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Why Is Steel Dynamics (STLD) Up 12.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Steel Dynamics (STLD - Free Report) . Shares have added about 12.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Steel Dynamics due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Steel Dynamics' Earnings and Sales Top Estimates in Q2

Steel Dynamics reported net income of $75.5 million or 36 cents per share in second-quarter 2020, down from $194.3 million or 87 cents in the year-ago quarter.

Barring one-time items, adjusted earnings per share came in at 47 cents, which surpassed the Zacks Consensus Estimate of 41 cents.

Net sales in the quarter fell 24.4% year over year to $2,094.3 million. Nevertheless, the figure beat the Zacks Consensus Estimate of $2,044.9 million.

Segment Highlights

Net sales in the company's steel operations declined 22.7% year over year to $1,628 million in the second quarter. Operating income fell 41.5% year over year to $172.4 million. Average product selling price for the unit declined 14.1% year over year to $755 per ton in the reported quarter. Steel shipments fell 9.1% year over year to roughly 2.5 million tons.

The company's fabrication operations raked in sales of $215.3 million, down 10.8% year over year. Operating income rose 11.4% to $27.2 million on a year-over-year basis.

Net sales in metals recycling operations plunged 51.5% year over year to $156.6 million. The segment’s posted operating loss of $5.9 million against operating income of $10.6 million in the year-ago quarter.

Financial Position

Steel Dynamics ended the second quarter with cash and cash equivalents of $1,496.5 million, up 37.7% year over year. Long-term debt was around $2,636.7 million, up 11.9% year over year.

The company generated $486 million of cash flow from operations in the second quarter.

Outlook

Steel Dynamics stated that it is not possible to establish the full scope of the coronavirus impact on global economies and the related impact on domestic steel demand. Given that the states are developing their reopening guidelines and steel consuming businesses are resuming operations, the company expects steel and metals recycling demand to improve in the second half of 2020.

Further, the construction sector has remained resilient and associated steel demand has been steady. The automotive sector and associated supply chain have restarted production and the company is witnessing higher steel demand and prime scrap production. Energy and general industrial consumers continue remain the weaker sectors.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 17.06% due to these changes.

VGM Scores

Currently, Steel Dynamics has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Steel Dynamics has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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