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Steel Dynamics Guides Lower 2Q EPS

Zacks Equity Research

Steel maker Steel Dynamics, Inc. (STLD) has projected second-quarter 2013 earnings in the range of 10 cents to 14 cents per share. Estimated earnings are lower than the company’s year-ago quarter’s earnings of 20 cents per share as well as first quarter’s earnings of 21 cents per share.

Steel Dynamics expects overall steel shipments for the second quarter to be modestly higher sequentially as increased sheet and other long product shipments, including engineered special-bar-quality products and standard railroad rail, is expected to more than offset a decline in merchant bar volume.

However, volume improvement is expected to be offset by contraction in margins, resulting in lower profits from steel operations. Lower average consecutive quarterly sheet and structural steel pricing will contract margins.

Segment Outlook

Steel Dynamics expects its metals recycling operation’s financial results to decline slightly in the second quarter on a sequential basis, as projected increases in both ferrous shipments and margins will be more than offset by lower nonferrous volumes and margins.

Fabrication segment is anticipated to earn profits for the fifth consecutive quarter, supported by improvement in the non-residential construction activity.

Steel Dynamics believes that its performance will be positively impacted by strong residential construction market, automotive and manufacturing markets and improvements in the non-residential construction demand. However, there is an apprehension that Steel Dynamics may be negatively impacted by economic uncertainty in China and Europe, which affects customer confidence and buying patterns.

Steel Dynamics released its first-quarter 2013 results on Apr 17. The company reported earnings (excluding positive tax adjustments) of 21 cents per share in the first quarter, marginally exceeding the Zacks Consensus Estimate and year over year earnings of 20 cents. Profit for the quarter increased to $48.2 million from $45.6 million in the prior-year quarter.

Revenues decreased 9.4% year over year to $1,796 million in the first quarter, but surpassed the Zacks Consensus Estimate of $1,786 million.

Steel Dynamics expects continued demand in the automotive market and sees higher potential in manufactured goods and residential construction sectors in 2013. However, it is not overtly optimistic about the non-residential construction market in 2013.

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

Other companies in the steel industry with favorable Zacks Rank are Kobe Steel Ltd. (KBSTY), Shiloh Industries Inc. (SHLO) and Angang Steel Company Limited (ANGGY). While both Kobe Steel and Shiloh Industries hold a Zacks Rank #1 (Strong Buy), Angang Steel retains a Zacks Rank #2 (Buy).

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Read the Full Research Report on KBSTY

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