Steel Dynamics Inc (STLD) 2005 Q1 法說會逐字稿

Good day, everyone, and welcome to today's Steel Dynamics first-quarter earnings conference call.

As a reminder, today's conference is being recorded.

Joining us today are Mr. Keith Busse, President and Chief Executive Officer;

Mr. Gary Heasley, Vice President and CFO;

Mr. Mark Millett, Vice President;

Mr. Richard Teets, Vice President;

Mr. John Nolan, Vice President of Sales and Marketing; and Mr. Fred Warner, Manager, Investor Relations.

For opening remarks, I would now like to turn the call over to Mr. Fred Warner.

Please go ahead, sir.

Good morning, and welcome to this April 21, 2005 conference call covering first-quarter 2005 results for Steel Dynamics, Inc.

Today's management discussion, as well as responses to questions, may include forward-looking statements.

We caution that actual future results and events may differ materially from statements and projections made today.

You may obtain additional information concerning a variety of factors and risks that could cause actual results to differ materially from today's forward-looking statements by referring to our most recent annual report on Form 10-K, as filed with the Securities and Exchange Commission.

Specifically, please refer to those sections in our 10-K report entitled "Forward-looking Statements and Risk Factors."

This 10-K annual report and other reports we file from time to time with the SEC are publicly available on the SEC website, www.SEC.gov, and on our website, www.SteelDynamics.com.

After today's management discussion, we will open the call for questions.

We ask you to keep your questions brief and to the point.

You are welcome to ask additional questions later, as time permits.

We will now begin today's discussion with introductory remarks from Keith Busse, Steel Dynamics' President and Chief Executive Officer.

Thank you, Fred.

Good morning, ladies and gentlemen.

Thank you for joining us for the Steel Dynamics conference call, as it relates to first-quarter performance.

As you can see from our press release, our earnings as you measure us against on a year-over-year basis were up considerably, almost double first quarter of '04, but they were down from the fourth quarter's earnings of about $1.47, as I recall.

And I would like to just talk a little bit about that.

We had given you guidance that was higher early on in the quarter, back at the time of our conference call at the end of January, first of February.

Obviously, we did not achieve those numbers.

Some of that was due to the fact that we had -- or a little bit of it was due to the outages and unplanned outages that affected the bottom line.

That was not substantial; in analyzing that, it probably cost us 30,000 tons and maybe $0.03 a share.

Our scrap forecast, I think for the first time in our history, was just not as accurate as it could have been, for a wide variety of reasons.

We had a lot of contract scrap that kept delivering at higher prices as the market was going down.

And our mix shifted on us.

Our model wasn't as -- we had a new model we were working with.

In the past we have been, I think, accurate within $2 or $3 in forecasting where we thought our resource costs were going to be, and I think we will be very accurate on a go-forward basis.

But in the first quarter, as you can see from our press release, we were down about $16 a ton on a FIFO basis from the fourth quarter to the first quarter, rather than the $22 or $23, the $20 to $25 range we gave everyone back at the beginning of February.

That probably cost us $0.06, $0.07.

So, between the scrap and the unplanned outages, we missed our early target by about $0.10.

But, as most of you can see from the press release, our average price, which we thought would remain stable at the outset of this quarter, dropped by nearly $40 a ton.

And that obviously was the single biggest factor affecting performance as you measure Q4 to Q1 '05.

The price dropped about $40 a ton.

When we put our model together for the first quarter, as I had said earlier, we had excellent bookings in January, one of the best booking months we had had.

We thought the softness in the marketplace perhaps had been vetted, if you will, that the inventory overhang was coming down.

At least from an order entry perspective, I think John Nolan and his team felt that we were going to see a resurgence in demand.

That did not materialize.

Our forecast was based on what we saw in January, and the danger with that is that we are really looking at one month.

Many, many quarters throughout our history, we have always been sold through most of the quarter, if not a quarter or beyond, and obviously had very good binoculars relative to forecasting.

But when you are running as tight as we were running, in terms of backlog to production, forecasting became more difficult and we just became too optimistic.

And that cost us, in my opinion, probably about $0.30 a share.

So if you look at what could have been, I guess we could have been $0.40 higher than we were, which I think would have fit the forecast, had the market not seen some additional deterioration and erosion.

But that's history.

It was still a good quarter from the perspective of -- in comparison to the prior year, and I think the momentum for us, at least, is upward in the second quarter, and we will discuss that in a little bit more detail.

As you can see, our shipments from a steel operations perspective were up substantially over '04.

But obviously, we are slightly short, something on the order of 0.5% to 1% short of where we were in the fourth quarter of the year 2004 -- so sort of a mixed bag.

As I said, we probably lost, through problems at our Flat Roll Division and at our Pittsboro division, maybe 30,000 tons of production or better.

We actually thought we were going to have a better quarter in terms of shipments than we did in the fourth quarter, in spite of market softness, which obviously had affected price.

So obviously, the fact that our bottom line fairly dramatically -- we reported net sales of $570 million, which was a pretty good increase over '04, but about $30 million light by comparison to the fourth quarter.

Our cost of goods sold was about $11 million higher than it was in the fourth quarter.

Our selling, general and administrative expenses are about $7 million less than the fourth quarter.

The net of all that is operating income was down about $34 million, after tax about $22 million, and that basically is the difference between Q4 and Q1.

As you look at our posture going forward into the second quarter, as I had said, I believe our earnings are going to be up fairly significantly in Q2.

We believe that we will be somewhere between $1.35 and $1.45 in earnings, which is up some 20% to 30% over the first quarter.

That is going to be driven largely by cost of sales reduction, if you will, or scrap prices coming down.

We are on a FIFO basis, and I believe that our scrap costs will be down about $35 to $40 a ton in the second quarter, which would translate to somewhere in the vicinity of $20, $22 million, give or take a few pennies, after tax, which is something on the order of $0.36, $0.37, $0.38 a share, if you did it on a per-share basis.

We are not going to be overoptimistic on pricing.

We think the market has bottomed, but I would tell you that our prices could be down $10 a ton or thereabouts -- flat to down.

And if you factor sideways to down when you consider the mix and the cost of goods sold related to that mix, the difference between selling values and cost of sales could affect earnings negatively by $0.10 or so.

So, when you mix that all up in the hopper, you can take whatever you like, $0.28, and add it to $1.12 and come up with an average of $1.40.

Actually, given that we could experience unforeseen further potential erosion, although I don't think we are going to see that erosion in pricing, I would say on the conservative side of our forecast range.

You notice that the range is a little tighter because I think we have done a better job of looking at the future.

We have a pretty good view of April, and I think, given our backlog condition having improved slightly over the last three or four weeks, I think we can do a fair job of looking at May as well, and see no real planned change in price structure for June, although I would tell you there is that possibility that you could see prices start to rise midsummer of '05.

I say that because I believe that the import activity -- a lot of people have said it has dried up.

We certainly do not want to give the impression that imports have dried up; they have not dried up.

They are down over where they were in the summer to fall of '04, but they certainly have not dried up.

So they may be coming in at the 2 million ton level, if you averaged it out, or 2.2 million ton level.

And that would give you an answer of 24 to 26 million tons per annum.

And when you add that to the industry's capacity of somewhere between 100 and 105 million tons, then I think you have a situation that, if imports don't increase significantly, that, given the level of demand, which is thought to be in the 130 million ton range, you actually could end up a few million tons short, which could create a little bit of pricing momentum midsummer, potentially.

I think most of you are aware of the fact that the ITC considered the sunset reviews against Brazil, Japan and Russia and left those reviews in place, or those tariffs in place.

So they are not going to be going away.

I think there were a lot of folks out there that had their pencils up, thinking about perhaps some Russian steel offerings on a go-forward basis.

Russia is now going to be restrained or constricted to its quota, which is, I think, in the 900,000 ton zip code for hot rolled, some of which -- some of the '05 quota was already used in '04.

So they don't have a lot of hot rolled relative to quota to ship, given that I don't think the Brazilians are going to be bringing a lot of steel here.

They might bring slabs here, but not steel.

And the Japanese will not be bringing a lot of steel here.

I don't think imports are going to dramatically increase, certainly not going to go away.

At this point in time there is not enough capacity in our system to service our domestic economy, so imports are going to be a way of life.

But the surges we can do without.

So without surges, I think with inventories being worked off little by little by little, I think there is reason for some optimism in the summer of '05 relative to the pricing momentum.

I would tell you, as you look at the third quarter versus the second quarter on scrap, that you are probably not going to see a big move up or down.

I think our input mix is going to be in the same zip code; we could end up having the same kind of scrap numbers in the third quarter as we did in the second.

And they might get a little better, likely to get just a little better, in my opinion.

I think many of the mills in this country have substantial inventory on hand.

I can tell you we certainly do; we have a lot of scrap.

We had a couple of rather large scrap organizations to our yards and actually remarked at how much scrap we have on hand, versus where we were last year at this point in time.

So we are better prepared for the June-July vacation season, with less prompt scrap flowing.

We have quite a stockpile of pig iron, and therefore are not going to be pushed very hard relative to resource costs.

I don't think the market will be, either;

I don't think the export activities are all that exciting right now.

I think the flows are pretty good.

And scrap surged a little last month.

It could actually back up in the face of that surge in May somewhat.

I don't have a crystal ball relative to how much, but --

So in the third quarter, you might see resource costs go down a little bit.

Pricing could go up a little bit in Q3.

But I think the softness has lasted longer than any of us had contemplated.

I don't know what we were drinking or smoking back in January, but it just was softer than we saw it at that point in time.

And I think, looking at it very realistic, I think that softness is probably going to continue through the second quarter, with some pricing momentum perhaps available to the producers, as I said, midsummer.

Europe right now, as most of you know, is soft.

Prices have slipped in Europe.

I don't think European producers represent necessarily a big threat domestically, given the exchange rate between the dollar and the euro.

The same would apply to Japan.

I think the question surrounding Asia and specifically China is a more open question at this point in time.

I think all the intelligence we are getting suggests that the activity in the Asian Rim, if you will, is really pretty good.

The question always seems to be China.

There is no question that, given the growth in China, that they are major, major market force.

But I think we all get really carried away with any sort of news that we perceive is tied to China.

China, I would tell you, is a surge buyer.

They don't buy in what I would say is an orderly pattern; one minute they are buying huge quantities, the next minute they are not buying anything.

So sometimes we get all giddy when we see a lot of activity in China and prices rise, and we get all despondent when we see no activity and prices fall a little bit.

But that's just the way China has purchased in the past.

I can't predict the future, but I think from what we saw the other day, the growth in China was slightly ahead of forecast.

I think it's going to continue.

I don't think China is going to be a major player in our marketplace, at least not in flat-rolled and wide-flange beams or SBQ bars, which are the markets we serve.

I doubt that they are going to be a player in play, but they could be a player in long products if that economy truly did back up, and it could hurt those markets, potentially.

But I think the real problem for flat-rolled is really if the Chinese become fully capable of servicing their own domestic needs, where does the steel go that has been supplied by Japan, Korea, Russia, Europe, et cetera, et cetera?

I think one of the real big problems we have in the world is perhaps not China, relative to its demand; it's perhaps Europe.

I think Europe has tremendous capacity relative to its domestic needs.

And it either needs to shutter some capacity or cut back on production, because they just produce more than is needed in that geography.

And I know they are big shippers into the US, and we need some of those tons on the go-forward basis.

But we just don't need, as I said, strong surges in that regard.

So the quarter was a good quarter, I thought.

I think that it sets the tone for a potentially good year in the year '05.

I think steel demand is -- or I think demand in general is probably not as brisk in '05 as it was in '04. '04 was truly a banner year, and we have some inventory overhang conditions to work with.

But I really believe that you are going to see demand stay fairly strong in '05 and '06; and as we work off these inventories, I think '05 and '06 could be good years for the steel industry.

I think a lot of people have wondered, is this prosperity sustainable?

And I would tell you I believe it is.

I think the industry is better managed than it has been in many, many years.

I think consolidation has mattered, both domestically and globally, for that matter.

And I think we are looking at certain regions of the world dramatically expanding consumer demand, maybe not so much in the United States over the 130 to maybe a high of 140 million tons of demand, but growing world demand.

And hopefully, we have not overbuilt capacity and won't get all of ourselves in trouble from that prospective.

In the first quarter, I might mention that we started our second joist and decking operation ahead of schedule in Lake City, Florida.

And that operation continues to gain momentum.

It obviously presented us with some startup costs that we had not contemplated, being ahead of schedule, but it will present us with profits ahead of schedule, as well.

So there is a positive side to that.

Iron Dynamics continued to make progress, producing at about the 20,000 ton level.

They were profitable in this quarter, so that's the second straight quarter of profitability for IDI.

Our facilities are in good shape.

I think Dick and Mark will speak to that.

I'll speak to the situation down in Pittsboro.

I think we are going to have a really good second quarter in Pittsboro.

We had some outages, both planned and unplanned, that affected our activity in Q1 more than we had contemplated.

But very strong backlog is in place at Pittsboro right now, and the pricing is stable at this point in time.

And we are measuring it up against lower resource costs.

I think we're going to see production and shipping activity increase fairly substantially Q2 over Q1.

That mill is just in excellent shape, running very well, and learning about its world quarter by quarter by quarter, and still performing very well for the Company.

I want to speak to the backlogs just a little bit.

The backlog condition in our Flat Roll business surged about three or four weeks ago, pushed our leadtimes out a week or two.

And then after that, order entry activity was just sort of flat; it kept up with production.

So we are entering as many orders every week as we are producing.

We are not losing backlog, we are not gaining backlog.

We wish our leadtimes were a little longer, but I think by the time we get to late May and early June, those leadtimes will have pushed out somewhat.

So that's the report on the backlog at Butler.

At structural, Dick's backlog surged three or four weeks ago, as well.

It has softened a little bit.

We are used to that; we kind of operate on a hand-to-mouth basis there.

We, generally speaking, have one month's orders in hand at the end of any given month.

That is the lifestyle we have been living almost ever since we were born, for that matter.

But our volume does continue to grow there, and it will grow in the -- it is contemplated to grow in the second quarter.

I think most of you that follow nonresidential commercial-industrial construction would recognize that most people in that world believe that the fortunes of war are changing there.

There are some signs of uptake activity there.

That would be a welcome activity, not just from a structural perspective but from a Flat Roll perspective because automobiles, as we all know, have weakened a little bit.

So I really don't have anything to add to what I've said, other than to mention that our share repurchase program was exhausted late first quarter, right about the end of the first quarter.

Our Board of Directors has authorized an additional 2.5 million shares to be repurchased.

That could be modified upward if it needed to be.

We are taking it one step at a time.

We think the selloff in this industry is just dramatically overbaked, relative to its earnings capability in the year '05.

I think we're going to have good earnings.

And I think, for whatever reason, people that invest in this sector became nervous, if you will.

And I think that steel stocks are just awfully oversold.

We think our shares represent an awfully good value, and intend to continue to repurchase them on a go-forward basis.

I will now turn the conference call over to Mark Millett, and we'll get his comments about the state of Butler.

Well, thanks, Keith.

You have been comprehensive, as normal, so I've only got a couple of things to add, really.

The mill is running extremely well, continues to run well and is actually, with some scrap changes we have here of late, been posting some records on the hot side.

We did have a little bit of an issue in the first quarter.

We had a cold mill electrical motor give out on us -- cost us about eight days.

It did impact shipments and it also kind of skewed the product mix towards the lower-margin products, to some degree.

Iron Dynamics -- we shipped about 52,000 tons over the quarter, which is about 60% of our anticipated rate.

And we, in the month, of March produced about 21,000 tons; that's about 70% of our anticipated rate.

So things are improving dramatically.

Even though raw material pricing is softening to some degree, we think increased production through that unit will remain profitability (ph) for the year.

That's all I've got.

Dick, turn it to you.

Thanks, Keith.

The Structural and Rail division has had a few recent achievements that I would like to mention.

First, we received our conditional ISO9001 registration.

All departments performed very well, and I congratulate them.

Secondly, in March we shipped a record of over 70,000 tons of finished goods.

We have shipped more in the past, but when we had quite a few tons of semifinished, and they are much easier to ship.

But in March we didn't have any semifinished, and so it was an achievement.

And it's really noteworthy because the shipping department's accomplishment occurred while we had reduced our truck shipping days to only Monday through Friday, and we did it with 25 fewer employees within that department.

So on a tons-per-manhour basis, it was an extremely noteworthy accomplishment.

Lastly, as the press release mentioned, we continue to roll and ship rail products on a weekly basis.

We continue to make progress from a quality standpoint, and have had some rail (ph) that we are produced to acceptable REMA (ph) standards.

But, notwithstanding those improvements, we placed an order for new molds and hardware, which we are confident will consistently produce a quality product.

The equipment is scheduled for delivery about three months from now.

Also pertaining to rail products, we have placed orders for the extra 80 feet of cooling bed and the rail welding machine.

These products will allow us to roll to 320-foot length bars and to join them into the 1,600-foot lengths of welded rail sections.

Both of these projects are scheduled for delivery late this year and installation by the end of the first quarter of 2006.

Keith?

Thank you, Dick.

I'm going to turn the conference call over to John Nolan, and let him talk in just a little bit more depth about the markets and how he sees activity on a go-forward basis.

Good morning, ladies and gentlemen.

I think the four most important words in the market today are inventories, imports, scrap and demand.

And Keith did an excellent job of covering all four of those.

I do want to add one or two comments about imports, particularly.

He did mention the ITC decision on the hot-rolled sunset involving Japan, Brazil and Russia, and that was exceptionally good news.

And I want to complement everybody in the industry who participated in that to get that job done.

The imports right now, surprisingly, are hovering around 2004 averages.

I'm not sure how many of you are familiar with the DOC import administration website, but it's an excellent tool.

We use it extensively.

That is a high correlation between import licenses and receipts through customs and DOC, and I would encourage you to take a look at that.

It actually shows that imports are trending up slightly, despite rumors in the marketplace that -- I think the quote that I like to use is nothing is coming, going forward.

That is not true, and you shouldn't be tricked into thinking that is the case.

Regarding demand, one of my favorite expressions when asked to look forward is that the light in my crystal ball is out at the moment.

But I did find one that I respect, which is the International Iron and Steel Institute, that took a hard look at 2005 and believes that this will be the first 1 billion ton plus consumption year for steel.

And just to pick up on one of Keith's comments about China, its growth is expected to improve about 11% and to top close to 300 million tons of consumption this year.

So I think the look going forward is sound.

Inventories do need to come down.

Production domestically is responsible for some of that.

The other piece of it is most of the transactions that were executed with trading companies last year by the buying community were done on an irrevocable LOC, Letters of credit are firm and fixed, and if material arrives late, it arrives late.

Some of it has, and I think that is contributing to some of the spike in imports that we saw unexpectedly in January and February and March.

That's it, Keith.

Thanks.

Thanks, John.

We are going to turn it over to Gary Heasley, and he's going to talk about our balance sheet, capital expenditures, statistics that all of you might be interested in.

I'll give you some numbers here.

Steel operation shipments for the first quarter -- I will run down the detail there for you.

We shipped 274,000 tons of hot band;

P&O (ph) shipments were 39,000 tons; cold-rolled, 41,000; hot-rolled galvanized, 85; cold-rolled galvanized, 73; we did 1,000 tons of post-anneal; and in the painted line, we shipped 57,000 tons in the quarter, for total flat-rolled shipments of 570,000 tons.

Our Structural division shipping 185,000 tons of structural product and 1,000 tons of rail, which is industrial grade rail.

And our Bar Products division shipping 90,000 tons.

So steel operations consolidated shipping was 846,000 tons.

Our average price for steel operations was $655.10.

So that gives you some metrics for the steel operations.

Moving to interest expense, interest expense for the quarter was 8 million.

We expect it to remain between 8 and 8.5 for the remainder of the year -- 8.5 a quarter for the remainder of the year.

Our leverage remains very stable at 0.7 times EBITDA.

Liquidity at the end of the quarter was 214 million.

As it stands as of yesterday, it was 160 million, so liquidity is more than ample to serve our needs.

Depreciation and amortization -- we remain at about $24 million a quarter, came in a little low on that this quarter, at about 22.

But we are giving you 24 million a quarter.

CapEx for the year -- and this is a change from what we were at our estimate in the last conference call -- we are calling now for $100 million of CapEx.

That's a decline from the 155 to 160 we mentioned earlier.

The big movement in our CapEx plans has been that we have pushed back the Mesabi Nugget projects a bit, as we have continued to work with the states of Minnesota and Indiana to get air permits.

Those processes are taking a little bit longer than we had hoped.

I'm not sure that's a huge surprise, but as a result of that, we have reduced our CapEx, expecting only 100 million for the year 2005.

Our tax rate remains 38.5%, and cash taxes for the year we expect to be around 200 million.

So that's a little bit of information to help you model.

And that's really -- I don't think we had any incredibly meaningful movements on the balance sheet.

Our receivables are up, but our statistics, our aging on those receivables remain very, very favorable.

And our experience of loss remains immaterial.

Inventories are up a bit;

I think that's primarily because of increases in work-in-process inventories, where we were somewhat light at year end.

So that's where we are with some of the numbers.

Thank you, Gary.

Angela, we will at this point in time get involved with the Q&A component of the conference call.

Thank you.

(OPERATOR INSTRUCTIONS).

Brett Levy, Jefferies & Co.

Can you give a little bit more detail?

Obviously, prices fell during the quarter.

Can you give a little bit of detail -- sheet versus structural versus bar, where it fell the most significantly?

I know it's somewhat sensitive.

And talk a little bit about what you're seeing in terms of outlook going forward there.

And then I suppose the other question would be in terms of some of the expansion projects.

Obviously, you guys are looking near-term to move into some bar and light structural products.

Can you talk about that project?

And then, longer-term, what's your thinking in terms of the West Coast, given somewhat of the fragility of the market here and the delay in the Mesabi Nugget project.

I don't have the fourth-quarter pricing in front of me, but I would tell you that most of the $40 was flat-rolled influenced.

There wasn't a lot of movement, a little bit down maybe in Dick's area, but not substantially, not as substantial as flat-rolled.

And bars were down probably about the same magnitude as flat-rolled.

I don't have the numbers in front of me, but most of the influence was in the flat-rolled arena.

As to your questions about where are we going to go from here, we are looking at a project that could be additive to the capacity at our Structural division.

It would not be wide-flange beams; it would be other merchant material to service other markets, and it's in the early stages of development.

We are not quite sure which product fields we would put on that mill.

It would obviously involve a complete new rolling mill that would sit adjacent to the structural mill and require some modifications to the caster.

As you know, we have all of the melting capability we need.

There's probably 2 million tons of melting capability there and 1 million tons of rolling capability.

So we are looking at this from a margin perspective and cost compression perspective.

It's not a project that has Board authorization.

At this point in time, our Board is aware of it, have encouraged us to look at it.

But until we bring them hard and fast numbers, we don't have approval for that project yet, if you will.

I think we will get there, and we could launch that project later this year, with the proper modeling and forecasting, relative to it being substantially accretive to our earnings.

In the Bar Products arena, we have enjoyed good fortune there and good success.

Our customer acceptance has just been awesome.

Demand is returning at this point in time in a substantial way.

We have thought about expansion in that arena for some time, but we want to completely digest everything we have in place at Pittsboro before we launch another project.

But it would be our intention to, perhaps in '06, look at another project and adding to our capabilities there.

Flat-rolled, that Mark has mentioned that he is looking at a 200,000 ton increase in the near term, with modifications to that mill.

I think that's a realistic forecast.

We have no plans at this point in time to build another mill, at least east of the Mississippi.

We've talked a little bit about west of the Mississippi, West Coast mill.

But as you know, that project really would be driven by the success of Mesabi Nugget, and that is a year or so away.

So there's really nothing new to report there, although we think we can build a facility of moderate size, not a giant facility, that it financially would do very, very well.

And we would be one of the only primary producers on the West Coast.

Are there any questions we didn't answer?

No, that was very thorough.

Last question -- can you talk a little bit about how the scrap surcharge mechanism is working now?

It sounds as if in the second quarter the movement in the scrap is largely going to be captured by you guys, unless this is really a timing issue, and most of that will come back and normalize in the third quarter.

So can you talk about sort of how the surcharge mechanism is now working?

I'll turn that over to John.

He can do a better job then I could, probably.

Let's look at it this way.

If you take the peak of scrap prices -- and again, our surcharge is tied to the American Metal Market, bushling index, consumers, buyers who are number-one bushling (ph).

If you take a look at the peak -- I think it was back in November of last year -- about $430.

It declined to 255 for March.

That's a $175 decline.

A lot of our products are tied to the surcharge, but I guarantee you our prices on average did not fall by $175.

So I would think that the mechanism is serving us very well.

Going forward, we saw the first uptick this month, the index back up to 270.

We will continue to follow it and continue to use it going forward, particularly in long-term sales agreements, where it is a staple.

Is that what you were looking for?

Brett's line actually just disconnected.

Chris Olin, Longbow Research.

First of all, a point of clarity.

Did John say imports are expected to start coming up?

Well, they have showed a little increase from a dip, is what has happened in the past month, and I think April may be at that same level.

But they are down from where they were in the late summer/early fall timeframe.

But they are still a factor; a lot of people -- there have been comments made that imports have dried up.

Well, that would imply there are no imports.

But there certainly are; they are just not at this surge level of 3 million tons a month or 2.8 million tons.

They are closer to 2 million to 2.2.

Wouldn't you expect imports to start moving up going forward, given the weakness we are seeing in the European market?

There are some tariffs in place against Europe, as well as a weaker dollar, and their cost structure is not very pretty.

So I think if it moved into our market at these prices I would call it dumping, and we would have another round of cases on our hands, I suspect.

But they have been a factor in the market; they have found niche opportunities, they have filled some voids.

I think they will continue to fill some voids.

But are they going to be a major player with the relationship between the dollar and the euro?

I don't think they are going to be the guys that would be surging.

I think that was led by, in the past, India, Turkey, the Ukraine, Russia.

It has not been led by Japan or Europe, necessarily.

And coincidentally, many licenses for hot-rolled and slabs that were applied for through DOC were Russian.

And again, the decision recently by the ITC to support the continuation of the suspension agreement, we believe, is going to have an influence.

Maybe most of that, let's say, may not come.

Some of it will.

It all depends on where Russian stands vis-a-vis the quotas at the moment.

I think they're probably going to ship their quota.

Their quota is going to be less in '05 because they used some of it in '04.

But in terms of how they get measured as well from a pricing perspective, they are locked into market economies that ship in here.

And you can't point to too many of those other than, at this point in time, substantially, Canada and Mexico.

So if you measure where their price needs to be, by law, it's not going to be down in the sewer, as some might suspect.

It's going to be up in probably the 550 range, at least.

Just looking at the flat-rolled market, just so I'm clear on your outlook, I get the impression from talking to my contacts that the month of April has been much worse than a February or March type of level.

Can you confirm that?

Looking at demand and pricing, it's been pretty sloppy, right?

Well, I think from a pricing perspective it has tailed off a little bit.

But again, we measure demand based on what we see in the order book.

And our order collection for April to date is consistent.

And by that, I mean total volume is almost spot-on for March, February and January.

So we are apparently not leaving anything on the table, so to speak.

But I would agree with you that prices have tailed off a little bit.

So just getting it all together, in terms of maybe there would be a price increase in the summer, and if you have imports moving up, if anything, and demand moving down, I'm just wondering how you can even pass through pricing, with the (multiple speakers).

I don't see imports at an irrational level.

I think moving up is a statistical thing.

It's not huge tonnage.

I just don't think it's going to abate, and I think if inventories continue to fall -- and I think they will -- then I think it sets up an environment for the price decline to reverse course.

And lastly, hot-rolled today -- would you say it's around 550?

Or what would you say?

If you look at the recent CRU Monitor, which I think I happen to have right in front of me, the number is 558.

I believe that's a little bit low side, relative to how we are taking orders from the marketplace at the moment.

Timna Tanners, UBS.

I just wanted to ask two questions.

One is if you could break down what are seeing on the demand side -- you know, a little more specific, besides what we know about the auto market -- what you are hearing from service centers or from your end users that you talk to.

Specifically, I think more on the sheet side, trying to understand what happened there, versus maybe some nervousness that could correct later on.

The other question is just if you could talk about free cash, now that the CapEx number is guided lower -- what strategically you would think about, just uses of free cash going forward?

Okay.

First, talking about demand, we look at demand through a number of segments -- information we get from the marketplace.

We also look at our own businesses.

Our building products company is a key indicator for us.

And secondarily, fixed bookings at Columbia City, how well we are looking at immediate demand, near-term demand from the perspective of the wide-flange market.

I would say that there are clear signals that the construction market is picking up.

With respect to distributors, particularly automotive focus, there is a lot of talk about automotive settling down and maybe even looking at the prospect of production cutbacks.

A couple of the key service centers that we work through tell me that their outbound -- in other words, shipments on a daily basis -- are still strong.

They are not at record levels.

They are above 2004 averages.

They are not weak in any context.

So it's kind of a mixed bag out there.

Beyond that, the other market segments -- we sell particularly through painted products -- are still reasonable.

I wouldn't call it strong, I wouldn't call it weak; but again, above 2004 averages, in my opinion.

I might mention that our backlog has surged fairly substantially from New Millennium building systems, at both our Butler plant and down in Florida.

And Florida is still in the early learning curve, and it has more backlog that it can say grace over at the minute.

I hope that the learning curve speeds up to take advantage of the changing fortunes of war in that market, but there seems to be some strength there at this point in time.

Gary?

On uses of free cash, obviously, as you have seen in the press release, we bought back a lot of shares recently.

Near-term, we intend to continue to buy back shares.

So that's one particular use of free cash flow.

But longer-term, the Mesabi Nugget project has moved back a bit; it has not gone away.

We will be investing in that as permitting proceeds, and we begin to get prepared to and then eventually break ground on the facilities that we intend to build.

And in each of our business segments, we continue to look for opportunities to expand our product offerings or whatever; we look at all opportunities to position ourselves to continue to grow in each of our predominant markets.

So we will be continuously evaluating our uses of free cash flow.

The project that we're looking at at Columbia City, if approved, could be a consumer of cash in the '06 timeframe.

I would also tell you that I think that '06 is -- we're getting closer and closer, and that means we have an opportunity to retire some of our bond debt at that point in time.

And that would be something we'll certainly be looking at, as well.

Mark Parr, KeyBanc Capital Markets.

A question for John - I was wondering if you could give us an update on what you are seeing regarding export opportunities.

I think the best way to characterize it is not as active as they had been maybe four, five, six weeks ago -- maybe because we've, with the exception of one project that we participate on through a US trading company, we have kind of backed away from the export market at the moment.

What I hear on the street is that other of our competitors are looking at that seriously -- in fact, in some cases pulling the trigger on some opportunities.

So I really don't have a feel for where pricing would be.

But we have a unique opportunity.

We have been supplying this since late last year.

We're participating in -- we're providing material for pole laminations for hydroelectric generators on the Three Gorges project in China.

And the company that buys that in China buys about 40,000 tons a year.

I'm not going to tell you that we're going to supply all 40,000 tons.

We so far, I believe, have orders for about 12,500 tons.

We ship through, again, a US source, and that material is processed here, packed in shipping containers and shipped overseas.

It's one of the few returns that shipping containers from China see today.

So we're kind of pleased with that.

Prices are good.

Base prices are in the 560 area plus extra, since it's light-gauge, high-strength, so something of a unique product.

But that's only one that I can really provide credible information on.

If I could follow up with one more on a somewhat different topic, we saw the MSCI flat-rolled months of supply on hand in March.

It came down;

I think it was 3.1 months.

That's down from 4 months in January.

If you were going to have to guess, based on what you are seeing as far as service center order momentum, and also just given the underlying demand environment, is there any way you could venture a guess as to what that number might be looking like for April?

I don't know that I can quantify it in quite that way, but what I can tell you is that I had a unique opportunity to spend a lot of time with a lot of customers in Chicago last week.

And again, I indicated earlier the four most important words discussed are inventories, imports, scrap and demand.

The first one -- and that's in order of priority -- inventories.

Depending upon the service center, the opinions range from "My inventory's in good shape" to "It will be in good shape in 60 days."

So I'm going to tell you -- and let me qualify it further by saying they're 30 to 60 days away from progressive purchases.

In fact, that was the expression that one significant buyer used with me.

So I do believe that, despite a little bit of uptick -- as we exchanged with Chris before, on imports -- that inventories are under control at the moment.

They are coming down, and most people in the distribution industry feel they will be in a reasonable position sometime in the next four to six weeks.

Andrew O'Connor (ph), Wells Capital Management.

Keith, related to your prior comments about the new Lake City, Florida plan, can you speak more explicitly about capacity utilization there, and how you see that trending over the remainder of '05?

Well, they won't reach capacity down there for -- they probably won't even reach it this year.

It will probably be next year before they get there.

But I guess all I can tell you is we had a pretty good startup curve at Butler, and are ahead of that curve at this point in time.

And any other explicit comments related to the strength of demand for their products?

Yes.

The Florida market, the region, I think driven specifically by activity in Florida, appears to be up substantially.

That's really the only intelligence I have from Lake City, is that they are seeing a lot of quote activity down there.

But they are very young; they have only been welding joists for 30 days or so.

Overall, is it possible to quantify your comments in terms of new non-res-related orders that are coming in for the second quarter and beyond?

Well, it's a little strange, because we have strong backlogs at New Millennium, and yet we really are not seeing a substantial strengthening at our wide-flange division.

So it's a little bit of a dichotomy.

I realize that some of the metal-building folks are using more joists today, et cetera, et cetera.

But I don't know how substantial that is, and so one set of statistics leads me to believe there is heightened activity out there.

And I think you'll see the same thing probably being reported by Nucor.

I think their joist business and deck business is in pretty good shape.

I think their statistics were up sharply in the first quarter.

I think they are going to have even better activity in the second quarter, so that would lead me to conclude that non-residential is moving.

But you look at Dick's backlog, and you say, Jeez, it's still hand to mouth; our order book is 30 days ahead of -- we have got a 30-day supply of orders on hand.

So we haven't really pushed out to eight weeks or anything like that.

We would think that we would see that shortly, but we haven't.

If I could add one thing, one other indicator is our coating line at Jeffersonville, which is predominantly a construction market coating line.

And again, it's hard to differentiate residential from non-residential.

But we make a lot of products for HVAC -- heating, ventilation and air conditioning.

And right now, we are struggling to move orders from Jeffersonville back to Butler because demand is so high.

That line is technically in July at the moment.

So that's one other piece of information that gives us pause to consider that the construction market might be improving.

Ryan Bales (ph), Banc of America Securities.

The first question I had I wanted to ask you -- I know you mentioned last quarter that the landed levels for imports were at similar levels to the domestic prices in hot-rolled and sheet.

Is that still the case, or are you seeing import pricing higher or lower?

And then, the second question I had, I just wanted to kind of clarify in the rail business, with the CapEx projects you're doing there, does that sort of mean that rail material -- commercial rail shipments are going to be sort of in '06?

Or is there still some chance we see some of that this year?

Regarding import pricing, clearly, we have seen import pricing consistent with US market prices.

Some of the same buyers that I spoke to last week are telling me right now that, again, vis-a-vis letters of credit, they are landing material from offshore sources above US market prices at the moment.

Again, that's a commitment they had to make, in order to get the positions from a trading company.

I heard rumors in the marketplace that some Russian material was intended to be priced at levels below current market prices;

I cannot confirm that to you.

But so far, and for several months, I would say that most of our offshore competitors have been behaving and playing by the rules of the game.

As far as the rail question goes, really, the CapEx programs are for continued improvement and product diversity.

The expanded cooling bed -- we are currently making 240-foot length rails.

Most everything that we are shipping is either 80-foot or 40- or 39-foot.

We do have one order on the books for 240-foot, and we intend to satisfy that order.

Again, the 320 will come into play more so in conjunction with the welding line because, needless to say, the more 320 you put into a 1,600-foot length, you basically are eliminating almost 20% of your welds versus a 240.

So we fully intend to ship REMA-quality, class-one products this year.

I'm not implying that we are pushing it off.

It is, I believe, real important to get our molds in in three months, which, again, is by midyear or so.

And we have what I look at as the full fourth quarter and most of the third quarter to qualify and start making some spot shipments into the class-one rail market.

Aldo Mazzaferro, Goldman Sachs.

I just had a couple of quick questions.

I wonder if -- Gary, maybe this is for you.

Can you give us an update on where you stand right now with shares outstanding as of the end of the quarter, after the buyback?

Yes.

At the end of the quarter, we had 46,806,673 shares outstanding.

So on a fully-diluted basis, I think that would equate to about 54 million shares.

54.0?

Okay.

And then another question, maybe for a couple of you guys.

In terms of trying to get a handle on what the conversion costs have been doing in the quarter, I can see how the metal spreads cost you about $25 a ton, compared to the fourth quarter.

But then, on relatively flat volume -- actually up a touch -- the operating profit per ton was another $15 down from the metal spread being down 25, the operating profit down 40.

That $15 a ton -- I wonder if you can help identify whether that was energy costs or other variable costs, or whether there was some unusual item in the operating expense there, compared to the fourth quarter?

I will let Mark speak to that issue.

My sense of it was, in looking at our inventory and our standards, is that his conversion costs ex-scrap were actually down.

So he has made some progress.

Pittsboro was -- the volume was so light that, given the unplanned outages and planned outages, et cetera, et cetera, that I don't think their conversion costs did much of anything quarter to quarter, although I think it will fall substantially going into Q2.

And Dick's conversion costs were, I think, about flat.

Actually, in the end they were flat.

But just to the point of the question, because we don't have an energy contract and we are in the spot market, and with trying to continue with running the plant, we actually bought higher-cost energy.

And from an electricity basis, even though our efficiency improved, there was almost a $6 a ton increase in electrical costs for the first quarter.

Now, that's behind us, and we see the prices dropping and so forth, and are very optimistic about getting back to what we consider more normal.

But it was a seasonal thing, so energy and alloys were our problem, even though we made other improvements in the operating cost-per-ton basis.

Was that electricity cost spread around the whole company, or just in the structural?

No, structural, mainly.

Yes.

So energy cost was -- how was that from fourth to first quarter?

Again, from my perspective, it was between $5 and $6 on an electricity basis, and we are hedged enough on gas that we probably only saw about a $0.20 increase in natural gas costs.

We were about the same.

Energy or power was flat.

We are hedged through April about 83% of our natural gas consumption at Butler.

And so, again, that offset any higher price in the fourth quarter.

So energy for us was relatively stable.

And then just finally, how is the headcount at this point?

You mean number of employees?

Yes.

It's stable.

We added some people late fourth quarter because of Lake City, so we may be up a little.

Gary might have that (multiple speakers) actually.

We are at about 1,650.

And we were at 1,620?

1,620 before.

So maybe up 30 people, something like that?

Yes, most of which, I think, is Florida.

John Tumazos, Prudential Financial.

Congratulations on all the continued progress.

Your debt is less than one-third of total capital, if we include deferred taxes and minority interest in your capital structure.

And you continue, of course, to earn a good bit of money.

Could you weigh -- assuming for a moment the current parameters of interest rates and stock prices and your stock -- whether it would be more attractive to have a third stock repurchase tranche after you buy these 2.5 million shares, compared to some of your growth projects?

And then, secondly, following up on an earlier question, could you just mention how much your steel exports were in the first quarter and last year?

We'll take them in reverse.

John, I don't think our steel exports were material.

No, our steel exports in the first quarter were probably under 10,000 tons, John, and with the exception of -- I think it was 8,000 or 9,000 tons that shipped, again, to the Three Gorges prospect in China.

We were not material, and there was nothing else that I have to report to you.

It was all domestic.

And the 2.5 million share re-up, if you will, the stock purchase buyback program is just step one.

There needs to be a step two.

If there needs to be a step three or step four -- we think our shares are just an excellent value, and we're going to -- given we have no near-term huge cash needs, we are going to continue to repurchase them.

That said, John, we continuously, in each of our monthly business reviews, are looking at all opportunities we would have to grow the business.

So as we see opportunities present themselves, as market conditions present us with some new thoughts, we could shift into a new project at any point.

I just want to qualify.

Again, with respect to your questions about exports, we do ship to Canada and Mexico.

So I'm answering in the context of North American shipments.

How much were your exports last year in the AISI definition, where NAFTA counts?

I don't think that we were represented in that information.

I have not filled out those documents, so I would say we probably have not reported that (technical difficulty).

Does that answer your question?

Of course.

Thank you.

(OPERATOR INSTRUCTIONS).

David Lipschitz, Merrill Lynch.

I was wondering where you see shipments for Steel Dynamics for the second quarter and for the rest of the year.

The second quarter should be up in Bars, up in Structural and, actually, up in Flat Roll.

So in total, we could be up as much as 100,000 tons, almost, I would think.

Some of that will be New Millennium, but in steel shipments, I think Bar Products could be up 30,000 tons, Structural could be up 15 or so, and Flat Roll could be up 20,000 tons, in that area, potentially.

And with New Millennium's Florida operation there, starting up the deck operation here in the next few weeks, and so we will see some increases in tonnage there as well, and they continue to ramp up the joist operation.

So there again, we see some increases.

And for the rest of the year?

Do you expect to be like 10% up from (multiple speakers) level?

I think the third quarter will be at an even higher level than Q2.

That's my thoughts right now, and I probably would tell you that the fourth quarter should not be any worse than what it was in '04.

Charles Bradford, Bradford Research.

Just a couple quickies.

What was your actual scrap purchase price in the first quarter?

We don't discuss that.

You just give us the difference?

Right.

Okay.

It was pretty good.

We certainly have -- let me just say this.

I think when we moved away from using Omni as our agent, there was some trauma both in our organization and in theirs, as we readjusted to a new world.

And that affected -- I think negatively affected -- our purchasing activity.

We have our own scrap buying organization.

They are dialed in, settled in, and they are doing a terrific job.

So our numbers are starting to come back, as I would see them in relation to our competition, but we generally don't give that information out.

We talk about the change.

But we are not far off of Nucor's numbers.

That's to say we are about on top of them, if you will, as they report them.

And so there is a good correlation there, with the sole exception of their -- my guess would be that Nucor is something on the order of 40% premium grades, given the plate business, the structural business and all the bar shops, and maybe 60% obsolete grades.

And we're just absolutely the inverse of those numbers; we are 60% premium and 40% obsolete.

So my own account would be I think the team is doing an excellent job.

A point of clarification.

The numbers that we give you, the change on the scrap we're consuming in the quarter, not necessarily purchases.

And I think your question went to purchases.

Well, actually, I was looking for both.

But that's okay.

In the Mesabi Nugget issue, is there anything special that is causing the delays in the permits?

Or it's just typical administrative stuff at the difference state levels?

Yes, there's nothing else.

We are ready to go in either environment, and it's the typical comments that get thrown in by the nervous Nellies and the greenies at the last moment, and the obstructionists, if you will.

But I think our permit is about ready to be effective here in Indiana.

It's not that far away.

I think, Mark, you said, what, a couple weeks?

I think most of the delay, in all honesty, was on our part in both states getting them all the correct and to the right information.

I think both governmental agencies have been doing, actually, a pretty good job pushing things along.

There are no real major issues that we need to overcome, we don't believe.

We are not going to have another hassle like we had on the structural mill?

No, that's not possible in Indiana.

Indiana is in control of its own destiny, and it does not go through the federal appellate process.

It's all settled right here in Indiana.

They have the appropriate authority.

They will make, obviously, based on all the evidence, what they believe is the correct decision.

But they don't really have any problem with our permit at this point in time.

There were some comments on it by guess who, but at the same time, I think those have been answered appropriately and that they will move forward.

Michelle Appelbaum, Michelle Appelbaum Research.

I missed part of the call, so I'm not sure if this has really been addressed or not.

But first of all, I just want to congratulate you on, again, most probably being the most profitable steel company out there.

The numbers continue to be amazing, both on an absolute and relative basis.

So it was, all in all, a great quarter.

I wanted to ask you -- I see the Company using free cash to buy back shares, and I think all of us would agree that, given the valuation, it's an incredible bargain and it's something you should be doing.

But I'm wondering, in the context of this industry -- we have been seeing this kind of consolidation going on.

And I think something that surprised me the last six months or so has been you have got these two large, middle -- and US and Newcor, I guess, is now three large -- 20 million tons companies.

And now, all of a sudden, Gerdau, I guess, is saying they are number four now, at 8 million, with the Northstar (ph).

And they are saying they would like to double the size of the Company over the next two to three years.

And there were something in the Journal about North America being an attractive market and whenever.

So now, you may end up with four companies that big.

What does that do for you strategically?

Are there other opportunities for you to become a more aggressive growth platform?

Are there partnerships?

Or is it kind of -- do you have critical mass in the products that you are in, and therefore that's sort of a moot issue, you don't have to be in every product kind of thing?

Early in the call, Michelle, we did talk about a potential expansion at Columbia City of perhaps 5, 6, 700,000 tons of rolling.

We're looking at the product fields that fit at this point in time.

It's not an approved project, but it could be approved later this year.

So there is greenfield growth in our plans, relative to that particular facility, and we certainly would like to continue to grow SBQ bars.

We have said that openly, so obviously we're going to need some dry powder for those affected expenditures.

The consolidation wave -- Jeez, I don't know.

There are some other opportunities out there, but they are narrowing and necking (ph) down.

I don't know if there's a lot left in that regard.

I certainly can't speak for Gerdau;

I read the same thing you did.

They hope to grow.

They don't mind buying shops that have labor agreements, and who knows?

Maybe they will step up and by Stelco;

I don't know.

I think there is some M&A activity that has got to go on out there yet today.

I think Nucor has done a good job of growing.

We've said we don't need to be a 20 million ton shop.

We kind of like Jack be nimble, Jack be quick.

And our growth has been good.

Very little of it has been by acquisition.

That's not to rule that out.

If we find the appropriate opportunity, we will move forward in that vein, as well.

I think we certainly have an opportunity, should we need any substantial cash for that kind of activity on a short-run basis; our bank line is fully expandable.

We could take that out another $100 million at the blink of an eye.

We can certainly increase our bond position.

So we are not going to be short of capital.

But our earnings are going to be good earnings this year, and when you add the non-cash component of it, yes, buying back shares removes some of that cash from the table.

But at the same time, I think we're going to generate ample cash.

Tony Rizzuto, Bear Stearns.

A couple of my questions have been already asked, but I did have one housekeeping item.

When I was looking at the model, it looks like your SG&A in the year-ago period was actually higher than what you guys reported at 17.9.

We actually had it at 23.05.

Has that been any kind of restatement that maybe we missed?

We had some materials and transportation costs that we previously had included in SG&A that are now up in cost of goods sold.

And when was that actually broken out?

Did you do that earlier, I guess?

Or was it just this quarter?

Yes, it would be effective at the end of 2004.

And there are no further questions at this time.

I would now like to turn the call back over to our speakers for any closing or additional remarks.

Thank you, Angela.

For those shareholders that were listening, we will continue to do a good job for you.

For those employees that were listening, let me say thank you for your excellent efforts in the past, and we think we have one of the really truly great teams in the industry.

Our employees do such a great job.

I think some of you can see that, if you have read our annual report, and listened to the testimony of some of our employees.

You can see that we just have just a wonderful group that we have an opportunity to work with.

And for those of you that follow the industry and cover us, thank you so much for all the coverage and for your attention to the Company.

I hope we have answered all your questions well, and look forward to speaking with you in the future.

Thank you, ladies and gentlemen.

Once again, that does conclude today's teleconference.

We thank you for your participation, and have a wonderful day.