Steel Dynamics (STLD) Provides Earnings Guidance For Q2

Steel Dynamics, Inc. (NASDAQ:STLD) has provided guidance for the second quarter of 2017. The company expects earnings for the quarter in the band of 60 cents to 64 cents per share. This is a marked decrease from 82 cents per share recorded in the previous quarter, but an increase from 58 cents a share it earned a year ago.

During the second quarter of 2017, Steel Dynamics modernized one of its galvanizing lines at the Butler Flat Roll Division and also expanded the annual value-added production capacity by additional 180,000 tons for roughly $15 million.

Additionally, the company faced some issues related to the start-up of its new Galvalume and paint line at the Columbus Flat Roll Division. This resulted in increased costs and lesser value-added shipments, which the company expects to reduce pre-tax earnings by $15 million during the second quarter. However, the company said that the underlying issues have been distinctly identified and are being resolved.

Steel Dynamics mentioned that its profitability from steel operations is estimated to decline in the second quarter on sequential basis because of higher average scrap costs and lower overall shipments. The average steel product pricing is also anticipated to rise in the second quarter but higher scrap costs could offset the improvement in sales price.

The company also noted that about 40% of its flat roll volume is linked to indexed contracts that usually lag spot prices by one to two months. The remaining volume is spot price based, which is presently lower compared with the previous quarter.

Steel Dynamics expects demand from automotive and construction sectors to remain strong. It expects the energy sector to strengthen, moving ahead. The profitability of metals recycling platform is anticipated to remain steady on sequential basis owing to higher average sales price offsetting lower shipments in some certain southeastern locations.

The company’s fabricated steel joist and deck products business is also expected to benefit from strong demand as non-residential construction market has been showing signs of improvement of late. This is anticipated to offset metal spread compression related to higher average steel input costs.

Steel Dynamics’ shares fell 3.2% in the last three months, outperforming the Zacks categorized Steel-Producers industry’s decline of 15.3%.

Steel Dynamics, in its first quarter earnings call, announced that it expects the demand from North American automotive steel market to remain steady. The company also anticipates growth in construction sector, which should benefit from large public sector infrastructure projects. The energy sector has also begun to strengthen.

The company also achieved successful product and market diversification at its Columbus Flat Roll Division. The division is expected to benefit from numerous end markets and potential customers. The company has also completed the construction of a $100 million paint line facility in the fourth quarter of 2016, adding 250,000 tons of value-added painting capacity.

The company is well-poised for growth as it remains focused on delivering shareholder value through strategic and organic growth opportunities.

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

Stocks to Consider

Some better-ranked companies in the basic materials space include The Sherwin-Williams Company (NYSE:SHW) , Potash Corporation of Saskatchewan Inc. (NYSE:POT) and Huntsman Corp. (NYSE:HUN) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Sherwin-Williams has expected long-term earnings growth rate of 11.4%.

Potash Corp. has expected long-term earnings growth rate of 6.5%.

Huntsman has expected long-term earnings growth rate of 7%.

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