Summary

• Steel Dynamics, Inc. founded in 1993 and publicly listed in 1996, stands as a prominent domestic steel producer and metal recycler in the United States.
• With diversified operations across steel production, metal recycling, and steel fabrication, the company offers a wide range of products, including hot roll steel, cold roll steel, coated steel, and structural steel beams.
• The company's revenue streams are derived from the manufacture and sale of steel products, processing and sale of recycled ferrous and nonferrous metals, and fabrication and sale of steel joists and deck products.
• The company employs a vertically connected operating model, coupled with a circular manufacturing approach, emphasizes the use of recycled scrap from end-of-life products to manufacture new steel, contributing to cost reduction.
• In 2022, the company experienced growth in sales, with total sales reaching $22,260.77 million. This marked an increase of $3,851.92 million or 21% compared to the sales figure of $18,408.85 million in 2021.
• The company's gross profit for 2022 amounted to $6,117.83 million, reflecting a difference of $755.83 million or 14% from the gross profit of $5,362 million in the previous year, 2021.
• Company's operating profit decreased in 2022, totaling $5,544 million, which was lower by $1,145 million or 24% compared to the operating profit of $4,689 million in 2021.
• The net profit for the year 2022 was $3,862 million, representing an increase of $648 million or 20% compared to the net profit of $3,214 million in 2021.
• Moreover, the diluted earnings per share (EPS) for 2022 were reported as $20.92, which showed an increase of $5.36 or 34% compared to the diluted EPS of $15.56 in 2021.

Brief Company Overview

Steel Dynamics, Inc. (NASDAQ:STLD), founded in 1993 and publicly listed in 1996, stands as a prominent domestic steel producer and metal recycler in the United States, boasting an estimated steelmaking and coating capacity of around 16 million tons. With diversified operations across steel production, metal recycling, and steel fabrication, the company offers a wide range of products, including hot roll steel, cold roll steel, coated steel, and structural steel beams. Operating in the construction, automotive, manufacturing, and energy sectors, Steel Dynamics maintains a substantial presence in both the U.S. and Mexico through a network of manufacturing facilities. The company's revenue streams are derived from the manufacture and sale of steel products, processing and sale of recycled ferrous and nonferrous metals, and fabrication and sale of steel joists and deck products. Guided by six core strategic pillars, including health and safety, an entrepreneurial culture, customer commitment, sustainable growth, innovation, and financial strength, Steel Dynamics emphasizes adaptability and innovation to ensure operational excellence and financial resilience in varying market conditions.

Steel Dynamics strategically locates its steelmaking operations in proximity to sustainable scrap sources, achieving cost-effective freight savings and reliable on-time delivery. The company employs a vertically connected business strategy, adept at minimizing earnings volatility by efficiently managing steel needs—sourcing internally during periods of weak demand and externally during robust market conditions. This approach establishes a mutually beneficial relationship between steel mills and metals recycling operations, ensuring effective working capital management and access to superior-quality scrap. The vertically connected operating model, coupled with a circular manufacturing approach, emphasizes the use of recycled scrap from end-of-life products to manufacture new steel, contributing to cost reduction.

As of December 2023, the company had a 52-week share price range of $90.55 to $136.46. The forwarding P/E ratio of the company is 13.76 times, the price-to-sales ratio (ttm) is 1.07 times, the profit margin is 13.73%, the operating margin is 15.99%, the return on assets (ttm) is 14.63%, the return on equity is 31.91%, and the diluted earnings per share (ttm) is $15.69. As of June 30, 2022, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $8.5 billion. The registrant does not have non-voting shares. In this calculation, shares held by directors, officers, and 5% stockholders are considered owned by affiliates, but this doesn't imply that these individuals have the power to direct the management or policies of the registrant. As of February 21, 2023, the registrant had 171,577,705 outstanding shares of common stock.

Recent Developments

• On January 31, 2022, the company acquired a 45% minority equity interest in New Process Steel, L.P. (NPS). Headquartered in Houston, Texas, NPS specializes in metals solutions and distribution supply-chain management, with a strategic emphasis on expanding its value-added manufacturing applications.¹
• On February 28, 2022, the company acquired a minority equity interest in Aymium, a producer of renewable biocarbon products.²
• On July 29, 2022, the company acquired a 94.4% equity interest in a newly established joint venture with Unity Aluminum, Inc. This venture is dedicated to the construction and operation of an advanced low-carbon aluminum flat roll mill. The funding for this transaction was sourced from available cash.³
• On October 1, 2022, the company successfully acquired 100% of ROCA ACERO, S.A. de C.V. (ROCA) as a strategic move in its North American raw material procurement strategy. ROCA, headquartered in Monterrey, Mexico, manages five ferrous and nonferrous scrap facilities strategically positioned near key industrial scrap sources in Central and Northern Mexico. The transaction, financed with available cash, has been seamlessly integrated into the company's financial statements, specifically within the metals recycling operations segment.⁴

Recent Financing Activities

• In the second quarter of 2023, the company repurchased $380 million of its outstanding common stock, equivalent to 2.2 percent of its total outstanding shares, while still preserving substantial liquidity amounting to $3.5 billion as of June 30, 2023.⁵
• In the third quarter of 2023, the company executed a stock repurchase, buying back $331 million of its outstanding common stock, accounting for 1.8 percent of its total outstanding shares.

Financial Performance Highlights

Q3 2023 Highlights

In the third quarter of 2023, the company reported sales of $4,587 million, reflecting a decrease of $1,065 million or 19% compared to the third quarter of 2022, which had sales of $5,652 million. The net profit for the third quarter of 2023 was $577 million, showing a decrease of $337 million or 37% when compared to the net profit of $914 million in the third quarter of 2022. Furthermore, the company's diluted earnings per share (EPS) for the third quarter of 2023 decreased to $3.47, a negative change of $1.56 or 31% compared to the diluted EPS of $5.03 in the third quarter of 2022.

Annual Performance Highlights

In 2022, the company experienced growth in sales, with total sales reaching $22,260.77 million. This marked an increase of $3,851.92 million or 21% compared to the sales figure of $18,408.85 million in 2021. The company's gross profit for 2022 amounted to $6,117.83 million, reflecting a difference of $755.83 million or 14% from the gross profit of $5,362 million in the previous year, 2021. Additionally, the company's operating profit decreased in 2022, totaling $5,544 million, which was lower by $1,145 million or 24% compared to the operating profit of $4,689 million in 2021. The net profit for the year 2022 was $3,862 million, representing an increase of $648 million or 20% compared to the net profit of $3,214 million in 2021. Moreover, the diluted earnings per share (EPS) for 2022 were reported as $20.92, which showed an increase of $5.36 or 34% compared to the diluted EPS of $15.56 in 2021.

During 2022, domestic steel demand continued to be strong throughout the year, supported most significantly by the construction, automotive, industrial, and energy sectors. Customer steel inventories remained below historical averages for most of the year, allowing for steady order patterns. This strong market environment allowed annual average steel selling prices to remain at historically high levels, with steady steel operations segment metal spreads compared to 2021, partially offset by additional costs of $439 million during start-up at Sinton. Metals recycling operations experienced a challenging pricing environment in 2022, with ferrous scrap prices generally falling throughout the year. Metal spread compression, coupled with lower volumes, and resulted in significantly lower operating income. Steel fabrication operations segment achieved significantly higher record operating income and record shipments during 2022, on continued strong nonresidential construction demand, record average selling prices and stable average steel product pricing. The symbiotic relationship among three operating segments resulted in record companywide financial and operational performance during 2022.

Operating Activities: Nnet cash provided by operating activities of $4,460,403 million in 2022, a substantial improvement from $2,204,136 million in 2021. Key contributing factors to this positive cash flow included increased depreciation and amortization, equity-based compensation, and favorable changes in certain assets and liabilities. The company also experienced positive shifts in accounts receivable, inventories, and accounts payable.

Investing Activities: In 2022, the company engaged in investing activities that resulted in a net cash outflow of $1,879,269 million. Key components of these activities included substantial investments in property, plant, and equipment amounting to $908,902 million. Additionally, the company made significant purchases of short-term investments totaling $927,584 million. However, there were proceeds from maturities of short-term investments amounting to $297,950 million, partially offsetting the cash outflow. The company also undertook business combinations, resulting in a net cash outflow of $134,090 million. Investments in unconsolidated affiliates amounted to a net cash outflow of $222,480 million. Despite these cash outflows, other investing activities contributed a net inflow of $15,837 million.

Financing Activities: Net cash provided by financing activities was $2,196,584 million. Key transactions included the issuance of current and long-term debt, generating cash inflows of $1,465,257 million. However, there were significant cash outflows due to the repayment of current and long-term debt amounting to $1,507,475 million. The company paid dividends of $237,163 million, and it allocated substantial funds to the purchase of treasury stock, resulting in a cash outflow of $1,800,905 million. Other financing activities contributed to a net cash outflow of $116,298 million.

Business Overview

Steel Dynamics, Inc. is an American steel producer based in Fort Wayne, Indiana. With a production capacity of 13 million tons of steel, the company is the third largest producer of carbon steel products in the United States. It has three reporting segments: steel operations, metals recycling operations, and steel fabrication operations.

Steel Operations Segment

The steel operations encompass EAF steel mills, utilizing ferrous scrap and scrap substitutes to produce steel through continuous casting, automated rolling mills, and various steel coating and processing lines. Directly catering to end-users, steel fabricators, and service centers, the products find applications across diverse sectors, including construction, automotive, manufacturing, transportation, heavy and agriculture equipment, and pipe and tube markets (including OCTG). These operations contributed to 65%, 72%, and 74% of consolidated net sales in 2022, 2021, and 2020, respectively. Predominantly a domestic entity, exported sales constituted 5% of steel segment net sales in 2022 and 4% in both 2021 and 2020. The steel operations predominantly involve steelmaking and multiple coating processes, boasting an annual shipping capacity of approximately 9.4 million tons of flat roll steel in 2022. Additional capacity of 2.0 million tons is attributed to The Techs and the Heartland Flat Roll Division, along with distribution through United Steel Supply (USS). The company also possesses an annual flat roll galvanizing capability of 4.7 million tons and a painting capability of 1.5 million tons. Long product steel capacity at long products divisions amounts to approximately 4.6 million tons. These capacities are indicative of manufacturing capabilities based on steel mill configuration and related employee support, not reflecting expected volumes in a given year. Notably, estimates of steel mill capacity are influenced by the specific product mix manufactured, considering the diverse range of products each steel mill can roll in terms of types and sizes.

Sheet Steel Products

The sheet steel products, encompassing hot rolled, cold rolled, and coated steel, are presently manufactured by the Butler, Columbus, and Sinton Flat Roll Divisions, along with several downstream coating lines such as The Techs, Heartland Flat Roll Division, and USS (Steel Processing divisions). In 2022, the sheet steel operations contributed to 77% of steel operations net sales, following percentages of 73% in 2021 and 69% in 2020. The facilities collectively produced 8.3 million tons of sheet steel in 2022, inclusive of Sinton, and 7.6 million tons in both 2021 and 2020.

Long Products

The long steel products of the company encompass a diverse range, manufactured by four mills and Vulcan Threaded Products, Inc., a downstream finishing operation.

The Structural and Rail Division: This division is responsible for producing parallel flange beams, channel sections, flat bars, large unequal leg angles, and various types of reinforcing bars, including custom cut-to-length, smooth bar, and coiled. The division also manufactures standard strength carbon, intermediate alloy hardness, and premium grade rails for the railroad industry. The state-of-the-art heat treating system enables the production of high-quality premium rail, certified by all Class I railroads, and a rail-welding facility capable of welding in lengths up to 1,600 feet. This offers significant savings to railroads in terms of initial capital cost and reduced maintenance. Excess capacity from the Structural and Rail Division is utilized to supply billets to the Engineered Bar Products Division.

The Engineered Bar Products Division: It produces a wide range of engineered special-bar-quality (SBQ), merchant-bar-quality (MBQ), and other engineered round steel bars. The division also operates a bar finishing facility, providing downstream finishing operations for SBQ steel bars, including turning, polishing, straightening, chamfering, precision saw-cutting, and heat-treating capabilities. Vulcan, under the division, produces threaded rod products and cold-drawn, heat-treated bars, creating strategic pull-through demand for Engineered Bar Products Division's SBQ products.

The Roanoke Bar Division: It produces merchant products such as channels, angles, flats, merchant rounds, and reinforcing steel bars. Excess steel billet production is sold to mills with insufficient melting capacities, including the Steel of West Virginia facility, while steel fabrication operations purchase angles from the Roanoke Bar Division.

Steel of West Virginia: specializes in producing a variety of specialty shapes and light structural steel, often performing fabrication and finishing operations such as cutting to length, additional straightening, hole punching, shot blasting, welding, galvanizing, and coating. This range of products and finishing operations enables the creation of custom finished products, directly integrated into customers' assembly operations.

Metals Recycling Operations Segment

Metals Recycling operations at the company involve the processing, transportation, marketing, brokerage, and scrap management services of both ferrous and nonferrous scrap metals. These operations strategically position themselves in proximity to the company's steel mills and other end-user scrap consumers throughout the United States and Central and Northern Mexico. The acquisition of ROCA ACERO, S.A. de C.V. (ROCA), in 2022, followed the August 2020 acquisition of Zimmer, S.A. de C.V., forming OmniSource Mexico. This strategic move aligns with the company's raw material procurement strategy for Sinton. Metals recycling operations contributed 10%, 12%, and 11% to consolidated net sales in 2022, 2021, and 2020, respectively, with export sales representing 14%, 11%, and 10% of metals recycling segment net sales during the same periods.

Shipments from metals recycling operations in 2022 included 5,301,774 gross tons of ferrous metal and 1,053,852 thousand pounds of nonferrous metals. Approximately 66% of ferrous metal shipments were directed to the company's steel mills. The company sells various grades of processed ferrous scrap primarily to steel mills and foundries, serving as the primary raw material for Electric Arc Furnaces (EAFs). Additionally, nonferrous metals, including copper, brass, aluminum, and stainless steel, are sold to smelters, refineries, alloy manufacturers, specialty mills, and other consumers.

Metals recycling facilities procure processed and unprocessed ferrous and nonferrous scrap metals in various forms. Ferrous scrap comes from manufacturing industrial facilities, metal fabrication plants, machine shops, and obsolete scrap sources, such as scrap dealers, auto wreckers, and demolition firms. Nonferrous scrap originates from manufacturers, producers of specific items like electric wire and beverage cans, and retail transactions with the general public. The company ensures a diverse and decentralized supply chain, avoiding dependence on a significant amount of scrap metal from a single source. Prices are determined by market demand and factors like material composition, quality, size, weight, and location.

Steel Fabrication Operations Segment

The company's steel fabrication operations encompass seven New Millennium Building Systems plants, primarily catering to the non-residential construction industry across the United States. With a national operating footprint, they effectively serve the entire domestic non-residential construction market and national accounts, including large retail chains and e-commerce distribution channels. Steel fabrication operations contributed 19%, 10%, and 9% to consolidated net sales in 2022, 2021, and 2020, respectively, with sales reaching 856,000, 789,000, and 666,000 tons of joist and deck products during the corresponding years.

These operations focus on manufacturing steel non-residential building components, such as steel joists, trusses, girders, and steel deck. The range of joist products includes bowstring, arched, scissor, double-pitched, and single-pitched joists, while the deck products encompass various types, including roof, form, cellular, composite floor, specialty architectural, floor systems, and bridge deck.

Key customers for the steel fabrication operations include non-residential steel fabricators, metal building companies, general construction contractors, developers, owners, brokers, governmental entities, and e-commerce data centers and warehouses. These customers are dispersed throughout the United States, including national accounts. The steel fabrication operations maintain approximately one-third of the total domestic steel joist and deck market for bookings, accounting for approximately 2.1 million tons, 3.6 million tons, and 2.4 million tons during 2022, 2021, and 2020, respectively.

Other Business Information

The company's revenue recognition practices vary between its steel and metals recycling operations and steel fabrication operations segments. In the recycling segment, revenue is recognized when the performance obligation is fulfilled, and control of the product is transferred to the customer upon shipment or delivery. The recognized revenue includes the expected consideration, incorporating variable elements like product returns and customer claims. The company exercises limited judgment in determining satisfaction of performance obligations or transaction prices. For steel fabrication operations, revenue is recognized over time based on completed fabricated tons as a percentage of total tons required for each contract. The company does not disclose certain future revenue under a practical expedient. Payments from customers are generally due within 30 days, though non-U.S. sales may have longer payment terms. Shipment for steel fabrication occurs within 30 days of performance obligation satisfaction and revenue recognition. The company does not have financing components, and historical payments have adhered to the terms.

Company History

Steel Dynamics, Inc.: Forging a Legacy in American Steel

Established in 1993 by the triumvirate of Keith Busse, Mark Millet, and Richard Teets, Steel Dynamics, Inc. (STLD) emerged as a transformative force in the American steel industry. With an initial funding of $370 million, these former Nucor executives set out to redefine steel production, ultimately creating one of the largest and most diversified domestic steel producers and metals recyclers in the United States. This essay traces the notable milestones in STLD's history, highlighting key events that shaped its evolution into an industry leader.

Founding Years (1993-1996):

In 1993, STLD embarked on its journey with a vision to pioneer a new era in U.S. steel. The company's founders leveraged their extensive industry experience to secure funding and lay the groundwork for a groundbreaking venture. The culmination of these efforts came to fruition in 1996 when STLD commenced steel production at its first greenfield Electric Arc Furnace (EAF) flat roll steel mill in Butler, Indiana. This marked the beginning of a circular manufacturing model, utilizing EAF technology and recycled ferrous scrap as primary inputs—a distinctive approach aimed at reducing carbon emissions and fostering sustainability.

Going Public and Navigating Challenges (1996-2007):

The same year witnessed STLD's strategic decision to go public on the NASDAQ Stock Exchange, a testament to its confidence in its innovative approach. However, the early 2000s recession posed challenges to the entire steel industry. In response, STLD implemented inventive incentive programs, setting itself apart by outperforming peers. This period of resilience and adaptability showcased STLD's commitment to operational excellence and paved the way for sustained growth.

Strategic Acquisitions and Diversification (2007-2014):

In 2007, STLD embarked on a series of strategic acquisitions that significantly expanded its operational footprint. The acquisition of The Techs and OmniSource Corporation added hot-dip galvanization plants and scrap metal processing capabilities, respectively, bolstering the company's position in key segments of the steel supply chain. In 2014, STLD made a landmark move by acquiring Severstal Columbus for $1.625 billion, a transformative step that catapulted its production capacity to 11 million tons. These strategic decisions underscored STLD's commitment to diversification and solidified its standing as a major player in the industry.

Innovation and Expansion (2014-2021):

The ensuing years saw STLD continue its trajectory of innovation and expansion. Ventures into premium rail production, threaded rod markets, and structural steel mills showcased the company's adaptability and forward-thinking approach. The acquisition of Vulcan Threaded Products in 2016 further reinforced STLD's presence in the special-bar-quality steel fabrication sector. As the company consistently diversified its product offerings, it expanded its influence in various markets, contributing to its resilience and sustained success.

Strategic Moves and Future Prospects (2021 and Beyond):

In 2021, STLD announced the construction of a state-of-the-art EAF flat roll steel mill in Sinton, Texas, equipped with next-generation steelmaking capabilities. This forward-looking investment not only signifies STLD's commitment to technological advancements but also expands its presence in the southwest U.S. and Mexican steel markets. The anticipated increase in annual steel production capacity by over 25% reflects the company's strategic foresight and its determination to remain at the forefront of the industry.

References

1. ^ https://www.velaw.com/news/steel-dynamics-to-acquire-a-45-minority-interest-in-new-process-steel/
2. ^ https://greensteelworld.com/steel-dynamics-announces-strategic-green-steel-partnership-with-aymium
3. ^ https://www.recyclingproductnews.com/article/38934/steel-dynamics-to-build-and-operate-650000-tonne-recycled-aluminum-flat-rolled-mill
4. ^ https://www.prnewswire.com/news-releases/steel-dynamics-completes-acquisition-of-a-mexican-metals-recycling-company-301640172.html
5. ^ https://www.cdrecycler.com/news/sdi-sees-net-income-increase-in-q2-2023/