Steel Dynamics Reports Results

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Fort Wayne-based Steel Dynamics Inc. (Nasdaq: STLD) is reporting fourth quarter net income of $55 million, compared to $61 million for the same period a year earlier. The company posted a 2013 profit of $189 million, up from $164 million in 2012. January 28, 2014

News Release

FORT WAYNE, Ind. - Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced fourth quarter net income of $55 million, or $0.24 per diluted share, on net sales of $1.9 billion. By comparison, prior year fourth quarter net income was $61 million, or $0.27 per diluted share, on net sales of $1.7 billion, and sequential third quarter 2013 net income was $57 million, or $0.25 per diluted share, on net sales of $1.9 billion. Full-year 2013 net income was $189 million, or $0.83 per diluted share, on net sales of $ 7.4 billion. By comparison, fiscal year 2012 net income was $164 million, or $0.73 per diluted share, on net sales of $7.3 billion.

When compared to the third quarter of 2013, fourth quarter 2013 results included an additional $4.5 million, or approximately $0.01 per diluted share, of non-cash equity compensation expense primarily related to the company-wide restricted stock unit benefit plan. The company's prior year financial results included charges related to refinancing expenses, non-cash impairment charges and certain positive tax adjustments. Excluding these items from the relevant periods, the company's adjusted earnings per diluted share would have been $0.20 for the fourth quarter 2012 and $0.77 for the full-year 2012.

"We continued to perform at the top of our industry during 2013, both financially and operationally," said Chief Executive Officer, Mark D. Millett. "Annual 2013 pretax income improved 29 percent as a result of our recent capital structure initiatives. Our steel operations achieved record annual shipments, with the Flat Roll and Structural and Rail divisions attaining individual records. As expected, fourth quarter steel shipments declined sequentially due to seasonal declines and scheduled maintenance. However, the segment's fourth quarter 2013 operating income increased modestly as the expansion in sheet steel metal margins more than offset the lower shipping volumes and reduced long product metal margins.

"Excluding the impact from non-cash unrealized hedging, 2013 full-year operating income for our metals recycling operations was fairly flat, as improved operating costs offset lower shipments," stated Millett. "During the fourth quarter, operating income for our metals recycling operations improved slightly, when compared to the third quarter of this year, with improved ferrous metal margins offsetting lower volume and decreased nonferrous profitability. The ongoing overcapacity of recycled shredding locations throughout the United States, especially in the Southeast, continues to constrain profitability and remains a broad industry challenge."

Fabricated steel consumption improved during 2013 with estimated domestic joist shipments increasing 14 percent when compared to 2012. The company's fabrication business gained market share during the year, achieving a 24 percent increase in 2013 annual shipments, more than tripling annual operating income, and achieving full-year pretax profitably for the first time since the 2008 economic downturn. Order inquiry continues to improve and is considerably stronger than experienced during the post-2008 economic environment from 2009 through 2012, further supporting the premise of a nonresidential construction market recovery.

Fourth Quarter Review

Based on typical seasonal trends, fourth quarter 2013 shipments across the company's operating platforms generally decreased when compared to the sequential quarter, slightly contracting revenues despite increased average pricing. Fourth quarter 2013 operating income for the company's steel operations was $155 million, an increase of four percent when compared to the third quarter 2013, despite decreased volume. Steel metal margins expanded in the quarter as average selling values increased more than ferrous raw material costs. The average selling price per ton for the company's steel operations increased $11 sequentially to $805 in the fourth quarter 2013, while the average ferrous scrap cost per ton melted increased $7 per ton.

Operating income attributable to the company's steel sheet operations increased ten percent when compared to the sequential quarter, more than offsetting the five percent decline in operating income from long product operations. Unlike steel sheet, long product pricing did not increase sufficiently to offset increased ferrous raw material costs in the fourth quarter, especially for structural related steel. The company's steel mill production utilization rate was basically unchanged at 88 percent in the fourth quarter 2013, compared to 89 percent in the sequential third quarter.

Operating income from the company's metals recycling operations was generally unchanged in the fourth quarter 2013, when compared to the sequential quarter, as a 15 percent improvement in ferrous metal margin was offset by decreased shipments and compressed nonferrous metal margins.

The impact of losses from the company's Minnesota operations for fourth quarter 2013 consolidated net income was $8.1 million, or $0.03 per diluted share, as compared to $10.6 million, or $0.04 per diluted share, in the third quarter 2013. As referenced in the company's October earnings release, as production rates and plant availability improved at the iron nugget plant in the third quarter 2013, product yield unexpectedly deteriorated. During the fourth quarter 2013, the focus to reduce production costs and improve product yield progressed and positive results were achieved. Certain meaningful adjunct trials that began in the later part of the fourth quarter are planned for completion during the first quarter 2014, at which point we will assess the progress achieved and determine next steps. Given the increased cost of production while testing occurs, current expectations concerning losses associated with the Minnesota operations for the first quarter of 2014 are anticipated to be similar to those recorded in the fourth quarter.

Full-Year Review

Consolidated 2013 net sales of $7.4 billion and operating income of $387 million were relatively unchanged from 2012 results, despite generally higher shipments, as 2013 full-year metal margins declined for the company's steel and metals recycling operations. However, 2013 consolidated pretax income (excluding losses attributable to noncontrolling interests) improved $63 million, or 28 percent, reflecting interest cost savings of $31 million and a reduction in refinancing costs of $38 million, which were associated with the company's 2012 and early 2013 financing activities.

The company's annual 2013 steel mill production utilization rate was 88 percent, a six percentage point increase over 2012, with increases from the Structural and Rail and Flat Roll divisions. Notably the Structural and Rail Division operated at an annual rate of 68 percent for 2013, and for the second half of the year operated at a rate of 71 percent, which is significantly higher than any time since the precipitous decline in the nonresidential construction markets at the end of 2008. The increased utilization is a result of the benefit of product diversification through the introduction of railroad rail, as well as the continued modest growth in construction. The average selling price per ton shipped for the company's steel operations for 2013 was $793, a decrease of $38 per ton as compared to 2012 and the average ferrous cost per ton melted was $25 lower.

"We are optimistic entering 2014," said Millett. "The broader U.S. economy continues to improve. We believe the non-service sector portion of domestic GDP has the ability to grow at a higher rate than overall GDP, driven by strengthened asset values, domestic energy