Acquisition Adds to Big Quarter For Steel Dynamics

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Fort Wayne-based Steel Dynamics Inc. (Nasdaq: STLD) is reporting third quarter net income of $91 million, compared to $57 million for the same period a year earlier. Chief Executive Officer Mark Millett says the company achieved record volumes in fabrication and steel. October 20, 2014

News Release

FORT WAYNE, Ind. - Steel Dynamics, Inc. (nasdaq/gs:STLD) today announced third quarter 2014 net sales of $2.3 billion and net income of $91 million, or $0.38 per diluted share, which includes the negative impact of approximately $0.09 per diluted share related to acquisition costs, financing fees, and the effect of purchase accounting adjustments for the Severstal Columbus, LLC acquisition that occurred mid-September. The acquisition and financing costs are reflected in the company's consolidated income statement as other expense and the purchase accounting adjustments are reflected as additional costs of goods sold. Excluding these charges, the company's third quarter 2014 earnings would have been $0.47 per diluted share.

Comparatively, prior year third quarter net income was $57 million, or $0.25 per diluted share, on net sales of $1.9 billion; and sequential second quarter 2014 net income was $72 million, or $0.31 per diluted share, on net sales of $2.1 billion.

"We are very pleased with our operational and financial performance," said Chief Executive Officer, Mark Millett. "Our consolidated operating income increased 43 percent to $189 million for the third quarter 2014, as compared to the second quarter. During the third quarter, we achieved record volumes in fabrication and steel, even before including the results from our recent acquisition. Despite the continued elevated levels of steel imports into the U.S., the strength of underlying demand, coupled with our market diversification and customer focus supported our record shipments, and we remain optimistic heading toward the end of the year.

"We also successfully completed the acquisition of the Columbus flat roll steel mill mid-September, adding one of the most technologically advanced steel mills in the U.S. to our portfolio. The acquisition of Columbus represents a significant step in the continuation of our growth strategy. It leverages our core strengths, further increasing value-added product and market diversification. Once again, we enthusiastically welcome the Columbus employees and customers into the Steel Dynamics family, and look forward to working with them to drive future growth and success."

Compared to the second quarter, operating income from the company's steel operations increased 28 percent to $202 million for the third quarter 2014, driven by record quarterly shipments and improved metal spread. Strong demand in automotive, manufacturing and energy markets supported volumes. Growth in the nonresidential construction market also improved, as evidenced by record shipments of both structural and joist steel during the quarter. Operating income from the company's fabrication operations increased to $19 million in the third quarter 2014, more than double the amount achieved in the second quarter of this year.

For the company's metals recycling operations, operating income decreased to $13 million in the third quarter 2014, as compared to $18 million in the sequential quarter. Profitability was negatively impacted by lower nonferrous metals margins, which more than offset the increase in overall shipments. Ferrous scrap availability and volumes improved sequentially.

Third Quarter Review

Third quarter 2014 shipments increased across all of the company's operating platforms, as compared to the sequential quarter. Operating income for the company's steel operations increased 28 percent, as compared to the sequential quarter. Excluding Columbus purchase accounting adjustments, operating income from steel operations increased approximately 37 percent, based on improved metal spreads and record total shipments. The Structural and Rail and Engineered Bar Divisions each achieved record quarterly shipments, with an increase of 8 percent in structural steel beams, 12 percent in rail, and 16 percent in engineered steel. The average product selling price for the company's steel operations increased $7 to $840 per ton. The average ferrous scrap cost per ton melted decreased $8 to $356 per ton.

Third quarter operating income attributable to the company's sheet steel operations increased 11 percent when compared to the sequential quarter, and operating income from long product operations increased 52 percent. The company's steel mill production utilization rate was 90 percent in the third quarter 2014, compared to 95 percent in the sequential quarter. The decrease in rate was a function of increased estimated capacity attributable to the SBQ expansion and the 4-day scheduled maintenance outage at the Butler Flat Roll Division, excluding the impact from these items utilization would have been consistent with the second quarter production rate.

Third quarter operating income from the company's metals recycling operations decreased 29 percent, as the significant decrease in nonferrous metal spread more than offset the 13 percent increase in shipments, as compared to the sequential quarter.

Operating income for the company's fabrication operations more than doubled, increasing from $8 million in the second quarter 2014 to $19 million for the third quarter, driven by record quarterly shipments based on both market share gain and overall demand improvement. Through August 2014, domestic steel joist shipments have increased 21 percent year-over-year, as reported by the Steel Joist Institute. Order inquiries and project bookings remain strong, supporting the positive trend in the nonresidential construction market.

The financial performance of the company's Minnesota operations improved in the third quarter 2014, resulting in the impact of losses on consolidated net income decreasing to $5 million, or $0.02 per diluted share, compared to $9 million, or $0.04 per diluted share recorded in the second quarter of this year. Improvements in yield, volume and quality were achieved, and the company believes there will be further improvement, as the facilities continue to be operated on a consistent basis and further reductions in raw material costs are achieved.

In connection with the Columbus acquisition, during the third quarter 2014 the company issued $1.2 billion senior unsecured notes, comprised of a $700 million 5.125% seven-year tranche and $500 million 5.500% ten-year tranche. The remainder of the $1.6 billion purchase price was paid with a combination of available cash and borrowings on the company's revolving credit facility. "We are pleased with the successful execution of the recent financing related to the Columbus acquisition," stated Chief Financial Officer, Theresa Wagler. "The team did a great job and accessed the high yield bond market at an opportune time, raising $1.2 billion at an attractive long term average interest rate of 5.28%."

Year-to-Date Comparison

Year-to-date September 30, 2014, net income was $202 million, or $0.85 per diluted share, on net sales of $6.2 billion, as compared to net income of $135 million, or $0.59 per diluted share, on net sales of $5.5 billion for the prior year period. Consolidated net sales increased 13 percent, primarily as a result of higher average steel pricing and improved shipments across the company's operating platforms. As compared to the prior year period, consolidated operating income increased $123 million, or 44 percent, primarily as a result of improved steel metal spread. The average selling price for the company's steel operations increased $48 per ton. The average ferrous scrap cost per ton melted increased $15 per ton.

Outlook

"Looking ahead, we remain optimistic," Millett said. "Despite recent broader global concerns, the U.S. economy is con