After taking a breather from its streak of "earnings beats" last quarter, minimill magnate Steel Dynamics (NASDAQ:STLD) returned to form and reported earnings one day, and one nickel, ahead of schedule yesterday.
Barely a month ago, Steel Dynamics (SDI) had put Nucor (NASDAQ:NUE) to shame. Despite facing similar market conditions, SDI predicted it would beat its own first-quarter 2006 numbers by 26%, versus flat profits for its Charlotte, N.C., archrival. Yesterday, SDI did itself one better. Instead of the $0.96 or so that it prophesized in March, the firm turned in $1.01 per share in profit, alongside 30% more in revenues than it booked one year previous. (Nucor investors, don't fret. Your company gets a chance to respond in kind on Thursday.)
Helping SDI out in this feat was its April 2006 acquisition of Roanoke Electric Steel Corporation, whose revenues weren't included in last year's Q1 tally, but did show up in Q1 2007. And revenues weren't the only thing Roanoke contributed. CEO Keith Busse praised SDI's new prize for its "record levels" of production and expansion of SDI's overall product mix.
To be honest, though, revenues and bottom-line profits aside, I was really hoping that SDI's report yesterday would include an explanation of Busse's assertion that his firm could maintain margins despite a rise in the cost of steel scrap. One clue to how SDI hopes to manage this arrived two weeks ago, in the form of an announced purchase of a pair of scrapyards that could shore up SDI's supply lines. Although the company played coy on the price it paid for the yards in its press release, and provided no further detail on that score yesterday, it did mention that the yards' combined output amounted to 225,000 tons of ferrous scrap per year.
Even before the new scrapyards came into its possession, though, SDI had delivered on Busse's promise. For the quarter, SDI achieved a 19.8% margin, 10 basis points better than last year. What's more, margins look set to rise again next quarter. According to Busse, "the cost for ferrous resources for delivery mid-to-late second quarter is trending down, which should provide some relief from the margin compression we expect to experience early in [Q2]."
Get the Fool skinny on SDI and the rest of the steel industry in:
- Steel Sees Strength
- Steel Dynamics Invests for the Future: Fool by Numbers
- Foolish Forecast: U.S. Steel Says ...
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Fool contributor Rich Smith does not own shares of any company named above. The Fool has a disclosure policy.
