Steel Dynamics' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Steel Dynamics (STLD)

Q1 2012 Earnings Call

April 19, 2012 10:00 am ET

Executives

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

Mark D. Millett - Co-Founder, Chief Executive Officer, President and Executive Director

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

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

Russel B. Rinn - Executive Vice President of Metals Recycling, Chief Operating officer of Omnisource Corporation and President of Omnisource Corporation

Analysts

Luke Folta - Jefferies & Company, Inc., Research Division

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Unknown Analyst

Evan L. Kurtz - Morgan Stanley, Research Division

Timothy P. Hayes - Davenport & Company, LLC, Research Division

Timna Tanners - BofA Merrill Lynch, Research Division

Michelle Applebaum - Steel Market Intelligence Inc

David S. Martin - Deutsche Bank AG, Research Division

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

Presentation

Operator

Good day, everyone, and welcome to today's Steel Dynamics First Quarter 2012 Earnings Conference Call. Today's conference is being recorded. For opening remarks, I'd like to turn the call over to Ms. Theresa Wagler, Executive Vice President and Chief Financial Officer of Steel Dynamics. Please go ahead.

Theresa E. Wagler

Thank you, Ryan. Good morning, everyone. Welcome to Steel Dynamics First Quarter 2012 Earnings Conference Call. As a reminder, today's conference is being recorded and will be available on the company's website for replay later today.

Certain comments made today may involve forward-looking statements that by their nature are predictive. These are intended to be covered by the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995. Such statements, however, speak only as of this date and involve risks and uncertainties related to our metals business or the general business and economic conditions, which may cause actual results and turn out differently. More detailed information about such risks and uncertainties may be found at the Investor Center Advisory Information tab on our Steel Dynamics website and our Form 10-K annual report under the captions forward-looking statements and risk factors or as applicable in subsequently filed Form 10-Q filed with the SEC.

I know many of you are accustomed to Fred Warner, our long-time Investor Relations manager, handling this portion of the call. However, as many of you are aware, Fred retired in March after many years of service to the company. We all wish him well in this next stage. Until we announce Fred's replacement, please feel free to contact me directly for any investor matters.

Now joining me for today's call are Mark Millett, President and Chief Executive Officer of Steel Dynamics; and the company's platform executive vice presidents including: Dick Teets, President and Chief Operating Officer for our steel operations; Russ Rinn, President and Chief Operating Officer for our mills recycling operations; and Gary Heasley, Business Development and President of our fabrication operations.

Now for opening remarks, I am pleased to turn the call over to Mark.

Mark D. Millett

Thanks, Theresa. Good morning, everyone. Thank you for your interest in Steel Dynamics and for taking the time to join us on our call to discuss our first quarter 2012 results.

As last time, I will provide some commentary, which hopefully anticipates some of your thoughts and your questions. After which, Theresa will present more financial color, and then we'll open up the call for your questions to each and every one of us.

Turning to the first quarter, 2012 sequential net income grew 51% to $46 million or $0.20 per diluted share. That result was at the high end of our recent guidance of $0.15 to $0.20 per share. And if you add back the net expense associated with our January financing activities, earnings would have been $0.23 diluted share.

I think this solid performance by a phenomenal team in a challenging business environment is continuing testament to our business model that focuses on our customer commitment, our innovation, our innovative low-cost operating culture and our diversified portfolio of value-added products.

The increase in sequential quarterly earnings was principally attributable to expanded metal margins in both the steel and metals recycling platforms. Steel margins expanded as the average selling price increased $22 per ton shipped, while the average ferrous scrap cost increased $10 per ton melted.

Operating income increased 19% to $139.7 million. Our metals recycling margins also increased as with both ferrous and nonferrous shipments. This drove an increase in operating income at 59%, reaching an amount of $25 million for the quarter.

Although steel shipments were essentially flat quarter-over-quarter at approximately 1.45 million tons, a shift in product mix was evident. As we suggested in our last investor call, increased domestic capacity along with attractively priced input opportunities created a headwind in the Flat Roll market. The market was further disrupted in mid-quarter by a temporary slowdown in order input rate as our consumers anticipated the moderating scrap market and held back their orders.

By quarter end, this trend had reversed, order input rates have been reestablished and pricing firmed. Nonetheless, Flat Roll shipments were impacted and were off approximately 38,000 tons as compared to Q4 2011.

While the SBQ markets remain strong, our Engineered Bar Products division shipped 8% less volume in the quarter as a result of an unexpected maintenance outage. Despite the outage, the metal continues to improve productivity and market share as they benefit from the exceptional quality, the downstream processing and our superior on-time delivery history. Despite reduced SBQ shipments, our combined long products divisions recorded a slight increase in sequential quarterly shipments.

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