Steel Dynamics Reports First Quarter 2019 Results

FORT WAYNE, Ind., April 22, 2019 /PRNewswire/ -- Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced first quarter 2019 financial results. The company reported first quarter 2019 net sales of $2.8 billion and net income of $204 million, or $0.91 per diluted share.

Comparatively, prior year first quarter net income was $228 million, or $0.96 per diluted share, with net sales of $2.6 billion. Sequential fourth quarter 2018 net income was $270 million, or $1.17 per diluted share, which included additional company-wide performance-based compensation of $0.04 per diluted share and lower earnings of $0.10 per diluted share, associated with planned maintenance outages at the company's liquid pig iron production facility and its two flat roll steel mills. Excluding these items, the company's fourth quarter adjusted net income was $302 million, or $1.31 per diluted share.

"The team delivered a strong first quarter performance in a somewhat challenging flat roll steel pricing environment," said Mark D. Millett, President and Chief Executive Officer. "A downward trend in flat roll steel prices began in the second half of 2018, and continued through mid-first quarter 2019, reaching an inflection point in February 2019. The teams were able to increase shipments and offset some of the margin compression, resulting in first quarter 2019 consolidated operating income of $292 million and adjusted EBITDA of $382 million. The continued stabilization and improvement in flat roll steel prices are having a positive impact, resulting in increased flat roll order activity and solid order backlogs. We are seeing continued strength in the automotive, energy and industrial sectors, and as evidenced by strong steel fabrication backlogs, strength in non-residential construction."

The company generated cash flow from operations of $182 million during the first quarter 2019 and maintained liquidity of $2.2 billion at March 31, 2019. On March 1, 2019, the company used available cash of $93 million to fund the purchase of a 75 percent controlling interest of United Steel Supply, a leading distributor of painted Galvalume® flat roll steel used for roofing and siding applications.

As evidence of the confidence in the company's sustainable long-term cash flow generation capability, the board of directors approved a 28 percent increase in the company's first quarter 2019 cash dividend, reflecting the strength of the company's capital foundation and liquidity profile. The company also repurchased $84 million of its common stock during the first quarter of 2019.

2019 Comments

First quarter 2019 operating income for the company's steel operations was $312 million, or 22 percent lower than sequential fourth quarter 2018 results. The decline in earnings resulted from metal spread compression driven by lower flat roll steel pricing, which more than offset increased overall steel shipments. The first quarter 2019 average product selling price for the company's steel operations decreased $38 to $902 per ton. The average ferrous scrap cost per ton melted only decreased $5 to $338 per ton.

First quarter 2019 operating income from the company's metals recycling operations increased to $20 million, compared to $17 million in the sequential fourth quarter, based on improved recycled nonferrous shipments and average pricing. Conversely, recycled ferrous shipments and metal spread declined modestly in the quarter.

First quarter 2019 operating income from the company's steel fabrication operations was a strong $21 million, or 39 percent higher than sequential fourth quarter results. Earnings improved as higher product pricing and lower raw material steel input costs, resulted in expanded profit margins which more than offset lower shipments related to inclement weather conditions that occurred during the first quarter. The steel fabrication platform order backlog remains strong, and customers remain optimistic concerning non-residential construction projects heading into the summer season.

Outlook

"We believe the market dynamics are in place for domestic steel consumption to continue to increase this year," said Millett. "Based on 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 planned flat roll steel mill, and the anticipated long-term value creation it will bring through geographic and value-added product diversification. We plan for the new steel mill to have product capabilities beyond existing EAF flat roll steel producers today, competing even more effectively with the integrated steel model and foreign competition. We have targeted regional markets that represent over 27 million tons of relevant flat roll steel consumption, which includes the growing Mexican flat roll market. This facility should have a meaningful competitive advantage in those regions.

"We continue to strengthen our financial position through strong cash flow generation and the execution of our long-term strategy. We are well-positioned for growth and remain focused on delivering long-term shareholder value through organic and transactional growth opportunities," concluded Millett.

Conference Call and Webcast

Steel Dynamics, Inc. will hold a conference call to discuss first quarter 2019 operating and financial results on Monday, April 22, 2019, at 10:00 a.m. Eastern Daylight Time. You may access the call and find dial-in information on the Investors section of the company's website at www.steeldynamics.com. A replay of the call will be available on our website until 11:59 p.m. Eastern Daylight Time on April 27, 2019.

About Steel Dynamics, Inc.

Steel Dynamics is one of the largest domestic steel producers and metals recyclers in the United States based on estimated annual steelmaking and metals recycling capability, with facilities located throughout the United States, and in Mexico. Steel Dynamics produces steel products, including hot roll, cold roll, and coated sheet steel, structural steel beams and shapes, rail, engineered special-bar-quality steel, cold finished steel, merchant bar products, specialty steel sections and steel joists and deck. In addition, the company produces liquid pig iron and processes and sells ferrous and nonferrous scrap.

Note Regarding Non-GAAP Financial Measures

The company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). Management believes that Adjusted Net Income, Adjusted Diluted Earnings Per Share, EBITDA and Adjusted EBITDA, non-GAAP financial measures, provide additional meaningful information regarding the company's performance and financial strength. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the company's reported results prepared in accordance with GAAP. In addition, because not all companies use identical calculations, EBITDA and Adjusted EBITDA included in this release may not be comparable to similarly titled measures of other companies.

Forward-Looking Statements

This press release contains some predictive statements about future events, including statements related to conditions in the steel and metallic scrap markets, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new or existing facilities. These statements, which we generally precede or accompany by such typical conditional words as "anticipate", "intend", "believe", "estimate", "plan", "seek", "project", or "expect", or by the words "may", "will", or "should", are intended to be made as "forward-looking", subject to many risks and uncertainties, within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These statements speak only as of this date and are based upon information and assumptions, which we consider reasonable as of this date, concerning our businesses and the environments in which they operate. Such predictive statements are not guarantees of future performance, and we undertake no duty to update or revise any such statements. Some factors that could cause such forward-looking statements to turn out differently than anticipated include: (1) the effects of uncertain economic conditions; (2) cyclical and changing industrial demand; (3) changes in conditions in any of the steel or scrap-consuming sectors of the economy which affect demand for our products, including the strength of the non-residential and residential construction, automotive, manufacturing, appliance, pipe and tube, and other steel-consuming industries; (4) fluctuations in the cost of key raw materials and supplies (including steel scrap, iron units, zinc, graphite electrodes, and energy costs) and our ability to pass on any cost increases; (5) the impact of domestic and foreign import price competition; (6) unanticipated difficulties in integrating or starting up new or acquired businesses or assets; (7) risks and uncertainties involving product and/or technology development; and (8) occurrences of unexpected plant outages or equipment failures.

More specifically, we refer you to Steel Dynamics' more detailed explanation of these and other factors and risks that may cause such predictive statements to turn out differently, as set forth in our most recent Annual Report on Form 10-K under the headings Special Note Regarding Forward-Looking Statements and Risk Factors, in our quarterly reports on Form 10-Q or in other reports which we from time to time file with the Securities and Exchange Commission. These are available publicly on the SEC website, www.sec.gov, and on the Steel Dynamics website, www.steeldynamics.com: Investors: SEC Filings.

Steel Dynamics, Inc.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)

					Three Months
	Three Months Ended				Ended
	March 31,				December 31,
	2019		2018		2018

Net sales	$	2,817,435	$	2,603,875	$	2,903,892
Costs of goods sold		2,383,865		2,140,459		2,382,657
Gross profit		433,570		463,416		521,235

Selling, general and administrative expenses		111,038		106,431		106,564
Profit sharing		23,677		26,662		41,684
Amortization of intangible assets		7,013		6,926		7,434
Operating income		291,842		323,397		365,553

Interest expense, net of capitalized interest		31,122		31,896		31,652
Other expense (income), net		(6,343)		(4,463)		(7,384)
Income before income taxes		267,063		295,964		341,285

Income tax expense		62,236		70,489		71,433
Net income		204,827		225,475		269,852
Net (income) loss attributable to noncontrolling interests		(499)		2,076		152
Net income attributable to Steel Dynamics, Inc.	$	204,328	$	227,551	$	270,004


Basic earnings per share attributable to
Steel Dynamics, Inc. stockholders	$	0.91	$	0.96	$	1.18

Weighted average common shares outstanding		224,058		236,623		229,245

Diluted earnings per share attributable to
Steel Dynamics, Inc. stockholders, including the effect
of assumed conversions when dilutive	$	0.91	$	0.96	$	1.17

Weighted average common shares
and share equivalents outstanding		224,962		237,723		230,455


Dividends declared per share	$	0.2400	$	0.1875	$	0.1875

Steel Dynamics, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands)


	March 31,		December 31,
Assets	2019		2018
	(unaudited)
Current assets
Cash and equivalents	$	791,444	$	828,220
Short-term investments		173,723		228,783
Accounts receivable, net		1,143,395		1,043,756
Inventories		1,867,700		1,859,168
Other current assets		52,628		72,730
Total current assets		4,028,890		4,032,657

Property, plant and equipment, net		2,936,893		2,945,767

Intangible assets, net		263,315		270,328

Goodwill		530,716		429,645

Other assets		97,419		25,166
Total assets	$	7,857,233	$	7,703,563
Liabilities and Equity
Current liabilities
Accounts payable	$	591,467	$	550,754
Income taxes payable		26,896		7,468
Accrued expenses		303,769		436,681
Current maturities of long-term debt		80,958		24,234
Total current liabilities		1,003,090		1,019,137

Long-term debt		2,354,427		2,352,489

Deferred income taxes		447,087		435,838

Other liabilities		63,171		8,870
Total liabilities		3,867,775		3,816,334

Commitments and contingencies

Redeemable noncontrolling interests		139,930		111,240

Equity
Common stock		645		645
Treasury stock, at cost		(1,261,837)		(1,184,243)
Additional paid-in capital		1,160,139		1,160,048
Retained earnings		4,109,034		3,958,320
Accumulated other comprehensive income		130		301
Total Steel Dynamics, Inc. equity		4,008,111		3,935,071
Noncontrolling interests		(158,583)		(159,082)
Total equity		3,849,528		3,775,989
Total liabilities and equity	$	7,857,233	$	7,703,563

Steel Dynamics, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)


	Three Months Ended
	March 31,
	2019		2018

Operating activities:
Net income	$	204,827	$	225,475

Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		80,174		76,135
Equity-based compensation		15,308		12,841
Deferred income taxes		12,091		9,545
Other adjustments		728		30
Changes in certain assets and liabilities:
Accounts receivable		(61,062)		(118,818)
Inventories		39,469		(80,711)
Other assets		301		(105)
Accounts payable		3,206		66,332
Income taxes payable, net		49,850		63,962
Accrued expenses		(163,339)		(76,751)
Net cash provided by operating activities		181,553		177,935

Investing activities:
Purchases of property, plant and equipment		(54,436)		(50,606)
Purchases of short-term investments		(49,677)		(40,000)
Proceeds from maturities of short-term investments		104,737		-
Acquisition of business, net of cash and restricted cash acquired		(93,412)		-
Other investing activities		364		229
Net cash used in investing activities		(92,424)		(90,377)

Financing activities:
Issuance of current and long-term debt		121,234		93,058
Repayment of current and long-term debt		(115,271)		(113,034)
Dividends paid		(42,239)		(36,797)
Purchase of treasury stock		(84,308)		(69,269)
Other financing activities		(5,720)		(5,180)
Net cash used in financing activities		(126,304)		(131,222)

Decrease in cash, cash equivalents, and restricted cash		(37,175)		(43,664)
Cash, cash equivalents, and restricted cash at beginning of period		834,423		1,035,085
Cash, cash equivalents, and restricted cash at end of period	$	797,248	$	991,421


Supplemental disclosure information:
Cash paid for interest	$	8,606	$	8,629
Cash paid (received) for income taxes, net	$	1,839	$	(1,045)

Steel Dynamics, Inc.
SUPPLEMENTAL INFORMATION
(dollars in thousands)


		First Quarter
			2019		2018		4Q 2018
	*External Net Sales*
	Steel	$	2,124,570	$	1,921,790	$	2,198,459
	Fabrication		228,480		201,492		251,592
	Metals Recycling		351,137		388,122		352,555
	Other		113,248		92,471		101,286
Consolidated		$	2,817,435	$	2,603,875	$	2,903,892

	*Operating Income*
	Steel	$	312,437	$	338,357	$	402,252
	Fabrication		20,663		19,832		14,902
	Metals Recycling		19,958		27,805		16,954
	Operations		353,058		385,994		434,108

	Non-cash amortization of intangible assets		(7,013)		(6,926)		(7,434)
	Profit sharing expense		(23,677)		(26,662)		(41,684)
	Non-segment operations		(30,526)		(29,009)		(19,437)
Consolidated Operating Income		$	291,842	$	323,397	$	365,553

	*Adjusted EBITDA*
	Net income	$	62,236	$	70,489	$	71,433
	Income taxes		204,827		225,475		269,852
	Net interest expense		24,017		27,482		24,738
	Depreciation		71,846		67,823		71,765
	Amortization of intangible assets		7,013		6,926		7,434
	Non-controlling interest		(499)		2,077		151
EBITDA			369,440		400,272		445,373
	Non-cash adjustments
	Unrealized hedging (gain) loss		1,742		(9,956)		(2,510)
	Inventory valuation		241		200		666
	Equity-based compensation		10,619		9,580		14,457
Adjusted EBITDA		$	382,042	$	400,096	$	457,986

	*Other Operating Information*
	Steel
	Average external sales price (Per ton) *	$	902	$	822	$	940
	Average ferrous cost (Per ton melted) #	$	338	$	321	$	343

	Flat Roll shipments
	Butler and Columbus Flat Roll Divisions		1,526,851		1,548,814		1,493,894
	Techs, Heartland, and USS Divisions		330,775		194,762		262,642
	Long Product shipments
	Structural and Rail Division		376,263		368,783		389,107
	Engineered Bar Products Division		206,874		215,150		217,646
	Roanoke Bar Division		152,400		123,403		150,607
	Steel of West Virginia		91,248		83,732		70,367
Total shipments (Tons)			2,684,411		2,534,644		2,584,263

External shipments (Tons) *			2,347,209		2,327,515		2,328,420

Steel production (Tons) *			2,745,128		2,601,200		2,677,613

	Metals Recycling
	Nonferrous shipments (000's of pounds)		292,038		271,628		278,418
	Ferrous shipments (Gross tons)		1,171,361		1,256,899		1,215,474
	External ferrous shipments (Gross tons)		382,841		436,990		414,941

	Fabrication
	Average external sales price (Per ton)	$	1,575	$	1,345	$	1,550
	Shipments (Tons)		145,222		149,926		162,292

	* Includes all steel operations
	# Includes ferrous cost per ton melted at our six electric-arc furnace steel mills