Steel Dynamics (STLD 49.15, +1.36, +2.86%), one of the largest steel producers in
the US, is trading higher today after it reported Q2 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 their 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 Q2 numbers, it's important to note that STLD already provided guidance on June 15, saying that they expected Q2 EPS of $1.46-1.50, which was well above market expectations at the time. The actual number came in at $1.53, which was above the prior guidance. Revenue rose 29.3% year/year to $3.09 bln, which was a good bit above market expectations. The company provided no financial guidance, as is typical for them. The company normally waits until the middle of the last month of the quarter before providing guidance, so investors should probably expect the company’s next forward-looking perspective around mid-September, when STLD will provide Q3 EPS guidance.
The company saw improved demand and product pricing across the entire steel platform in Q2, resulting in record quarterly steel shipments and significant margin expansion. While STLD saw improvement from each of its steel divisions, the increase in earnings was principally driven by its flat roll operations, as continued strong demand supported meaningful volume and margin expansion.
Steel demand remained strong from the automotive, construction, and energy sectors while general industrial demand continued to grow. The metals recycling platform also performed well, reporting strong shipments and continued steady operating costs. Looking ahead, STLD remains confident that macroeconomic and market conditions are in place to benefit domestic steel consumption. STLD believes steel consumption will continue to be strong for the remainder of the year. Domestic steel inventory levels also remain reasonably balanced.
This was a very good quarter for STLD. The pricing environment, shaped by steel tariffs that have supported pricing by reducing steel imports, has been very favorable for STLD and others, and demand has remained strong enough to absorb those price increases. Finally, it was also encouraing to hear that STLD sees steel consumption continuing to remain strong in 2H18.
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