Steel Dynamics Reports Third Quarter 2017 Results
FORT WAYNE, Ind., Oct. 18, 2017 /PRNewswire/ -- Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced third quarter 2017 financial results. The company reported third quarter 2017 net sales of $2.4 billion and net income of $153 million, or $0.64 per diluted share, which includes debt refinancing and repayment charges of $0.02 per diluted share. Excluding these items, the company's third quarter 2017 adjusted net income was $158 million, or $0.66 per diluted share.
Comparatively, prior year third quarter net sales were $2.1 billion, with net income of $157 million, or $0.64 per diluted share, which includes a litigation settlement charge of approximately $5 million (pretax). Excluding this item, prior year third quarter adjusted net income was $160 million, or $0.65 per diluted share. Sequential second quarter 2017 net sales were $2.4 billion, with net income of $154 million, or $0.63 per diluted share.
"The team delivered a solid performance for the third quarter 2017 despite the continued high levels of steel imports," said Mark D. Millett, President and Chief Executive Officer. "Our third quarter 2017 income from operations was $271 million, a sequential increase of $6 million, and trailing twelve month adjusted EBITDA remained strong at $1.4 billion.
"Elevated levels of steel imports persisted during the quarter, hindering the ability for domestic steel prices to keep pace with raw material costs. Despite reported low levels of steel service center inventory, we believe steel traders built inventory at the ports ahead of potential domestic trade actions, which resulted in an overhang position for flat roll steel during recent months. This oversupply resulted in periods of weaker customer orders. The increase in our sequential earnings was principally the result of improved engineered bar, structural and merchant steel shipments. Underlying demand from the construction sector appeared to remain strong, and the energy sector was stable. Conversely, demand from the domestic automotive sector softened, but our steel operations continue to gain market share somewhat mitigating the impact.
"Third quarter 2017 operating income from our metals recycling platform aligned with the strong first half 2017 performance, derived from steady shipments and ferrous metal spread expansion as increased scrap exports supported higher average quarterly selling values. Earnings from our fabrication operations also improved in the quarter. The fabrication group achieved another quarter of record shipments, and maintains a strong order backlog. We believe this is a solid indicator that the non-residential construction market is continuing a positive growth profile," concluded Millett.
Additional Third Quarter 2017 Comments
Third quarter 2017 operating income for the company's steel operations increased two percent, or $6 million, to $280 million sequentially, based on higher shipments from our long products divisions outpacing metal spread compression. The third quarter 2017 average external selling price for the company's steel operations decreased $1 to $778 per ton. The average ferrous scrap cost per ton melted increased $2 to $305 per ton.
Third quarter 2017 operating income attributable to the company's flat roll products decreased three percent when compared to the sequential second quarter, based on slightly lower shipments and metal spread compression, as average scrap costs increased more than average selling values. Operating income from long products increased 34 percent as a result of a six percent increase in shipments, notably for engineered bar, structural and merchant steel products. However, structural and merchant steel volumes still remain under pressure from excess domestic production capability, coupled with elevated import levels. The company's steel production utilization rate was 92 percent in the third quarter 2017, compared to 91 percent in the sequential second quarter and compared to the estimated third quarter domestic industry utilization rate of 75 percent.
Third quarter 2017 operating income from the company's metals recycling operations was $21 million, compared to $20 million in the sequential second quarter, as a result of improved average quarterly ferrous sales price and somewhat steady shipments.
The company's fabrication operations recorded third quarter 2017 operating income of $22 million, compared to sequential second quarter results of $20 million. The platform achieved a third consecutive quarter of record shipments and average product pricing remained steady.
During the third quarter 2017, the company issued $350 million of new 4.125% senior notes due 2025 to repay $350 million of its existing 6.375% senior notes due 2022. At September 30, 2017, the company had repaid $183 million of the existing senior notes, and repaid the remaining amount of $167 million on October 13, 2017. After giving effect to the October repayment, total debt of $2.4 billion remained consistent with the sequential second quarter and liquidity remained strong at $2.1 billion, with $935 million in cash and $1.2 billion of available funding under the revolving credit facility. These transactions extended the company's overall debt maturity profile, and will provide an estimated annual interest savings of approximately $8 million.
Year-to-Date September 30, 2017 Comparison
For the nine months ended September 30, 2017, net income was $508 million, or $2.09 per diluted share, on net sales of $7.2 billion, as compared to net income of $362 million, or $1.48 per diluted share, on net sales of $5.9 billion for the same period in 2016. Year-to-date 2017 net sales increased 23 percent. Although all platforms experienced increased revenues, the overall improvement was driven by higher average steel product pricing and shipments. Year-to-date 2017 operating income increased $199 million, or 30 percent, to $871 million, based on improved earnings of $183 million from the company's steel operations and $32 million from its metals recycling platform. The average year-to-date selling price for the company's steel operations increased $116 to $767 per ton. The average year-to-date ferrous scrap cost per ton melted increased $71 to $291 per ton. Additionally, the metals recycling operations continued to optimize administrative and operating costs, more than doubling operating income year-to-date 2017 compared to the same period in the prior year.
During the nine months ended September 30, 2017, the company generated strong cash flow from operations of $548 million and repurchased $237 million of its common stock.