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Steel Dynamics Updates First Quarter Earnings Guidance
03/12/2009 - Continued weakness in market conditions leads Steel Dynamics to reduce its first quarter estimate of earnings to a loss of $0.40 to $0.45 per diluted share, reflecting continued weakness in the company’s metals recycling segment, lower production rates, and lower volumes of steel shipments.
Continued weakness in market conditions has led Steel Dynamics, Inc. to reduce its first quarter estimate of earnings to a loss of $0.40 to $0.45 per diluted share.
An estimated $70 million (approaching $.25 per diluted share) of the projected loss relates to non-cash inventory adjustments in the company’s Flat Roll Division. The projected loss also reflects non-inventory adjustments related primarily to changes in outlook driven by weaker-than-expected shipping volumes at the company’s steel operations and continued weakness in the company’s metals recycling segment.
The company noted that its original first quarter estimate of $0.05 to $0.10 per diluted share—posted on January 26—was based on achieving a small pre-tax profit in the metals recycling segment of its business. The company now expects its metals recycling operations to report a loss for the first quarter, driven by continued decreases in scrap prices and recycled-metals shipping volumes.
Although OmniSource continues to experience very weak demand and limited flows of ferrous and nonferrous scrap, the company believes operating profits will moderately return in the second quarter. The slowdown in the U.S. economy has significantly affected the supply of both industrial and "obsolete" scrap as well as the demand for processed metals, particularly by steel mill and foundry consumers. The primary drivers for the reduced demand include weaknesses in the automotive and construction sectors.
Demand for steel products remained soft through February, resulting in lower production rates (as low as 30% at some of the company’s facilities) and a lower volume of steel shipments. Despite these very low utilization rates (and excluding the $70-million loss related to inventory write-downs), the company expects its steel operations to report a pre-tax profit for the first quarter.
“The outlook for the remainder of 2009 remains clouded. We are currently not able to clearly project volumes and financial performance for the rest of the year,” said Keith Busse, Steel Dynamics Chairman and CEO, looking further ahead. “We had earlier suggested the possibility of 2009 earnings that could be comparable or close to those of 2008, but we now recognize that the entire year of 2009 will be more challenging.
“We firmly believe that throughout the remainder of the year, with our even further improved cost structure and with our proven efficient operational strength, we will see stronger margins and a much improved earnings outlook,” added Busse. “Our current liquidity position is continuing to improve and we remain poised to quickly capitalize on any demand improvements.”
