Steel Dynamics Q1-2019 earnings guidance and stock price analysis

Author: Ruban
Sector: Steel
Industry: Basic Materials



FORT WAYNE, Ind., Steel Dynamics, Inc. is expected to release their Q1 2019 earnings in the middle of April, on March 18, 2019, the company gave its earnings guidance for Q1 2019 in the range of $0.88 to $0.92 per diluted share. Comparatively, the company's sequential fourth quarter 2018 earnings were $1.17 per diluted share and prior year first quarter earnings were $0.96 per diluted share. Fourth quarter 2018 results included additional company-wide performance-based compensation of $0.04 per diluted share and lower earnings of $0.10 per diluted share, associated with planned maintenance outages at the company's liquid pig iron production facility and its two flat roll steel mills.

Overall steel shipments are expected to increase in the first quarter of 2019, compared to fourth quarter 2018 results, and average quarterly steel product pricing is expected to decrease more than the cost of average scrap consumed. The company believes domestic steel consumption will continue to improve through the year.

The company generates revenue from 3 primary operating platforms: Metals Recycling, Steel operations and Steel Fabrication and each contributed 13%, 75% and 8% respectively of the total revenue of the company in 2018.

First quarter 2019 profitability for the company's metals recycling platform is expected to improve when compared to sequential fourth quarter results, based on improved nonferrous volume and metal spread expansion, despite slightly lower average price realization.

First quarter 2019 earnings from the company's steel operations is expected to decrease in comparison to sequential fourth quarter results, primarily related to lower earnings from the company's sheet operations. However, recent increases in sheet steel prices are having a positive impact, resulting in increased order activity and reconstituted order backlogs.

First quarter 2019 earnings from the company's steel fabrication business are expected to improve from sequential fourth-quarter results, due to higher selling values and lower steel input costs. The company's fabrication shipments are expected to be sequentially lower in the first quarter of 2019 related to inclement weather conditions that occurred throughout the quarter. The order backlog is stronger than it was at this time last year, and customers remain optimistic concerning non-residential construction projects heading into the summer season.

The company completed the acquisition of a majority of the equity interests of United Steel Supply on 1st March 2019. United Steel Supply is headquartered in Austin, Texas and is a leading distributor of painted Galvalume flat roll steel used for roofing and siding applications. Steel Dynamics purchased 75 percent of the equity interests of United Steel Supply for $134 million, comprised of cash consideration of $93 million and the assumption of $41 million in apportioned net indebtedness. Additionally, Steel Dynamics has an option to purchase the remaining 25 percent equity interests of United Steel Supply in the future.

This acquisition provides an exciting opportunity to expand its painted GalvalumeĀ® distribution network. And Steel Dynamics can provide high-quality flat roll steel directly to an important market segment through United Steel Supply.

Steel Dynamics stock price is trading at around $35, which is around 32% less than 52 weeks high of $52.10. And its P/E ratio stands at 6.69, which indicates that this stock is gravely undervalued.

Trump's tariffs of 25% on imported steel makes it more expensive to buy foreign steel and direct business toward American producers. Steel production in the United States grew about 5% in 2018 and producers are restarting shuttered mills and expanding existing plants, and have announced plans to build new ones.

Steel Dynamics Inc is steel producers and metal recycler in the United States. The company produces steel sheet products long products and steel finishing products. It also operates metals recycling and steel fabrication business.


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