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Steel Dynamics Reports Loss for 1st Quarter 2009
04/24/2009 - Steel Dynamics reports a net loss of $88 million on net sales of $815 million for the first quarter of 2009.
Steel Dynamics Reports Loss for 1st Quarter 2009
Steel Dynamics, Inc. announced a net loss of $88 million on net sales of $815 million for the first quarter of 2009.
The $88 million loss ($0.48 per diluted share) compares to net income of $143 million ($0.75 per diluted share) in the first quarter of 2008. Net sales of $815 million were 57% lower than net sales of $1.9 billion in the year-ago first quarter and 33% lower than net sales of $1.2 billion in the fourth quarter of 2008.
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"Our employees—who are now earning less because of shorter workweeks and lower production bonuses—have done an excellent job of controlling costs as we all recognize the realities of the current business environment,
“We continue to focus on actions to reduce costs, including options to delay capital spending and related expenses.”
Keith Busse
SDI Chairman & CEO
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Raw Materials Valuation Adjustment—The company’s results were impacted significantly by an $83 million ($0.27 per diluted share) non-cash adjustment to raw-materials inventory values due principally to lower selling values for flat rolled steel. The charge, which related to both flat-roll and long-products steel operations, exceeded the company’s earlier estimate of $70 million. The company also recorded an additional amortization charge of approximately $5 million, related to the final valuation of the Recycle South acquisition. Excluding these adjustments, the first quarter loss would have been approximately $0.19 per diluted share.
"The valuation adjustments to our scrap inventory at the end of the first quarter, principally at the Flat Roll Division, to current market prices positions us for improved profit margins for flat-roll steel shipments in the second quarter,” continued Busse. “On the long products side, profit margins remain healthy, but could contract somewhat in the second quarter because of lower selling values. In all of our operations, the key challenge in the coming quarters will be to increase throughput."
Most of the company’s first-quarter operating loss (including the $83-million inventory adjustment) was generated primarily within the company’s steel operations. The company said results were impacted by continued deterioration in steel shipping volumes and the consumption of scrap valued at levels much higher than current market values.
Shipments of 743,000 tons were 54% lower than year-ago first quarter shipments of 1.6 million tons, and 21% lower than fourth quarter 2008 shipments of 942,000 tons. The company’s average steel selling price also declined $193 per ton, down to $720 in the first quarter from $913 in the fourth quarter of 2008.
Shipments of 743,000 tons were 54% lower than year-ago first quarter shipments of 1.6 million tons, and 21% lower than fourth quarter 2008 shipments of 942,000 tons. The company’s average steel selling price also declined $193 per ton, down to $720 in the first quarter from $913 in the fourth quarter of 2008.
In metals recycling, ferrous volumes continued to decline while nonferrous rebounded slightly. Ferrous shipments were 730,000 net tons, down 48% from the year-ago first quarter, and down 19% from the fourth quarter of 2008. Nonferrous shipments of 190 million pounds were down 20% compared to the year-ago first quarter, but they increased 7% from 177 million pounds in the fourth quarter of 2008.
The company continued to increase its available liquidity during the first quarter, primarily through reductions in working capital and by cash generated from operations. This allowed the company to reduce its outstanding debt obligations by $136 million. At March 31, 2009, the company had available funds of over $625 million. The company said it continues to monitor its capital investment plans, including those projects currently in process, and if necessary, will delay these projects to retain sufficient availability of cash resources.
Segment Results— SDI's largest segment, Steel Operations represented 59% of the company's first quarter net sales. Shipments were 743,000 tons on net sales of $535 million. Based on tons shipped (including steel shipments made by The Techs), flat-rolled products accounted for 57% of first-quarter steel segment shipments, with the balance comprising structural steel shipments (17%), engineered bars (10%), merchant bars (10%), and Steel of West Virginia shipments (6%).
The steel segment reported a first quarter operating loss $66 million ($88 per ton shipped), which compares to operating income of $3 per ton in the fourth quarter. Without the effect of inventory adjustments, Steel Operations would have generated an operating profit of about $17 million ($22 per ton). These figures exclude amortization related to the segment's intangible assets and certain non-allocated corporate overhead expenses, such as profit-sharing costs.
Average selling price per ton was $720 in the quarter, a $193-per-ton decrease from $913 in the fourth quarter of 2008 and a $62-per-ton decrease from the year-ago quarter. The average scrap cost per net ton charged decreased $78 compared to the fourth quarter. "This data speaks volumes about the cost reductions achieved in recent quarters," Busse said.
SDI’s Metals Recycling and Ferrous Resources segment reported net sales of $296 million for the first quarter, representing 33% of the company's first quarter net sales. The segment reported an operating loss of $12 million, excluding amortization related to the segment's intangible assets and certain non-allocated corporate overhead expenses, such as profit-sharing costs.
Total ferrous scrap shipments (including shipments to SDI's Steel Operations) were 730,000 tons, 48% lower than the year-ago-quarter (excluding Recycle South's first quarter 2008 shipments prior to its acquisition by OmniSource) and 19% lower than the fourth quarter of 2008. Non-ferrous scrap shipments were 190 million pounds, 20% lower than the year-ago quarter and 7% higher than fourth quarter 2008 shipments.
During the first quarter, the company's scrap operations supplied 247,000 tons of ferrous scrap to SDI's Steel Operations, representing approximately 37% of the tonnage of ferrous scrap purchased by the company’s mills during the quarter.
SDI’s Steel Fabrication Operations reported first-quarter net sales of $61 million, representing 7% of SDI's first quarter net sales. Operating income was $3 million ($70 per ton shipped) excluding amortization related to the segment's intangible assets and certain non-allocated corporate overhead expenses, such as profit-sharing costs. Operating income has been steady despite dismal commercial construction activity. First quarter shipments totaled 45,000 tons at an average selling price of $1,343 per ton—34% lower than the year-ago quarter, and 29% lower than the fourth quarter of 2008.
Outlook—"Second quarter results should improve from the first quarter, ranging from a small profit to a small loss," said Busse, commenting on outlook. "As clarity for the quarter improves, we expect to provide quantitative guidance. In the second half of 2009, we should be profitable, inclusive of and factoring in lackluster demand throughout the year.
"As we have stated in the past, Steel Dynamics is poised to ramp up quickly as the economy recovers to meet renewed demand for our steel products and recycled metals, and we are poised to resume the company's profitable growth."
Steel Operations, SDI's largest segment, includes five steel mills that produce a wide variety of flat-rolled and long steel products. The segment also includes related steel processing facilities such as The Techs, which galvanize steel sheet sourced primarily from third parties. The segment’s six finishing operations perform value-added steel finishing processes and testing.
SDI’s Metals Recycling and Ferrous Resources segment includes ferrous and non-ferrous metals recycling by OmniSource Corp. (processing and trading) and SDI's Iron Dynamics scrap-substitute operation that produces pig iron for use by the Flat Roll Division. The segment also includes expenses related to the Mesabi Nugget project, which currently is under construction.
SDI’s Steel Fabrication Operations include the New Millennium Building Systems fabricating plants that produce joists, trusses, and steel deck used in the construction of non-residential buildings.
