Steel Dynamics Reports Third Quarter 2020 Results

Rhea-AI Summary

Steel Dynamics reported third quarter 2020 net sales of $2.3 billion and net income of $100 million, or $0.47 per diluted share, showing resilience amid COVID-19 challenges. Adjusted net income stood at $108 million, reflecting costs from the Sinton, Texas mill. Year-to-date net income decreased to $363 million, down from $550 million in 2019. Despite a 14% drop in sales, operating income from metals recycling improved to $15 million. The company maintains strong liquidity of $2.5 billion and anticipates continued demand recovery, especially in automotive and construction sectors.

Positive

• Strong liquidity of $2.5 billion as of September 30, 2020.
• Metals recycling operations returned to profitability with $15 million operating income.
• Record operating income of $39 million from steel fabrication operations.
• The new Texas steel mill construction on track with expected costs of $1.9 billion and operation commencement in mid-2021.

Negative

• Third quarter net income decreased from $151 million in 2019 to $100 million in 2020.
• Net sales declined by $700 million compared to the previous year's third quarter.
• Operating income from steel operations decreased by 17% from the previous quarter due to lower realized selling values.

FORT WAYNE, Ind., Oct. 19, 2020 /PRNewswire/ -- Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced third quarter 2020 financial results. The company reported third quarter 2020 net sales of $2.3 billion and net income of $100 million, or $0.47 per diluted share. Excluding the impact from the following item, the company's third quarter 2020 adjusted net income was $108 million, or $0.51 per diluted share:

• Costs (net of capitalized interest) associated with the construction of the company's Sinton, Texas Flat Roll Steel Mill of approximately $11 million, or $0.04 per diluted share. 

Comparatively, prior year third quarter net sales were $2.5 billion, with net income of $151 million, or $0.69 per diluted share. Sequential second quarter 2020 net sales were $2.1 billion, with net income of $75 million, or $0.36 per diluted share, which included refinancing costs of $0.08 per diluted share and costs (net of capitalized interest) related to the construction of the Texas steel mill of $0.03 per diluted share.

"The team delivered a solid performance despite the continued challenges created by the coronavirus pandemic," said Mark D. Millett, 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. Our third quarter 2020 consolidated operating income was $156 million and adjusted EBITDA $238 million. 

"The domestic steel demand recovery has been strong, with automotive representing the most meaningful improvement and construction continuing to be resilient," continued Millett. "Flat roll steel spot prices rebounded during the third quarter, as customer inventory levels were extremely low and demand steadily improved. 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 percent of their production capability during the third quarter 2020, with the flat roll group achieving a rate of 99 percent. This contrasts to the domestic steel industry rate of 64 percent. 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 Comments

Third quarter 2020 operating income for the company's steel operations was $144 million, or 17 percent lower than sequential second quarter results, due to metal spread compression caused by 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 sequentially to $734 per ton. The average ferrous scrap cost per ton melted at the company's steel mills decreased $7 sequentially 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 sequential second quarter.   

The company's steel fabrication operations achieved record quarterly operating income of $39 million, based on record quarterly shipments and metal spread expansion 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. Customers remain positive concerning non-residential construction projects.  

Year-to-Date September 30, 2020 Comparison

For the nine months ended September 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 the following items, the company's nine months ended September 30, 2020 adjusted net income was $398 million, or $1.88 per diluted share:

• Financing costs related to the company's June 2020 refinancing activities of approximately $25 million, or $0.08 per diluted share, and
• Costs (net of capitalized interest) associated with the construction of the company's Sinton Texas Flat Roll Steel Mill of approximately $26 million, or $0.09 per diluted share.

Year-to-date 2020 net sales decreased 14 percent and operating income declined 27 percent to $588 million, when compared to the same period in 2019. Lower earnings were primarily the result of steel metal spread compression, as significantly lower average steel selling values more than offset average ferrous scrap cost reductions across the steel platform. Compared to prior year results, the average year-to-date external product selling price for the company's steel operations decreased $108 to $755 per ton.  The average year-to-date ferrous scrap cost per ton melted at the company's steel mills decreased $45 to $264 per ton. Even though year-to-date 2020 steel shipments were only one percent lower than 2019 results, the negative impact related to COVID-19 in the second quarter of 2020 contributed significantly to the year-over-year decline in earnings.

Based on the company's differentiated business model and highly variable cost structure, 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 September 30, 2020.

Outlook 

"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," stated Millett. "Our differentiated business model and performance-driven culture have proven our ability to generate strong cash flow during the most challenging environments. We entered 2020 prepared for the capital investment requirements related to the construction of our new state-of-the art, electric-arc-furnace (EAF) 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 1.0 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. I would like to welcome the Zimmer team to the Steel Dynamics family!

"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," continued Millett. "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," concluded Millett.

Conference Call and Webcast

Steel Dynamics, Inc. will hold a conference call to discuss third quarter 2020 operating and financial results on Tuesday, October 20, 2020, 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.  A replay of the call will be available on our website until 11:59 p.m. Eastern Daylight Time on October 25, 2020.

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, Adjusted Net Income, Adjusted Diluted Earnings Per Share, 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 a guarantee 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) the effects of pandemics or other health issues, such as the recent novel coronavirus outbreak (COVID-19); (3) cyclical and changing industrial demand; (4) 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, energy, and other steel-consuming industries; (5) 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; (6) the impact of domestic and foreign imports, including trade policy, restrictions, or agreements; (7) unanticipated difficulties in integrating or starting up new, acquired or planned businesses or assets; (8) risks and uncertainties involving product and/or technology development; and (9) 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 Securities and Exchange Commission website, www.sec.gov, and on the Steel Dynamics website, www.steeldynamics.com under "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
		2020			2019			2020			2019			June 30, 2020
Net sales		$	2,330,832		$	2,526,845		$	7,000,237		$	8,114,795		$	2,094,305
Costs of goods sold			2,038,017			2,167,006			6,007,762			6,900,220			1,809,874
Gross profit			292,815			359,839			992,475			1,214,575			284,431
Selling, general and administrative expenses			118,235			107,242			340,432			324,530			109,299
Profit sharing			11,778			17,848			42,324			64,396			9,092
Amortization of intangible assets			6,946			6,704			21,327			20,730			7,190
Operating income			155,856			228,045			588,392			804,919			158,850
Interest expense, net of capitalized interest			18,950			31,339			74,671			94,782			27,702
Other expense (income), net			3,546			(4,545)			29,060			(15,137)			28,103
Income before income taxes			133,360			201,251			484,661			725,274			103,045
Income tax expense			29,083			48,643			110,783			171,093			24,280
Net income			104,277			152,608			373,878			554,181			78,765
Net income attributable to noncontrolling interests			(4,134)			(1,560)			(10,899)			(4,503)			(3,269)
Net income attributable to Steel Dynamics, Inc.		$	100,143		$	151,048		$	362,979		$	549,678		$	75,496
Basic earnings per share attributable to
Steel Dynamics, Inc. stockholders		$	0.48		$	0.69		$	1.72		$	2.49		$	0.36
Weighted average common shares outstanding			210,366			217,873			211,321			221,145			210,343
Diluted earnings per share attributable to
Steel Dynamics, Inc. stockholders, including the
effect of assumed conversions when dilutive		$	0.47		$	0.69		$	1.71		$	2.47		$	0.36
Weighted average common shares
and share equivalents outstanding			211,926			219,109			212,443			222,197			211,378
Dividends declared per share		$	0.25		$	0.24		$	0.75		$	0.72		$	0.25

 

Steel Dynamics, Inc. CONSOLIDATED BALANCE SHEETS (in thousands)
	September 30,				December 31,
Assets	2020				2019
	(unaudited)
Current assets
Cash and equivalents	$	1,267,618			$	1,381,460
Short-term investments		-				262,174
Accounts receivable, net		918,842				844,336
Inventories		1,609,216				1,689,043
Other current assets		59,219				76,012
Total current assets		3,854,895				4,253,025
Property, plant and equipment, net		3,862,375				3,135,886
Intangible assets, net		306,574				327,901
Goodwill		474,520				452,915
Other assets		119,192				106,038
Total assets	$	8,617,556			$	8,275,765
Liabilities and Equity
Current liabilities
Accounts payable	$	715,681			$	513,344
Income taxes payable		827				2,014
Accrued expenses		376,891				401,984
Current maturities of long-term debt		82,229				89,356
Total current liabilities		1,175,628				1,006,698
Long-term debt		2,636,615				2,644,988
Deferred income taxes		512,503				484,169
Other liabilities		94,011				75,055
Total liabilities		4,418,757				4,210,910
Commitments and contingencies
Redeemable noncontrolling interests		155,414				143,614
Equity
Common stock		646				646
Treasury stock, at cost		(1,623,805)				(1,525,113)
Additional paid-in capital		1,200,228				1,181,012
Retained earnings		4,624,019				4,419,296
Accumulated other comprehensive income (loss)		95				(7)
Total Steel Dynamics, Inc. equity		4,201,183				4,075,834
Noncontrolling interests		(157,798)				(154,593)
Total equity		4,043,385				3,921,241
Total liabilities and equity	$	8,617,556			$	8,275,765

 

Steel Dynamics, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Operating activities:
Net income	$	104,277		$	152,608		$	373,878		$	554,181
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		81,752			79,470			240,732			240,555
Equity-based compensation		9,486			8,841			36,850			33,229
Deferred income taxes		10,388			11,311			30,949			34,952
Other adjustments		17,237			(1,116)			21,701			(952)
Changes in certain assets and liabilities:
Accounts receivable		(58,271)			85,633			(57,991)			95,195
Inventories		(38,236)			35,479			83,790			139,889
Other assets		(3,894)			39			5,702			7,632
Accounts payable		645			1,111			121,764			(54,167)
Income taxes receivable/payable		(27,127)			6,293			33,251			19,715
Accrued expenses		55,533			64,533			(41,545)			(83,001)
Net cash provided by operating activities		151,790			444,202			849,081			987,228
Investing activities:
Purchases of property, plant and equipment		(327,647)			(154,131)			(854,898)			(293,687)
Purchases of short-term investments		-			(34,884)			(149,359)			(134,026)
Proceeds from maturities of short-term investments		69,545			79,508			411,533			293,279
Acquisition of business, net of cash and restricted cash acquired		(59,012)			(3,694)			(59,012)			(97,106)
Other investing activities		380			2,746			1,701			4,023
Net cash used in investing activities		(316,734)			(110,455)			(650,035)			(227,517)
Financing activities:
Issuance of current and long-term debt		295,814			128,230			1,611,849			374,686
Repayment of current and long-term debt		(305,911)			(119,988)			(1,645,482)			(369,134)
Dividends paid		(52,592)			(52,751)			(156,657)			(148,493)
Purchase of treasury stock		-			(114,950)			(106,529)			(292,394)
Other financing activities		(1,587)			(1,527)			(16,502)			(7,259)
Net cash used in financing activities		(64,276)			(160,986)			(313,321)			(442,594)
Increase (decrease) in cash, cash equivalents, and restricted cash		(229,220)			172,761			(114,275)			317,117
Cash, cash equivalents, and restricted cash at beginning of period		1,502,342			978,779			1,387,397			834,423
Cash, cash equivalents, and restricted cash at end of period	$	1,273,122		$	1,151,540		$	1,273,122		$	1,151,540
Supplemental disclosure information:
Cash paid for interest	$	8,597		$	9,115		$	77,050		$	71,702
Cash paid for income taxes, net	$	43,900		$	29,794		$	45,848		$	116,149

 

Steel Dynamics, Inc. SUPPLEMENTAL INFORMATION (dollars in thousands)
			Third Quarter							Year to Date
				2020			2019			2020			2019			1Q 2020			2Q 2020
External Net Sales
Steel			$	1,696,530		$	1,922,528		$	5,266,263		$	6,153,448		$	1,941,706		$	1,628,027
Fabrication				241,538			246,078			677,724			715,982			220,936			215,250
Metals Recycling				272,463			280,908			720,902			955,145			291,856			156,583
Other				120,301			77,331			335,348			290,220			120,602			94,445
Consolidated Net Sales			$	2,330,832		$	2,526,845		$	7,000,237		$	8,114,795		$	2,575,100		$	2,094,305
Operating Income
Steel			$	143,573		$	239,587		$	608,714		$	846,793		$	292,746		$	172,395
Fabrication				39,272			35,321			95,672			86,690			29,204			27,196
Metals Recycling				15,467			2,894			17,875			33,466			8,326			(5,918)
Operations				198,312			277,802			722,261			966,949			330,276			193,673
Non-cash amortization of intangible assets				(6,946)			(6,704)			(21,327)			(20,730)			(7,191)			(7,190)
Profit sharing expense				(11,778)			(17,848)			(42,324)			(64,396)			(21,454)			(9,092)
Non-segment operations				(23,732)			(25,205)			(70,218)			(76,904)			(27,945)			(18,541)
Consolidated Operating Income			$	155,856		$	228,045		$	588,392		$	804,919		$	273,686		$	158,850
Adjusted EBITDA
Net income			$	104,277		$	152,608		$	373,878		$	554,181		$	190,836		$	78,765
Income taxes				29,083			48,643			110,783			171,093			57,420			24,280
Net interest expense				18,401			24,107			66,040			73,722			21,790			25,849
Depreciation				73,364			71,456			215,213			215,887			71,733			70,116
Amortization of intangible assets				6,946			6,704			21,327			20,730			7,191			7,190
Noncontrolling interest				(4,133)			(1,560)			(10,899)			(4,503)			(3,496)			(3,270)
EBITDA				227,938			301,958			776,342			1,031,110			345,474			202,930
Non-cash adjustments
Unrealized hedging gain				915			3,697			(555)			1,720			(1,262)			(208)
Inventory valuation				47			278			1,164			870			859			258
Equity-based compensation				9,487			8,842			29,818			28,541			10,812			9,519
Refinancing charges				-			-			4,907			-			-			4,907
Adjusted EBITDA			$	238,387		$	314,775		$	811,676		$	1,062,241		$	355,883		$	217,406
Other Operating Information
Steel
Average external sales price (Per ton) (a)			$	734		$	809		$	755		$	863		$	774		$	755
Average ferrous cost (Per ton melted) (b)			$	259		$	275		$	264		$	309		$	267		$	266
Flat Roll shipments
Butler and Columbus Flat Roll divisions				1,499,873			1,527,230			4,442,610			4,628,544			1,584,264			1,358,473
Steel Processing divisions (c)				460,854			427,645			1,285,672			1,181,269			405,981			418,837
Long Product shipments
Structural and Rail Division				393,519			366,306			1,228,551			1,094,582			434,882			400,150
Engineered Bar Products Division				138,948			176,564			466,135			579,082			189,801			137,386
Roanoke Bar Division				113,898			123,495			379,224			404,355			140,222			125,104
Steel of West Virginia				75,594			90,669			245,695			277,846			92,032			78,069
Total Shipments (Tons)				2,682,686			2,711,909			8,047,887			8,165,678			2,847,182			2,518,019
External Shipments (Tons) (a)				2,310,004			2,362,915			6,958,024			7,096,975			2,495,164			2,152,856
Steel Mill Production (Tons)				2,320,134			2,369,423			6,987,533			7,181,878			2,535,233			2,132,167
Metals Recycling
Nonferrous shipments (000's of pounds)				267,338			257,087			706,330			815,347			272,078			166,914
Ferrous shipments (Gross tons)				1,256,351			1,169,963			3,250,565			3,531,003			1,192,144			802,070
External ferrous shipments (Gross tons)				369,576			396,135			961,197			1,204,453			393,651			197,970
Fabrication
Average sales price (Per ton)			$	1,375		$	1,464		$	1,365		$	1,523		$	1,356		$	1,364
Shipments (Tons)				179,375			168,571			502,854			470,776			163,312			160,168
(a)   Represents all steel operations
(b)   Represents ferrous cost per ton melted at our six electric arc furnace steel mills
(c)   Includes Heartland, The Techs, and United Steel Supply locations

 

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SOURCE Steel Dynamics, Inc.

FAQ

What were the third quarter 2020 financial results for Steel Dynamics (STLD)?

Steel Dynamics reported net sales of $2.3 billion and net income of $100 million, or $0.47 per diluted share.

How did Steel Dynamics' net income change in the third quarter of 2020 compared to 2019?

Net income decreased from $151 million in the third quarter of 2019 to $100 million in the third quarter of 2020.

What is the status of Steel Dynamics' new Sinton, Texas mill project?

Construction is on track with expected costs of $1.9 billion and operations are set to commence by mid-2021.

How did Steel Dynamics' metals recycling operations perform in the third quarter of 2020?

Metals recycling operations achieved an operating income of $15 million, a significant recovery from a $6 million loss in the previous quarter.

What is the market outlook for Steel Dynamics (STLD) following the third quarter 2020 results?

The company anticipates continued strength in steel prices and customer demand, particularly in the automotive and construction sectors.