Steel Dynamics Share Buyback Not As Big As It Seems

| About: Steel Dynamics, (STLD)

Mid Cap Watch List member Steel Dynamics, Inc. (NASDAQ:STLD) announced that its Board of Directors approved an increase of 5 million shares to its existing share repurchase program.

During June, the company purchased the last of its previously authorized share repurchase program which was last increased in November 2006. Since September 2004, the Company has repurchased 30 million shares of its common stock.

I’m always skeptical of buyback announcements, given that so many companies just use them to soak up the shares they have given to managers as stock options. So I took a look at STLD’s 10K (pdf file) to make sure if there was really share reductions. In 2004 the company had 113 million shares at year-end, and they averaged 106 million in 2006. Adding the 5.6 million shares they have repurchased since, there has been a net reduction of 13 million shares.

Any reduction in share count helps, but there is still a significant difference between the 30 million shares they claim to have bought back and the 13 million actual net reduction in shares. Looking at the Statement of Shareholder Equity, it looks like much of the difference is due to convertible notes being converted into shares. Given that between acquisitions and growth opportunities revenues have increased 50% during the 2-year period, I’m willing to accept that.

STLD 1-yr chart:

STLD 1-yr chart

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Tagged: , Steel & Iron
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