Steel Dynamics Showing Income Improvement from Previous Quarter

Article by KPC News | KPC Media | October 20, 2020

FORT WAYNE — Steel Dynamics Inc. released its third-quarter 2020 financial results late Monday afternoon.

The company reported third-quarter net sales of $2.3 billion and net income of $100 million, or$0.47 per diluted share. Excluding costs associated with construction of the company’s new Sinton, Texas, flat roll steel mill of approximately $11 million, adjusted net income was $108 million, or$0.51 per diluted share:

Last year’s third-quarter net sales were $2.5 billion, with net income of $151 million, or $0.69 per diluted share. Second-quarter 2020 net sales were $2.1 billion, with net income of $75 million, or$0.36 per diluted share.

“The team delivered a solid performance despite the continued challenges created by the coronavirus pandemic,” said Mark D. Millett of Auburn, president and chief executive officer. “We continue to operate safely, provide ongoing customer support, and strengthen our capital foundation. Our spirit of excellence was once again evidenced in our strong performance.”

He said SDI’s third-quarter 2020 consolidated operating income was $156 million.

Steel Dynamic’s operates its original flat roll steel mill and a New Millennium Building Systems plant southwest of Butler, as well as an OmniSource recycling center in Auburn.

“The domestic steel demand recovery has been strong, with automotive representing the most meaningful improvement and construction continuing to be resilient,” Millett added.

“Flat roll steel spot prices rebounded during the third quarter, as customer inventory levels were extremely low and demand steadily improved,” he said. “We expect to see continued price strength and customer demand throughout 2020 and into 2021. Our differentiated business model continues to drive best-in-class performance. Our steel mills operated at 85% of their production capability during the third quarter 2020, with the flat roll group achieving a rate of 99%. This contrasts to the domestic steel industry rate of 64%.”

Millett added, “Our continued market share gains, coupled with support from our fabrication and steel processing businesses, reinforced our higher operating rates. In addition, our metals recycling platform provided a competitive advantage in sourcing ferrous scrap to support our steel mills.”

Third-quarter 2020 operating income for the company’s steel operations was $144 million, or 17%lower than second-quarter results, due to lower realized selling values in the company’s flat roll business, mostly related to lagged contract arrangements.

The third-quarter 2020 average external product selling price for the company’s steel operations decreased $21 to $734 per ton. The average ferrous scrap cost per ton melted at the company’s steel mills decreased $7 to $259 per ton.

As states rescinded shelter-in-place mandates and manufacturing businesses, specifically the automotive sector, restarted, scrap flows dramatically improved in the third quarter. At the same time, domestic steel production increased, resulting in a meaningful increase in the company’s metals recycling volumes and earnings. Third-quarter operating income from the company’s metals recycling operations was $15 million, compared to an operating loss of $6 million in the second quarter.

The company’s steel fabrication operations achieved record quarterly operating income of $39million, based on record quarterly shipments, as average selling values improved and steel input costs declined. The steel fabrication platform’s customer order backlog remains strong and is higher than in 2018 or 2019, SDI said. Customers remain positive concerning non-residential construction projects.

For the nine months ended Sept. 30, 2020, net income was $363 million, or $1.71 per diluted share, with net sales of $7.0 billion, as compared to net income of $550 million, or $2.47 per diluted share, with net sales of $8.1 billion for the same period in 2019.

Excluding the impact from refinancing and the Texas construction, the company’s nine-month adjusted net income was $398 million, or $1.88 per diluted share:

The company generated strong cash flow from operations of $849 million during the first nine months of 2020, and invested $855 million in capital investments, of which the new Sinton Texas steel mill represented $640 million. During this period, the company also paid cash dividends of$157 million and repurchased $107 million of its common stock, while maintaining strong liquidity of $2.5 billion as of Sept. 30, 2020.

“We entered 2020 in a position of strength with ample cash and available liquidity of $2.8 billion, and we remain in a position of strength at the end of the third quarter 2020,” Millett said. “Our differentiated business model and performance-driven culture have proven our ability to generate strong cash flow during the most challenging environments”

He added, “We entered 2020 prepared for the capital investment requirements related to the construction of our new state-of-the art, electric-arc-furnace flat roll steel mill. We are excited about this transformational strategic 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 EAF flat roll steel producers, competing even more effectively with the integrated steel model and foreign competition, as well as providing a much more environmentally friendly steel production alternative for our customers. Construction is going well and remains within our expected project cost of $1.9 billion, with plans to commence operations mid-year 2021.

“We have targeted specific regional steel-consuming markets. Our facility is located and designed to have a meaningful competitive advantage in these regions and in the displacement of imports. We have signed long-term agreements with three customers to co-locate on our site, and they plan to represent annual steel consuming and processing capability of between 800,000 to 1 million tons of flat roll steel. In August, we also completed the acquisition of Zimmer, a Mexican metals recycling company, which is an important part of our raw material strategy for the facility.

“The domestic economy is recovering from the shock of COVID-19 although it is still difficult to know the full extent of its eventual impact. However, we are currently seeing a solid recovery in domestic steel demand,” Millett said. “The automotive sector has seen the strongest improvement ,and the construction sector has remained resilient. We are seeing pent-up demand, as steel service center inventories were extremely low and still remain low compared to historical norms. Energy remains the weakest end market.

“Our commitment is to the safety of our teams, families, communities and to meet the needs of our customers. Our culture and our business model continue to positively differentiate our performance from the rest of the industry, and we are in a place of strength. We are competitively positioned and focused to deliver long-term value creation for all of our stakeholders,” Millett concluded.

Born in DeKalb County in the mid-1990s, Steel Dynamics today ranks as one of the largest domestic steel producers and metals recyclers in the United States, with facilities located throughout the United States and in Mexico.

Article source: https://www.kpcnews.com/thestar/article_87d25540-617a-52a6-b53f-271de4697735.html