Steel Dynamics website, www.steeldynamics.com: Investors: SEC Filings.

 

 

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

















Three Months Ended


Year Ended


Three Months


December 31,


December 31,


Ended


2017


2016


2017


2016


September 30, 2017
















Net sales

$

2,336,479


$

1,910,596


$

9,538,797


$

7,777,109


$

2,443,382

Costs of goods sold


2,015,655



1,600,654



7,956,783



6,442,245



2,046,864

      Gross profit


320,824



309,942



1,582,014



1,334,864



396,518
















Selling, general and administrative expenses


96,209



94,110



394,631



374,009



97,056

Profit sharing


21,595



19,563



91,309



71,285



21,175

Amortization of intangible assets


7,073



7,406



29,193



28,765



7,272

Asset impairment charge


-



132,839



-



132,839



-

      Operating income


195,947



56,024



1,066,881



727,966



271,015
















Interest expense, net of capitalized interest


32,380



36,149



134,399



146,037



34,177

Other expense (income), net


2,215



17,055



(2,753)



17,796



2,526

      Income before income taxes


161,352



2,820



935,235



564,133



234,312
















Income tax expense (benefit)


(141,819)



(1,012)



129,439



204,127



83,300

      Net income


303,171



3,832



805,796



360,006



151,012

Net loss attributable to noncontrolling interests


1,562



16,180



6,945



22,109



2,246

      Net income attributable to Steel Dynamics, Inc.

$

304,733


$

20,012


$

812,741


$

382,115


$

153,258































Basic earnings per share attributable to















   Steel Dynamics, Inc. stockholders

$

1.28


$

0.08


$

3.38


$

1.57


$

0.64
















Weighted average common shares outstanding


237,177



243,687



240,132



243,576



239,066
















Diluted earnings per share attributable to















   Steel Dynamics, Inc. stockholders, including the effect















   of assumed conversions when dilutive

$

1.28


$

0.08


$

3.36


$

1.56


$

0.64
















Weighted average common shares















   and share equivalents outstanding


238,677



245,511



241,781



245,298



240,880































Dividends declared per share

$

0.155


$

0.1400


$

0.620


$

0.5600


$

0.155

 

 

Steel Dynamics, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands)









December 31,



December 31,

Assets

2017



2016


(unaudited)





Current assets







   Cash and equivalents

$

1,028,649



$

841,483

   Accounts receivable, net


868,837




729,784

   Inventories


1,519,347




1,275,211

   Other current assets


91,509




83,197

      Total current assets


3,508,342




2,929,675








Property, plant and equipment, net


2,675,904




2,787,215








Restricted cash


16,939




18,060








Intangible assets, net


256,909




283,977








Goodwill


386,893




393,351








Other assets


10,745




11,454

      Total assets

$

6,855,732



$

6,423,732

Liabilities and Equity







Current liabilities







   Accounts payable

$

489,448



$

395,196

   Income taxes payable


3,696




5,593

   Accrued expenses


346,580




308,394

   Current maturities of long-term debt


28,795




3,632

      Total current liabilities


868,519




712,815








Long-term debt


2,353,145




2,353,194








Deferred income taxes


305,949




448,375








Other liabilities


21,811




20,649

      Total liabilities


3,549,424




3,535,033








Commitments and contingencies














Redeemable noncontrolling interests


111,240




111,240








Equity







   Common stock


644




641

   Treasury stock, at cost


(665,297)




(416,829)

   Additional paid-in capital


1,141,534




1,132,749

   Retained earnings


2,874,693




2,210,459

      Total Steel Dynamics, Inc. equity


3,351,574




2,927,020

   Noncontrolling interests


(156,506)




(149,561)

      Total equity


3,195,068




2,777,459

      Total liabilities and equity

$

6,855,732



$

6,423,732

 

 

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)














Three Months Ended


Year Ended


December 31,


December 31,


2017


2016


2017


2016













Operating activities:












   Net income

$

303,171


$

3,832


$

805,796


$

360,006













   Adjustments to reconcile net income to net cash provided by












      operating activities:












      Depreciation and amortization


74,931



73,139



298,999



296,109

      Asset impairment charge


-



132,839



-



132,839

      Equity-based compensation


11,639



10,069



36,197



31,656

      Deferred income taxes


(153,748)



(33)



(135,899)



53,846

      Other adjustments


6,013



17,450



14,068



20,676

      Changes in certain assets and liabilities:












         Accounts receivable


54,179



43,193



(139,054)



(106,617)

         Inventories


(31,157)



(13,236)



(242,883)



(115,575)

         Other assets


5,891



198



4,188



12,053

         Accounts payable


(37,189)



(10,699)



96,062



106,521

         Income taxes receivable/payable


(39,692)



(54,881)



(33,889)



(13,921)

         Accrued expenses


(2,037)



5,536



36,021



75,176

      Net cash provided by operating activities


192,001



207,407



739,606



852,769













Investing activities:












   Purchases of property, plant and equipment


(37,189)



(74,992)



(164,935)



(198,160)

   Acquisition of businesses, net of cash acquired


(674)



(14,286)



(6,192)



(123,351)

   Other investing activities


1,636



2,851



32,022



8,618

      Net cash used in investing activities


(36,227)



(86,427)



(139,105)



(312,893)













Financing activities:












   Issuance of current and long-term debt


118,593



400,000



620,041



473,903

   Repayment of current and long-term debt


(278,575)



(656,855)



(609,914)



(728,993)

   Dividends paid


(36,728)



(34,128)



(145,565)



(135,767)

   Purchase of treasury stock


(15,088)



(25,034)



(252,242)



(25,034)

   Other financing activities


(17,291)



(14,969)



(25,655)



(9,534)

      Net cash used in financing activities


(229,089)



(330,986)



(413,335)



(425,425)













Increase (decrease) in cash and equivalents


(73,315)



(210,006)



187,166



114,451

Cash and equivalents at beginning of period


1,101,964



1,051,489



841,483



727,032

Cash and equivalents at end of period

$

1,028,649


$

841,483


$

1,028,649


$

841,483

























Supplemental disclosure information:












   Cash paid for interest

$

55,226


$

53,074


$

135,381


$

150,679

   Cash paid for income taxes, net

$

49,701


$

55,826


$

296,493


$

159,950

 

 

Steel Dynamics, Inc.

SUPPLEMENTAL INFORMATION

(dollars in thousands)


























Fourth Quarter



Year to Date













2017



2016



2017



2016



1Q 2017



2Q 2017



3Q 2017

External Net Sales







   Steel


$

1,669,384


$

1,393,329


$

6,931,764


$

5,634,711


$

1,721,333


$

1,758,242


$

1,782,805

   Fabrication



220,515



173,015



823,782



701,041



194,096



197,866



211,305

   Metals Recycling



354,460



282,783



1,410,040



1,169,342



363,836



343,529



348,215

   Other



92,120



61,469



373,211



272,015



88,951



91,083



101,057

Consolidated


$

2,336,479


$

1,910,596


$

9,538,797


$

7,777,109


$

2,368,216


$

2,390,720


$

2,443,382























Operating Income






















   Steel


$

207,358


$

217,778


$

1,113,884


$

941,126


$

352,423


$

273,818


$

280,285

   Fabrication



21,601



17,766



87,459



91,167



23,767



20,188



21,903

   Metals Recycling



22,379



9,511



84,826



40,304



21,341



19,988



21,118

       Metals Recycling Impairment Charge



-



(5,500)



-



(5,500)



-



-



-

Operations



251,338



239,555



1,286,169



1,067,097



397,531



313,994



323,306























   Non-cash Amortization of Intangible Assets



(7,073)



(7,406)



(29,193)



(28,765)



(7,424)



(7,424)



(7,272)

   Profit Sharing Expense



(21,595)



(19,563)



(91,309)



(71,285)



(27,231)



(21,308)



(21,175)

   Non-segment Operations



(26,723)



(29,223)



(98,786)



(111,742)



(28,310)



(19,909)



(23,844)

       Minnesota Impairment Charge



-



(127,339)



-



(127,339)



-



-



-

Consolidated Operating Income



195,947



56,024



1,066,881



727,966



334,566



265,353



271,015























   Non-cash Impairment Charge



-



132,839



-



132,839



-



-



-

Adjusted Operating Income


$

195,947


$

188,863


$

1,066,881


$

860,805


$

334,566


$

265,353


$

271,015























Adjusted EBITDA






















      Earnings Before Taxes


$

161,352


$

2,820


$

935,235


$

564,133


$

304,252


$

235,319


$

234,312

      Net Interest Expense



28,990



34,752



124,250



141,148



32,333



31,629



31,298

      Depreciation



66,460



64,199



264,317



261,281



66,269



65,014



66,574

      Amortization of Intangible Assets



7,073



7,406



29,193



28,765



7,424



7,424



7,272

      Non-controlling Interest



1,562



16,180



6,945



22,109



2,152



985



2,246

 EBITDA



265,437



125,357



1,359,940



1,017,436



412,430



340,371



341,702

      Non-cash Adjustments






















         Unrealized Hedging (Gain) Loss



7,325



(143)



4,688



484



(637)



724



(2,724)

         Inventory Valuation


198



154



2,955



986



162



2,359



236

         Asset Impairment Charge


-



119,764



-



119,764



-



-



-

         Equity-based Compensation



11,636



10,069



34,560



30,230



9,074



6,975



6,875

         Financing Expenses



1,242



3,104



2,635



3,104



-



-



1,393

Adjusted EBITDA


$

285,838


$

258,305


$

1,404,778


$

1,172,004


$

421,029


$

350,429


$

347,482























Other Operating Information






















   Steel






















      Average External Sales Price (Per ton)


$

761


$

680


$

765


$

658


$

743


$

779


$

778

      Average Ferrous Cost (Per ton melted)


$

300


$

220


$

293


$

220


$

264


$

303


$

305























      Flat Roll Shipments



1,659,049



1,565,157



6,865,413



6,631,089



1,735,954



1,737,404



1,733,006

      Long Product Shipments






















         Structural and Rail Division



339,597



319,265



1,339,558



1,299,551



350,555



311,421



337,985

         Engineered Bar Products Division



191,652



134,262



757,027



507,163



192,140



180,787



192,448

         Roanoke Bar Division



107,319



112,007



470,071



496,808



125,869



116,231



120,652

         Steel of West Virginia



66,724



75,453



294,908



311,335



77,229



76,054



74,901

Shipments (Tons)



2,364,341



2,206,144



9,726,977



9,245,946



2,481,747



2,421,897



2,458,992























External Shipments (Tons)



2,184,135



2,041,078



9,015,013



8,558,331



2,305,080



2,246,569



2,279,229























         Steel Production (Tons)



2,437,851



2,237,200



9,995,082



9,503,465



2,544,082



2,476,159



2,536,990























   Metals Recycling






















      Nonferrous Shipments (000's of pounds)



271,036



274,790



1,086,799



1,103,505



283,603



270,444



261,716

      Ferrous Shipments (Gross tons)



1,172,015



1,175,625



4,952,973



5,070,380



1,338,599



1,222,777



1,219,582

External Ferrous Shipments (Gross tons)



429,512



446,232



1,844,115



1,957,764



485,414



466,506



462,683























   Fabrication






















      Average External Sales Price (Per ton)


$

1,335


$

1,310


$

1,314


$

1,249


$

1,291


$

1,311


$

1,317

      Shipments (Tons)



165,338



132,186



627,274



562,725



150,402



151,052



160,482

 

Cision View original content:http://www.prnewswire.com/news-releases/steel-dynamics-reports-fourth-quarter-and-annual-2017-results-300586148.html

SOURCE Steel Dynamics, Inc.

1/22/2018 6:00:00 PM