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Steel Dynamics (STLD) Down 12.3% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Steel Dynamics (STLD). Shares have lost about 12.3% 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 the most recent earnings report in order to get a better handle on the important drivers.

Steel Dynamics' Q1 Earnings Top, Sales Lag Estimates

Steel Dynamics recorded earnings of $3.70 per share in the first quarter of 2023, down 35.2% from the year-ago quarter’s profit of $5.71.

The company posted adjusted earnings of $4.01 per share, down 33.4% from the year-ago quarter’s $6.02. It, however, surpassed the Zacks Consensus Estimate of $3.81.

The company’s net sales in the first quarter were $4,893.2 million, which lagged the Zacks Consensus Estimate of $4,930.6 million. Net sales declined 12.2% from $5,569.9 million reported in the prior-year quarter.

Segment Highlights

Net sales for the company’s steel operations were $3,060.8 million in the first quarter, which reflects a decline of 19% year over year. It registered record steel shipments of 3.3 million in the quarter on higher demand. However, it was partially offset by higher metal spread compressions resulting from lower realized selling prices and lagged index contracts in flat-rolled operations. Elevated raw material costs in this segment contributed to higher metal spread compressions in the quarter.  

Net sales for the company’s Metal’s recycling operations were $583.4 million in the first quarter, reflecting a rise of 0.7% from the prior-year quarter. Strong demand leading to increased volumes and pricing for both ferrous and non-ferrous materials aided the performance of the unit.  

The company's steel fabrication operations raked in sales of around $868.8 million, down 6.6% year over year. Its steel fabrication operations suffered from seasonal factors resulting in sequentially lower shipments amid steady metal spreads. However, order entry increased, resulting from the strength in non-residential construction markets in the first quarter.

Financial Position

Steel Dynamics ended the first quarter with cash and cash equivalents of $1,604.9 million, down 1.4% from the year-ago levels. Long-term debt was $3,014.4 million, essentially flat year over year.

The company generated $734 million of cash flow from operations in the first quarter. It also repurchased $354 million of its common stock during the quarter.

Outlook

Steel Dynamics stated that it remains confident that the current market conditions are favorable for strong domestic steel demand. The company is also experiencing strong order activities across all its business units. The company stated that it expects North American steel consumption to increase in 2023, and rising demand for lower-carbon emission, U.S.-produced steel products and a decrease in import levels to support steel prices.

The company also stated that it anticipates automotive, non-residential construction and energy sectors to remain significant steel consumers this year. Its steel fabrication operations have high order backlogs with strong forward pricing levels. Solid order activity and customer optimism also support demand dynamics for the construction industry.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

The consensus estimate has shifted 11.03% due to these changes.

VGM Scores

Currently, Steel Dynamics has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Steel Dynamics has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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