Steel Dynamics (STLD), one of the largest steel producers in the US, is trading higher today after it reported Q1 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 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 Q1 numbers, it's important to note that STLD already provided guidance on March 17, saying that they expected Q1 EPS of $0.77-0.81, which was well above market expectations at the time. The actual number came in at $0.82, which was above the prior guidance. Revenue rose 36.0% year/year to $2.37 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-June, STLD will provide Q2 EPS guidance.
The company says that the increase in earnings was principally driven by its flat roll operations, as demand was strong and customer inventory levels continued to be positioned at historically low levels. STLD also experienced increased shipments from its long product steel divisions. Steel demand from the automotive sector remained steady and construction continued to improve.
In sum, this was a very good quarter for STLD. Looking ahead, the company believes that current and anticipated macroeconomic and market conditions are in place to benefit the domestic steel industry in the coming year. Although domestic automotive production may be coming off record levels, STLD believes 2017 North American automotive steel consumption will be steady, and that there will be additional growth in the construction sector, especially for larger, public sector infrastructure projects. Additionally, the energy sector has begun to strengthen.