Steel Dynamics Reports 2nd Quarter 2010 Results
07/21/2010 - Steel Dynamics, Inc. announced net income of $49 million on net sales of $1.6 billion for the second quarter of 2010.
Steel Dynamics, Inc. announced net income of $49 million on net sales of $1.6 billion for the second quarter of 2010.
The $49 million net income ($0.22 per diluted share) compares to net income of $65 million ($0.29 per diluted share) in the previous quarter (Q1-2010) and a net loss of $16 million ($0.08 per diluted share) for the year-ago second quarter (Q2-2009).
The $1.6 billion net sales were 5% higher than previous quarter (Q1-2010) and more than double the year-ago second quarter’s net sales of $792 million. Steel shipments of 1.3 million tons were 10% lower than the previous quarter (Q1-2010) but 43% higher than the year-ago second quarter (Q2-2009).
In metals recycling, OmniSource’s ferrous metals shipments were 1.4 million gross tons in the second quarter, up 10% from the previous quarter, and non-ferrous shipments were 237 million pounds, down slightly from the previous quarter.
Management Comments — “In the second quarter our steel operations achieved an operating income of $134 million, which was slightly lower than the first quarter’s $138 million,” said Keith Busse, Chairman and CEO. “However, OmniSource’s operating income declined $18 million to $25 million for the second quarter, despite an increase in the volume of ferrous scrap tonnage sold. OmniSource’s gross margin decreased by 3 percentage points as scrap selling prices declined during the quarter. Our steel fabrication losses narrowed from $7 million in the first quarter to $5 million in the second quarter as shipping volume increased 63 percent.
“Reduced volume was the main catalyst for the decline in operating income for the steel segment, as operating income per ton shipped increased to $108 versus $99 in the first quarter. Average steel selling prices increased $93 per ton to $829, compared to $736 in the first quarter, while the average scrap cost per ton charged increased $49.
Busse noted that flat-rolled steel shipments were down 15% in the second quarter vs. the first quarter, while shipments of long products were “somewhat stronger”. He said that shipments were impacted by weakness in flat-roll demand beginning late in the quarter, coupled with a malfunctioning meltshop transformer, with the Roanoke Bar Division experiencing a transformer failure in June, reducing production and shipping volumes for the quarter while increasing costs due to the repair.
“In our Ferrous Resources platform,” Busse continued, “we continue to make progress at our Mesabi Nugget plant in Minnesota. During the quarter we corrected materials handling and mechanical issues at the plant by replacing or upgrading equipment. Downtime for the upgrades reduced second-quarter nugget production, which reached 19,200 metric tons. We are pleased by the results of our continued ramp-up efforts, as the process is performing well in terms of metallization during periods of production.
“The impact of Mesabi Nugget start-up costs for Steel Dynamics increased $700,000 from the first quarter to a $12-million loss before taxes for the second quarter,” added Busse. He said the company expects to reach production rates of approximately two-thirds of the facility’s estimated annual capacity of 500,000 tonnes by the end of this year, and is forecasting a significant increase in production in the second half.
“Currently, we see the markets for our steel products remaining relatively steady, with some short-term uncertainty surrounding demand for flat-rolled steels,” said Busse. “Except for the continued weakness in demand for structural steel, our long-products mills remain in good shape, with an especially strong backlog for engineered bars. Structural steel volumes have seen some improvement, but our structural mill is still running at a relatively low capacity-utilization rate of less than 40 percent. Although the economy has slowly improved over the past few quarters, at this point we are cautious about the outlook for the second half. We expect to provide specific third-quarter guidance in September.”
The company also provided highlights of second quarter 2010 results for each of its three primary operating segments. Results exclude profit-sharing costs and amortization related to each of the respective segment’s intangible assets.
Steel Operations Segment Q2 Operating Results — This segment includes five steel mills that produce a wide variety of flat-rolled and long steel products, as well as related steel processing facilities, including The Techs, which produce galvanized steel sheet using steel sourced primarily from third parties.
The Steel Operations segment generated net sales of $1 billion for the second quarter (including intra-segment and intra-company sales), representing 60% of the company's 2nd quarter external sales. Shipments were 1.3 million tons (including intra-segment and intra-company shipments), of which 815,000 tons were flat-rolled steel shipments.
Based on tons shipped, including steel shipments made by The Techs, flat-rolled products accounted for 64% of second-quarter steel operations shipments, while 13% were structural steel and rail shipments, 10% was engineered bars, 9% was merchant bars, and 4% related to Steel of West Virginia. Second quarter operating income for the steel segment was $134 million ($108 per ton shipped), which compares to an operating income of $99 per ton in the previous quarter (Q1-2010).
Average external selling price per ton for Steel Operations was $829, an increase of $93 per ton from $736 in the previous quarter (Q1-2010) and an increase of $224 per ton from the year-ago quarter. The average cost of ferrous scrap per net ton charged increased $49 compared to the previous quarter.
Metals Recycling and Ferrous Resources Q2 Operating Results — This segment includes OmniSource Corp. (collecting, processing, and trading of ferrous and non-ferrous metals), Iron Dynamics (a scrap-substitute operation that produces pig iron for use by the Flat Roll Division), Mesabi Nugget (which produces iron nuggets for minimill steelmaking and is co-owned by Kobe Steel, Ltd. and SDI, with SDI owning 81%), and expenses related to Mesabi Mining (a wholly owned iron mining unit that is awaiting approval of mining permits before it can begin operation).
The segment's 2nd quarter net sales were $848 million (including intra-company sales), representing 36% of SDI's 2nd quarter external sales. Segment operating income was $15 million, down from $32 million in the first quarter. OmniSource's stand-alone 2nd quarter operating income on the same basis was $25 million compared to $43 million in the 1st quarter.
OmniSource’s total ferrous scrap shipments (including shipments to SDI's Steel Operations) were 1.4 million gross tons for the 2nd quarter, 10% higher than the previous quarter (Q1-2010) and 80% higher than the year-ago quarter. Non-ferrous scrap shipments were 237 million pounds (including intra-company shipments), about the same as the previous quarter and 39% higher than the year-ago quarter.
During the 2nd quarter, the company's scrap operations supplied 563,000 gross tons of ferrous scrap to SDI's Steel Operations, which was 42% of the total tonnage of ferrous scrap OmniSource shipped and was 48% of the tonnage of ferrous scrap purchased by the company’s mills during the quarter.
Steel Fabrication Operations Q2 Operating Results — Steel Fabrication Operations consist of the New Millennium Building Systems fabricating plants that produce joists, trusses, and steel decking that is used in the construction of non-residential buildings.
The segment’s net sales were $42 million (including intra-company sales) for the 2nd quarter, representing 3% of SDI's 2nd quarter external sales. New Millennium reported an operating loss of $5 million for the quarter, a $2-million improvement over first quarter’s loss. Shipments totaled 42,000 tons (including intra-company shipments), 63% higher than the previous quarter (Q1-2010) and 18% higher than the year-ago quarter.
