Steel Dynamics Reports First Quarter 2016 Results

FORT WAYNE, Ind., April 20, 2016 /PRNewswire/ -- Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced first quarter 2016 net income of $63 million, or $0.26 per diluted share, on net sales of $1.7 billion.  Comparatively, prior year first quarter net sales were $2.0 billion, with adjusted net income of $40 million, or $0.17 per diluted share, which excluded the impact of call premium and other finance expenses associated with the March 2015 senior note repayment of $0.04 per diluted share. Sequential fourth quarter 2015 net sales were $1.6 billion, with adjusted net income of $22 million, or $0.09 per diluted share, which excluded the impact of non-cash goodwill and asset impairment charges related to the company's metals recycling operations of $1.13 per diluted share. 

"During the first quarter 2016, positive changes in the flat roll steel supply environment resulted in significantly improved sequential consolidated operating earnings, which increased over 175 percent to $132 million," said Mark D. Millett, President and Chief Executive Officer. "Flat roll steel import levels have declined and customer inventory levels are better matched with actual demand requirements, supporting higher domestic steel mill utilization.  The domestic steel demand outlook is relatively unchanged and steady, with the heavy equipment, agricultural and energy markets remaining weak, while automotive continues to be strong and construction recovers.  

"We saw improved volumes and profitability in all of our operating platforms for the first quarter 2016," continued Millett.  "Our metals recycling operations returned to profitability as demand for ferrous scrap improved, which resulted in higher shipments and selling values.  Likewise, our fabrication operations were supported with continued steady demand from the non-residential construction sector, achieving near record quarterly earnings.  We are optimistic, as domestic steel industry dynamics seem to be shifting favorably.  Our cash generation continues to be strong, resulting in record liquidity of $2.2 billion at the end of March 2016, providing a firm foundation for growth." 

Additional First Quarter 2016 Comments

First quarter 2016 operating income for the company's steel operations increased 104 percent to $136 million sequentially, based on a 17 percent improvement in shipments as volumes increased at each of the company's steel locations.   However, average steel product pricing declined more than consumed raw material scrap costs, resulting in steel metal spread compression.  The first quarter 2016 average product selling price for the company's steel operations decreased $40 to $574 per ton.  The average ferrous scrap cost per ton melted decreased $21 to $184 per ton. 

First quarter 2016 operating income attributable to the company's sheet products increased over 180 percent when compared to the sequential fourth quarter.  Although metal spread declined, the company's flat roll shipments increased 20 percent, which more than offset the margin reduction.  Operating income from long products increased 46 percent, as shipments improved nine percent, more than offsetting the decrease in metal spread related to product price decline.  The company's steel production utilization rate was 88 percent in the first quarter 2016, compared to 73 percent in the sequential quarter and compared to the domestic industry utilization rate of only 71 percent.    

The company's metals recycling operations achieved a meaningful improvement in profitability, moving from an operating loss of $16 million in the fourth quarter 2015 (which excludes non-cash asset impairment charges of $428.5 million) to operating income of $6 million in the first quarter 2016, based on both improved metal spread and shipments. The company's ferrous shipments increased nine percent and metal margins improved over 30 percent, as demand and pricing improved due to both increased domestic steel mill utilization and scrap export demand. 

The company's fabrication operations continued its strong financial performance, achieving first quarter 2016 operating income of $32 million which was only surpassed by the record level of $37 million set in the third quarter of last year.  Sustained demand resulted in a slight increase in quarterly shipments, which partially offset modest metal spread compression, as average product pricing declined more than raw material steel costs.

The company generated strong cash flow from operations of $289 million during the first quarter 2016.  Including its undrawn revolver and available cash of $977 million, the company achieved record liquidity of $2.2 billion at March 31, 2016.  As evidence to the confidence in the company's continued long-term cash flow generation capability, the company's board of directors approved a two percent increase in Steel Dynamics first quarter 2016 cash dividend, increasing it to $0.14 per common share.  The company believes this reflects the strength of its capital structure and liquidity profile, and the continued optimism and confidence in its future prospects.

Outlook   

"Steel customer inventory levels have moderated and import levels have declined," said Millett.  "When combined with steady underlying steel demand, the result has been some improvement in domestic steel producer utilization, yet industry utilization still remains below historical performance due to the issue of unfairly traded steel imports.  The proximity of our Columbus Flat Roll Division to the Gulf Region combined with the 2015 rapid decline in the energy sector, severely impacted Columbus' profitability last year, reducing its annual EBITDA by approximately 75 percent, when compared to 2014 annual proforma performance of $315 million.  The successful market and product diversification we achieved at Columbus during 2015 is one of the key differentiators for anticipated improved profitability in 2016.  As a testament, Columbus achieved near record quarterly shipments in the first quarter 2016 and increased value-added shipments almost 80 percent compared to prior year's first quarter.

"We continue to strengthen our financial position through strong cash flow generation and the execution of our long-term strategy.  We also have additional earnings catalysts, including macro-industry improvements and several others which are company specific.  We are well-positioned for growth.  Customer focus, coupled with our market diversification and low-cost operating platforms, support our ability to maintain our best-in-class industry performance. We believe we are uniquely poised to capitalize on growth opportunities in a challenging environment that will benefit our customers, shareholders, employees and communities."

Conference Call and Webcast

Steel Dynamics, Inc. will hold a conference call to discuss first quarter operating and financial results on Thursday, April 21, 2016, at 10:00 a.m. Eastern Time.  You may access the call and find dial-in information on the Investors section of the company's website at www.steeldynamics.com.  A replay of the call will be available on our website until 11:59 p.m. Eastern Time on April 26, 2016.

About Steel Dynamics, Inc.

Steel Dynamics, Inc. is one of the largest domestic steel producers and metals recyclers in the United States based on estimated annual steelmaking and metals recycling capability, with annual sales of $7.6 billion in 2015, approximately 7,500 employees, and manufacturing facilities primarily located throughout the United States (including six electric-arc-furnace steel mills, ten steel coating lines, an iron production facility, approximately 75 metals recycling locations and eight steel fabrication plants).

Note Regarding Non-GAAP Financial Measures

The company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). Management believes that Adjusted Operating Income, EBITDA and Adjusted EBITDA, non-GAAP financial measures, provide additional meaningful information regarding the company's performance and financial strength. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the company's reported results prepared in accordance with GAAP.  In addition, because not all companies use identical calculations, EBITDA included in this release may not be comparable to similarly titled measures of other companies.

Forward-Looking Statements

This press release contains some predictive statements about future events, including statements related to conditions in the steel and metallic scrap markets, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new or existing facilities. These statements, which we generally precede or accompany by such typical conditional words as "anticipate," "intend," "believe," "estimate," "plan," "seek," "project" or "expect," or by the words "may," "will," or "should," are intended to be made as "forward-looking," subject to many risks and uncertainties, within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These statements speak only as of this date and are based upon information and assumptions, which we consider reasonable as of this date, concerning our businesses and the environments in which they operate. Such predictive statements are not guarantees of future performance, and we undertake no duty to update or revise any such statements. Some factors that could cause such forward-looking statements to turn out differently than anticipated include: (1) the effects of uncertain economic conditions; (2) cyclical and changing industrial demand; (3) changes in conditions in any of the steel or scrap-consuming sectors of the economy which affect demand for our products, including the strength of the non-residential and residential construction, automotive, appliance, pipe and tube, and other steel-consuming industries; (4) fluctuations in the cost of key raw materials (including steel scrap, iron units, and energy costs) and our ability to pass-on any cost increases; (5) the impact of domestic and foreign import price competition; (6) unanticipated difficulties in integrating or starting up new or acquired businesses; (7) risks and uncertainties involving product and/or technology development; and (8) occurrences of unexpected plant outages or equipment failures.

More specifically, we refer you to Steel Dynamics' more detailed explanation of these and other factors and risks that may cause such predictive statements to turn out differently, as set forth in our most recent Annual Report on Form 10-K under the headings Special Note Regarding Forward-Looking Statements and Risk Factors, in our quarterly reports on Form 10-Q or in other reports which we from time to time file with the Securities and Exchange Commission. These are available publicly on the SEC website, www.sec.gov, and on the Steel Dynamics website, www.steeldynamics.com.

SOURCE Steel Dynamics, Inc.

Related Links

http://www.steeldynamics.com