Saturday, July 16, 2011

Steel Dynamics (NASDAQ: STLD): Q2 Earnings Preview 2011

Steel Dynamics Inc. (NASDAQ: STLD), the fifth-largest US steelmaker, is scheduled to release second-quarter earnings after the closing bell on Monday, July 18, 2011. Analysts, on average, expect the company to report earnings of 39 cents per share on revenue of $2.01 billion. In the year ago quarter, the company reported earnings of 22 cents per share on revenue of $1.63 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 first quarter, the Fort Wayne, Indiana-based company's net income was $106 million, or 46 cents per share, compared to $65 million, or 29 cents per share, in the year-ago quarter.  Revenue increased to $2.0 billion from $1.6 billion in the year-ago period. Analysts, on average, expected the company to report earnings of 41 cents per share on revenue of $1.81 billion.

Last month, the company announced that it expects second quarter earnings to be in the range of $0.35 to $0.40 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 hedging loss is expected at about $3 million or $0.03 per share.

Steel Dynamics' metals recycling operations were impacted by an estimated 15 percent quarterly reduction in ferrous margins and an estimated 25 percent reduction in nonferrous margins. As well, the cost of acquiring unprocessed scrap material more than outpaced any price increases. The company also was impacted by weaker incoming orders for flat-rolled steel in April. The slump in residential and non-residential construction markets resulted in unexpected weakness in incoming orders for structural steel.

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%.

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