Dec. 14, 2006 — Despite recent market softness and related steel industry earnings concerns, Steel Dynamics (SDI) says that it expects to report fourth quarter earnings of $1.00 to $1.05 per diluted share, just slightly below the guidance of $1.05 to $1.10 per diluted share provided in its third-quarter press release on October 18, 2006.

The update represents about a 5% reduction in guidance and a 5% reduction in earnings compared to earnings of $1.09 per diluted share for the previous quarter. The company had reported earnings of $0.65 per diluted share in the fourth quarter of 2005, after adjusting for a two-for-one stock split effective November 20, 2006.

The recent fourth quarter weakness has been centered in the flat-rolled steel segment, which currently represents about one half of SDI's steel shipments.

SDI says its flat-rolled profit margins have been squeezed somewhat by lower selling values, although a downward trend in scrap prices has helped. Industry conditions for the flat-rolled market have continued to soften beyond expectations since mid-October. The result—weaker order entry activity and lower selling prices—prompted SDI to operate their flat roll mill at a slower pace in November and December, with the mill's capacity utilization declining to about 85%.

Pricing and margins for value-added and coated products have softened, but have held up better than the hot-rolled segment of the market. SDI says that business activity and pricing remain strong at its other four steelmaking divisions and in fabrication. Shipments and backlogs remain strong for structural steel, engineered bars, merchant bars, and specialty shapes. The company has experienced favorable trends in steel scrap pricing recently and continues to enjoy healthy margins in its long-products businesses.

"Overall, we are weathering the storm in the flat-roll segment reasonably well," said Keith Busse, President and CEO of Steel Dynamics. "We believe, however, that the market softness will be short-lived provided that imports decline allowing inventories to be worked down. We see little indication of slackening of end-product demand, other than with certain domestic auto manufacturers and residential construction. Despite the year-end softness in the flat-roll business, SDI's full-year 2006 earnings per diluted share should be more than 70% higher than in 2005, and about 25% higher than 2004, our previous best year.

"As we look ahead to 2007, we expect to continue to benefit from our diversified product mix, new product offerings, additional production capacity, low cost structure, effective scrap procurement programs, and continued commercial acceptance of our steel products. We expect 2007 could be another strong year for SDI, with increased shipments, higher revenues, and potentially stronger earnings," Busse said.

SDI says its fourth quarter results will include a charge of one to two cents per share related to employees at the Roanoke, Va., bar mill accepting a voluntary early retirement package. This charge had not been factored into earlier guidance because it was a late-year program and the number of employees who would accept the offer was unknown. About 40 employees have accepted the early retirement program, which helps the company adjust the size of the Roanoke workforce to accommodate planned improvements in processes and equipment at the Roanoke mill.