SDI warns of 4Q 2015 disappointment

Indiana-based steelmaker says it remains profitable but struggles with reduced hot roll product sales.

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December 18, 2015

Electric arc furnace (EAF) steelmaker Steel Dynamics Inc. (SDI), Fort Wayne, Indiana, has provided fourth quarter 2015 earnings guidance in the range of three to seven cents per share, a significant drop from third quarter 2015 earnings of 25 cents per share. The figure also is down sharply from fourth quarter 2014 earnings of 40 cents per share.

The company joins fellow EAF steelmaker Nucor Corp. in predicting a disappointing fourth quarter of 2015.

Despite the reduced earnings forecast, SDI says it expects to still generate cash flow from operations in excess of $200 million during the fourth quarter 2015, which would result in record high liquidity at the end of 2015.

“Profitability from the company’s steel operations for the fourth quarter 2015 is expected to be significantly lower in comparison to the sequential third quarter 2015 results, based on lower steel shipments caused by continued high level of steel imports, customer destocking and seasonally lower demand.” SDI states in a mid-December news release. “While lower shipments are expected across the steel platform, the most significant decline is anticipated in the company's commodity-grade hot roll products. Fourth quarter 2015 overall average steel product pricing is expected to decrease meaningfully, offsetting the savings derived from lower ferrous scrap costs. The heavy equipment, agricultural and energy markets remain challenged, while the automotive market remains strong and the construction market continues to improve.   

Regarding its OmniSource Corp, and other metals recycling operations, SDI says “financial results are expected to decline to a loss position for the fourth quarter 2015, based on lower shipments and metal spread compression. Lower domestic steel mill utilization is expected to result in significantly weaker ferrous scrap shipments and has decreased ferrous scrap selling values approximately $65 to $70 per ton from the end of September 2015 to the end of November 2015.”

SDI bills itself as one of the largest domestic steel producers and metals recyclers in the United States, with annual sales of $8.8 billion in 2014, approximately 7,500 employees and manufacturing facilities that include six steel mills, eight steel coating facilities, an iron production facility, approximately 80 metals recycling locations and eight steel fabrication plants.