01—Abstract
Summary
Summary of the 10-K filed February 27, 2018. Cited figures are marked; the original filing is the authoritative source.
Steel Dynamics, Inc. (STLD) reported record 2017 results, with net sales of $9.54 billiona (up from $7.78 billion in 2016) and operating income of $1.07 billion compared to $728.0 million in 2016.
Net income attributable to Steel Dynamics, Inc. was $812.7 millionb, or $3.36 per diluted share, compared with $382.1 million, or $1.56 per diluted share, in 2016. Results included a one-time $180.6 million tax benefit, or $0.75 per diluted share, from revaluing deferred tax assets and liabilities under the Tax Cuts and Jobs Act of 2017. Steel operations shipped a record 9.7 million tons, steel fabrication shipped over 627,000 tons, and steel operations operating income rose 19% to a record $1.1 billion.
The company generated $739.6 millionc of operating cash flow in 2017 and ended the year with $1.03 billion of cash and equivalents and $2.2 billion of total liquidity, including $1.2 billion of undrawn Revolver availability. Long-term debt including current maturities was $2.38 billion, and the company issued $350.0 million of 4.125% senior notes due 2025 to refinance its 6.375% notes due 2022. Management repurchased 7.4 million shares for $252.2 million during 2017 and declared dividends of $0.62 per share, up from $0.56 in 2016.
Risks highlighted in the filing include global steel overcapacity, imports, volatility in scrap and raw material prices, and cybersecurity threats. The filing states that the company was in compliance with its senior secured credit facility covenants at year-end, with an interest coverage ratio of 10.75:1.00 and a net debt leverage ratio of 1.35:1.00. The Minnesota ironmaking operations remain idle since May 2015, following a $127.3 milliond non-cash impairment charge recorded in the fourth quarter of 2016.
02—Key points
Key Highlights
- Record consolidated net sales of $9.54 billion in 2017, up from $7.78 billion in 2016, and record operating income of $1.07 billion.
- Net income attributable to Steel Dynamics, Inc. of $812.7 million, or $3.36 diluted EPS, versus $382.1 million, or $1.56 diluted EPS, in 2016; includes a $180.6 million ($0.75 per share) one-time tax benefit from the Tax Cuts and Jobs Act.
- Steel operations shipped a record 9.7 million tons and generated operating income of $1.10 billion, up 19%; steel fabrication shipped over 627,000 tons, a record.
- Operating cash flow of $739.6 million and year-end liquidity of $2.2 billion, including $1.2 billion of Revolver availability and $1.03 billion of cash.
- Shareholder returns: 7.4 million shares repurchased for $252.2 million in 2017, $172.7 million remaining under the $450 million program, and quarterly dividends raised to $0.155 per share from $0.140.
- Debt activity: issued $350.0 million of 4.125% senior notes due 2025 and used proceeds with cash to tender for and call $350.0 million of 6.375% notes due 2022; long-term debt to capitalization ratio fell to 41.9% from 44.9%.
- Risk factors emphasize global steel overcapacity, imports, scrap and raw material price volatility, cybersecurity threats, and environmental regulation including climate change rules.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Steel Dynamics kept $0.09.
- Revenue$9.54B100.0%
- Cost of revenue−$7.96B83.4%
- Gross profit$1.58B16.6%
- Operating costs−$515.1M5.4%
- Operating income$1.07B11.2%
- Interest, other & tax−$254.1M2.7%
- Net income$812.7M8.5%
Where FY2017 revenue went
$9.54B- Cost of revenue: $7.96B, 83% of revenue
- Net income: $812.7M, 8.5% of revenue
- SG&A: $515.1M, 5.4% of revenue
- Interest, other & tax: $254.1M, 2.7% of revenue
Kept 8.5% as net incomeNet income $812.7M · 8.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 27, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $9.54B$7.78B | +22.7% |
| Cost of Revenue | $7.96B$6.44B | +23.5% |
| Gross Profit | $1.58B$1.33B | +18.5% |
| SG&A Expenses | $515.13M$474.06M | +8.7% |
| Operating Income | $1.07B$727.97M | +46.6% |
| Interest Expense | $134.40M$146.04M | −8.0% |
| Net Income | $812.74M$382.12M | +112.7% |
| EPS (Basic) | $3.38$1.57 | +115.3% |
| EPS (Diluted) | $3.36$1.56 | +115.4% |
| Shares Outstanding (Basic) | 240.13M243.58M | −1.4% |
| Shares Outstanding (Diluted) | 241.78M245.30M | −1.4% |
05—Questions
Frequently Asked Questions
How did Steel Dynamics perform financially in 2017?
The company reported record net sales of $9.54 billion and record operating income of $1.07 billion for 2017. Net income attributable to Steel Dynamics, Inc. was $812.7 million, or $3.36 per diluted share, compared with $382.1 million, or $1.56 per diluted share, in 2016. The results include a one-time $180.6 million tax benefit from the Tax Cuts and Jobs Act of 2017.
What drove the improvement in 2017 results?
Management attributed the results to improved domestic steel demand, record steel shipments, and improved metal spreads from higher selling prices. Steel operations' average selling prices rose $110 per ton, or 17%, and steel mill utilization increased to 92% from 87%. Metals recycling operating income rose almost 250% to $71.1 million, while steel fabrication operating income decreased 4% to $87.3 million.
How strong is the company's balance sheet and liquidity position?
At December 31, 2017, the company had $1.03 billion of cash and equivalents and $1.2 billion of available Revolver capacity, for total liquidity of $2.2 billion. Long-term debt including current maturities was $2.38 billion, and the company stated it was in compliance with its credit facility covenants, with an interest coverage ratio of 10.75:1.00 and a net debt leverage ratio of 1.35:1.00.
What are the key risks investors should consider?
The filing highlights global steelmaking overcapacity and steel imports into the United States, which pressure domestic prices. It also cites volatility in scrap, pig iron, zinc, and electricity costs, cyclical demand in construction and other end markets, environmental and climate change regulation, and cybersecurity threats to operating systems.
What capital allocation and shareholder return actions did the company take?
The company repurchased 7.4 million shares for $252.2 million in 2017 and declared dividends of $0.62 per share, up from $0.56 in 2016. Capital expenditures were $164.9 million in 2017, and the 2018 cash allocation plan includes approximately $250 million of capital expenditures. The board's $450 million repurchase program had $172.7 million remaining at year-end.
06—Continue