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Steel Dynamics Reports Fourth Quarter and Record Annual 2018 Results

FORT WAYNE, Ind., Jan. 22, 2019 /PRNewswire/ --

Annual 2018 Results:

  • Record steel shipments of 10.6 million tons and steel fabrication shipments of 642,000 tons
  • Record net sales of $11.8 billion and operating income of $1.7 billion
  • Record net income of $1.3 billion
  • Record annual cash flow from operations of $1.4 billion and EBITDA of over $2.0 billion

Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced fourth quarter and record annual 2018 financial results. The company reported fourth quarter 2018 net sales of $2.9 billion and net income of $270 million, or $1.17 per diluted share. Excluding the impact from the following items, the company's fourth quarter adjusted net income was $302 million, or $1.31 per diluted share:

  • Additional performance-based compensation of approximately $12 million, or $0.04 per diluted share, awarded to all non-executive, eligible employees in recognition of exceptional performance,
  • Estimated lower earnings of $14 million, or $0.04 per diluted share, associated with a planned outage at the company's liquid pig iron production facility to complete major maintenance items that occur once every three to four years, and
  • Lower earnings from significant planned maintenance outages at the company's two flat roll steel mills, including estimated incremental maintenance costs of $20 million, or $0.06 per diluted share. The outages also reduced fourth quarter flat roll shipments by an estimated 70,000 to 80,000 tons combined.

Comparatively, prior year fourth quarter net sales were $2.3 billion, with net income of $305 million, or $1.28 per diluted share, which included a tax benefit of $0.83 per diluted share primarily related to the U.S. Federal Tax Cuts and Jobs Act of 2017 (TCJA), lower earnings from facility outages of $0.07 per diluted share, and debt refinancing charges of $0.02 per diluted share.  Sequential third quarter 2018 net sales were $3.2 billion, with net income of $398 million, or $1.69 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. We achieved numerous annual records across the business, including steel and fabrication shipments, operating income of $1.7 billion, net income of $1.3 billion, and EBITDA of over $2.0 billion.  Based on a record 2018 annual cash flow generation from operations of $1.4 billion, we were able to maintain strong liquidity, while at the same time growing our business through both organic and transactional growth investments, maintaining a positive dividend profile, and executing on our share repurchase program.  We have a firm foundation for our continued long-term, strategic growth and value creation.

"In 2018, the domestic steel industry benefited from a steady improvement in underlying steel consumption, based on strength from the automotive, construction and energy sectors.  Increased steel consumption, coupled with generally lower finished steel imports, created a strong market environment. Our steel operations achieved record annual operating income of $1.9 billion, far surpassing last year's record of $1.1 billion. Supported by improved domestic steel mill utilization, our metals recycling team increased annual shipments and earnings, and continued to reduce operating costs, resulting in annual operating income of $88 million.               

"Our fabrication platform also achieved record annual shipments in 2018.  However, higher average steel input costs resulted in metal spread compression throughout much of the year, resulting in annual 2018 operating income of $62 million, compared to 2017 operating income of $87 million.  This represents a solid performance in a rising steel cost environment," said Millett. "Customer sentiment remains strong for our fabrication business and the order backlog is even stronger now than it was at this time last year, which is a positive growth indicator for the non-residential construction sector."

Fourth Quarter 2018 Comments

Fourth quarter 2018 operating income for the company's steel operations was strong at $402 million, but decreased 30 percent compared to record sequential third quarter results, based on a six percent decline in shipments, and metal spread compression.  During the fourth quarter, the company also completed two significant planned maintenance outages at both its Butler and Columbus Flat Roll divisions, which increased costs by an estimated $20 million and reduced flat roll shipments during the quarter.  Fourth quarter 2018 operating income attributable to the company's flat roll operations decreased 34 percent when compared to the sequential third quarter.  Operating income from long products decreased 13 percent, primarily related to seasonally lower shipments.  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 2018 average product selling price for the company's steel operations decreased $48 to $940 per ton. The average ferrous scrap cost per ton melted decreased $9 to $343 per ton. 

Fourth quarter 2018 operating income from the company's metals recycling operations was $17 million, compared to $18 million in the sequential third quarter.  Improved average quarterly ferrous and non-ferrous metal spreads were offset by seasonally lower ferrous scrap shipments.

The company's fabrication operations fourth quarter 2018 operating income was $15 million, compared to $13 million in the sequential third quarter.  Earnings increased as improved product pricing more than offset the rise in raw material steel costs and seasonally lower shipments.

Annual 2018 Comparison

Annual 2018 net income was a record $1.3 billion, or $5.35 per diluted share, or excluding the impact from the listed fourth quarter 2018 adjustments, $5.49 per diluted share.  Comparatively, annual 2017 net income was $813 million, or $3.36 per diluted share, which included a tax benefit of $0.76 per diluted share related to the U.S. Federal Tax Cuts and Jobs Act of 2017 (TCJA) and debt refinancing costs of $0.05 per diluted share. 

Annual 2018 net sales were a record $11.8 billion compared to $9.5 billion in 2017.  Revenues from the steel platform increased $2.0 billion, and each of the company's other operating platforms also achieved higher annual sales based on improved product pricing and increased shipments.  Annual 2018 operating income was a record $1.7 billion compared to 2017's record operating income of $1.1 billion, a 61 percent increase. The improvement was driven by record earnings from the company's steel operations, based on record steel shipments and improved steel metal spread. The average 2018 selling price for the company's steel operations increased $157 to $922 per ton. The average 2018 ferrous scrap cost per ton melted increased $48 to $341 per ton. 

The company generated record cash flow from operations of $1.4 billion during 2018.  As evidence of the confidence in the company's outlook and sustainable long-term cash flow generation capability, the board of directors authorized an additional $750 million share repurchase program in September, following the completion of its $450 million authorization in August 2018.  The company repurchased 5.5% of its outstanding shares, or $524 million, during 2018.  

Outlook    

"We believe the market dynamics are in place for domestic steel consumption to continue to increase this year," said Millett.  "Based on strong domestic steel demand fundamentals and continued customer optimism, we believe North American steel consumption will experience steady growth.  In combination with our existing and newly announced expansion initiatives, we believe there are firm drivers for our continued growth.  We are excited about our new planned flat roll steel mill that was announced in the fourth quarter, and the anticipated long-term value creation it will bring through geographic and value-added product diversification.  The new mill will have capabilities beyond existing EAF flat roll steel producers, competing even more effectively with the integrated steel model and foreign competition.  We have targeted regional markets that currently represent over 27 million tons of relevant flat roll steel consumption, which includes the growing 16 million ton Mexican flat roll market.  Our new planned steel mill will have significant competitive advantages in those regions. 

"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 transactional growth opportunities," concluded Millett.

Conference Call and Webcast

Steel Dynamics, Inc. will hold a conference call to discuss fourth quarter and annual 2018 operating and financial results on Tuesday, January 22, 2019, 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 27, 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 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 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, manufacturing, appliance, pipe and tube, and other steel-consuming industries; (4) fluctuation in the cost of key raw materials and supplies (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


2018


2017


2018


2017


September
30, 2018
















Net sales

$

2,903,892


$

2,336,479


$

11,821,839


$

9,538,797


$

3,223,547

Costs of goods sold


2,382,657



2,015,655



9,499,025



7,956,783



2,537,466

      Gross profit


521,235



320,824



2,322,814



1,582,014



686,081
















Selling, general and administrative expenses


106,564



96,209



416,640



394,631



102,614

Profit sharing


41,684



21,595



155,985



91,309



45,304

Amortization of intangible assets


7,434



7,073



27,780



29,193



6,591

      Operating income


365,553



195,947



1,722,409



1,066,881



531,572
















Interest expense, net of capitalized interest


31,652



32,380



126,620



134,399



31,560

Other expense (income), net


(7,384)



2,215



(23,985)



(2,753)



(7,103)

      Income before income taxes


341,285



161,352



1,619,774



935,235



507,115
















Income tax expense


71,433



(141,819)



363,969



129,439



109,209

      Net income


269,852



303,171



1,255,805



805,796



397,906

Net loss attributable to noncontrolling interests


152



1,562



2,574



6,945



469

      Net income attributable to Steel Dynamics, Inc.

$

270,004


$

304,733


$

1,258,379


$

812,741


$

398,375































Basic earnings per share attributable to















   Steel Dynamics, Inc. stockholders

$

1.18


$

1.28


$

5.38


$

3.38


$

1.70
















Weighted average common shares outstanding


229,245



237,177



233,923



240,132



234,208
















Diluted earnings per share attributable to















   Steel Dynamics, Inc. stockholders, including the effect















   of assumed conversions when dilutive

$

1.17


$

1.28


$

5.35


$

3.36


$

1.69
















Weighted average common shares















   and share equivalents outstanding


230,455



238,677



235,193



241,781



235,649































Dividends declared per share

$

0.1875


$

0.1550


$

0.7500


$

0.6200


$

0.1875

 

 

Steel Dynamics, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands)
















December 31,



December 31,

Assets

2018



2017


(unaudited)





Current assets







   Cash and equivalents

$

828,220



$

1,028,649

   Short term investments


228,783




-

   Accounts receivable, net


1,043,756




868,837

   Inventories


1,859,168




1,519,347

   Other current assets


72,730




91,509

      Total current assets


4,032,657




3,508,342








Property, plant and equipment, net


2,945,767




2,675,904








Intangible assets, net


270,328




256,909








Goodwill


429,645




386,893








Other assets


25,166




27,684

      Total assets

$

7,703,563



$

6,855,732

Liabilities and Equity







Current liabilities







   Accounts payable

$

550,754



$

489,448

   Income taxes payable


7,468




3,696

   Accrued expenses


436,681




346,580

   Current maturities of long-term debt


24,234




28,795

      Total current liabilities


1,019,137




868,519








Long-term debt


2,352,489




2,353,145








Deferred income taxes


435,838




305,949








Other liabilities


8,870




21,811

      Total liabilities


3,816,334




3,549,424








Commitments and contingencies














Redeemable noncontrolling interests


111,240




111,240








Equity







   Common stock


645




644

   Treasury stock, at cost


(1,184,243)




(665,297)

   Additional paid-in capital


1,160,048




1,141,534

   Retained earnings


3,958,320




2,874,693

   Accumulated other comprehensive income


301




-

      Total Steel Dynamics, Inc. equity


3,935,071




3,351,574

   Noncontrolling interests


(159,082)




(156,506)

      Total equity


3,775,989




3,195,068

      Total liabilities and equity

$

7,703,563



$

6,855,732

 

 

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


























Three Months Ended


Year Ended


December 31,


December 31,


2018


2017


2018


2017













Operating activities:












   Net income

$

269,852


$

303,171


$

1,255,805


$

805,796













   Adjustments to reconcile net income to net cash provided by












      operating activities:












      Depreciation and amortization


80,560



74,931



317,198



298,999

      Equity-based compensation


14,457



11,639



43,317



36,197

      Deferred income taxes


16,390



(153,748)



61,827



(135,899)

      Other adjustments


(1,442)



6,013



(1,245)



14,068

      Changes in certain assets and liabilities:












         Accounts receivable


184,434



54,179



(145,873)



(139,054)

         Inventories


(5,305)



(31,157)



(246,213)



(242,883)

         Other assets


3,689



6,016



(3,475)



4,002

         Accounts payable


(62,464)



(37,189)



37,904



96,062

         Income taxes receivable/payable


(28,943)



(39,692)



26,471



(33,889)

         Accrued expenses


19,833



(2,037)



69,753



36,021

      Net cash provided by operating activities


491,061



192,126



1,415,469



739,420













Investing activities:












   Purchases of property, plant and equipment


(62,913)



(37,189)



(239,390)



(164,935)

   Purchases of short term investments


(143,783)



-



(268,783)



-

   Proceeds from maturities of short term investments


30,000



-



40,000



-

   Acquisition of business, net of cash and restricted cash acquired


-



(674)



(433,998)



(6,192)

   Other investing activities


5,445



1,636



6,907



32,022

      Net cash used in investing activities


(171,251)



(36,227)



(895,264)



(139,105)













Financing activities:












   Issuance of current and long-term debt


117,937



118,593



445,607



620,041

   Repayment of current and long-term debt


(109,329)



(278,575)



(455,491)



(609,914)

   Dividends paid


(43,767)



(36,728)



(168,913)



(145,565)

   Purchase of treasury stock


(330,190)



(15,088)



(523,569)



(252,242)

   Other financing activities


(10,177)



(17,291)



(18,501)



(25,655)

      Net cash used in financing activities


(375,526)



(229,089)



(720,867)



(413,335)













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


(55,716)



(73,190)



(200,662)



186,980

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


890,139



1,108,275



1,035,085



848,105

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

$

834,423


$

1,035,085


$

834,423


$

1,035,085

























Supplemental disclosure information:












   Cash paid for interest

$

53,536


$

55,226


$

124,034


$

135,381

   Cash paid for income taxes, net

$

89,677


$

49,701


$

288,429


$

296,493

 

 

Steel Dynamics, Inc.

SUPPLEMENTAL INFORMATION

(dollars in thousands)















































Fourth Quarter



Year to Date













2018



2017



2018



2017



1Q 2018



2Q 2018



3Q 2018

External Net Sales






















   Steel


$

2,198,459


$

1,669,384


$

8,920,719


$

6,931,764


$

1,921,790


$

2,325,426


$

2,475,044

   Fabrication



251,592



220,515



921,148



823,782



201,492



217,439



250,625

   Metals Recycling



352,555



354,460



1,552,600



1,410,040



388,122



424,704



387,219

   Other



101,286



92,120



427,372



373,211



92,471



122,956



110,659

Consolidated


$

2,903,892


$

2,336,479


$

11,821,839


$

9,538,797


$

2,603,875


$

3,090,525


$

3,223,547























Operating Income






















   Steel


$

402,252


$

207,358


$

1,855,109


$

1,113,884


$

338,357


$

537,192


$

577,308

   Fabrication



14,902



21,601



62,064



87,459



19,832



14,185



13,145

   Metals Recycling



16,954



22,379



88,251



84,826



27,805



25,728



17,764

Operations



434,108



251,338



2,005,424



1,286,169



385,994



577,105



608,217























   Non-cash Amortization of Intangible Assets



(7,434)



(7,073)



(27,780)



(29,193)



(6,926)



(6,829)



(6,591)

   Profit Sharing Expense



(41,684)



(21,595)



(155,985)



(91,309)



(26,662)



(42,335)



(45,304)

   Non-segment Operations



(19,437)



(26,723)



(99,250)



(98,786)



(29,009)



(26,054)



(24,750)

Consolidated Operating Income


$

365,553


$

195,947


$

1,722,409


$

1,066,881


$

323,397


$

501,887


$

531,572























Adjusted EBITDA






















      Earnings Before Taxes


$

341,285


$

161,352


$

1,619,774


$

935,235


$

295,964


$

475,410


$

507,115

      Net Interest Expense



24,738



28,990



104,042



124,250



27,482



25,928



25,894

      Depreciation



71,765



66,460



283,890



264,317



67,823



70,871



73,431

      Amortization of Intangible Assets



7,434



7,073



27,780



29,193



6,926



6,829



6,591

      Non-controlling Interest



151



1,562



2,573



6,945



2,077



(124)



469

 EBITDA



445,373



265,437



2,038,059



1,359,940



400,272



578,914



613,500

      Non-cash Adjustments






















         Unrealized Hedging (Gain) Loss



(2,510)



7,325



(6,600)



4,688



(9,956)



2,836



3,030

         Inventory Valuation


666



198



2,148



2,955



200



265



1,017

         Equity-based Compensation



14,457



11,636



40,390



34,560



9,580



8,375



7,978

         Financing Expenses



-



1,242



-



2,635



-



-



-

Adjusted EBITDA


$

457,986


$

285,838


$

2,073,997


$

1,404,778


$

400,096


$

590,390


$

625,525























Other Operating Information






















   Steel






















      Average External Sales Price (Per ton) *


$

940


$

761


$

922


$

765


$

822


$

932


$

988

      Average Ferrous Cost (Per ton melted) #


$

343


$

300


$

341


$

293


$

321


$

348


$

352























      Flat Roll Shipments






















         Butler and Columbus Flat Roll Divisions



1,493,894



1,467,841



6,207,019



6,077,942



1,548,814



1,601,498



1,562,813

         Techs and Heartland Divisions



262,642



191,208



974,266



787,471



194,762



222,303



294,559

      Long Product Shipments






















         Structural and Rail Division



389,107



339,597



1,630,235



1,339,558



368,783



441,019



431,326

         Engineered Bar Products Division



217,646



191,652



922,839



757,027



215,150



250,092



239,951

         Roanoke Bar Division



150,607



107,319



559,801



470,071



123,403



140,143



145,648

         Steel of West Virginia



70,367



66,724



315,603



294,908



83,732



78,881



82,623

Total Shipments (Tons)



2,584,263



2,364,341



10,609,763



9,726,977



2,534,644



2,733,936



2,756,920























External Shipments (Tons) *



2,328,420



2,184,135



9,625,291



9,015,013



2,327,515



2,480,223



2,489,133























         Steel Production (Tons) *



2,677,613



2,437,851



10,899,776



9,995,082



2,601,200



2,768,512



2,852,451























   Metals Recycling






















      Nonferrous Shipments (000's of pounds)



278,418



271,036



1,131,412



1,086,799



271,628



304,034



277,332

      Ferrous Shipments (Gross tons)



1,215,474



1,172,015



5,123,553



4,952,973



1,256,899



1,347,016



1,304,164

External Ferrous Shipments (Gross tons)



414,941



429,512



1,777,418



1,844,115



436,990



466,125



459,362























   Fabrication






















      Average External Sales Price (Per ton)


$

1,550


$

1,335


$

1,437


$

1,314


$

1,345


$

1,380


$

1,461

      Shipments (Tons)



162,292



165,338



641,698



627,274



149,926



157,902



171,578























*  Includes all steel operations




#  Includes ferrous cost per ton melted at our six electric-arc-furnace steel mills




 

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