Steel Dynamics Reports Second Quarter 2015 Results

Jul 20, 2015, 18:00 ET from Steel Dynamics, Inc.

FORT WAYNE, Ind., July 20, 2015 /PRNewswire/ -- Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced second quarter 2015 adjusted net income of $53 million, or $0.22 per diluted share, and adjusted operating income of $120 million, which excludes the following items:

  • Excluding non-controlling interests, approximately $29 million, or $0.07 per diluted share, of expenses associated with the second quarter 2015 long-term idle of company's Minnesota Operations. These costs include non-cash inventory valuation adjustments of approximately $21 million.
  • Approximately $9 million, or $0.02 per diluted share, of reduced earnings related to a planned furnace maintenance outage at Iron Dynamics that generally is required once every five years.

Including these items, the company reported second quarter 2015 net income of $32 million, or $0.13 per diluted share, on net sales of $2.0 billion

Comparatively, prior year second quarter net income was $72 million, or $0.31 per diluted share, on net sales of $2.1 billion, and sequential first quarter 2015 net sales were $2.0 billion, with adjusted net income of $40 million, or $0.17 per diluted share, which excluded the impact of refinancing charges of $0.04 per diluted share. 

"The second quarter 2015 market environment remained extremely challenging for our steel and metals recycling operations," said Mark D. Millett, Chief Executive Officer. "The ongoing flood of steel imports continued to pressure steel product pricing to a greater degree than the benefit realized from lower scrap costs, compressing second quarter steel margins.  However, due to continued solid U.S. steel demand, our second quarter steel shipments improved, which offset most of the margin compression.  Steel pricing has recently stabilized and domestic steel consumption from the automotive, manufacturing and construction sectors should support a stronger domestic steel industry in the second half of the year, predicated upon the expectation of reduced levels of imported steel and sustainable lower raw material costs. 

"An important barometer for domestic steel consumption is the strength of the construction industry.  Historically, the construction industry has been the largest single domestic steel consuming sector, and it is continuing to strengthen this year," continued Millett.  "For the second quarter 2015, our fabrication operations achieved record profitability.  Strong demand has allowed for stable product pricing, while order inquiries and bookings remain robust, confirming the positive trend in the non-residential construction market. 

"Despite the import headwinds, we achieved over a 20 percent improvement in sequential second quarter 2015 adjusted operating income (excluding the idled Minnesota Operations and the Iron Dynamics outage impact), based on record fabrication performance and significantly improved metals recycling results, as scrap pricing volatility subsided in the quarter.  We believe the key scrap supply factors of export activity and the strength of the U.S. dollar will continue to mute extreme scrap pricing volatility," concluded Millett.  

The company generated strong cash flow from operations of $309 million during the second quarter 2015, representing a 32 percent increase from the sequential quarter.  For the first six months of 2015, the company generated $544 million of cash flow from operations, and after considering the impact of capital expenditures, generated $488 million of free cash flow, or $2.02 per common share outstanding.    

Additional Second Quarter 2015 Comments

While steel import levels remained high, continued strength in U.S. steel consumption resulted in increased steel and metals recycling shipments.  Second quarter 2015 operating income for the company's steel operations decreased 3 percent to $110 million, due to metal spread compression, which was largely offset by a 15 percent increase in steel shipments.  Steel metal spread contracted in the second quarter 2015 as a function of the excessive import levels, which caused steel product pricing to decline more rapidly than scrap raw material costs.  The average product selling price for the company's steel operations decreased $101 to $662 per ton.  The average ferrous scrap cost per ton melted decreased $57 to $255 per ton.

Second quarter 2015 operating income attributable to the company's sheet products decreased 15 percent when compared to the sequential quarter.  Although the company's flat roll shipments increased 24 percent, metal spread contracted meaningfully, as flat roll products were the most negatively impacted by high import volumes and existing customer inventory levels.  Operating income from long products increased ten percent, as construction-related and rail volumes improved.  Driven by stronger flat roll volume, the company's steel production utilization rate significantly recovered to 87 percent for the second quarter 2015, which is higher than both the average U.S. domestic steel mill utilization rate and the company's first quarter 2015 utilization rate of 73 percent.

The company's metals recycling operations recorded second quarter 2015 operating income of $12.3 million compared to a slight operating loss in the first quarter 2015, based on both increased ferrous shipments and margins as steel mill utilization improved and scrap price volatility subsided. 

The company's fabrication operations continued to achieve record financial performance.  Second quarter 2015 operating income of $27.7 million surpassed the fourth quarter 2014 previous record by 27 percent.   Sustained strong demand combined with lower raw material steel costs, supported metal spread expansion.

As discussed in the company's May 26, 2015, press release, management and the board of directors elected to idle the Minnesota Operations for an initial twenty-four month period given the significant and sustained decline in pig iron pricing, which resulted in the cost of iron nugget production being meaningfully higher than product selling values.  The strength of the U.S. dollar and world iron ore supply support lower pig iron prices for the foreseeable future.  Given the company's Minnesota Operations were intended to serve as a hedge against high priced pig iron and scrap, the indefinite idle was a prudent and necessary response to the prevailing market environment. While the lower raw material cost environment advantages the company's steel operations, it has resulted in an uneconomic situation for its Minnesota iron production operations.

Year-to-Date Comparison

For the first six months ended June 30, 2015, net income was $62 million, or $0.26 per diluted share, on net sales of $4.1 billion, as compared to net income of $111 million, or $0.48 per diluted share, on net sales of $3.9 billion for the six months ended June 30, 2014.  Year-to-date consolidated net sales increased four percent, primarily as a result of the acquisition of the Columbus flat roll steel mill in September 2014, resulting in higher first half 2015 steel shipments that more than offset the 26 percent decline in metals recycling revenue.   Year-to-date consolidated operating income decreased $36 million, or 17 percent, as the result of both decreased steel prices and the additional costs incurred in the second quarter 2015 from the company's iron production facilities.  Excluding the impact from idling the Minnesota iron production facilities and the Iron Dynamics maintenance outage, year-to-date adjusted consolidated operating income improved three percent, to $220 million, based on improved fabrication results.  The average selling price for the company's steel operations decreased $125 per ton.  The average ferrous scrap cost per ton melted decreased $91 per ton.   

Outlook   

"Based on an expected reduction in steel import volume and sustained lower scrap costs, we anticipate improved financial results in the second half of 2015," said Millett.  "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 additional growth.  The recently announced paint line addition at our Columbus Flat Roll Division is an example of an investment that provides an excellent financial return, further diversifying our product capabilities into higher margin market segments at this facility.  Customer focus, coupled with our market diversification and low-cost operating platforms, support our ability to maintain our best-in-class performance. We believe we are poised to capitalize on meaningful growth opportunities, both near-term and in the future, that will benefit our customers, shareholders, employees and communities," concluded Millett.

 

Supplemental Quarterly Information






Second Quarter


Year to Date








2015


2014


2015


2014


1Q 2015

External Net Sales




(Dollars in thousands)


Steel




$ 1,375,677


$ 1,265,104


$ 2,761,096


$ 2,382,702


$ 1,385,419


Fabrication




154,513


134,852


315,536


250,713


161,023


Metals Recycling



391,210


580,509


816,806


1,103,633


425,596


Ferrous Resources



70,423


64,707


123,541


117,357


53,118


Other




13,184


24,589


35,463


45,438


22,279




Consolidated 


$ 2,005,007


$ 2,069,761


$ 4,052,442


$ 3,899,843


$ 2,047,435















Operating Income














Steel




$    109,961


$    158,083


$    223,532


$    265,859


$    113,571


Fabrication




27,660


7,590


49,021


10,716


21,361


Metals Recycling



12,300


18,398


11,820


27,947


(480)


Ferrous Resources



(43,465)


(19,915)


(56,032)


(40,445)


(12,567)




Operations


106,456


164,156


228,341


264,077


121,885
















Non-cash Amortization of Intangible Assets

(6,493)


(6,934)


(12,816)


(13,869)


(6,323)


Profit Sharing Expense



(5,031)


(10,469)


(9,629)


(15,864)


(4,598)


Non-segment Operations



(17,373)


(14,848)


(28,566)


(21,507)


(11,193)




Consolidated Operating Income


77,559


131,905


177,330


212,837


99,771


Minnesota Idle Charges (Including Minority Interests)

33,167


-


33,167


-


-


Iron Dynamics Outage Impact 


9,403


-


9,403


-


-




Adjusted Operating Income (1)


$    120,129


$    131,905


$    219,900


$    212,837


$      99,771















External Shipments














Steel (In tons)



2,078,685


1,518,882


3,895,056


2,857,455


1,816,371




Steel Shipped to Internal Locations


163,723


158,884


296,372


271,043


132,649


Fabrication (In tons)



109,662


105,188


222,391


199,855


112,729


Metals Recycling














Nonferrous (In 000's of pounds)

253,273


270,271


494,853


521,859


241,580



Ferrous (In gross tons)


626,264


769,046


1,268,344


1,418,598


642,080




Ferrous Scrap Shipped to Internal Steel Mills


731,491


653,651


1,322,412


1,368,632


590,921















Other Operating Information













Steel















Average External Sales Price (Per ton shipped)

$           662


$           833


$           709


$           834


$           763



Average Ferrous Cost (Per ton melted)

$           255


$           364


$           280


$           371


$           312



Flat Roll  Shipments














Butler Division

721,115


778,220


1,300,608


1,419,740


579,493




Columbus Division (Acquired Sept 2014)

693,772


-


1,258,013


-


564,241




The Techs


182,239


191,934


328,173


345,171


145,934



Long Product Shipments














Structural and Rail Division-Structural

227,338


282,681


464,982


531,061


237,644




Structural and Rail Division-Rail

74,912


53,699


141,620


97,635


66,708




Engineered Bar Products Division

120,559


152,768


276,925


297,071


156,366




Roanoke Bar Division

140,795


143,583


265,918


287,365


125,123




Steel of West Virginia-Specialty Shapes 

81,678


74,881


155,189


150,455


73,511




Total Steel Shipments (In tons)


2,242,408


1,677,766


4,191,428


3,128,498


1,949,020

















Steel Production (In tons)

2,344,895


1,708,252


4,294,158


3,227,818


1,949,263
















Fabrication















Average External Sales Price (Per ton shipped)

$        1,409


$        1,282


$        1,419


$        1,254


$        1,428


Consolidated EBITDA















Earnings Before Taxes 

$      41,608


$    103,610


$      82,100


$    154,604


$      40,492




Net Interest Expense

36,890


29,860


79,764


60,207


42,874




Depreciation 

66,281


49,970


131,141


98,916


64,860




Amortization 

6,493


6,934


12,816


13,869


6,323




Non-controlling Interest

6,225


5,962


10,032


10,843


3,807




 EBITDA 


157,497


196,336


315,853


338,439


158,356




Unrealized Hedging (Gain) Loss

(1,808)


2,500


1,407


(1,567)


3,215




Inventory Valuation

18,075


1,596


23,065


2,234


4,990




Equity Based Compensation

6,356


4,700


13,555


9,389


7,199




Non-Cash Financing Expenses

-


-


3,326


-


3,326




Adjusted EBITDA


$    180,120


$    205,132


$    357,206


$    348,495


$    177,086















                                                     

(1)

Amount excludes 2Q 2015 expenses associated with the idled Minnesota Operations (amount includes non-controlling interests of approximately $4 million) and the impact from the Q2 2015 Iron Dynamics planned furnace maintenance outage that generally is required once every 5 years. 

Conference Call and Webcast
Steel Dynamics, Inc. will  hold a conference call to discuss second quarter 2015 operating and financial results on Tuesday, July 21, 2015, at 10:00 a.m. Eastern Time.  You may access the call and find dial-in information on the Investor Relations 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 28, 2015. 

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 annual sales of $8.8 billion in 2014, approximately 7,600 employees, and manufacturing facilities primarily located throughout the United States (including six steel mills, eight steel coating facilities, an iron production facility, approximately 90 metals recycling locations and six steel fabrication plants). 

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 included in this release may not be comparable to similarly titled measures of other companies.

Forward-Looking Statement
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 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 SDI's 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, 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.

 

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except per share data)



Three Months Ended


Six Months Ended


Three Months
Ended


June 30,


June 30,


March 31,


2015


2014


2015


2014


2015












Net sales

$

2,005,007

$

2,069,761

$

4,052,442

$

3,899,843

$

2,047,435

Costs of goods sold               


1,833,264


1,846,990


3,693,657


3,513,768


1,860,393

        Gross profit


171,743


222,771


358,785


386,075


187,042












Selling, general and administrative expenses


82,660


73,463


159,010


143,505


76,350

Profit sharing


5,031


10,469


9,629


15,864


4,598

Amortization of intangible assets


6,493


6,934


12,816


13,869


6,323

        Operating income       


77,559


131,905


177,330


212,837


99,771












Interest expense, net of capitalized interest


37,163


30,050


80,250


60,619


43,087

Other expense (income), net


(1,212)


(1,754)


14,980


(2,385)


16,192

        Income before income taxes


41,608


103,609


82,100


154,603


40,492












Income taxes          


16,283


37,268


29,821


54,564


13,538

        Net income


25,325


66,341


52,279


100,039


26,954

Net loss attributable to noncontrolling interests


6,225


5,962


10,032


10,843


3,807

     Net income attributable to Steel Dynamics, Inc.

 

$

31,550

$

72,303

$

62,311

$

110,882

$

30,761


































Basic earnings per share attributable to

Steel Dynamics, Inc. stockholders

$

0.13

$

0.32

$

0.26

$

0.49

$

0.13












Weighted average common shares


241,900


226,220


241,718


224,615


241,535























Diluted earnings per share attributable to
Steel Dynamics, Inc. stockholders, including the
effect of assumed conversions when dilutive              

$

0.13

$

0.31

$

0.26

$

0.48

$

0.13












Weighted average common shares and equivalents


243,491


242,048


243,179


241,721


242,867












Dividends declared per share

$

0.1375

$

0.115

$

0.2750

$

0.230

$

0.1375

 

 

Steel Dynamics, Inc.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)





June 30,

2015



December 31,

2014



(unaudited)




Assets







Current assets







        Cash and equivalents      


$

419,401


$

361,363

        Accounts receivable, net 



816,522



902,825

        Inventories     



1,292,069



1,618,419

        Deferred income taxes    



31,396



35,503

        Other current assets        



32,004



55,655

                     Total current assets         



2,591,392



2,973,765








Property, plant and equipment, net   



3,047,401



3,123,906








Restricted cash     



19,571



19,312








Intangible assets, net



358,402



370,669








Goodwill



741,898



745,158








Other assets          



68,099



78,217

                    Total assets       


$

6,826,763


$

7,311,027








Liabilities and Equity







Current liabilities







        Accounts payable           


$

446,698


$

511,056

        Income taxes payable



2,411



6,086

        Accrued expenses          



214,404



286,980

        Current maturities of long-term debt



35,075



46,460

                     Total current liabilities    



698,588



850,582








Long-term debt







        Senior term loan



231,250



237,500

        Senior notes   



2,350,000



2,700,000

        Other long-term debt      



38,324



40,206

                     Total long-term debt



2,619,574



2,977,706








Deferred income taxes         



567,754



542,033

Other liabilities



16,147



18,839








Commitments and contingencies



-



-








Redeemable noncontrolling interests



125,972



126,340








Equity







        Common stock               



636



635

        Treasury stock, at cost    



(396,491)



(398,898)

        Additional paid-in capital



1,099,669



1,083,435

        Retained earnings           



2,223,599



2,227,843

                     Total Steel Dynamics, Inc. equity



2,927,413



2,913,015

        Non-controlling interests



(128,685)



(117,488)

                     Total equity      



2,798,728



2,795,527

                     Total liabilities and equity              


$

6,826,763


$

7,311,027

 

 

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)



Three Months Ended


Six Months Ended


June 30,


June 30,


2015


2014


2015


2014










Operating activities:









        Net income                     

$

25,325

$

66,341

$

52,279

$

100,039










        Adjustments to reconcile net income to net cash provided by
        operating activities:









                Depreciation and amortization              


74,273


58,441


147,095


116,009

                Equity-based compensation


6,357


4,700


14,900


10,468

                Deferred income taxes            


16,367


(280)


33,084


(4,371)

                Changes in certain assets and liabilities:









                        Accounts receivable       


(47,149)


(99,696)


85,935


(188,646)

                        Inventories     


161,174


11,230


326,173


(6,124)

                        Accounts payable          


62,735


13,385


(64,318)


18,426

                        Income taxes receivable / payable


(6,844)


(4,964)


9,421


14,429

                        Other assets and liabilities             


16,974


26,857


(60,650)


(11,463)

                Net cash provided by operating activities             


309,212


76,014


543,919


48,767










Investing activities:









        Purchase of property, plant and equipment  


(22,821)


(33,534)


(56,172)


(58,375)

        Other investing activities


806


2,314


2,469


31,198

                Net cash used in investing activities


(22,015)


(31,220)


(53,703)


(27,177)










Financing activities:









        Issuance of current and long-term debt          


60,941


63,945


111,034


107,398

        Repayment of current and long-term debt     


(60,557)


(76,412)


(488,008)


(132,658)

        Exercise of stock option proceeds, including related tax effect


5,206


8,516


6,959


11,421

        Contributions from noncontrolling investors, net


(1,135)


(606)


(1,164)


4,764

        Dividends paid               


(33,233)


(25,666)


(60,999)


(50,181)

                Net cash used in financing activities      


(28,778)


(30,223)


(432,178)


(59,256)










        Increase (decrease) in cash and equivalents   


258,419


14,571


58,038


(37,666)

        Cash and equivalents at beginning of period  


160,982


342,919


361,363


395,156










        Cash and equivalents at end of period

$

419,401

$

357,490

$

419,401

$

357,490























































Supplemental disclosure information:









        Cash paid for interest

$

48,550

$

20,838

$

88,644

$

60,501

        Cash paid (received) for federal and state income taxes, net

$

7,046

$

43,008

$

(11,493)

$

45,151










 

SOURCE Steel Dynamics, Inc.



RELATED LINKS

http://www.steeldynamics.com