SDI sees year-over-year decline in net income, net sales in 2023

However, the steelmaker says its annual net sales of $18.8 billion were the second-highest in its history.

a close-up of steel coils stacked on one another

Milan Noga reco | stock.adobe.com

While Steel Dynamics Inc. reports net sales and net income in the fourth quarter of 2023 declined sequentially as well as year over year, the Fort Wayne, Indiana-based company still achieved the second-highest annual net sales in its history.

SDI reported fourth-quarter 2023 net sales of $4.2 billion and net income of $424 million, or $2.61 per diluted share, compared with sequential third-quarter 2023 net income of $577 million, or $3.47 per diluted share, and prior-year fourth-quarter net income of $635 million, or $3.61 per diluted share. Its annual operating income in 2023 totaled $3.2 billion, while adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $3.7 billion.

“Underlying domestic steel demand was firm throughout 2023, supported by the construction, automotive, industrial and energy sectors," SDI Chairman and CEO Mark D. Millett says in a news release regarding the company’s earnings. "Customer steel inventories also remained below historical averages, in combination resulting in generally steady order patterns.”

Millett says SDI’s steel operations had record annual shipments of 12.8 million tons and historically strong operating income of $1.9 billion for the recently completed year, while the company’s steel fabrication business achieved its second-highest annual earnings, with operating income of $1.6 billion.

“Despite a challenging pricing environment throughout much of the year, our metals recycling teams meaningfully increased volume and achieved operating income of $108 million,” he adds. The strength of our diversified, value-added circular manufacturing model was certainly evidenced in 2023.”

Quarterly results

Fourth-quarter 2023 operating income for the company’s steel operations was $365 million, representing a 24 percent sequential decline, SDI says, based on seasonally lower long product steel shipments and flat-rolled steel metal spread compression as average realized flat-rolled steel selling values declined more than scrap costs. Its steel operations’ fourth-quarter 2023 average external product selling price decreased $101 per ton sequentially to $1,090 per ton. The average ferrous scrap cost per ton melted at the SDI’s electric arc furnace (EAF) steel mills decreased $12 per ton sequentially to $393 per ton.

Fourth quarter 2023 operating income from the company’s metals recycling operations decreased to $6 million given seasonally lower shipments and lower nonferrous scrap realized selling values, according to SDI.

SDI says its steel fabrication operations achieved historically strong operating income of $250 million in the fourth quarter of 2023, however, it was below sequential third-quarter results based on lower shipments and metal spread compression owing to realized selling values declining more than steel substrate costs. Monthly order activity improved in the quarter, resulting in a well-priced order backlog that extends through the first half of 2024.

The company says continued onshoring of manufacturing, coupled with the robust U.S. infrastructure and Inflation Reduction Act programs that will drive industrial construction activity, provide an environment for strong steel joist and deck demand, as well as flat-rolled and long-product steel demand.

Year-over-year comparison

Annual 2023 net sales decreased 16 percent to $18.8 billion and operating income declined 38 percent to $3.2 billion when compared to 2022.

SDI says its lower earnings were because of metal spread contraction within the company’s steel and steel fabrication operations as lower realized product pricing outpaced lower primary raw material costs. Operating income for the recently completed quarter in its steel operations declined $1.2 billion, and steel fabrication operations declined $831 million year over year. The average external selling price for the company’s steel operations last year decreased by $247 per ton to $1,152 per ton compared with 2022, and the average ferrous scrap cost per ton melted at the company’s steel mills decreased by $61 per ton to $414 per ton.

SDI says it generated strong cash flow from operations of $3.5 billion during 2023 and spent $1.7 billion in capital investments, paid cash dividends of $271 million and repurchased $1.5 billion of its outstanding common stock, representing 8 percent of its outstanding shares, while maintaining liquidity of more than $3.5 billion as of Dec. 31, 2023.

Outlook

“We believe the market dynamics are in place to support increased demand across our operating platforms in 2024,” Millett says. “Steel pricing has firmed, and customer order entry activity continues to be solid across our steel operations as demand continues to be steady and customer inventories remain at historically low levels. In addition, we believe demand for lower-carbon emission, U.S.-produced steel products will also support future domestic steel pricing.”

Continued onshoring of manufacturing and the expectation of significant fixed-asset investments from public funding related to the Bipartisan Infrastructure Law, Inflation Reduction Act and Department of Energy programs will position the U.S. steel industry favorably. “We believe this will benefit all of our operating platforms, especially our steel and steel fabrication businesses," Millett adds, noting SDI is entering 2024 in a strong position.

“We are ramping up operations at our new state-of-the-art electric arc furnace flat-rolled steel mill located in Texas and just recently completed construction of four additional value-added flat-rolled steel coating lines comprised of two paint lines and two galvanizing lines with Galvalume coating capability. These lines will increase our value-added flat-rolled steel annual capacity by 1.1 million tons. We plan to commission these lines during the first quarter of 2024.”

Millett also refers to the progress SDI is making on its aluminum flat-rolled mill in Columbus, Mississippi, and associated investments in slab production. “We still plan to begin commissioning of the aluminum flat-rolled mill [in] mid-2025," he says. "We remain incredibly excited about this meaningful growth opportunity, which is aligned with our existing businesses and operational expertise. We have intentionally grown with our customers’ needs, providing efficient, sustainable supply-chain solutions for the highest-quality products.”

The investment will allow SDI to further diversify its end markets, with plans to supply high-recycled-content aluminum flat-rolled products to the beverage can and packaging industry, in addition to the automotive, industrial, and construction sectors. “We believe our unique performance-based operating culture, coupled with our considerable experience in successfully constructing and operating cost-effective, highly profitable flat-rolled steel mills, positions us exceptionally well to execute this strategic opportunity and to deliver strong long-term value creation," Millett says.

The company’s planned biocarbon production facility, SDI Biocarbon Solutions LLC, which was announced in the summer of 2022, also is progressing, with operations expected to start before the end of 2024.

SDI has a 55 percent stake in the SDI Biocarbon Solutions LLC joint venture with Aymium, Oakdale, Minnesota, a producer of renewable biocarbon products. The biocarbon production facility will supply SDI's EAF steel mills with a renewable alternative to fossil fuel carbon using Aymium's patented technology, with initial production capability expected to be more than 160,000 metric tons per year.

“This project is a key to our further decarbonization strategy for our already low-carbon emissions steel offerings," Millett says. "In combination, with our renewable product purchase agreement with NextEra, these two initiatives will help us achieve our stated Scope 1 and Scope 2 emissions reduction goals."