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Strong Demand to Aid Steel Dynamics' (STLD) Q3 Earnings

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Steel Dynamics, Inc. (STLD - Free Report) is set to release third-quarter 2018 results on Oct 17, after the closing bell.

In the last reported quarter, the steel maker delivered a positive earnings surprise of 2.7% by posting earnings of $1.53 per share, which surpassed the Zacks Consensus Estimate of $1.49.

Net sales went up around 29.3% year over year to roughly $3.1 billion, also beating the Zacks Consensus Estimate of $2.9 billion. The company witnessed improved product pricing and demand across the entire steel portfolio in the quarter, which resulted in strong margin expansion and steel shipments.

Notably, Steel Dynamics beat the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average positive surprise of 4.6%.

Also, the stock has gained 14.6% in the past year, outperforming the industry’s 4% decline.



Will the company surprise investors again or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.

Factors at Play in Q3

In September, Steel Dynamics issued guidance for third-quarter 2018. The company expects earnings per share (EPS) in the range of $1.60-$1.64, including estimated charges of $13 million or 4 cents related to the Heartland buyout. Excluding these charges, adjusted earnings for the quarter is projected in the range of $1.64-$1.68.  

The company’s projected figures are higher than earnings of $1.53 in second-quarter 2018 and 64 cents in third-quarter 2017. Steel Dynamics expects profitability from steel operations to improve sequentially in the third quarter on the back of strong demand and significant metal spread expansion.

Moreover, the company expects average quarterly steel product pricing to increase more than the average scrap costs across the steel platform. This is likely to boost the profitability for sheet and long product steel operations. The company expects market dynamics and steel consumption to stay strong, courtesy of customer optimism and strong steel demand fundamentals.

Earnings from the metals recycling platform are projected to decline sequentially due to a fall in recycled non-ferrous shipments and pricing. Nevertheless, recycled ferrous volumes and metal spread are likely to remain steady on steady domestic steel utilization.

Steel Dynamics expects profits from steel fabrication business to be steady on a sequential-comparison basis. In spite of sequentially higher average shipments and sales prices, higher average steel input costs are likely to offset the positive demand fundamentals in the third quarter. The company is witnessing strong steel fabrication order activity and increase in order backlogs.

Steel Dynamics’ net consolidated sales for the third quarter are projected to increase roughly 2.6% sequentially and 29.7% year over year, as the Zacks Consensus Estimate for net consolidated sales is currently pegged at $3,170 million.

For the third quarter, net sales in the steel operations division are projected to increase roughly 39.7% year over year and the Zacks Consensus Estimate for the same is currently pegged at $2,491 million. Notably, net sales in the segment went up roughly 32.3% year over year to $2,325.4 million in the last reported quarter while operating income rose roughly 96.2% year over year.

Net sales in the steel fabrication operations are projected to increase roughly 11.4% year over year. The Zacks Consensus Estimate for the same is currently pegged at $235 million. In the last reported quarter, net sales in the segment went up roughly 9.9% year over year, while operating income fell roughly 29.7% year over year.

Net sales in the metals recycling operations is likely to decline roughly 18.4% year over year, as the Zacks Consensus Estimate is currently pegged at $284 million. Notably, net sales in the segment went up roughly 23.6% year over year in the last reported quarter and operating income surged roughly 28.7% year over year.

 

Earnings Whispers

Our proven model does not show that Steel Dynamics is likely to beat estimates this quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Earnings ESP: Earnings ESP for Steel Dynamics is 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at $1.66. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Steel Dynamics currently carries a Zacks Rank #2, which when combined with a 0.00% ESP, makes surprise prediction difficult.  

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Estimates

Here are some companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Ternium S.A. (TX - Free Report) has an Earnings ESP of +0.73% and flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Celanese Corp. (CE - Free Report) has an Earnings ESP of +1.41% and carries a Zacks Rank #2.

Ingevity Corp. (NGVT - Free Report) has an Earnings ESP of +5.52% and carries a Zacks Rank #3.

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