Steel Dynamics, Inc. announced net income of $30 million on net sales of $1.9 billion for the fourth quarter, and net income of $278 million on net sales of $8.0 billion for the full year 2011.
Fourth Quarter and Full-Year Results — Fourth quarter net income of $30 million ($0.14 per diluted share) compares to net income of $8 million ($0.04 per diluted share) for the year-ago fourth quarter. Net sales of $1.9 billion compare to net sales of $1.5 billion for the year-ago fourth quarter.
Full-year 2011 net income of $278 million ($1.22 per diluted share) reflects a 98% increase compared to prior-year net income of $141 million ($0.64 per diluted share). Full-year-net sales of $8.0 billion compare to net sales of $6.3 billion in the previous year.
Management Comments — "We are pleased with the strong revenue and bottom-line performance in both the quarter and for the year in comparison to prior year results," said President and CEO Mark Millett. "We achieved both quarterly and annual organic sales growth of over 20%, and nearly doubled our annual pretax earnings in a challenging environment.”
Millet noted that many of the company’s operations had achieved notable milestones in 2011:
· The company’s Flat Roll and Engineered Bar Products divisions achieved record annual production and shipping volumes individually, as did the company’s steel operations in total
· The company’s Engineered Bar Products and Steel of West Virginia steel divisions achieved record annual operating income
· The company significantly increased its market share of railroad rail business, shipping 117,000 tons in 2011 (more than double the 55,000 tons shipped during 2010)
· The company’s metals recycling operations achieved record annual ferrous and nonferrous shipping volumes, as the company leveraged improved market dynamics through additional retail yards and increased shredder capacity
· The company achieved record production of iron units at its Iron Dynamics facility, with the lowest cost structure achieved to date
· Operations were begun at three fabrication facilities in the South and Southwest, providing market expansion.
Fourth Quarter Review — Through the quarter, volumes increased in each of the company's operating segments vs. the prior-year fourth quarter and decreased vs. the previous quarter (3Q-2011). While the company's operating income increased 76% over prior-year performance, it decreased 24% from the previous quarter. The company said the decrease in consecutive quarterly operating income was primarily the result of compressed flat roll margins and the impact of Iron Dynamics' planned three-week maintenance shutdown, which reduced operating income by $10 million due to associated costs and reduced volume.
Despite increased volumes, earnings from flat roll operations declined 26%, as lower selling prices in the first half of the quarter were not enough to balance corresponding declines in the cost of raw materials, resulting in margin compression. However, beginning mid-quarter, increases in both order entry and pricing should benefit the first quarter of 2012.
Fourth quarter margins for the combined steel operations expanded vs. prior-year fourth quarter results, as the average selling price per ton shipped increased $100 per ton to $853, while the average ferrous scrap cost per ton melted increased just $68. In contrast, steel margins compressed vs. the previous quarter (3Q-2011), as the average selling price per ton shipped decreased $44 per ton across the steel group, and the average ferrous scrap cost per ton melted decreased only $12.
As is typical in the last quarter of the year, metals recycling volumes decreased vs. the previous quarter, but increases in nonferrous margins more than offset the impact of reduced ferrous and nonferrous shipments. Fourth quarter operating income for OmniSource was $16 million, an increase of $7 million vs. the prior year, and an increase of $4 million compared to the previous quarter. Non-cash unrealized hedging losses were $3 million (approximately $0.01 per diluted share) in the fourth quarter, vs. gains of $2 million in the previous quarter.
The impact of losses from the company's Minnesota operations on fourth quarter consolidated net income was $10 million (approximately $0.05 per diluted share), which compares to losses of $8 million (approximately $0.03 per diluted share) in the previous quarter (3Q-2011). The increased loss was a function of margin compression as product pricing decreased and the cost of raw materials increased quarter over quarter. Fourth-quarter shipments of iron nuggets was 53,000 tonnes, a 62% increase over third quarter 2011 levels.
Full-Year Review — Overall 2011 shipping volumes increased in each of the company's operating segments when compared to prior year, and record volumes were achieved in the steel and metals recycling operations. 2011 net sales of $8.0 billion reflect an increase of $1.7 billion (27%) over 2010 results, and were only 1% less than the record net sales the company achieved in 2008.
The company's operating income increased 60% versus the prior year, driven primarily by significant margin improvement within the steel operations in both flat and long products. The average annual selling price per ton shipped for the company's steel operations in 2011 was $897, an increase of $123 per ton compared to 2010. The 2011 average ferrous scrap cost per ton melted increased $71.
Outlook — The company successfully expanded its existing senior secured credit facility by adding a $275 million term loan facility, with net proceeds from the term loan used to repay approximately $278 million (40%) of the company's outstanding 7 3/8 % Senior Notes due November 2012, in accordance with the announced cash tender offer.
During the first quarter of 2012, the company expects to recognize expenses of approximately $10 million (net of interest cost savings) associated with the refinancing, including the tender premium and unamortized financing fee write-offs. During the remainder of the year beginning in April through maturity in November, the refinancing is expected to result in interest cost savings of approximately $9 million (based on current interest rates).
"Entering the new year," Millett said, "we are optimistic, despite continued uncertainty within the U.S. and global economies. We believe there is the possibility for more stability to develop in 2012 as improvements continue in certain market sectors, such as energy, agriculture, automotive, transportation and construction equipment.
If the U.S. economy continues a pattern of slow and steady growth during the year, steel demand should logically follow, given the relatively low levels of inventory across the supply chain,” added Millet. “We remain confident that with our exceptional team, coupled with our superior, low-cost operating culture, we are uniquely prepared to capitalize on the opportunities ahead."
Steel Dynamics, Inc. 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 annual sales of $8.0 billion in 2011, 6,500 employees, and manufacturing facilities primarily located throughout the United States. The company operated five steel mills, six steel processing facilities, two iron production facilities, over 70 metals recycling locations and six steel fabrication plants.