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Steel Dynamics' (STLD) Earnings & Sales Trail Estimates in Q3

Zacks Equity Research

Steel Dynamics, Inc. STLD logged net income of $151 million or 69 cents per share in third-quarter 2019, down from $398.4 million or $1.69 in the year-ago quarter. Also, earnings trailed the Zacks Consensus Estimate of 70 cents.

Net sales in the quarter fell around 21.6% year over year to $2,526.8 million. The figure missed the Zacks Consensus Estimate of $2,618.7 million.

The company witnessed a decline in average steel pricing during the third quarter.

Steel Dynamics, Inc. Price, Consensus and EPS Surprise

 

Steel Dynamics, Inc. Price, Consensus and EPS Surprise

Steel Dynamics, Inc. price-consensus-eps-surprise-chart | Steel Dynamics, Inc. Quote

 

Segment Highlights

Net sales from steel operations declined around 22.3% year over year to $1,922.5 million in the quarter. Operating income declined nearly 58.5% year over year to $239.6 million and 19% sequentially. The downside was caused by lower shipments and a drop in realized product pricing in sheet steel operations, which more than offset benefits from lower scrap costs. Average external sales price fell around 18.1% year over year to $809 per ton in the reported quarter.

The company's steel fabrication operations generated sales worth $246.1 million, down nearly 1.8% year over year. However, operating income surged more than two-fold year over year to $35.3 million. Also, operating income jumped 15% sequentially on higher shipments and lower raw material steel input costs.

Net sales from metals recycling operations declined around 27.5% year over year to $280.9 million. Operating income fell around 83.7% year over year to roughly $2.9 million. The same also declined 72.7% sequentially due to persistent decline in aluminum demand and associated selling values.  

Financial Position

Steel Dynamics had cash and cash equivalents of around $1,146 million at the end of the quarter, up nearly 29.6% year over year. Long-term debt was $2,355.2 million, up around 0.1% year over year.

The company generated cash flow from operations of $444.2 million in the quarter, up roughly 5.7% year over year.

The company also repurchased shares worth $115 million and paid out $53 million in dividends during the third quarter.

Outlook

Considering domestic steel demand fundamentals, Steel Dynamics is optimistic regarding the 2020 North American steel market dynamics. The company believes that the North American steel consumption will experience modest growth. This is likely to be supported by the end of steel inventory destocking and further steel import reductions.

The company expects current trade actions to have a favorable impact in further lowering unfairly traded steel imports into the United States.

Steel Dynamics is positive about its Sinton, TX-based flat roll steel mill project as well as the related long-term value it will create through its value-added products and geographic diversification.

Price Performance

Shares of Steel Dynamics have lost 28.9% in the past year compared with the industry’s 30.9% decline.



Zacks Rank & Key Picks

Steel Dynamics currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Kinross Gold Corporation KGC, Franco-Nevada Corporation FNV and Agnico Eagle Mines Limited AEM, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross has an expected earnings growth rate of 170% for 2019. The company’s shares have surged 61.9% in the past year.

Franco-Nevada has a projected earnings growth rate of 34.9% for 2019. The company’s shares have rallied 40.3% in a year’s time.

Agnico Eagle has an estimated earnings growth rate of 158.6% for the current year. Its shares have moved up 42.2% in the past year.

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