Steel Dynamics Inc. reports growth in net income for 3Q 2014

Steel Dynamics Inc., headquartered in Fort Wayne, Indiana, has announced third quarter 2014 net sales of $2.3 billion and net income of $91 million, or 38 cents per diluted share, which includes the negative impact of approximately 9 cents per diluted share related to acquisition costs, financing fees and the effect of purchase accounting adjustments for its Severstal Columbus LLC acquisition in mid-September. Excluding these charges, the company's third quarter 2014 earnings would have been 47 cents per diluted share.

"We are very pleased with our operational and financial performance," says CEO Mark Millett. "Our consolidated operating income increased 43 percent to $189 million for the third quarter 2014, as compared to the second quarter. During the third quarter, we achieved record volumes in fabrication and steel, even before including the results from our recent acquisition. Despite the continued elevated levels of steel imports into the U.S., the strength of underlying demand, coupled with our market diversification and customer focus supported our record shipments, and we remain optimistic heading toward the end of the year.” 

Prior year third quarter net income was $57 million, or 25 cents per diluted share, on net sales of $1.9 billion; and sequential second quarter 2014 net income was $72 million, or 31 cents per diluted share, on net sales of $2.1 billion.

Millett adds, "We also successfully completed the acquisition of the Columbus flat roll steel mill mid-September, adding one of the most technologically advanced steel mills in the U.S. to our portfolio. The acquisition of Columbus represents a significant step in the continuation of our growth strategy.  It leverages our core strengths, further increasing value-added product and market diversification. Once again, we enthusiastically welcome the Columbus employees and customers into the Steel Dynamics family, and look forward to working with them to drive future growth and success."

Compared to the second quarter, operating income from the company's steel operations increased 28 percent to $202 million for the third quarter 2014, driven by record quarterly shipments and improved metal spread, SDI says. Strong demand in automotive, manufacturing and energy markets supported volumes.  Growth in the nonresidential construction market also improved, as evidenced by record shipments of structural and joist steel during the quarter, the company adds. Operating income from SDI’s fabrication operations increased to $19 million in the third quarter 2014, more than double the amount achieved in the second quarter of this year.

For the company's metals recycling operations, operating income decreased to $13 million in the third quarter 2014, as compared with $18 million in the sequential quarter. Profitability was negatively impacted by lower nonferrous metals margins, which more than offset the increase in overall shipments, SDI says. Ferrous scrap availability and volumes improved sequentially.

Third quarter 2014 shipments increased across all of the SDI’s operating platforms compared with the sequential quarter, the company reports. Operating income for its steel operations increased 28 percent relative to the sequential quarter. Excluding Columbus purchase accounting adjustments, operating income from steel operations increased approximately 37 percent based on improved metal spreads and record total shipments. The Structural and Rail and Engineered Bar Divisions each achieved record quarterly shipments, with an increase of 8 percent in structural steel beams, 12 percent in rail and 16 percent in engineered steel.

The average product selling price for the company's steel operations increased $7 to $840 per ton, the company says, while the average ferrous scrap cost per ton melted decreased $8 to $356 per ton.

Third quarter operating income attributable to the company's sheet steel operations increased 11 percent when compared with the sequential quarter, and operating income from long product operations increased 52 percent. SDI’s steel mill production utilization rate was 90 percent in the third quarter 2014 compared with 95 percent in the sequential quarter. The decrease in rate was a function of increased estimated capacity attributable to the SBQ expansion and the four-day scheduled maintenance outage at the Butler Flat Roll Division, SDI says. Excluding the impact from these items, utilization would have been consistent with the second quarter production rate.

Third quarter operating income from SDI’s metals recycling operations decreased 29 percent, as the significant decrease in nonferrous metal spread more than offset the 13 percent increase in shipments compared with the sequential quarter, the company notes.

Operating income for the company's fabrication operations more than doubled, increasing from $8 million in the second quarter 2014 to $19 million for the third quarter, driven by record quarterly shipments based on market share gain and overall demand improvement, SDI says.

The financial performance of SDI’s Minnesota operations improved in the third quarter 2014, according to the company, resulting in the impact of losses on consolidated net income decreasing to $5 million, or 2 cents per diluted share, compared with $9 million, or 4 cents per diluted share recorded in the second quarter of 2014. Improvements in yield, volume and quality were achieved, SDI says, adding that it believes there will be further improvement.  

In connection with the Columbus acquisition, during the third quarter 2014 the company says it issued $1.2 billion senior unsecured notes, comprised of a $700 million 5.125 percent seven-year tranche and $500 million 5.5 percent 10-year tranche.  The remainder of the $1.6 billion purchase price was paid with a combination of available cash and borrowings on the company's revolving credit facility, SDI notes.

"We are pleased with the successful execution of the recent financing related to the Columbus acquisition," says Chief Financial Officer Theresa Wagler. "The team did a great job and accessed the high yield bond market at an opportune time, raising $1.2 billion at an attractive long term average interest rate of 5.28 percent."

Year-to-date Sept. 30, 2014, net income was $202 million, or 85 cents per diluted share, on net sales of $6.2 billion compared with net income of $135 million, or 59 cents per diluted share, on net sales of $5.5 billion for the prior year period.  Consolidated net sales increased 13 percent, primarily as a result of higher average steel pricing and improved shipments across the company's operating platforms, SDI says. As compared with the prior year period, consolidated operating income increased $123 million, or 44 percent, as a result of improved steel metal spread, the company notes. The average selling price for the company's steel operations increased $48 per ton. The average ferrous scrap cost per ton melted increased $15 per ton.

"Looking ahead, we remain optimistic," Millett says. "Despite recent broader global concerns, the U.S. economy is continuing to improve, inflation remains low and borrowing rates remain at historically attractive levels.  We continue to be the beneficiaries of strong end markets, such as automotive, manufacturing, transportation and energy. We also believe growth in the construction market will continue as evidenced by the increased demand for our construction-related steel products.”

He continues, “With the Columbus acquisition, we gain geographic and product diversification in higher-growth markets in the southern U.S. and Mexico. We believe our diversified offerings of value-added products delivered by our exceptional team, combined with our unique operating culture, provides us a compelling advantage as we capitalize on the opportunities ahead. Our organic growth projects and latent steel capacity, coupled with the acquisition of Columbus and our belief that domestic steel consumption will continue to improve—all point toward meaningful growth opportunities for Steel Dynamics' employees, customers and shareholders.”   

SDI is one of the largest domestic steel producers and metals recyclers in the United States based on estimated annual steelmaking and metals recycling capability. The company employs more than 7,600 people and operates six steel mills, six steel processing facilities, two iron production facilities, more than 90 metals recycling locations and six steel fabrication plants.