Steel Dynamics (STLD), one of the largest steel producers in the US, is trading higher today after it reported Q3 results late last night. In case you're not familiar, STLD operates six steel mills, eight steel processing facilities, an iron production facility, approximately 80 metals recycling locations and eight steel fabrication plants.
STLD is what's known as a mini-mill (like Nucor) meaning that it creates steel mostly by using scrap and melting it down to form new steel. This is more efficient than an integrated steel producer (IP), like AKS, MT or X, which makes steel directly from iron ore and coal in an expensive blast furnace. Unlike a blast furnace, mini-mills can easily start and stop based on demand which keeps costs lower. Also, mini-mills mostly use non-union labor.
Steel Dynamics produces steel products, including hot roll, cold roll, and coated sheet steel, structural steel beams and shapes, rail, engineered special-bar-quality (SBQ) steel, cold finished steel, merchant bar products, specialty steel sections and steel joists and deck. In addition, the company produces liquid pig iron and processes and sells ferrous and nonferrous scrap.
Turning to the Q3 numbers, it's important to note that STLD already provided guidance on September 17, saying that they expected Q3 adjusted EPS of $1.64-1.68, which was below market expectations at the time. The actual adjusted EPS number came in at $1.69, which was above the prior guidance. Revenue rose 31.9% year/year to $3.22 bln, which was a good bit above market expectations. There was no financial guidance, as is usually the case. The company normally waits until the middle of the last month of the quarter before providing guidance, so probably around mid-December, STLD will provide Q4 EPS guidance.
STLD's strong financial performance was the result of record steel shipments, average steel selling price improvement, and resulting metal spread expansion across its steel operations. Underlying domestic steel demand remained strong. There was some temporary hesitancy in flat roll order activity based on customer sentiment and increased hot roll coil import levels. However, demand from major steel consuming sectors was steady, including construction, automotive, and energy.
Looking ahead, while STLD does not provide specific guidance, it does say that it remains confident that macroeconomic and market conditions are in place to benefit domestic steel consumption in 2019. As such, steel consumption should remain strong. Also, STLD says its integration of recent acquisition Heartland is going well.
In sum, this was another good quarter for STLD. The demand and pricing environment has been very favorable for STLD and others. The steel tariffs have helped to reduce steel imports which has helped with pricing. And demand has remained strong enough to absorb those price increases. Finally, it was also good to hear that STLD sees steel consumption remaining strong in 2019.