Steel Dynamics, Inc. announced second quarter earnings of $94 million, an increase of 7 percent from figures the same time last year. Revenues increased to $911 million, 11 percent higher than the year-ago quarter and 5 percent higher than the first quarter of 2007. Second quarter consolidated shipments of 1.2 million tons were about the same as shipments in the second quarter of 2006 and slightly less than the first quarter of 2007.
In the first half of 2007, SDI's net income increased 13 percent to $196 million, compared to $173 million in last year's first half. First half net sales increased to $1.8 billion, 19 percent higher than the first half of 2006. Consolidated shipments of 2.5 million tons for the first half of 2007 were 9 percent higher than last year's first half. Average sales price per ton for consolidated sales increased to $714 per ton for the first half, an increase of 9 percent compared to last year's first half. SDI's first-half cost for steel scrap increased 10 percent per net ton charged from the first half of 2006.
"Second quarter operating income was relatively flat versus the first quarter due to lower shipping volumes for flat-rolled and bar steels." said Keith Busse, chairman and CEO of Steel Dynamics. "Our Structural & Rail Division achieved record shipments and record operating profit during the second quarter. Despite lower shipping volumes, our bar mills achieved strong operating results. Demand for flat-rolled steel turned out to be weaker than initially expected, reducing our shipping volume for sheet steels and resulting in more moderate price increases than anticipated for flat-rolled products."
Higher priced scrap purchased in the latter part of the first quarter and melted in the second quarter resulted in higher second quarter costs, as SDI uses the FIFO method of inventory accounting. The second quarter's average scrap cost per net ton charged increased $44 compared to the first quarter. Declining prices for steel scrap purchased during the second quarter helped to improve margins toward the end of the quarter, and are expected to have a stronger positive effect on third quarter profit margins.
Operating margin for the second quarter was 18 percent, compared to 20 percent in the first quarter of 2007. Second quarter operating profit per ton shipped was $136, unchanged from the first quarter of 2007. The second quarter's average consolidated selling price increased to $739 per ton shipped, compared to $689 in the first quarter. The increase in average selling price was principally due to the strength in long-products pricing.
"Our outlook for the third quarter is very positive," Busse said. "The cost of ferrous resources for delivery mid-to-late second quarter has trended down and third-quarter scrap prices appear to be stable. We expect selling prices to remain relatively steady or improve somewhat, setting the stage for an expected improvement in profit margins for the third quarter. All of SDI's long products divisions are experiencing solid order books, strong shipping rates, and strong selling values. For the first half of 2007, our long products mills accounted for 53 percent of the company's steel shipments.
"We expect market demand for flat-rolled steel to improve in the third quarter, following several months of inventory liquidation, which would provide the possibility of a higher third-quarter volume of shipments and improved profit margins for sheet products. Combined with continued strong results for long products, we expect higher third-quarter earnings in the range of $1.10 to $1.15 per diluted share, subject to certain purchase accounting adjustments related to our acquisition of The Techs. We are in the process of determining purchase price allocations and cannot yet ascertain the impact to third quarter earnings. We expect to have a better assessment by the end of August and, we will determine the necessity of updating our third quarter guidance at that time," Busse said.