Steel Dynamics Reports Second Quarter 2020 Results
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FORT WAYNE, Ind., July 20, 2020 /PRNewswire/ -- Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced second quarter 2020 financial results. The company reported second quarter 2020 net sales of $2.1 billion and net income of $75 million, or $0.36 per diluted share. Excluding the impact from the following items, the company's second quarter 2020 adjusted net income was $100 million, or $0.47 per diluted share:

  • Additional financing costs related to the company's June 2020 refinancing activities of approximately $25 million, or $0.08 per diluted share, and
  • Costs (net of capitalized interest) associated with the construction of the company's Sinton Texas Flat Roll Steel Mill of approximately $10 million, or $0.03 per diluted share.

Comparatively, prior year second quarter net sales were $2.8 billion, with net income of $194 million, or $0.87 per diluted share, and sequential first quarter 2020 net sales were $2.6 billion, with net income of $187 million, or $0.88 per diluted share.

"I am incredibly proud of the 8,400 individuals that I am fortunate to work alongside at Steel Dynamics," said Mark D. Millett, President and Chief Executive Officer. "The operating, commercial, and financial teams achieved best-in-class performance within the current unprecedented health and economic environment. We are operating safely, providing ongoing customer support, and taking advantage of longer-term financing opportunities. Our spirit of excellence was once again evidenced in our strong second quarter 2020 performance.  Even though earnings were lower than robust sequential first quarter results, the team's performance was tremendous within the circumstances. Our second quarter 2020 consolidated operating income was $159 million, adjusted EBITDA was $217 million, and cash flow generation from operations increased sequentially to $486 million, resulting in near-record liquidity of $2.8 billion

"Our differentiated business model, coupled with the passion of our people drove strong steel mill production utilization, allowing for cost compression benefits and market share gains.  Our second quarter 2020 steel shipments were only 12 percent lower than our record high sequential first quarter volumes," continued Millett. "Our steel mills operated at almost 80 percent utilization, while the rest of the domestic industry operated at an estimated 55 percent. Our fabrication operations and steel processing locations helped achieve this higher utilization, complementing the market share gains. In addition, our metals recycling platform provided a competitive advantage in sourcing ferrous scrap for our steel mills in a challenging supply environment." 

In the second quarter of 2020, the company generated strong cash flow from operations of $486 million and available cash and short-term investments increased $111 million, as working capital management more than offset capital investments of $310 million. The company also executed its second investment grade notes offering, issuing $400 million of 2.400% notes due 2025 and $500 million of 3.250% notes due 2031. These transactions were leverage neutral and proceeds were used to repay $400 million of its 5.250% senior notes due 2023 and $500 million of its 5.500% senior notes due 2024. These transactions combined with the company's December 2019 inaugural investment grade refinancing have extended its overall debt maturity profile and lowered its effective interest rate to four percent.

Second Quarter 2020 Comments

Second quarter 2020 operating income for the company's steel operations was $172 million, or 41 percent lower than sequential first quarter results, due to lower selling values and shipments related to the temporary closures of numerous steel consuming businesses in response to the coronavirus (COVID-19) pandemic. Domestic automotive producers and the related supply chain idled operations beginning in March 2020 and slowly began restarting production in May and June. Construction related steel demand was steadier than industrial manufacturing throughout the second quarter. The second quarter 2020 average external product selling price for the company's steel operations decreased $19 sequentially to $755 per ton. The average ferrous scrap cost per ton melted at the company's steel mills decreased $1 sequentially to $266 per ton.  The company's steel mill's operated at 79 percent of their production capability during the second quarter 2020, with the flat roll group achieving a rate of 89 percent. Additionally, second quarter 2020 steel shipments of 2.5 million tons were only 12 percent lower than record high sequential first quarter shipments of 2.8 million tons, and only nine percent lower than the second quarter of 2019. 

As states issued shelter-in-place mandates and domestic manufacturing slowed, scrap supply and collection declined.  In addition, significantly lower second quarter 2020 domestic steel production of an estimated 55 percent, resulted in weak ferrous scrap demand.  As a result, the company's metals recycling operations recorded an operating loss of $6 million for the second quarter 2020, compared to operating income of $8 million in the sequential first quarter. As states have started to reopen, scrap flows have improved, and the company expects its metals recycling operations to return to profitability for the third quarter 2020.  

Second quarter 2020 operating income from the company's steel fabrication operations of $27 million was strong, nearly equal to sequential first quarter results of $29 million, based on steady shipments. The steel fabrication platform's customer order backlog remains strong, and customers remain constructive concerning non-residential construction projects. The team has not seen widespread project delays or cancellations.

Year-to-Date June 30, 2020 Comparison

For the six months ended June 30, 2020, net income was $263 million, or $1.24 per diluted share, with net sales of $4.7 billion, as compared to net income of $399 million, or $1.78 per diluted share, with net sales of $5.6 billion for the same period in 2019. Excluding the impact from the following items, the company's first half 2020 adjusted net income was $291 million, or $1.37 per diluted share:

  • Additional financing costs related to the company's June 2020 refinancing activities of approximately $25 million, or $0.08 per diluted share, and
  • Costs (net of capitalized interest) associated with the construction of the company's Sinton Texas Flat Roll Steel Mill of approximately $15 million, or $0.05 per diluted share.

First half 2020 net sales decreased 16 percent and operating income declined 25 percent to $433 million, when compared to the same period in 2019. Lower earnings were primarily the result of steel metal spread compression, as significantly lower average steel selling values, more than offset average ferrous scrap cost reductions across the steel platform. Compared to first half 2019, the average first half 2020 external selling price for the company's steel operations decreased $124 to $766 per ton. The average first half 2020 ferrous scrap cost per ton melted at the company's steel mills decreased $61 to $266 per ton. Even though first half 2020 steel shipments of 5.4 million tons were only two percent lower than 2019 results, the impact of COVID-19 on steel and ferrous scrap demand in the second quarter of 2020 contributed significantly to the year-over-year decline in net sales and earnings.

In contrast, based on the company's differentiated business model and highly, variable cost structure, the company increased cash flow generation from operations to $697 million in the first half 2020, an increase of 28 percent in comparison to prior year. In addition, liquidity at the end of the second quarter 2020 increased $479 million, or 21 percent, when compared to June 30, 2019.  During the first half of 2020, the company invested $527 million in capital investments, paid cash dividends of $104 million, and repurchased $107 million of its common stock, while maintaining strong liquidity.

Outlook 

"We entered 2020 in a position of strength with ample cash and available liquidity of $2.8 billion, and we remain in a position of strength maintaining that liquidity at the end of the second quarter 2020," stated Millett. "Our differentiated business model and performance-driven culture have proven our ability to generate strong cash flow during challenging times such as these. We entered 2020 prepared for the capital investment requirements related to the construction of our new state-of-the art, electric-arc-furnace (EAF) flat roll steel mill. We are excited about this strategic project, and the associated long-term value creation it will bring through geographic and value-added product diversification. This facility is designed to have product size and quality capabilities beyond that of existing EAF flat roll steel producers, competing even more effectively with the integrated steel model and foreign competition, as well as providing a much more environmentally friendly steel production alternative for our customers. We have targeted specific regional markets. Our facility is located and designed to have a meaningful competitive advantage in these regions and in the displacement of imports. We have also now signed long-term agreements with two customers to co-locate on our site, and they plan to represent annual steel consuming and processing capability of over 800,000 tons. Construction is going well within our expected capital costs of $1.9 billion, with plans on schedule to commence operations mid-year 2021.

"I also want to congratulate our Columbus Flat Roll Division team for producing their first prime coil July 9th on their new 400,000-ton galvanizing line. This is their fourth value-added line investment and will allow them to sell significantly more higher margin products, while also providing a ready hot band consumer base in the South for our anticipated new Texas flat roll steel mill. 

"It is still not possible to determine the full scope of the negative impact COVID-19 will cause to global economies and the related impact to domestic steel demand," continued Millett. "As states continue to determine their reopening guidelines and many steel consuming businesses have resumed operations, we anticipate steel and metals recycling demand will improve in the second half of the year compared to second quarter 2020 trough results. The automotive sector and its related supply chain have restarted production, and we have started to see some resulting increase in steel demand and prime scrap production. The construction sector has remained more resilient and related steel demand has been steady, as evidenced by our Structural and Rail Division volume and steel fabrication platform's customer backlog. The weaker sectors continue to be related to energy and general industrial consumers, which likely require a longer recovery period.

"Our commitment is to the safety of our teams, families, communities and to meet the needs of our customers. Our culture and our business model continue to positively differentiate our performance from the rest of the industry, and we are in a place of strength. We are competitively positioned and focused to deliver long-term value creation for all of our stakeholders," concluded Millett.        

Conference Call and Webcast

Steel Dynamics, Inc. will hold a conference call to discuss second quarter 2020 operating and financial results on Tuesday, July 21, 2020, at 10:00 a.m. Eastern Daylight 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 Daylight Time on July 26, 2020.

About Steel Dynamics, Inc.

Steel Dynamics 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 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 and Adjusted 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 domestic or global economies, conditions in steel and recycled metals market places, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new, existing or planned 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 a guarantee 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) the effects of pandemics or other health issues, such as the recent novel coronavirus outbreak (COVID-19); (3) cyclical and changing industrial demand; (4) 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, manufacturing, appliance, energy, and other steel-consuming industries; (5) fluctuations in the cost of key raw materials and supplies (including steel scrap, iron units, zinc, graphite electrodes, and energy costs) and our ability to pass on any cost increases; (6) the impact of domestic and foreign imports, including trade policy, restrictions, or agreements; (7) unanticipated difficulties in integrating or starting up new, acquired or planned businesses or assets; (8) risks and uncertainties involving product and/or technology development; and (9) 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 Securities and Exchange Commission website, www.sec.gov, and on the Steel Dynamics website, www.steeldynamics.com under "Investors - SEC Filings".

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)





Three Months Ended


Six Months Ended


Three Months



June 30,


June 30,


Ended



2020


2019


2020


2019


March 31, 2020

















Net sales


$

2,094,305


$

2,770,515


$

4,669,405


$

5,587,950


$

2,575,100

Costs of goods sold



1,809,874



2,349,349



3,969,745



4,733,214



2,159,871

      Gross profit



284,431



421,166



699,660



854,736



415,229

















Selling, general and administrative expenses



109,299



106,250



222,197



217,288



112,898

Profit sharing



9,092



22,871



30,546



46,548



21,454

Amortization of intangible assets



7,190



7,013



14,381



14,026



7,191

      Operating income



158,850



285,032



432,536



576,874



273,686

















Interest expense, net of capitalized interest



27,702



32,321



55,721



63,443



28,019

Other expense (income), net



28,103



(4,249)



25,514



(10,592)



(2,589)

      Income before income taxes



103,045



256,960



351,301



524,023



248,256

















Income tax expense



24,280



60,214



81,700



122,450



57,420

      Net income



78,765



196,746



269,601



401,573



190,836

Net income attributable to noncontrolling interests



(3,269)



(2,444)



(6,765)



(2,943)



(3,496)

      Net income attributable to Steel Dynamics, Inc.


$

75,496


$

194,302


$

262,836


$

398,630


$

187,340

































Basic earnings per share attributable to Steel Dynamics, Inc. stockholders


$

0.36


$

0.88


$

1.24


$

1.79


$

0.88

















Weighted average common shares outstanding



210,343



221,505



211,798



222,781



213,254

















Diluted earnings per share attributable to Steel Dynamics, Inc. stockholders, including the effect of assumed conversions when dilutive


$

0.36


$

0.87


$

1.24


$

1.78


$

0.88

















Weighted average common shares and share equivalents outstanding



211,378



222,519



212,701



233,741



214,024

































Dividends declared per share


$

0.25


$

0.24


$

0.50


$

0.48


$

0.25

 

Steel Dynamics, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands)



June 30,



December 31,

Assets

2020



2019


(unaudited)





Current assets







   Cash and equivalents

$

1,496,458



$

1,381,460

   Short-term investments


69,546




262,174

   Accounts receivable, net


844,056




844,336

   Inventories


1,567,017




1,689,043

   Other current assets


39,043




76,012

      Total current assets


4,016,120




4,253,025








Property, plant and equipment, net


3,587,450




3,135,886








Intangible assets, net


313,520




327,901








Goodwill


451,220




452,915








Other assets


100,031




106,038

      Total assets

$

8,468,341



$

8,275,765

Liabilities and Equity







Current liabilities







   Accounts payable

$

701,932



$

513,344

   Income taxes payable


25,411




2,014

   Accrued expenses


314,157




401,984

   Current maturities of long-term debt


73,926




89,356

      Total current liabilities


1,115,426




1,006,698








Long-term debt


2,636,722




2,644,988








Deferred income taxes


503,034




484,169








Other liabilities


73,237




75,055

      Total liabilities


4,328,419




4,210,910








Commitments and contingencies














Redeemable noncontrolling interests


152,414




143,614








Equity







   Common stock


646




646

   Treasury stock, at cost


(1,623,855)




(1,525,113)

   Additional paid-in capital


1,191,614




1,181,012

   Retained earnings


4,576,629




4,419,296

   Accumulated other comprehensive income (loss)


216




(7)

      Total Steel Dynamics, Inc. equity


4,145,250




4,075,834

   Noncontrolling interests


(157,742)




(154,593)

      Total equity


3,987,508




3,921,241

      Total liabilities and equity

$

8,468,341



$

8,275,765

 

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)



Three Months Ended


Six Months Ended


June 30,


June 30,


2020


2019


2020


2019













Operating activities:












   Net income

$

78,765


$

196,746


$

269,601


$

401,573













   Adjustments to reconcile net income to net cash provided by operating activities:












      Depreciation and amortization


78,721



80,911



158,980



161,085

      Equity-based compensation


9,520



9,080



27,364



24,388

      Deferred income taxes


14,634



11,550



20,561



23,641

      Other adjustments


4,728



(564)



4,464



164

      Changes in certain assets and liabilities:












         Accounts receivable


154,352



70,624



280



9,562

         Inventories


77,521



64,941



122,026



104,410

         Other assets


11,137



7,292



9,596



7,593

         Accounts payable


69,523



(58,484)



121,119



(55,278)

         Income taxes receivable/payable


7,993



(36,428)



60,378



13,422

         Accrued expenses


(20,884)



15,805



(97,078)



(147,534)

      Net cash provided by operating activities


486,010



361,473



697,291



543,026













Investing activities:












   Purchases of property, plant and equipment


(309,716)



(85,120)



(527,251)



(139,556)

   Purchases of short term investments


-



(49,465)



(149,359)



(99,142)

   Proceeds from maturities of short-term investments


149,648



109,034



341,988



213,771

   Acquisition of business, net of cash and restricted cash acquired


-



-



-



(93,412)

   Other investing activities


803



913



1,321



1,277

      Net cash used in investing activities


(159,265)



(24,638)



(333,301)



(117,062)













Financing activities:












   Issuance of current and long-term debt


1,099,774



125,222



1,316,035



246,456

   Repayment of current and long-term debt


(1,103,814)



(133,875)



(1,339,571)



(249,146)

   Dividends paid


(52,584)



(53,503)



(104,065)



(95,742)

   Purchase of treasury stock


-



(93,136)



(106,529)



(177,444)

   Other financing activities


(8,763)



(12)



(14,915)



(5,732)

      Net cash used in financing activities


(65,387)



(155,304)



(249,045)



(281,608)













Increase in cash, cash equivalents, and restricted cash


261,358



181,531



114,945



144,356

Cash, cash equivalents, and restricted cash at beginning of period


1,240,984



797,248



1,387,397



834,423

Cash, cash equivalents, and restricted cash at end of period

$

1,502,342


$

978,779


$

1,502,342


$

978,779

























Supplemental disclosure information:












   Cash paid for interest

$

59,668


$

53,981


$

68,453


$

62,587

   Cash paid for income taxes, net

$

1,430


$

84,516


$

1,948


$

86,355

 

Steel Dynamics, Inc.

SUPPLEMENTAL INFORMATION

(dollars in thousands)




Second Quarter



Year to Date







2020



2019



2020



2019



1Q 2020

External Net Sales
















   Steel


$

1,628,027


$

2,106,350


$

3,569,733


$

4,230,920


$

1,941,706

   Fabrication



215,250



241,424



436,186



469,904



220,936

   Metals Recycling



156,583



323,100



448,439



674,237



291,856

   Other



94,445



99,641



215,047



212,889



120,602

      Consolidated Net Sales


$

2,094,305


$

2,770,515


$

4,669,405


$

5,587,950


$

2,575,100

Operating Income
















   Steel


$

172,395


$

294,769


$

465,141


$

607,206


$

292,746

   Fabrication



27,196



30,706



56,400



51,369



29,204

   Metals Recycling



(5,918)



10,614



2,408



30,572



8,326

      Operations



193,673



336,089



523,949



689,147



330,276

















   Non-cash amortization of intangible assets



(7,190)



(7,013)



(14,381)



(14,026)



(7,191)

   Profit sharing expense



(9,092)



(22,871)



(30,546)



(46,548)



(21,454)

   Non-segment operations



(18,541)



(21,173)



(46,486)



(51,699)



(27,945)

      Consolidated Operating Income 


$

158,850


$

285,032


$

432,536


$

576,874


$

273,686

Adjusted EBITDA
















      Net income


$

78,765


$

196,746


$

269,601


$

401,573


$

190,836

      Income taxes



24,280



60,214



81,700



122,450



57,420

      Net interest expense



25,849



25,598



47,639



49,615



21,790

      Depreciation



70,116



72,585



141,849



144,431



71,733

      Amortization of intangible assets



7,190



7,013



14,381



14,026



7,191

      Noncontrolling interest



(3,270)



(2,444)



(6,766)



(2,943)



(3,496)

            EBITDA 



202,930



359,712



548,404



729,152



345,474

      Non-cash adjustments
















         Unrealized hedging gain



(208)



(3,719)



(1,470)



(1,977)



(1,262)

         Inventory valuation



258



351



1,117



592



859

         Equity-based compensation



9,519



9,080



20,331



19,699



10,812

         Refinancing charges



4,907



-



4,907



-



-

            Adjusted EBITDA 


$

217,406


$

365,424


$

573,289


$

747,466


$

355,883

Other Operating Information
















   Steel
















      Average external sales price (Per ton) (a)


$

755


$

879


$

766


$

890


$

774

      Average ferrous cost (Per ton melted) (b)


$

266


$

316


$

266


$

327


$

267

















      Flat Roll shipments
















         Butler and Columbus Flat Roll divisions



1,358,473



1,574,463



2,942,737



3,101,314



1,584,264

         Steel Processing divisions (c)



418,837



422,849



824,818



753,624



405,981

      Long Product shipments
















         Structural and Rail Division



400,150



352,013



835,032



728,276



434,882

         Engineered Bar Products Division



137,386



195,644



327,187



402,518



189,801

         Roanoke Bar Division



125,104



128,460



265,326



280,860



140,222

         Steel of West Virginia



78,069



95,929



170,101



187,177



92,032

            Total Shipments (Tons



2,518,019



2,769,358



5,365,201



5,453,769



2,847,182

















            External Shipments (Tons) (a) 



2,152,856



2,386,851



4,648,020



4,734,060



2,495,164

















            Steel Mill Production (Tons)



2,132,167



2,401,289



4,667,400



4,812,455



2,535,233

   Metals Recycling
















      Nonferrous shipments (000's of pounds)



166,914



266,222



438,992



558,260



272,078

      Ferrous shipments (Gross tons)



802,070



1,189,679



1,994,214



2,361,040



1,192,144

            External ferrous shipments (Gross tons)



197,970



425,477



591,621



808,318



393,651

   Fabrication
















      Average sales price (Per ton)


$

1,364


$

1,538


$

1,360


$

1,556


$

1,356

      Shipments (Tons)



160,168



156,983



323,480



302,205



163,312


(a)   Represents all steel operations

(b)   Represents ferrous cost per ton melted at our six electric arc furnace steel mills

(c)   Includes Heartland, The Techs, and United Steel Supply locations

 

Cision View original content:http://www.prnewswire.com/news-releases/steel-dynamics-reports-second-quarter-2020-results-301096463.html

SOURCE Steel Dynamics, Inc.

7/20/2020 6:00:00 PM