Steel Dynamics, Inc. — Q1 2022 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Steel Dynamics operates steel, metals recycling, and steel fabrication businesses. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $5,569.9 | $3,544.6 | +57% |
| Gross profit | $1,782.5 | $800.3 | +123% |
| Operating income | $1,494.9 | $594.2 | +152% |
| Net income attributable to Steel Dynamics | $1,103.9 | $430.5 | +156% |
| Diluted earnings per share | $5.71 | $2.03 | — |
| Cash provided by operating activities | $819.0 | $262.2 | — |
Gross margin was approximately 32.0% versus 22.6%; operating margin was 26.8% versus 16.8%. The filing reports record quarterly net sales, operating income, net income, and operating cash flow. Selling, general and administrative expense was $152.0 million, while profit-sharing expense rose to $128.5 million from $48.8 million. The effective tax rate was 24.0%, compared with 22.6%.
Cash flow and investment. Capital expenditures were $159.3 million, versus $309.9 million a year earlier. The company invested $222.5 million in unconsolidated affiliates. Financing cash outflow was $491.9 million, including $389.2 million of treasury-stock purchases and $50.7 million of dividends paid. Cash and equivalents were $1,189.5 million at quarter-end, down from $1,243.9 million at year-end; cash, equivalents, and restricted cash totaled $1,195.0 million.
Liquidity and debt. Total debt was approximately $3.1 billion, broadly unchanged from year-end; long-term debt, including current maturities, was $3,078.5 million. Cash plus reported revolver availability totaled $2,377.4 million. The $1.2 billion unsecured revolver had no borrowings and $12.1 million of letters of credit and other obligations reducing availability. Long-term debt to capitalization was 30.6%, down from 32.9%. The company reported compliance with its debt covenants.
Total assets were $13.1 billion and total equity was $6.8 billion at March 31, 2022. Operational working capital increased $757.2 million during the quarter to $4.1 billion, primarily reflecting higher receivables and funding of prior-year profit sharing.
Material changes and segment results
- Steel operations: Sales increased 49% to $3.93 billion and operating income rose 82% to $1.16 billion. Shipments were down 1%; average steel selling prices increased 50% year over year, outpacing a 27% increase in metallic raw-material cost per net ton. Management reported a 63% expansion in metal spread.
- Metals recycling: Sales increased 6% to $1.14 billion, but operating income declined 11% to $45.0 million. Higher average ferrous and nonferrous selling prices were partly offset by lower shipments.
- Steel fabrication: Sales rose 259% to $930.1 million and operating income reached $466.9 million, versus $9.9 million. Average selling prices increased $3,018 per ton, shipments rose 14% to 210,000 tons, and management cited expanded spreads and strong non-residential construction demand.
Quarterly share repurchases totaled $389.2 million, or 6.16 million shares. The $1.0 billion repurchase authorization was completed in March; the company reported $1.24 billion remaining under a new $1.25 billion program authorized in February. The quarterly dividend increased 31% to $0.34 per share.
Outlook, risks, and contingencies
Management described demand as strong in automotive, construction, and industrial markets, with increasing energy-sector demand. Steel sheet pricing moderated from Q4 2021 record levels, while long-product prices increased slightly. Steel fabrication ended the quarter with record order backlog and forward pricing. Construction of the Southwest-Sinton flat-roll facility was nearing completion; the company said steelmaking and coating capacity is expected to increase from approximately 13 million to 16 million tons once the facility is fully operational.
No specific earnings or revenue guidance was provided. Management said cash from operations and other available funding sources were expected to be adequate for the next 12 months, including working capital, debt service, and anticipated capital expenditures. Key risks cited include economic and steel-market cyclicality, imports and competition, volatility and availability of scrap and energy, environmental regulation, equipment downtime, cybersecurity, and execution of growth plans. Commodity and energy commitments include take-or-pay provisions, some extending beyond five years. The company uses derivatives to manage certain commodity exposures and expected to reclassify $12.2 million of accumulated net hedge gains into earnings over the next 12 months.
The filing says routine litigation, regulatory, and environmental matters were not expected to materially affect financial condition, results, or liquidity; aggregate environmental fines or penalties disclosed did not exceed $1 million as of March 31, 2022. Management reported no material change in risk factors and concluded disclosure controls were effective.
Important facts for investors to verify
- Whether steel pricing and unusually wide spreads remain sustainable as raw-material costs and selling prices change.
- Whether fabrication backlog and forward pricing convert into shipments and margins, and how those results evolve as steel input costs move.
- Southwest-Sinton completion, ramp-up, capital needs, and expected contribution to capacity and earnings.
- Working-capital requirements, including receivables and profit-sharing payments, and their effect on cash conversion.
- Capital allocation under the new share repurchase program alongside dividends, investments, and planned capital expenditures.
- Commodity contract exposure, hedge settlements, and the potential impact of market volatility and take-or-pay commitments.