Steel Dynamics (STLD) is set to release its fourth-quarter 2014 results after the bell on Jan 28.
In the last quarter, this Indiana-based steel maker delivered a positive earnings surprise of 6.82% on double-digit sales gains across the board. The company’s fabrication and steel divisions achieved record volumes during the quarter. The company remains optimistic for the fourth quarter based on its strong demand, coupled with market diversification and customer focus.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Positive Zacks ESP: Steel Dynamics’ Earnings ESP which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at 2.50%. This is a meaningful and a leading indicator of a likely positive earnings surprise for the company.
Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks #1, #2 and #3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.
The combination of Steel Dynamics Zacks Rank #3 and an ESP of 2.50% makes us confident of a positive earnings beat.
Factors to Consider
Steel Dynamics’ unadjusted earnings in the fourth quarter are expected to be lower than the company's third-quarter 2014 results of 38 cents per share.
For the fourth quarter, Steel Dynamics expects profitability from the company's fabrication operations to be strong based on higher product pricing, despite expected lower shipments related to typical construction-market seasonality.
The company’s metals recycling operations are expected to record a minimal loss for the fourth quarter of 2014. Both shipments and ferrous metal margin are anticipated to decline by about 10% compared with the third-quarter 2014 results.
During the third quarter, the company completed the acquisition of the Columbus flat roll steel mill, adding one of the most technologically advanced U.S. steel mills to its portfolio. The acquisition of Columbus represents a significant step in the continuation of its growth strategy. It leverages the company’s core strengths by further increasing value-added product and market diversification.
Moreover, with the acquisition of Severstal Columbus, Steel Dynamics gets an exposure to the high-growth oil country tubular goods and automotive markets. Located in Mississippi, Severstal Columbus also provides geographic diversification and growth opportunities for Steel Dynamics.
Other Stocks to Consider
Here are some other companies in the basic materials sector you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
United States Steel Corp. (X) has Earnings ESP of +2.27% and holds a Zacks Rank #3 (Hold).
Ryerson Holding Corporation (RYI) has Earnings ESP of +4.17% and carries a Zacks Rank #3 (Hold).
Hecla Mining (HL) has an earnings ESP of +100.00% and a Zacks Rank #3 Hold).
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