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Why Is Steel Dynamics (STLD) Up 9.4% 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 9.4% 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 Q4

Steel Dynamics logged net income of $188 million or 89 cents per share in fourth-quarter 2020, up from $121 million or 56 cents in the year-ago quarter.

Barring one-time items, adjusted earnings per share came in at 97 cents, which topped the Zacks Consensus Estimate of 86 cents.

Net sales in the quarter increased roughly 10% year over year to $2,601.2 million. The figure beat the Zacks Consensus Estimate of $2,501.1 million. Owing to market share gains and the symbiotic relationships between its three operating platforms, Steel Dynamics achieved strong company-wide performance despite the challenges.

Segment Highlights

Net sales in the company's steel operations rose around 7% year over year to $1,870.8 million in the reported quarter. Operating income increased roughly 48% year over year to $297.7 million. Average product selling price for the unit gained roughly 7% year over year to $814 per ton in the reported quarter. Steel shipments inched up roughly 1% year over year to roughly 2.67 million tons. Strong demand and tight supply drove selling prices.

The company's steel fabrication operations raked in sales of around $218 million, down around 11% year over year. Operating income declined roughly 23% to $25 million on a year-over-year basis.

Net sales in metals recycling operations increased almost 43% year over year to $347 million. The segment’s posted operating income of $27 million against operating loss of $5.3 million in the year-ago quarter. Demand for recycled ferrous scrap and scrap selling values increased in the fourth quarter on a rise in domestic steel production.

FY20 Results

Earnings (as reported) for full-year 2020 were $2.59 per share compared with $3.04 per share a year ago. Net sales dropped around 9% to roughly $9.6 billion.

Financial Position

Steel Dynamics ended the fourth quarter with cash and cash equivalents of $1,368.6 million, down 1% year over year. Long-term debt was around $3,015.7 million, up 14% year over year.

The company generated $137.9 million of cash flow from operations in the fourth quarter.

Outlook

Steel Dynamics stated that it expects sustained customer demand and pricing strength in 2021. The automotive sector witnessed the strongest recovery while construction remained resilient. The company is also witnessing pent up demand, as steel service center and end-user inventories are still significantly low compared with historical norms. The company is optimistic regarding the steel market dynamics in North America and expects steel consumption to grow this year.


 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted 13.42% due to these changes.

VGM Scores

Currently, Steel Dynamics has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 broadly trending downward 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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