Steel Dynamics Inc. (SDI), Fort Wayne, Indiana, has announced fourth quarter and annual 2018 financial results, noting that it saw annual steel shipments of 10.6 million tons, net sales of $11.8 billion, operating income of $1.7 billion, net income of $1.3 billion, cash flow from operations of $1.4 billion and earnings before interest, taxes, depreciation and amortization (EBITDA) in excess of $2 billion, all annual records.
The company reported fourth quarter 2018 net sales of $2.9 billion and net income of $270 million, or $1.17 per diluted share. Excluding the impact from the following items, the company's fourth quarter adjusted net income was $302 million, or $1.31 per diluted share:
- additional performance-based compensation of approximately $12 million, or 4 cents per diluted share, awarded to all nonexecutive, eligible employees in recognition of exceptional performance;
- estimated lower earnings of $14 million, or 4 cents per diluted share, associated with a planned outage at the company's liquid pig iron production facility to complete major maintenance items that occur once every three to four years; and
- lower earnings from significant planned maintenance outages at the company's two flat roll steel mills, including estimated incremental maintenance costs of $20 million, or 6 cents per diluted share. The outages also reduced fourth quarter flat roll shipments by an estimated 70,000 to 80,000 tons combined.
Comparatively, prior year fourth-quarter net sales were $2.3 billion, with net income of $305 million, or $1.28 per diluted share, which included a tax benefit of 83 cents per diluted share primarily related to the U.S. Federal Tax Cuts and Jobs Act of 2017 (TCJA), lower earnings from facility outages of 7 cents per diluted share and debt refinancing charges of 2 cents per diluted share. Sequential third-quarter 2018 net sales were $3.2 billion, with net income of $398 million, or $1.69 per diluted share, the company notes.
“The performance of the entire Steel Dynamics team was exceptional this year,” says Mark D. Millett, SDI president and CEO in the news release announcing its financial performance. “We performed at the top of our industry, both operationally and financially. We achieved numerous annual records across the business, including steel and fabrication shipments, operating income of $1.7 billion, net income of $1.3 billion and EBITDA of over $2 billion.”
He continues, “Based on a record 2018 annual cash flow generation from operations of $1.4 billion, we were able to maintain strong liquidity while at the same time growing our business through both organic and transactional growth investments, maintaining a positive dividend profile and executing on our share repurchase program. We have a firm foundation for our continued long-term, strategic growth and value creation.”
Millett says that in 2018, the U.S. steel industry benefited from a steady improvement in steel consumption that was fueled by strength from the automotive, construction and energy sectors. “Increased steel consumption, coupled with generally lower finished steel imports, created a strong market environment,” he adds. “Our steel operations achieved record annual operating income of $1.9 billion, far surpassing last year's record of $1.1 billion. Supported by improved domestic steel mill utilization, our metals recycling team increased annual shipments and earnings and continued to reduce operating costs, resulting in annual operating income of $88 million.”
Despite the company’s fabrication platform seeing record annual shipments in 2018, Millett says “higher average steel input costs resulted in metal spread compression throughout much of the year, resulting in annual 2018 operating income of $62 million compared to 2017 operating income of $87 million. This represents a solid performance in a rising steel cost environment.”
He adds, “Customer sentiment remains strong for our fabrication business, and the order backlog is even stronger now than it was at this time last year, which is a positive growth indicator for the nonresidential construction sector."
Fourth quarter 2018 operating income for SDI’s steel operations was $402 million, a decrease of 30 percent compared with record sequential third-quarter results based on a 6 percent decline in shipments and metal spread compression, the company says.
During the fourth quarter, SDI also completed two “significant” planned maintenance outages at its Butler, Indian, and Columbus, Mississippi, Flat Roll divisions, which increased costs by an estimated $20 million and reduced flat roll shipments during the quarter.
Fourth quarter 2018 operating income attributable to the company's flat roll operations decreased 34 percent when compared with the sequential third quarter. Operating income from long products decreased 13 percent, primarily related to seasonally lower shipments, SDI says. The company's average overall steel product price decreased more than consumed raw material scrap costs, resulting in steel metal spread compression. The fourth quarter 2018 average product selling price for the company's steel operations decreased $48 to $940 per ton. The average ferrous scrap cost per ton melted decreased $9 to $343 per ton, SDI reports.
Fourth quarter 2018 operating income from its metals recycling operations was $17 million compared with $18 million in the sequential third quarter. Improved average quarterly ferrous and nonferrous metal spreads were offset by seasonally lower ferrous scrap shipments.
The company's fabrication operations fourth quarter 2018 operating income was $15 million compared with $13 million in the sequential third quarter. Earnings increased as improved product pricing more than offset the rise in raw material steel costs and seasonally lower shipments, SDI says.
Annual 2018 net income was a record $1.3 billion, or $5.35 per diluted share, or excluding the impact from the listed fourth quarter 2018 adjustments, $5.49 per diluted share. Comparatively, annual 2017 net income was $813 million, or $3.36 per diluted share, which included a tax benefit of 76 cents per diluted share related to the TCJA and debt refinancing costs of $0.05 per diluted share.
Annual 2018 net sales were a record $11.8 billion compared with $9.5 billion in 2017. Revenue from the steel platform increased $2 billion, and each of the company's other operating platforms also achieved higher annual sales based on improved product pricing and increased shipments, SDI say. Annual 2018 operating income was a record $1.7 billion compared with 2017's record operating income of $1.1 billion, a 61 percent increase. The improvement was driven by record earnings from the company's steel operations, based on record steel shipments and improved steel metal spread. The average 2018 selling price for the company's steel operations increased $157 to $922 per ton. The average 2018 ferrous scrap cost per ton melted increased $48 to $341 per ton.
The company generated record cash flow from operations of $1.4 billion during 2018. SDI’s board of directors authorized an additional $750 million share repurchase program in September, following the completion of its $450 million authorization in August 2018. The company repurchased 5.5 percent of its outstanding shares, or $524 million, during 2018.
“We believe the market dynamics are in place for domestic steel consumption to continue to increase this year,” Millett says. “Based on strong domestic steel demand fundamentals and continued customer optimism, we believe North American steel consumption will experience steady growth. In combination with our existing and newly announced expansion initiatives, we believe there are firm drivers for our continued growth. We are excited about our new planned flat roll steel mill that was announced in the fourth quarter and the anticipated long-term value creation it will bring through geographic and value-added product diversification. The new mill will have capabilities beyond existing EAF (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 currently represent over 27 million tons of relevant flat roll steel consumption, which includes the growing 16-million-ton Mexican flat roll market. Our new planned steel mill will have significant competitive advantages in those regions.”
Millett says SDI continues to strengthen its financial position through strong cash flow generation and by executing its long-term strategy. “We are well-positioned for growth and remain focused on delivering shareholder value through organic and transactional growth opportunities," he adds.