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Steel Dynamics Reports First Quarter 2012 Results
04/20/2012 - Steel Dynamics, Inc. announced first quarter net income of $46 million, or $0.20 per diluted share, on net sales of $2.0 billion. By comparison, prior-year first quarter net income was $106 million, or $0.46 per diluted share, and sequential fourth quarter 2011 net income was $30 million, or $0.14 per diluted share.
Steel Dynamics, Inc. announced first quarter net income of $46 million, or $0.20 per diluted share, on net sales of $2.0 billion. First quarter 2012 earnings were reduced by approximately $0.03 per diluted share, representing financing costs of $14 million associated with the company's January refinancing activities, offset by associated interest cost savings of $3 million. By comparison, prior-year first quarter net income was $106 million, or $0.46 per diluted share, and sequential fourth quarter 2011 net income was $30 million, or $0.14 per diluted share.
"We were able to achieve sequential quarterly financial improvement in all of our major operating platforms during the first quarter," said President and Chief Executive Officer Mark Millett. "If you add back the net expense related to our January financing activities, earnings would have been $0.23 per diluted share. Given the mid-quarter disruption in the flat roll markets, we believe this was a solid performance achieved by all of our employees. The good news remains that demand in certain market sectors continues to be steady and flat roll order entry has regained momentum from mid-quarter levels.
"Additionally, operations at our Engineered Bar Products Division were interrupted during the first quarter due to the unexpected duration of a maintenance outage, which reduced first quarter volume by about 16,000 tons," said Millett. "However, operations are back online and demand remains steady with strong order backlogs for special bar quality (SBQ) products. The announced SBQ capacity expansion is proceeding as planned and expectations of a second-half 2013 start date remain."
First quarter review – Aside from metals recycling, first quarter volumes in each of the company's operating segments decreased when compared to the fourth quarter of 2011, while consolidated operating income increased 45%. The increase in sequential quarterly operating income was primarily the result of improvements in steel and metals recycling margins. Despite decreased volumes, earnings from flat roll operations increased 22%, as increases in selling prices in the beginning of the quarter were greater than corresponding increases in the cost of raw materials, resulting in margin expansion. Flat roll earnings were nonetheless tempered by mid-quarter price reductions resulting from increased supply brought about by additional domestic flat roll production capacity and increased import activity.
Likewise, operating income from long product operations increased 17%, with the company's Structural and Rail Division achieving the largest increase. Rail shipments increased from 8% of the mill's product mix in the fourth quarter of 2011 to 13% in the first quarter of 2012.
First quarter margins for the combined steel operations expanded in comparison to prior-year fourth quarter results. The average selling price per ton shipped increased $22 per ton to $875, and the average ferrous scrap cost per ton melted increased $10.
As is typical in the first quarter of the year, metals recycling volumes increased when compared to the fourth quarter of 2011. Operating income for OmniSource was $25 million in the first quarter of 2012, an increase of $9 million compared to the fourth quarter of 2011. Non-cash unrealized hedging gains were $2 million in the first quarter of 2012, as compared to losses of $3 million in the fourth quarter of 2011.
The impact of losses from the company's Minnesota operations on first quarter 2012 consolidated net income was $10 million (net of tax), or approximately $0.04 per diluted share, as compared to $7 million for the first quarter of 2011 and $10 million for the fourth quarter of 2011. First quarter 2012 financial results were consistent with those recorded for the fourth quarter; however, shipments decreased 6700 tonnes to 46,200 tonnes. Decreased off-gas capacity led to the reduced volume in the first quarter. The company plans to address this and certain other mechanical issues during a four-week outage, which began April 13, 2012. The impact to second quarter earnings from Minnesota operations is currently expected to be similar to those recorded in the first quarter of 2012. Construction of the company's iron concentrate joint venture in Minnesota is proceeding as planned with continued expectations of a third quarter start date.
The company's liquidity position remains strong with $1.5 billion in unrestricted cash, short-term commercial paper and available funding under the revolving credit facility at March 31, 2012. In January, the company refinanced $280 million of the $700 million in senior notes due November 2012, extending the maturity for a substantial portion of the refinanced amount to September 2016.
First quarter 2011 comparison – In comparison to prior year, first quarter 2012 steel shipping volumes were generally flat, although the product mix differed as flat roll shipments decreased 107,200 tons compared to the prior year first quarter and long products shipments, most notably for its Structural and Rail Division, increased 104,000 tons. In addition, metals recycling and fabrication volumes improved.
Although 2012 first quarter net sales of $2.0 billion were consistent with those achieved in the prior-year first quarter, operating income decreased 42%, as margins decreased within the company's flat roll steel and metals recycling operations. The average selling price per ton shipped for the company's steel operations in the first quarter of 2012 was $875, a decrease of $15 per ton compared to the prior year quarter. The average quarterly ferrous scrap cost per ton melted increased $18 for the same comparative period.
Outlook – "Looking forward, as we have stated previously, despite continued uncertainty within the U.S. and global economies, we believe there is the possibility for more stability to develop in 2012 as improvements continue in certain market sectors, such as energy, agriculture, automotive, transportation and construction equipment,” Millett said. “If the U.S. economy continues a pattern of slow and steady growth during the year, steel demand should logically follow.
“Additionally, we are excited at the longer-term prospects offered by our future expansion in SBQ product diversification and capacity. We also continue to move forward in our mission to provide our own iron concentrate to our Mesabi Nugget ironmaking plant, which should eliminate the need for third-party purchases and reduce our overall costs significantly."
Steel Dynamics, Inc. is one of the largest domestic steel producers and metals recyclers in the United States based on estimated annual steelmaking and metals recycling capability, with annual sales of $8.0 billion in 2011, over 6500 employees, and manufacturing facilities primarily located throughout the United States, including five steel mills, six steel processing facilities, two iron production facilities, over 70 metals recycling locations, and six steel fabrication plants.
