Steel Dynamics Sees Lower Q1 Earnings as Shipments Fall - Analyst Blog

Steel maker Steel DynamicsSTLD has issued its earnings guidance for first-quarter 2015, which reflects a decline both on a sequential and year over year basis as reduced shipments are expected to dent results in its steel and metals recycling operations. The company sees earnings of between 8 cents and 12 cents per share on a reported basis for the quarter.

Barring roughly $17 million in estimated premium and related charges associated with the repayment of senior notes worth $350 million, earnings are expected to be in the band of 12 cents to 16 cents per share for the first quarter. This is below the current Zacks Consensus Estimate of 24 cents and also lower than 40 cents per share reported in the sequentially prior quarter and 17 cents per share in first-quarter 2014.

The Indiana-based company's shares slipped roughly 3% in extended trading yesterday.

Profitability in the company's steel operations is expected to be considerably lower in the first quarter than what was seen a year ago due to reduced steel shipments resulting from inventory overhang and cautious customer buying as well as anticipated reduction in metal margin. The business is experiencing volume and price reduction. The company said that it will not gain from lower ferrous scrap pricing until the second quarter.

Steel Dynamics expects its metals recycling business to register a loss in the first quarter due to lower shipments and reduced metal spread resulting from fast declining ferrous and non-ferrous prices. It expects better margins in the second quarter on improved steel mill utilization.

Steel Dynamics expects lower steel imports starting in second-quarter 2015 as domestic steel prices have declined to levels that are now globally competitive. Notwithstanding strong domestic steel consumption, delayed consumer orders have resulted in lower steel product pricing. Continued demand and anticipated right-sizing of excess inventory are expected to lead to higher steel mill utilization in the U.S.

Steel Dynamics envisions strong steel demand from automotive, manufacturing and construction sectors to support results in the second quarter and second-half 2015, factoring in lower steel imports, higher orders and reduced input costs. Continued growth in commercial construction augurs well for domestic steel utilization. The company also sees improved metal spread and higher shipments in the second quarter and the remainder of 2015.

The company remains confident and optimistic about its future prospects based on the strength of its capital structure and liquidity profile. Last week, Steel Dynamics bumped up its quarterly dividend by 20% to 13.75 cents per share based on the strength of its cash flow generation and its healthy financial position. It also recently repaid debt worth $350 million using its free cash flows, thus reducing its annual interest burden by $27 million.

Steel Dynamics is a Zacks Rank #3 (Hold).

Other companies in the steel industry worth considering include Kobe Steel Ltd. KBSTY , ThyssenKrupp AG TYEKF and Companhia Siderurgica Nacional SID . While Kobe Steel and ThyssenKrupp hold a Zacks Rank #1 (Strong Buy), Companhia Siderurgica Nacional retains 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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