Steel Dynamics Inc has announced third quarter net income of USD 12.8 million or USD 0.06 per diluted share on net sales of USD 1.7 billion. By comparison, prior year third quarter net income was USD 43.3 million or USD 0.19 per diluted share on net sales of USD 2.0 billion and sequential second quarter 2012 net income was USD 44.5 million or USD 0.20 per diluted share, on net sales of USD 1.9 billion. In the nine months ended September 30th 2012 net income was USD 103.0 million or USD 0.47 per diluted share on net sales of USD 5.6 billion. By comparison, in the nine months ended September 30th 2011 net income was USD 247.9 million or USD 1.08 per diluted share on net sales of USD 6.1 billion.
A significant portion of the decrease in earnings from the prior quarter was attributable to the following unique items announced on September 11th 2012:
The incurrence of non-operating charges related to the company's third quarter refinancing activities of USD 26.3 million or USD 0.07 per diluted share, which were primarily associated with prepayment fees. These transactions, along with the resulting repayment of USD 170 million of debt with available cash, not only extended the company's overall debt maturity profile, but should also provide an estimated interest savings of approximately USD 20 million in 2013.
The incurrence of non cash impairment charges of USD 7.9 million, or USD 0.02 per diluted share, related to the intended termination of two small joint venture entities, which were not aligned with the company's long term strategic focus.
Excluding these charges, the company's adjusted third quarter 2012 results would have been USD 0.15 per diluted share.
The company's steel operations third quarter margins and operating income declined in comparison to second quarter 2012. Operating income from the company's steel operations was USD 109.2 million for the third quarter 2012, a decrease of USD 29.8 million as compared to the second quarter 2012. The average selling price per ton shipped decreased USD 45 per tonne to USD 809, and the average ferrous scrap cost per ton melted decreased USD 44. As the combined steel metal spread was generally consistent quarter over quarter, reduced profitability was largely a function of decreased volume and product mix changes. Operating income attributable to the company's long product operations declined 32%, while declining 11% for the company's sheet operations. The most notable volume decrease occurred within the company's Engineered Bar Products Division, as shipments sequentially declined 32% based on customer inventory realignment.
Despite lower volumes and selling values in the company's metals recycling business, ferrous metal spreads expanded 23% in the third quarter, as compared to second quarter 2012. Operating income for OmniSource increased USD 11.5 million sequentially to USD 16.6 million for the third quarter 2012 as compared to USD 5.1 million in the prior quarter.
In spite of continued non residential construction market weakness, the company's fabrication operations reported increased positive quarterly operating income, based on pricing improvement, increased volumes, and better associated manpower utilization.
The impact of losses from the company's Minnesota operations for third quarter 2012 consolidated net income was USD 11 million (net of tax), or approximately USD 0.05 per diluted share, unchanged from the impact for the second quarter 2012. As previously indicated, during periods of time between June and August 2012, higher operating rates at the company's iron nugget facility were achieved for extended periods of time, which provided the opportunity to identify a number of key process optimization options necessary to increase both productivity and product quality. Beginning mid September 2012, the company proceeded with a six week outage of the nugget facility in order to lay the groundwork necessary for the implementation of the improvements. The company expects to recommence operations in November 2012, with final equipment installation expected during the first half of 2013, at an estimated investment of USD 25 million.
The company's iron concentrate facility commenced operations late September and supplied its first shipment of low-cost iron concentrate to the nugget facility just prior to the end of the third quarter. This is a pivotal achievement toward lowering the eventual cost structure of the company's iron nuggets. As previously discussed, higher priced third-party iron concentrate remains in inventory for use through the remainder of the year.
The company's liquidity position remains strong with USD 1.4 billion in unrestricted cash and available funding under the revolving credit facility at September 30, 2012. The decrease in liquidity from June 30, 2012 of USD 144 million was due to the company's refinancing initiative which reduced overall debt by USD 170 million. The company's debt to equity capitalization rate was 47.5% as of September 30th 2012 or 2% lower than the end of the second quarter 2012.
Mr Mark Millett CEO of SDI said that "Relative to overall market demand, our operating performance was commendable for the third quarter. The US market in general remains tepid, as uncertainty surrounding the strength of Europe, growth in China, and the near term US economic and political environment continues to weigh heavily on customers' purchasing decisions. Aside from our fabrication operations, this reluctance in customer buying resulted in reduced selling volumes across our major operating platforms. Compared to the second quarter, operating income from our steel platform decreased USD 30 million, primarily caused by reduced volumes, most notably within the special bar quality arena. Earlier customer estimates of robust growth have not been fully realized during the year, resulting in excess special bar quality inventory build throughout the customer supply chain. Inventory realignment seems to have begun later in the second quarter, and could continue through the remainder of 2012. However, we believe there is steady underlying demand that will support volumes as the destocking subsides."
He added that "Within our metals recycling platform, despite a challenging environment that resulted in decreased volumes, ferrous operating margins improved significantly, as metal spreads expanded 23% and initiatives to reduce operating expenses were achieved, resulting in operating income of USD 16.6 million in the third quarter, compared to USD 5.1 million in the second quarter of this year. The ferrous scrap market continues to be oversupplied, as the export market and US steel mill utilization rates have moderated. However, we believe an inflection point has been reached and ferrous scrap pricing is likely near a bottom."
Source - Steel Dynamics Inc
(www.steelguru.com)
