Steel Dynamics (STLD) Q4 EPS Guidance Misses Consensus

Steel Dynamics, Inc. (NASDAQ: STLD) today provided fourth quarter 2018 earnings guidance and expectations for record annual 2018 earnings.

Annual 2018 Commentary

The company anticipates record annual 2018 earnings significantly higher than its previous record set in 2017. Based on strong steel demand fundamentals and customer optimism, the company believes steel consumption and market dynamics will remain strong in 2019 and has confidence in its ability to continue to deliver consistent strong free cash flow. In addition to continued organic and transactional growth, the company also expects to repurchase more than 5% of its outstanding shares, or over $500 million, during 2018.

Fourth Quarter 2018 Guidance

The company expects fourth quarter 2018 earnings to be in the range of $1.11 to $1.15 per diluted share. Excluding the impact from the following items, the company expects fourth quarter adjusted earnings to be in the range of $1.25 to $1.29 per diluted share:

• Additional performance-based compensation of approximately $12 million, or $0.04 per diluted share, awarded to all non-executive, eligible employees in recognition of the company's exceptional annual performance,
• Lower earnings of approximately $14 million, or $0.04 per diluted share, associated with a planned outage at the company's liquid pig iron production facility to complete major maintenance items that occur only once every three to four years, and
• Lower earnings resulting from significant planned maintenance outages at the company's two flat roll steel mills, including higher than normal maintenance and associated costs of approximately $20 million, or $0.06 per diluted share. The outages also reduced fourth quarter shipments at these two locations by an estimated 70,000 tons to 80,000 tons, and the associated reduction to earnings is not included in the $20 million estimate.

(**Street sees Q4 EPS of $1.36))

Comparatively, sequential third quarter 2018 earnings were $1.69 per diluted share, which includes charges of approximately $0.04 per diluted share, related to fair value purchase accounting adjustments associated with the Heartland acquisition, and a tax benefit of $0.04 per diluted share, associated with a change in tax accounting methodology. Prior year fourth quarter earnings were $1.28 per diluted share, which included debt refinancing charges of $0.02 per diluted share and a one-time tax benefit of $0.76 per diluted share resulting from the revaluation of deferred tax assets and liabilities in connection with the enacted U.S. Federal Tax Cuts and Jobs Act of 2017.

Fourth quarter 2018 profitability from the company's steel operations is expected to be strong, but lower than record sequential third quarter results, primarily driven by lower earnings from the company's flat roll operations. The company's flat roll operations incurred higher maintenance costs and lower shipments, due to major maintenance outages at both its Butler and Columbus locations, as well as, flat roll metal spread compression, and seasonally lower steel shipments.

Fourth quarter 2018 earnings from the company's metals recycling platform are expected to increase from sequential third quarter results, as recycled non-ferrous metal spread and shipments improved in the fourth quarter. Recycled ferrous metal margin is also expected to improve, while shipments are expected to be seasonally lower.

Fourth quarter 2018 profitability for the company's steel fabrication business is expected to increase from sequential third quarter results. Average sales prices are expected to improve sequentially, more than offsetting seasonally lower shipments. The company continues to experience seasonally strong steel fabrication order activity and backlogs, and positive customer sentiment concerning 2019.

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