Steel Dynamics Reports Second Quarter 2020 Results
by David Fleschen
Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced second quarter 2020 financial results. The company reported second quarter 2020 net sales of $2.1 billion and net income of $75 million, or $0.36 per diluted share. Excluding the impact from the following items, the company's second quarter 2020 adjusted net income was $100 million, or $0.47 per diluted share:
- Additional 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 $10 million, or $0.03 per diluted share.
Comparatively, prior year second quarter net sales were $2.8 billion, with net income of $194 million, or $0.87 per diluted share, and sequential first quarter 2020 net sales were $2.6 billion, with net income of $187 million, or $0.88 per diluted share.
"I am incredibly proud of the 8,400 individuals that I am fortunate to work alongside at Steel Dynamics," said Mark D. Millett, President and Chief Executive Officer. "The operating, commercial, and financial teams achieved best-in-class performance within the current unprecedented health and economic environment. We are operating safely, providing ongoing customer support, and taking advantage of longer-term financing opportunities. Our spirit of excellence was once again evidenced in our strong second quarter 2020 performance. Even though earnings were lower than robust sequential first quarter results, the team's performance was tremendous within the circumstances. Our second quarter 2020 consolidated operating income was $159 million, adjusted EBITDA was $217 million, and cash flow generation from operations increased sequentially to $486 million, resulting in near-record liquidity of $2.8 billion.
"Our differentiated business model, coupled with the passion of our people drove strong steel mill production utilization, allowing for cost compression benefits and market share gains. Our second quarter 2020 steel shipments were only 12 percent lower than our record high sequential first quarter volumes," continued Millett. "Our steel mills operated at almost 80 percent utilization, while the rest of the domestic industry operated at an estimated 55 percent. Our fabrication operations and steel processing locations helped achieve this higher utilization, complementing the market share gains. In addition, our metals recycling platform provided a competitive advantage in sourcing ferrous scrap for our steel mills in a challenging supply environment."
In the second quarter of 2020, the company generated strong cash flow from operations of $486 million and available cash and short-term investments increased $111 million, as working capital management more than offset capital investments of $310 million. The company also executed its second investment grade notes offering, issuing $400 million of 2.400% notes due 2025 and $500 million of 3.250% notes due 2031. These transactions were leverage neutral and proceeds were used to repay $400 million of its 5.250% senior notes due 2023 and $500 million of its 5.500% senior notes due 2024. These transactions combined with the company's December 2019 inaugural investment grade refinancing have extended its overall debt maturity profile and lowered its effective interest rate to four percent.
Second Quarter 2020 Comments
Second quarter 2020 operating income for the company's steel operations was $172 million, or 41 percent lower than sequential first quarter results, due to lower selling values and shipments related to the temporary closures of numerous steel consuming businesses in response to the coronavirus (COVID-19) pandemic. Domestic automotive producers and the related supply chain idled operations beginning in March 2020 and slowly began restarting production in May and June. Construction related steel demand was steadier than industrial manufacturing throughout the second quarter. The second quarter 2020 average external product selling price for the company's steel operations decreased $19 sequentially to $755 per ton. The average ferrous scrap cost per ton melted at the company's steel mills decreased $1 sequentially to $266 per ton. The company's steel mill's operated at 79 percent of their production capability during the second quarter 2020, with the flat roll group achieving a rate of 89 percent. Additionally, second quarter 2020 steel shipments of 2.5 million tons were only 12 percent lower than record high sequential first quarter shipments of 2.8 million tons, and only nine percent lower than the second quarter of 2019.
As states issued shelter-in-place mandates and domestic manufacturing slowed, scrap supply and collection declined. In addition, significantly lower second quarter 2020 domestic steel production of an estimated 55 percent, resulted in weak ferrous scrap demand. As a result, the company's metals recycling operations recorded an operating loss of $6 million for the second quarter 2020, compared to operating income of $8 million in the sequential first quarter. As states have started to reopen, scrap flows have improved, and the company expects its metals recycling operations to return to profitability for the third quarter 2020.
Second quarter 2020 operating income from the company's steel fabrication operations of $27 million was strong, nearly equal to sequential first quarter results of $29 million, based on steady shipments. The steel fabrication platform's customer order backlog remains strong, and customers remain constructive concerning non-residential construction projects. The team has not seen widespread project delays or cancellations.
Source: Steel Dynamics, Photo: Fotolia