Steel Dynamics Inc 2026 Q3 Earnings Call

Good morning, and welcome to Steel Dynamics' Third Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded and will be available on our website for replay later today. Leading today's call are Mark Millett, Chairman and Chief Executive Officer of Steel Dynamics, and Theresa Wagler, Executive Vice President and Chief Financial Officer. The other members of our senior leadership team are joining us on the call individually. Some of today's statements, which speak only as of this date, may be forward-looking and predictive, typically preceded by believe, expect, anticipate, or words of similar meaning. They are intended to be protected by the Private Securities Litigation Reform Act of 1995 should actual results turn out differently.

Such statements involve risk and uncertainties related to integrating or starting up new assets, the aluminum industry, the use of estimates and assumptions in connection with anticipated project returns, and our steel, metals recycling, fabrication, and aluminum businesses, as well as to general business and economic conditions. Examples of these are described in the related press release, as well as in our annually filed SEC Form 10-K under the headings Forward-Looking Statements and Risk Factors found on the internet at www.sec.gov and, if applicable, in any later SEC Form 10-Q. You will also find any referenced non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports Third Quarter 2026 Results. Now I am pleased to turn the call over to Mark.

Well, good morning, everyone. Thank you for joining us this morning for the third quarter 2026 earnings call. Before I begin our report, I would like to take a moment to congratulate Theresa on her appointment to CEO at the end of this year. As most of you know, she has been with the company for 28-plus years, starting when we had just our first mill in Butler, Indiana. Back then, it was just a handful of people. Now we have 14,000 strong in our team. In that time, she has built an incredible understanding of our markets, our customers, and our company. Most importantly, she understands our culture and is passionate about our people.

She has been acutely involved with the strategic decisions and direction we have taken these past 15 years, decisions that have driven tremendous growth and about 3,000% in shareholder value appreciation, a value very few can claim. That success has also been supported by an incredible team of 14,000 people, as I said, and the best senior leadership on the planet, all of whom have been very key contributors of our growth. I just want to, very unusually maybe, but I'd just like to signal them out. Miguel Alvarez, Jim Anderson, Matt Bell, Chad Bickford, Chris Graham, Barry Schneider, Tommy Scruggs, Rick Poinsatte. These folks have been incredible, and with this team and with Theresa at the helm, we will undoubtedly drive SDI to even greater heights. That said, and congratulations, Theresa.

Thank you very much, Mark.

Our teams, I think, in the third quarter, achieved a very strong quarter-over-quarter financial and operational performance. That said, we did come in just shy of our earlier guidance range due to late September anticipated moves in foreign currency and aluminum hedging unrealized mark-to-market adjustments of just under $30 million. Some quarter highlights included record quarterly steel shipments of 3.8 million tons, adjusted EBITDA of $1.2 billion, an extremely strong cash flow from operations of $846 million. Both the milestones relating to the aluminum mill commissioning and ramp were also achieved. Seriously, my sincere thanks to an amazing team that consistently brings our vision and strategies to life. As I said always, safety will be our most important cultural pillar and value. With great dedication to each other, our team continues to focus on our Take Control of Safety philosophy.

We have hundreds of volunteers that travel across our company, not simply auditing our safety practices at our facilities, but cultivating our culture to ensure each facility has the right attitude and mindset to drive our performance ever upwards. It is an incredible time commitment and so inspiring as they operate as a family, supporting each other while challenging the status quo and striving for continuous improvement every day. Before I continue, though, Theresa, will you update us on some specifics relative to Q3?

Absolutely. Thank you, Mark, and thank you for your kind words. Good morning, everyone. Appreciate you being with us this morning. For the third quarter 2026, our net income was $756 million, or $5.26 per diluted share, with adjusted EBITDA of $1.2 billion. Third quarter 2026 revenues were $6.5 billion, and operating income was just over $1 billion. Higher than sequential second quarter results, driven by higher realized steel pricing and record steel shipments. As Mark mentioned, the steel team delivered an outstanding quarter with record shipments of 3.8 million tons. Our steel operations generated operating income of $1 billion in the third quarter, a 43% sequential increase, as average selling prices per ton increased to $102. During the third quarter of 2026, the domestic steel industry operated at an estimated utilization rate of 80%, while our steel mills operated at 92%.

We consistently achieve higher utilization due to our value-added product diversification, differentiated customer supply chain solutions, and the support of our internal manufacturing businesses. This is consistent throughout all market cycles. Regarding flat-rolled steel, market conditions remain favorable. Customer demand is strong, inventory levels throughout the supply chain remain very lean, and order lead times are elevated. Value-add spreads to hot-rolled coil prices have recovered, increasing to over $230 per ton. As the largest flat-rolled steel coater in North America, we are well-positioned to capitalize on these margin opportunities. As a reminder, approximately 80% of our flat-rolled steel portfolio, sometimes more, is linked to contractual pricing that generally lags market changes by two months. Given the significant improvement in flat-rolled steel pricing and the continued expansion of value-added spreads, we expect these favorable market dynamics to positively impact our fourth quarter results and into 2027.

Long product steel markets also remain incredibly strong, supported by healthy activity in non-residential construction. Customer demand continues to be exceptionally robust, with order backlogs extending well into 2027. We remain optimistic about demand for our diversified product portfolio of steel products and believe our end market exposure positions us incredibly well. For modeling purposes, for those on the call, our hot-rolled coil shipments in the third quarter were 992,000 tons. Our cold-rolled shipments were 146,000 tons. Finally, our coated flat-rolled shipments were 1,630,000 tons. Third quarter 2026 operating income for metals recycling was $33 million lower than second quarter earnings due to lower realized pricing. Our metals recycling team is partnering even more closely with our steel and aluminum teams to expand scrap separation capabilities. This will provide a meaningful advantage in increasing recycled content in our aluminum flat-rolled products while expanding our earnings opportunities.

Our steel fabrication team achieved third quarter operating income of $91 million, an increase from second quarter results of $85 million as increased volume and higher average pricing offset significantly higher steel raw material input costs. I want to give a shout-out to the team. They did an incredible job. Our steel joists and deck business is experiencing strong demand, with our order backlog 50% higher today than a year ago. The Dodge Momentum Index, which generally leads construction spending by 12 to 18 months, remains elevated and is improving. We are also seeing improved pricing within our steel joists and deck business, with strong expectations for 2027, supported by positive customer sentiment and quoting activity, continued manufacturing onshoring, and public funding for infrastructure and other fixed asset investment programs. We're starting to see the uplift from this macro environment, and we believe it could be considerable.

Third quarter 2026 operating losses from our aluminum operations were $26 million, a 21% improvement over sequential results. Shipments and financial performance were below our original expectations due to a matter within the hot strip mill, which Mark Millett will describe in a moment. The issue has been resolved, and we expect improved performance going forward. We expect volumes, cost structure, and profitability from the aluminum rolling mill to improve in the fourth quarter and throughout 2027. In the third quarter, we generated strong cash flow from operations of $846 million. Our cash generation is supported by our differentiated circular business model and highly variable low-cost structure. At the end of the quarter, we had liquidity of $2.4 billion. During the third quarter 2026, we invested $150 million in capital investments, with fourth quarter estimates also in that same range.

During 2026, we have repurchased $591 million of our common stock and continued a positive dividend profile. At September 30, $216 million remained available under our current repurchase program. These actions reflect the strength of our capital foundation and cash flow generation capability and the continued confidence in our future. Our capital allocation strategy prioritizes high-return growth opportunities while maintaining a disciplined and balanced approach to shareholder value creation. Shareholder returns are anchored by a sustainable and growing base dividend, complemented by a flexible share repurchase program that allows us to return additional capital to shareholders when appropriate. At the same time, we remain committed to preserving our investment-grade credit profile, ensuring the financial strength and flexibility needed to support strategic growth initiatives, navigate market cycles, and create long-term value for our shareholders. Our free cash flow profile has fundamentally changed.