STEEL DYNAMICS INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Safety: Exceptional safety performance with total recordable incident rate and lost time rates at historical lows. Core safety teams visited 30 facilities in the third quarter.
• Value-Added Lines: 4 new value-add flat-rolled steel coating lines are a success, expected to provide full earnings benefit in 2025, adding 1.1 million tons of higher-margin product.
• Sinton Mill: Improved momentum in September with 72% utilization, including extended periods over 90%, proving the mill's capability.
• Sustainability: New certified science-based greenhouse gas emissions intensity targets set, with 2050 and 2030 targets aligned with Paris Agreement and International Energy Agency goals. Biocarbon project expected to start Q1 2025.
• Aluminum Project: Construction of Columbus, Mississippi aluminum facility progressing, expected to start production mid-2025 with a product mix including can sheet, auto, industrial, and construction products, expected to add $650M-$700M annual EBITDA.

Segment Performance

• Steel Operations: Shipments were 3.2 million tons, third quarter revenues were $4.3 billion, adjusted EBITDA was $557 million, and cash flow from operations was $760 million.
• Metals Recycling: Operating income was $12 million, lower than sequential second quarter results due to lower realized pricing and volume, plus an unrealized noncash copper hedging loss of $10 million.
• Steel Fabrication: Operating income was $166 million, lower than second quarter results as a 5% decrease in realized pricing offset steady shipments.
• Aluminum Investments: Non-capitalizable expenses related to aluminum construction flow through SG&A until startup. In the third quarter, SG&A had $24 million in non-capitalizable expenses. Expectations are for aluminum investments to be EBITDA positive in the second half of 2025, with plans to operate the rolling mill at approximately 75% of its capacity in 2026.

Guidance

• Fourth Quarter 2024: Capital investments expected in the range of $500 million to $550 million.
• 2025: Capital investments expected in the range of $700 million to $800 million.
• Aluminum: Anticipated to be EBITDA positive in the second half of 2025, with the rolling mill operating at ~75% capacity in 2026.
• Dividend: Board to determine dividend in the first quarter 2025, expecting a positive move due to significant EBITDA contributors in 2025.

Risks

• Market and Economic Conditions: Uncertainties related to general business and economic conditions, aluminum industry dynamics, and integration of new assets.
• Trade and Tariffs: Impact of antidumping and countervailing duties cases, potential trade protection outcomes affecting product pricing and volume.
• Operational Risks: Challenges in ramping up new facilities, unplanned downtime, and labor market dynamics affecting talent acquisition.

Q: For the greenfield aluminum project, are there any other key personnel additions that are still needed? And could you just more broadly touch on the general labor market and how you found the process of filling the needs there?

A: Certainly, I think the there are no key folks or talent needed from a skill set of experience. We are pretty well built out, but we will always, always talk to anyone who wants to join us. So the management team, I think, is absolutely solid. It's a blend, a combination of seasoned aluminum folks, managers, leaders alongside our SDI proven leaders, and so you'll get the blend of aluminum experience and knowledge base with the cultural performance-driven sort of passion that we have within Steel Dynamics. So I'm incredibly, incredibly impressed by the team. It's actually a much better location and finding talent is not an easy thing nowadays, but compared to the challenges that we experienced in Sinton I think it's a much, much better location. Fortunately, we have one of our large flat rolled steel facilities right across the road. That's allowing again a transfer of people at all levels. And they can transfer over without moving the families and dislocating their lives. And so that is a huge benefit for us as well. So no, we're excited by the team there.

Q: If I could, one last one in steel fabrication with more recent sales that you've had that have been added into the backlog over the past month or 2, are you seeing any pockets of pricing strength relative to where you had been?

A: Martin, I would suggest that heading into the fourth quarter, we're going to see that normal seasonality that you typically see in anything that's tied to construction. But as we look at 2025, we definitely think that there's opportunity for not just price support, but price appreciation as we've talked about interest rate changes and additional demand coming from public funding, et cetera. So we're feeling really good with the steady aspect of what we've seen in the last 6 to 9 months. And now we'll just get through the fourth quarter seasonality and then head towards what we think is going to be a really robust 2025.

Q: Right now, 80% of your business is contractually based. Does that change with further symptom ramp up? Or should we continue to see about 80% contractual?

A: Katja, this is Barry Schneider. Contractual relationships are a big part of our value-added supply chain solutions. So as we've increased our paint lines and our coating lines, it keeps that concentration about in that 70% to 80% range. We anticipated this growth with our new lines. So I would see us being in the same kind of market, perhaps a little bit less in the future once we get the established customer bases and work out the supply chains in each region.

Q: Maybe just one quick one. Barry, I think you mentioned that Sinton had a bit of a challenge starting up after maintenance, if I'm not mistaken. What was the issue there?

A: Just whenever we work with high-voltage systems, you have kind of a normal making sure everything is safe as you ramp up. So having the team – the outage was about 4 days. And it was just a little bit slow to get back up to regular running rates. It’s not unheard of in our industry. It was just worth noting because we did so much work. The team was really resolve some of those high-power problems we’ve had from the beginning, and we safely were able to do that. So all in all, I consider it a good outage the team did very well. But it wasn’t like turning a light on and off. It’s just a little bit more complicated with that high voltage.