Steel Dynamics' (STLD) Q4 Earnings Top, Sales Trail Estimates

Steel Dynamics, Inc.’s STLD profits dropped in fourth-quarter 2018, hurt by costs associated with significant maintenance outages. The steel maker logged profit of $270 million or $1.17 per share in the quarter, down roughly 11% from $304.7 million or $1.28 per share a year ago.

The bottom line was hit by planned outage at Steel Dynamics’ liquid pig iron production facility to complete a major maintenance (a roughly $14 million impact) and significant planned maintenance outages at the company’s two flat roll steel mills that increased costs by an estimated $20 million. Per Steel Dynamics, the outages also lowered fourth-quarter shipments across these facilities by an estimated 70,000-80,000 tons.

Barring one-time items, adjusted earnings for the fourth quarter came in at $1.31 per share, which topped the Zacks Consensus Estimate of $1.25.

Net sales in the quarter shot up around 24% year over year to $2,903.9 million on higher steel shipments and prices. But it fell short of the Zacks Consensus Estimate of $2,918.8 million.

Steel Dynamics, Inc. Price, Consensus and EPS Surprise

 

Steel Dynamics, Inc. Price, Consensus and EPS Surprise | Steel Dynamics, Inc. Quote

FY18 Results

For 2018, the company logged record profit (as reported) of $1,258.4 million or $5.35 per share, up around 55% from $812.7 million or $3.36 per share in 2017.

Revenues for 2018 was also a record $11.8 billion, up roughly 24% year over year. Sales were driven by higher product pricing and shipments. The company registered record steel shipments of 10.6 million tons for the full year. Average product selling price for the company's steel operations increased around 21% year over year to $922 per ton in 2018.

Segment Highlights

Net sales from the company's steel operations went up roughly 32% year over year to $2,198.5 million in the reported quarter. Operating income surged roughly 94% year over year to $402.3 million. Average product selling price for the unit increased around 23% year over year to $940 per ton in the quarter. Steel shipments improved around 9% year over year to 2.6 million tons.

The company's fabrication operations raked in sales of $251.6 million, up around 14% year over year. Operating income fell roughly 31% to $14.9 million.

Net sales from metals recycling operations edged down around 0.5% year over year to $352.6 million. Operating income fell around 24% year over year to around $17 million.

Financial Position

Steel Dynamics ended the quarter with cash and cash equivalents of around $828.2 million, down roughly 19% year over year. Long-term debt was $2,352.5 million, flat year over year.

The company generated record cash flow from operations of $1.4 billion in 2018. The company also repurchased shares worth $524 million during 2018.

Outlook

Moving ahead, Steel Dynamics anticipates steel consumption in North America to witness steady growth in 2019 factoring in strong steel demand fundamentals and customer optimism. The company believes that these along with its expansion actions are firm drivers for its sustained growth.

The company also noted that it remains focused on delivering shareholder value and strengthening its financial position through strong cash flow generation and execution of its long-term strategy.

The company is also investing $1.7-$1.8 billion to build a new electric-arc-furnace (“EAF”) flat roll steel mill in the United States that is expected to have a production capacity of roughly 3 million tons annually. It will have the capability to make the latest generation of advanced high strength steel products.  

The company expects this investment to allow it to cost effectively serve the customers in this growing flat roll steel consuming region and enhance its steelmaking capacity and value-added product capability.

Price Performance

Shares of Steel Dynamics have lost 24.7% over a year against the industry’s decline of 28%.

Zacks Rank & Stocks to Consider
 
Steel Dynamics currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks worth considering in the basic materials space include Ingevity Corporation NGVT, Quaker Chemical Corporation KWR, Israel Chemicals Ltd. ICL.

Ingevity has an expected earnings growth rate of 21.5% for the current year and carries a Zacks Rank #1 (Strong Buy). Its shares have gained 20% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Quaker Chemical has an expected earnings growth rate of 21.1% for the current year and carries a Zacks Rank #2 (Buy). Its shares have gained 24% in the past year.

Israel Chemicals has an expected earnings growth rate of 5.4% for the current year and carries a Zacks Rank #2. The company’s shares have rallied 32% over the past year.

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