SDI’s earnings decline in Q2

Steel Dynamics Inc., Fort Wayne, Indiana, has announced second-quarter 2024 financial results, reporting net sales of $4.6 billion and net income of $428 million, or $2.72 per diluted share, which compares with first-quarter 2024 net income of $584 million, or $3.67 per diluted share, and 2023 second-quarter net income of $812 million, or $4.81 per diluted share.

“Underlying steel demand was stable in the second quarter,” SDI Chairman and CEO Mark D. Millett says. “However, earnings declined sequentially due to lower realized selling values in our steel operations, which more than offset our improved earnings from metals recycling and steady earnings from our steel fabrication business.”

He adds that SDI saw customer order inconsistency within its steel platform despite steady underlying demand dynamics during the recently completed second quarter as scrap prices further declined and customers continued to manage to very low inventory levels. Millett also cited a significant increase in steel imports to the U.S., particularly within coated flat-rolled steel products.

“As fundamental steel demand remains constructive, customer inventories remain incredibly low and scrap prices have steadied, we believe steel pricing has reached a pivot point to the upside,” he says. “In support, we have seen a positive trend in steel order activity in recent weeks, especially for our flat-rolled steel coated products.”

Q2 recap

Operating income for the quarter in the company’s steel operations totaled $442 million, lower than sequential results, as realized selling values declined more than scrap costs, SDI says. The average external product selling price for its steel operations decreased $63 per ton sequentially to $1,138 per ton, while the average ferrous scrap cost per ton melted at its steel mills decreased $29 sequentially to $388 per ton.

SDI says its Sinton, Texas, flat-roll steel mill team completed needed changes to gain full access to its melting capacity the week of July 15, adding that it believes Sinton’s production utilization rate will increase from 60 percent for the first half of the year to approximately 75 percent for the second half of 2024, with full availability in 2025.

That plant's hot mill had an unplanned outage in July of last year, having realized a utilization rate of roughly 56 percent through the first quarter of 2023 after starting up in 2022. 

Compared with the first quarter of this year, second-quarter operating income from SDI’s metals recycling operations increased 42 percent to $32 million based on increased demand supporting higher volume and expanded metal spread. Domestic steel production utilization remained steady compared with the sequential first quarter of this year.

SDI’s steel fabrication operations achieved operating income of $181 million in the second quarter, which aligned with sequential first-quarter results of $178 million based on increased volume. The steel fabrication order backlog extends through the fourth quarter of this year at historically strong pricing levels. SDI also says the continued onshoring of manufacturing, coupled with the robust U.S. infrastructure program and industrial buildouts, supports strong future demand.

First-half comparison

For the six months ended June 30, SDI’s net income was $1 billion, or $6.39 per diluted share, with net sales of $9.3 billion. This compares with net income of $1.4 billion, or $8.49 per diluted share, with net sales of $10 billion for the same period in 2023.

First-half net sales decreased 6 percent to $9.3 billion, and operating income declined 31 percent to $1.3 billion relative to the same period in 2023. Decreased earnings resulted from lower volume and pricing from the company’s steel fabrication operations during the period for operating income of $359 million compared with $1 billion in the first half of 2023.

However, first-half 2024 operating income from the company’s steel operations was $1.1 billion compared with $1 billion in the first half of 2023. The average first-half 2024 external selling price for SDI’s steel operations increased $7 per ton to $1,169 per ton compared with the first half of 2023, and the average ferrous scrap cost per ton melted at the company’s steel mills decreased $25 per ton to $403 per ton.

SDI’s cash flow from operations totaled $738 million in the first half of this year. The company also invested $793 million, paid cash dividends of $141 million, and repurchased $607 million of its outstanding common stock, representing 3 percent of its outstanding shares, while maintaining liquidity of $2.7 billion.

Outlook

Millett says DSI remains confident that market conditions are in place for domestic steel consumption to be solid in the second half of this year.

“Order entry has improved in many of our businesses and we expect steel pricing to firm," he says. "We believe the automotive, nonresidential construction and industrial sectors will remain steady this year. The continued onshoring of manufacturing businesses, combined with the expectation of significant fixed asset investment to be derived from public funding related to the U.S. Infrastructure, Inflation Reduction Act and Department of Energy programs, will competitively position the domestic steel industry. We believe this will benefit all of our operating platforms, especially our steel and steel fabrication businesses.

SDI continues to ramp up its four new value-added flat-rolled steel coating lines that began operating earlier this year.

“We will be benefitting from this additional 1.1 million tons of value-added steel products in the second half of this year and fully in 2025,” Millett says. “These projects enhance our differentiated supply-chain capabilities, while also increasing our higher-margin steel product offerings which already represent upwards of 65 percent of our steel revenues.”

Millet also mentions the progress SDI is making on the construction of its aluminum flat-rolled products mill in Columbus, Mississippi, which he describes as a “meaningful growth opportunity” that aligns with its business and operational expertise.

“We plan to begin operating the aluminum flat-rolled mill mid-2025,” he says. “We have intentionally grown with our customers’ needs, providing efficient sustainable supply chain solutions for the highest-quality products. We are pleased to further diversify our end markets with plans to supply aluminum flat-rolled products with high recycled content to the countercyclical sustainable beverage can and packaging industry in addition to the automotive, industrial and construction sectors.”