Steel Dynamics' CEO Discusses Q3 2011 Results - Earnings Call Transcript

Steel Dynamics (STLD)

Q3 2011 Earnings Call

October 18, 2011 10:00 am ET

Executives

Keith E. Busse - Co-Founder, Executive Chairman, Chief Executive Officer, Chief Executive Officer of Iron Dynamics Inc, President of Iron Dynamics Inc and Director of Iron Dynamics Inc

Theresa E. Wagler - Chief Financial Officer and Executive Vice President

Richard P. Teets - Co-Founder, Executive Vice President for Steelmaking, Executive Director, President of Steel Operations and Chief Operating Officer of Steel Operations

Mark D. Millett - Co-Founder, President, Chief Operating Officer, Executive Vice President for Metals Recycling & Ferrous Resources, Executive Director, President of OmniSource Corporation, Chief Operating Officer of OmniSource Corporation and Director of Iron Dynamics

Gary Heasley - Executive Vice President of Business Development and President of New Millennium Building Systems

Fred Warner - Manager of Investor Relations

Russell Rinn -

Analysts

Brian Yu - Citigroup Inc, Research Division

David Katz - JP Morgan Chase & Co, Research Division

Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division

Justine Fisher - Goldman Sachs Group Inc., Research Division

Kuni M. Chen - CRT Capital Group LLC, Research Division

Michelle Applebaum - Michelle Applebaum Research

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Sal Tharani - Goldman Sachs Group Inc., Research Division

Timna Tanners - BofA Merrill Lynch, Research Division

David Lipschitz - Credit Agricole Securities (USA) Inc., Research Division

Arun S. Viswanathan - Susquehanna Financial Group, LLLP, Research Division

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Presentation

Operator

Good day, everyone, and welcome to today's Steel Dynamics Third Quarter 2011 Earnings Conference Call. Today's conference is being recorded. Joining us today are Keith Busse, Chairman and Chief Executive Officer; Richard Teets, Executive Vice President of Steel Dynamics, Inc. and President and Chief Operating Officer of Steel Operations; Mark Millett, President and Chief Operating Officer of Steel Dynamics; Gary Heasley, Executive Vice President of Steel Dynamics and President of New Millenium Building Systems; Theresa Wagler, Executive Vice President and Chief Financial Officer of Steel Dynamics; Fred Warner, Investors -- Investor Relations Manager.

For opening remarks and introductions, I would now like to turn the call over to Fred Warner. Please go ahead, sir.

Fred Warner

Thank you, and good morning. We also like to introduce Russell Rinn, who is Executive Vice President and President of OmniSource, who's with us here today.

Welcome to the Steel Dynamics Third Quarter 2011 Conference Call. The call is being webcast live, October 18, 2011, from Fort Wayne, Indiana. Later today, you'll be able to replay the call from our website or download the call to listen to a podcast.

During today's call, our management will be making some statements that are forward looking. All statements regarding anticipated future results or expectations are intended to be forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements, which by their nature are predictive and are not statements of historical facts, are often preceded by such words as believe, anticipate, estimate, expect or other conditional words. These statements are not intended as guarantees of future performance. We caution that actual future events and results may differ materially from such forward-looking statements or projections that may be made today. Some factors that could cause actual results to differ materially include general economic conditions; governmental, monetary and fiscal policy; industrial production levels; changes in market supply and demand for our products; foreign imports; conditions in the credit market; price and availability of scrap and other raw materials; equipment performance or failures or litigation outcomes.

You may find additional information concerning a variety of factors and risks that could cause the actual results to differ materially from today's forward-looking statements. Refer to sections entitled Forward-looking Statements and Risk Factors in our most recent annual report on Form 10-K and in our quarterly reports on Form 10-Q, as well as in other reports we file from time to time with the Securities and Exchange Commission. These reports are publicly available on the SEC website and on our website, www.steeldynamics.com.

We now open today's call with an introductory statement by SDI's Chairman and Chief Executive Officer, Keith Busse.

Keith E. Busse

Good morning, ladies and gentlemen. Thank you for joining us this morning. I think the first thing I'd like to do is have you -- have all of us congratulate Mark Millett on his new role, upcoming role, as the President and Chief Executive Officer, effective January 1, of Steel Dynamics. So, Mark, congratulations to you. I think the board collectively, which includes Dick and I, have acted wisely in choosing you. You're going to do a great job in leading the company.

For those of you who have known me and talk to me over the years at great length about, "Gee, Keith, why are you retiring," you probably heard me referred my retirement on many, many cases. I have asked, "When are you going to retire?" And I said, "In the near future," and never really defined the "near future." I really in my head have kind of decided 2010 was that time when I probably would have liked to have stepped out. But what got in the way of that was this gigantic recession that the nation has and continues to have on its hands affecting our economy and, certainly, it affected many, many companies throughout the country, some of which went bankrupt in the process. And I had a number of directors asked me to think about staying a little longer, provide my guiding hand during those troubled times, and I did. But I'm 68 years old, and as most of you know, we've had a succession planning exercise under way for, I guess, probably darn near 1.5 years. And that exercise doubly dealt with my future replacement but dealt with subject material for, let's say, generations to come. We you looked at leadership roles and the capabilities of many of our young managers, and I think we identified future talent and capability in the company, which, given the right opportunities in time, will serve the company very, very well.

So actually, I'm looking forward to it. I, as many of you know, have invested in a lot of little businesses over the last few years because I watch too many people retire and just kind of wilts away, their health goes to pot, what have you, but I intend to remain active, not only in Steel Dynamics, but I'm involved, as many of you know, with Tower Bank and created home building company called 21st Century Homes and involved with a series of automotive dealerships wherein I'm a significant shareholder, owner, et cetera. And recently, I acquired a new business called Freedom Marks [ph]. So I'm going to be a busy guy. And Mark assures me that I'll be back to the corporate office more than I can probably imagine in helping the team with strategic planning, investor relations and things of that nature, financing activities, as we move forward. But my is going to change to that of board chair. And Mark will lead the company in every facet. As most of you know, recently, Mark's position as President and Chief Operating Officer of OmniSource, that opening was recently filled by Russ Rinn, who's with us today. And Russ has done -- I think he's done a wonderful job in a very short period of time with his team. He's been very, very well from a cultural perspective and demonstrated that he's every bit of a capable leader we knew hew was. Certainly, we got to know him through the SMA. And so I think the company has some great leadership in place with Russ and Dick Teets and Gary Heasley and Theresa supporting Mark, and it's going to be a fairly seamless transition, if you will. Certainly, we would be happy to answer any questions you might have when you get into the Q&A.

As to the outlook -- or as to the results for the third quarter, we are in $43 million, $0.19 per share on net sales of about $2 billion. As I have said earlier to many people, you're going to find some noise in this quarter, and we try to quantify that noise for you and break it out. By example, the collapse of copper very late in the month of September could not have been contemplated when putting together our earnings forecast some 6 or 8 weeks ago or whatever it was. And so that -- we couldn't have known that at that time or 2 months ago. That came as kind of a shock and a surprise, and that has a bottom line after-tax value of about $0.02 a share.

We also had some noncash expenses of approximately $3.3 million, which had to do with the equipment impairment. And we also had financing fees associated with the prior revolving credit facility. That noise was worth about $0.01. And as you can see in the press release, we rewarded all of our employees of the company that are nonunion with a $1,000 cash bonus, well-deserved cash bonus in very difficult economic times. One of the finest steelmaking teams in the world today, and we were proud to be able to surprise them with that cash bonus reward them. And I can tell you the response was unbelievable, overwhelming, number of emails with people so thankful and so grateful they work for a company like Steel Dynamics.

Back to the results, though. All of that added up. If you look at the noise, it's about $0.05 worth of noise. We thought we could've exceeded our $0.22 forecast but did not. Steel came in in the range of $0.18 to $0.22 with a $0.19 performance on the whole. Not bad in a market that was kind of slipping, if you would, especially in the flat-rolled end of our business.

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