Shares of Steel Dynamics Inc. (STLD: 14.27 0.00 0.00%), one of the leading producers of carbon steel plunged 1.48% post second quarter 2010 results, which were below the Zacks Consensus expectations. The cautious near term guidance added to the negative market sentiments.
Steel Dynamics earned $49 million or 22 cents for the second quarter of 2010 missing the Zacks Consensus Estimate by 2 cents while it lagged first quarter income by 7 cents. However, second-quarter results reversed losses of $16 million or 8 cents recorded in the year-ago quarter.
Quarterly revenues of $1.63 billion, although more than doubled from the year-ago period on higher steel shipments, fell behind the Zacks Consensus Estimate of $1.64 billion. Operating income of about $117 million formed 7% of total sales.
Segment Review
Steel Operations: Higher volumes and prices drove segment revenues to $1 billion, almost double the year-ago amount. Steel shipments improved 39% to 1.3 million tons while average steel prices leaped 63% year-over-year to $829 per ton. The average cost of ferrous scrap per net ton increased $49 compared to the first quarter. Higher revenues transformed into higher operating income. Operating income of $131 million in the second quarter was a significant improvement from $33 million in the corresponding quarter of the previous year.
Metals Recycling and Ferrous Resources: Total revenues of $848 million was significantly up from last year’s $309 million. Higher revenues were driven by increased non-ferrous shipments in the ferrous and non-ferrous metals business. Non-ferrous shipments improved 39% to 237 million pounds. The segment recorded operating income of $6.9 billion in contrast to operating losses of $6.6 billion in the second quarter of 2009. Steel Dynamics is ramping up capacities at its Mesabi Nugget operations, which produces iron nuggets for mini-mill steelmaking. The company owns 81% of the project with the rest being held by Kobe Steel Ltd.
Steel Fabrication Operations: The segment comprises the New Millennium Building Systems’ fabricating plants that produce joists, trusses, and steel decking, used in the construction of non-residential buildings. Second quarter revenues of $42 million were up 14% year over year. Shipments improved 18% year over year to 42,000 tons. The segment recorded operating loss of $5 million for the quarter compared with operating income of $16,000 in the second quarter of 2009, however loses improved sequentially.
Financial Review
Steel Dynamics’ debt-to-capital ratio has remained above 50% in the last three quarters. As of June 30, 2010, Steel Dynamics’ debt totaled $2.4 billion up 17% from $2.1 billion as of Dec 31, 2009. Cash and cash equivalent amounted to $191 million as of June 30, 2010.
Guidance
Steel Dynamics provided a bleak overall demand outlook although it expects end markets to stabilize. The company experiences uncertain demand for its flat-rolled steel products while demand for structural steel is likely to remain weak. Steel Dynamics operates its structural steel mills at less than 40% of its total capacity. However, the company predicts high demand for its engineered steel bars and long steel products, going forward.
| Analysts' Targets | |
| Longbow | $20 |
| Neutral | |
| Thursday, May 13, 2010 | |
| Soleil Group | $23 |
| Buy | |
| Monday, March 08, 2010 | |
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