Steel Dynamics, Inc. — Q1 2021 Form 10-Q
Business context and period: The filing covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. Steel Dynamics is a domestic steel producer and metals recycler, with steel operations, metals recycling, and steel fabrication segments. Financial amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $3,544.6 | $2,575.1 |
| Gross profit | $800.3 | $415.2 |
| Operating income | $594.2 | $273.7 |
| Net income attributable to Steel Dynamics | $430.5 | $187.3 |
| Diluted EPS | $2.03 | $0.88 |
| Operating cash flow | $262.2 | $211.3 |
| Capital expenditures | $309.9 | $217.5 |
- Sales increased 38%; gross margin was about 22.6% versus 16.1%, and operating margin about 16.8% versus 10.6%.
- Cash and equivalents were $1,245.2 at quarter-end. Cash, equivalents, and restricted cash totaled $1,250.7. Cash declined $123.5 during the quarter.
- Total debt, including current maturities, was approximately $3,097.4, down about $5.2 from year-end. Total liquidity was reported as $2,433.3, including $1,188.1 of revolver availability; no revolver borrowings were outstanding.
- Current assets were $4,896.9 and current liabilities $1,661.2. Operational working capital rose $411.0, or 25%, to $2.1 billion, primarily due to higher receivables and inventory.
Material changes and segment results
- Management reported record quarterly sales, operating income, and net income. Strong demand, higher selling prices, and wider metal spreads drove the improvement; steel mill shipments were slightly lower than the prior-year record quarter.
- Steel operations: Segment sales rose 31% and operating income rose 121% to $637.4. Average steel selling prices increased 35%, while metallic raw material cost per ton increased 39%; management said metal spread expanded 32%.
- Metals recycling: Segment sales rose 72% and operating income increased to $50.6 from $5.5. Higher prices and shipments contributed; ferrous and nonferrous average selling prices increased 60% and 47%, respectively.
- Steel fabrication: Sales increased 17%, with record quarterly shipments of 184,000 tons and record backlogs. Operating income fell 66% to $9.9 as steel input costs rose faster than selling prices, compressing metal spread 19%.
- Interest expense fell 38% to $17.3, reflecting lower-rate debt refinancing and increased capitalized interest. Profit-sharing expense increased to $48.8 from $21.5, consistent with higher pretax earnings.
Outlook, risks, and notable items
- Management described domestic steel demand as strong, particularly in automotive, construction, and industrial markets, and reported robust nonresidential construction activity and record fabrication backlogs. The filing provides no specific earnings or revenue guidance.
- Management planned approximately $650–$700 of capital investments for the remainder of 2021, including approximately $535 for the under-construction Sinton, Texas steel mill. Q1 capital spending included $254.4 for Sinton.
- Management stated that operating cash flows and other available funding, including the revolver if needed, should be adequate for the next 12 months. It anticipated continued covenant compliance. At March 31, the interest coverage ratio was 13.90:1 and debt-to-capitalization ratio was 0.39:1, within stated limits.
- The quarterly dividend increased 4% to $0.26 per share. No shares were repurchased in Q1; $444.0 remained under the $500 million repurchase authorization.
- Key risks include steel and scrap price volatility, the ability to pass through higher input costs, economic and COVID-19 impacts, competition and imports, energy and raw-material availability, environmental and regulatory requirements, equipment downtime, cybersecurity, and execution of growth projects.
- Routine litigation and environmental matters were not expected to materially affect financial condition, results, or liquidity. Reported aggregate fines or penalties in specified environmental matters did not exceed $1 million as of March 31, 2021. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether steel selling prices and metal spreads remain favorable as scrap and other input costs fluctuate.
- Execution, schedule, cost, and funding needs for the Sinton mill and the remaining 2021 capital program.
- Working-capital requirements, particularly receivables and inventory, and their effect on operating cash flow.
- Demand, pricing, and order-backlog trends across steel, recycling, and fabrication markets.
- Debt maturities, covenant compliance, and liquidity as capital spending and shareholder distributions continue.