Overview: Steel Dynamics (Part 11 of 11)
Steel Dynamics earning catalysts
The past few years have been challenging for Steel Dynamics (STLD). Its revenues have been stagnant. In this part, we’ll look at Steel Dynamics’ near term earning catalysts. It’s important to note that these are the factors that are expected to drive the earnings for Steel Dynamics. They are key guiding factors for Steel Dynamics’ performance on the markets.
- Expansions in specialty bars – As discussed earlier, Steel Dynamics gets a large part of its revenues from specialty steel. It recently increased its annual production capacity by ~50% in the specialty bars segment. This will help Steel Dynamics (STLD) expand its margins through value added products.
- Expansion at premium rail segment – Steel Dynamics recently completed the expansion in its premium rail portfolio. This will help Steel Dynamics diversify its product portfolio and also add to the margins.
- Margins improvement in recycling operations – Steel Dynamics has been working on a multi-pronged strategy to optimize its metal recycling operations. It has expanded its retail yard network to increase the collection of higher margin obsolete material. It has also adopted innovative technologies to improve recoveries and increase profitability.
- Iron ore operations – Steel Dynamics also owns iron mines. They supply raw materials to its plants. The iron ore operations negatively impacted its profitability by $42 million in 2013 and $18 million in the first half of 2014. Steel Dynamics is working to improve yields and its cost structure at these facilities. This is also expected to be an earning driver for Steel Dynamics in the near term. The chart above shows Steel Dynamics’ iron operations.
These factors are specific to Steel Dynamics’ business. The outlook for steel companies is also looking up. Please read our series “Must-know: Why it makes sense to hold on to steel companies” to learn more about the steel industry.
These macro factors are expected to guide the performance of companies like ArcelorMittal (MT), U.S. Steel Corporation (X), and Nucor Corporation (NUE). These companies form the investment universe for the SPDR S&P Metals and Mining ETF (XME).
Browse this series on Market Realist:
- Part 1 - Must Know: Overview of Steel Dynamics
- Part 2 - An investor’s guide to key operations of Steel Dynamics
- Part 3 - Why an integrated business model helps Steel Dynamics
- Steel Dynamics