Steel Dynamics Reports Second Quarter 2023 Results

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19 Jul, 2023, 16:30 ET

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FORT WAYNE, Ind., July 19, 2023 /PRNewswire/ --

Second Quarter 2023 Performance Highlights:

Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced second quarter 2023 financial results. The company reported second quarter 2023 net sales of $5.1 billion and net income of $812 million, or $4.81 per diluted share.

Comparatively, the company's sequential first quarter 2023 net income was $637 million, or $3.70 per diluted share, and prior year second quarter net income was $1.2 billion, or $6.44 per diluted share.

"The team executed well and delivered a strong second quarter performance across our operating platforms," said Mark D. Millett, Chairman and Chief Executive Officer. "Our second quarter 2023 operating income was $1.1 billion, with EBITDA of $1.2 billion. The sequential improvement in earnings was driven by significantly higher realized pricing from our steel operations. We also achieved strong cash flow from operations of $808 million and strong liquidity of $3.5 billion, while at the same time continuing to invest in our growth and providing strong shareholder distributions. In recognition of our growth, strong balance sheet profile and consistent free cash flow generation capability, we received upgrades to our investment grade credit designations from two credit rating agencies.

"Second quarter 2023 operating income from our steel operations was $706 million, more than double our first quarter sequential results, due to significant metal spread expansion across the platform as realized selling values more than offset moderately higher scrap costs. Steel order activity remains solid from the automotive, construction, industrial, and energy sectors. Recent positive data from the steel service center sector points to continued low customer inventory levels, which we believe has abated destocking and will support steel pricing."

Second Quarter 2023 Comments

Second quarter 2023 operating income for the company's steel operations was $706 million, as shipments remained steady at 3.2 million tons and significantly higher realized steel pricing more than offset increased scrap costs. The second quarter 2023 average external product selling price for the company's steel operations increased $177 per ton sequentially to $1,257 per ton. The average ferrous scrap cost per ton melted at the company's steel mills increased $31 per ton sequentially to $444 per ton. The company's Sinton Texas Flat Roll Division operated at a utilization rate comparable to the sequential first quarter and achieved positive EBITDA for the second quarter 2023. The company expects the Texas division to be operating at an 80 percent utilization rate by the end of 2023, as it steadily ramps production during the second half of this year.

Second quarter operating income from the company's metals recycling operations remained steady at $40 million, as increased ferrous shipments totaling 1.5 million gross tons was offset by metal spread compression. Ferrous scrap demand was supported by modestly higher domestic steel production utilization of over 76 percent in the second quarter 2023.

The company's steel fabrication operations achieved historically strong operating income of $462 million in the second quarter 2023, but below first quarter results, based on metal spread compression as lower realized selling values were combined with steady steel substrate costs and product shipments. The company believes second half 2023 steel joist and deck shipments will be comparable to first half 2023 volumes. The order backlog currently reaches into 2024 with strong forward-pricing. In addition, the company believes that the continued onshoring of manufacturing, coupled with the robust U.S. infrastructure and Inflation Reduction Act programs, combined with industrial build-outs, supports strong demand in the coming years.

Based on the company's differentiated business model and highly variable cost structure, the company generated cash flow from operations of $808 million during the quarter. The company also invested $358 million in capital investments, paid cash dividends of $72 million, and repurchased $380 million of its outstanding common stock, representing 2.2 percent of its outstanding shares, while retaining strong liquidity of $3.5 billion as of June 30, 2023.

Year-to-Date June 30, 2023 Comparison

For the six months ended June 30, 2023, net income was $1.4 billion, or $8.49 per diluted share, with net sales of $10.0 billion, as compared to net income of $2.3 billion, or $12.14 per diluted share, with net sales of $11.8 billion for the same period in 2022.

First half 2023 net sales decreased 15 percent to $10.0 billion and operating income declined 39 percent to $1.9 billion, when compared to the same period in 2022. Lower earnings were driven by metal spread contraction within the company's steel operations, as lower realized product pricing outpaced lower ferrous scrap costs. First half 2023 operating income from the company's steel operations was $1.1 billion, compared to $2.3 billion achieved in the first half of 2022. The average first half 2023 external selling price for the company's steel operations decreased $382 per ton to $1,167 per ton compared to the first half 2022, and the average ferrous scrap cost per ton melted at the company's steel mills decreased $79 per ton to $428 per ton. The steel fabrication platform achieved strong first half 2023 operating income of $1.0 billion, only slightly lower than record results of $1.1 billion achieved for the same period in 2022.

Based on the company's differentiated business model and highly variable cost structure, the company achieved cash flow from operations of $1.5 billion in the first half 2023, representing a strong first half performance. The company also invested $585 million in capital investments, paid cash dividends of $131 million, and repurchased $734 million, representing 3.9 percent of its outstanding shares of its common stock, while maintaining strong liquidity.

Outlook

"We remain confident that market conditions are in place for domestic steel consumption to be solid," said Millett. "Order entry activity continues to be strong across all of our businesses. We believe North American steel consumption will increase in the coming years, and that demand for lower-carbon emission, U.S. produced steel products coupled with lower imports will support steel pricing. The continued onshoring of manufacturing businesses, combined with the expectation of significant fixed asset investment to be derived from public funding related to the U.S. Infrastructure, Inflation Reduction Act, and Department of Energy programs, will competitively position the domestic steel industry. We believe this will benefit all of our operating platforms, especially our steel and steel fabrication businesses.

"This environment, in combination with our existing and ongoing expansion initiatives, are firm drivers for our continued growth in the coming years. We are quickly progressing on our aluminum flat rolled products mill and are incredibly excited about this meaningful growth opportunity, which is aligned with our existing business and operational expertise," said Millett. "The team has placed orders for critical equipment, and the rolling mill site location in Columbus, Mississippi is exceptional. We have intentionally grown with our customers' needs, providing efficient sustainable supply-chain solutions for the highest quality products. Thus far, this has primarily been achieved within the steel industry – however, a significant number of our flat rolled steel customers are also consumers and processors of aluminum flat rolled products. We are pleased to further diversify our end markets with plans to supply aluminum flat rolled products with high recycled content to the countercyclical sustainable beverage can industry, in addition to the automotive and industrial 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. Our customers and our people are also incredibly excited for this growth opportunity.

"Our commitment is to the health and safety of our teams, families, and communities, while meeting the current and future needs of our customers. Our culture and business model continue to positively differentiate our performance compared to others. We believe there are strong drivers for our continued growth, and we remain in a position of strength. We are competitively positioned and focused to generate long-term sustainable value," concluded Millett.

Conference Call and Webcast

Steel Dynamics, Inc. will hold a conference call to discuss second quarter 2023 operating and financial results on Thursday, July 20, 2023, at 11:00 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 July 27, 2023.

About Steel Dynamics, Inc.

Steel Dynamics is one of the largest domestic steel producers and metals recyclers in North America, 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 the non-GAAP financial measures EBITDA and Adjusted EBITDA 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, not all companies use identical calculations for EBITDA or Adjusted EBITDA; therefore, EBITDA and Adjusted EBITDA included in this release may not be comparable to similarly titled measures of other companies.

Forward-Looking Statements

This report contains some predictive statements about future events, including statements related to conditions in domestic or global economies, conditions in steel, aluminum, and recycled metals market places, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new, existing or planned 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) domestic and global economic factors; (2) global steelmaking overcapacity and imports of steel, together with increased scrap prices; (3) pandemics, epidemics, widespread illness or other health issues, such as COVID-19 or its variants; (4) the cyclical nature of the steel industry and the industries we serve; (5) volatility and major fluctuations in prices and availability of scrap metal, scrap substitutes and supplies, and our potential inability to pass higher costs on to our customers; (6) cost and availability of electricity, natural gas, oil, or other energy resources are subject to volatile market conditions; (7) increased environmental, greenhouse gas emissions and sustainability considerations or regulations; (8) compliance with and changes in environmental and remediation requirements; (9) significant price and other forms of competition from other steel and aluminum producers, scrap processors and alternative materials; (10) availability of an adequate source of supply of scrap for our metals recycling operations; (11) cybersecurity threats and risks to the security of our sensitive data and information technology; (12) the implementation of our growth strategy; (13) litigation and legal compliance; (14) unexpected equipment downtime or shutdowns; (15) governmental agencies may refuse to grant or renew some of our licenses and permits; (16) our senior unsecured credit facility contains, and any future financing agreements may contain, restrictive covenants that may limit our flexibility; and (17) the impacts of impairment charges.

More specifically, we refer you to our 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 file with the Securities and Exchange Commission. These reports are available publicly on the Securities and Exchange Commission website, www.sec.gov, and on our website, www.steeldynamics.com under "Investors – SEC Filings."

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

Three Months Ended

Six Months Ended

Three Months

June 30,

June 30,

Ended

2023

2022

2023

2022

March 31, 2023

Net sales

$

5,081,630

$

6,212,878

$

9,974,836

$

11,782,780

$

4,893,206

Costs of goods sold

3,774,772

4,329,536

7,611,856

8,116,925

3,837,084

Gross profit

1,306,858

1,883,342

2,362,980

3,665,855

1,056,122

Selling, general and administrative expenses

141,209

118,377

285,518

270,392

144,309

Profit sharing

90,990

139,742

160,565

268,211

69,575

Amortization of intangible assets

10,924

7,160

17,802

14,322

6,878

Operating income

1,063,735

1,618,063

1,899,095

3,112,930

835,360

Interest expense, net of capitalized interest

20,767

25,667

43,274

42,336

22,507

Other (income) expense, net

(31,348)

(4,021)

(66,284)

16,447

(34,936)

Income before income taxes

1,074,316

1,596,417

1,922,105

3,054,147

847,789

Income tax expense

258,139

381,765

461,595

732,141

203,456

Net income

816,177

1,214,652

1,460,510

2,322,006

644,333

Net income attributable to noncontrolling interests

(4,070)

(5,098)

(11,093)

(8,521)

(7,023)

Net income attributable to Steel Dynamics, Inc.

$

812,107

$

1,209,554

$

1,449,417

$

2,313,485

$

637,310

Basic earnings per share attributable to

Steel Dynamics, Inc. stockholders

$

4.83

$

6.49

$

8.54

$

12.22

$

3.71

Weighted average common shares outstanding

168,009

186,442

169,803

189,300

171,597

Diluted earnings per share attributable to

Steel Dynamics, Inc. stockholders, including the

effect of assumed conversions when dilutive

$

4.81

$

6.44

$

8.49

$

12.14

$

3.70

Weighted average common shares

and share equivalents outstanding

168,865

187,740

170,672

190,491

172,479

Dividends declared per share

$

0.425

$

0.34

$

0.85

$

0.68

$

0.425

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

June 30,

December 31,

Assets

2023

2022

(unaudited)

Current assets

Cash and equivalents

$

1,475,356

$

1,628,417

Short-term investments

611,701

628,215

Accounts receivable, net

2,142,964

2,056,051

Inventories

3,044,009

3,129,964

Other current assets

122,025

195,371

Total current assets

7,396,055

7,638,018

Property, plant and equipment, net

5,783,622

5,373,665

Intangible assets, net

274,005

267,507

Goodwill

477,471

502,067

Other assets

620,244

378,727

Total assets

$

14,551,397

$

14,159,984

Liabilities and Equity

Current liabilities

Accounts payable

$

1,048,584

$

1,017,238

Income taxes payable

39,177

6,520

Accrued expenses

614,405

951,204

Current maturities of long-term debt

56,869

57,334

Total current liabilities

1,759,035

2,032,296

Long-term debt

3,010,829

3,013,241

Deferred income taxes

941,491

889,103

Other liabilities

175,073

129,539

Total liabilities

5,886,428

6,064,179

Commitments and contingencies

Redeemable noncontrolling interests

171,212

181,503

Equity

Common stock

650

650

Treasury stock, at cost

(5,179,722)

(4,459,513)

Additional paid-in capital

1,204,134

1,212,566

Retained earnings

12,681,894

11,375,765

Accumulated other comprehensive income

1,027

889

Total Steel Dynamics, Inc. equity

8,707,983

8,130,357

Noncontrolling interests

(214,226)

(216,055)

Total equity

8,493,757

7,914,302

Total liabilities and equity

$

14,551,397

$

14,159,984

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

Three Months Ended

Six Months Ended

June 30,

June 30,

2023

2022

2023

2022

Operating activities:

Net income

$

816,177

$

1,214,652

$

1,460,510

$

2,322,006

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

110,970

95,701

218,664

183,247

Equity-based compensation

11,678

11,069

27,756

27,588

Deferred income taxes

43,380

(2,636)

52,388

(4)

Other adjustments

1,541

(640)

(8,465)

10,517

Changes in certain assets and liabilities:

Accounts receivable

(16,971)

(297,047)

(87,893)

(744,281)

Inventories

(55,158)

(130,552)

85,954

(116,237)

Other assets

(4,923)

(12,887)

2,919

6,515

Accounts payable

(114,013)

187,521

3,299

111,550

Income taxes receivable/payable

(85,486)

(203,352)

103,761

138,553

Accrued expenses

100,611

140,023

(317,304)

(118,634)

Net cash provided by operating activities

807,806

1,001,852

1,541,589

1,820,820

Investing activities:

Purchases of property, plant and equipment

(358,280)

(164,142)

(584,599)

(323,472)

Purchases of short-term investments

(165,052)

(351,510)

(521,829)

(351,510)

Proceeds from maturities of short-term investments

267,969

-

539,076

-

Investments in unconsolidated affiliates

-

-

-

(222,480)

Other investing activities

(217,905)

4,817

(215,562)

5,227

Net cash used in investing activities

(473,268)

(510,835)

(782,914)

(892,235)

Financing activities:

Issuance of current and long-term debt

327,132

382,868

721,042

702,647

Repayment of current and long-term debt

(321,143)

(414,719)

(726,422)

(763,991)

Dividends paid

(72,323)

(64,344)

(131,121)

(115,043)

Purchase of treasury stock

(380,206)

(517,024)

(734,203)

(906,214)

Other financing activities

(17,579)

(60,241)

(41,028)

(82,768)

Net cash used in financing activities

(464,119)

(673,460)

(911,732)

(1,165,369)

Decrease in cash, cash equivalents, and restricted cash

(129,581)

(182,443)

(153,057)

(236,784)

Cash, cash equivalents, and restricted cash at beginning of period

1,610,443

1,195,028

1,633,919

1,249,369

Cash, cash equivalents, and restricted cash at end of period

$

1,480,862

$

1,012,585

$

1,480,862

$

1,012,585

Supplemental disclosure information:

Cash paid for interest

$

41,781

$

41,114

$

51,377

$

50,282

Cash paid for income taxes, net

$

308,055

$

580,454

$

312,758

$

590,402

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

Second Quarter

Year to Date

2023

2022

2023

2022

1Q 2023

External Net Sales

Steel

$

3,397,509

$

4,142,021

$

6,458,330

$

7,904,517

$

3,060,821

Steel Fabrication

779,409

1,085,753

1,648,177

2,015,734

868,768

Metals Recycling

592,373

649,736

1,175,841

1,229,361

583,468

Other

312,339

335,368

692,488

633,168

380,149

Consolidated Net Sales

$

5,081,630

$

6,212,878

$

9,974,836

$

11,782,780

$

4,893,206

Operating Income

Steel

$

706,241

$

1,106,659

$

1,051,597

$

2,273,604

$

345,356

Steel Fabrication

462,121

599,232

1,013,434

1,066,148

551,313

Metals Recycling

40,292

57,629

83,222

105,775

42,930

1,208,654

1,763,520

2,148,253

3,445,527

939,599

Non-cash amortization of intangible assets

(10,924)

(7,160)

(17,802)

(14,322)

(6,878)

Profit sharing expense

(90,990)

(139,742)

(160,565)

(268,211)

(69,575)

Non-segment operations

(43,005)

1,445

(70,791)

(50,064)

(27,786)

Consolidated Operating Income

$

1,063,735

$

1,618,063

$

1,899,095

$

3,112,930

$

835,360

Adjusted EBITDA

Net income

$

816,177

$

1,214,652

$

1,460,510

$

2,322,006

$

644,333

Income taxes

258,139

381,765

461,595

732,141

203,456

Net interest expense (income)

(4,754)

24,159

(8,224)

40,214

(3,470)

Depreciation

98,438

86,943

197,648

165,733

99,210

Amortization of intangible assets

10,924

7,160

17,802

14,322

6,878

EBITDA

1,178,924

1,714,679

2,129,331

3,274,416

950,407

Non-cash adjustments

Unrealized gains on derivatives and currency translation

(18,433)

(14,001)

(26,575)

(13,701)

(8,142)

Equity-based compensation

11,500

5,482

25,377

25,276

13,877

Adjusted EBITDA

$

1,171,991

$

1,706,160

$

2,128,133

$

3,285,991

$

956,142

Other Operating Information

Steel

Average external sales price (Per ton) (a)

$

1,257

$

1,539

$

1,167

$

1,549

$

1,080

Average ferrous cost (Per ton melted) (b)

$

444

$

538

$

428

$

507

$

413

Flat Roll shipments

Butler, Columbus, and Sinton

1,850,058

1,690,832

3,743,998

3,242,677

1,893,940

Steel Processing divisions (c)

420,480

432,701

856,082

844,354

435,602

Long Product shipments

Structural and Rail Division

478,985

513,170

974,536

979,991

495,551

Engineered Bar Products Division

216,163

227,293

447,886

453,346

231,723

Roanoke Bar Division

148,313

157,652

305,337

301,271

157,024

Steel of West Virginia

97,276

92,597

192,732

187,434

95,456

Total Shipments (Tons)

3,211,275

3,114,245

6,520,571

6,009,073

3,309,296

External Shipments (Tons) (a)

2,703,031

2,691,918

5,536,500

5,101,681

2,833,469

Steel Mill Production (Tons)

2,898,629

2,737,460

5,837,661

5,245,644

2,939,032

Metals Recycling

Nonferrous shipments (000's of pounds)

279,763

266,781

565,600

527,671

285,837

Ferrous shipments (Gross tons)

1,520,164

1,358,729

2,972,985

2,623,951

1,452,821

External ferrous shipments (Gross tons)

577,979

438,001

1,145,382

875,229

567,403

Steel Fabrication

Average sales price (Per ton)

$

4,384

$

5,001

$

4,698

$

4,718

$

5,021

Shipments (Tons)

177,819

218,007

350,840

428,244

173,021

(a) Represents all steel operations

(b) Represents ferrous cost per ton melted at our electric arc furnace steel mills

(c) Includes Heartland, The Techs, and United Steel Supply operations

SOURCE Steel Dynamics, Inc.