Friday, April 15, 2011

Steel Dynamics (NASDAQ: STLD): Q1 Earnings Preview 2011

Steel Dynamics Inc. (NASDAQ: STLD), the fifth-largest US steelmaker, is scheduled to release first-quarter earnings after the closing bell on Monday, April 18, 2011. Analysts, on average, expect the company to report earnings of 41 cents per share on revenue of $1.81 billion. In the year ago quarter, the company reported earnings of 29 cents per share on revenue of $1.56 billion.

Steel Dynamics, Inc., together with its subsidiaries, manufactures and sells steel products in the United States. It operates in three segments: Steel Operations, Metals Recycling and Ferrous Resources Operations, and Steel Fabrication Operations.

In the preceding fourth quarter, the Fort Wayne, Indiana-based company's net income was $7.79 million or 4 cents per share, in comparison to prior year's $26.65 million or 12 cents per share. On an adjusted basis, the company earned 7 cents per share in the fourth quarter. Revenue increased to $1.53 billion from last year's $1.18 billion. Analysts, on average, expected the company to report earnings of 9 cents per share on revenue of $1.60 billion. 

Last month, the company announced that it expects first quarter earnings to be in the range of 37 cents to 42 cents per share. In addition, the company increased its quarterly cash dividend by 33% to 10 cents per common share, payable payable on or about April 14, 2011, to shareholders of record at the close of business on March 31, 2011.

The company said that in recent months it has experienced increased volumes and margins in all of its operations, although to a much smaller extent at its Structural and Rail Division and fabrication operations, which are more directly impacted by the commercial construction markets. The demand for sheet and special bar quality steels remains robust and the increase in steel utilization rates continues to strengthen demand for recycled ferrous materials.

Steel demand and production have improved nicely in the past year due to increased government support and more balanced demand. The rebound in demand has been largely attributed to stronger auto and non-residential construction sectors as well as surging steel demand from China and India. According to the Steel Index, Iron-ore prices more than doubled in the past two years largely due to emerging market demand.

The company, known as a low-cost producer, is attempting to free itself from some outside raw materials suppliers by creating its own pig-iron replacement. Steel Dynamics has built the Mesabi Nugget plant at Minnesota in cooperation with Kobe Steel Ltd. of Japan, which has licensed the technology and provided equipment and technical support. Steel Dynamics, with 81 percent ownership, is responsible for operation of the plant and utilizes a substantial portion of the plant's output as feedstock for SDI's electric-arc furnace mini mills in Indiana. The plant makes iron nuggets that are about 95% pure to feed electric arc minimills and produce flat rolled steel. Conventional taconite plants typically produce pellets with an iron content of about 65%.

During the quarter in review, Steel Dynamics jointly announced the creation of a new partnership with and LaFarga Group, headquartered in Barcelona, Spain, which will operate under the SDI LaFarga, LLC name. Plans include the construction of a $39 million facility which will produce copper wire rod from recycled copper. This new venture is expected to result in the creation of 35 new full-time management, administrative and production positions by 2013.  

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 8.07 and PEG ratio of 0.33. In terms of stock performance, STLD shares have lost nearly 2 percent over the past year.  

Full Disclosure: None.
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