Steel Dynamics (STLD) Guides Q3 Below Expectations

Steel Dynamics, Inc. (Nasdaq: STLD) provided third quarter 2016 earnings guidance in the range of $0.63 to $0.67 per diluted share, compared to sequential second quarter 2016 earnings of $0.58 per diluted share and prior year third quarter earnings of $0.25 per diluted share.

*** The Street sees Q3 EPS of $0.71.

Third quarter 2016 profitability from the company's steel operations is expected to increase in comparison to sequential second quarter 2016 results, based on meaningful metal spread expansion. Average quarterly realized steel product pricing is expected to increase more than additional costs derived from higher priced ferrous scrap utilized in the quarter. However, lower steel shipments across the platform are expected to offset some of the positive margin impact. The anticipated earnings improvement is driven by the company's flat roll operations. Demand from the heavy equipment, agricultural and energy sectors stay challenged, while the automotive sector remains strong and the construction market continues gradual improvement.

Profitably for the company's metals recycling platform is expected to be lower for the third quarter 2016, compared to the sequential second quarter. Both ferrous and non-ferrous shipments are expected to decline, and ferrous metal spread contraction is also expected as market prices have declined in the second half of the third quarter 2016.

The company's fabrication platform continues to experience steady demand from the non-residential construction sector, with order entry remaining steady. Third quarter 2016 fabrication shipments are expected to remain consistent with sequential product pricing improvement. However, higher raw material flat roll steel costs are expected to result in metal spread compression and lower sequential fabrication earnings for the third quarter 2016.

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