Steel Dynamics Q2 Earnings Report Reviewed By Clarksons Analysts

Steel Dynamics, Inc. STLD reported better-than-expected results for the second quarter, despite a challenging industry environment.

Earnings And Guidance

Steel Dynamics reported adjusted EPS of $0.58, above the top end of management's guidance range of $0.53–$0.57 and the Street's $0.56 consensus.

"Exceptionally high mill utilization of 95 percent allowed for solid unit cost control, and masked "generally challenged" long product demand," Clarksons Platou analyst Lee McMillan wrote in a note.

The company's steel production utilization rate rose to 95 percent in the second quarter, well above the domestic industry average of 74 percent and the 88 percent in the first quarter. Steel ops metal margin rose by $23/ton versus first quarter to $413/ton, as pricing rose faster than scrap.

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Operating margins rose sequentially by $57/ton to $121/ton, due in part to a very solid unit cost performance buoyed by the high utilization.

McMillan views the result as a narrow beat versus consensus and believes the sustainability of high utilization numbers will be a key area of focus for the investors.

Looking Forward

Looking ahead, commentary was somewhat mixed, citing moderated customer inventories and low import levels as reasons to expect improved flat roll metal spreads in the third quarter.

However, long product steel demand was "generally challenged" with "selling values under pressure from excess domestic production capability."

McMillan has a Neutral rating and $24 price target on the stock, which, at time of writing, was down 5.43 percent on the day at $26.46.

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