Steel Dynamics : Reports Fourth Quarter and Record Annual 2018 Results

FORT WAYNE, Ind., Jan. 22, 2019/PRNewswire/ --

Annual 2018 Results:

• Record steel shipments of 10.6 million tons and steel fabrication shipments of 642,000 tons
• Record net sales of $11.8 billionand operating income of $1.7 billion
• Record net income of $1.3 billion
• Record annual cash flow from operations of $1.4 billionand EBITDA of over $2.0 billion

Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced fourth quarter and record annual 2018 financial results. The company reported fourth quarter 2018 net sales of $2.9 billionand net income of $270 million, or $1.17per diluted share. Excluding the impact from the following items, the company's fourth quarter adjusted net income was $302 million, or $1.31per diluted share:

• Additional performance-based compensation of approximately $12 million, or $0.04per diluted share, awarded to all non-executive, eligible employees in recognition of exceptional performance,
• Estimated lower earnings of $14 million, or $0.04per diluted share, associated with a planned outage at the company's liquid pig iron production facility to complete major maintenance items that occur once every three to four years, and
• Lower earnings from significant planned maintenance outages at the company's two flat roll steel mills, including estimated incremental maintenance costs of $20 million, or $0.06per diluted share. The outages also reduced fourth quarter flat roll shipments by an estimated 70,000 to 80,000 tons combined.

Comparatively, prior year fourth quarter net sales were $2.3 billion, with net income of $305 million, or $1.28per diluted share, which included a tax benefit of $0.83per diluted share primarily related to the U.S. Federal Tax Cuts and Jobs Act of 2017 (TCJA), lower earnings from facility outages of $0.07per diluted share, and debt refinancing charges of $0.02per diluted share. Sequential third quarter 2018 net sales were $3.2 billion, with net income of $398 million, or $1.69per diluted share.

'The performance of the entire Steel Dynamics team was exceptional this year,' said Mark D. Millett, President and Chief Executive Officer. 'We performed at the top of our industry, both operationally and financially. We achieved numerous annual records across the business, including steel and fabrication shipments, operating income of $1.7 billion, net income of $1.3 billion, and EBITDA of over $2.0 billion. Based on a record 2018 annual cash flow generation from operations of $1.4 billion, we were able to maintain strong liquidity, while at the same time growing our business through both organic and transactional growth investments, maintaining a positive dividend profile, and executing on our share repurchase program. We have a firm foundation for our continued long-term, strategic growth and value creation.

'In 2018, the domestic steel industry benefited from a steady improvement in underlying steel consumption, based on strength from the automotive, construction and energy sectors. Increased steel consumption, coupled with generally lower finished steel imports, created a strong market environment. Our steel operations achieved record annual operating income of $1.9 billion, far surpassing last year's record of $1.1 billion. Supported by improved domestic steel mill utilization, our metals recycling team increased annual shipments and earnings, and continued to reduce operating costs, resulting in annual operating income of $88 million.

'Our fabrication platform also achieved record annual shipments in 2018. However, higher average steel input costs resulted in metal spread compression throughout much of the year, resulting in annual 2018 operating income of $62 million, compared to 2017 operating income of $87 million. This represents a solid performance in a rising steel cost environment,' said Millett. 'Customer sentiment remains strong for our fabrication business and the order backlog is even stronger now than it was at this time last year, which is a positive growth indicator for the non-residential construction sector.'

Fourth Quarter 2018 Comments

Fourth quarter 2018 operating income for the company's steel operations was strong at $402 million, but decreased 30 percent compared to record sequential third quarter results, based on a six percent decline in shipments, and metal spread compression. During the fourth quarter, the company also completed two significant planned maintenance outages at both its Butler and Columbus Flat Roll divisions, which increased costs by an estimated $20 millionand reduced flat roll shipments during the quarter. Fourth quarter 2018 operating income attributable to the company's flat roll operations decreased 34 percent when compared to the sequential third quarter. Operating income from long products decreased 13 percent, primarily related to seasonally lower shipments. The company's average overall steel product price decreased more than consumed raw material scrap costs, resulting in steel metal spread compression. The fourth quarter 2018 average product selling price for the company's steel operations decreased $48to $940per ton. The average ferrous scrap cost per ton melted decreased $9to $343per ton.

Fourth quarter 2018 operating income from the company's metals recycling operations was $17 million, compared to $18 millionin the sequential third quarter. Improved average quarterly ferrous and non-ferrous metal spreads were offset by seasonally lower ferrous scrap shipments.

The company's fabrication operations fourth quarter 2018 operating income was $15 million, compared to $13 millionin the sequential third quarter. Earnings increased as improved product pricing more than offset the rise in raw material steel costs and seasonally lower shipments.

Annual 2018 Comparison

Annual 2018 net income was a record $1.3 billion, or $5.35per diluted share, or excluding the impact from the listed fourth quarter 2018 adjustments, $5.49per diluted share. Comparatively, annual 2017 net income was $813 million, or $3.36per diluted share, which included a tax benefit of $0.76per diluted share related to the U.S. Federal Tax Cuts and Jobs Act of 2017 (TCJA) and debt refinancing costs of $0.05per diluted share.

Annual 2018 net sales were a record $11.8 billioncompared to $9.5 billionin 2017. Revenues from the steel platform increased $2.0 billion, and each of the company's other operating platforms also achieved higher annual sales based on improved product pricing and increased shipments. Annual 2018 operating income was a record $1.7 billioncompared to 2017's record operating income of $1.1 billion, a 61 percent increase. The improvement was driven by record earnings from the company's steel operations, based on record steel shipments and improved steel metal spread. The average 2018 selling price for the company's steel operations increased $157to $922per ton. The average 2018 ferrous scrap cost per ton melted increased $48to $341per ton.

The company generated record cash flow from operations of $1.4 billionduring 2018. As evidence of the confidence in the company's outlook and sustainable long-term cash flow generation capability, the board of directors authorized an additional $750 millionshare repurchase program in September, following the completion of its $450 millionauthorization in August 2018. The company repurchased 5.5% of its outstanding shares, or $524 million, during 2018.

Outlook

'We believe the market dynamics are in place for domestic steel consumption to continue to increase this year,' said Millett. 'Based on strong 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 new planned flat roll steel mill that was announced in the fourth quarter, and the anticipated long-term value creation it will bring through geographic and value-added product diversification. The new mill will have capabilities beyond existing EAF flat roll steel producers, competing even more effectively with the integrated steel model and foreign competition. We have targeted regional markets that currently represent over 27 million tons of relevant flat roll steel consumption, which includes the growing 16 million ton Mexican flat roll market. Our new planned steel mill will have significant competitive advantages 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 shareholder value through organic and transactional growth opportunities,' concluded Millett.

Conference Call and Webcast

Steel Dynamics, Inc. will hold a conference call to discuss fourth quarter and annual 2018 operating and financial results on Tuesday, January 22, 2019, at 10:00 a.m. Eastern 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 Time on January 27, 2019.

About Steel Dynamics, Inc.

Steel Dynamics is one of the largest domestic steel producers and metals recyclers in the United Statesbased 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, EBITDA and Adjusted EBITDA included in this release may not be comparable to similarly titled measures of other companies.

Forward-Looking Statements

This press release contains some predictive statements about future events, including statements related to conditions in the steel and metallic scrap markets, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new or existing 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 guarantees 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) cyclical and changing industrial demand; (3) 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, pipe and tube, and other steel-consuming industries; (4) fluctuation in the cost of key raw materials and supplies (including steel scrap, iron units, and energy costs) and our ability to pass on any cost increases; (5) the impact of domestic and foreign import price competition; (6) unanticipated difficulties in integrating or starting up new or acquired businesses; (7) risks and uncertainties involving product and/or technology development; and (8) 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 SEC website, www.sec.gov, and on the Steel Dynamics website, www.steeldynamics.com : Investors: SEC Filings.

Steel Dynamics, Inc.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
	Three Months Ended						Year Ended						Three Months
	December 31,						December 31,						Ended
	2018			2017			2018			2017			September 30, 2018
Net sales	$	2,903,892		$	2,336,479		$	11,821,839		$	9,538,797		$	3,223,547
Costs of goods sold		2,382,657			2,015,655			9,499,025			7,956,783			2,537,466
Gross profit		521,235			320,824			2,322,814			1,582,014			686,081
Selling, general and administrative expenses		106,564			96,209			416,640			394,631			102,614
Profit sharing		41,684			21,595			155,985			91,309			45,304
Amortization of intangible assets		7,434			7,073			27,780			29,193			6,591
Operating income		365,553			195,947			1,722,409			1,066,881			531,572
Interest expense, net of capitalized interest		31,652			32,380			126,620			134,399			31,560
Other expense (income), net		(7,384)			2,215			(23,985)			(2,753)			(7,103)
Income before income taxes		341,285			161,352			1,619,774			935,235			507,115
Income tax expense		71,433			(141,819)			363,969			129,439			109,209
Net income		269,852			303,171			1,255,805			805,796			397,906
Net loss attributable to noncontrolling interests		152			1,562			2,574			6,945			469
Net income attributable to Steel Dynamics, Inc.	$	270,004		$	304,733		$	1,258,379		$	812,741		$	398,375
Basic earnings per share attributable to
Steel Dynamics, Inc. stockholders	$	1.18		$	1.28		$	5.38		$	3.38		$	1.70
Weighted average common shares outstanding		229,245			237,177			233,923			240,132			234,208
Diluted earnings per share attributable to
Steel Dynamics, Inc. stockholders, including the effect
of assumed conversions when dilutive	$	1.17		$	1.28		$	5.35		$	3.36		$	1.69
Weighted average common shares
and share equivalents outstanding		230,455			238,677			235,193			241,781			235,649
Dividends declared per share	$	0.1875		$	0.1550		$	0.7500		$	0.6200		$	0.1875

Steel Dynamics, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands)
	December 31,				December 31,
Assets	2018				2017
	(unaudited)
Current assets
Cash and equivalents	$	828,220			$	1,028,649
Short term investments		228,783				-
Accounts receivable, net		1,043,756				868,837
Inventories		1,859,168				1,519,347
Other current assets		72,730				91,509
Total current assets		4,032,657				3,508,342
Property, plant and equipment, net		2,945,767				2,675,904
Intangible assets, net		270,328				256,909
Goodwill		429,645				386,893
Other assets		25,166				27,684
Total assets	$	7,703,563			$	6,855,732
Liabilities and Equity
Current liabilities
Accounts payable	$	550,754			$	489,448
Income taxes payable		7,468				3,696
Accrued expenses		436,681				346,580
Current maturities of long-term debt		24,234				28,795
Total current liabilities		1,019,137				868,519
Long-term debt		2,352,489				2,353,145
Deferred income taxes		435,838				305,949
Other liabilities		8,870				21,811
Total liabilities		3,816,334				3,549,424
Commitments and contingencies
Redeemable noncontrolling interests		111,240				111,240
Equity
Common stock		645				644
Treasury stock, at cost		(1,184,243)				(665,297)
Additional paid-in capital		1,160,048				1,141,534
Retained earnings		3,958,320				2,874,693
Accumulated other comprehensive income		301				-
Total Steel Dynamics, Inc. equity		3,935,071				3,351,574
Noncontrolling interests		(159,082)				(156,506)
Total equity		3,775,989				3,195,068
Total liabilities and equity	$	7,703,563			$	6,855,732

Steel Dynamics, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
	Three Months Ended						Year Ended
	December 31,						December 31,
	2018			2017			2018			2017
Operating activities:
Net income	$	269,852		$	303,171		$	1,255,805		$	805,796
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		80,560			74,931			317,198			298,999
Equity-based compensation		14,457			11,639			43,317			36,197
Deferred income taxes		16,390			(153,748)			61,827			(135,899)
Other adjustments		(1,442)			6,013			(1,245)			14,068
Changes in certain assets and liabilities:
Accounts receivable		184,434			54,179			(145,873)			(139,054)
Inventories		(5,305)			(31,157)			(246,213)			(242,883)
Other assets		3,689			6,016			(3,475)			4,002
Accounts payable		(62,464)			(37,189)			37,904			96,062
Income taxes receivable/payable		(28,943)			(39,692)			26,471			(33,889)
Accrued expenses		19,833			(2,037)			69,753			36,021
Net cash provided by operating activities		491,061			192,126			1,415,469			739,420
Investing activities:
Purchases of property, plant and equipment		(62,913)			(37,189)			(239,390)			(164,935)
Purchases of short term investments		(143,783)			-			(268,783)			-
Proceeds from maturities of short term investments		30,000			-			40,000			-
Acquisition of business, net of cash and restricted cash acquired		-			(674)			(433,998)			(6,192)
Other investing activities		5,445			1,636			6,907			32,022
Net cash used in investing activities		(171,251)			(36,227)			(895,264)			(139,105)
Financing activities:
Issuance of current and long-term debt		117,937			118,593			445,607			620,041
Repayment of current and long-term debt		(109,329)			(278,575)			(455,491)			(609,914)
Dividends paid		(43,767)			(36,728)			(168,913)			(145,565)
Purchase of treasury stock		(330,190)			(15,088)			(523,569)			(252,242)
Other financing activities		(10,177)			(17,291)			(18,501)			(25,655)
Net cash used in financing activities		(375,526)			(229,089)			(720,867)			(413,335)
Increase (decrease) in cash, cash equivalents, and restricted cash		(55,716)			(73,190)			(200,662)			186,980
Cash, cash equivalents, and restricted cash at beginning of period		890,139			1,108,275			1,035,085			848,105
Cash, cash equivalents, and restricted cash at end of period	$	834,423		$	1,035,085		$	834,423		$	1,035,085
Supplemental disclosure information:
Cash paid for interest	$	53,536		$	55,226		$	124,034		$	135,381
Cash paid for income taxes, net	$	89,677		$	49,701		$	288,429		$	296,493

Steel Dynamics, Inc.
SUPPLEMENTAL INFORMATION
(dollars in thousands)
		Fourth Quarter							Year to Date
			2018			2017			2018			2017			1Q 2018			2Q 2018			3Q 2018
External Net Sales
Steel		$	2,198,459		$	1,669,384		$	8,920,719		$	6,931,764		$	1,921,790		$	2,325,426		$	2,475,044
Fabrication			251,592			220,515			921,148			823,782			201,492			217,439			250,625
Metals Recycling			352,555			354,460			1,552,600			1,410,040			388,122			424,704			387,219
Other			101,286			92,120			427,372			373,211			92,471			122,956			110,659
Consolidated		$	2,903,892		$	2,336,479		$	11,821,839		$	9,538,797		$	2,603,875		$	3,090,525		$	3,223,547
Operating Income
Steel		$	402,252		$	207,358		$	1,855,109		$	1,113,884		$	338,357		$	537,192		$	577,308
Fabrication			14,902			21,601			62,064			87,459			19,832			14,185			13,145
Metals Recycling			16,954			22,379			88,251			84,826			27,805			25,728			17,764
Operations			434,108			251,338			2,005,424			1,286,169			385,994			577,105			608,217
Non-cash Amortization of Intangible Assets			(7,434)			(7,073)			(27,780)			(29,193)			(6,926)			(6,829)			(6,591)
Profit Sharing Expense			(41,684)			(21,595)			(155,985)			(91,309)			(26,662)			(42,335)			(45,304)
Non-segment Operations			(19,437)			(26,723)			(99,250)			(98,786)			(29,009)			(26,054)			(24,750)
Consolidated Operating Income		$	365,553		$	195,947		$	1,722,409		$	1,066,881		$	323,397		$	501,887		$	531,572
Adjusted EBITDA
Earnings Before Taxes		$	341,285		$	161,352		$	1,619,774		$	935,235		$	295,964		$	475,410		$	507,115
Net Interest Expense			24,738			28,990			104,042			124,250			27,482			25,928			25,894
Depreciation			71,765			66,460			283,890			264,317			67,823			70,871			73,431
Amortization of Intangible Assets			7,434			7,073			27,780			29,193			6,926			6,829			6,591
Non-controlling Interest			151			1,562			2,573			6,945			2,077			(124)			469
EBITDA			445,373			265,437			2,038,059			1,359,940			400,272			578,914			613,500
Non-cash Adjustments
Unrealized Hedging (Gain) Loss			(2,510)			7,325			(6,600)			4,688			(9,956)			2,836			3,030
Inventory Valuation			666			198			2,148			2,955			200			265			1,017
Equity-based Compensation			14,457			11,636			40,390			34,560			9,580			8,375			7,978
Financing Expenses			-			1,242			-			2,635			-			-			-
Adjusted EBITDA		$	457,986		$	285,838		$	2,073,997		$	1,404,778		$	400,096		$	590,390		$	625,525
Other Operating Information
Steel
Average External Sales Price (Per ton) *		$	940		$	761		$	922		$	765		$	822		$	932		$	988
Average Ferrous Cost (Per ton melted) #		$	343		$	300		$	341		$	293		$	321		$	348		$	352
Flat Roll Shipments
Butler and Columbus Flat Roll Divisions			1,493,894			1,467,841			6,207,019			6,077,942			1,548,814			1,601,498			1,562,813
Techs and Heartland Divisions			262,642			191,208			974,266			787,471			194,762			222,303			294,559
Long Product Shipments
Structural and Rail Division			389,107			339,597			1,630,235			1,339,558			368,783			441,019			431,326
Engineered Bar Products Division			217,646			191,652			922,839			757,027			215,150			250,092			239,951
Roanoke Bar Division			150,607			107,319			559,801			470,071			123,403			140,143			145,648
Steel of West Virginia			70,367			66,724			315,603			294,908			83,732			78,881			82,623
Total Shipments (Tons)			2,584,263			2,364,341			10,609,763			9,726,977			2,534,644			2,733,936			2,756,920
External Shipments (Tons) *			2,328,420			2,184,135			9,625,291			9,015,013			2,327,515			2,480,223			2,489,133
Steel Production (Tons) *			2,677,613			2,437,851			10,899,776			9,995,082			2,601,200			2,768,512			2,852,451
Metals Recycling
Nonferrous Shipments (000's of pounds)			278,418			271,036			1,131,412			1,086,799			271,628			304,034			277,332
Ferrous Shipments (Gross tons)			1,215,474			1,172,015			5,123,553			4,952,973			1,256,899			1,347,016			1,304,164
External Ferrous Shipments (Gross tons)			414,941			429,512			1,777,418			1,844,115			436,990			466,125			459,362
Fabrication
Average External Sales Price (Per ton)		$	1,550		$	1,335		$	1,437		$	1,314		$	1,345		$	1,380		$	1,461
Shipments (Tons)			162,292			165,338			641,698			627,274			149,926			157,902			171,578
* Includes all steel operations
# Includes ferrous cost per ton melted at our six electric-arc-furnace steel mills

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SOURCE Steel Dynamics, Inc.