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Steel Dynamics Reports 2nd Quarter 2009 Results
07/23/2009 - Steel Dynamics reports a net loss of $16 million on net sales of $792 million for the second quarter, and a net loss of $104 million on net sales of $1.61 billion for the first six months of 2009.
Steel Dynamics, Inc. reported a net loss of $16 million on net sales of $792 million for the second quarter, and a net loss of $104 million on net sales of $1.61 billion for the first six months of 2009.
The $16-million net loss ($0.08 per diluted share) compares to net income of $210 million ($1.05 per diluted share) in the year-ago second quarter and a net loss of $88 million ($0.48 per diluted share) in the previous quarter. The $0.08 loss per diluted share was narrower than expected due to a change in the company's estimated annual income tax rate, which reduced the second quarter net loss by $0.02 per diluted share.
During June, the company issued 31,050,000 shares of its common stock at a public offering price of $13.50 and issued $287.5 million of 5.125% convertible notes due 2014. Net proceeds (slightly more than $675 million) were used to repay a $552-million term loan as well as for other general purposes. The company also amended its senior secured credit agreement, obtaining greater financial covenant flexibility through 2010; this had no net impact to the second quarter loss, as the weighted average increase in outstanding shares was offset by certain related transaction expenses of approximately $3.5 million.
Net sales of $792 million were 3% lower than net sales of $815 million in the previous quarter (1Q09) and 67% lower than net sales of $2.40 billion in the year-ago second quarter. Steel shipments were 886,000 tons, 45% below year-ago second quarter shipments of 1.6 million tons.
SDI's average steel selling price was $594/ton in the second quarter, a $126/ton decline from $720/ ton in the previous quarter (1Q09). Average scrap cost per net ton charged decreased $79 compared to the first quarter. In metals recycling, OmniSource's ferrous metals shipments were 840,000 tons, down 44% from the second quarter of 2008, and nonferrous shipments were 170 million pounds, down 33%.
SDI's average steel selling price was $594/ton in the second quarter, a $126/ton decline from $720/ ton in the previous quarter (1Q09). Average scrap cost per net ton charged decreased $79 compared to the first quarter. In metals recycling, OmniSource's ferrous metals shipments were 840,000 tons, down 44% from the second quarter of 2008, and nonferrous shipments were 170 million pounds, down 33%.
"In the second quarter, the company's steel operations produced operating income of $36 million, with overall capacity utilization improving to approximately 50%, despite continued low operating rates at the Long-products Divisions," said Keith Busse, Chairman and CEO. "The Structural and Rail Division operated at about 25% of current capacity. In spite of this depressed operating environment, the division achieved an operating profit for the quarter.”
Busse noted that OmniSource generated operating income in the second quarter, and that it is expected to improve performance in the second half and be profitable for the year. New Millennium Building Systems, SDI’s joist-and-deck fabricating operation, reported roughly breakeven operations for the quarter, with shipments that were down 53% compared to the year-ago second quarter.
"During the second quarter, we experienced a slight improvement in business conditions,” continued Busse. “Order entry picked up at the Flat Roll Division and at The Techs in early May and has continued to be strong, resulting in improved backlogs. It remains unclear whether this increase in business activity will persist, or will be short-lived, as we continue to see conflicting signs in the economy. While our flat-roll steel businesses are currently operating near capacity, we have seen only marginal improvement in long products. We have yet to see signs of improvement in the construction markets.
"Based on our assumptions that flat-roll demand will remain steady in the near term, recycled metals will continue to recover, and demand for long products will remain sluggish, we currently expect third quarter diluted earnings per share to be in the range of $0.10 to $0.20 for the third quarter. We will provide an update to this guidance in early September.
Busse said the company remains poised to ramp up quickly to meet renewed demand for steel products when it occurs. He also noted appreciation for SDI’s employees “for their positive attitudes, as many continue to receive smaller paychecks due to shorter workweeks and lower production bonuses. They, as in the past, continue to do an excellent job in controlling costs as we all recognize the realities of the current business environment," Busse said.
Primary Operating Segment 2nd Quarter Results — SDI’s Steel Operations segment achieved net sales of $526 million, representing 64% of the company's second quarter external sales. This segment includes five steel mills and related steel processing facilities, including The Techs, which galvanize steel sheet sourced primarily from third parties.
Steel Operations shipments were 886,000 tons, of which 582,000 tons were flat-rolled shipments. Based on tons shipped, including steel shipments made by The Techs, flat-rolled products accounted for 66% of second quarter steel segment shipments, with the balance comprising structural steel shipments (11%), engineered bars (7%), merchant bars (10%), and Steel of West Virginia shipments (6%).
Operating profit for the steel segment was $36 million ($41 per ton shipped), which compares to an operating loss of $88 per ton in the previous quarter. (First quarter results reflect the effect of lower of cost or market inventory adjustments, without which the segment would have generated an operating profit of about $17 million ($22 per ton).) These figures exclude amortization related to the segment's intangible assets and certain non-allocated corporate overhead expenses, such as profit-sharing costs.
Operating profit for the steel segment was $36 million ($41 per ton shipped), which compares to an operating loss of $88 per ton in the previous quarter. (First quarter results reflect the effect of lower of cost or market inventory adjustments, without which the segment would have generated an operating profit of about $17 million ($22 per ton).) These figures exclude amortization related to the segment's intangible assets and certain non-allocated corporate overhead expenses, such as profit-sharing costs.
The Steel Operations segment’s second-quarter average selling price per ton was $594, a $126 per ton decrease from $720 per ton in the previous quarter and a $417 per ton decrease from the year-ago quarter. The average scrap cost per net ton charged decreased $79 compared to the first quarter.
Notable items for the second quarter include the completion, late in the quarter, of the second electric-arc-furnace upgrade at the Butler, Ind., Flat Roll Mill, which brought the mill's total annual production capacity to 3 million tons.
The segment’s Structural and Rail Division increasedrail production during the quarter, with the rail-welding operation shipping its first rail-train of quarter-mile-long rail strings welded from 240-foot rail sections from the Columbia City mill. Separately, Dynamic Composites, a majority-owned facility at Columbia City, shipped a major order for steel-core composite railroad ties. It then received a follow-on order for 25,000 ties from the BNSF Railway Co.
SDI’s Metals Recycling and Ferrous Resources segment includes ferrous and non-ferrous metals recycling by OmniSource Corp. (processing and trading) and SDI's Iron Dynamics scrap-substitute operation, which produces pig iron for use by the Flat Roll Division. The segment also includes expenses related to the Mesabi Nugget project, which currently is under construction.
The segment reported net sales of $309 million, representing 30% of SDI's second quarter external sales. The segment’s operating income was $4 million, excluding amortization related to intangible assets and certain non-allocated corporate overhead expenses, such as profit-sharing costs. The segment's overall pretax loss is attributable to losses at Iron Dynamics (related to lower market-based pig-iron prices) and to the expenses related to the Mesabi Nugget project as it nears expected start-up in November; these losses were offset by a $9-million operating profit at OmniSource.
Total ferrous scrap shipments (including shipments to SDI's Steel Operations) were 840,000 tons, representing a 44% decrease compared to the year-ago-quarter (excluding Recycle South's second quarter 2008 shipments prior to its acquisition by OmniSource) and a 15% increase compared to the first quarter of 2009. Non-ferrous scrap shipments were 170 million pounds, 33% lower than the year-ago quarter and 11% lower than first-quarter 2009 shipments.
During the second quarter, the company's scrap operations supplied 313,000 tons of ferrous scrap to SDI's Steel Operations, representing approximately 54% of the tonnage of ferrous scrap purchased by the company’s mills during the quarter.
SDI’s Steel Fabrication Operations include the New Millennium Building Systems fabricating plants that produce joists, trusses, and steel deck used in the construction of non-residential buildings. Net sales were $37 million, representing 5% of SDI's second quarter external sales. New Millennium reported a very small operating loss, with shipments totaling 35,000 tons at an average selling price of $1,047 per ton. Second quarter shipments were 53% lower than the year-ago quarter, and 22% lower than the first quarter of 2009.
