Open / Close Advertisement

Steel Dynamics Announces Record Quarterly Earnings

07/21/2004 - Steel Dynamics, Inc. announced record second quarter earnings of $67.3 million on net sales of $526 million for the second quarter of 2004.

Steel Dynamics, Inc. announced record second quarter earnings of $67.3 million on net sales of $526 million for the second quarter of 2004.

SDI's 2nd Quarter
Operating Performance

SDI’s Flat Roll Division achieved record quarterly hot band production.

The company’s Structural & Rail Division also set a quarterly production record as it continues to refine its production capabilities. During the second quarter, Columbia City completed commissioning of 33- and 36-inch beams and completed rail production trials through all the manufacturing steps, including automated inspection and testing. Rail shipments are expected to begin in the second half.

The new Bar Products Division is performing exceptionally well, operating at approximately 65% of stated production capacity during the month of June. The division has begun commissioning its newly installed finishing mill with the production of reinforcing bar (rebar) and will continue this process in rebar and small rounds. Production of small structural shapes is expected to begin late in the third quarter after the installation of automated stacking and bundling equipment.

As the non-residential building market strengthened in the second quarter, New Millennium Building Systems made strong progress, increasing its order backlog, improving productivity, and producing stronger earnings. It is making good progress in selection of the site in the Southeastern U.S. for its second manufacturing facility.

Second Quarter Results—Record second quarter earnings of $67.3 million ($1.20 per diluted share) are more than double first-quarter 2004 earnings. Net sales of $526 million represent a 37% increase over the first quarter of 2004.

"The second quarter was the company's best quarterly performance yet," said Keith Busse, President and CEO of Steel Dynamics. "Our investments in new production capacity over the past several years continue to pay off as we have been able to ship increasing steel tonnage while achieving stronger margins on those higher volumes. Higher margins principally drove our earnings growth this quarter. Compared to the first quarter of 2004, our average selling values increased $110 per ton contributing to record operating profits of $131 per ton. We see continued strength in the steel marketplace, and continue to rapidly fill our order book for flat-rolled and long products. Shipping volume for structural steel was off slightly in the second quarter, but demand for beams should grow in the second half as the pace of North American non-residential construction continues to strengthen."

Second quarter 2004 consolidated shipments totaled 889,000 tons, 11% higher than the first quarter of 2004. Flat Roll Division shipments increased 7% from the first quarter while Structural & Rail Division shipments declined 2%. During its second full quarter of operations, Bar Products Division shipments grew to 82,000 tons from the first quarter's 19,000 tons.

SDI's consolidated average selling price was $591 per ton, which was $110 per ton higher than the first quarter of 2004 and $256 per ton higher than the second quarter of 2003. Scrap costs per net ton charged were $227, approximately $16 per ton higher than the first quarter of 2004 and approximately $102 per ton higher than second quarter of 2003.

SDI’s Scrap Substitutes

SDI continues to focus on the further development of scrap substitute capabilities.

During the second quarter, Iron Dynamics continued production of hot-briquetted iron and began production of liquid pig iron.

The Mesabi Nugget project offers the potential for substantial additional future supply of lower cost iron resources using Kobe Steel's ITmk3 process.

SDI continues to work with the other Mesabi Nugget investors in planning the commercialization of the process and in site selection for construction of full-scale production facilities.

Six Month Results—For the first six months of 2004, net income of $1.78 per diluted share exceeded full-year earnings per share in any prior year. First half consolidated shipments of 1,687,000 tons were 30% higher than the first half of 2003.

At the end of June, Steel Dynamics increased its financial flexibility by entering into a new 4-year $230 million senior secured revolving credit facility. A portion of the proceeds from this new facility and cash on hand were used to prepay certain existing senior secured debt, including SDI's term loan B facility of $108 million. Completion of the refinancing increased SDI's credit facility liquidity from $75 million to $130 million. The write-off of capitalized costs associated with the refinanced debt caused a reduction of $0.03 in second quarter diluted earnings per share.

Outlook—The company believes the third quarter will be stronger than the second and that this strength could be sustainable through the fourth quarter based on a higher volume of shipments and continued favorable margins despite recent higher prices for metallic raw materials. SDI remains hopeful these costs will stabilize soon; however, if scrap prices go too high, the higher steel surcharges that result could cause domestic steel prices to rise to a level that would bring greater customer interest in imported steel. The company does not
believe imports of foreign steel currently pose a significant threat to U.S. steel producers, but that could rapidly change. The latest surge in scrap prices is expected to abate somewhat in the September time frame.

In the second half, SDI plans to increase its utilization of pig iron, both internally generated and purchased, so that they can be less reliant on premium grades of steel scrap in the meltshop mix.

"Our recently announced initiation of a quarterly dividend reflects our confidence in our continued performance and financial strengths. We believe 2005 could potentially be another strong year for us with all of our manufacturing operations contributing. Steel production could possibly increase another 15% to approach our annual capacity of about 4.2 million tons," Busse said.