Steel Dynamics Reports Record 1st Quarter Sales and Earnings
04/22/2008 - Steel Dynamics announces net income of $143 million on net sales of $1.9 billion for the first quarter of 2008.
Steel Dynamics, Inc. announced net income of $143 million on net sales of $1.9 billion for the first quarter of 2008.
The $143 million net income ($0.72 per diluted share)—a 40% increase over first-quarter 2007—reflects the company's recent two-for-one stock split ($1.44 per diluted share on a pre-split basis). Net sales of $1.9 billion were more than double net sales for the first quarter of 2007. Compared to the previous quarter, net income grew 46% and net sales increased 31%. All per-share figures reflect the company's two-for-one-stock split effective on March 19, 2008.
Current results were boosted by the company's acquisitions of The Techs in July 2007 and OmniSource Corp. in October 2007. Results were also positively impacted by a significant improvement in steel operations results. Steel shipments of 1.6 million tons reflect increased sequential shipping volumes by all six steelmaking operations. Flat-rolled steel shipments from the Flat Roll Division and The Techs were particularly strong, together totaling 947,000 tons, a 109,000-ton (13%) increase compared to the fourth quarter of 2007. Shipments by the four long-products steel mills increased 7% sequentially.
OmniSource Corp., which also provided a significant impact on sales and earnings, was accretive to first-quarter earnings by approximately $0.09 per diluted share. During the quarter, OmniSource experienced very strong demand for recycled ferrous scrap, both from the Steel Dynamics mills and from other minimills, integrated steel mills, and foundries. Its favorable inventory posture entering the quarter put OmniSource in a position to capitalize on high scrap demand during the first quarter.
Management Comments—"SDI's first quarter results exceeded our March 11 earnings guidance of $0.625 to $0.65 per diluted share, primarily due to the continued strengthening in the quarter of the flat-roll steel market and the metals recycling business," said Keith Busse, Chairman and CEO. "Prices for both flat-rolled steel and scrap climbed faster and higher than we had anticipated, accelerating the margin growth we had predicted for the second quarter. Current market conditions suggest that resource cost increases can be offset by surcharges and selling price adjustments resulting in growing margins.
"Our outlook for 2008 continues to be very positive," Busse said. "Even with weakness in the U.S. economy, we continue to see strong demand for flat- rolled steels, due principally to constrained domestic supply, low steel inventories, and limited steel imports. Second-quarter backlogs for structural steel, merchant bars, and SBQ remain strong due to relatively steady demand as well as limited import activity. Likewise, we expect our metals recycling business to continue to perform well during this period of high demand for ferrous and non-ferrous recycled resources and pricing above historical levels. As long as global steel demand remains high and global steel prices meet or exceed U.S. prices, we should expect that steel imports into the U.S. will remain at a low level especially in light of a weak dollar.
“The path that resource costs and product pricing will take in the second half of the year is uncertain, although we believe that second-quarter as well as third-quarter domestic market conditions will remain favorable, allowing us to adequately recover any increase in costs. As a result, our preliminary earnings estimate for the second quarter of 2008 is in a range of $0.80 to $0.90 per diluted share," Busse said.
Operating Segment Highlights—Representing 58% of the company's first quarter net sales, Steel Operations is still SDI's largest segment, comprising five steel mills and related steel processing facilities, such as The Techs. Although The Techs galvanize steel sheet that is sourced primarily from third parties, other steel products included in this segment are produced in SDI's electric-arc-furnace minimills. Some flat-rolled and
SBQ steels that SDI produces are finished in SDI facilities, utilizing various value-adding processes.
Steel Operations shipments were 1.6 million tons on net sales of $1.3 billion. Based on tons shipped (including steel shipments made by The Techs), flat-rolled products accounted for 58% of first-quarter steel segment shipments, 18% was structural steel shipments, 9% was engineered bars, 9% was merchant bars, and 5% was Steel of West Virginia shipments. Operating income for the steel segment was $240 million ($148 per ton shipped), compared to $131 per ton in the fourth quarter. These figures exclude profit-sharing costs.
The first quarter's average selling price per ton for Steel Operations was $782, an increase of $72 per ton from $710 in the fourth quarter of 2007 and an increase of $136 from the year-ago quarter. Compared to the fourth quarter of 2007, the strongest increases in selling values were in flat-rolled steel products. The average scrap cost per net ton charged increased $50 compared to the fourth quarter, and was $82 higher than in the first quarter of 2007.
SDI’s Scrap and Scrap Substitute Operations segment now includes ferrous and non-ferrous metals recycling by OmniSource Corp. (processing and trading) and SDI's Iron Dynamics scrap-substitute operation producing pig iron for use by the Flat Roll Division. The segment also includes expenses related to the Mesabi Nugget project, which is currently under construction. The segment's net sales were $804 million, representing 37% of SDI's first quarter net sales. Segment operating income for this segment was $54 million, excluding profit-sharing costs.
The first quarter of 2008 is the first to include full-quarter results for OmniSource Corp. as a part of Steel Dynamics. OmniSource is now the principal reporting entity in this segment. Because SDI's fourth quarter results for this segment included a partial quarter for OmniSource (following the purchase of OmniSource on October 26, 2007), a meaningful quarter-to- quarter comparison of scrap operations is not possible.
Total ferrous scrap shipments, including shipments to SDI's Steel Operations, were 1.4 million tons and non-ferrous scrap shipments were 239 million pounds. During the quarter, the company's scrap operations supplied 464,000 tons of ferrous scrap to SDI's steel operations, or approximately 34% of the tonnage of ferrous scrap purchased by the company’s mills during the quarter.
SDI’s Steel Fabrication Operations includes five New Millennium Building Systems fabricating plants that produce joists, trusses, and steel decking used in the construction of non-residential buildings. First quarter net sales were $79 million, or 4% of SDI's first quarter net sales. The segment’s operating income was $4 million ($54 per ton shipped) excluding profit-sharing costs.
First quarter shipments totaled 69,000 tons at an average selling price of $1,145 per ton, while first quarter shipping volume and average selling price per ton for New Millennium products declined from the prior quarter, due to seasonal weakening in demand and a slowdown in projects related to residential construction.
The three plants that were acquired in 2006 as a part of the Roanoke Electric Steel acquisition have been reconfigured to provide an improved cost structure and to expand their capabilities. Margins at these facilities were weak to non-existent as a result of reconstruction and sagging market demand. According to SDI, all five plants are now well positioned to become stronger competitors in their regions, capable of generating stronger margins with any improvement in building demand.
