Steel Dynamics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Steel Dynamics is a U.S. steel producer and metals recycler with steel fabrication operations. Financial amounts below are in U.S. dollars; figures are rounded.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $4.587bn | $5.652bn | $14.562bn | $17.434bn |
| Gross profit | $952.0m | $1.464bn | $3.315bn | $5.130bn |
| Operating income | $733.6m | $1.220bn | $2.633bn | $4.333bn |
| Net income attributable to Steel Dynamics | $577.2m | $914.3m | $2.027bn | $3.228bn |
| Diluted EPS | $3.47 | $5.03 | $11.98 | $17.21 |
| Operating cash flow | $1.114bn | $1.496bn | $2.655bn | $3.317bn |
Year over year, Q3 sales fell 19%, operating income fell 40%, and attributable net income fell 37%. For the first nine months, sales declined 16%, operating income 39%, and attributable net income 37%. Approximate Q3 gross, operating, and attributable net margins were 20.8%, 16.0%, and 12.6%, respectively, versus 25.9%, 21.6%, and 16.2% a year earlier. Nine-month margins were approximately 22.8%, 18.1%, and 13.9%, versus 29.4%, 24.9%, and 18.5%.
Q3 diluted EPS was lower despite reduced weighted-average shares, reflecting weaker earnings. The company declared dividends of $0.425 per share in Q3, up from $0.34 a year earlier. Nine-month capital expenditures were $1.143bn, versus $564.7m in 2022; operating cash flow less capital expenditures was approximately $1.512bn, compared with $2.752bn.
Segments and material changes
- Steel operations: Q3 segment operating income declined 28% to $470.3m. Total steel shipments were 3.1m tons, down 2%; average steel selling prices fell 14% and metallic raw-material cost per ton fell 14%. Management attributed the earnings decline to steel-price reductions exceeding scrap-cost declines, compressing metal spread. An unplanned July outage at Sinton reduced shipments by approximately 90,000 tons.
- Metals recycling: Q3 operating income increased 108% to $14.0m, supported by higher shipments and wider spreads, despite average scrap selling prices falling 2%. Nine-month operating income declined 18% to $86.7m, as lower ferrous spreads more than offset shipment growth.
- Steel fabrication: Q3 operating income fell 51% to $330.0m. Revenue declined 45%, with selling prices down 25% and volume down 26% against record prior-year levels. Management cited a strong non-residential construction order backlog extending through Q1 2024.
Balance sheet, liquidity, and capital allocation
At September 30, 2023, cash and equivalents were $1.765bn, short-term investments $500.8m, current assets $7.229bn, and current liabilities $1.918bn, implying a current ratio of approximately 3.8. Total debt, including current maturities, was about $3.095bn, broadly consistent with year-end 2022. Long-term debt to capitalization was 25.9%, down from 27.7%. Cash and short-term investments together exceeded reported debt by approximately $829m.
Management reported total liquidity of $3.685bn, including $1.765bn cash, $729.0m of short-term and other investments, and $1.191bn of revolver availability. The new $1.2bn unsecured revolving facility matures in July 2028; no borrowings were outstanding at quarter-end. The company reported compliance with its covenants and said it expects to remain compliant over the next 12 months. Nine-month treasury-stock purchases were $1.066bn; $277.7m remained under the November 2022 repurchase program at quarter-end. On October 31, 2023, the board authorized a further repurchase program of up to $1.5bn.
Outlook, risks, and contingencies
- No specific consolidated earnings or revenue guidance is provided. Management described steel demand as steady, recycling demand as consistent, and fabrication demand as strong, with the fabrication backlog extending into Q1 2024.
- The company plans to invest $2.5bn in a low-carbon aluminum flat-roll mill and two supporting recycled-aluminum slab centers, with construction spending expected to continue through 2025. Management said liquidity and expected operating cash flows should fund planned 2023 capital needs and that available resources should cover anticipated requirements over the next 12 months.
- Key stated risks include steel-industry cyclicality, imports and global overcapacity, volatility and availability of scrap and energy, competition, environmental and regulatory requirements, equipment downtime, cybersecurity, growth-project execution, litigation, and restrictive financing covenants. Certain supplier commitments include take-or-pay provisions, some extending for many years.
- Routine litigation, regulatory, and environmental matters were not expected to materially affect financial condition, results, or liquidity. Related fines and penalties disclosed did not exceed $1m in aggregate at September 30, 2023. No material change to previously disclosed risk factors was reported.
- Disclosure controls were assessed as effective; the filing reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether steel selling prices and metal spreads stabilize or further pressure margins, and whether scrap and energy costs move in step.
- Operational recovery at Sinton after the July outage and execution, timing, and total cost of the aluminum growth project.
- Durability of the fabrication backlog and demand, given lower Q3 volumes and prices versus record 2022 results.
- Whether cash generation can sustain elevated capital spending, dividends, and share repurchases while preserving liquidity.
- Current utilization, commodity-market conditions, and exposure to long-term take-or-pay commitments and other stated risks.