Steel Dynamics, Inc. (NASDAQ/GS: STLD) today announced fourth quarter and annual 2023 financial results. The company reported fourth quarter 2023 net sales of $4.2 billion and net income of $424 million, or $2.61 per diluted share. Comparatively, the company's sequential third quarter 2023 net income was $577 million, or $3.47 per diluted share, and prior year fourth quarter net income was $635 million, or $3.61 per diluted share.
"The teams executed well and delivered a solid operational and financial performance across our operating platforms during 2023, resulting in our second highest annual net sales of $18.8 billion, as well as, annual operating income of $3.2 billion, and adjusted EBITDA of $3.7 billion," said Mark D. Millett, Chairman and Chief Executive Officer. "The strength of our cash generation was once again demonstrated with annual cash flow from operations of $3.5 billion. We maintained strong liquidity of $3.5 billion, while at the same time meaningfully growing our business through significant organic growth investments, coupled with strong shareholder distributions through a positive dividend growth profile and meaningful share repurchases. We have a firm foundation for our continued long-term growth and ongoing value creation strategy.
"Underlying domestic steel demand was firm throughout 2023 supported by the construction, automotive, industrial, and energy sectors," continued Millett. "Customer steel inventories also remained below historical averages, in combination resulting in generally steady order patterns. Our steel operations achieved record 2023 annual shipments of 12.8 million tons and historically strong operating income of $1.9 billion. Our steel fabrication business achieved its second highest annual earnings with operating income of $1.6 billion. Despite a challenging pricing environment throughout much of the year, our metals recycling teams meaningfully increased volume and achieved operating income of $108 million. The strength of our diversified, value-added circular manufacturing model was certainly evidenced in 2023."
Fourth Quarter 2023 Comments
Fourth quarter 2023 operating income for the company's steel operations was $365 million, representing a 24 percent sequential decline, based on seasonally lower long product steel shipments and flat rolled steel metal spread compression, as average realized flat rolled steel selling values declined more than scrap costs. The fourth quarter 2023 average external product selling price for the company's steel operations decreased $101 per ton sequentially to $1,090 per ton. The average ferrous scrap cost per ton melted at the company's steel mills decreased $12 per ton sequentially to $393 per ton.
Fourth quarter 2023 operating income from the company's metals recycling operations decreased to $6 million, due to seasonally lower shipments and lower nonferrous scrap realized selling values.
The company's steel fabrication operations achieved historically strong operating income of $250 million in the fourth quarter 2023, but below sequential third quarter results, based on lower shipments and metal spread compression, as realized selling values declined more than steel substrate costs. Monthly order activity improved in the fourth quarter 2023, resulting in a well-priced order backlog that extends through the first half of 2024. The company believes that the continued onshoring of manufacturing, coupled with the robust U.S. infrastructure and Inflation Reduction Act programs which will drive industrial construction activity, provide an environment for strong steel joist and deck demand, as well as flat rolled and long product steel demand.
Annual 2023 Comparison
Annual 2023 net income was $2.5 billion, or $14.64 per diluted share, with net sales of $18.8 billion, as compared to net income of $3.9 billion, or $20.92 per diluted share, with net sales of $22.3 billion for the same period in 2022.
Annual 2023, net sales decreased 16 percent to $18.8 billion and operating income declined 38 percent to $3.2 billion, when compared to the same period of 2022. Lower earnings were driven by metal spread contraction within the company's steel and steel fabrication operations, as lower realized product pricing outpaced lower primary raw material costs. Annual 2023 operating income from the company's steel operations declined $1.2 billion and steel fabrication operations declined $831 million, when compared to prior year's earnings. The average 2023 external selling price for the company's steel operations decreased $247 per ton to $1,152 per ton compared to the same period of 2022, and the average ferrous scrap cost per ton melted at the company's steel mills decreased $61 per ton to $414 per ton.
Based on the company's differentiated circular business model and highly, variable cost structure, the company generated strong cash flow from operations of $3.5 billion during 2023. The company also invested $1.7 billion in capital investments, paid cash dividends of $271 million, and repurchased $1.5 billion of its outstanding common stock, representing 8 percent of its outstanding shares, while maintaining strong liquidity of over $3.5 billion as of December 31, 2023.
Outlook
"We believe the market dynamics are in place to support increased demand across our operating platforms in 2024," said Millett. "Steel pricing has firmed, and customer order entry activity continues to be solid across our steel operations, as demand continues to be steady and customer inventories remain at historically low levels. In addition, we believe demand for lower-carbon emission, U.S. produced steel products will also support future domestic steel pricing. The continued onshoring of manufacturing businesses, combined with the expectation of significant fixed asset investment to be derived from public funding related to the U.S. Infrastructure, Inflation Reduction Act, and Department of Energy programs, will competitively position the domestic steel industry. We believe this will benefit all of our operating platforms, especially our steel and steel fabrication businesses.
"Steel Dynamics continues to be in a position of strength as we enter 2024. We are ramping up operations at our new state-of-the-art electric arc furnace flat rolled steel mill located in Texas, and just recently completed construction of four additional value-added flat rolled steel coating lines comprised of two paint lines and two galvanizing lines with Galvalume® coating capability. These lines will increase our value-added flat rolled steel annual capacity by 1.1 million tons. We plan to commission these lines during the first quarter of 2024.
"This demand environment, in combination with our ongoing expansion initiatives, provide firm drivers for our continued growth. The team continues to make great progress on our aluminum flat rolled products mill and related investments. We still plan to begin commissioning of the aluminum flat rolled mill mid-2025. We remain incredibly excited about this meaningful growth opportunity, which is aligned with our existing businesses and operational expertise," said Millett. "We have intentionally grown with our customers' needs, providing efficient sustainable supply-chain solutions for the highest quality products. Thus far, this has primarily been achieved within the steel industry – however, a significant number of our flat rolled steel customers are also consumers and processors of aluminum flat rolled products. We are pleased to further diversify our end markets with plans to supply aluminum flat rolled products with high recycled content to the countercyclical sustainable beverage can and packaging industry, in addition to the automotive, industrial, and construction sectors. We believe our unique performance-based operating culture, coupled with our considerable experience in successfully constructing and operating cost-effective, highly profitable flat rolled steel mills, positions us exceptionally well to execute this strategic opportunity and to deliver strong long-term value creation.
"Our planned biocarbon production facility is also progressing well, and the team plans to begin operating the plant before the end of 2024," said Millett. "This project is a key to our further decarbonization strategy for our already low-carbon emissions steel offerings. In combination, with our renewable product purchase agreement with NextEra, these two initiatives will help us achieve our stated Scope 1 and Scope 2 emissions reduction goals.
"Our commitment is to the health and safety of our teams, families, and communities, while meeting the current and future needs of our customers. Our culture and business model continue to positively differentiate our performance compared to others. We continue to strengthen our financial position through strong cash flow generation and the execution of our long-term strategy," concluded Millett.
