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Steel Dynamics, Inc. (STLD - Free Report) , one of the biggest domestic steel producers in the U.S., reported earnings of 13 cents per share in the second quarter of 2013 compared with 20 cents per share registered in the year-ago quarter. The results were in line with the Zacks Consensus Estimate.

The company’s second quarter net income declined roughly 35% year over year to around $29 million. Gross margin was 8.2% compared with 9.5% a year ago. Operating income slumped 33% to $69.2 million from $103.6 million a year ago.

Revenues decreased roughly 6% year over year to $1,801.3 million. However, revenues beat the Zacks Consensus Estimate of $1,791 million. Production was impacted by increased steel import and domestic oversupply in the quarter.

As for product pricing, the sheet and structural steel operations faced maximum challenges in the quarter. Economic uncertainty in China and Europe affected the customer confidence and buying patterns in the second quarter.

However, the second quarter showed meaningful volume improvements for rail, engineered special bar quality products, and galvanized sheet steel from The Techs. Shipments improved owing to the continued modest growth in the overall construction market.

Segment Details

Steel Operations

The average selling price was down 8.5% to $781 per ton from $854 per ton in the previous-year quarter. Average ferrous scrap cost per ton dipped 10.4% to $354 per ton from $395 per ton a year ago. Total sales in this segment also decreased to $1,165.7 million from $1,280.7 million in the year-ago quarter, which led to a fall in the operating income to $87 million from $139 million a year ago. Operating income in this segment declined mainly due to lower steel metal spreads, as declining steel prices more than offset increased volume

Metals Recycling and Ferrous Resources

Total sales in this segment slipped 3.6% to $893 million from $927 million in the previous-year quarter. This led to an operating loss of $1.8 million in the quarter compared with an operating loss of $13.1 million a year ago.

Losses from the company’s Minnesota operations had a $9 million impact on the second quarter consolidated net income compared with $11 million (net of tax) for the second quarter of 2011. The installation of additional equipments and other modifications were made at the iron nugget facility as per plan and it resumed its productions from May 2013.

Steel Fabrications Operations

The segment performed better than the other segments as total sales increased 8.7% year over year to $104.2 million from $95.7 million a year ago. Shipments also improved sequentially to 86,371 tons from 77,583 tons in the first quarter.

Financial Position

Steel Dynamics’ cash and cash equivalents of $243.7 million at the end of the second quarter showed a comparatively weaker liquidity position when compared with $420.9 million recorded in the previous quarter. Long-term debt was $1,774.2 million as of Jun 30, 2013, lower than $1,928.0 million as of Jun 30, 2012.


Steel Dynamics envisions continued demands in the automotive, manufacturing, high-quality steel products and residential construction in 2013. However, it is not overtly optimistic about the non-residential construction market in 2013. Improvements in the engineered special-bar-quality products and fabrication shipments are noted as a positive sign.  

Steel Dynamics is on track to complete its organic growth projects that are scheduled to begin by year end. The projects include the engineered special-bar-quality capacity expansion and the premium rail product addition. The third quarter may benefit from company’s exceptional team, low-cost operating culture and ability to capitalize opportunities moving forward.

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

Other companies in the steel industry with favorable Zacks Rank are Kobe Steel Ltd. (KBSTY - Free Report) , Shiloh Industries Inc. (SHLO - Free Report) and Nippon Steel & Sumitomo Metal Corp. . All of them hold a Zacks Rank #1 (Strong Buy).

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