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Steel Dynamics Reports 2nd Quarter 2011 Results
07/19/2011 - Steel Dynamics reports net income of $99 million on net sales of $2.1 billion for the second quarter.
Steel Dynamics, Inc. announced net income of $99 million on net sales of $2.1 billion for the second quarter.
Second Quarter Results — The $99 million ($0.43 per diluted share) net income compares to net income of $106 million ($0.46 per diluted share) in the previous quarter and net income of $49 million ($0.22 per diluted share) in the year-ago second quarter. The $2.1 billion net sales compares to net sales of $2.0 billion in the previous quarter and net sales of $1.6 billion in the year-ago second quarter.
On a consecutive quarterly basis, unrealized hedging gains at the company's metals recycling operations were $9.5 million during the first quarter of 2011, as compared to an unrealized hedging loss of $4.8 million in the second quarter of 2011, resulting in a non-cash fluctuation in the company's pretax earnings of $14.3 million, an estimated impact of approximately $0.04 per diluted share between quarters. Additionally, the company reduced its deferred income tax provision due to recent changes in Indiana tax law, which increased second quarter earnings approximately $0.01 per diluted share.
Steel shipments for the second quarter were 1.5 million tons, nearly the same as the previous quarter. Average external steel selling price per ton shipped increased $118 per ton to $947 from the second quarter 2010 average sales price of $829, and increased $57 per ton from the previous quarter’s average sales price of $890.
Based on the tons of scrap melted at the five steel mills, the second quarter's average ferrous scrap cost per ton charged increased $51 compared to the second quarter 2010, and increased $15 compared to the previous quarter.
OmniSource's second-quarter ferrous shipments were 1.6 million gross tons, 15% higher than the year-ago second quarter and 2% higher than the previous quarter. OmniSource provided 54% of the ferrous scrap purchased by SDI's steel mills during the second quarter. Non-ferrous shipments were 255 million pounds, 8% higher than the year-ago second quarter, but 11% lower than the previous quarter.
Management Comments — "Quarter-over-quarter operational earnings were essentially the same, although from different sources," said Keith Busse, Chairman and CEO. "Operating income from our steel operations increased $21 million but was offset by a decrease in our metals recycling and ferrous resources operations of $36 million. Operating performance of our steel operations improved in the second quarter, resulting in operating income of $217 million, or $153 per ton shipped, a 62% increase versus the same quarter last year and an 11% increase compared to the first quarter of 2011.
"We experienced some volatility in order bookings for flat-rolled steel during the second quarter, while bookings for other steel operations remained steady or slightly improved,” continued Busse. “While structural steel shipments of 179,000 tons were up 11% from the first quarter of 2011, demand for structural steel remains weak, causing our Structural and Rail Division to continue to operate well below its capacity. Augmenting the division's revenues were rail shipments of 35,000 tons, up 14% compared to the first quarter of 2011. For the Engineered Bar Products Division, second-quarter shipping volume of 144,000 tons was lower than the first quarter's shipments of 159,000 tons due to a planned 10-day maintenance and equipment upgrade outage. SBQ demand and the mill's order backlog remain very strong," added Busse.
"Operating income for OmniSource was $18 million in the second quarter, a decrease of $7 million in comparison to the second quarter of 2010, and a decrease of $31 million in comparison to the nearly record high achieved in the first quarter of 2011," said Mark Millett, President and Chief Operating Officer. "Second quarter non-ferrous stainless margins and shipping volumes decreased as a result of weaker demand from stainless mills, which were carrying higher-than-normal inventory levels. As destocking occurs, we anticipate renewed ordering activity during the third quarter. Additionally, while ferrous shipping volumes increased slightly, margins compressed in comparison to those achieved in the first quarter of this year, which benefited from the sale of lower priced inventory into the strong January market.
"In our raw materials platform, Iron Dynamics continues to provide a consistent supply of liquid pig iron to the Flat Roll Division. We are also seeing progress made at the Mesabi Nugget operation. Second quarter production of iron nuggets increased to 38,000 metric tons, most of which shipped in April and June, as the planned May furnace reline outage lasted about three weeks. Start-up losses incurred by Mesabi Nugget in the second quarter negatively impacted consolidated earnings by $13 million, or approximately $0.03 per diluted share, after-tax.” Millet added that the company expects nugget production volume to continue to improve in the second half of the year, and that it has planned an additional outage for September to install equipment that should help to further improve plant utilization.
Outlook — "Looking ahead to the second half of 2011," Busse said, "we believe continued slow improvement in the U.S. economy is possible and anticipate continued, yet uneven, buying activity as service center inventory levels remain relatively low, and consumption by such sectors as automotive, transportation, energy, industrial, agricultural, and construction equipment remains steady to growing slightly.
“We will provide quantitative guidance regarding the third quarter in September, but barring any unforeseen changes in the economic climate, the third quarter should be fairly solid," Busse concluded.
