SDI reports third quarter profits

Fort Wayne, Indiana-based Steel Dynamics Inc. (SDI) has announced third quarter 2016 financial results that include net income of $160 million (excluding a $5 million lawsuit settlement), which equates to 65 cents per share in profits. The company also says its net sales were $2.1 billion.

“During the third quarter of 2016, positive momentum in flat roll metal spread expansion resulted in improved sequential consolidated operating earnings, which increased 11 percent to $284 million,” says Mark D. Millett, president and CEO of SDI. “Year-over-year flat roll steel import levels declined approximately 20 percent, while customer inventory levels remained low compared to historical averages. The domestic steel demand outlook is relatively unchanged, with the heavy equipment, agricultural and energy markets remaining weak, while automotive continues to be strong and construction continues to improve. However, late in the third quarter, customers were hesitant to make purchases ahead of an anticipated scrap price decrease, and as a result September steel shipments were lower than anticipated."

Millett says the OmniSource scrap side of SDI’s business did not provide as much good news. “Our metals recycling platform earnings decreased in third quarter 2016, as scrap prices declined in both August and September. Ferrous scrap demand declined based on lower domestic steel mill utilization, resulting in lower ferrous shipments, while ferrous metal margin remained steady.”

For the nine months ended Sept. 30, 2016, net income was $362 million, or $1.48 per diluted share, on net sales of $5.9 billion as compared with net income of $123 million, or 51 cents per diluted share, on net sales of $6 billion for the nine months ended Sept. 30, 2015. Year-to-date 2016 shipments meaningfully improved for the company's steel and fabrication operating platforms, SDI says. However, same period consolidated net sales decreased 2 percent as a result of decreased steel and metals recycling selling values.

Regarding the company’s near-term outlook, Millett says, “Steel customer inventory levels remain lower than historical levels and year-over-year steel imports have declined approximately 20 percent. However, there has been buyer hesitancy in anticipation of possible declines in scrap pricing, with an expectation that this might further pressure steel prices. Additionally, we are heading into a seasonally lower demand environment and customers are hesitant to significantly increase inventories before the end of the year. Due to these factors, we anticipate lower sequential volumes in our operating platforms, which is seasonally typical for the calendar fourth quarter and sequentially weaker realized steel pricing. Although domestic automotive production may be coming off record levels, we believe 2017 automotive steel consumption will be steady with Mexico growing production, and that there will be additional growth in the construction sector, especially for larger, public sector infrastructure projects. We could also see some improved activity within the energy sector next year."  

Millett adds, "We continue to strengthen our financial position through strong cash flow generation and the execution of our long-term strategy. We are pleased that due to our strong balance sheet and continued free cash flow generation, we are able to add the optionality of a share repurchase program to our capital allocation strategy. We are well-positioned for growth, and remain focused on delivering shareholder value through organic and strategic growth opportunities.”