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Steel Dynamics Reports 4th Quarter, Full Year Results
01/25/2011 - Steel Dynamics, Inc. announced net income of $8 million on net sales of $1.5 billion for the fourth quarter and net income of $141 million on net sales of $6.3 billion for the full year 2010.
Steel Dynamics, Inc. announced net income of $8 million on net sales of $1.5 billion for the fourth quarter and net income of $141 million on net sales of $6.3 billion for the full year 2010.
Fourth Quarter Results — The $8 million net income ($0.04 per diluted share) compares to net income of $19 million ($0.09 per diluted share) for the previous quarter and net income of $27 million ($0.12 per diluted share) for the year-ago fourth quarter. Net sales of $1.5 billion compare to net sales of $1.6 billion in the previous quarter and net sales of $1.2 billion for the year-ago fourth quarter.
Earnings were reduced by a non-cash asset impairment charge of $13 million (approximately $0.03 per diluted share) related to the company's fabrication operations. After making the acquisition of additional fabrication assets during the fourth quarter and determining the future use of existing fabrication facilities, the company determined that the carrying value of certain fixed assets at its idled South Carolina fabrication facility exceeded their fair value, necessitating an impairment charge. Excluding impairment charges for the quarter, adjusted earnings per diluted share were $0.07.
"Our fourth quarter results, prior to the impairment charge, were within our December guidance range of $0.05 to $0.10 per diluted share," said Keith Busse, Chairman and CEO. "The quarter ended on a much more positive note than it began, as our industry experienced generally increased demand resulting in sharply increased order entry and pricing for our operations. Early in the quarter our flat-rolled operations suffered from low volume and pricing; however, beginning in early November order entry increased, and was quickly followed by significant price increases related, in part, to increased scrap costs. Our long products operations also showed improvement in volume and pricing mid-quarter. During the fourth quarter, our steel operations achieved an operating income of $91 million, a 4 percent increase over third quarter results.
"Our ferrous metals recycling operations experienced higher margins as pricing increased, which more than offset lower volume during the quarter, resulting in improved sequential quarterly ferrous operating results. However, non-ferrous margins declined along with volume, most notably impacted by unrealized hedging losses associated with our copper inventories, causing weaker fourth quarter performance. This weaker performance in non-ferrous more than offset ferrous gains, resulting in operating income of $9 million for OmniSource in the fourth quarter, as compared to $22 million achieved in the third quarter," Busse said.
Fourth quarter steel shipments were 1.3 million tons, 13% higher than the fourth quarter of 2009, but flat compared to the third quarter of 2010. The average external steel selling price for the fourth quarter decreased $29 per ton to $753 from the third quarter average of $782, and increased $67 per ton from the fourth quarter 2009 average of $686. The fourth quarter's average ferrous scrap cost per ton charged was unchanged from the third quarter.
OmniSource ferrous shipments were 1.2 million gross tons, 9% lower than the previous quarter, but 15% higher than the fourth quarter of 2009. OmniSource provided 45% of the ferrous scrap purchased by SDI's steel mills during the fourth quarter. Non-ferrous shipments were 230 million pounds, 10% lower than the previous quarter, but 13% higher than the fourth quarter of 2009.
Full Year Results — The $141 million net income compares to a net loss of $8.2 million in 2009, while net sales of $6.3 billion compare to net sales of $3.96 billion in 2009.
Steel shipments were 5.3 million tons, with an average external selling price of $774 per ton, in comparison to 2009 shipments of 4.0 million tons, with an average selling price of $662 per ton. In comparison to 2009, SDI's average ferrous scrap cost per ton charged in 2010 increased by $107 per ton.
OmniSource ferrous shipments were 5.2 million gross tons, 43% higher than shipments of 3.6 million gross tons in 2009. OmniSource provided 47% of ferrous scrap purchased by SDI's steel mills during 2010. Non-ferrous shipments were 961 million pounds, 23% higher than shipments of 780 million pounds in 2009.
Mesabi Nugget — The company's Mesabi Nugget start-up facility in Minnesota took a maintenance outage to replace refractory in the rotary hearth furnace during November, but shortly after the furnace reheat, the need for other equipment modifications arose. These changes have been made and operations resumed last week. Mesabi Nugget start-up losses negatively impacted the company's fourth quarter pre-tax earnings by $13 million (approximately $0.04 per diluted share after tax), and reduced annual results by $42 million (approximately $0.11 per diluted share).
"Although 2010 iron nugget production fell short of our initial estimates, we are pleased with the superior quality of the nugget being produced," Busse said. "We are gaining valuable development experience in refining the commercial-scale production process. Through iron supplied from Mesabi Nugget and Iron Dynamics, our steel operations were able to avoid high-priced foreign pig iron markets during the year. As 2011 progresses, we remain very optimistic concerning Mesabi's continued production ramp-up.
Steel Operation Segment — SDI’s Steel Operations Segment reported net sales of $979 million on shipments of 1.3 million tons for the fourth quarter, which compares to net sales $790 million on shipments of 1.2 million tons during the same period in 2009 (including intra-company sales and shipments). The Structural and Rail Division increased annual 2010 shipments of rail to 55,000 tons, of which over 22,000 tons were shipped in the fourth quarter.
For the fourth quarter, the average external steel selling price increased $67 per ton from the fourth quarter 2009 average of $686, while average ferrous scrap cost per ton charged was $81 per ton higher over the same period. Fourth quarter operating income for the steel segment was $91 million ($70 per ton shipped) compared to $88 million ($68 per ton) in the previous quarter and $108 million ($93 per ton) in the year-ago fourth quarter.
For the full year, Steel Operations net sales were $4.0 billion on shipments of 5.3 million tons, compared to $2.6 billion on shipments of 4.0 million tons during 2009 (including intra-company sales and shipments). Average external selling price per ton was $774, an increase of $112 from 2009, while average scrap cost per ton increased $107 from 2009. Annual 2010 operating income was $451 million ($86 per ton shipped) compared to $208 million ($52 per ton shipped) in 2009.
SDI’s Steel Operations segment includes five EAF-based steel mills and related steel finishing and processing facilities, including The Techs. The company's steel operations produce flat-rolled steel, structural steel, merchant bars, special-bar-quality steel, rail, and specialty shapes. Steel operations represented 60% and 61% of the company's fourth quarter and annual 2010 external net sales, respectively.
Management Outlook — "Looking ahead to 2011, the outlook for the new year is favorable,” commented Busse. “With the expected slow but continual improvement in the U.S. economy, we could see increased volumes compared to 2010 for both our steel and metals recycling operations. Our current expectation is that steel consumption should grow in 2011 in the automotive, transportation, energy, industrial, and the agricultural and construction equipment sectors. Residential and non-residential construction activity is likely now at its bottom; thus, we expect to see continued soft to very moderate near-term growth in demand in this sector. These trends support an improved operating environment for all of our segments, but it is difficult to offer a view of the entire year.
“Given our current activity, we anticipate substantially improved first quarter 2011 earnings for all of our segments compared to fourth quarter results. We will provide quantitative guidance for the first quarter later in March," Busse concluded.
