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Steel Dynamics Reports 3rd Quarter 2010 Results

10/19/2010 - Steel Dynamics reports net income of $19 million on net sales of $1.6 billion for the third quarter, and net income of $133 million on net sales of $4.8 billion for the first nine months of 2010.

Steel Dynamics, Inc. announced net income of $19 million on net sales of $1.6 billion for the third quarter, and net income of $133 million on net sales of $4.8 billion for the first nine months of 2010.
 

Third Quarter Results — The $19 million net income ($0.09 per diluted share) compares to net income

SDI’s Steel Operations Segmentreported net sales of $1.3 billion for the third quarter (including intra-segment and intra-company sales), representing 61% of the company's external net sales for the quarter.  
 
Shipments were 1.3 million tons (including intra-segment and intra-company shipments), of which 788,000 tons were flat-rolled steel shipments. Based on tons shipped, flat-rolled products accounted for 60% of third quarter steel operations shipments, 12% were structural steel and rail shipments, 12% was engineered bars, 11% was merchant bars, and 5% was related to Steel of West Virginia.
 
Segment operating income was $88 million ($68 per ton shipped), which compares to an operating income of $108 per ton in the previous quarter (2Q10).  
 
Average external selling price per ton for Steel Operations was $782, a decrease of $47 per ton from $829 in the previous quarter and an increase of $143 per ton from the year-ago quarter. The average cost of ferrous scrap per net ton charged decreased $23 compared to the previous quarter.
 
SDI’s Steel Operations segment includes five steel mills and related steel processing facilities, including The Techs.  The five steel mills produce a wide variety of flat-rolled and long steel products, and The Techs produce galvanized steel sheet using steel that is sourced primarily from third parties.
of $49 million ($0.22 per diluted share) in the previous quarter (2Q10) and net income of $69 million ($0.30 per diluted share) for the year-ago third quarter.

 
Third quarter net sales of $1.6 billion were 3% lower than the previous quarter and 35% higher than net sales of $1.2 billion for the year-ago third quarter. Steel shipments of 1.3 million tons were 4% higher than the previous quarter and 5% higher than the year-ago third quarter. In metals recycling, OmniSource's ferrous metals shipments were 1.4 million gross tons, nearly the same as the second quarter, and non-ferrous shipments were 257 million pounds, up 8% from the previous quarter.
 
"In mid-September we noted our expectation that our third quarter's earnings could be weaker due to reduced margins in the steel segment," said Keith Busse, Chairman and CEO.  "While third quarter steel volume remained relatively flat, the decline in steel selling prices, mainly steel sheet, outpaced the decline in scrap prices. Our third-quarter average selling price per ton for steel products was $782, down $47 from $829 in the second quarter, while our average scrap cost per ton charged decreased $23.  As a result of the reduced margins, operating income for the steel segment fell to $88 million in the third quarter, down from $134 million in the second quarter.
 
Year-to-Date Results — Net income of $133 million compares to a loss of $35 million in the first nine months of 2009. Net sales through September 30 were $4.8 billion, up 72% from the same period of 2009, and greater than full-year 2009 net sales of $4.0 billion. Operating income was $318 million, which compares to operating income of $41 million in the first nine months of 2009.  
 
Operating Results — The company noted that the Mesabi Nugget start-up progressed well in the third quarter with production increasing to 24,600 tonnes, although overall productivity continues to be hampered by equipment availability and refractory issues. Solutions are to be implemented during the fourth quarter. Mesabi nuggets are now supplied on an ongoing basis to SDI's Flat Roll and Engineered Bar Products divisions. The impact from Mesabi's start-up operations for Steel Dynamics remained relatively flat in the third quarter at a $12 million operating loss.
 
During the third quarter, increased long-products shipments combined with weaker flat-rolled volume resulted in a change in product mix, causing flat-roll shipments to decline from 64% of total steel shipments in the second quarter to 60% in the third. The Engineered Bar Products Division achieved record production levels due to stronger OEM customer demand, shipping 153,000 tons, up 19% from the second quarter. The company's SBQ backlog continues to grow, now extending into 2011. Structural steel demand, in contrast, remains lackluster, with shipments by the Structural and Rail Division decreasing slightly over the quarter, despite increasing shipments of its rail products. With the approvals of SDI's rail products by all the nation's leading railroads, rail and welded-rail shipments are expected to continue to grow significantly.
 
Also of note, the company's estimated annual tax rate increased, causing the third-quarter effective rate to increase in order to reflect the increase for the first six months of the year, decreasing the third quarter diluted earnings per share by approximately $.02.    
 
Outlook — "In terms of steel market conditions, we have seen a slight improvement in our long product order activity; while in contrast, we have seen a significant decline in our sheet steel backlogs," Busse commented.
 
"Looking to the fourth quarter, we believe that margin improvement is possible in both our steelmaking and metals recycling operations, which could result in a slightly stronger fourth quarter. However, given the uncertainty surrounding demand for flat-rolled steels, we will provide specific fourth-quarter guidance in December. Additionally, we are still assessing the potential impact to near-term earnings related to our recent acquisition of certain steel fabrication assets, but currently anticipate the related costs to be minimal."