Steel Dynamics Issues Q1 View, Higher Shipments to Aid Margins

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

The steel producer expects earnings per share (EPS) in the range of 83-87 cents for the first quarter. The projected figure calls for an increase from 56 cents recorded in fourth-quarter 2019. The company delivered earnings of 91 cents in the year-ago quarter.  

The Zacks Consensus Estimate for fourth-quarter adjusted EPS is currently pegged at 73 cents, which suggests a decline of 19.8% year over year.

Higher shipments across the platform, especially long products steel group, are expected to boost first quarter earnings from the company's steel operations compared with fourth-quarter 2019 levels. Moreover, the company expects average quarterly steel product pricing to rise sequentially in the first quarter, which is expected to offset the impact of higher scrap costs. Per the company, profitability throughout the steel platform improved in the to-be-reported quarter.  

Further, the company's customer order backlog for steel fabrication platform is witnessing a significant surge and customers are presently constructive regarding the non-residential construction projects. Also, no projects have been canceled or delayed at the moment. As such, performance of the company’s steel fabrication operations in the first quarter is expected to be strong but lower than fourth-quarter 2019 levels due to seasonally lower shipments.  

Performance in the metals recycling platform is expected to improve sequentially as scrap prices stabilized and increased in the first quarter. Higher volumes and metal margin expansion are additional upsides.

The company’s liquidity position also remains strong at nearly $2.7 billion as of Feb 29. This includes unutilized unsecured revolving credit facility worth $1.2 billion.

Update on Impact of Coronavirus

Steel Dynamics stated that it’s too early to establish the impact of COVID-19 on global economies as well as the associated effect to the domestic economy and steel demand.

Presently, the company’s steel and steel fabrication order backlogs remain strong. Customer order activity is also steady. However, efforts to slow down the spread of the deadly virus in the United States that include announcements concerning temporary closures of steel consuming businesses are expected to impact order activities in the upcoming weeks.

The company also believes that trade protection policies will continue to limit the amount of unfairly traded steel products into the country and provide additional support for domestic steel mill utilization.

Price Performance

Steel Dynamics’ shares have plunged 55.9% in the past year compared with the industry’s 53.8% decline.

Zacks Rank & Key Picks

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

Few better-ranked stocks in the basic materials space are Newmont Corporation NEM, Franco-Nevada Corporation FNV and Novagold Resources Inc. NG. While Newmont and Franco-Nevada currently sports a Zacks Rank #1 (Strong Buy), Novagold carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Newmont has an expected earnings growth rate of 72% for 2020. The company’s shares have gained 22.7% in the past year.

Franco-Nevada has an expected earnings growth rate of 24.2% for 2020. Its shares have returned 40.4% in the past year.    

Novagold has an expected earnings growth rate of 11.1% for fiscal 2020. The company’s shares have surged 86.4% in the past year.

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