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Steel Dynamics Reports Third Quarter 2019 Results

FORT WAYNE, Ind., Oct. 16, 2019 /PRNewswire/ -- 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




Cision

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