Thursday should have been a great day for Steel Dynamics (NASDAQ:STLD) shareholders. It wasn't.

On Wednesday after close of trading, Steel Dynamics released its financial results for fiscal fourth-quarter 2019 and for the full year as well. Steel shipments for the year set a new record of 10.8 million tons, and revenues reaped from those shipments -- $10.5 billion -- were the company's second-best-ever performance in an earnings year. Profits on those revenues, too, were impressive -- $671 million on the bottom line, the company's third-best performance ever, and Steel Dynamics generated positive operating cash flow of $1.4 billion, its second-best performance for a full earnings year. 

To top it all off, in Q4 in particular, Steel Dynamics reported sales of $2.4 billion, and adjusted profits of $0.62, both numbers ahead of analyst estimates. All of this raises the obvious question: If Steel Dynamics is doing so great, why is Steel Dynamics stock down today (by more than 2%)?

Hot-rolled steel coil

Image source: Getty Images.

Good news, bad news

Let's dig a little deeper and find out, beginning with those quarterly results.

On the one hand, yes, Steel Dynamics beat earnings with a pro forma profit of $0.62 in Q4. But because of the effect of various one-time items (the cost of refinancing debt, reduced flat roll steel shipments from planned maintenance outages that reduced earnings, and other factors), Steel Dynamics' actual GAAP earnings for the quarter were only $0.56 per share.

Whichever of these numbers you choose to focus on, moreover, the fact remains that Steel Dynamics earned a staggering $1.17 per share in last year's Q4 -- and so Steel Dynamics' Q4 2019 earnings were still down by about half from a year ago. Likewise, Steel Dynamics beat on sales in the quarter. Nonetheless, the $2.4 billion in revenue collected in Q4 2019 was down about 18% from the $2.9 billion reaped in Q4 2018.

In short, even if Steel Dynamics scored a record year in 2019, the final quarter of that year was something of a disappointment. Moreover, record year or not, 2019 as a whole was a bit of a letdown after the utterly fantabulous year Steel Dynamics enjoyed in 2018. This past year saw sales slide 11% for Steel Dynamics, and profits drop 43%.

What comes next

Will 2020 be better?

Adding color to the black and white numbers of its report, Steel Dynamics CEO Mark Millett highlighted a host of difficulties that may be adding to investors' nervousness about this stock in the new year. Because "many customers purchased beyond normal demand levels in 2018," contributing to that year's stunningly successful results, this left these same customers with "high customer steel inventories" in 2019, leading customers to destock inventories, dampening demand, and causing steel prices to decline throughout the year, confided the CEO.

The good news is that pricing appears to have firmed in the fourth quarter. Destocking has subsided, says management, and customer inventory levels are now right-sized as we head into 2020.

Millett notes that Steel Dynamics' customers are sounding "positive concerning the business outlook for 2020," and Steel Dynamics' own backlogs are back above where they were at this point in time in 2019. Consequently, while Millett declined to give specific guidance on what Steel Dynamics is looking for in its numbers in 2020, he noted that North American steel market dynamics look positive this year, with at least modest growth likely -- and potentially more than modest growth if "possible trade actions ... have a positive impact in further reducing unfairly traded steel imports into the United States."

The upshot for investors

In fact, that may be the most important line in Steel Dynamics' entire report.

After all, if 2018's results benefited largely from the Trump Administration's tariffs on steel imports competing with Steel Dynamics (and they did), and 2019's results were hurt by the lifting of some of these tariffs (and they were), then the biggest hope for a recovery in Steel Dynamics' profits in 2020 may be ... the hope for new tariffs in the New Year.