Steel Dynamics Reports First Quarter 2019 Results
by David Fleschen
Steel Dynamics, Inc. y announced first quarter 2019 financial results. The company reported first quarter 2019 net sales of $2.8 billion and net income of $204 million, or $0.91 per diluted share.
Comparatively, prior year first quarter net income was $228 million, or $0.96 per diluted share, with net sales of $2.6 billion. Sequential fourth quarter 2018 net income was $270 million, or $1.17 per diluted share, which included additional company-wide performance-based compensation of $0.04 per diluted share and lower earnings of $0.10 per diluted share, associated with planned maintenance outages at the company's liquid pig iron production facility and its two flat roll steel mills. Excluding these items, the company's fourth quarter adjusted net income was $302 million, or $1.31 per diluted share.
"The team delivered a strong first quarter performance in a somewhat challenging flat roll steel pricing environment," said Mark D. Millett, President and Chief Executive Officer. "A downward trend in flat roll steel prices began in the second half of 2018, and continued through mid-first quarter 2019, reaching an inflection point in February 2019. The teams were able to increase shipments and offset some of the margin compression, resulting in first quarter 2019 consolidated operating income of $292 million and adjusted EBITDA of $382 million. The continued stabilization and improvement in flat roll steel prices are having a positive impact, resulting in increased flat roll order activity and solid order backlogs. We are seeing continued strength in the automotive, energy and industrial sectors, and as evidenced by strong steel fabrication backlogs, strength in non-residential construction."
The company generated cash flow from operations of $182 million during the first quarter 2019 and maintained liquidity of $2.2 billion at March 31, 2019. On March 1, 2019, the company used available cash of $93 million to fund the purchase of a 75 percent controlling interest of United Steel Supply, a leading distributor of painted Galvalume® flat roll steel used for roofing and siding applications.
As evidence of the confidence in the company's sustainable long-term cash flow generation capability, the board of directors approved a 28 percent increase in the company's first quarter 2019 cash dividend, reflecting the strength of the company's capital foundation and liquidity profile. The company also repurchased $84 million of its common stock during the first quarter of 2019.
First quarter 2019 operating income for the company's steel operations was $312 million, or 22 percent lower than sequential fourth quarter 2018 results. The decline in earnings resulted from metal spread compression driven by lower flat roll steel pricing, which more than offset increased overall steel shipments. The first quarter 2019 average product selling price for the company's steel operations decreased $38 to $902 per ton. The average ferrous scrap cost per ton melted only decreased $5 to $338 per ton.
First quarter 2019 operating income from the company's metals recycling operations increased to $20 million, compared to $17 million in the sequential fourth quarter, based on improved recycled nonferrous shipments and average pricing. Conversely, recycled ferrous shipments and metal spread declined modestly in the quarter.
First quarter 2019 operating income from the company's steel fabrication operations was a strong $21 million, or 39 percent higher than sequential fourth quarter results. Earnings improved as higher product pricing and lower raw material steel input costs, resulted in expanded profit margins which more than offset lower shipments related to inclement weather conditions that occurred during the first quarter. The steel fabrication platform order backlog remains strong, and customers remain optimistic concerning non-residential construction projects heading into the summer season.
"We believe the market dynamics are in place for domestic steel consumption to continue to increase this year," said Millett. "Based on domestic steel demand fundamentals and continued customer optimism, we believe North American steel consumption will experience steady growth. In combination with our existing and newly announced expansion initiatives, we believe there are firm drivers for our continued growth. We are excited about our planned flat roll steel mill, and the anticipated long-term value creation it will bring through geographic and value-added product diversification. We plan for the new steel mill to have product capabilities beyond existing EAF flat roll steel producers today, competing even more effectively with the integrated steel model and foreign competition. We have targeted regional markets that represent over 27 million tons of relevant flat roll steel consumption, which includes the growing Mexican flat roll market. This facility should have a meaningful competitive advantage in those regions.
"We continue to strengthen our financial position through strong cash flow generation and the execution of our long-term strategy. We are well-positioned for growth and remain focused on delivering long-term shareholder value through organic and transactional growth opportunities," concluded Millett.
Source: Steel Dynamics, Photo: Fotolia