Market Overview

Steel Dynamics Reports Fourth Quarter and Annual 2019 Results

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FORT WAYNE, Ind., Jan. 22, 2020 /PRNewswire/ --

Annual 2019 Performance:

  • Record steel shipments of 10.8 million tons and record steel fabrication shipments of 644,000 tons
  • Net sales of $10.5 billion, the company's second-best performance
  • Operating income of $987 million and net income of $671 million, the company's third-best performance
  • Cash flow from operations of $1.4 billion and EBITDA of $1.3 billion, the company's second-best and third-best performances, respectively
  • Achieved Investment grade credit rating designation, and successfully executed inaugural notes offering

Steel Dynamics, Inc. (NASDAQ:STLD) today announced fourth quarter and annual 2019 financial results. The company reported fourth quarter 2019 net sales of $2.4 billion and net income of $121 million, or $0.56 per diluted share. Excluding the impact from the following items, the company's fourth quarter adjusted net income was $134 million, or $0.62 per diluted share:

  • Financing costs related to the company's December 2019 refinancing activities of approximately $4 million, or $0.01 per diluted share, and
  • Lower earnings resulting from two planned annual maintenance outages at the company's Butler and Columbus flat roll divisions, causing higher than normal maintenance and associated costs of approximately $15 million, or $0.05 per diluted share. The outages also reduced flat roll steel shipments by an estimated 70,000 tons to 80,000 tons, further reducing fourth quarter earnings.

Comparatively, prior year fourth quarter net sales were $2.9 billion, with net income of $270 million, or $1.17 per diluted share, which included lower earnings from planned facility outages of $0.10 per diluted share, and additional performance-based compensation of $0.04 per diluted share. Sequential third quarter 2019 net sales were $2.5 billion, with net income of $151 million, or $0.69 per diluted share.   

"The team delivered a strong 2019 operational and financial performance in a challenging steel pricing environment, achieving our third-best annual earnings performance and numerous operational records, including record annual steel and fabrication shipments," said Mark D. Millett, President and Chief Executive Officer. "We performed at the top of our industry throughout the year. We achieved operating income of $987 million with EBITDA of $1.3 billion.  With near record 2019 cash flow generation of $1.4 billion, we achieved record liquidity of $2.8 billion, while at the same time growing our business through both organic and transactional growth investments, maintaining a positive cash dividend profile, and executing on our share repurchase program.  In recognition of our growth, strong balance sheet profile and consistent free cash flow generation capability, we also achieved investment grade credit designations from three credit rating agencies. We have a firm foundation for our continued long-term, strategic growth and value creation.

"Even though 2019 was one of our best years, it was challenged with high customer steel inventories, as many customers purchased beyond normal demand levels in 2018," continued Millett.  "Domestic steel demand remained steady in 2019, but as customers began to destock inventories, steel prices declined throughout the year, and firmed in the fourth quarter, as destocking subsided and inventory levels were right-sized.  As a result, operating income from our steel operations was $1.0 billion in 2019, compared to a record $1.9 billion in 2018.  Ferrous scrap prices also declined in eight of the past twelve months during 2019, resulting in our metals recycling operations earning $28 million in 2019, compared to $88 million last year. 

"Looking ahead, steel customer inventory levels have moderated, and underlying domestic steel demand remains intact for the primary steel consuming sectors, including automotive and construction.  Customers have been positive concerning the business outlook for 2020.  Additionally, our fabrication platform has an order backlog that is even stronger entering 2020 than it was at this time last year, and fabrication customer sentiment remains optimistic, a positive growth indication for non-residential construction projects.  Our fabrication operations achieved record shipments in 2019, and operating income of $119 million, almost double last year's performance," stated Millett.

Fourth Quarter 2019 Comments

Fourth quarter 2019 operating income for the company's steel operations was $201 million, or 16 percent lower than sequential third quarter results, based on two planned steel mill outages, seasonally lower shipments and metal spread compression.  The company completed significant planned maintenance outages at both its Butler and Columbus Flat Roll divisions, which increased costs by an estimated $15 million and reduced flat roll shipments during the fourth quarter.  The fourth quarter 2019 average external product selling price for the company's steel operations decreased $45 sequentially to $764 per ton. The average ferrous scrap cost per ton melted at the company's steel mills decreased $32 sequentially to $243 per ton. 

Monthly prime scrap indices declined approximately $35 per gross ton on average from October through December, compared to July through September 2019.  In concert, the company's metals recycling platform's average ferrous scrap selling price declined $28 per gross ton and shipments were seasonally 6% lower sequentially, resulting in an operating loss of $5 million, compared to an operating profit of $3 million in the third quarter 2019. 

Fourth quarter 2019 operating income from the company's steel fabrication operations was $33 million, remaining steady with strong sequential earnings of $35 million. Record quarterly shipments substantially offset the impact of marginal average price declines.  The steel fabrication platform's order backlog remains strong, and customers remain optimistic concerning construction activity. 

The company generated strong fourth quarter 2019 cash flow from operations of $409 million and executed its inaugural investment grade notes offering.  The company issued $400 million of 2.800% notes due 2024 and $600 million of 3.450% notes due 2030, using the proceeds to repay $700 million of its existing 5.125% senior notes due 2021 and for other general corporate purposes.  These transactions extended the company's overall debt maturity profile and will reduce annual interest costs.

Annual 2019 Comparison

Annual 2019 net income was $671 million representing the company's third-best annual performance, or $3.04 per diluted share, with net sales of $10.5 billion, as compared to record 2018 net income of $1.3 billion, or $5.35 per diluted share, with net sales of $11.8 billon.  Annual 2019 net sales declined 11 percent, while operating income of $987 million decreased 43 percent from record high 2018 results of $1.7 billion. The decline in revenues was primarily caused by declining steel prices related to customer inventory destocking that occurred throughout the year, and more than offset the benefit of the company's 2019 record annual steel and fabrication shipments.  The decline in earnings was driven by lower average flat roll steel selling values, as average 2019 annual prime hot roll coil price indices decreased approximately $229 per ton, or 28 percent when compared to 2018, resulting in significant metal margin compression. 

Compared to 2018, the average 2019 external product selling price for the company's overall steel operations decreased $83 to $839 per ton. The average 2019 ferrous scrap cost per ton melted at the company's steel mills decreased $48 to $293 per ton. 

During 2019, the company increased value-added shipments from its steel processing locations, representing 15 percent of the total steel shipments, compared to 10 percent in 2018.  These locations use steel products as their primary raw material, and the associated steel procurement costs represented over 16 percent of the company's steel operations cost of goods sold in 2019, compared to 12 percent in 2018.  

The company generated its second-best annual cash flow from operations of $1.4 billion, paid cash dividends of $200 million, and repurchased $349 million, or five percent of its outstanding common stock during 2019.  

Outlook    

"Based on domestic steel demand fundamentals, we are constructive regarding North American steel market dynamics," said Millett. "We believe North American steel consumption will experience modest growth and will be supported by further steel import reductions and the end of steel inventory destocking.  We believe recent and possible trade actions could have a positive impact in further reducing unfairly traded steel imports into the United States, including coated flat roll steel, which could have a significant positive impact for Steel Dynamics, as we are the largest non-automotive flat roll steel coater in the United States.

"In combination with our existing and newly announced expansion initiatives, there are firm drivers in place for our continued growth.  We are excited about our Sinton, Texas flat roll steel mill project, and the associated long-term value creation it will bring through geographic and value-added product diversification.  This facility is designed to have product size and quality capabilities beyond that of existing electric-arc-furnace flat roll steel producers, competing even more effectively with the integrated steel model and foreign competition. We have targeted regional markets that represent over 27 million tons of relevant flat roll steel consumption, which includes the growing Mexican flat roll steel market. This facility is located and designed to have a meaningful competitive advantage in those regions.  The team began site work in the second half of 2019, and we are excited to announce that we recently received the required environmental permitting to allow for full construction efforts to begin, with current plans to commence operations mid-year 2021.      

"Our differentiated business model and performance-driven culture clearly demonstrate our through-cycle earnings capability. We continue to strengthen our financial position through consistent strong cash flow generation and the execution of our long-term strategy.  We are competitively positioned and remain focused on delivering long-term value creation for all of our stakeholders," concluded Millett.

Conference Call and Webcast

Steel Dynamics, Inc. will hold a conference call to discuss fourth quarter and annual 2019 operating and financial results on Thursday, January 23, 2020, at 9:00 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 January 28, 2020.

About Steel Dynamics, Inc.

Steel Dynamics 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 facilities located throughout the United States, and in Mexico. Steel Dynamics produces steel products, including hot roll, cold roll, and coated sheet steel, structural steel beams and shapes, rail, engineered special-bar-quality steel, cold finished steel, merchant bar products, specialty steel sections and steel joists and deck. In addition, the company produces liquid pig iron and processes and sells ferrous and nonferrous scrap. 

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 Net Income, Adjusted Diluted Earnings Per Share, 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 and Adjusted 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 domestic or global economies, conditions in steel and recycled metals market places, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new, existing or planned 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, manufacturing, appliance, pipe and tube, and other steel-consuming industries; (4) fluctuations in the cost of key raw materials and supplies (including steel scrap, iron units, zinc, graphite electrodes, and energy costs) and our ability to pass on any cost increases; (5) the impact of domestic and foreign imports, including trade policy, restrictions, or agreements; (6) unanticipated difficulties in integrating or starting up new, acquired or planned businesses or assets; (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: Investors: SEC Filings.

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

















Three Months Ended


Year Ended


Three Months


December 31,


December 31,


Ended


2019


2018


2019


2018


September 30,
2019
















Net sales

$

2,370,491


$

2,903,892


$

10,485,286


$

11,821,839


$

2,526,845

Costs of goods sold


2,054,082



2,382,657



8,954,302



9,499,025



2,167,006

      Gross profit


316,409



521,235



1,530,984



2,322,814



359,839
















Selling, general and administrative expenses


111,968



106,564



436,498



416,640



107,242

Profit sharing


13,633



41,684



78,029



155,985



17,848

Amortization of intangible assets


8,847



7,434



29,577



27,780



6,704

      Operating income


181,961



365,553



986,880



1,722,409



228,045
















Interest expense, net of capitalized interest


32,322



31,652



127,104



126,620



31,339

Other income, net


(424)



(7,384)



(15,561)



(23,985)



(4,545)

      Income before income taxes


150,063



341,285



875,337



1,619,774



201,251
















Income tax expense


26,344



71,433



197,437



363,969



48,643

      Net income


123,719



269,852



677,900



1,255,805



152,608

Net (income) loss attributable to noncontrolling interests


(2,294)



152



(6,797)



2,574



(1,560)

      Net income attributable to Steel Dynamics, Inc.

$

121,425


$

270,004


$

671,103


$

1,258,379


$

151,048































Basic earnings per share attributable to















   Steel Dynamics, Inc. stockholders

$

0.56


$

1.18


$

3.06


$

5.38


$

0.69
















Weighted average common shares outstanding


215,119



229,245



219,639



233,923



217,873
















Diluted earnings per share attributable to















   Steel Dynamics, Inc. stockholders, including the















   effect of assumed conversions when dilutive

$

0.56


$

1.17


$

3.04


$

5.35


$

0.69
















Weighted average common shares















   and share equivalents outstanding


216,402



230,455



220,748



235,193



219,109































Dividends declared per share

$

0.2400


$

0.1875


$

0.9600


$

0.7500


$

0.2400

 

Steel Dynamics, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands)









December 31,



December 31,

Assets

2019



2018


(unaudited)





Current assets







   Cash and equivalents

$

1,381,460



$

828,220

   Short term investments


262,174




228,783

   Accounts receivable, net


844,336




1,043,756

   Inventories


1,689,043




1,859,168

   Other current assets


76,012




72,730

      Total current assets


4,253,025




4,032,657








Property, plant and equipment, net


3,135,886




2,945,767








Intangible assets, net


327,901




270,328








Goodwill


452,915




429,645








Other assets


106,038




25,166

      Total assets

$

8,275,765



$

7,703,563

Liabilities and Equity







Current liabilities







   Accounts payable

$

513,344



$

550,754

   Income taxes payable


2,014




7,468

   Accrued expenses


401,984




436,681

   Current maturities of long-term debt


89,356




24,234

      Total current liabilities


1,006,698




1,019,137








Long-term debt


2,644,988




2,352,489








Deferred income taxes


484,169




435,838








Other liabilities


75,055




8,870

      Total liabilities


4,210,910




3,816,334








Commitments and contingencies














Redeemable noncontrolling interests


143,614




111,240








Equity







   Common stock


646




645

   Treasury stock, at cost


(1,525,113)




(1,184,243)

   Additional paid-in capital


1,181,012




1,160,048

   Retained earnings


4,419,296




3,958,320

   Accumulated other comprehensive income


(7)




301

      Total Steel Dynamics, Inc. equity


4,075,834




3,935,071

   Noncontrolling interests


(154,593)




(159,082)

      Total equity


3,921,241




3,775,989

      Total liabilities and equity

$

8,275,765



$

7,703,563

 

Steel Dynamics, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)














Three Months Ended


Year Ended


December 31,


December 31,


2019


2018


2019


2018













Operating activities:












   Net income

$

123,719


$

269,852


$

677,900


$

1,255,805













   Adjustments to reconcile net income to net cash provided by












      operating activities:












      Depreciation and amortization


80,527



80,560



321,082



317,198

      Equity-based compensation


14,402



14,457



47,631



43,317

      Deferred income taxes


16,769



16,390



51,721



61,827

      Other adjustments


2,365



(1,442)



1,413



(1,245)

      Changes in certain assets and liabilities:












         Accounts receivable


142,610



184,434



237,805



(145,873)

         Inventories


77,977



(5,305)



217,866



(246,213)

         Other assets


6,103



3,689



13,735



(3,475)

         Accounts payable


(32,278)



(62,464)



(86,445)



37,904

         Income taxes receivable/payable


(31,810)



(28,943)



(12,095)



26,471

         Accrued expenses


8,678



19,833



(74,323)



69,753

      Net cash provided by operating activities


409,062



491,061



1,396,290



1,415,469













Investing activities:












   Purchases of property, plant and equipment


(158,258)



(62,913)



(451,945)



(239,390)

   Purchases of short term investments


(262,133)



(143,783)



(396,159)



(268,783)

   Proceeds from maturities of short term investments


69,489



30,000



362,768



40,000

   Acquisition of business, net of cash and restricted cash acquired


-



-



(97,106)



(433,998)

   Other investing activities


1,733



5,445



5,756



6,907

      Net cash used in investing activities


(349,169)



(171,251)



(576,686)



(895,264)













Financing activities:












   Issuance of current and long-term debt


1,199,276



117,937



1,573,962



445,607

   Repayment of current and long-term debt


(895,018)



(109,329)



(1,264,152)



(455,491)

   Dividends paid


(51,778)



(43,767)



(200,271)



(168,913)

   Purchase of treasury stock


(56,214)



(330,190)



(348,608)



(523,569)

   Other financing activities


(20,302)



(10,177)



(27,561)



(18,501)

      Net cash provided by (used in) financing activities


175,964



(375,526)



(266,630)



(720,867)













Increase (decrease) in cash, cash equivalents, and restricted cash


235,857



(55,716)



552,974



(200,662)

Cash, cash equivalents, and restricted cash at beginning of period


1,151,540



890,139



834,423



1,035,085

Cash, cash equivalents, and restricted cash at end of period

$

1,387,397


$

834,423


$

1,387,397


$

834,423

























Supplemental disclosure information:












   Cash paid for interest

$

62,848


$

53,536


$

134,550


$

124,034

   Cash paid for income taxes, net

$

39,376


$

89,677


$

155,525


$

288,429

 

Steel Dynamics, Inc.

SUPPLEMENTAL INFORMATION

(dollars in thousands)



























Fourth Quarter



Year to Date














2019



2018



2019



2018



1Q 2019



2Q 2019



3Q 2019

External Net Sales























   Steel



$

1,771,398


$

2,198,459


$

7,924,846


$

8,920,719


$

2,124,570


$

2,106,350


$

1,922,528

   Fabrication




246,173



251,592



962,155



921,148



228,480



241,424



246,078

   Metals Recycling




242,862



352,555



1,198,007



1,552,600



351,137



323,100



280,908

   Other




110,058



101,286



400,278



427,372



113,248



99,641



77,331

      Consolidated Net Sales


$

2,370,491


$

2,903,892


$

10,485,286


$

11,821,839


$

2,817,435


$

2,770,515


$

2,526,845

Operating Income























   Steel



$

201,266


$

402,252


$

1,048,059


$

1,855,109


$

312,437


$

294,769


$

239,587

   Fabrication




32,573



14,902



119,263



62,064



20,663



30,706



35,321

   Metals Recycling




(5,251)



16,954



28,215



88,251



19,958



10,614



2,894

      Operations




228,588



434,108



1,195,537



2,005,424



353,058



336,089



277,802
























   Non-cash amortization of intangible assets




(8,847)



(7,434)



(29,577)



(27,780)



(7,013)



(7,013)



(6,704)

   Profit sharing expense




(13,633)



(41,684)



(78,029)



(155,985)



(23,677)



(22,871)



(17,848)

   Non-segment operations




(24,147)



(19,437)



(101,051)



(99,250)



(30,526)



(21,173)



(25,205)

      Consolidated Operating Income 


$

181,961


$

365,553


$

986,880


$

1,722,409


$

291,842


$

285,032


$

228,045

Adjusted EBITDA























      Net income



$

123,719


$

269,852


$

677,900


$

1,255,805


$

204,827


$

196,746


$

152,608

      Income taxes




26,344



71,433



197,437



363,969



62,236



60,214



48,643

      Net interest expense




25,355



24,738



99,077



104,042



24,017



25,598



24,107

      Depreciation




70,314



71,765



286,201



283,890



71,846



72,585



71,456

      Amortization of intangible assets




8,847



7,434



29,577



27,780



7,013



7,013



6,704

      Noncontrolling interest




(2,294)



151



(6,797)



2,573



(499)



(2,444)



(1,560)

            EBITDA 



252,285



445,373



1,283,395



2,038,059



369,440



359,712



301,958

      Non-cash adjustments























         Unrealized hedging (gain) loss




589



(2,510)



2,309



(6,600)



1,742



(3,719)



3,697

         Inventory valuation



352



666



1,222



2,148



241



351



278

         Equity-based compensation




14,400



14,457



42,941



40,390



10,619



9,080



8,842

         Financing expenses




2,780



-



2,780



-



-



-



-

            Adjusted EBITDA 


$

270,406


$

457,986


$

1,332,647


$

2,073,997


$

382,042


$

365,424


$

314,775

Other Operating Information























   Steel























      Average external sales price (Per ton) (a)



$

764


$

940


$

839


$

922


$

902


$

879


$

809

      Average ferrous cost (Per ton melted) (b)



$

243


$

343


$

293


$

341


$

338


$

316


$

275
























      Flat Roll shipments























         Butler and Columbus Flat Roll divisions




1,512,003



1,493,894



6,140,547



6,207,019



1,526,851



1,574,463



1,527,230

         Steel Processing divisions (c)




404,388



262,642



1,585,657



974,266



330,775



422,849



427,645

      Long Product shipments























         Structural and Rail Division




374,774



389,107



1,469,356



1,630,235



376,263



352,013



366,306

         Engineered Bar Products Division




153,692



217,646



732,774



922,839



206,874



195,644



176,564

         Roanoke Bar Division




125,125



150,607



529,480



559,801



152,400



128,460



123,495

         Steel of West Virginia




80,981



70,367



358,827



315,603



91,248



95,929



90,669

            Total Shipments (Tons



2,650,963



2,584,263



10,816,641



10,609,763



2,684,411



2,769,358



2,711,909
























            External Shipments (Tons) (a) 



2,305,633



2,328,420



9,402,608



9,625,291



2,347,209



2,386,851



2,362,915
























            Steel Production (Tons) (a)



2,647,400



2,677,613



10,898,744



10,899,776



2,745,128



2,769,910



2,736,306

   Metals Recycling























      Nonferrous shipments (000's of pounds)




252,861



278,418



1,068,208



1,131,412



292,038



266,222



257,087

      Ferrous shipments (Gross tons)




1,096,211



1,215,474



4,627,214



5,123,553



1,171,361



1,189,679



1,169,963

            External ferrous shipments (Gross tons)



361,504



414,941



1,565,957



1,777,418



382,841



425,477



396,135

   Fabrication























      Average sales price (Per ton)



$

1,419


$

1,550


$

1,495


$

1,437


$

1,575


$

1,538


$

1,464

      Shipments (Tons)




173,635



162,292



644,411



641,698



145,222



156,983



168,571
























(a)   Represents all steel operations




(b)   Represents ferrous cost per ton melted at our six electric arc furnace steel mills




(c)   Includes Heartland, The Techs and United Steel Supply locations




 

Cision View original content:http://www.prnewswire.com/news-releases/steel-dynamics-reports-fourth-quarter-and-annual-2019-results-300991577.html

SOURCE Steel Dynamics, Inc.

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