Steel producer and metal recycler, Steel Dynamics Inc. (STLD Quick QuoteSTLD - Free Report) , has provided its second-quarter 2016 guidance. The company expects earnings for the second quarter to be in the range of 53−57 cents per share. 

 

The projected second-quarter earnings represent a significant improvement from adjusted earnings of 22 cents per share recorded in the second quarter of 2015. Sequentially, earnings are projected to more than double from 26 cents per share recorded in the first quarter of 2016. 

 

 

Steel Dynamics is experiencing an improved metal spread as well as a rise in shipments. The company’s flat roll segment is showing significant improvement in operations. The segment’s inventory levels are far better aligned with consumption than before. Pricing is expected to increase by an average of 10% across all steel operations at the company. However, it will be partly offset by higher costs of ferrous scrap. 

 

The fabrication platform at Steel Dynamics is currently experiencing a steady demand from the non-residential construction sector. However, an increase in shipments will be more than offset by lower pricing and higher raw materials cost in the second quarter. 

 

The metal recycling segment of the company is expected to post higher earnings sequentially in the second quarter. Ferrous shipments are expected to increase marginally in the quarter, backed by an improvement in the utilization of production at domestic steel mills as well as higher sales price of ferrous scrap. 

 

Steel Dynamics has a strong cash flow generation and is poised for growth. The company is focused on market diversification and lowering operating costs. It aims to capitalize on growth opportunities presented by an improving market environment. 

 

 

The macroeconomic environment for some of Steel Dynamics’ end user markets is improving. While heavy equipment and energy still face a challenging environment, the larger consumer markets are faring better, with the automotive sector remaining strong and the construction sector improving. 

 

Steel Dynamics has also benefited from the trade case actions taken on imports. Reduction in the import of flat rolled steel has led to an improvement in prices, particularly of coated flat roll steel due to lower supply. The company is optimistic about a favorable shift in the domestic steel industry dynamics and expects the demand to remain relatively stable. 

 

 

 

Steel Dynamics’ earnings beat the Zacks Consensus Estimate of 24 cents per share in the first quarter of 2016. Sales of $1.74 billion also surpassed the Zacks Consensus Estimate of $1.70 billion. The company reported a record liquidity of $2.2 billion at the end of the first quarter, providing a strong foundation for growth. 

 

 

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

 

Better-ranked companies in the steel space include POSCO (PKX Quick QuotePKX - Free Report) and Ryerson Holding Corporation (RYI Quick QuoteRYI - Free Report) , both sporting a Zacks Rank #1 (Strong Buy), and ArcelorMittal (MT Quick QuoteMT - Free Report) , carrying a Zacks Rank #2 (Buy). 

 

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