It has been about a month since the last earnings report for Steel Dynamics (STLD). Shares have lost about 7.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Steel Dynamics due for a breakout? 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 drivers.
Steel Dynamics' Earnings and Sales Top Estimates in Q4
Steel Dynamics logged net income of $121.4 million or 56 cents per share in fourth-quarter 2019, down from $270 million or $1.17 in the year-ago quarter. Earnings declined as a result of two planned annual maintenance outages at the Butler and Columbus flat roll divisions. The outages also reduced flat roll steel shipments and dented the bottom line.
Barring one-time items, adjusted earnings per share were 62 cents that surpassed the Zacks Consensus Estimate of 56 cents.
Net sales in the fourth quarter fell 18.4% year over year to $2,370.5 million. However, the figure beat the Zacks Consensus Estimate of $2,267.9 million.
For 2019, the company logged profit (as reported) of $671.1 million or $3.04 per share, down from $1,258.4 million or $5.35 per share in 2018.
Total sales in 2019 fell 11.3% year over year to $10.5 billion.
Net sales in the company's steel operations went down 19.4% year over year to $1,771.4 million in the fourth quarter. Operating income fell nearly 50% year over year to $201.3 million. Average product selling price for the unit declined 18.7% year over year to $764 per ton in the reported quarter. Steel shipments rose 2.6% year over year to 2.7 million tons.
The company's fabrication operations raked in sales of $246.2 million, down 2.2% year over year. Operating income surged 118.6% to $32.6 million.
Net sales in metals recycling operations dropped 31.1% year over year to $242.9 million. The segment reported operating loss of $5.3 million against net operating income of around $17 million in the year-ago quarter.
Steel Dynamics ended 2019 with cash and cash equivalents of $1,381.5 million, up 66.8% year over year. Long-term debt was around $2,645 million, up 12.4% year over year.
The company generated $1.4 billion cash flow from operations in 2019. The company also repurchased shares worth $349 million and paid out cash dividends of $200 million in 2019.
Moving ahead, the company believes that the North American steel consumption will experience modest growth in 2020. This is likely to be supported by the end of steel inventory destocking and further steel import reductions. The company expects recent trade actions to further lower unfairly traded steel imports into the United States.
Steel Dynamics also has upbeat views on its Sinton, TX-based flat roll steel mill project as well as the related long-term value it will create through its value-added products and geographic diversification. The company has targeted regional markets that represent more than 27 million tons of relevant flat roll steel consumption. This includes the growing Mexican flat roll steel market.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 20.35% due to these changes.
Currently, Steel Dynamics has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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.
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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