Steel Dynamics Reports Stronger Q1 Earnings
04/20/2010 - Steel Dynamics reports net income of $65 million on net sales of $1.6 billion for the first quarter of 2010.
Steel Dynamics, Inc. announced net income of $65 million on net sales of $1.6 billion for the first quarter of 2010.
The $65 million ($0.29 per diluted share) net income compares to net income of $27 million ($0.12 per diluted share) in the previous quarter (4Q2009) and a net loss of $88 million ($0.48 per diluted share) for the year-ago first quarter. Net sales of $1.6 billion were 32% higher than net sales of $1.2 billion in the previous quarter (4Q2009) and 91% higher than net sales of $815 million in the year-ago first quarter.
Sequentially, shipping volumes in all operations except fabrication increased from the fourth quarter, and were significantly higher than the year-ago quarter. Steel shipments for the first quarter were 1.4 million tons, 20% higher than the fourth quarter.
Steel segment profit margins came under slight pressure as SDI's average scrap cost per net ton charged increased $56 compared to the fourth quarter. The impact of increased scrap prices was moderated by a $50 per ton increase in average external steel selling prices ($736 vs. $686 per ton in the fourth quarter). In metals recycling, OmniSource's ferrous metals shipments were 1.2 million gross tons, up 15% from the fourth quarter, and nonferrous shipments were 238 million pounds, up 17% from the fourth quarter.
Management Comments — "In the first quarter, the company's steel operations gained momentum, producing operating income of $138 million, or $99 per ton shipped, while OmniSource, which benefitted from increased volumes and higher scrap prices, achieved operating income of $43 million during the quarter," said Keith Busse, SDI Chairman and CEO. "As we continue to compete aggressively for orders, our employees have moved quickly to ramp up production as opportunities arise, shipping quality products to meet customer needs while doing an excellent job in controlling costs.
"The first quarter's strength in steel operations centered on sheet products and special-bar-quality (SBQ) steels. The Flat Roll Division ran at capacity in the first quarter while The Techs approached 85 percent utilization. Both continue to have strong order books. Demand for SBQ strengthened dramatically in February and continued in March, which has resulted in the strongest order backlog in the history of the Engineered Bar Products Division. We also have seen sequential improvement in backlogs in our other long-products steel businesses, but the structural steel market still remains very challenging as non-residential construction remains weak. We have been successful offsetting some of this weakness by serving new customers with new products. At our largest long-products division, Structural and Rail, we have achieved recent success in rail development and have obtained customer certification for our AREMA Standard Strength rail and for welded rail. We expect the volume of rail shipments to grow progressively through the year.
"In our Ferrous Resources platform," Busse continued, "we are very excited about the progress made at the new Mesabi Nugget plant in the first quarter. Our goal is to achieve self-sufficiency of iron supply for our steel operations as Mesabi Nugget production increases and complements the current supply of iron from our Iron Dynamics operation. With the rapid progress being made, we are gaining confidence that we will achieve that goal by 2011.
"The fine-tuning of the nugget-production process is going very well. After producing the first batch of nuggets early in January,
The Mesabi Nugget team shipped 7,200 tonnes of nuggets to Butler in the first quarter, and production is expected to ramp up to about 12,000 tonnes in April. Busse noted that the nugget plant incurred a larger-than-expected operating loss in the first quarter due primarily to costs and downtime associated with replacement of some of the plant’s conveyor systems. The impact to the company in the first quarter was an $11 million loss before tax effect.
"A gradually improving economy with moderate strengthening of steel demand is resulting in firmer order backlogs for our mills, which also implies continued better conditions for the scrap markets," Busse said. “However, we have not yet seen signs of a significant rebound in our construction-related businesses, which means these operations will likely continue to negatively impact our results. Overall, though, we now see a more stable and positive outlook for the coming quarter and second half of 2010.
Q1 Operating Segment Recap — Operating results for each of SDI's three primary operating segments exclude profit-sharing costs and amortization related to each of the respective segment's intangible assets.
The company’s Steel Operations segment includes five electric-arc-furnace (EAF) steel mills and related steel finishing and processing facilities, including The Techs. SDI's five steel mills produce a wide variety of flat-rolled and long steel products. The Techs produce galvanized steel sheet using steel that is sourced primarily from third parties.
First quarter net sales for SDI’s Steel Operations segment (including intra-segment and intra-company sales) were $1 billion, representing 63% of the company's external sales. Shipments were 1.4 million tons, including 960,000 tons of flat-rolled steel shipments representing 68% of first quarter steel segment shipments (based on tons shipped). Structural steel and rail products accounted for 11% of first-quarter shipments, while 9% was engineered bars, 8% was merchant bars, and 4% related to Steel of West Virginia.
Operating income for the steel segment was $138 million ($99 per ton shipped), which compares to an operating income of $93 per ton in the fourth quarter of 2009.
The first quarter's average external selling price per ton for Steel Operations was $736, an increase of $50 per ton from $686 in the fourth quarter of 2009 and an increase of $6 per ton from the year-ago quarter. The average cost of ferrous scrap per net ton charged increased $56 compared to the fourth quarter.
The company’s Metals Recycling and Ferrous Resources segment includes OmniSource Corp. (collection, processing, and trading of ferrous and non-ferrous metals), Iron Dynamics (a scrap-substitute operation that produces pig iron for use by the Flat Roll Division), SDI's 81% interest in Mesabi Nugget (which produces iron nuggets for mini-mill steelmaking and is co-owned by Kobe Steel, Ltd.), and expenses related to Mesabi Mining (a wholly owned iron mining unit that is awaiting approval of mining permits before it can begin operation).
The segment's Q1 net sales were $756 million (including intra-company), representing 34% of SDI's first quarter external sales. The operating income for this segment was $32 million. OmniSource's stand-alone first quarter operating income on the same basis was $43 million.
OmniSource's total Q1 ferrous scrap shipments (including shipments to SDI's Steel Operations) were 1.2 million gross tons — 15% higher than the previous quarter and 89% higher than the year-ago quarter. The company's scrap operations supplied 519,000 gross tons of ferrous scrap to SDI's Steel Operations, representing 42% of the total tonnage of ferrous scrap OmniSource shipped and 46% of the tonnage of ferrous scrap purchased by the company’s mills during the quarter.
SDI’s Steel Fabrication Operations includes the New Millennium Building Systems fabricating plants that produce joists, trusses, and steel decking that is used in the construction of non-residential buildings. Q1 net sales were $24 million (including intra-company), representing 2% of SDI's Q1 external sales. For the first quarter, New Millennium reported an operating loss of $7 million and shipments of 26,000 tons (15% lower than the previous quarter and 43% lower than the year-ago quarter).
