Steel-maker and metal recycler Steel Dynamics (STLD, Financial) posted impressive results for the second quarter that beat the consensus estimates on both the top and bottom lines. The company's results were driven by solid strength for its shipping products that touched a record 1.7 million tons for both flat-rolled and structural, along with rail division that picked up the momentum during the second-quarter 2014.
Financial performance is strong
Steel Dynamics reported revenue growth of 17% to $2.1 billion as compared to $1.8 billion in the same quarter last year, beating the estimates of $1.99 billion. Its net income rose approximately 148.3% to $72 million or earnings of $0.31 per share year over year. The consensus had estimated earnings of $0.30 per share for the second-quarter 2014.
Looking ahead, Steel Dynamics looks solid with improved demand for steel both at home and in the global markets. This coupled with some potential acquisitions of plants and strategic initiatives should enhance its productivity to match the rising demand for steel across the world.
Moreover, its steel mill utilization rate across its entire plants have accelerated to 90%, which should drive its profitability in the second-half as the higher utilization rate will enhance its cost effectiveness. Steel Dynamics is experiencing an increased movement in its order book in spite of recent rise in the imported steel that reflects increased consumption for its steel in the home market.
Aiming for more share
In addition, the steel producer remains on track to maximize its share on the back of regained market momentum in the U.S. economy. The country is experiencing a higher employment, higher sales generation, and an improved build rate that at present remain at 16.5 million units for 2014, and is anticipated to grow approximately 17.8 million units over the next couple of years.
The non-service sector is expected to accelerate at a higher rate than the GDP, as the investment in the manufacturing sector, particularly the automobile and construction markets, continue to augment that should further drive its growth.
The residential and commercial segment grew 9% and 8% respectively in May, and are forecasted to remain healthy for the rest of the year. Steel Dynamics continues to see strong demand in its fabrication division as its joist shipment accelerated 30% year-over-year for the second quarter. The Steel Joist Institute highlights an augmented shipment for domestic market to increase about 14% through May 2014.
This increased momentum should assist the company in gaining market share in these segments. Meanwhile, the energy segment has seen an upward direction as the oil rig count in the United States continues to rise. In fact, the United States is producing more oil than it is exporting for the first time in 19 years, and the energy segment is considered one of the biggest contributors for steel consumptions that should enhance its progress in the upcoming quarters.
The company is also witnessing higher demand for its structural and rail division due to its highly qualified premium rail in North America. The company remains the only producer in the North America that produces 320 foot-long rail and effectively linking these longer rails together to produce 1600 foot-long rail with minimum link point than its competitors, which leads to lower installation costs, reduces ongoing track maintenance expanse, and higher safety measurements.
Steel Dynamics is also planning to enlarge its geographic presence in the southern U.S. and leverage its expertise in the southern industrial markets and Mexico, which should complement its growth and improve its financial results.
Apart from this, the company should also benefit from the recent acquisition of Severstal’s Columbus mill that should help Steel Dynamics leverage its core strengths, since Columbus has a hot roll production capacity of 3.4 million tons that was inaugurated in 2007.
Steel Dynamics believes this acquisition should increase its total production capacity by about 40%, totaling approximately 11 million tons of annual shipping capacity. This mill is expected to enhance the company's operation efficiency and increase its costs competency, since it has innovative 2D gases, thicker slab casting, and rolling technology that provides greater capability than its Butler facility in order to make high-end energy pipe scale and advanced high strength dual phase auto grades.
Wrapping it up
Steel Dynamics is trading at the trailing P/E of 30.72 and forward P/E of 12.76 that states a lot of room for growth for the stock, along with a PEG ratio of 0.84 estimated for the next five years that continue to complements its growth in the future. Steel Dynamics has total debt of $1.08 billion.
Meanwhile, the analysts have estimated CAGR of 24.03% which is quite higher than the average industry CAGR of 5.14% for the next five years. Analysts also expect this year's growth to be approximately at 44.60 and 58.30% for the next year, which highlights short and long-term growth, and investors can certainly maximize their returns.