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Steel Dynamics Closes 75% Stake Buyout in United Steel Supply

Anindya Barman

Steel Dynamics, Inc. STLD said that it has completed the earlier announced purchase of 75% of the equity interests in United Steel Supply, LLC for $134 million, comprising $93 million in cash and assumption of debt of $41 million. Steel Dynamics also has an option to acquire the balance 25% stake in United Steel supply in the future.
 
Headquartered in Austin, TX, United Steel Supply has four distribution centers located in Mississippi, Indiana, Arkansas and Oregon. The company is a leading distributor of painted Galvalume flat roll steel coils used for siding applications and roofing. Since its inception in 2007, it has achieved compounded annual revenue growth rate of 26%.

Steel Dynamics’ unique combination of Galvalume manufacturing and on-site paint application helps in the production of painted Galvalume, an important product distributed by United Steel Supply. This transaction adds a new distribution channel for Steel Dynamics and connects with a fast-growing industry segment with customers that do not traditionally purchase steel directly from a steel producer.

The acquisition allows Steel Dynamics to expand its painted Galvalume value chain. The company expects the buyout to fuel growth in one of its highest-margin flat-roll steel products.

Steel Dynamics’ profits dropped roughly 11% year over year in fourth-quarter 2018, hurt by costs associated with significant maintenance outages. Adjusted earnings of $1.31 per share for the quarter beat the Zacks Consensus Estimate of $1.25. Net sales shot up around 24% year over year to $2,903.9 million, but fell short of the Zacks Consensus Estimate of $2,918.8 million.

Steel Dynamics, in its fourth-quarter call, said that it anticipates steel consumption in North America to witness steady growth in 2019 factoring in strong steel demand fundamentals and customer optimism. The company believes that these along with its expansion actions are firm drivers for its sustained growth.

The company also noted that it remains focused on delivering shareholder value and strengthening its financial position through strong cash flow generation and execution of its long-term strategy.

The company is also investing $1.7-$1.8 billion to build a new electric-arc-furnace (“EAF”) flat roll steel mill in the United States that is expected to have a production capacity of roughly 3 million tons annually. It will have the capability to make the latest generation of advanced high strength steel products.  

Steel Dynamics expects this investment to allow it to cost effectively serve the customers in this growing flat roll steel consuming region and enhance its steelmaking capacity and value-added product capability.

Steel Dynamics, Inc. Price and Consensus

 

Steel Dynamics, Inc. Price and Consensus | Steel Dynamics, Inc. Quote

Zacks Rank & Stocks to Consider

Steel Dynamics currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks worth considering in the basic materials space include Kirkland Lake Gold Ltd. KL, Ingevity Corporation NGVT and Israel Chemicals Ltd. ICL.

Kirkland Lake Gold has an expected earnings growth rate of 8.8% for the current year and carries a Zacks Rank #1 (Strong Buy). Its shares have shot up around 118% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ingevity has an expected earnings growth rate of 17.9% for the current year and carries a Zacks Rank #1. Its shares have rallied roughly 50% in the past year.

Israel Chemicals has an expected earnings growth rate of 10.8% for the current year and carries a Zacks Rank #2 (Buy). The company’s shares have rallied around 27% over the past year.  

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