Steel Dynamics Inc ($STLD) Q4 2025 Earnings Call

Thank you, David. And good morning, everyone. I hope you're all a little warmer than we are in the Midwest and Indiana here at Fort Wayne. But nonetheless, we appreciate you taking the time to join us for our fourth quarter and full year 2025 earnings call. As you have seen, our teams achieved a solid 2025 financial and operational performance in what was a challenging market environment through the year. This is a testament to our diversification, the scale and circular manufacturing business model that we have. The highlights were record annual steel shipments of 13.7 million tons, cash from operations of $1.4 billion and adjusted EBITDA of $2.2 billion. And most importantly, we had another strong year in terms of safety. At Columbus, consistent operational execution has been achieved. The downstream value-add coating and prepaint product quality has matured. At Aluminum Dynamics, we have produced and shipped finished aluminum flat roll products for the industrial and beverage can markets as well as hot band for the automotive sector. Although there's still work ahead, the team has strong momentum as commissioning continues and operations ramp. As always, I'm extremely proud of the entire Steel Dynamics team. They are the foundation of our company and there's no doubt their passion, innovative spirit and commitment drive our success and they inspire me each and every day. I'm also very excited actually to welcome our new team members joining us through the final acquisition of New Process Steel which occurred this past December. We are certainly excited to grow with you.

As I mentioned, the most gratifying achievement was having a strong safety performance. Our world-class safety culture continues to evolve and our team's dedication to the Take Control safety philosophy is extraordinary. I'm continually inspired by the commitment they have for one another. They consider themselves family and challenge the status quo each and every day. That said, we will never be satisfied though until we achieve a zero incident environment. Before I transition the call to Theresa and Barry, I'd like to provide some perspectives arising from the press release and investor presentation we posted on Monday, January the 5th related to the proposed BlueScope transaction. During the past 5 years, we have focused on strategic organic investments in steel and aluminum products. The associated additional free cash flow generation is meaningful and as you know very close at hand. We are well positioned with substantial liquidity, low leverage, and significant expected free cash flow generation to support the continuation of our consistent, disciplined, and balanced capital allocation strategy. Our criteria for growth has not changed. We grow to differentiate our product offerings, supply chains, and to create value for all our stakeholders. Our long-standing track record of best-in-class return on invested capital and other return metrics is testament to our disciplined approach to both greenfield and acquisitional growth. We have a well-deserved reputation for excellent execution, clear long-term strategy, a business model that enables strong cash flow generation through market cycles, and a culture second to none. Our actions are intentional and strategic, not opportunistic. We pay fair value for good businesses that enhance value for all constituents.

In December 2025, we submitted an offer to purchase BlueScope together with our Australian partner SGH. The offer proposed SGH acquire 100% of BlueScope on an all-cash basis with a subsequent on-sale of the US assets to Steel Dynamics providing all BlueScope shareholders with a tax-effective cash realization opportunity. The proposal was the most recent in a series of constructive approaches to provide BlueScope shareholders the opportunity to unlock the trapped value of the North American businesses and to find the right home for their businesses in Australia, New Zealand and Asia. That home is clearly with SGH given their track record of value creation across the industrial space which closely mirrors the focus on delivery, capital allocation and free cash flow generation of SDI. The offer is compelling, reflecting the value of BlueScope's business appropriately and is significantly higher than the value its shares have ever realized in over 15 years. The deal construct is simple and straightforward. We requested a customary but short 30-day due diligence period which provides the opportunity for an effective and speedy process. However, our offer was rejected by the BlueScope board without any engagement and the commentary within BlueScope's subsequent public releases regarding the proposal has to be seen as very disappointing. The premise for the board's rejection was principally based on insufficient value. Yet, they provided shareholders with no reasonable executable alternative strategy that would provide the same certainty of similar shareholder return. Our cash offer is certain, immediate, and tax-effective with no financing contingency. It eliminates the significant execution risk and hopes that financial improvement might come from improved market spreads and currency exchange rates that are far from predictable.

We agree that the North American assets and their operating teams are of quality as we know them well. In fact, for many years, our steel operators have frequently worked closely with the BlueScope teams, exchanging best operating practices and safety initiatives. The BlueScope North American assets, teams, and senior leadership are not the problem. Rather, BlueScope's long-term financial and share price underperformance are the result of conservative, incomplete growth strategies. As a case in point, North Star BlueScope and the recently acquired coating businesses are at severe structural disadvantages. The steel mill is essentially a stranded asset and does not have the physical structural capability to provide the necessary value-add products required to supply the geographically disparate coil coating operations. There are missing essential equipment at a minimum, cold rolling and galvanizing. The required investment today could be as much as one and a half to two billion Australian dollars, not to mention the years of waiting on equipment and the construction risks. In February 2024, BlueScope publicly discussed an associated plan to invest at that time 1.2 billion US dollars, about 1.8 billion Australian dollars today, for a greenfield project to achieve a similar outcome. Yet they officially deferred the project a year later in February 2025 due to market uncertainty and a pivot to acquisitions. Recently, BlueScope wrote down the asset value of nearly half a billion Australian dollars associated with its recent 2022 acquisition of the North American coatings business, noting that the business was not achieving expectations. More recently, rather than investing for long-term growth, the board announced a one-time, tax-ineffective, non-recurring, unfranked special dividend at 453 million Australian dollars, providing no recurring long-term benefit to shareholders. We would suggest the North American BlueScope strategy isn't working.

Steel Dynamics' operational interactions with the BlueScope organization has spanned over 20 years. Discussions with senior leadership have explored various value-creating concepts along the way. We have both enjoyed considerable business interaction through the sale of scrap, coated coils, joists and construction products to the BlueScope business and we purchased substantial steel from North Star BlueScope. Suffice it to say, we have a unique and clearly qualified perspective on BlueScope's North American strategy and business model along with the associated earnings capability of their assets. And our respective leadership teams have long understood the industrial logic of combining our businesses. Our proposal to purchase BlueScope along with SGH is not an opportunistic foray to acquire assets on the cheap. It represents a long-standing desire to maximize shareholder value for all stakeholders. Our investment premise is straightforward. SDI is the logical owner of the North American assets as we can unlock the latent value. Currently, North Star BlueScope is a stranded, commodity-centric, single-site steel mill. It will be pressured by additional hot-rolled coil production capacity coming online in the US within the next 24 months. Product diversification is critical for it to sustain earnings power and an imperative for the desired value creation within their acquired coating business. These challenges are self-evident from the recent massive asset breakdown that I mentioned earlier. The scale, supply chains and business model of SDI would provide immediate resolution. Additionally, BlueScope has publicly emphasized the monetization of industrial and rural land located in remote regions of Australia and New Zealand. We believe there are likely significant zoning and environmental challenges, not to mention development timelines spanning what could be decades. BlueScope's plan for earnings uplift will take considerable time to realize with substantial execution and market risk.

So for us at Steel Dynamics, our pipeline for growth investments is robust. Our track record of delivering profitable growth is without comparison. The acquisition of BlueScope North America makes sense for Steel Dynamics strategically, but we will be led by our focus on value creation and will be guided by rationale and not hope. And we will remain disciplined as always. With all that said and given the public nature of how this has evolved, we won't be making any further comments or taking questions related to the BlueScope transaction after our commentary. And we thank you for appreciating and respecting that request. So with all that said, I'd love to talk about the exciting things going on within Steel Dynamics. So Theresa,

Well, thank you, Theresa. Thank you, Barry. I think everyone can appreciate sustaining such positive results don't just happen. They result from the strategies implemented and executed by the teams over time. We have invested strategically to provide scale, product and market diversification, unique customer supply chains, and linked operating platforms to optimize market opportunities throughout market cycles. When combined with our performance-driven culture, we consistently achieve at the highest levels. We optimize cash generation, allowing for a consistent and balanced cash allocation strategy that has delivered strong shareholder returns. And our disciplined investment approach continues to support a strong and growing through-cycle cash generation profile while maintaining the highest return on invested capital among our industrial peers. In aluminum, we just grow more and more excited each and every day as we watch the aluminum teams execute moving from construction through commissioning to serving the customers with high-quality products. I believe we enjoy a unique market environment. There is a significant domestic supply deficit of over 1.4 million tons for aluminum sheet and this deficit is forecasted to grow along with demand. In 2024, that deficit was supplied through high-cost imports which are now even higher cost as the tariffs increased from 10% and 24% to the current 50% level. We've seen that there's clear alignment with many of SDI's core competencies. Our construction capabilities have once again been proven, both Columbus and San Luis Potosi as state-of-the-art facilities. We're using our deep operational know-how in combination with the technical expertise of aluminum industry experts that have joined us and our proven performance-driven culture will drive higher efficiency and low-cost operations as compared to our peers.

We believe we have an advantaged commercial position. Two-thirds of our existing carbon flat roll steel customers also consume and process aluminum flat roll sheet. Our growth in the automotive sector will complement our existing steel position and provide customer material optionality. The beverage can market provides counter-cyclical market diversification and the more stable earnings profile within the aluminum space will further enhance the consistency of our through-cycle cash generation. Our raw material platform will facilitate higher recycle content. We're the largest North American metals recycler which includes aluminum. And that team has done an incredible job successfully developing new separation technologies allowing us to have both more access to usable aluminum scrap and at a lower cost. Production to date, even in its early stages, is already confirming our expected earnings differentiation through cycle. Even our expectation remains clearly at $650 to $700 million for the mill itself plus another $40 to $50 million for the Omni platform. As we've spoke in the past, the four key areas of advantage being labor efficiency, the higher recycle content, a higher yield through the process, and optimized logistics, all of which are driven by our low-cost culture. The strategic investment is a cost-effective and high-return growth opportunity providing SDI with additional counter-cyclical diversification, further stabilizing and growing our cash generation capabilities. As the industry already knows, the 650,000 metric ton project is no longer a vision. It's clearly here and clearly having a positive impact in the industry. 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, business relationships are long-term, founded on trust with a continuous goal of creating mutual value. And that's not just simply financial value, but new supply chain solutions, new products, better quality, and better service. And we are seen to react with surprising speed.

Many customers have seen that with recent supply-side challenges in the aluminum flat roll products market, the timing of our ramp-up has been fortuitous, allowing us to help the market while accelerating our material qualifications. Startups have their challenges and I would like to thank our customers for their patience as we fine-tune our operations. Today those customers have been very responsive and thank you for that. We have received certification from many customers for industrial and can sheet finished products and for automotive aluminum hot band. This accelerated certification should allow us to shift our product mix to a higher margin mix in 2026, reaching optimization sometime in 2027 as compared to our earlier expectation at 2028. Three of the four melt-cast houses are fully commissioned and produced all three, five and 6000 series ingots for industrial, can sheet and automotive sectors.

The rolling for rolling mill commissioning, product development and commercial shipments. And the team there is doing an absolutely phenomenal job actually as they are through the whole mill. I guess the hot mill is completed commissioning having ran 303, 5052 industrial, 3104 can sheet, 5754, 5182 automotive grade material. The cold reversing mill is successfully producing 303, 5052, and 3104. The first tandem mill is in commissioning and starting to produce. The second tandem cold mill and the first of two cast lines are on schedule to be operating before the end of the first quarter 26. The team is incredibly excited with the earlier than anticipated product certifications for sure. It's a testament to the phenomenal talent we have embedded in the team and there's so much great energy and momentum throughout the mill. We're extremely excited by the physical production and quality capability of the mill this early in the startup and are focused on achieving optimal consistency. We ended the year shipping 10,000 tons in December which is about 20% of our eventual capability and are confident we will be exiting 2026 at a rate approaching 90% capacity. We're 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. The capital spending for Centon, the four value added lines, and Aluminum Dynamics is largely spent with a projected future through cycle EBITDA contribution of over $1.4 billion. I'm excited as investors to recognize the power and the consistency of our strong cash generation combined with our disciplined high return capital allocation strategy. It is our belief that the steel industry has undergone a paradigm shift in recent years supported by a pervasive sense of mercantilism that will provide a level playing field through continued and appropriate trade mechanisms. Fixed asset investment will continue to grow which directly correlates with increased metal products demand. Continued reshoring, AI, and cloud computing will support non-residential construction and decarbonization will materially steepen the global cost curve providing Steel Dynamics with a huge competitive advantage to gain market share and increase metal spreads. Our highly diversified value product capabilities provide us with a very unique advantage to leverage this evolving metals business environment and will amplify our relative earnings capability. In closing, as I always say and always believe, our people are our franchise. I thank them, some 14,000 of our teammates. And when you include their partners in life, their spouses and their children, there are 63,000 people in the SDI family. And I thank each and every one of them for their passion and their dedication and we're committed to them. And I remind those listening today that safety for yourselves and your families and each other is the highest priority. I'd be remiss not to thank our loyal customers, many of whom have supported us since our inception. These partnerships are based on trust, on doing what we say we will do and creating new solutions to enhance the value proposition. And our new aluminum partners will experience the same. And as I said earlier, I appreciate their patience as we work together to get Columbus up and running. And finally to our suppliers and service providers who we value and trust and thank you. We can't do what we do without you. We look forward to creating new opportunities for all of us today and the years ahead. And with that, Ally, we would love to take questions.

That's correct. We think that's a little sooner than we've talked in the past but what we're seeing from the team and from the equipment, it's given us a strong confidence that that can be achieved.

Well, I would, we anticipated that positive EBITDA profile will continue through the year.

Lawson, news with regards to the incident here beginning of the year, we did have a transformer failure at the Centon facility. It was one of the high voltage transformers in the yard. This was an original transformer and I think as we talked about publicly, we had some transformer issues at that facility we were starting up. We believe this transformer was subjected to some of that stress on the system early. So we had been monitoring it. We took the opportunity a couple years ago to actually go out and buy significant amounts of other transformers that we have engineered into the system. So we don't have any concerns of ongoing problems. We believe we've rectified the original engineering and locational challenges we had down there. So all in all it was a great job by the Centon fire department. It was rather demonstrative the failure. But nobody was injured. The damage was limited to the transformer itself and operations resumed shortly after the plant was safe which was within the 12 hours or so of the incident. So we don't expect any ongoing concerns and the team has done a good job of getting the backup resources. It's very difficult to get transformers in this world. So they acted quickly a couple years ago to make sure we had the right stuff spared and installed. So, we feel good about where we're going and, it was unfortunate, but, onward upward with Centon.

Morning, Phil.

There's nothing that is regulatory or structural in place, Phil. No.

The, your question is as always is on point, John, and I wouldn't say it's naive in any way, shape, or form. There's not a real market for direct hot band aluminum going into an automobile. It does get converted. That conversion is being done by others today because we don't have the full downstream capability and we don't have the cast line. So others in the industry are converting that and I think it's been part of just a great sort of entrance into the whole aluminum market itself. Obviously that market has been challenged on the supply side and we have gone out and wherever we can we're helping the industry generally and part of that is supplying hot band to folks.

The restriction is essentially the cast line and the first cast line is due to be operational at the end of the first quarter.

Continuous anneal and continuous surface hardening. So it's a final heat treatment so that it can be the right strength when it goes to the mill.

Yeah. Well, John, in my naivety, I thought it was C-A-C-H-E for the longest time. So.

Sounds great. Thank you.

There's absolutely no doubt that aluminum will be a growth platform for us going forward and that's not to substitute or replace growth opportunities in steel or any other businesses. And just in general, you got to compliment or I compliment our team. They do a phenomenal job ensuring that we've got a pipeline of really effective value added opportunities and so yeah we will continue to expand in steel and obviously aluminum is a new platform for us and given the profile of that industry there's a lot of and the supply demand dislocation there's certainly phenomenal more opportunities there for us.

Well, I think given our experience in Centon, we've been sort of retaining a more of a conservative position, I would say. So that on top of what I see as a phenomenal team down in Columbus doing phenomenal things with an absolutely amazing piece of kit. And Barry I think has said it in past calls, but just the nature of the aluminum process and production steps or units, it's a lot more forgiving from a startup standpoint. You know, we've explained it in the past, a thin slab or steel mill such as a Centon or a Butler or whatever because the whole mill melt through refining, through casting, through rolling, it's just one continuous thing, one hiccup in one spot can take you down and it sort of compounds itself through the system. Whereas in aluminum, you know, we have just at Columbus, we have the four melt cast units. Got the hot mill, you got, we will have, three cold rolling units. It's just a lot more forgiving. So given all that, we just see it's the redundancy in the system.

I would prefer not to be that specific. I would say that our shipping rates are not necessarily a reflection of the production rates because of the quality, you know, it just evolves. We're ramping up that needs to be refined and optimized and it's getting optimized almost on a weekly basis. But the actual physical capability of the equipment is very sound.

Thank you.

Super. I appreciate that. And for those remaining on the call, again, thank you for your support and for your time today. For sure, our teams aspire to create that shareholder value creation that we seem to be able to do year in year out and 2025 was a reflection of that. Most importantly to our employees that might be on the line, you've all done an absolutely phenomenal job. You continue to do an absolutely phenomenal job and what you do each and every day that execution drives our success and it drives that in the marketplace as well. So, thank you and each and every one of you be safe for yourselves, for each other and for your family. So, thank you very much. Have a great day everyone. Bye-bye.