Steel Dynamics: The Steel Sector Pace Car For Q3 Earnings

Steel Dynamics, Inc. STLD reported in-line earnings Wednesday, but Axiom’s Gordon Johnson expects a Thursday sell-off on weak guidance.

Management announced fourth-quarter outlook for earnings before interest and taxes below Street expectations and cited “maintenance” for the anticipated miss (see Johnson's track record here).

Johnson interpreted waning confidence as confirmation of lacking steel demand.

“Why take maintenance if demand is robust?” he told Benzinga.

This assessment — coupled with drops in iron ore and steel prices, high seasonal inventory, declines in U.S. construction spending and cuts to auto production — reinforced his negative industry sentiment.

In a Thursday note, Johnson lowered Cleveland-Cliffs Inc CLF estimates ahead of Friday earnings and predicted a miss and cut to full-year guidance. He expects third-quarter revenue of $632 million and earnings per share of 24 cents against Street expectations of $676 million and 32 cents.

The steel industry will wrap up its reports with:

• Nucor Corporation NUE on Oct. 19.
• Commercial Metals Company CMC on Oct. 26.
• AK Steel Holding Corporation AKS on Oct. 31.
• United States Steel Corporation X on Oct. 31.
• ArcelorMittal SA (ADR) MT on Nov. 11.

Heading into the season, the Street appears ambivalent on industry players, with TipRanks reporting a general balance of ratings. As of Thursday, analysts had three Buys, three Holds and two Sells on Cliffs.

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