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Why Is Steel Dynamics (STLD) Down 18.8% 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 lost about 18.8% 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' Earnings and Sales Top Estimates in Q1

Steel Dynamics logged a net income of $1.1 billion or $5.71 per share in first-quarter 2022, up from $430.5 million or $2.03 in the year-ago quarter.

Barring one-time items, adjusted earnings per share came in at $6.02, topping the Zacks Consensus Estimate of $5.58.

Net sales in the quarter increased roughly 57% year over year to a record $5,569.9 million. The figure beat the Zacks Consensus Estimate of $5,234.3 million.

Segment Highlights

Net sales in the company's steel operations rose around 49.8% year over year to $3,762.5 million in the reported quarter. Operating income increased roughly 81.9% year over year to $1,166.9 million. The average product selling price for the unit rose around 50% year over year to $1,561 per ton in the reported quarter. The company had record steel shipments of around 2.9 million tons.

The company's steel fabrication operations raked in sales of around $929.9 million, up around 261.9% year over year. The segment posted an operating income of $466.9 million compared with an operating income of $9.9 million in the year-ago quarter. The non-residential construction sector remained strong in the quarter, leading to a record order backlog with record forward pricing for the company's steel fabrication platform.

Net sales in metals recycling operations increased almost 23.3% year over year to $579.6 million. Operating income decreased roughly 10.7% year over year to $48.1 million.

Financial Position

Steel Dynamics ended the first quarter with cash and cash equivalents of $1,189.5 million, down from $1,245.2 million in the year-ago quarter. Long-term debt declined to $3,010.1 million from $3,016.2 million in the year-ago quarter.

The company generated around $818.9 million of cash flow from operations in the first quarter.

Outlook

Steel Dynamics stated that it is confident that domestic steel consumption will continue to be strong this year and into 2023 based on the prevailing market conditions. Order entry activity continues to be strong across all of the company’s businesses. Steel prices are expected to be supported by strong demand, balanced customer inventory levels, and higher raw material costs.

The company anticipates automotive, industrial, and energy sectors to remain strong steel consumers in 2022, with demand from the construction sector at the lead. The order backlog at its steel fabrication operations remains at record volume and forward pricing levels. This along with continued strong order activity and broad customer optimism supports strong overall demand dynamics for the construction industry. STLD projects that second-quarter 2022 consolidated earnings will represent another record quarterly performance.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 12.22% due to these changes.

VGM Scores

Currently, Steel Dynamics has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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. 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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