Steel Dynamics Inc.: Banking on Buyouts

Steel producer boosts 1Q profit with acquisitions and shows no signs of slowing down.

Steel Dynamics Inc. is growing up fast. The company that began in 1993 as a startup by former Nucor Corp. executive Keith Busse touts itself as the fifth-largest producer of carbon steel in the United States with revenue of $4.4 billion in 2007.

Indeed, the 2008 IW 50 Best Manufacturer has grown by leaps and bounds with 2007 not only marking a year of record revenue but a time for expansion. The Fort Wayne, Ind., company made a move to control more of its raw materials sources with the October 2007 purchase of scrap metals recycling company OmniSource Corp. Steel Dynamics produces steel from recycled scrap. The company also purchased in June 2007 The Techs, a Pittsburgh-based flat-rolled steel galvanizing company.

The two acquisitions contributed to record sales and profit in first-quarter 2008. Steel Dynamics' net income for the first three months was $143 million, or 72 cents per share, a 40% increase over the year-earlier quarter. Revenue more than doubled to $1.9 billion.

The Techs addition helped the company increase flat-rolled steel shipments by 109,000 tons, or 13%, from fourth-quarter 2007. The company also benefited from high steel prices, Busse says.

"Prices for both flat-rolled steel and scrap climbed faster and higher than we had anticipated, accelerating the margin growth we had predicted for the second quarter," said Busse in the company's April 21 quarterly statement. "Current market conditions suggest that resource cost increases can be offset by surcharges and selling price adjustments resulting in growing margins."

Steel Dynamics Inc.
At A Glance

Steel Dynamics Inc.
Fort Wayne, Ind.
Primary Industry: Primary Metals
Number of Employees: 3,500
2007 In Review
Revenue: $2.51 billion
Profit Margin: 9.0%
Sales Turnover: 0.97
Inventory Turnover: 4.71
Revenue Growth: 35.38%
Return On Assets: 17.56%
Return On Equity: 32.05%

Nearly three weeks after releasing its first-quarter report, the company said it had signed an agreement to purchase scrap metal recycling company Recycle South LLC. Steel Dynamics purchased the Spartanburg, S.C., company for $500 million. OmniSource already owned a 25% stake in Recycle South prior to the acquisition. The company will operate as a division of OmniSource and be called OmniSource Southeast.

The move will increase Steel Dynamics' ferrous scrap processing capacity to approximately 7 million tons, according to Busse.

"It demonstrates SDI's strategic commitment to the continued expansion of ferrous and nonferrous recycling, which is an important element of our overall growth plan," said Busse in a May 8 statement.

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