Steel Dynamics Reports Second Quarter 2017 Results

20 July 2017

Steel Dynamics, Inc. today announced second quarter 2017 financial results.  The company reported second quarter 2017 net income of $154 million, or $0.63 per diluted share, with net sales of $2.4 billion.  Comparatively, prior year second quarter net income was $142 million, or $0.58 per diluted share, with net sales of $2.0 billion.  Sequential first quarter 2017 net income was $201 million, or $0.82 per diluted share, with net sales of $2.4 billion.

"The team delivered a solid performance for the second quarter 2017 despite hesitant customer order entry and significantly higher quarter-over-quarter steel imports," said Mark D. Millett, President and Chief Executive Officer. "Our second quarter 2017 income from operations was $265 million with a trailing twelve month adjusted EBITDA record of $1.4 billion.   The decrease in sequential quarterly earnings was principally driven by our flat roll operations, as increased average scrap costs outpaced average sales price growth.  As mentioned in our mid-quarter guidance, we had a planned galvanizing line upgrade at our Butler Flat Roll Division and also experienced some start-up issues at our new Columbus Flat Roll Division paint line, which increased expenses and decreased value-added flat roll shipments in the quarter.

"We believe the customer order hesitancy was related to anticipated scrap price changes rather than any underlying softness in demand.  Additionally, customer inventory levels continued to be positioned at historically low levels.  Steel demand from the automotive sector remained steady, as the construction and energy sectors continued to improve," continued Millett.   

"Second quarter 2017 operating income from our metals recycling platform remained aligned with the strong first quarter performance, in spite of somewhat lower shipments and metal spread, as the team continued to optimize costs throughout the business," continued Millett. "The fabrication group achieved another quarter of record shipments, a solid indicator that the non-residential construction market is continuing a positive growth profile."

Additional Second Quarter 2017 Comments

Second quarter 2017 operating income for the company's steel operations decreased 22 percent, or $79 million, to $274 million sequentially, primarily related to two operational items within the flat roll operations and overall metal spread compression.  During the second quarter 2017, the company further modernized one of its galvanizing lines located at its Butler Flat Roll Division, while also expanding the line's annual value-added production capability by an additional 180,000 tons.  The upgrade required the line to be down for three weeks in May.  Additionally, the company experienced quality issues related to the start-up of its new Galvalume and paint line at its Columbus Flat Roll Division, resulting in line downtime.  Combined, these two items resulted in higher costs and lower value-added shipments, reducing potential second quarter 2017 pretax earnings by an estimated $30 million.

The company's average steel product price increased less than consumed raw material scrap costs, resulting in steel metal spread compression.  The second quarter 2017 average product selling price for the company's steel operations increased $36 to $779 per ton.  The average ferrous scrap cost per ton melted increased $39 to $303 per ton.

Second quarter 2017 operating income attributable to the company's flat roll products decreased 22 percent when compared to the sequential first quarter.  Operating income from long products decreased 24 percent as a result of an eight percent decrease in shipments, most significantly from the company's Structural and Rail Division, despite record quarterly rail shipments.  Structural and merchant steel volumes remain under pressure from excess domestic production capability, coupled with elevated import levels.  The company's steel production utilization rate was 91 percent in the second quarter 2017, compared to 95 percent in the sequential first quarter and compared to the estimated second quarter domestic industry utilization rate of 74 percent.                              

Second quarter 2017 operating income from the company's metals recycling operations was $20 million, compared to $21 million in the sequential first quarter.  Higher average sales prices were offset by lower shipments, related in part to the company's sale of certain southeastern U.S. locations at the end of the first quarter 2017.

The company's fabrication operations recorded second quarter 2017 operating income of $20 million, compared to sequential first quarter results of $24 million.  The platform achieved a second consecutive quarter of record shipments.  However, metal spread compression based on higher average steel input costs more than offset the improved volume.

Year-to-Date June 30, 2017 Comparison

For the six months ended June 30, 2017, net income was $355 million, or $1.46 per diluted share, on net sales of $4.8 billion, as compared to net income of $205 million, or $0.84 per diluted share, on net sales of $3.8 billion for the same period in 2016.  First half 2017 net sales increased 26 percent.  Although all platforms experienced improved revenues, the improvement was driven by higher average steel product pricing.  First half 2017 operating income increased $212 million, or 55 percent, to $600 million, based on improved earnings from the company's steel operations. The average year-to-date selling price for the company's steel operations increased $153 to $761 per ton.  The average year-to-date ferrous scrap cost per ton melted increased $77 to $283 per ton.

During the first half of 2017, the company generated strong cash flow from operations of $321 million and maintained liquidity of $2.1 billion at June 30, 2017.  The company also repurchased $138 million of its common stock during the first half of 2017.

Outlook

"We remain optimistic that macroeconomic and market conditions are in place to benefit domestic steel consumption in the coming years," said Millett.  "Although U.S. automotive production has peaked, we believe North American automotive steel consumption will be steady, and that there will be additional growth in the energy and construction sectors, especially for larger, public sector infrastructure projects.

"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 second quarter 2017 operating and financial results on Thursday, July 20, 2017, 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 July 25, 2017.

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

 

Six Months Ended

 

Three Months

 

June 30,

 

June 30,

 

Ended

 

2017

 

2016

 

2017

 

2016

 

March 31, 2017

                             

Net sales

$

2,390,720

 

$

2,023,902

 

$

4,758,936

 

$

3,765,203

 

$

2,368,216

Costs of goods sold

 

1,998,202

   

1,643,519

   

3,894,264

   

3,148,784

   

1,896,062

      Gross profit

 

392,518

   

380,383

   

864,672

   

616,419

   

472,154

                             

Selling, general and administrative expenses

 

98,433

   

96,853

   

201,366

   

184,383

   

102,933

Profit sharing

 

21,308

   

20,176

   

48,539

   

29,467

   

27,231

Amortization of intangible assets

 

7,424

   

7,232

   

14,848

   

14,482

   

7,424

      Operating income

 

265,353

   

256,122

   

599,919

   

388,087

   

334,566

                             

Interest expense, net of capitalized interest

 

33,869

   

36,646

   

67,842

   

73,689

   

33,973

Other expense (income), net

 

(3,835)

   

(1,818)

   

(7,494)

   

(3,610)

   

(3,659)

      Income before income taxes

 

235,319

   

221,294

   

539,571

   

318,008

   

304,252

                             

Income tax expense

 

82,372

   

80,851

   

187,958

   

116,247

   

105,586

      Net income

 

152,947

   

140,443

   

351,613

   

201,761

   

198,666

Net loss attributable to noncontrolling interests

 

986

   

1,526

   

3,137

   

2,945

   

2,151

      Net income attributable to Steel Dynamics, Inc.

$

153,933

 

$

141,969

 

$

354,750

 

$

204,706

 

$

200,817

                             
                             

Basic earnings per share attributable to

                           

   Steel Dynamics, Inc. stockholders

$

0.64

 

$

0.58

 

$

1.47

 

$

0.84

 

$

0.83

                             

Weighted average common shares outstanding

 

241,343

   

243,655

   

242,143

   

243,429

   

242,943

                             

Diluted earnings per share attributable to

                           

   Steel Dynamics, Inc. stockholders, including the effect

                           

   of assumed conversions when dilutive

$

0.63

 

$

0.58

 

$

1.46

 

$

0.84

 

$

0.82

                             

Weighted average common shares

                           

   and share equivalents outstanding

 

243,021

   

245,392

   

243,784

   

245,000

   

244,546

                             
                             

Dividends declared per share

$

0.155

 

$

0.140

 

$

0.310

 

$

0.280

 

$

0.155

 

 

Steel Dynamics, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands)

 
             
 

June 30,

   

December 31,

Assets

2017

   

2016

 

(unaudited)

       

Current assets

           

   Cash and equivalents

$

908,843

   

$

841,483

   Accounts receivable, net

 

886,894

     

729,784

   Inventories

 

1,418,732

     

1,275,211

   Other current assets

 

37,188

     

83,197

      Total current assets

 

3,251,657

     

2,929,675

             

Property, plant and equipment, net

 

2,729,721

     

2,787,215

             

Restricted cash

 

17,373

     

18,060

             

Intangible assets, net

 

269,129

     

283,977

             

Goodwill

 

390,129

     

393,351

             

Other assets

 

12,121

     

11,454

      Total assets

$

6,670,130

   

$

6,423,732

Liabilities and Equity

           

Current liabilities

           

   Accounts payable

$

484,003

   

$

395,196

   Income taxes payable

 

5,589

     

5,593

   Accrued expenses

 

286,329

     

308,394

   Current maturities of long-term debt

 

19,971

     

3,632

      Total current liabilities

 

795,892

     

712,815

             

Long-term debt

 

2,354,337

     

2,353,194

             

Deferred income taxes

 

459,639

     

448,375

             

Other liabilities

 

20,781

     

20,649

      Total liabilities

 

3,630,649

     

3,535,033

             

Commitments and contingencies

           
             

Redeemable noncontrolling interests

 

111,240

     

111,240

             

Equity

           

   Common stock

 

641

     

641

   Treasury stock, at cost

 

(551,125)

     

(416,829)

   Additional paid-in capital

 

1,141,050

     

1,132,749

   Retained earnings

 

2,490,373

     

2,210,459

      Total Steel Dynamics, Inc. equity

 

3,080,939

     

2,927,020

   Noncontrolling interests

 

(152,698)

     

(149,561)

      Total equity

 

2,928,241

     

2,777,459

      Total liabilities and equity

$

6,670,130

   

$

6,423,732

 

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

                       
                       
 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2017

 

2016

 

2017

 

2016

                       

Operating activities:

                     

   Net income

$

152,947

 

$

140,443

 

$

351,613

 

$

201,761

                       

   Adjustments to reconcile net income to net cash provided by

                     

      operating activities:

                     

      Depreciation and amortization

 

73,801

   

74,795

   

148,858

   

148,780

      Equity-based compensation

 

6,380

   

7,236

   

17,683

   

17,770

      Deferred income taxes

 

6,849

   

18,314

   

14,565

   

35,401

      Other adjustments

 

(43)

   

1,035

   

(147)

   

1,215

      Changes in certain assets and liabilities:

                     

         Accounts receivable

 

(3,746)

   

(103,598)

   

(157,110)

   

(179,194)

         Inventories

 

(57,622)

   

(108,893)

   

(144,441)

   

(26,326)

         Other assets

 

5,418

   

10,613

   

7,531

   

11,161

         Accounts payable

 

(45,445)

   

53,732

   

88,364

   

166,391

         Income taxes receivable/payable

 

(77,587)

   

34,388

   

18,732

   

48,381

         Accrued expenses

 

20,056

   

29,907

   

(24,191)

   

23,660

      Net cash provided by operating activities

 

81,008

   

157,972

   

321,457

   

449,000

                       

Investing activities:

                     

   Purchases of property, plant and equipment

 

(43,274)

   

(35,686)

   

(84,951)

   

(63,394)

   Other investing activities

 

2,387

   

1,206

   

29,305

   

4,260

      Net cash used in investing activities

 

(40,887)

   

(34,480)

   

(55,646)

   

(59,134)

                       

Financing activities:

                     

   Issuance of current and long-term debt

 

51,233

   

63,655

   

51,233

   

84,107

   Repayment of current and long-term debt

 

(34,997)

   

(81,022)

   

(36,426)

   

(85,254)

   Dividends paid

 

(37,527)

   

(34,090)

   

(71,657)

   

(67,515)

   Purchase of treasury stock

 

(76,813)

   

-

   

(138,069)

   

-

   Other financing activities

 

-

   

3,680

   

(3,532)

   

4,430

      Net cash used in financing activities

 

(98,104)

   

(47,777)

   

(198,451)

   

(64,232)

                       

Increase (decrease) in cash and equivalents

 

(57,983)

   

75,715

   

67,360

   

325,634

Cash and equivalents at beginning of period

 

966,826

   

976,951

   

841,483

   

727,032

Cash and equivalents at end of period

$

908,843

 

$

1,052,666

 

$

908,843

 

$

1,052,666

                       
                       

Supplemental disclosure information:

                     

   Cash paid for interest

$

53,976

 

$

45,094

 

$

66,625

 

$

71,380

   Cash paid for income taxes, net

$

152,116

 

$

27,565

 

$

153,670

 

$

28,264

 

Steel Dynamics, Inc.

SUPPLEMENTAL INFORMATION

(dollars in thousands)

 
                                 
     

Second Quarter

   

Year to Date

       
     

2017

   

2016

   

2017

   

2016

   

1Q 2017

 

External Net Sales

       

   Steel

 

$

1,758,242

 

$

1,466,704

 

$

3,479,575

 

$

2,683,880

 

$

1,721,333

 

   Fabrication

   

197,866

   

170,542

   

391,962

   

350,597

   

194,096

 

   Metals Recycling

   

343,529

   

311,060

   

707,365

   

580,467

   

363,836

 

   Other

   

91,083

   

75,596

   

180,034

   

150,259

   

88,951

 

Consolidated

 

$

2,390,720

 

$

2,023,902

 

$

4,758,936

 

$

3,765,203

 

$

2,368,216

 
                                 

Operating Income

                               

   Steel

 

$

273,818

 

$

276,529

 

$

626,241

 

$

412,221

 

$

352,423

 

   Fabrication

   

20,188

   

23,512

   

43,955

   

55,587

   

23,767

 

   Metals Recycling

   

19,988

   

14,686

   

41,329

   

21,046

   

21,341

 

Operations

   

313,994

   

314,727

   

711,525

   

488,854

   

397,531

 
                                 

Non-cash Amortization of Intangible Assets

   

(7,424)

   

(7,051)

   

(14,848)

   

(14,151)

   

(7,424)

 

Profit Sharing Expense

   

(21,308)

   

(20,176)

   

(48,539)

   

(29,467)

   

(27,231)

 

Non-segment Operations

   

(19,909)

   

(31,378)

   

(48,219)

   

(57,149)

   

(28,310)

 

Consolidated Operating Income

 

$

265,353

 

$

256,122

 

$

599,919

 

$

388,087

 

$

334,566

 
                                 
                                 

Adjusted EBITDA

                               

      Earnings Before Taxes

 

$

235,319

 

$

221,294

 

$

539,571

 

$

318,008

 

$

304,252

 

      Net Interest Expense

   

31,629

   

35,379

   

63,962

   

71,529

   

32,333

 

      Depreciation

   

65,014

   

66,234

   

131,283

   

131,609

   

66,269

 

      Amortization of Intangible Assets

   

7,424

   

7,051

   

14,848

   

14,151

   

7,424

 

      Non-controlling Interest

   

985

   

1,526

   

3,137

   

2,945

   

2,152

 

EBITDA

   

340,371

   

331,484

   

752,801

   

538,242

   

412,430

 

      Non-cash Adjustments

                               

         Unrealized Hedging (Gain) Loss

   

724

   

1,188

   

87

   

1,507

   

(637)

 

         Inventory Valuation

 

2,359

   

235

   

2,521

   

427

   

162

 

         Equity-based Compensation

   

6,975

   

7,287

   

16,049

   

14,266

   

9,074

 

Adjusted EBITDA

 

$

350,429

 

$

340,194

 

$

771,458

 

$

554,442

 

$

421,029

 
                                 
                                 

Other Operating Information

                               

   Steel

                               

      Average External Sales Price (Per ton)

 

$

779

 

$

640

 

$

761

 

$

608

 

$

743

 

      Average Ferrous Cost (Per ton melted)

 

$

303

 

$

227

 

$

283

 

$

206

 

$

264

 
                                 

      Flat Roll Shipments

   

1,737,404

   

1,787,797

   

3,473,358

   

3,445,138

   

1,735,954

 

      Long Product Shipments

                               

         Structural and Rail Division

   

311,421

   

356,604

   

661,976

   

649,592

   

350,555

 

         Engineered Bar Products Division

   

180,787

   

122,593

   

372,927

   

247,793

   

192,140

 

         Roanoke Bar Division

   

116,231

   

139,775

   

242,100

   

265,246

   

125,869

 

         Steel of West Virginia

   

76,054

   

84,593

   

153,283

   

160,802

   

77,229

 

Total Shipments (Tons)

   

2,421,897

   

2,491,362

   

4,903,644

   

4,768,571

   

2,481,747

 
                                 

External Shipments (Tons)

   

2,246,569

   

2,291,162

   

4,551,649

   

4,413,034

   

2,305,080

 
                                 

   Metals Recycling

                               

      Total Nonferrous Shipments (000's of pounds)

   

270,444

   

278,198

   

554,047

   

548,608

   

283,603

 

      Total Ferrous Shipments (Gross tons)

   

1,222,777

   

1,346,324

   

2,561,376

   

2,651,478

   

1,338,599

 

 External Ferrous Shipments (Gross tons)

   

466,506

   

539,247

   

951,920

   

1,043,034

   

485,414

 
                                 

   Fabrication

                               

      Average External Sales Price (Per ton)

 

$

1,311

 

$

1,202

 

$

1,301

 

$

1,222

 

$

1,291

 

      Total Shipments (Tons)

   

151,052

   

142,828

   

301,454

   

287,954

   

150,402

 

 

Source:prnewswire.com