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Steel Dynamics' Q3 Earnings & Revenues Top, Shares Up - Analyst Blog

Steel Dynamics, Inc. ( STLD ), one of the leading domestic steel producers in the U.S., reported earnings of 38 cents per share in the third quarter of 2014, up from 25 cents reported in the year-ago quarter. Profit jumped around 59% year over year to $91.2 million.

The results include negative impact of 9 cents per share related to acquisition costs, financing fees, and the impact of purchase accounting adjustments for the Severstal Columbus, LLC acquisition that completed last month. Excluding the above adjustments, earnings came in at 47 cents per share, beating the Zacks Consensus Estimate by 3 cents.

Operating income increased 66.5% year over year and 43% sequentially to $189 million in the quarter. The company's fabrication and steel divisions achieved record volumes during the quarter.

The company's sales were $2,339 million in the quarter, up 22.4% year over year. Sales beat the Zacks Consensus Estimate of $2,115 million.

Steel Dynamics' shares rose as much as 7.6% in the trading session following the announcement, reflecting higher profit and earnings beat.

Steel Dynamics, Inc - Earnings Surprise | FindTheBest

Segment Details

Steel Operations

The average external sales price was up 5.8% to $840 per ton from $794 per ton in the previous-year quarter. Average ferrous scrap cost increased 2% to $356 per ton from $349 per ton a year ago. Total sales in this segment also jumped 26.4% to $1,564 million from $1,237 million in the year-ago quarter. Operating income in this segment increased 35.9% year over year and 28% sequentially to $202 million. The sequential improvement was driven by record quarterly shipments and improved metal spread.

Strong demand in automotive, manufacturing and energy markets supported volumes. Growth in the nonresidential construction market also improved, driven by record shipments of both structural and joist steel during the quarter.

Metals Recycling and Ferrous Resources

Total sales in this segment increased 88.3% to $1,111.3 million from $948.1 million in the year-ago quarter. Operating loss from the segment was $0.8 million less than a loss of $11.7 million in the year-ago quarter.

Operating income for the company's metals recycling operations, decreased to $13 million in the third quarter of 2014, as compared with $18 million in the sequentially prior quarter. Profitability was negatively impacted by lower nonferrous metals margins, which more than offset the increase in overall shipments.

The financial performance of the company's Minnesota operations improved in the third quarter of 2014, resulting in the impact of losses on consolidated net income decreasing to $5 million.

Steel Fabrications Operations

Total sales increased 59.3% year over year to $190 million from $119 million a year ago. Shipments also improved 41.5% year over year to 143,737 tons in the quarter. Operating income for the company's fabrication operations more than doubled to $19 million in the reported quarter from $8 million in second-quarter 2014, driven by record quarterly shipments on the back of both market share gain and overall demand improvement.

Financial Position

Steel Dynamics' cash and cash equivalents were $159.6 million as of Sep 30, 2014, down 56.9% from $370.1 million as of Sep 30, 2013. Long-term debt was $2,930 million as of Sep 30, 2014, roughly 65% higher than $1,773.6 million as of Sep 30, 2013.

Acquisition

Steel Dynamics completed the acquisition of Severstal Columbus, LLC flat roll steel mill in mid-September. The acquisition is in sync with the company's growth strategy and will add valuable products to its portfolio along, while leading to market diversification.

Guidance

Steel Dynamics envisions growth in the construction market as witnessed by increased demand for construction-related steel products. The company remains optimistic about the Columbus acquisition and believes that it provides geographic and product diversification in higher-growth markets in the southern U.S. and Mexico.

Steel Dynamics remains optimistic about strength in the recovering broader U.S. economy and believes that its diversified products and efficient team will enable it to achieve a competitive edge. The company also remains optimistic about its strong end markets, such as automotive, manufacturing, transportation and energy.

Steel Dynamics' organic growth projects and latent steel capacity, along with the Severstal Columbus steel mill acquisition and its belief that domestic steel consumption is on the upward trend, all bode well for the company's growth.

Steel Dynamics currently carries a Zacks Rank #2 (Buy).

Some other stocks worth considering in the steel industry include TimkenSteel Corporation ( TMST ), Nucor Corporation ( NUE ) and United Stated Steel Corp. ( X ). While TimkenSteel sports a Zacks Rank#1 (Strong Buy), Nucor and Unites States Steel hold a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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