Steel Dynamics Sees Lower Q1 Earnings On Weaker Sheet Profit

Steel Dynamics, Inc. (NASDAQ:STLD) has provided downbeat earnings guidance for first-quarter 2019 as it expects lower earnings in its steel operations in the quarter.

The steel producer expects earnings for the quarter in the band of 88-92 cents per share. That is a decrease from $1.17 per share recorded in the previous quarter and 96 cents per share it earned a year ago. Analysts polled by Zacks currently expect earnings of $1.07 per share for the first quarter.

The company expects profitability from its steel operations to be lower sequentially in the first quarter mainly due to reduced earnings from its sheet operations. However, it noted that recent hikes in sheet steel prices are having a positive impact, leading to higher order activity and reconstituted order backlogs.

Steel Dynamics expects overall steel shipments to rise in the first quarter sequentially. Average steel product pricing is forecast to decline more than the cost of average scrap consumed. Steel Dynamics envisions domestic steel consumption to improve through 2019.

Profitability for the company's metals recycling platform is projected to rise sequentially in the first quarter on the back of improved nonferrous volume and metal spread expansion, offset by modestly lower average price realization.

Steel Dynamics also expects earnings from its steel fabrication business to improve on sequential-comparison basis, driven by higher selling values and reduced steel input costs. The company expects its fabrication shipments to decline sequentially in the first quarter, impacted by bad weather conditions.

Steel Dynamics’ shares have lost 23.1% over a year, modestly underperforming its industry’s 22.3% decline.

Steel Dynamics’ profits dropped roughly 11% year over year in fourth-quarter 2018, hurt by costs associated with significant maintenance outages. Adjusted earnings of $1.31 per share for the quarter beat the Zacks Consensus Estimate of $1.25. Net sales shot up around 24% year over year to $2,903.9 million, but fell short of the Zacks Consensus Estimate of $2,918.8 million.

Steel Dynamics, in its fourth-quarter call, said that it anticipates steel consumption in North America to witness steady growth in 2019 factoring in strong steel demand fundamentals and customer optimism. The company believes that these along with its expansion actions are firm drivers for its sustained growth.

The company also noted that it remains focused on delivering shareholder value and strengthening its financial position through strong cash flow generation and execution of its long-term strategy.

The company is also investing $1.7-$1.8 billion to build a new electric-arc-furnace (“EAF”) flat roll steel mill in the United States that is expected to have a production capacity of roughly 3 million tons annually. It will have the capability to make the latest generation of advanced high strength steel products.

Steel Dynamics expects this investment to allow it to cost effectively serve the customers in this growing flat roll steel consuming region and enhance its steelmaking capacity and value-added product capability.

Zacks Rank & Stocks to Consider

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

Better-ranked stocks worth considering in the basic materials space include Kirkland Lake Gold Ltd. (TO:KL) , Israel Chemicals Ltd. (NYSE:ICL) and W. R. Grace & Co. (NYSE:GRA) .

Kirkland Lake Gold has an expected earnings growth rate of 47.1% for the current year and carries a Zacks Rank #1 (Strong Buy). Its shares have shot up around 118% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Israel Chemicals has an expected earnings growth rate of 10.8% for the current year and carries a Zacks Rank #2 (Buy). The company’s shares have gained around 23% over the past year.

W. R. Grace has an expected earnings growth rate of 10.4% for the current year and carries a Zacks Rank #2. Its shares have gained roughly 21% in the past year.

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