Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Steel Dynamics Inc (STLD, Financial) achieved a solid second quarter financial and operational performance with revenues of $4.6 billion and adjusted EBITDA of $686 million.
- The company successfully commissioned and ramped up four new value-add flat-roll steel coating lines, adding 1.1 million tonnes of higher-margin product diversification.
- Steel Dynamics Inc (STLD) reported strong cash flow from operations of $383 million and ended the quarter with strong liquidity of $2.7 billion.
- The company's metals recycling operations saw significantly higher operating income of $32 million, despite lower realized pricing.
- Steel Dynamics Inc (STLD) continues to make progress on its aluminum rolling mill project, with expectations to be EBITDA positive in the second half of 2025.
Negative Points
- Second-quarter operating income of $559 million was 26% lower than first-quarter results due to steel metal spread contraction.
- The Sinton, Texas flat-rolled steel division operated at only 60% of capacity for the quarter, down from almost 70% in the first quarter.
- Steel Dynamics Inc (STLD) experienced a 34% sequential decline in operating income from its steel operations due to a drop in average realized pricing.
- The company faced challenges with planned maintenance outages at all steel mills except Roanoke, impacting utilization and related conversion costs.
- There was a structural increase in inventories related to the four value-added lines, which could impact working capital in the short term.
Q & A Highlights
Q: Can you remind us what is the recycle content that you expect to have in the aluminum project and how that may evolve over time?
A: Our target for the UBC (used beverage cans) is around 90% to 95%. For automotive, it would be around 70%. Overall, it will likely be closer to 80% to 85%.
Q: For low-copper shredded scrap, can you provide an update on the processing capacity within the internal network and any ongoing growth initiatives there?
A: We are expanding this capability to all our shredding operations. Investments are being made to further utilize this at our Mississippi and Sinton mills. The technology is primarily being implemented at the shredding facilities.
Q: Can you explain why the transformer issue at Sinton took longer to resolve and if Sinton was EBITDA positive in Q2?
A: The work required high-voltage switch yard modifications and safety protocols, which took time. Sinton was basically breakeven from an EBITDA perspective in Q2, but we expect significant improvements in the second half of the year.
Q: Why do you think the market can absorb higher volume from Sinton, and have you contemplated reducing production?
A: We are confident in the market's ability to absorb high-value products from Sinton, especially in Mexico. The regional supply chain and high-value products are welcomed by the customer base. We can sell every ton we produce at Sinton.
Q: Can you talk about the margin difference between industrial products, can sheet, and auto markets for the aluminum rolling mill?
A: The thinner margins tend to be in can sheet due to the volume of that product. Industrial products, especially those put through our paint lines, are as valuable as any outputs.
Q: What is the direction of the balance sheet from here, and do you see the capacity to carry more leverage?
A: The balance sheet has extra capacity for leverage. We like to be conservative ahead of large projects to maintain optionality for growth. We will continue with strong shareholder distributions and are open to both organic growth and acquisitions.
Q: When do you expect to lock in long-term contracts for the aluminum rolling mill, and what is the qualification timeline for packaging and automotive markets?
A: Initial material for qualification will start in '25, with longer-term contracts expected by the end of '26. We have a robust commercial dialogue and feel confident in marketing those materials.
Q: Are you concerned about the rhetoric around Mexico and the steel trade with Mexico?
A: While there may be short-term aggravations, the long-term steel demand growth in Mexico is considerable. They will continue to be steel short and need our products, especially coated and downstream products.
Q: Can you comment on the pricing for the backlog in the fabrication business?
A: We can't be specific, but from a historical basis, it's very strong. There has been stabilization in pricing for joist and decking products.
Q: How should we think about the reversal of the working capital build through the second half of the year?
A: The working capital build was related to the four value-added lines and Sinton ramp-up. We expect working capital to be neutral or a funding source in the second half of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
