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Why Is Steel Dynamics (STLD) Up 16.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Steel Dynamics (STLD). Shares have added about 16.5% 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.

Steel Dynamics’ Earnings and Sales Surpass Estimates in Q2

Steel Dynamics logged net income of $702 million or $3.32 per share in second-quarter 2021, up from $75 million or 36 cents in the year-ago quarter.

Barring one-time items, adjusted earnings per share came in at $3.40, which topped the Zacks Consensus Estimate of $3.36.
 
Net sales in the quarter climbed roughly 113% year over year to $4,465.3 million. The figure beat the Zacks Consensus Estimate of $4,144.3 million. The company achieved record quarterly net sales, operating income, adjusted EBITDA and cash flow from operations in the quarter.
 
The company witnessed strong steel demand in the reported quarter while shipments and product pricing maintained their positive momentum across its entire steel platform.

Segment Highlights

Net sales in the company's steel operations rose around 99% year over year to $3,234.5 million in the reported quarter. Operating income increased roughly sixfold year over year to $1,017 million. Average external product selling price for the unit gained roughly 71% year over year to $1,292 per ton in the quarter. Steel shipments rose roughly 15% year over year to around 2.89 million tons. Significant metal spread expansion and record steel shipments drove operating income.

The company's steel fabrication operations raked in sales of around $330.9 million, up around 54% year over year. Operating income rose around 5% to $28.5 million on a year-over-year basis, aided by record shipments and higher realized pricing.

Net sales in metals recycling operations increased nearly fourfold year over year to $575.7 million. The segment’s posted operating income of $51 million against operating loss of $5.9 million in the year-ago quarter, supported by strong ferrous scrap demand and pricing.

Financial Position

Steel Dynamics ended the second quarter with cash and cash equivalents of $1,113.7 million, down around 26% year over year. Long-term debt was around $3,016.5 million, up 14% year over year.

The company generated $587 million of cash flow from operations in the second quarter.

Outlook

Steel Dynamics stated that it is witnessing strong steel demand and significantly low customer steel inventory throughout the supply chain. The automotive sector remains strong notwithstanding the semiconductor shortage while other sectors such as construction, equipment and transportation remain solid. The company is also seeing strong order entry activity across its businesses, which along with low inventory, is supporting strong steel selling values. Steel Dynamics envisions the momentum to continue throughout 2021 and expects its third-quarter earnings to represent another record performance. It remains optimistic regarding the steel market dynamics in North America.

The company’s investment in Sinton Texas Flat Roll Steel Mill investment represents transformational competitively-advantaged strategic growth, with associated long-term value creation for shareholders, Steel Dynamics noted.

The company is currently hot-commissioning the value-added paint line and expects the galvanizing line to start operations next month. It expects actual steel production to be delayed due to the excessive heavy rains in Texas. Steel Dynamics anticipates shipments from Sinton to be in the range of 100,000 tons during the balance of 2021 and between 2.2-2.4 million tons in 2022.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Steel Dynamics has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Steel Dynamics has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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