Steel Dynamics' Outlook Grows Murkier

Steel Dynamics misses Wall Street's second-quarter profit targets and offers a circumspect view of the rest of the year.
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FORT WAYNE, Ind. (TheStreet) -- Steel Dynamics (STLD) - Get Report offered a murky view of the fragile U.S. economic recovery when it reported second-quarter earnings that fell slightly below analysts' expectations.

Shares of Steel Dynamics, which forges steel out of recycled scrap and sells its products into a range of industries, were nonetheless rising early in Tuesday's, along with the steel sector at large.

The company's shares were changing hands in recent trades at $14.12, up 12 cents from the previous close. The stock had lost 24% since early April as the global economic recovery has been called into question and as

steelmakers face a host of concerns


Year-over-year, Steel Dynanmics' numbers looked encouraging: The company staunched the red ink and swung to a profit, posting a bottom line of $49 million, or 22 cents a share. A year ago, it lost $16 million, or 8 cents a share. Revenue as well surged from the same period of 2009, when the recession was at its worst and steelmakers were busy shutting down plants. The company's second-quarter top line more than doubled, coming to $1.6 billion, up from about $800 million a year ago.

Otherwise, though, there wasn't much reason for cheer. Steel Dynamics, which already issued a profit warning in June, disappointed some analysts by reporting a drop in sales volumes of its core flat-rolled steel products. Shipments in that business -- about 623,000 tons -- dropped 15% from the first quarter. For that reason, the company missed by three pennies Wall Street's consensus target for the quarter of 25 cents a share.

The company had technical problems at a mill in Butler, Ind., noted Mark Parr, a steel industry equities analyst at KeyBanc Capital Markets, in a report to clients Tuesday morning. But the "onset of the summer doldrums," or the industry's traditional seasonal weakness this time of year, also took a toll, he wrote.

In contrast to the company's

relative optimism

when it reported first-quarter results in the April, Steel Dynamics was cagey about the rest of the year. "Although the economy has slowly improved over the past few quarters, at this point we are cautious about the outlook for the second half," the company said in its press release.

That doesn't bode well for analysts' earnings targets for the next two quarters. Parr wrote in his Tuesday note that the company's language in the press release "may imply downside risks" to Wall Street's consensus financial targets for the third quarter. According to Thomson Reuters, analysts are looking for Steel Dynamics to earn 27 cents a share in the third quarter.

The picture for U.S. steelmakers may gain some clarity this week and next as the industry's heavyweights issue second-quarter results.


(NUE) - Get Report

is slated to report on Thursday.

U.S. Steel

(X) - Get Report


AK Steel

(AKS) - Get Report

are scheduled for July 27.

-- Written by Scott Eden in New York


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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.