SDI Predicts Stronger Second Half of the Year
03/18/2015 - Steel Dynamics Inc. provided first quarter 2015 earnings guidance.
Excluding approximately US$17 million, or US$0.04 per diluted share, of estimated premium and related expenses associated with the company's repayment of US$350 million in senior notes in March 2015, the company provided first quarter 2015 adjusted earnings guidance in the range of US$0.12 to US$0.16 per diluted share. Including these charges, earnings guidance for the first quarter 2015 would have been in the range of US$0.08 to US$0.12 per diluted share.
During the first quarter of 2015, two important industry developments occurred:
Estimated first quarter earnings are lower than the company's sequential fourth quarter 2014 adjusted earnings of US$0.40 per diluted share and similar to prior-year first quarter earnings of US$0.17 per diluted share.
Due to expected lower steel shipments caused by the inventory overhang and hesitant customer buying, combined with an expected metal margin compression, first quarter 2015 profitability from the company's steel operations is expected to be significantly lower in comparison to the fourth quarter 2014. The benefit of reduced scrap pricing will be not be realized in the company's steel results until the second quarter 2015, due to FIFO accounting and lower production utilization rates. While the company's steel operations experienced overall volume and pricing reduction, the sheet operations were the most significantly impacted.
Metals recycling operations are expected to record a loss for the first quarter 2015, based on lower metal spread caused by rapidly decreasing ferrous and nonferrous prices, as well as, reduced shipments based on lower domestic steel mill utilization. The company expects margins to improve in the second quarter 2015, as pricing volatility subsides and steel mill utilization improves.
As the aforementioned import and raw material changes take place, the company anticipates both improved metal spread and increased shipments in the second quarter 2015, and throughout the remainder of the year. While the company continues to strengthen its financial position, and execute its long-term strategy, it is well-positioned to carry on its growth. As a testament to confidence in the company's long-term cash flow generation capability, last week the company's board of director's announced a 20% increase in its quarterly cash dividend, to US$0.1375 per common share. The company also utilized free cash flow to repay US$350 million in debt on March 16, 2015, reducing its annual interest burden by US$27 million. The company believes these actions reflect the strength of its capital structure and liquidity profile, and the continued optimism and confidence in its future prospects.
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 US$8.8 billion in 2014, over 7,700 employees, and manufacturing facilities primarily located throughout the United States (including six steel mills, eight steel coating facilities, two iron production facilities, over 90 metals recycling locations and six steel fabrication plants).
During the first quarter of 2015, two important industry developments occurred:
- Domestic steel product pricing declined to levels that are now globally competitive, which the company believes will result in reduced steel import levels beginning in the second quarter 2015. Despite continued solid domestic steel consumption, product pricing decreased meaningfully due to delayed customer orders caused by the volatility in scrap prices and inventory buildup related to excessive fourth quarter 2014 steel imports. The company believes the surplus inventory can be right-sized in the April and May 2015 timeframe, which coupled with continued demand, should result in increased domestic steel mill utilization.
- Ferrous scrap pricing declined between 25% and 30% during February, which the company believes will benefit metal margin. Ferrous scrap pricing disconnected from iron ore pricing during 2014, as iron ore prices declined dramatically, while scrap prices remained relatively unchanged. Historically these commodities are highly correlated; therefore, a sharp decline in scrap prices was not unexpected.
Estimated first quarter earnings are lower than the company's sequential fourth quarter 2014 adjusted earnings of US$0.40 per diluted share and similar to prior-year first quarter earnings of US$0.17 per diluted share.
Due to expected lower steel shipments caused by the inventory overhang and hesitant customer buying, combined with an expected metal margin compression, first quarter 2015 profitability from the company's steel operations is expected to be significantly lower in comparison to the fourth quarter 2014. The benefit of reduced scrap pricing will be not be realized in the company's steel results until the second quarter 2015, due to FIFO accounting and lower production utilization rates. While the company's steel operations experienced overall volume and pricing reduction, the sheet operations were the most significantly impacted.
Metals recycling operations are expected to record a loss for the first quarter 2015, based on lower metal spread caused by rapidly decreasing ferrous and nonferrous prices, as well as, reduced shipments based on lower domestic steel mill utilization. The company expects margins to improve in the second quarter 2015, as pricing volatility subsides and steel mill utilization improves.
As the aforementioned import and raw material changes take place, the company anticipates both improved metal spread and increased shipments in the second quarter 2015, and throughout the remainder of the year. While the company continues to strengthen its financial position, and execute its long-term strategy, it is well-positioned to carry on its growth. As a testament to confidence in the company's long-term cash flow generation capability, last week the company's board of director's announced a 20% increase in its quarterly cash dividend, to US$0.1375 per common share. The company also utilized free cash flow to repay US$350 million in debt on March 16, 2015, reducing its annual interest burden by US$27 million. The company believes these actions reflect the strength of its capital structure and liquidity profile, and the continued optimism and confidence in its future prospects.
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 US$8.8 billion in 2014, over 7,700 employees, and manufacturing facilities primarily located throughout the United States (including six steel mills, eight steel coating facilities, two iron production facilities, over 90 metals recycling locations and six steel fabrication plants).
