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Steel Dynamics (STLD) Issues Q3 View, Upbeat on Construction

Steel Dynamics, Inc. STLD has issued its earnings guidance for third-quarter 2020.

The steel producer expects earnings per share (EPS) for the third quarter between 42 cents and 46 cents. Barring the impact of costs associated with the construction of its Sinton Texas Flat Roll Steel Mill facility, the company anticipates adjusted EPS to be between 46 cents and 50 cents.

The guidance suggests a sequential rise from EPS of 36 cents recorded in second-quarter 2020 and a year-over-year decline from 69 cents in the prior-year quarter. Also, adjusted EPS were 47 cents in second-quarter 2020.

Steel Dynamics expects third-quarter earnings in its steel operations to be sequentially lower from the second quarter. The downside is expected due to a metal spread compression, which will more than offset the benefits of higher shipments driven by improved automotive and strong construction demand.

The company expects average flat-roll steel product pricing to decline in the third quarter as the benefits of lower average scrap costs is expected to be partly offset by lagging price-indexed contracts. However, the company mentioned that the pricing of flat-roll steel has stabilized and improved during the second half of the third quarter. This was supported by favorable raw material pricing and customer demand.

Further, the company has noted that the domestic steel production has improved in the third quarter compared with the second quarter. It is also witnessing strengthening demand in ferrous scrap. The company expects third-quarter earnings in the metals recycling operations to be meaningfully better than second-quarter’s tally based on considerably higher scrap shipments.

Per the company, the construction market remains resilient. The company's customer order backlogs for steel fabrication platform is strong and customers are positive on non-residential construction projects. It expects third-quarter earnings in steel fabrication operations to be at or near record-levels based on expected record shipments and margin expansion.

Steel Dynamics’ shares have gained 5.1% in the past year against the industry’s 4.9% decline.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the basic materials space are Eldorado Gold Corporation EGO, Kirkland Lake Gold Ltd. KL and Yamana Gold Inc. AUY, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Eldorado Gold has an expected earnings growth rate of 2,325% for 2020. The company’s shares have surged 33% in the past year.

Kirkland Lake Gold has an expected earnings growth rate of 22.3% for 2020. Its shares have returned 3.7% in the past year.

Yamana has an expected earnings growth rate of 76.9% for 2020. The company’s shares have soared 69.1% in the past year.

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