Steel Dynamics (STLD) Up 10.8% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Steel Dynamics (STLD). Shares have added about 10.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Steel Dynamics due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Lower Steel Prices Hurt Steel Dynamics’ Earnings in Q3
Steel Dynamics logged earnings of $3.47 per share in third-quarter 2023, down from $5.03 per share in the year-ago quarter. It lagged the Zacks Consensus Estimate of $3.49.
Net sales in the third quarter were down around 19% year over year to roughly $4.59 billion. It, however, surpassed the Zacks Consensus Estimate of $4.55 billion.
The company’s results were hurt by lower realized flat rolled steel and steel fabrication prices in the reported quarter. It, however, witnessed steady steel demand and customer order activities during the quarter.
Segment Highlights
Net sales for steel operations were $3.1 billion in the reported quarter, down around 16% year over year. The company registered steel shipments of 3.1 million tons in the quarter, modestly down from 3.15 million tons a year ago. This compares to our estimate of 3.26 million tons.
Steel Dynamics’ steel operations reported an average external product selling price of $1,191 per ton, down from $1,381 per ton in the year-ago quarter. It surpassed our estimate of $1,134 per ton.
Net sales of Metal’s recycling operations were $520.7 million in the quarter under review, reflecting an increase of around 10% from the year-ago quarter. Steel Dynamics registered ferrous shipments of around 1.44 million gross tons in the quarter, up from 1.32 million gross tons a year ago. The figure was ahead of our estimate of 1.39 million gross tons.
The company's steel fabrication operations raked in sales of around $630.2 million, down around 45% year over year. Steel Dynamics registered steel fabrication shipments of 161,697 tons in the quarter, down from 218,441 tons. The figure fell short of our estimate of 178,451 tons.
Financial Position
Steel Dynamics ended the quarter with cash and cash equivalents of around $1.77 billion, up around 24% year over year. Long-term debt was roughly $3 billion, essentially flat year over year.
The company generated $1.1 billion of cash flow from operations in the quarter. It also repurchased $331 million of its common stock during the quarter, representing 1.8% of its outstanding shares.
Outlook
Steel Dynamics stated that it is seeing solid order entry activities across its steel operations as demand remains steady. It anticipates North American steel consumption to rise in the coming years, with increased demand for lower-carbon emission, U.S.-made steel products and a decline in import levels supporting steel prices.
Continued onshoring of manufacturing businesses along with expectations of significant fixed asset investment from public funding related to the U.S. Infrastructure, Inflation Reduction Act, and Department of Energy programs, are expected to position the domestic steel industry competitively. The company believes this will help all of its operational platforms, particularly the steel and steel fabrication business.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -9.88% due to these changes.
VGM Scores
Currently, Steel Dynamics has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Steel Dynamics has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Steel Dynamics is part of the Zacks Steel - Producers industry. Over the past month, Commercial Metals (CMC), a stock from the same industry, has gained 8.5%. The company reported its results for the quarter ended August 2023 more than a month ago.
Commercial Metals reported revenues of $2.21 billion in the last reported quarter, representing a year-over-year change of -8.2%. EPS of $1.69 for the same period compares with $2.45 a year ago.
For the current quarter, Commercial Metals is expected to post earnings of $1.53 per share, indicating a change of -31.7% from the year-ago quarter. The Zacks Consensus Estimate has changed -6.4% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Commercial Metals. Also, the stock has a VGM Score of A.
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Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report
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