01—Abstract
Summary
Summary of the 10-K filed February 27, 2019. Cited figures are marked; the original filing is the authoritative source.
Steel Dynamics, Inc. (STLD) reported record 2018 results, with net sales of $11.82 billiona, operating income of $1.72 billion, and net income attributable to Steel Dynamics, Inc. of $1.26 billion, or $5.35 per diluted share.
Consolidated operating income rose $655.5 millionb, or 61%, versus 2017. The company attributed the improvement to steady domestic steel market strength, record steel shipments of 10.6 million tons, and higher metal spreads from increased selling prices. Record cash flow from operations of $1.4 billion was generated, and the company acquired Heartland Flat Roll Division for $396.4 million plus $37.6 million in working capital adjustments.
The balance sheet strengthened, with total equity rising to $3.78 billionc and the long-term debt-to-capitalization ratio falling to 37.9% from 41.9%. The company repurchased 13.1 million shares for $523.6 million during 2018 and increased its quarterly dividend 21% to $0.1875 per share. At year-end, cash and equivalents were $828.2 million, short-term investments were $228.8 million, and the $1.2 billion revolver had no borrowings outstanding.
The company remained in compliance with its financial covenants, with an interest coverage ratio of 16.88:1.00. Management continues to flag risks from global steelmaking overcapacity and imports, with Section 232 tariffs having reduced import volumes but domestic prices still pressured.
Raw material cost volatility, particularly scrap, remains a key concern. The filing also describes a planned new electric-arc-furnace flat roll steel mill with about 3.0 million tons of annual capacity in the southwestern United States, and the pending acquisition of a 75% equity interest in United Steel Supply, LLC for $134 milliond.
02—Key points
Key Highlights
- Record 2018 net sales of $11.82 billion, up from $9.54 billion in 2017 and $7.78 billion in 2016.
- Operating income of $1.72 billion, up 61% from $1.07 billion; net income attributable to Steel Dynamics, Inc. of $1.26 billion, or $5.35 diluted EPS.
- Record steel operations shipments of 10.6 million tons; steel operations operating income rose 67% to $1.84 billion.
- Record annual cash flow from operations of $1.4 billion ($1,415.5 million).
- Repurchased 13.1 million shares for $523.6 million in 2018; a new $750.0 million repurchase program was authorized in August 2018, with $399.2 million remaining at year-end.
- Quarterly dividend increased 21% to $0.1875 per share; declared dividends of $0.75 per share for 2018 versus $0.62 in 2017.
- Long-term debt-to-capitalization fell to 37.9% from 41.9%; the $1.2 billion revolver had no borrowings outstanding at December 31, 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Steel Dynamics kept $0.11.
- Revenue$11.82B100.0%
- Cost of revenue−$9.50B80.4%
- Gross profit$2.32B19.6%
- Operating costs−$600.4M5.1%
- Operating income$1.72B14.6%
- Interest, other & tax−$466.6M3.9%
- Net income$1.26B10.6%
Where FY2018 revenue went
$11.82B- Cost of revenue: $9.50B, 80% of revenue
- Net income: $1.26B, 11% of revenue
- SG&A: $600.4M, 5.1% of revenue
- Interest, other & tax: $466.6M, 3.9% of revenue
Kept 11% as net incomeNet income $1.26B · 11%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 27, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $11.82B$9.54B | +23.9% |
| Cost of Revenue | $9.50B$7.96B | +19.4% |
| Gross Profit | $2.32B$1.58B | +46.8% |
| SG&A Expenses | $600.40M$515.13M | +16.6% |
| Operating Income | $1.72B$1.07B | +61.4% |
| Interest Expense | $126.62M$134.40M | −5.8% |
| Net Income | $1.26B$812.74M | +54.5% |
| EPS (Basic) | $5.38$3.38 | +59.2% |
| EPS (Diluted) | $5.35$3.36 | +59.2% |
| Shares Outstanding (Basic) | 233.92M240.13M | −2.6% |
| Shares Outstanding (Diluted) | 235.19M241.78M | −2.7% |
05—Questions
Frequently Asked Questions
What drove the increase in 2018 profitability?
Steady domestic steel market improvement drove record steel shipments and sales, and improved metal spreads from higher selling prices. Steel operations operating income rose 67% to $1.84 billion, while the steel fabrication segment's operating income declined 29% to $61.9 million because steel input costs outpaced selling price increases.
How is the company's liquidity and debt position?
Total liquidity at December 31, 2018 was $2.25 billion, including $828.2 million in cash and equivalents, $228.8 million in short-term investments, and $1.19 billion in revolver availability. Long-term debt including current maturities was $2.38 billion. The interest coverage ratio was 16.88:1.00 against a covenant minimum of 2.50:1.00.
What are the main risks identified in the filing?
Key risks include global steelmaking overcapacity and steel imports that pressure U.S. prices, with the filing noting that Section 232 tariffs could expire or be circumvented. Scrap and other raw material price volatility, energy costs, environmental regulation including climate-related rules, cybersecurity threats, and cyclical demand in construction and automotive markets are also cited.
What growth projects and acquisitions are underway?
The company plans a new electric-arc-furnace flat roll steel mill with about 3.0 million tons of annual capacity in the southwestern United States, including galvanizing and paint lines. It also agreed on February 1, 2019 to acquire 75% of United Steel Supply, LLC for $134 million, and is building a $140 million galvanizing line at its Columbus Flat Roll Division.
06—Continue