Steel Dynamics Inc. (NASDAQ/GS: STLD) today announced third quarter 2020 financial results.
The company reported third quarter 2020 net sales of $2.3 billion and net income of $100 million, or $0.47 per diluted share. Excluding the impact from the following item, the company's third quarter 2020 adjusted net income was $108 million, or $0.51 per diluted share:
Costs (net of capitalized interest) associated with the construction of the company's Sinton, Texas Flat Roll Steel Mill of approximately $11 million, or $0.04 per diluted share.
Comparatively, prior year third quarter net sales were $2.5 billion, with net income of $151 million, or $0.69 per diluted share. Sequential second quarter 2020 net sales were $2.1 billion, with net income of $75 million, or $0.36 per diluted share, which included refinancing costs of $0.08 per diluted share and costs (net of capitalized interest) related to the construction of the Texas steel mill of $0.03 per diluted share.
'The team delivered a solid performance despite the continued challenges created by the coronavirus pandemic,' said Mark D. Millett, President and Chief Executive Officer. 'We continue to operate safely, provide ongoing customer support, and strengthen our capital foundation. Our spirit of excellence was once again evidenced in our strong performance. Our third quarter 2020 consolidated operating income was $156 million and adjusted EBITDA $238 million.
'The domestic steel demand recovery has been strong, with automotive representing the most meaningful improvement and construction continuing to be resilient,' continued Millett. 'Flat roll steel spot prices rebounded during the third quarter, as customer inventory levels were extremely low and demand steadily improved. We expect to see continued price strength and customer demand throughout 2020 and into 2021. Our differentiated business model continues to drive best-in-class performance. Our steel mills operated at 85 percent of their production capability during the third quarter 2020, with the flat roll group achieving a rate of 99 percent. This contrasts to the domestic steel industry rate of 64 percent. Our continued market share gains coupled with support from our fabrication and steel processing businesses, reinforced our higher operating rates. In addition, our metals recycling platform provided a competitive advantage in sourcing ferrous scrap to support our steel mills.'
Third Quarter 2020 Comments
Third quarter 2020 operating income for the company's steel operations was $144 million, or 17 percent lower than sequential second quarter results, due to metal spread compression caused by lower realized selling values in the company's flat roll business, mostly related to lagged contract arrangements. The third quarter 2020 average external product selling price for the company's steel operations decreased $21 sequentially to $734 per ton. The average ferrous scrap cost per ton melted at the company's steel mills decreased $7 sequentially to $259 per ton.
As states rescinded shelter-in-place mandates and manufacturing businesses, specifically the automotive sector, restarted, scrap flows dramatically improved in the third quarter. At the same time, domestic steel production increased, resulting in a meaningful increase in the company's metals recycling volumes and earnings. Third quarter operating income from the company's metals recycling operations was $15 million, compared to an operating loss of $6 million in the sequential second quarter.
The company's steel fabrication operations achieved record quarterly operating income of $39 million, based on record quarterly shipments and metal spread expansion as average selling values improved and steel input costs declined. The steel fabrication platform's customer order backlog remains strong and is higher than in 2018 or 2019. Customers remain positive concerning non-residential construction projects.
Year-to-Date September 30, 2020 Comparison
For the nine months ended September 30, 2020, net income was $363 million, or $1.71 per diluted share, with net sales of $7.0 billion, as compared to net income of $550 million, or $2.47 per diluted share, with net sales of $8.1 billion for the same period in 2019. Excluding the impact from the following items, the company's nine months ended September 30, 2020 adjusted net income was $398 million, or $1.88 per diluted share:
Financing costs related to the company's June 2020 refinancing activities of approximately $25 million, or $0.08 per diluted share, and
Costs (net of capitalized interest) associated with the construction of the company's Sinton Texas Flat Roll Steel Mill of approximately $26 million, or $0.09 per diluted share.
Year-to-date 2020 net sales decreased 14 percent and operating income declined 27 percent to $588 million, when compared to the same period in 2019. Lower earnings were primarily the result of steel metal spread compression, as significantly lower average steel selling values more than offset average ferrous scrap cost reductions across the steel platform. Compared to prior year results, the average year-to-date external product selling price for the company's steel operations decreased $108 to $755 per ton. The average year-to-date ferrous scrap cost per ton melted at the company's steel mills decreased $45 to $264 per ton. Even though year-to-date 2020 steel shipments were only one percent lower than 2019 results, the negative impact related to COVID-19 in the second quarter of 2020 contributed significantly to the year-over-year decline in earnings.
Based on the company's differentiated business model and highly variable cost structure, the company generated strong cash flow from operations of $849 million during the first nine months of 2020, and invested $855 million in capital investments, of which the new Sinton Texas steel mill represented $640 million. During this period, the company also paid cash dividends of $157 million and repurchased $107 million of its common stock, while maintaining strong liquidity of $2.5 billion as of September 30, 2020.
'We entered 2020 in a position of strength with ample cash and available liquidity of $2.8 billion, and we remain in a position of strength at the end of the third quarter 2020,' stated Millett. 'Our differentiated business model and performance-driven culture have proven our ability to generate strong cash flow during the most challenging environments. We entered 2020 prepared for the capital investment requirements related to the construction of our new state-of-the art, electric-arc-furnace (EAF) flat roll steel mill. We are excited about this transformational strategic project, and the associated long-term value creation it will bring through geographic and value-added product diversification. This facility is designed to have product size and quality capabilities beyond that of existing EAF flat roll steel producers, competing even more effectively with the integrated steel model and foreign competition, as well as providing a much more environmentally friendly steel production alternative for our customers. Construction is going well and remains within our expected project cost of $1.9 billion, with plans to commence operations mid-year 2021.
'We have targeted specific regional steel consuming markets. Our facility is located and designed to have a meaningful competitive advantage in these regions and in the displacement of imports. We have signed long-term agreements with three customers to co-locate on our site, and they plan to represent annual steel consuming and processing capability of between 800,000 to 1.0 million tons of flat roll steel. In August, we also completed the acquisition of Zimmer, a Mexican metals recycling company, which is an important part of our raw material strategy for the facility. I would like to welcome the Zimmer team to the Steel Dynamics family!
'The domestic economy is recovering from the shock of COVID-19 although it is still difficult to know the full extent of its eventual impact. However, we are currently seeing a solid recovery in domestic steel demand,' continued Millett. 'The automotive sector has seen the strongest improvement, and the construction sector has remained resilient. We are seeing pent up demand, as steel service center inventories were extremely low and still remain low compared to historical norms. Energy remains the weakest end market.
'Our commitment is to the safety of our teams, families, communities and to meet the needs of our customers. Our culture and our business model continue to positively differentiate our performance from the rest of the industry, and we are in a place of strength. We are competitively positioned and focused to deliver long-term value creation for all of our stakeholders,' concluded Millett.
Conference Call and Webcast
Steel Dynamics Inc. will hold a conference call to discuss third quarter 2020 operating and financial results on Tuesday, October 20, 2020, 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 October 25, 2020.
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, Adjusted Net Income, Adjusted Diluted Earnings Per Share, EBITDA and Adjusted EBITDA included in this release may not be comparable to similarly titled measures of other companies.
This press release contains some predictive statements about future events, including statements related to conditions in domestic or global economies, conditions in steel 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 a guarantee 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) the effects of pandemics or other health issues, such as the recent novel coronavirus outbreak (COVID-19); (3) cyclical and changing industrial demand; (4) 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, energy, and other steel-consuming industries; (5) 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; (6) the impact of domestic and foreign imports, including trade policy, restrictions, or agreements; (7) unanticipated difficulties in integrating or starting up new, acquired or planned businesses or assets; (8) risks and uncertainties involving product and/or technology development and (9) 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 Securities and Exchange Commission website, www.sec.gov, and on the Steel Dynamics website, www.steeldynamics.com under 'Investors - SEC Filings'.
Tel: (317) 892-7000 (877