Steel Dynamics' profit falls short of its own forecast despite record steel shipments

Steel Dynamics said on Monday, Oct. 19, that it earned $5.26 a share in the third quarter, short of both the range it forecast a month ago and analysts' estimates, even as its mills shipped a record amount of steel at higher prices. The shares fell in after-hours trading.

Short of its own forecast

Steel Dynamics earned $756 million, or $5.26 a diluted share, in the three months through September. That was up from $404 million, or $2.74 a share, a year earlier and from $534 million, or $3.69 a share, in the second quarter. Net sales rose 35% from a year earlier to $6.5 billion.

On Sept. 17 the company told investors to expect earnings of $5.34 to $5.38 a share for the quarter, so the result landed 8 cents below the bottom of its own range. Analysts had expected $5.41 a share on average, according to LSEG data cited by Reuters. Revenue of $6.51 billion beat the $6.43 billion analysts had forecast, Reuters and Investing.com reported.

Where the quarter came up short

The release does not reconcile the result with the September forecast. Read side by side, the two documents point most clearly to aluminum. In September, Steel Dynamics said earnings from its aluminum operations would "improve meaningfully" from the second quarter on higher shipments. Instead the business lost $26 million, 21% less than in the second quarter, and shipped 55,000 metric tons of flat-rolled sheet.

Chief Executive Mark Millett said aluminum volumes "were less than expected over a number of weeks" because yield losses rose when the mill ran at higher speeds. The company traced the problem to the composition of the rolling coolant at its hot strip mill. It said the coolant has been changed, no further costs are expected, and the mill's performance "has been excellent in October." The aluminum platform broke even on an EBITDA basis in the quarter, the company said.

The smaller businesses also weighed. Metals recycling earned $33 million, $15 million less than in the second quarter, as ferrous scrap prices fell. Steel fabrication earned $91 million, up from $85 million in the second quarter but below the $107 million it made a year earlier. Reuters cited weaker recycling profits, aluminum startup losses and higher raw-material costs as the pressures on the quarter.

Steel itself had a strong quarter

Operating income from the steel mills rose 43% from the second quarter to $1.0 billion, about double the $498 million of a year earlier. The mills shipped 3.8 million tons, a company record. The average external selling price rose $102 a ton from the second quarter to $1,400, up from $1,119 a year earlier, while the average cost of the scrap the mills melt fell $8 to $404 a ton. That widened the spread between what the mills charge and what they pay for their main raw material.

Millett said the domestic market was supported by "steady demand, low customer inventories, and historically low import levels," and that imports of coated flat-rolled steel had abated "due to recent trade actions." The steel fabrication order backlog is 50% higher than a year ago and extends into the second quarter of 2027, with demand coming largely from commercial construction, manufacturing, warehouses, data centers and healthcare, the company said.

Cash and buybacks

Adjusted EBITDA was $1.2 billion and cash flow from operations was $846 million. The company spent $150 million on capital projects, paid $76 million in dividends and bought back $276 million of its stock, about 1% of the shares, ending September with $2.4 billion of liquidity.

How the stock reacted

Steel Dynamics closed the regular session on Monday at $245.17, up 1.9%, before the results came out. In after-hours trading the shares fell as low as $222.88, about 9% below that close, and were at $231.51, down 5.6%, at 6:10 p.m. ET, according to Yahoo Finance data. Through Monday's close the stock had gained about 45% this year, measured from its Dec. 31 close of $169.45.

What comes next

Management will discuss the third-quarter results on a conference call at 11 a.m. ET on Tuesday, Oct. 20. The company said it expects aluminum volumes and profitability to improve in the fourth quarter and through 2027. The first of two finishing lines for automotive aluminum, known as CASH lines, is expected to ship finished automotive products before the end of the year, and the second should be operating early in the first quarter of 2027. The release did not include a numerical earnings forecast for the fourth quarter.