Steel Dynamics Inc. (STLD), one of the leading steel producers in the US, forecasts a bleak third quarter for 2010. The company expects subdued performance in the Steel segment to impact results negatively in the upcoming quarter. It foresees net earnings of a meager 5 to 10 cents per share. Lower selling prices particularly in the sheet and structural steel operations would reduce net earnings substantially from last year's net earnings of 30 cents.
Steel Dynamics assumes a 4 cents reduction in third quarter 2010 earnings per share due to a 10% decline in nugget selling prices and higher costs of production at the recently started Mesabi Nugget project in Minnesota that produces iron nuggets for mini-mill steelmaking. A higher than anticipated effective tax rate would further reduce earnings by 2 cents. Steel Dynamics expects Metals recycling operations to be affected by the sequential reduction in ferrous metal spreads and reduced volumes.
However, Steel Dynamics stated that sheet demand has improved quarter over quarter and hence the company can expect a better full year result provided the current surge in sheet demand continues. The company also foresees improving start up activities at the Mesabi facility and anticipates a 65% to 70% sequential increase in production.
Projected third quarter results would be a significant 54% decline from the second quarter 2010 earnings of 22 cents and would be well below the Zacks Consensus as well. Steel Dynamics has missed the Zacks Consensus Estimate in two of the trailing four quarters as reflected by an average surprise of a negative 0.60%. The current Zacks Consensus Estimate of 22 cents for the upcoming quarter has a downside potential of 9.09%.
Steel Dynamics' depressing third quarter outlook triggered the negative market sentiment on the stock. The company's shares lost 19% in last six months and closed at $14.59 on September 14, 2010. Currently, Steel Dynamics is a short-term (1 to 3 months) Zacks #5 Rank (“Strong Sell”) and a long-term (6+ months) underperform recommendation.
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However, Steel Dynamics stated that sheet demand has improved quarter over quarter and hence the company can expect a better full year result provided the current surge in sheet demand continues. The company also foresees improving start up activities at the Mesabi facility and anticipates a 65% to 70% sequential increase in production.
Projected third quarter results would be a significant 54% decline from the second quarter 2010 earnings of 22 cents and would be well below the Zacks Consensus as well. Steel Dynamics has missed the Zacks Consensus Estimate in two of the trailing four quarters as reflected by an average surprise of a negative 0.60%. The current Zacks Consensus Estimate of 22 cents for the upcoming quarter has a downside potential of 9.09%.
Steel Dynamics' depressing third quarter outlook triggered the negative market sentiment on the stock. The company's shares lost 19% in last six months and closed at $14.59 on September 14, 2010. Currently, Steel Dynamics is a short-term (1 to 3 months) Zacks #5 Rank (“Strong Sell”) and a long-term (6+ months) underperform recommendation.
STEEL DYNAMICS (STLD): Free Stock Analysis Report
Zacks Investment Research
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