Leave it to steel producer Steel Dynamics (NASDAQ:STLD) to throw a wrench into the works of a nice, easy column on another quarter's earnings. The company couldn't just report a respectable quarter. Oh, no, it had to go and announce a pretty significant acquisition two days before. But I suppose it makes sense, really. Steel Dynamics is going on 12 years old now, and we all know that's the time when certain changes start.
On Tuesday, the company announced an agreement to buy Roanoke Electric Steel (NASDAQ:RESC) in a deal worth about $280 million. Steel Dynamics will be offering a blend of cash and stock -- $9.75 per share of the former and 0.4 shares of the latter -- for the shares of Roanoke. Not only will the deal expand total capacity by about 25%, but it will also give Steel Dynamics entry into some new markets and will expand businesses like joists, trusses, and girders.
As for the quarter, it was tough mostly because the prior year was so strong. Sales dropped more than 21%, and net income was down about 60%. Although production didn't fall off too much, shipments were up only 3%, and pricing per ton was down about 24% versus the year-ago quarter.
Though not offered up as an excuse, management did talk about some of the negative effects of the hurricanes on the business. In addition to higher energy costs, supplies of hydrogen from Air Products (NYSE:APD) have been interrupted, and that's interfered with operations to the extent that Steel Dynamics now has to generate its own supply at a less appealing price.
Looking at things over the longer term, I like what this company does, and I think Roanoke could prove to be a smart buy. What's more, the company is seeking more contract business with the likes of Caterpillar (NYSE:CAT) and Deere (NYSE:DE), and that should reduce the volatility that comes from heavy reliance on spot markets. Best of all, this isn't just a run-of-the-mill steel company, even though it seems to be valued as one. Mispricings and misunderstandings are fertile fields for value-oriented investors, and while I have no doubt that this stock will be volatile for years to come, it could prove to be a good pick nonetheless.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
