FORT WAYNE, INDIANA, January 28, 2008 — Steel Dynamics, Inc.
(NASDAQ-GS: STLD) today announced strong fourth quarter and full-year
results for 2007. Net sales grew to a record $4.4 billion, a 35 percent
increase over 2006 net sales of $3.2 billion. Consolidated shipments
increased 32 percent to 6.2 million tons of steel, fabricated steel, and
ferrous and non-ferrous scrap resources. 2007 net income was $395
million, approximately the same as 2006’s net income of $397 million.
2007 earnings per diluted share reached a record $4.02 compared to $3.77
per share in 2006. Per-share earnings increased despite a modest
decrease in earnings due to the reduced number of shares outstanding as a
result of the company’s extensive share repurchases during the year.
During the fourth quarter of 2007, net income was $98 million, or
$1.00 per diluted share, in comparison to $105 million or $1.03 per
diluted share in the fourth quarter of 2006 and to $101 million or $1.06
per diluted share in the third quarter of 2007. Net sales for the
fourth quarter were $1.5 billion, 73 percent higher than the fourth
quarter of 2006 and 25 percent higher than the third quarter of 2007.
The primary driver for the quarter’s increase in net sales was the
October 26, 2007, acquisition of OmniSource Corporation. OmniSource was
dilutive to fourth quarter earnings by approximately $0.07 per diluted
share as previously forecast. Of this amount, purchase accounting
adjustments represented $0.01. Net income per share exclusive of the
OmniSource transaction would have been $1.07, which was at the high end
of our original and mid-quarter guidance, $0.01 higher than the third
quarter’s diluted earnings per share and $0.04 higher than the fourth
quarter of 2006.
“Our 2007 results are indicative of our success as it relates to
diversification and growth strategies,” said Keith Busse, Chairman and
CEO. “In a year when flat-rolled steel, the largest market segment in
the U.S. steel industry, struggled, we experienced record consolidated
results. Our strategy to diversify from the flat-roll steel business
that we started in the mid-1990s into a multi-product steel producer has
resulted in five steelmaking operations, plus related steel processing,
fabricating, scrap, and virgin-iron resource operations. Our
steelmaking operations each produce distinct steel products that permit
us to serve a variety of end markets. During 2007, while our shipments
of flat-rolled sheet declined 2 percent, our structural steel volume
increased 15 percent and shipments of engineered bars increased 9
percent, netting a 4 percent year-over-year increase in steel shipments
from our three Indiana mills that were owned and operated throughout
2006 and 2007. Total steel shipments, including acquired steelmaking
operations, grew to 5.6 million tons in 2007, a 17 percent increase over
2006.
“Also contributing to SDI’s revenue growth were three noteworthy
acquisitions in 2007: OmniSource Corporation (October 2007), The Techs
(July 2007), and Elizabethton Iron (April 2007). The integration of
these operations is proceeding well, and we anticipate further
efficiencies to be realized throughout 2008.
“Our outlook for 2008 is very positive,” Busse said. “Conditions in
the U.S. steel marketplace are favorable, absent major events that could
severely reduce steel demand. Even with the slowdown in the U.S.
economy in 2008, we are currently seeing stronger demand for flat-rolled
steels than in 2007, due principally to low steel inventories and an
expected lower level of steel imports. For long products, demand
continues to be strong as we enter the first quarter, and we believe
that it will continue. Meanwhile, ferrous resources have seen dramatic
price increases in the past few months, and may remain strong.
Significant steel price increases have recently been announced in the
industry, yet we expect that the higher steel selling values will be
somewhat offset by the increased costs of steel scrap and other inputs.
We also expect increased demand for and higher pricing of ferrous scrap
to have a positive effect on consolidated earnings in the first quarter.
As a result of all of the above, we currently foresee improvement in
SDI’s earnings to a range of $1.10 to $1.20 per diluted share in the
first quarter of 2008.”
During 2007, the company continued its share repurchase program. A
total of 12.6 million shares were repurchased in 2007 at a cost of $534
million. A total of 2.1 million shares were repurchased in the fourth
quarter. At December 31, 2007, an additional 3.0 million shares remained
authorized for repurchase, and the company had approximately 95.2
million shares of common stock outstanding.
Fourth Quarter 2007 Operating Segment Information
Steel Dynamics reports three primary operating segments. The
following information highlights fourth quarter 2007 results for each of
these operating segments.
Steel Operations. SDI’s largest segment remains
Steel Operations, representing 65 percent of the company’s fourth
quarter net sales. This segment includes five steel mills and related
steel processing facilities such as The Techs, which produce galvanized
steel sheet using substrate that is sourced primarily from third
parties. The finished steel that is shipped by The Techs is included in
this segment’s production and shipments.
Fourth quarter 2007 Steel Operations shipments were 1.5 million tons
on net sales of $1.0 billion. The fourth quarter’s average selling price
per ton for steel operations increased $11 to $710 from $699 in the
third quarter and increased $36 from the year-ago quarter. Compared to
the third quarter of 2007, selling price increases were strongest in
structural and merchant-bar products. The average scrap cost per net ton
charged increased $9 compared to the third quarter, but was $47 higher
than the fourth quarter of 2006. Operating income for the steel segment
was $188.3 million, or $131 per ton shipped, excluding profit sharing
costs of approximately 8 percent.
Starting in the third quarter, Steel Operations’ operating income per
ton and operating margins are lower than historical levels due to the
inclusion of shipments of galvanized steel by The Techs. Although The
Techs operate three very efficient and cost-effective steel coating
operations, the margin for the galvanized steels produced by The Techs
is lower than SDI’s other galvanizing operations due to the incremental
cost of purchasing a steel coil to be coated versus producing that coil
at cost.
Scrap and Scrap Substitute Operations. In the fourth
quarter OmniSource Corporation became the principal reporting entity in
this segment. Just over two months of operating results for OmniSource
are included in the fourth quarter segment results, following the
purchase of OmniSource on October 26, 2007. Also included in this
segment are the scrap operations that were a part of SDI before the
purchase of OmniSource and Iron Dynamics, which produces direct-reduced
iron (DRI) and molten pig-iron for consumption by the Flat Roll
Division.
The segment’s net sales for fourth quarter 2007 were $451 million
representing 28 percent of SDI’s fourth quarter net sales. Total ferrous
scrap shipments during the quarter were 831,000 tons and non-ferrous
scrap shipments were 98.2 million pounds. During the fourth quarter, the
company’s scrap operations supplied 239,000 tons of ferrous scrap to
SDI’s steel operations, or approximately 22 percent of the tonnage of
ferrous scrap purchased by our mills. Operating income for this segment
was $11.2 million, excluding profit-sharing costs. It is expected that
OmniSource will be accretive to earnings during the first quarter of
2008.
Steel Fabrication Operations. Steel Fabrication
Operations includes New Millennium Building Systems, LLC, which operates
five fabricating plants that produce joists, trusses, and steel decking
used in the construction of non-residential buildings. Fourth quarter
net sales were $95.7 million, or 6 percent of SDI’s fourth quarter net
sales. Shipments totaled 71,000 tons in the fourth quarter at an average
selling price of $1,339 per ton. Operating income for this segment was
$10.1 million, excluding profit-sharing costs, or $141 per ton shipped.
Project Status and the Company’s Outlook for 2008
Beyond the expected generally stronger market conditions for 2008,
there are a number of factors specific to Steel Dynamics that enhance
the company’s outlook for 2008:
- In flat-rolled steels, these include the anticipated flexibility to
increase hot-band production volume by 15 percent or more due to
capacity expansions related to equipment upgrades made during the past
two years.
- In coated flat-roll steels, the start-up in early 2008 at
Jeffersonville, Indiana, of SDI’s second paint line will allow us to
enter new markets for painted thin-gauge galvanized steel, complementing
the recent success with highly corrosion-resistant GalvAlume® steel.
Also, The Techs, which have an annual production capacity of one million
tons, will report full-year results in 2008, versus six months in 2007.
- In structural steel, we currently expect to begin the commissioning,
in May, of a second rolling mill at Columbia City, Indiana. This
expansion will ultimately double the mill’s annual production capacity
to 2.2 million tons. We anticipate shipments from the Columbia City mill
could reach 1.5 million tons in 2008, which would include beam and rail
production from the existing rolling mill and partial-year production
from the new medium-section mill. Product mix will expand to include
smaller beams, light structural shapes, and rail for major railway use.
Higher shipping volumes should, in time, improve margins for the
division through cost compression.
- The engineered bar business offers substantial opportunities in the
future with a capacity expansion in the range of 250,000 tons. The
expansion of the Pittsboro, Indiana, mill will increase capacity by 50
percent, but has been delayed until early 2009 due to equipment delivery
delays. Volume is planned to be relatively stable for 2008 with an
emphasis on shifting the mix to higher value products. Recent product
qualifications and successful quality audits by major consumers of SBQ
steels are very encouraging.
- New Millennium Building Systems is now positioned to increase
shipping volume and expand its market presence as the three production
facilities added as a part of the Roanoke Electric Steel acquisition in
2006 have now been modernized to improve processes and workflow,
increasing their production capacities and reducing production costs to
allow the plants to compete more effectively.
- The addition of OmniSource will contribute to SDI’s earnings and
provide growth in 2008 through its expanding participation in the
domestic and global ferrous and non-ferrous scrap markets.
- During 2008 Steel Dynamics is moving forward on the Mesabi Nugget
project, including construction of an iron-nugget production plant and
preparations for mining and concentrating iron ore on the Mesabi Iron
Range in Minnesota. Although production of this important scrap
substitute is not set to begin until 2009, this initiative represents a
significant development for SDI in assuring additional future domestic
supplies of virgin iron resources at attractive costs.
Achieving these anticipated gains is dependent on favorable
demand/supply conditions in the domestic steel markets such that we
retain existing volume in our steel business and garner new steel
business sufficient to operate our facilities at the planned higher
utilization rates. The successful commissioning of new production
facilities depends on a variety of factors, including the timely
delivery and installation of production equipment and systems, testing
and calibration of the equipment, hiring and training of crews, and
promptly addressing any unanticipated issues that could lead to start-up
delays.
Download Unaudited Financial Statements(RTF File)
Conference Call and Webcast
On Tuesday, January 29, 2008 at 11:00 a.m. Eastern time,
Steel Dynamics will host a conference call in which management will
discuss fourth quarter and year 2007 results. You are invited to listen
to the live audio broadcast of the conference call over the Internet,
accessible from Steel Dynamics’ Web site: www.steeldynamics.com.
Dial-in information is available on our Web site. No telephone replay
will be available. An audio replay of the Webcast will be available on
the SDI Web site.
Contact:
Fred Warner, Investor Relations Manager
(260) 969-3564 or fax (260) 969-3590
f.warner@steeldynamics.com
Forward Looking Statements
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