Steel Dynamics (STLD) Guides Q3 EPS Below Expectations

Steel Dynamics (NASDAQ: STLD) has provided third quarter 2015 earnings guidance in the range of $0.20 to $0.24 per diluted share, higher than sequential second quarter 2015 earnings of $0.13 per diluted share and less than prior year third quarter earnings of $0.38 per diluted share.

*** The Street sees Q3 EPS of $0.31.

Second quarter 2015 earnings included expenses associated with idling the company's Minnesota iron operations of $0.07 per diluted share and reduced earnings related to the planned furnace maintenance outage at Iron Dynamics of $0.02 per diluted share. Prior year third quarter earnings included acquisition costs and purchase accounting adjustments related to the Severstal Columbus acquisition of $0.09 per diluted share.

Profitability from the company's steel operations for the third quarter 2015 is expected to be slightly improved in comparison to the sequential second quarter 2015 results, based on modest overall metal spread expansion offset by slightly lower steel shipments. Overall average product pricing is expected to be relatively unchanged in the quarter. The company's steel scrap costs are expected to decline in the third quarter 2015; however, based on the company's FIFO inventory accounting methodology, further scrap declines that have occurred in September will benefit the fourth quarter 2015 metal spread. Regarding steel volume, flat roll steel shipments, specifically commodity-grade hot roll products, are expected to decline in the third quarter 2015, due to the continued excessive level of steel imports, combined with increasing service center inventories. The heavy equipment, agricultural and energy markets remain challenged, while automotive remains strong and construction continues to improve.

Continued strong demand for the company's fabricated steel joist and decking products indicates the non-residential construction market is continuing a positive trend. Third quarter 2015 profitability from the company's fabrication operations is expected to be at record levels, as modest spread compression from decreased average pricing is expected to be more than offset by improved shipments.

Metals recycling financial results are expected to decline meaningfully for the third quarter 2015, compared to the sequential second quarter, based on both ferrous and non-ferrous metal spread contraction. Sequential quarterly ferrous pricing was down slightly and procurement costs rose; whereas, non-ferrous pricing in the quarter declined significantly. Non-ferrous market indices have fallen over ten percent in the third quarter 2015 and spreads have contracted substantially.

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