Steel Dynamics Promises to Make Up Its 2Q Losses

Mid Cap Watch List member Steel Dynamics, Inc. (STLD), announced second quarter earnings of $94 million, or $0.95 per diluted share, an increase of 7 percent when compared to $0.89 per diluted share in the second quarter of 2006 but below consensus estimates of $1.05.

Diluted earnings per share decreased 6 percent from the first quarter of 2007, principally due to bond refinancing costs. Revenues increased to $911 million, and were 11 percent higher than the year-ago quarter, and 5 percent higher than the first quarter of 2007. But, they were below the consensus estimate of $948 million. Adjusting for the refinancing charge the earnings were $1.01, at the low end of the lowered guidance range the company provided in May. Guidance for the third quarter, however, was strong:

We expect market demand for flat-rolled steel to improve in the third quarter, following several months of inventory liquidation, which would provide the possibility of a higher third-quarter volume of shipments and improved profit margins for sheet products. Combined with continued strong results for long products, we expect higher third-quarter earnings in the range of $1.10 to $1.15 per diluted share, subject to certain purchase accounting adjustments related to our acquisition of The Techs.

Consensus estimates for next quarter were $1.08, so the company now expects to make up for this quarter’s shortfall in the coming one. Given its forecasting success to date, we wouldn’t be surprised if investors say “show me the money.” Particularly since the company claims its customers have been liquidating inventory, but the company itself has seen inventories balloon, which resulted in negative cash flow from operations for the quarter.