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Steel Dynamics (STLD) Down 3.2% Since Last Earnings Report: Can It Rebound?

Zacks

It has been about a month since the last earnings report for Steel Dynamics (STLD). Shares have lost about 3.2% 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 its most recent earnings report in order to get a better handle on the important drivers.

Steel Dynamics' Q3 Earnings Top, Profit Shoots Up

Steel Dynamics saw its profits surge in third-quarter 2018, driven by strong domestic steel demand, higher steel product pricing and record steel shipments.

The company logged profit of $398 million or $1.69 per share in the quarter, up from $153 million or 64 cents a year ago. Earnings per share topped the Zacks Consensus Estimate of $1.65.

Net sales in the quarter shot up around 32% year over year to $3,223.5 million, surpassing the Zacks Consensus Estimate of $3,165 million.

Segment Highlights

Net sales from the company's steel operations went up roughly 39% year over year to $2,475 million in the reported quarter. Operating income surged roughly two-fold year over year to $577.3 million. Average product selling price for the unit increased around 27% year over year to $988 per ton in the quarter. Steel shipments improved around 12% year over year to a record 2.8 million tons.

The company's fabrication operations raked in sales of $250.6 million, up around 19% year over year. Operating income fell roughly 40% to $13.1 million.

Net sales from metals recycling operations rose around 11% year over year to $387.2 million. Operating income fell around 16% year over year to $17.8 million.

Financial Position

Steel Dynamics ended the quarter with cash and cash equivalents of around $884.3 million, down roughly 20% year over year. Long-term debt was $2,352 million, flat year over year.

The company generated cash flow from operations of $420 million in the quarter. The company also repurchased shares worth $193 million during the first nine months of 2018.

Outlook

Steel Dynamics said that market and macroeconomic conditions are positioned to benefit domestic steel consumption. The company envisions steel consumption to remain strong and grow into 2019 based on customer optimism across the market sectors and strong underlying domestic steel demand fundamentals. The company believes that these along with its expansion actions are firm drivers for its sustained growth.

Steel Dynamics is also progressing well with the integration of the recent Heartland buyout and is on track to attain its expected annual run-rate of between 800,000 tons and 900,000 tons of cold roll, pickled & oiled, and galvanized flat roll steel by mid-2019.   

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

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VGM Scores

Currently, Steel Dynamics has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, 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 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.


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