Steel Dynamics, Inc. (NASDAQ: STLD) has posted better-than-expected results for the first quarter of 2022, as earnings surpassed the consensus estimate by 8.1% while sales exceeded expectations by 5.5%.
Impressive results, along with record steel shipments and rise in production, and growth in margins were the main highlights of the release. Despite such investor-friendly news, shares of Steel Dynamics slipped 0.5% to close at $91.49. The stock further lost 0.2% in the extended trading session.
The Fort Wayne, IN-based steel producer presently has a market capitalization of $17.3 billion. It also engages in the recycling of metals in the United States.
Financial Highlights
Steel Dynamics has reported adjusted earnings of $6.02 per share, above the consensus estimate of $5.57 per share, exceeding its projection of $5.85-$5.89 per share.
Compared with the year-ago tally, the bottom line increased 186.7% on the back of growth in steel revenues and an improved margin profile.
Revenues totaled $5.57 billion, higher than the Street’s estimate of $5.31 billion. Compared with the year-ago quarter, the top line surged 57.1% driven by a healthy steel business.
Steel sales in the quarter rose by a whopping 49.9% year-over-year to $3.76 billion. It accounted for 67.6% of the quarter’s total revenues. The results were driven by a 50% increase in average sales price (external) per ton and a 2.6% rise in total shipments to 2.9 million tons. Steel mill production in the quarter grew 1.3% to 2.5 million tons.
The company’s Steel Fabrication sales were up 261.9% to $0.93 billion, and its Metals Recycling sales expanded 23.3% to $0.58 billion. Other sales at $0.3 billion in the quarter reflected a decline of 3% from the year-ago quarter.
Gross profit margin in the quarter improved to 32% from 22.6% in the year-ago quarter. Likewise, adjusted earnings before depreciation, amortization, interest, and taxes grew to 28.5% from the year-ago tally of 18.7%.
Cash generated from operating activities increased 212.4% year-over-year to $0.82 billion, while capital expenditures at $0.16 billion reflected a 48.6% decline. Exiting the quarter, the company’s cash and cash equivalents were $1.19 billion, down 4.4% from 2021-end. Long-term debts stood at $3.01 billion.
Official Comments
Steel Dynamics’ Chairman, President, and CEO, Mark D. Millett, said, “We remain confident that market conditions are in place for domestic steel consumption to continue to be strong this year and into 2023.”
He added that steel prices “will remain supported by strong demand, balanced customer inventory levels, and elevated raw material costs.”
Capital Deployment
Steel Dynamics effectively used its cash resources for repaying debts of $349.3 million and distributing dividends of $50.7 million (down 3.8% year-over-year). The company also repurchased shares worth $389.2 million.
During the quarter, the company increased its quarterly dividend rate by 31% to $0.34 per share and announced a share buyback program of $1.25 billion.
Wall Street’s Take
A few days ago, J.P. Morgan analyst Michael Glick maintained a Buy rating on Steel Dynamics with a price target of $117 (27.88% upside potential).
Analysts are cautiously optimistic about the company and have a Moderate Buy consensus rating based on three Buys, one Hold, and one Sell. Steel Dynamics’ average price target of $84.20 suggests 7.97% downside potential from current levels.
Over the past year, shares of Steel Dynamics have surged 78.8%.
Risks Analysis
According to the TipRanks Risk Factors tool, Steel Dynamics’ main risk category is Legal & Regulatory, contributing four risks to the total 17 risks identified for the stock.
Conclusion
In the quarter ahead, Steel Dynamics is well-positioned for growth backed by healthy demand for steel from the industrial, automotive, and construction industries. The energy sector is a growing market for the company. Further, its solid cash position supports healthy rewards for shareholders and growth investments.
While we see caution regarding the company’s risk exposure and broader market dynamics in the short term, it could be a preferable investment choice for the long term.
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