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Steel Dynamics Reports Second Quarter 2019 Results

FORT WAYNE, Ind., July 22, 2019 /PRNewswire/ -- Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced second quarter 2019 financial results. The company reported second quarter 2019 net sales of $2.8 billion and net income of $194 million, or $0.87 per diluted share. Comparatively, prior year second quarter net income was $362 million, or $1.53 per diluted share, with net sales of $3.1 billion. Sequential first quarter 2019 net income was $204 million, or $0.91 per diluted share, with net sales of $2.8 billion.     

"Our second quarter 2019 consolidated operating income was $285 million and adjusted EBITDA $365 million," said Mark D. Millett, President and Chief Executive Officer.  "The team delivered a solid second quarter performance in a challenging steel pricing environment.  A weakening scrap price environment coupled with steel inventory destocking led to steel buying hesitancy. Despite these challenges, supported by the addition of United Steel Supply and the continued ramp-up of Heartland, our steel platform shipments improved.  As underlying steel demand remains constructive and scrap prices have steadied, we have recently seen stabilization and improvement in flat roll steel prices, resulting in increased flat roll order activity and improved order backlogs. However, structural, merchant bar, and reinforcing bar steel pricing remain pressured from domestic and import market competition.

"Underlying domestic steel demand remains intact, and we are seeing continued positive activity across most of the steel consuming sectors, including automotive, energy and industrial customers.  Additionally, as evidenced by our strong steel fabrication backlog, strength continues in non-residential construction." 

The company generated strong cash flow from operations of $361 million during the second quarter 2019 and increased liquidity to $2.3 billion. The company paid cash dividends of $54 million and repurchased $93 million of its common stock during the second quarter 2019. 

Second Quarter 2019 Comments

Second quarter 2019 operating income for the company's steel operations was $295 million, or six percent lower than sequential first quarter 2019 results. The decline in earnings resulted from metal spread compression which more than offset the three percent increase in overall steel shipments related to the ramp-up of the Heartland facility and the recent addition of United Steel Supply.  The sequential earnings decline was primarily driven by lower shipments and product pricing within the company's long product steel operations. The second quarter 2019 average external product selling price for the company's overall steel operations decreased $23 sequentially to $879 per ton.  The average ferrous scrap cost per ton melted at the company's steel mills decreased $22 to $316 per ton.

The company's steel processing locations (Heartland, Techs, United Steel Supply and Vulcan) represented 16 percent of the shipment mix in the second quarter 2019, compared to 13 percent in the sequential quarter and nine percent in the prior year second quarter.  These locations use steel products as their primary raw material, and the associated steel procurement cost represented 18 percent of the steel operations cost of goods sold for the second quarter 2019, 15 percent for the sequential quarter, and nine percent for the prior year second quarter. 

Second quarter 2019 operating income from the company's metals recycling operations decreased to $11 million, compared to $20 million in the sequential first quarter, as a result of both lower nonferrous shipments and ferrous selling values.  Both prime and obsolete scrap indices fell almost $90 per gross ton from March to June 2019.  As scrap flows started to slow based on lower procurement values, scrap pricing appears to have stabilized in July. 

Second quarter 2019 operating income from the company's steel fabrication operations was a strong $31 million, or 49 percent higher than sequential first quarter results. Earnings improved as higher shipments and lower raw material steel input costs, resulted in expanded profit margins. The steel fabrication platform order backlog remains strong, and customers remain optimistic concerning non-residential construction projects.  

Year-to-Date June 30, 2019 Comparison

For the six months ended June 30, 2019, net income was $399 million, or $1.78 per diluted share, with net sales of $5.6 billion, as compared to net income of $590 million, or $2.49 per diluted share, with net sales of $5.7 billion for the same period in 2018.  Although net sales remained consistent, first half 2019 operating income decreased 30 percent from record high 2018 results of $825 million, to $577 million.  The decline in earnings was driven by decreased product pricing at the company's Butler and Columbus Flat Roll divisions as hot roll coil price indices fell approximately $200 per ton, or over 25 percent, since December 2018. 

Compared to the first half 2018, the average first half 2019 external selling price for the company's overall steel operations increased $11 to $890 per ton, based on additional volumes from the company's Heartland and United Steel Supply locations. The average first half 2019 ferrous scrap cost per ton melted at the company's steel mills decreased $7 to $327 per ton.

The company generated strong cash flow from operations of $543 million, paid cash dividends of $96 million, and repurchased $177 million of its common stock during the first half of 2019.

Outlook   

"Based on domestic steel demand fundamentals, we are constructive concerning second half 2019 North American steel market dynamics," said Millett. "We believe steel consumption will experience modest growth and will be supported by further steel import reductions and the end of steel inventory destocking.  There have been recent trade actions that we believe 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 U.S. 

"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 planned flat roll steel mill, and the anticipated long-term value creation it will bring through geographic and value-added product diversification. We plan for the new steel mill to have product capabilities beyond existing electric-arc-furnace flat roll steel producers today, 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 should have a meaningful competitive advantage 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 long-term shareholder value through organic and transactional growth opportunities," concluded Millett.

Conference Call and Webcast

Steel Dynamics, Inc. will hold a conference call to discuss second quarter 2019 operating and financial results on Tuesday, July 23, 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 July 28, 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 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) 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 import price competition; (6) unanticipated difficulties in integrating or starting up new or acquired 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


Six Months Ended


Three Months


June 30,


June 30,


Ended


2019


2018


2019


2018


March 31, 2019
















Net sales

$

2,770,515


$

3,090,525


$

5,587,950


$

5,694,400


$

2,817,435

Costs of goods sold


2,349,349



2,438,443



4,733,214



4,578,902



2,383,865

      Gross profit


421,166



652,082



854,736



1,115,498



433,570
















Selling, general and administrative expenses


106,250



101,031



217,288



207,462



111,038

Profit sharing


22,871



42,335



46,548



68,997



23,677

Amortization of intangible assets


7,013



6,829



14,026



13,755



7,013

      Operating income


285,032



501,887



576,874



825,284



291,842
















Interest expense, net of capitalized interest


32,321



31,512



63,443



63,408



31,122

Other expense (income), net


(4,249)



(5,035)



(10,592)



(9,498)



(6,343)

      Income before income taxes


256,960



475,410



524,023



771,374



267,063
















Income tax expense


60,214



112,838



122,450



183,327



62,236

      Net income


196,746



362,572



401,573



588,047



204,827

Net (income) loss attributable to noncontrolling interests


(2,444)



(123)



(2,943)



1,953



(499)

      Net income attributable to Steel Dynamics, Inc.

$

194,302


$

362,449


$

398,630


$

590,000


$

204,328































Basic earnings per share attributable to















   Steel Dynamics, Inc. stockholders

$

0.88


$

1.54


$

1.79


$

2.50


$

0.91
















Weighted average common shares outstanding


221,505



235,617



224,058



236,120



224,058
















Diluted earnings per share attributable to















   Steel Dynamics, Inc. stockholders, including the effect















   of assumed conversions when dilutive

$

0.87


$

1.53


$

1.78


$

2.49


$

0.91
















Weighted average common shares















   and share equivalents outstanding


222,519



236,945



223,741



237,334



224,962































Dividends declared per share

$

0.2400


$

0.1875


$

0.4800


$

0.3750


$

0.2400

 

 

Steel Dynamics, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands)









June 30,



December 31,

Assets

2019



2018


(unaudited)





Current assets







   Cash and equivalents

$

972,561



$

828,220

   Short term investments


114,154




228,783

   Accounts receivable, net


1,072,879




1,043,756

   Inventories


1,802,759




1,859,168

   Other current assets


61,248




72,730

      Total current assets


4,023,601




4,032,657








Property, plant and equipment, net


2,947,243




2,945,767








Intangible assets, net


256,302




270,328








Goodwill


526,462




429,645








Other assets


104,306




25,166

      Total assets

$

7,857,914



$

7,703,563








Liabilities and Equity














Current liabilities







   Accounts payable

$

525,156



$

550,754

   Income taxes payable


3,032




7,468

   Accrued expenses


325,417




436,681

   Current maturities of long-term debt


72,131




24,234

      Total current liabilities


925,736




1,019,137








Long-term debt


2,355,917




2,352,489








Deferred income taxes


457,784




435,838








Other liabilities


70,196




8,870

      Total liabilities


3,809,633




3,816,334








Commitments and contingencies














Redeemable noncontrolling interests


139,930




111,240








Equity







   Common stock


645




645

   Treasury stock, at cost


(1,354,157)




(1,184,243)

   Additional paid-in capital


1,167,505




1,160,048

   Retained earnings


4,250,419




3,958,320

   Accumulated other comprehensive income


78




301

      Total Steel Dynamics, Inc. equity


4,064,490




3,935,071

   Noncontrolling interests


(156,139)




(159,082)

      Total equity


3,908,351




3,775,989

      Total liabilities and equity

$

7,857,914



$

7,703,563

 

 

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)














Three Months Ended


Six Months Ended


June 30,


June 30,


2019


2018


2019


2018













Operating activities:












   Net income

$

196,746


$

362,572


$

401,573


$

588,047













   Adjustments to reconcile net income to net cash provided by












      operating activities:












      Depreciation and amortization


80,911



79,120



161,085



155,255

      Equity-based compensation


9,080



8,041



24,388



20,882

      Deferred income taxes


11,550



11,993



23,641



21,538

      Other adjustments


(564)



(145)



164



(115)

      Changes in certain assets and liabilities:












         Accounts receivable


70,624



(163,465)



9,562



(282,283)

         Inventories


64,941



(90,312)



104,410



(171,023)

         Other assets


7,292



(630)



7,593



(735)

         Accounts payable


(58,484)



48,919



(55,278)



115,251

         Income taxes receivable/payable


(36,428)



22,579



13,422



86,541

         Accrued expenses


15,805



47,361



(147,534)



(29,390)

      Net cash provided by operating activities


361,473



326,033



543,026



503,968













Investing activities:












   Purchases of property, plant and equipment


(85,120)



(55,203)



(139,556)



(105,809)

   Purchases of short term investments


(49,465)



(50,000)



(99,142)



(90,000)

   Proceeds from maturities of short term investments


109,034



-



213,771



-

   Acquisition of business, net of cash and restricted cash acquired


-



(396,409)



(93,412)



(396,409)

   Other investing activities


913



657



1,277



886

      Net cash used in investing activities


(24,638)



(500,955)



(117,062)



(591,332)













Financing activities:












   Issuance of current and long-term debt


125,222



124,571



246,456



217,629

   Repayment of current and long-term debt


(133,875)



(118,089)



(249,146)



(231,123)

   Dividends paid


(53,503)



(44,268)



(95,742)



(81,065)

   Purchase of treasury stock


(93,136)



(49,145)



(177,444)



(118,414)

   Other financing activities


(12)



(3,144)



(5,732)



(8,324)

      Net cash used in financing activities


(155,304)



(90,075)



(281,608)



(221,297)













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


181,531



(264,997)



144,356



(308,661)

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


797,248



991,421



834,423



1,035,085

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

$

978,779


$

726,424


$

978,779


$

726,424

























Supplemental disclosure information:












   Cash paid for interest

$

53,981


$

53,226


$

62,587


$

61,855

   Cash paid for income taxes, net

$

84,516


$

79,995


$

86,355


$

78,950

 

 

Steel Dynamics, Inc.

SUPPLEMENTAL INFORMATION

(dollars in thousands)






















Second Quarter



Year to Date









2019



2018



2019



2018



1Q 2019


External Net Sales


















   Steel



$

2,106,350


$

2,325,426


$

4,230,920


$

4,247,216


$

2,124,570


   Fabrication




241,424



217,439



469,904



418,931



228,480


   Metals Recycling




323,100



424,704



674,237



812,826



351,137


   Other




99,641



122,956



212,889



215,427



113,248


      Consolidated 


$

2,770,515


$

3,090,525


$

5,587,950


$

5,694,400


$

2,817,435


Operating Income


















   Steel



$

294,769


$

537,192


$

607,206


$

875,549


$

312,437


   Fabrication




30,706



14,185



51,369



34,017



20,663


   Metals Recycling




10,614



25,728



30,572



53,533



19,958


      Operations




336,089



577,105



689,147



963,099



353,058




















   Non-cash amortization of intangible assets




(7,013)



(6,829)



(14,026)



(13,755)



(7,013)


   Profit sharing expense




(22,871)



(42,335)



(46,548)



(68,997)



(23,677)


   Non-segment operations




(21,173)



(26,054)



(51,699)



(55,063)



(30,526)


      Consolidated Operating Income 


$

285,032


$

501,887


$

576,874


$

825,284


$

291,842


Adjusted EBITDA


















      Net income



$

196,746


$

362,572


$

401,573


$

588,047


$

204,827


      Income taxes




60,214



112,838



122,450



183,327



62,236


      Net interest expense




25,598



25,928



49,615



53,410



24,017


      Depreciation




72,585



70,871



144,431



138,694



71,846


      Amortization of intangible assets




7,013



6,829



14,026



13,755



7,013


      Noncontrolling interest




(2,444)



(124)



(2,943)



1,953



(499)


            EBITDA 



359,712



578,914



729,152



979,186



369,440


      Non-cash adjustments


















         Unrealized hedging (gain) loss




(3,719)



2,836



(1,977)



(7,120)



1,742


         Inventory valuation



351



265



592



465



241


         Equity-based compensation




9,080



8,375



19,699



17,955



10,619


            Adjusted EBITDA 


$

365,424


$

590,390


$

747,466


$

990,486


$

382,042


Other Operating Information


















   Steel


















      Average external sales price (Per ton) *



$

879


$

932


$

890


$

879


$

902


      Average ferrous cost (Per ton melted) #



$

316


$

348


$

327


$

334


$

338




















      Flat Roll shipments


















         Butler and Columbus Flat Roll Divisions




1,574,463



1,601,498



3,101,314



3,150,312



1,526,851


         Techs, Heartland, and USS Divisions (processing)




422,849



222,303



753,624



417,065



330,775


      Long Product shipments


















         Structural and Rail Division




352,013



441,019



728,276



809,802



376,263


         Engineered Bar Products Division




195,644



250,092



402,518



465,242



206,874


         Roanoke Bar Division




128,460



140,143



280,860



263,546



152,400


         Steel of West Virginia




95,929



78,881



187,177



162,613



91,248


            Total shipments (Tons



2,769,358



2,733,936



5,453,769



5,268,580



2,684,411




















            External shipments (Tons) * 



2,386,851



2,480,223



4,734,060



4,807,738



2,347,209




















            Steel production (Tons) * 



2,769,910



2,768,512



5,515,038



5,369,712



2,745,128


   Metals Recycling


















      Nonferrous shipments (000's of pounds)




266,222



304,034



558,260



575,662



292,038


      Ferrous shipments (Gross tons)




1,189,679



1,347,016



2,361,040



2,603,915



1,171,361


            External ferrous shipments (Gross tons)



425,477



466,125



808,318



903,115



382,841


   Fabrication


















      Average external sales price (Per ton)



$

1,538


$

1,380


$

1,556


$

1,363


$

1,575


      Shipments (Tons)




156,983



157,902



302,205



307,828



145,222




















*    Includes all steel operations

#    Includes ferrous cost per ton melted at our steel mills


 

Cision

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