Steel Dynamics (STLD) Tops Q4 EPS by 14c, Revenues Beat

January 25, 2021 4:31 PM EST

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Steel Dynamics (NASDAQ: STLD) reported Q4 EPS of $0.97, $0.14 better than the analyst estimate of $0.83. Revenue for the quarter came in at $2.6 billion versus the consensus estimate of $2.53 billion.

The company reported fourth quarter 2020 net sales of $2.6 billion and net income of $188 million, or $0.89 per diluted share. Excluding the impact from the following items, the company's fourth quarter adjusted net income was $205 million, or $0.97 per diluted share:

  • Additional financing costs of $11 million, or $0.04 per diluted share, related to the company's October 2020 refinancing activities,
  • Costs of approximately $14 million, or $0.05 per diluted share (net of capitalized interest), associated with construction of the company's Sinton Texas Flat Roll Steel Mill growth investment,
  • Non-cash asset impairment charges of $17 million (net of non-controlling interest), or $0.06 per diluted share related to certain noncore oil and gas investments, and
  • A tax benefit of $13 million (net of non-controlling interest), or $0.06 per diluted share, related to the reduction of a valuation allowance.

"The team delivered a tremendous operational and financial performance during 2020 within an unprecedented health and economic crisis, achieving strong net sales of $9.6 billion, operating income of $847 million, and adjusted EBITDA of $1.2 billion," said Mark D. Millett, President and Chief Executive Officer. "Numerous individual operating and financial records were also attained during the year — an amazing achievement during a period in which many steel consuming businesses were temporarily idled or severely impacted by the social and economic effects of the coronavirus pandemic. Their performance is truly a testament to the passion and commitment of our teams. Our operating, commercial, and financial groups achieved best-in-class performance, while keeping each other healthy and safe. I am humbled and proud to work alongside each of them. Based on their performance, we achieved cash flow from operations of $987 million in 2020, and ended the year with historically strong liquidity of over $2.5 billion, while at the same time meaningfully growing our business through significant organic and transactional growth investments, maintaining a positive cash dividend profile, and executing on our share repurchase program. We have a firm foundation for our continued long-term, strategic growth, and ongoing value creation.

"2020 was a period of shifting steel and raw material supply and demand dynamics," continued Millett. "While domestic steel demand and raw material supply were robust early in the year, the pandemic significantly reduced steel consumption and scrap generation during the second quarter 2020, as the automotive sector and its supply chain temporarily closed. As a result, a significant amount of higher-cost domestic steel production was idled. As many U.S. states lifted shelter-in-place restrictions and the broader manufacturing base restarted operations mid-year, steel demand quickly recovered. As demand improved in the second half of 2020, some domestic steel production remained idled. When coupled with extremely low steel inventory levels throughout the supply chain, flat roll steel index prices increased over $500 per ton from August through the end of the year.

"Despite the challenges of 2020, as a result of our market share gains and the symbiotic relationships between our three operating platforms, we achieved strong companywide performance," stated Millett. "Operating income from our steel operations was $906 million in 2020, compared to $1.0 billion in 2019. We were able to achieve annual steel shipments that were only one percent below our record high attained in 2019. Operating income from our metals recycling platform increased to $45 million in 2020, compared to $28 million in 2019. Finally, our steel fabrication operations achieved record operating income of $121 million and record shipments, as the construction market remained strong throughout the year," stated Millett.

Outlook

"We entered 2020 in a position of strength with ample cash and available liquidity, and we remain in a position of strength as we head into 2021," stated Millett. "No one could have predicted the advent of the pandemic and its global social and economic impact. Our team's health and safety remain at the forefront of everything we do — each decision we make. I thank and applaud them for their support of our company, our customers, and our communities. Our differentiated business model and performance-driven culture allows us to generate strong cash flows during the most challenging environments, as evidenced in 2020. This model supported the continued construction of our new state-of-the art, electric-arc-furnace (EAF) flat roll steel mill during the year. We are excited about this transformational strategic project, and the associated long-term value creation it will bring through geographic and value-added product diversification. This facility is designed to have product size and quality capabilities beyond that of existing EAF flat roll steel producers, competing even more effectively with the integrated steel model and foreign competition, as well as providing a much more environmentally friendly steel production alternative for our customers. Construction is going well and remains within our expected project cost of $1.9 billion, with plans still in place to commence operations mid-year 2021.

"We have targeted specific regional steel consuming markets. Our facility is located and designed to have a meaningful competitive advantage in these regions and in the displacement of imports. We have signed long-term agreements with several customers to co-locate on our site, and we are still in discussions with others. We plan to have over 1 million tons of annual steel consuming and processing capability from on-site customers. In August, we also completed the acquisition of Zimmer, a Mexican metals recycling company, which is an important part of our raw material procurement strategy in the southwest and Mexico.

"While the domestic economy is still recovering from the shock of COVID-19, we are seeing a strong steel demand environment," continued Millett. "The automotive sector has experienced the strongest recovery, and the construction sector remains resilient. Customers are positive concerning the business outlook for 2021. We are seeing pent up demand, as steel service center and end-user inventories are still extremely low compared to historical norms. We also believe U.S. trade agreements and existing steel trade cases will continue to moderate steel imports. Based on strong domestic steel fundamentals, we are optimistic regarding the North American steel market dynamics and believe steel consumption will experience growth this year. We expect to see continued steel price strength and strong customer demand in 2021.

"Our commitment is to the health and safety of our teams, families, communities and to meet the needs of our customers. Our culture and our business model continue to positively differentiate our performance from the rest of the industry, and we are in a place of strength. We are competitively positioned and focused to deliver long-term value creation for all of our stakeholders," concluded Millett.

For earnings history and earnings-related data on Steel Dynamics (STLD) click here.



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