Steel Dynamics reports strong third quarter and nine-month 2008 results

Steel Dynamics, Inc. (SDI) announced third quarter 2008 net income of $193 million, or $0.98 per diluted share, down sequentially 8 percent from $210 million, or $1.05 per diluted share, compared to the second quarter of 2008, but 92 percent higher than the $101 million reported for the third quarter of 2007. Net sales of $2.6 billion for the third quarter were up 7 percent compared to $2.4 billion in the second quarter of 2008, and increased 122 percent from $1.2 billion in the third quarter of 2007. For the first nine months of 2008, both net sales of $6.9 billion and net income of $546 million set company records. Earnings were $2.75 per diluted share for the first nine months versus $1.51 for the year-earlier period. Third quarter 2008 results included contributions from the Recycle South operations that were purchased in June 2008.

Third quarter steel shipments of 1.4 million tons were 12 percent lower than second quarter 2008. Reduced volume was due primarily to a 19 percent sequential decrease in flat-rolled steel shipments by the Flat Roll Division and The Techs. Flat-rolled steel shipments for late September were below expectations as steel customers reduced order entry and deferred order releases when steel selling prices started to fall. Lower September prices resulted in reduced margins for the Flat Roll Division while working down mill scrap inventories that had been purchased at higher prices.

Compared to the second quarter, SDI’s merchant bar shipments were up 8 percent, engineered bar shipments were up 3 percent, and structural steel shipments were down 2 percent. Operating income for the long products steel operations remained very strong. New Millennium Building Systems saw modest improvement in volume and higher selling prices, but continued to experience weak commercial building market conditions.

OmniSource shipments of ferrous scrap were 1.8 million net tons, up 17 percent compared to the second quarter of 2008 and non-ferrous shipments were 242 million pounds, down 5 percent. Iron Dynamics continued to operate well, producing 70,000 net tons of pig iron for use in flat-roll steel production.

“SDI’s third quarter results of $0.98 per diluted share were somewhat below our July 21 third-quarter earnings guidance, principally due to the unprecedented decline in ferrous scrap prices in September,” said Keith Busse, chairman and CEO of Steel Dynamics. “The steep drop in ferrous and non-ferrous scrap prices in September resulted in significantly reduced profits for OmniSource due to lower selling values for shipments as matched against higher August input costs. Despite record performances in July and August, and although the level of OmniSource’s scrap inventories was within a customary range, the September decline of approximately $300 per ton in prime scrap prices nevertheless caused a significant decrease in OmniSource’s September operating profit, reducing SDI’s expected quarterly earnings results by about $0.12 per diluted share.

“Because scrap-yard inventories typically turn within the month, the impact of this large price reduction on scrap operating profits is primarily confined to September, although there will be some further impact on scrap operating profits in the fourth quarter due to further ferrous pricing declines. Normal margins should return to health in the November-December timeframe, but volumes could be lower, with anticipated further improvement in the first quarter of 2009. The bright side of this recent significant decline in ferrous scrap prices is that with lower scrap costs, raw material costs at our steel operations will be significantly lower.

During the third quarter, the company repurchased 18.9 million shares of its common stock at a cost of $439 million, or at an average purchase price of $23 per share. At the end of the quarter, there were 183.1 million shares of Steel Dynamics common stock outstanding. During the quarter, the last of the outstanding 4.0 percent convertible notes were converted to stock.