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Steel Dynamics (STLD) Up 9.1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Steel Dynamics (STLD - Free Report) . Shares have added about 9.1% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Steel Dynamics' Earnings & Sales Trail Estimates in Q3

Steel Dynamics logged net income of $151 million or 69 cents per share in third-quarter 2019, down from $398.4 million or $1.69 in the year-ago quarter. Also, earnings trailed the Zacks Consensus Estimate of 70 cents.

Net sales in the quarter fell around 21.6% year over year to $2,526.8 million. The figure missed the Zacks Consensus Estimate of $2,618.7 million.

The company witnessed a decline in average steel pricing during the third quarter.

Segment Highlights

Net sales from steel operations declined around 22.3% year over year to $1,922.5 million in the quarter. Operating income declined nearly 58.5% year over year to $239.6 million and 19% sequentially. The downside was caused by lower shipments and a drop in realized product pricing in sheet steel operations, which more than offset benefits from lower scrap costs. Average external sales price fell around 18.1% year over year to $809 per ton in the reported quarter.

The company's steel fabrication operations generated sales worth $246.1 million, down nearly 1.8% year over year. However, operating income surged more than two-fold year over year to $35.3 million. Also, operating income jumped 15% sequentially on higher shipments and lower raw material steel input costs.

Net sales from metals recycling operations declined around 27.5% year over year to $280.9 million. Operating income fell around 83.7% year over year to roughly $2.9 million. The same also declined 72.7% sequentially due to persistent decline in aluminum demand and associated selling values.  

Financial Position

Steel Dynamics had cash and cash equivalents of around $1,146 million at the end of the quarter, up nearly 29.6% year over year. Long-term debt was $2,355.2 million, up around 0.1% year over year.

The company generated cash flow from operations of $444.2 million in the quarter, up roughly 5.7% year over year.

The company also repurchased shares worth $115 million and paid out $53 million in dividends during the third quarter.

Outlook

Considering domestic steel demand fundamentals, Steel Dynamics is optimistic regarding the 2020 North American steel market dynamics. The company believes that the North American steel consumption will experience modest growth. This is likely to be supported by the end of steel inventory destocking and further steel import reductions.

The company expects current trade actions to have a favorable impact in further lowering unfairly traded steel imports into the United States.

Steel Dynamics is positive about its Sinton, TX-based flat roll steel mill project as well as the related long-term value it will create through its value-added products and geographic diversification.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -9.08% due to these changes.

VGM Scores

At this time, Steel Dynamics has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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