Steel Dynamics, Inc. (STLD) — Q2 2023 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2023. Steel Dynamics produces steel, recycles metals, and fabricates steel products. Its three reportable segments are steel operations, metals recycling, and steel fabrication.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $5.082B | $6.213B | $9.975B | $11.783B |
| Gross profit | $1.307B | $1.883B | $2.363B | $3.666B |
| Operating income | $1.064B | $1.618B | $1.899B | $3.113B |
| Net income attributable to Steel Dynamics | $812M | $1.210B | $1.449B | $2.313B |
| Diluted EPS | $4.81 | $6.44 | $8.49 | $12.14 |
| Operating cash flow | $808M | $1.002B | $1.542B | $1.821B |
- Margins: Q2 gross margin was 25.7% versus 30.3% a year earlier; operating margin was 20.9% versus 26.1%; net margin attributable to Steel Dynamics was 16.0% versus 19.5%.
- Cash flow and investment: First-half capital expenditures were $585M, compared with $323M in 2022. First-half operating cash flow less capital expenditures was approximately $957M.
- Liquidity and debt: At June 30, cash and equivalents were $1.475B, short-term and other investments were $837M, and stated total liquidity was $3.504B, including $1.191B of revolver availability. Debt was approximately $3.1B; the long-term-debt-to-capitalization ratio was 26.1%, down from 27.7% at year-end 2022. Working capital was $5.6B.
- Shareholder returns: The quarterly dividend was raised 25% to $0.425 per share. First-half share repurchases were $734M, with $606M remaining under the November 2022 authorization.
Changes versus prior comparable periods
- Q2 sales fell 18%, operating income fell 34%, and attributable net income fell 33% year over year. First-half sales declined 15%, operating income declined 39%, and attributable net income declined approximately 37%.
- Steel shipments increased: Q2 total steel shipments rose 3% to 3.21 million tons, while steel segment shipments increased 5%. Lower average steel selling prices more than offset higher shipments; Q2 steel average selling prices fell 19% year over year, and metal spread contracted 19%.
- Metals recycling sales decreased 14% in Q2 despite higher shipment volumes, as ferrous and nonferrous selling prices declined. Segment operating income fell 39%, reflecting a 28% reduction in ferrous metal spreads.
- Steel fabrication sales declined 28% in Q2 as volume fell 18% and average selling prices declined 12%. Segment operating income decreased 23%. Management reported a strong non-residential construction order backlog extending into 2024.
- Q2 net other income increased to $31M from $4M, primarily due to higher interest income. SG&A rose 19% to $141M; profit-sharing expense fell 35% to $91M.
Outlook, commentary, risks, and notable items
- Management cited steady steel order activity and strong demand in automotive, construction, industrial, and energy markets. Metals recycling benefited from continued domestic steel-industry demand, and fabrication benefited from solid non-residential construction demand. The filing provides no formal numerical earnings or revenue guidance.
- The company plans approximately $2.5B of investment in a low-carbon aluminum flat-roll mill and two supporting recycled-aluminum slab centers, with expenditures expected to continue through 2025. Management said operating cash flow was expected to support planned 2023 capital needs.
- On July 19, 2023, after quarter-end, the company entered a new unsecured $1.2B revolving credit facility maturing in July 2028, replacing its prior agreement. The company reported compliance with existing covenants at June 30 and anticipated continued compliance over the next 12 months.
- Key stated risks include steel-industry cyclicality, imports and overcapacity, volatility in steel and scrap prices, energy and raw-material costs, the ability to pass costs through to customers, environmental requirements, competition, equipment downtime, cybersecurity, and execution of growth plans. Certain long-term supply arrangements contain take-or-pay commitments.
- Routine litigation and regulatory matters were not expected to materially affect financial condition, results, or liquidity; aggregate environmental fines or penalties as of June 30 were below $1M. The company reported no material change to its previously disclosed risk factors and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether steel selling prices and metal spreads stabilize or recover, and how that affects steel-segment profitability.
- Whether shipment growth and demand across steel, recycling, and fabrication can offset lower pricing and margin pressure.
- Progress, total cost, funding, and execution risks for the aluminum mill and associated facilities, including the planned investment through 2025.
- Cash generation relative to capital spending, dividends, and repurchases, alongside the company’s debt and liquidity position.
- Terms and covenant compliance under the post-quarter July 2023 credit agreement, and exposure from commodity contracts and take-or-pay commitments.