Steel Dynamics Inc ($STLD) Q3 2025 Earnings Call

Thank you, David. Well, good morning everybody. Thank you for being with us on our third quarter 2025 earnings call. Some may suggest hyperbole, but I have often said that we have the best teams on the planet and they proved it once again in the third quarter. Operationally, they executed incredibly well while keeping each other safe and achieved pivotal successes in furthering our significant growth projects. Financially, even with some interim market headwinds in flat roll, we achieved a number of key operational milestones. We had record steel shipments of 3.6 million tons. Revenues were $4.8 billion. Adjusted EBITDA was $664 million and we had a healthy cash flow from operations of $723 million. At Columbus, consistent operational execution has been achieved. It was a record quarter for shipments. Downstream coating and prepaint product quality has matured and the value-added product portfolio is expanding nicely. Industry participants are recognizing that this is the mill of the future. Our Lonz team continues to make strong progress in commissioning and ramping operations, receiving a number of quality certifications in September and October. In particular, our can sheet has been performing extremely well with equivalent results to competitive material. Much more to do, but incredibly exciting performance to date. And our biocarbon team shipped their first product in September. We're extremely excited to have this new tool in our decarbonization journey that will further reduce our carbon footprint from an already industry-leading low level. I continue to be proud of the entire Steel Dynamics team because they are just the foundation of our company and they continue to amaze me. And so we're laser-focused on providing the very best for their health and safety. It is an everyday conversation at every level. Our world-class safety culture continues to mature and our team's dedication to our Take Control safety program is extraordinary and continues to produce strong results. Their commitment is inspiring. They consider themselves family and challenge the status quo each day to keep each other safe. But that said, there will always be more to do as we drive toward a zero-incident environment as there is nothing more important for us. So with that, I'll hand it to Theresa and to Barry to give some color to the quarter.

Super, Barry. I appreciate that. Thank you, Theresa. So after many years, I think it's clearly evident that our performance-driven, team-based culture in combination with a proven, diversified, and value-added business model drives superior financial metrics. This consistently strong operating and financial performance continues to support our cash generation and growth investment strategies, allowing a very balanced cash allocation strategy that has delivered the highest shareholder returns not only among our metals peers but the best of domestic manufacturers. Our disciplined investment approach continues to support a strong and growing cash generation profile while maintaining a best-in-class return on invested capital. Our aluminum investments are now a reality and are extremely compelling. Initial operations and commercial activity are confirming our initial investment premise. We believe we will enjoy a unique commercial position. Unlike our entry into the oversupplied steel market some years ago, there's a significant domestic supply deficit of over 1.4 million tons for aluminum sheet. And this deficit is forecast to grow even before tariffs. In 2024, that deficit was supplied through high-cost imports which are now at an even higher cost as the tariffs increased from 10% and 24% to the current 50% level. There's a clear alignment with many of SDI's core competencies. Our construction capabilities have been once again proven. Both Columbus and SLP are state-of-the-art assets. And if you just think about it for a second, we shipped our first coil within 24 months of groundbreaking and here we stand today 27 months from groundbreaking and we're shipping prime product to the can sheet and automotive markets. That's an absolutely incredible performance. My hats off to the team down there, to Glenn Pushkar and to Greg Wiggum and everyone for making that happen. It's an absolutely beautiful facility, a work of art. We also leverage our deep operational know-how and extensive and successful experience operating melting, casting, rolling-type assets and our performance-driven culture will drive higher efficiency and lower cost operations just as we did when we entered the steel industry some 30-plus years ago. It's demonstrated and the teams will achieve it. We have an advantaged commercial position. Two-thirds of our carbon flat-rolled steel customers also consume and process aluminum flat-rolled sheet. Our growth and penetration into the automotive sector will complement our existing steel position and give customers product optionality. The countercyclical beverage can market, which in conjunction with the more stable earnings profile experienced through the years within the aluminum space, will further enhance the consistency of our through-cycle cash generation. Our raw material platform will facilitate higher recycled content. We are the largest North American metal recycler including aluminum. We recycle already around about half a billion pounds of aluminum per year. And we've successfully developed new separation technologies allowing us to have both more access to usable aluminum scrap at a lower cost. Operation experience thus far is confirming our earnings differentiation. We've advertised and do believe that through-cycle of $650 to $700 million is absolutely achievable plus an additional $40 to $50 million for Omni operations. The key areas of advantage remain labor efficiency, higher recycled content, higher yield, and optimized logistics along with our low-cost culture. There is no doubt this strategic investment is a cost-effective and high-return growth opportunity providing SDI with additional countercyclical diversification, further stabilizing and growing our cash generation capabilities. And for those that have been there, you understand it. The 650,000 metric ton project is no longer a vision. It's clearly here. As our aluminum growth has become a reality and our reputation permeates the industry, aluminum professionals with vast experience have joined us in this exciting project. They see the vision and are energized by our culture where they realize that they will be heard and can have a real impact. They've helped us build a phenomenal team that combines in-depth knowledge of aluminum flat-roll operations, commercial markets, process technology, and customer service, complementing our SDI professionals that bring our performance-driven entrepreneurial culture. We're finding the customer base is excited to have a new market entrant that is known to be innovative, customer-focused, and responsive to their needs. For us, as with steel, business relationships are long-term, founded on trust and the continuous goal of creating mutual value, not simply financial value, but new supply chain solutions, new products, better quality, and better service. We have seen the market react with surprising speed. Many customers have just seen that with the recent supply-side challenges in the market. The timing of our ramp-up has been fortuitous, allowing us to help the market while accelerating our material qualification. We've received approvals for industrial and can sheet finished products and for automotive aluminum hot band earlier this month. This accelerated certification should allow us to shift our product mix to a higher margin mix in 2026, reaching optimization sometime in 2027. Three of the four melt-cast houses are fully commissioned at Columbus and have produced 3000, 5000, 6000 series ingots for the industrial, can sheet, and automotive sectors for rolling mill commissioning, product development, and commercial shipment. The hot mill is completing its commissioning having run 3003, 5052 industrial, 3104 can sheet, and 5754 auto-grade material. The cold reversing mill is in startup and is successfully producing 3003, 5052, and 3104 alloys. Tandem mill number one will be starting up in November. And then tandem mill number two and the cast line are on schedule to be available in the first quarter of 2026. And it's absolutely incredible if you walk through the plant because the team is incredibly excited with the earlier-than-anticipated product certification. It is a testament to the phenomenal talent that we have on the team and there's great energy, great momentum. We anticipate exiting 2026 at a rate of 75% capability and we expect to achieve monthly EBITDA break-even sometime in the fourth quarter and increasing thereafter as we continue to ramp and optimize our product mix. Evolving market dynamics provide an opportunity for us to further enhance our earnings potential. The renewed focus on strategic mercantilist policies to ensure fair and sustainable competition will further improve market strength. The recent coated flat-rolled steel positive trade determination will further curb coated and prepaint imports. We're seeing that already. The administration will continue to hold a firm position on Section 232 tariffs on steel and aluminum imports and the inclusion of tariffs on steel content of derivative products including fabricated structural steel which has plagued the domestic industry for years will be of substantial benefit. One has to consider that in 2024 some 30 to 35 million tons of steel came in through actual products. And then last year obviously the successful sunset reviews of Section 201 and 301 trade cases will remain in place for some years stopping dumped Chinese steel from accessing our markets. We will benefit from growing fixed asset investment which correlates directly with increased steel demand. Risk mitigation to address numerous supply chain dislocations is accelerating restoring of manufacturing by many OEMs. AI and cloud computing will support the need for more non-residential construction along with data centers, chip factories, and battery plants. We believe there obviously will be associated positive stimulus through the inevitable interest rate reductions that should happen this year and next. And finally, decarbonization will materially steepen the global cost curve, providing Steel Dynamics with a meaningful competitive advantage to gain market share and increase margins. More importantly, we continue to be impassioned by our current and future growth plans as they will continue to drive the high-return growth momentum we have consistently demonstrated over the years. The earnings growth of these new projects is compelling. Capital spending for Sinton, the four value-added lines, and Aluminum Dynamics is largely spent with a projected future through-cycle EBITDA contribution of over $1.4 billion. Steel Dynamics has grown into an incredibly resilient cash-generating business of scale and diversification driven by the best teams, as I already said, in the world. The model has now demonstrated itself year after year delivering financial metrics equivalent to best-in-class manufacturing companies. We are fortunate and at the heart of that good fortune are our people. They are the foundation of everything we do and I want to personally thank each of them for their passion, their commitment, and unwavering dedication and we're committed to them. And I remind those listening today that safety for yourselves, your families, and each other is our highest priority always. And I would also be remiss not to express my gratitude to our loyal customers, many of whom have been with us since the beginning. These partnerships are built on mutual trust, keeping our word, and delivering innovative solutions that enhance your value. Our new aluminum partners can expect the same level of commitment and collaboration. And to our suppliers and service providers, thank you. We value your continued support and the strong relationships we've built together. Our culture and business model continue to differentiate our performance, leading best-in-class financial performance. And as a circular metals business, we are uniquely positioned to offer lower carbon supply chain solutions, enhancing sustainability while helping to mitigate cash flow volatility through all market cycles. This positions us to deliver superior shareholder returns and create lasting value for all stakeholders. So we look forward to creating new opportunities for all of us today and in the years ahead. And with that said, Ally, we would love to open the line for questions.

Well, I guess firstly the accelerated qualifications that we've been receiving is absolutely incredible given where we are on our learning curve as you might recognize. Can sheet has been supplied to most of the principal can makers today for qualification. Early performances is again, it's just incredible and when the team sent me a video of the very first coil going through a can line flawlessly, it was something to behold. And obviously we're also having some good progress within automotive. I think what it does, it accelerates the value or the product portfolio mix into next year and we've always said that we'd hit our target mix in 2027. I think we'll see that earlier in 2027 than we were expecting. But to answer your other question, Katya, we are negotiating longer-term contracts both in the sheet, the can sheet as well as the automotive. So yes, that has helped. But we had considerable traction I think throughout the third quarter as we were starting up. So more to follow on that.

The most significant difference...

45%.

Which is just generally on the cash allocation broadly. I think with our strong liquidity position and the through-cycle cash generation that will come through next year and years after, we can retain our balanced cash allocation profile. So one can expect an increase in the dividend. I would think a positive profile will continue into next year. We feel that the company is selling at an incredible discount today relative to other potential investments one might make. So we'll continue to buy our shares back. And again, we're doing that not because necessarily our shareholders just want us to or we think it's a flavor of the month. It really is buying a company that is discounted, a quality company that we know with a phenomenal team, phenomenal assets. Extending from that, we still have a team that is innovative and creative. They've got a pipeline of organic possibilities both in steel and in aluminum that will access new products, new product lines for us. Now, those aren't massive $3 billion greenfield steel mills, but smaller projects, but very, very high return, high reward. And then obviously there's the possibility of M&A activity out there, but just one highlight I guess, but you will continue to see us adhere to our disciplined investment approach. I think we have the highest return on invested capital in our space for a reason. We're disciplined and we buy good assets with real return, real future return, and you'll see that going forward.

Well Timna, again thanks for your questions. We will not comment on where our material is going. I think the aluminum space is a lot more shielded from a confidentiality standpoint relative to steel. And so most of our relationships are under CA or NDAs. So I can't really speak to that other than it's absolutely phenomenal that the team in such a short period of time is accessing those sorts of markets. Relative to the capex, yeah, it did expand. Again, in all honesty, it's kind of the wind down of the project and just clearing up all the construction contracts. But I think more importantly, the last three months in particular, it's been incredibly difficult to get electrical talent with all the data centers etc. being built. We found our contractors sort of drifting away from us and there was a substantial increase in the cost to cover that and maintain our schedule.

Well, I think obviously if you're an aluminum consumer and you've seen the sort of supply chain risk that they've just gone through, you got to ask that question. I think and you've heard us say this before as we got into the aluminum space and looking for, well just looking or doing our due diligence for the ADI project, automotive makers would have actually consumed more aluminum over recent years if there was more supply. So it's a... are they questioning aluminum? I don't think so. Aluminum is an incredibly important material for their future plans. We coming into the marketplace will allow them optionality and greater redundancies through the supply chain. So I think that issue or that question will be mitigated going forward.

If we would steer away from raw materials, I do believe it would be aligned or parallel our previous commentary in downstream, extreme strategic sort of pull-through volume type opportunities where we can either lever or exploit our core strengths. So downstream in coating, you know, the painting, those sort of value-add opportunities for sure. In value-add sort of manufacturing to some degree as long as the volumes are there and it makes sense. But not upstream, our raw material space with OmniSource, you know, with the largest North American recycler of ferrous, non-ferrous goods today, that's in great shape. You might see a little repositioning from a regional standpoint, a yard here or there, but no major thing. So yeah, downstream value-add as we've pursued in the past.

Good morning, Phil.

Thanks everyone. Thanks, Phil. Phil, if I could just add, because the question around structural tended to be rail-centric, just looking at the long products market in general, we're finding that to be incredibly strong and robust and believe that will certainly continue. Non-residential is in great shape. And we see on the fabrication side there's a lot of engineering, sort of permitting, detailing work going on and it would be our view that come the first quarter in '26 we're going to see a nice return of that volume as well.

Yeah, I think the headwind obviously was principally the inventory overhang which as Barry just suggested is eroding and should be depleted by the end of this fourth quarter. And with the almost non-existent import profile, first quarter should be in good shape. I think you started to see that hot band pricing soften through the quarter but yet in mid-September it kind of turned up and I think we will see a sort of slow but positive move through the end of this year and as Barry said, we are quite optimistic or robust for Q1 and Q2 throughout the rest of '26.

Well, we want to make sure we walk before we run. I got to say the team down there is starting to sprint because they're incredibly excited and I'm in honesty incredibly excited by what those folks are doing. It's an incredible mill that there's absolute opportunity for colossal in a living. There's no doubt about it. We will see how things go over the next six, eight months or so. But there is definitely, definitely growth opportunity there both in downstream. We could envision sort of exploiting or leveraging our prepaint capabilities. It's one of our highest margin product lines today and the team would be incredibly effective to coat the thousands or millions of pounds of aluminum that gets painted every year. And then we do believe there's still clear room for a larger asset, a mill asset.

Yep. Thanks, Mike.

Thank you.

Well, taking number one, the scrap dropping off 27 bucks, obviously John as you know scrap is in my mind the most transparent, fluid commodity out there and it's just supply demand. In honestly, whether it's the $27 in the broad scheme of things, it's more noise than anything else. Directionally I think is important but it's more noise. You know, in the old days a $10, $20 move would be monumental. Today it's not too much but again in the dynamics of scrap with the segregation technologies out there today, the shred one and all these things, there's greater optionality of flow and I think that's just bearing fruit. And we've always said or always suggested that we don't have a major concern that others have had over the years that oh my goodness, EAF flat roll is going to continue to grow and scrap is going to be a problem. In fact, if you look at a lot of the new projects coming online, most of them anyway are having some DRI type virgin iron associated with them. So even though the production capability of the domestic industry is increasing, the scrap consumption is not at that same rate. So we still remain confident that scrap will remain at a reasonable level and that going forward spreads will remain very high if not increase to be honest going forward. Relative to your question on aluminum, I will refrain to be honest and it's a little bit more complicated as you can appreciate also, you know, it depends on which grade, is it automotive, is it can sheet, is it industrial, it's all over the map. Suffice it to say we do believe that our returns that we've advertised are more than achievable.

Thanks, John. John, we appreciate the compliment. We appreciate you being a shareholder all those years and challenging us for sure. And just to finish up, I would like to thank all shareholders that support us that are on the call. And as I often joke to them, if you're not a shareholder, you should be because we will endeavor to perform and use your dollars just as though they were our dollars. A couple of just point out customers that are on the line. Thank you. Thank you for your support. Particularly would like to welcome any ADI customers that are on the line. It's been a pleasure to engage with you and just in the last three, four, five weeks of market chaos in your space. It really has been refreshing for us and hopefully refreshing to you because we do bring a different approach from a customer relationship standpoint. We truly will partner with you going forward. And lastly, any SDI folks on the call, absolutely hats off to you. You do a phenomenal job each and every day. You do make a difference. You are the best steel metals team on the planet. Just make sure you keep safe and keep each other safe. Thank you all.