FORT WAYNE, INDIANA, October 15, 2008 — Steel Dynamics, Inc.
(NASDAQ-GS: STLD) today announced third quarter 2008 net income of $193
million, or $0.98 per diluted share, down sequentially 8 percent from
$210 million, or $1.05 per diluted share, compared to the second quarter
of 2008, but 92 percent higher than the $101 million reported for the
third quarter of 2007. Net sales of $2.6 billion for the third quarter
were up 7 percent compared to $2.4 billion in the second quarter of
2008, and increased 122 percent from $1.2 billion in the third quarter
of 2007. For the first nine months of 2008, both net sales of $6.9
billion and net income of $546 million set company records. Earnings
were $2.75 per diluted share for the first nine months versus $1.51 for
the year-earlier period. Third quarter 2008 results included
contributions from the Recycle South operations that were purchased in
June 2008.
Third quarter steel shipments of 1.4 million tons were 12 percent
lower than second quarter 2008 and 9 percent lower than third quarter
2007 shipments. Reduced volume was due primarily to a 19 percent
sequential decrease in flat- rolled steel shipments by the Flat Roll
Division and The Techs. Flat-rolled steel shipments for late September
were below our expectations as steel customers reduced order entry and
deferred order releases when steel selling prices started to fall. Lower
September prices resulted in reduced margins for the Flat Roll Division
while working down mill scrap inventories that had been purchased at
higher prices.
Compared to the second quarter, SDI’s merchant bar shipments were up 8
percent, engineered bar shipments were up 3 percent, and structural
steel shipments were down 2 percent. Operating income for the long
products steel operations remained very strong. New Millennium Building
Systems saw modest improvement in volume and higher selling prices, but
continued to experience weak commercial building market conditions.
OmniSource shipments of ferrous scrap were 1.8 million net tons, up
17 percent compared to the second quarter of 2008 and non-ferrous
shipments were 242 million pounds, down 5 percent. Iron Dynamics
continued to operate well, producing 70,000 net tons of pig iron for use
in flat-roll steel production.
“SDI’s third quarter results of $0.98 per diluted share were somewhat
below our July 21 third-quarter earnings guidance, principally due to
the unprecedented decline in ferrous scrap prices in September,” said
Keith Busse, Chairman and CEO of Steel Dynamics. “The steep drop in
ferrous and non-ferrous scrap prices in September resulted in
significantly reduced profits for OmniSource due to lower selling values
for shipments as matched against higher August input costs. Despite
record performances in July and August, and although the level of
OmniSource’s scrap inventories was within a customary range, the
September decline of approximately $300 per ton in prime scrap prices
nevertheless caused a significant decrease in OmniSource’s September
operating profit, reducing SDI’s expected quarterly earnings results by
about $0.12 per diluted share.
“Because scrap-yard inventories typically turn within the month, the
impact of this large price reduction on scrap operating profits is
primarily confined to September, although there will be some further
impact on scrap operating profits in the fourth quarter due to further
ferrous pricing declines. Normal margins should return to health in the
November-December timeframe, but volumes could be lower, with
anticipated further improvement in the first quarter of 2009. The bright
side of this recent significant decline in ferrous scrap prices is that
with lower scrap costs, raw material costs at our steel operations will
be significantly lower.
“It should be noted that had the steep decline in scrap prices not
occurred, our third quarter could have, in fact, been a record quarter
for the company, despite the difficulties of the U.S. economy,” Busse
said. “This speaks volumes about the viability of our low cost variable
cost structure.
“Pricing and the volume of steel production and shipments in the
fourth quarter will depend on the tenor of the steel market and the
economy in general, as well as business and consumer confidence. If
business activity is slow to recover, we will generate lower fourth
quarter shipping volumes and earnings, primarily in flat-rolled
products. Our long products steel operations have recently seen slightly
weaker order entry, but they all currently have healthy backlogs. The
outlook in the marketplace for flat-rolled steel is currently more
uncertain.
“Raw materials inventories for our long products mills were
relatively low going into the fourth quarter, but our flat products
scrap inventories were relatively high, suggesting it will take longer
to work them down with lower anticipated volumes in this part of our
steel business. Accordingly, we would expect our overall earnings could
be about half that of our earnings in the third quarter. Nevertheless,
given the current uncertainties about steel demand and pricing for the
fourth quarter, we are not providing specific fourth-quarter guidance at
this time, but will provide an update as the quarter progresses. We are
withdrawing our previous full-year 2008 earnings guidance of $3.80 to
$3.90 per diluted share as market circumstances have changed
dramatically. We believe that our steel shipments (primarily
flat-rolled) will be significantly lower in the fourth quarter, but I
would emphasize that the low, variable-cost structure of our steel
operations enables us to operate profitably at lower operating rates
than most of our peers,” Busse said.
Regarding the company’s capital structure, long-term debt was $2.2
billion at the end of the quarter with only $65 million of principal due
in the next twelve months. Borrowings on our $874-million senior
secured revolving credit facility (maturing July 2012), totaled $575
million. We currently anticipate substantial decreases in working
capital requirements during the fourth quarter, providing for a
meaningful reduction of our revolver borrowings before the end of the
year.
During the third quarter, the company repurchased 18.9 million shares
of its common stock at a cost of $439 million, or at an average
purchase price of $23 per share. At the end of the quarter, there were
183.1 million shares of Steel Dynamics common stock outstanding. During
the quarter, the last of the outstanding 4.0% convertible notes were
converted to stock.
“In light of these factors, it is simply beyond comprehension why our
share price, which is supposed to reflect rational thinking by rational
people, is where it is today. Frankly, in my judgment, those who have
literally dumped their shares into a grossly oversold market have made
some very poor investment decisions,” Busse said.
“Indeed, we believe that our metals recycling segment will soon
return to a solid and sustainable level of profitability and that our
long products businesses will remain stable with excellent earnings.
And, considering the impact from our flat-rolled products operations,
where we have anticipated the possibility of substantial short-term
weakness into early next year—including a drop in steel pricing and
sharply reduced volumes—substantial earnings growth in the first quarter
of 2009 is not an unreasonable expectation in light of our superior
cost structure. So, in spite of a weaker economy, 2009 could, with scrap
prices remaining soft, be another outstanding year for Steel Dynamics,”
Busse concluded.
Project Status
Regarding capital investments, steelmaking capacity upgrades at the
company’s three Indiana steel mills are on track. The Structural &
Rail Division’s new medium section rolling mill began commissioning in
August. It is ramping up one product family at a time, and made its
first shipments of wide-flange beams at the end of August. Construction
of the building housing Columbia City’s second caster is underway. After
installation of the second caster in mid-2009, the structural mill will
be capable of casting and rolling at least 2 million tons per year.
At the Engineered Bar Products mill at Pittsboro, work has been
ongoing to expand the existing reheat furnace as well as making
equipment modifications in casting and rolling. These changes are
expected to be completed early in 2009, increasing the mill’s production
capacity to 750,000 tons per year and extending its product
capabilities.
At the Butler Flat Roll mill, replacement of the first two EAF
furnace shells began in September, two months ahead of schedule. All
four shells will be replaced with higher-capacity vessels, and along
with other completed upgrades, will increase the mill’s capacity
ultimately to 3 million tons per year.
Meanwhile, construction of the Mesabi Nugget plant at Hoyt Lakes,
Minnesota, is proceeding on plan. The two major processing buildings are
in the process of being enclosed for the winter. Installation of the
large rotary hearth furnace has begun, and site utility and rail
infrastructure projects are proceeding. During the third quarter the
re-permitting of the Steel Dynamics Mesabi iron mine received strong
public support at a public hearing conducted by Minnesota environmental
officials. We continue to expect the start-up of the Mesabi Nugget plant
in the third quarter of 2009 and, subject to obtaining on a timely
basis the permits needed to operate the mine, commencing mining
operations by late 2010.
Third Quarter 2008 Operating Segment Information
The following highlights our third quarter 2008 results for each of SDI’s three primary operating segments.
Steel Operations. Steel Operations represented 53
percent of the company’s third quarter net sales. This segment includes
five electric-arc-furnace (EAF) steel mills and related steel processing
facilities, including The Techs, which galvanize steel sheet that is
sourced primarily from third parties. In addition to flat-rolled steel,
the company’s steel operations produce structural steel, merchant bars,
special-bar-quality steel, and other specialty shapes.
Third quarter 2008 Steel Operations net sales were $1.7 billion on
shipments of 1.4 million tons (including intra-company shipments). Based
on tons shipped, including steel shipments made by The Techs,
flat-rolled products accounted for 55 percent of third quarter steel
segment shipments. Structural steel shipments were 20 percent,
engineered bars were 10 percent, merchant bars were 10 percent, and the
remaining 5 percent were shipments by the Steel of West Virginia
subsidiary. Operating income for the steel segment was $285 million, or
$200 per ton shipped, compared to $206 per ton in the second quarter.
These figures exclude profit-sharing costs and amortization related to
the segment’s intangible assets.
The third quarter’s average selling price per ton for Steel
Operations was $1,186, an increase of $175 per ton from $1,011 in the
second quarter of 2008 and an increase of $487 per ton from the year-ago
quarter. The average scrap cost per net ton charged increased by $87
compared to the second quarter, and was $290 higher than the third
quarter of 2007.
Metals Recycling and Ferrous Resources. This segment
includes ferrous and non-ferrous metals processing and trading by
OmniSource Corporation and SDI’s Iron Dynamics scrap-substitute
operation, which produces 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 for
third quarter 2008 were $1.3 billion (including intra- company sales),
representing 42 percent of SDI’s third quarter net sales. Operating
income for this segment was a record $101 million, excluding
profit-sharing costs and amortization related to the segment’s
intangible assets.
For the third quarter, total ferrous scrap shipments, including
shipments to SDI’s Steel Operations, were 1.8 million tons and
non-ferrous scrap shipments were 242 million pounds. During the third
quarter, the company’s scrap operations supplied 714,000 tons of ferrous
scrap to SDI’s steel operations, or approximately 43 percent of the
tonnage of ferrous scrap purchased by our mills during the quarter.
Steel Fabrication Operations. Steel Fabrication
Operations includes New Millennium Building Systems fabricating plants
that produce joists, trusses, and steel decking used in the construction
of non-residential buildings. Third quarter net sales were $111
million, or 3 percent of SDI’s third quarter net sales. Operating income
for this segment was $5 million, or $58 per ton shipped, excluding
profit-sharing costs and amortization related to the segment’s
intangible assets. Third quarter shipments totaled 78,000 tons at an
average selling price of $1,413 per ton.
Download Unaudited Financial Statements (PDF File)
Conference Call and Webcast
On Thursday, October 16, 2008, at 10:00 a.m. Eastern time,
Steel Dynamics will host a conference call in which management will
discuss third quarter results. You are invited to listen to the live
audio broadcast of the conference call over the Internet, accessible
from the Steel Dynamics Web site: www.steeldynamics.com.
Dial-in information is available on our Web site. An audio replay of
the Webcast and a downloadable podcast will be available from the SDI
Web site. No telephone replay will be available.
Contact:
Fred Warner, Investor Relations Manager
(260) 969-3564
f.warner@steeldynamics.com
Forward Looking Statements
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