Fort Wayne-based Steel Dynamics Inc. (Nasdaq: STLD) is reporting second quarter net income of $72 million, compared to $29 million for the same period a year earlier. Chief Executive Officer Mark Millett says “strength of underlying demand” has given the company optimism heading into the second half of the year. July 22, 2014

News Release

Fort Wayne, Ind. — Steel Dynamics, Inc. (nasdaq/gs:STLD) today announced second quarter 2014 net income of $72 million, or $0.31 per diluted share, on net sales of $2.1 billion. By comparison, prior year second quarter net income was $29 million, or $0.13 per diluted share, on net sales of $1.8 billion; and sequential first quarter 2014 net income was $39 million, or $0.17 per diluted share, on net sales of $1.8 billion.

“Our consolidated operating income increased 63 percent to $132 million for the second quarter 2014, as compared to the first quarter,” said Chief Executive Officer Mark Millett. “All of our reporting segments achieved meaningfully higher profitability compared to the sequential quarter, improving beyond the negative inclement weather impact on the first quarter. Despite elevated import levels, the strength of underlying demand coupled with our continued market diversification and customer focus allowed us to achieve record quarterly steel shipments. We are optimistic heading into the second half of 2014 and so are our customers.”

Compared to the first quarter 2014, operating income from the company's steel operations increased $50 million, or 47 percent, driven by record shipments and improved metal spreads. Sheet and structural steel volumes were the primary contributors to the improved profitability. The automotive and manufacturing markets remain strong and the energy market appears to be strengthening, as evidenced in increased demand for engineered special bar quality steels. Continued modest growth in the nonresidential construction market benefited both the structural steel and fabrication operations. Compared to the first quarter 2014, operating income from the company's fabrication operations more than doubled.

“For our metals recycling operations operating income increased to $18 million in the second quarter 2014, as compared to $10 million in the sequential quarter, but the market environment remains challenging,” stated Millett. “Ferrous scrap availability and volumes improved, but profitability margins compressed from first quarter levels. However, the quarterly decline in sequential ferrous profitability was more than offset by meaningful improvements in nonferrous volumes and metal spreads.”

Second Quarter Review

Second quarter 2014 shipments increased across the company's platforms, as compared to the sequential quarter. Operating income for the company's steel operations increased to $158 million, or 47 percent, as compared to the sequential quarter, based on increased shipments of sheet, engineered bar and structural steel, combined with overall metal margin expansion in long products. The Flat Roll and Structural and Rail Divisions each achieved record quarterly shipments, as sheet steel increased 21 percent, structural steel beam increased 14 percent, and rail improved 22 percent, in comparison to the first quarter 2014. The average selling price for the company's total steel operations slightly decreased by $2 per ton. The average ferrous scrap cost per ton melted decreased $16 per ton.

Second quarter operating income attributable to the company's sheet steel operations increased 40 percent when compared to the sequential quarter, and operating income from long product operations increased 59 percent. The company's steel mill production utilization rate was 90 percent in the second quarter 2014, compared to 86 percent in the sequential quarter.

Second quarter operating income from the company's metals recycling operations increased 17 percent, as the increase in nonferrous metal spread and four percent increase in total shipments more the offset lower ferrous metal spread during the second quarter 2014, when compared to the sequential quarter.

The company's fabrication business increased second quarter 2014 operating income by $4 million, to $8 million, driven by record quarterly shipments based on both market share and overall demand improvement. According to the Steel Joist Institute, domestic year-over year joist shipments have increased 14 percent as of May 2014. Order inquiries and project bookings continue to strengthen, signaling further recovery in the nonresidential construction market.

The impact of losses from the company's Minnesota operations for second quarter 2014 consolidated net income was $9.1 million, or $0.04 per diluted share, as compared to $8.9 million, or $0.04 per diluted share in the first quarter 2014. During the second quarter, as the company indicated on the first quarter earnings teleconference, remaining operating trials were completed and a four week outage was taken to upgrade the rotary hearth furnace, and as anticipated these trials and the outage resulted in second quarter losses similar to those experienced in the first quarter 2014. The trials resulted in encouraging results related to improvement in yield, quality, volume and raw material input costs, resulting in a potential cost structure that we believe is competitive. This cost structure must be confirmed on a consistent ongoing basis over the coming months. In the meantime, as the operations ramp up, third quarter 2014 losses related to the company's Minnesota operations are expected to be meaningfully less than those incurred in the second quarter.

“We are pleased with the conversion of our 5.125% Convertible Notes, which matured June 15, 2014,” stated Chief Financial Officer, Theresa Wagler. “The holders of $272 million of the security exercised their option to convert the Notes into 15,893,457 shares of our common stock. The remaining $16 million of outstanding Notes was paid in cash. This security provided an important component of our capital structure the past 5 years and its conversion to equity further strengthens our financial position for growth.”

Year to Date Comparison

For the six months ended June 30, 2014, net income was $111 million, or $0.48 per diluted share, on net sales of $3.9 billion, as compared to net income of $77 million, or $0.34 per diluted share, on net sales of $3.6 billion for the six months ended June 30, 2013. Year-to-date 2014 consolidated net sales increased eight percent, primarily as a result of higher average steel pricing and shipments. Year-to-date 2014 consolidated operating income increased $47 million, or 29 percent, primarily as a result of improved steel metal spread. The average selling price for the company's total steel operations increased $49 per ton. The average ferrous scrap cost per ton melted increased $18 per ton.

Source: Steel Dynamics Inc.

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