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Steel Dynamics Reports Third Quarter 2019 Results

Oct 16, 2019

FORT WAYNE, Ind., Oct. 16, 2019 — Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced third quarter 2019 financial results. The company reported third quarter 2019 net sales of $2.5 billion and net income of $151 million, or $0.69 per diluted share. Comparatively, prior year third quarter net sales were $3.2 billion, with net income of $398 million, or $1.69 per diluted share, which included charges related to fair value purchase accounting adjustments of $0.04 per diluted share and a tax benefit of $0.04 per diluted share. Sequential second quarter 2019 net sales were $2.8 billion, with net income of $194 million, or $0.87 per diluted share.

“Our third quarter 2019 consolidated operating income was $228 million and adjusted EBITDA $315 million,” said Mark D. Millett, President and Chief Executive Officer. “The team delivered a solid third quarter performance in a challenging steel pricing environment, as average steel pricing declined in the quarter more than offsetting the benefit of lower scrap costs. Steel customer inventory destocking has subsided, and underlying domestic steel demand remains principally intact for the primary steel consuming sectors, with particular strength in construction, as supported by our continued seasonally strong steel fabrication backlog.”

The company generated strong cash flow from operations of $444 million during the third quarter 2019 and increased liquidity to a record high $2.4 billion. The company paid cash dividends of $53 million and repurchased $115 million of its common stock during the third quarter 2019.

“We are pleased by the recent rating upgrades to an investment grade credit by all three credit rating agencies,” stated Theresa E. Wagler, Executive Vice President and Chief Financial Officer. “This is a natural progression of our growth, and recognition of our strong balance sheet profile and through-cycle free cash flow generation capability. Due to the strength of our liquidity profile, capital structure and free cash flow generating business model, we have the flexibility for continued growth and responsible shareholder distributions, while also being committed to maintaining investment grade credit metrics.”

Third Quarter 2019 Comments

Third quarter 2019 operating income for the company’s steel operations was $240 million, or 19 percent lower than sequential second quarter 2019 results. The sequential earnings decline was driven by lower realized product pricing and decreased shipments in the company’s sheet steel operations, which more than offset the benefit of lower scrap costs in the quarter. The third quarter 2019 average external product selling price for the company’s overall steel operations decreased $70 sequentially to $809 per ton. The average ferrous scrap cost per ton melted at the company’s steel mills decreased $41 to $275 per ton.

The company’s steel processing locations represented 17 percent of the shipment mix in the third quarter 2019, compared to 16 percent in the sequential quarter and 12 percent in the prior year third quarter. These locations use steel products as their primary raw material, and the associated steel procurement costs represented 17 percent of the steel operations cost of goods sold in the third quarter 2019, 18 percent in the sequential quarter, and 9 percent in the prior year third quarter.

Third quarter 2019 operating income from the company’s metals recycling operations decreased to $3 million, compared to $11 million in the sequential second quarter, primarily as a result of the continued decline in aluminum demand and associated selling values. London Metal Exchange aluminum prices have declined more than 10 percent in 2019. Ferrous shipments and selling values also declined in the quarter, with prime scrap indices falling almost $30 per gross ton from July to September 2019.

Third quarter 2019 operating income from the company’s steel fabrication operations was a strong $35 million, or 15 percent higher than sequential second quarter results. Earnings improved as higher shipments and lower raw material steel input costs resulted in expanded profit margins. The steel fabrication platform’s order backlog remains strong, and customers remain optimistic concerning non-residential construction projects.

Year-to-Date September 30, 2019 Comparison

For the nine months ended September 30, 2019, net income was $550 million, or $2.47 per diluted share, with net sales of $8.1 billion, as compared to net income of $988 million, or $4.17 per diluted share, with net sales of $8.9 billion for the same period in 2018. Net sales decreased nine percent, while operating income of $805 million decreased 41 percent from record high 2018 year-to-date results of $1.4 billion. The decline in earnings was driven by decreased sheet steel product pricing, as hot roll coil price indices fell approximately $185 per ton, or 25 percent, since December 2018.

Compared to prior year results, the average year-to-date external product selling price for the company’s overall steel operations decreased $53 to $863 per ton. The average year-to-date ferrous scrap cost per ton melted at the company’s steel mills decreased $31 to $309 per ton.

The company generated strong cash flow from operations of $987 million, paid cash dividends of $148 million, and repurchased $292 million of its common stock during the first nine months of 2019.

Outlook

“Based on domestic steel demand fundamentals, we are constructive regarding 2020 North American steel market dynamics,” said Millett. “We believe North American steel consumption will experience modest growth and will be supported by further steel import reductions and the end of steel inventory destocking. We believe current trade actions could have a positive impact in further reducing unfairly traded steel imports into the United States, including coated flat roll steel, which could have a significant positive impact for Steel Dynamics, as we are the largest non-automotive flat roll steel coater in the United States.

“In combination with our existing and newly announced expansion initiatives, there are firm drivers in place for our continued growth. We are excited about our Sinton, Texas flat roll steel mill 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 electric-arc-furnace flat roll steel producers, competing even more effectively with the integrated steel model and foreign competition. We have targeted regional markets that represent over 27 million tons of relevant flat roll steel consumption, which includes the growing Mexican flat roll steel market. This facility is located and designed to have a meaningful competitive advantage in those regions.

“We are competitively positioned and remain focused on delivering long-term shareholder value creation through organic and transactional growth opportunities,” concluded Millett.

Conference Call and Webcast

Steel Dynamics, Inc. will hold a conference call to discuss third quarter 2019 operating and financial results on Thursday, October 17, 2019, 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. For the call, a quarterly slide presentation will be available on 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 October 23, 2019.

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 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 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, manufacturing, appliance, pipe and tube, and other steel-consuming industries; (4) 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; (5) the impact of domestic and foreign imports, including trade policy, restrictions, or agreements; (6) unanticipated difficulties in integrating or starting up new, acquired or planned businesses or assets; (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

Nine Months Ended

Three Months

September 30,

September 30,

Ended

2019

2018

2019

2018

June 30, 2019

Net sales

$

2,526,845

$

3,223,547

$

8,114,795

$

8,917,947

$

2,770,515

Costs of goods sold

2,167,006

2,537,466

6,900,220

7,116,368

2,349,349

Gross profit

359,839

686,081

1,214,575

1,801,579

421,166

Selling, general and administrative expenses

107,242

102,614

324,530

310,076

106,250

Profit sharing

17,848

45,304

64,396

114,301

22,871

Amortization of intangible assets

6,704

6,591

20,730

20,346

7,013

Operating income

228,045

531,572

804,919

1,356,856

285,032

Interest expense, net of capitalized interest

31,339

31,560

94,782

94,968

32,321

Other expense (income), net

(4,545)

(7,103)

(15,137)

(16,601)

(4,249)

Income before income taxes

201,251

507,115

725,274

1,278,489

256,960

Income tax expense

48,643

109,209

171,093

292,536

60,214

Net income

152,608

397,906

554,181

985,953

196,746

Net (income) loss attributable to noncontrolling interests

(1,560)

469

(4,503)

2,422

(2,444)

Net income attributable to Steel Dynamics, Inc.

$

151,048

$

398,375

$

549,678

$

988,375

$

194,302

Basic earnings per share attributable to

  Steel Dynamics, Inc. stockholders

$

0.69

$

1.70

$

2.49

$

4.20

$

0.88

Weighted average common shares outstanding

217,873

234,208

221,145

235,483

221,505

Diluted earnings per share attributable to

Steel Dynamics, Inc. stockholders, including the

effect of assumed conversions when dilutive

$

0.69

$

1.69

$

2.47

$

4.17

$

0.87

Weighted average common shares

  and share equivalents outstanding

219,109

235,649

222,197

236,772

222,519

Dividends declared per share

$

0.2400

$

0.1875

$

0.7200

$

0.5625

$

0.2400

 

 

Steel Dynamics, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands)

September 30,

December 31,

Assets

2019

2018

(unaudited)

Current assets

Cash and equivalents

$

1,146,007

$

828,220

Short term investments

69,529

228,783

Accounts receivable, net

986,946

1,043,756

Inventories

1,767,020

1,859,168

Other current assets

50,818

72,730

Total current assets

4,020,320

4,032,657

Property, plant and equipment, net

3,031,731

2,945,767

Intangible assets, net

249,598

270,328

Goodwill

540,913

429,645

Other assets

100,685

25,166

Total assets

$

7,943,247

$

7,703,563

Liabilities and Equity

Current liabilities

Accounts payable

$

528,629

$

550,754

Income taxes payable

2,074

7,468

Accrued expenses

392,422

436,681

Current maturities of long-term debt

82,150

24,234

Total current liabilities

1,005,275

1,019,137

Long-term debt

2,355,243

2,352,489

Deferred income taxes

468,248

435,838

Other liabilities

70,126

8,870

Total liabilities

3,898,892

3,816,334

Commitments and contingencies

Redeemable noncontrolling interests

143,614

111,240

Equity

Common stock

645

645

Treasury stock, at cost

(1,469,078)

(1,184,243)

Additional paid-in capital

1,175,512

1,160,048

Retained earnings

4,349,523

3,958,320

Accumulated other comprehensive income

39

301

Total Steel Dynamics, Inc. equity

4,056,641

3,935,071

Noncontrolling interests

(155,900)

(159,082)

Total equity

3,900,741

3,775,989

Total liabilities and equity

$

7,943,247

$

7,703,563

 

 

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Operating activities:

Net income

$

152,608

$

397,906

$

554,181

$

985,953

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

79,470

81,383

240,555

236,638

Equity-based compensation

8,841

7,978

33,229

28,860

Deferred income taxes

11,311

23,899

34,952

45,437

Other adjustments

(1,116)

312

(952)

197

Changes in certain assets and liabilities:

Accounts receivable

85,633

(48,024)

95,195

(330,307)

Inventories

35,479

(69,885)

139,889

(240,908)

Other assets

39

(6,429)

7,632

(7,164)

Accounts payable

1,111

(14,883)

(54,167)

100,368

Income taxes receivable/payable

6,293

(31,127)

19,715

55,414

Accrued expenses

64,533

79,310

(83,001)

49,920

Net cash provided by operating activities

444,202

420,440

987,228

924,408

Investing activities:

Purchases of property, plant and equipment

(154,131)

(70,668)

(293,687)

(176,477)

Purchases of short term investments

(34,884)

(35,000)

(134,026)

(125,000)

Proceeds from maturities of short term investments

79,508

10,000

293,279

10,000

Acquisition of business, net of cash and restricted cash acquired

(3,694)

(37,589)

(97,106)

(433,998)

Other investing activities

2,746

576

4,023

1,462

Net cash used in investing activities

(110,455)

(132,681)

(227,517)

(724,013)

Financing activities:

Issuance of current and long-term debt

128,230

110,041

374,686

327,670

Repayment of current and long-term debt

(119,988)

(115,039)

(369,134)

(346,162)

Dividends paid

(52,751)

(44,081)

(148,493)

(125,146)

Purchase of treasury stock

(114,950)

(74,965)

(292,394)

(193,379)

Other financing activities

(1,527)

(7,259)

(8,324)

Net cash used in financing activities

(160,986)

(124,044)

(442,594)

(345,341)

Increase (decrease) in cash, cash equivalents, and restricted cash

172,761

163,715

317,117

(144,946)

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

978,779

726,424

834,423

1,035,085

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

$

1,151,540

$

890,139

$

1,151,540

$

890,139

Supplemental disclosure information:

Cash paid for interest

$

9,115

$

8,643

$

71,702

$

70,498

Cash paid for income taxes, net

$

29,794

$

119,802

$

116,149

$

198,752

 

 

Steel Dynamics, Inc.

SUPPLEMENTAL INFORMATION

(dollars in thousands)

Third Quarter

Year to Date

2019

2018

2019

2018

1Q 2019

2Q 2019

External Net Sales

Steel

$

1,922,528

$

2,475,044

$

6,153,448

$

6,722,260

$

2,124,570

$

2,106,350

Fabrication

246,078

250,625

715,982

669,556

228,480

241,424

Metals Recycling

280,908

387,219

955,145

1,200,045

351,137

323,100

Other

77,331

110,659

290,220

326,086

113,248

99,641

Consolidated

$

2,526,845

$

3,223,547

$

8,114,795

$

8,917,947

$

2,817,435

$

2,770,515

Operating Income

Steel

$

239,587

$

577,308

$

846,793

$

1,452,857

$

312,437

$

294,769

Fabrication

35,321

13,145

86,690

47,162

20,663

30,706

Metals Recycling

2,894

17,764

33,466

71,297

19,958

10,614

Operations

277,802

608,217

966,949

1,571,316

353,058

336,089

Non-cash amortization of intangible assets

(6,704)

(6,591)

(20,730)

(20,346)

(7,013)

(7,013)

Profit sharing expense

(17,848)

(45,304)

(64,396)

(114,301)

(23,677)

(22,871)

Non-segment operations

(25,205)

(24,750)

(76,904)

(79,813)

(30,526)

(21,173)

Consolidated Operating Income

$

228,045

$

531,572

$

804,919

$

1,356,856

$

291,842

$

285,032

Adjusted EBITDA

Net income

$

152,608

$

397,906

$

554,181

$

985,953

$

204,827

$

196,746

Income taxes

48,643

109,209

171,093

292,536

62,236

60,214

Net interest expense

24,107

25,894

73,722

79,304

24,017

25,598

Depreciation

71,456

73,431

215,887

212,125

71,846

72,585

Amortization of intangible assets

6,704

6,591

20,730

20,346

7,013

7,013

Noncontrolling interest

(1,560)

469

(4,503)

2,422

(499)

(2,444)

EBITDA

301,958

613,500

1,031,110

1,592,686

369,440

359,712

Non-cash adjustments

Unrealized hedging (gain) loss

3,697

3,030

1,720

(4,090)

1,742

(3,719)

Inventory valuation

278

1,017

870

1,482

241

351

Equity-based compensation

8,842

7,978

28,541

25,933

10,619

9,080

Adjusted EBITDA

$

314,775

$

625,525

$

1,062,241

$

1,616,011

$

382,042

$

365,424

Other Operating Information

Steel

Average external sales price (Per ton) *

$

809

$

988

$

863

$

916

$

902

$

879

Average ferrous cost (Per ton melted) #

$

275

$

352

$

309

$

340

$

338

$

316

Flat Roll shipments

Butler and Columbus Flat Roll Divisions

1,527,230

1,562,813

4,628,544

4,713,125

1,526,851

1,574,463

Techs, Heartland, and USS Divisions (processing)

427,645

294,559

1,181,269

711,624

330,775

422,849

Long Product shipments

Structural and Rail Division

366,306

431,326

1,094,582

1,241,128

376,263

352,013

Engineered Bar Products Division

176,564

239,951

579,082

705,193

206,874

195,644

Roanoke Bar Division

123,495

145,648

404,355

409,194

152,400

128,460

Steel of West Virginia

90,669

82,623

277,846

245,236

91,248

95,929

Total shipments (Tons)

2,711,909

2,756,920

8,165,678

8,025,500

2,684,411

2,769,358

External shipments (Tons) *

2,362,915

2,489,133

7,096,975

7,296,871

2,347,209

2,386,851

Steel production (Tons) *

2,736,306

2,852,451

8,251,344

8,222,163

2,745,128

2,769,910

Metals Recycling

Nonferrous shipments (000’s of pounds)

257,087

277,332

815,347

852,994

292,038

266,222

Ferrous shipments (Gross tons)

1,169,963

1,304,164

3,531,003

3,908,079

1,171,361

1,189,679

External ferrous shipments (Gross tons)

396,135

459,362

1,204,453

1,362,477

382,841

425,477

Fabrication

Average sales price (Per ton)

$

1,464

$

1,461

$

1,523

$

1,398

$

1,575

$

1,538

Shipments (Tons)

168,571

171,578

470,776

479,406

145,222

156,983

* Includes all steel operations

# Includes ferrous cost per ton melted at our steel mills

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SOURCE Steel Dynamics, Inc.