Steel Dynamics, Inc. today provided fourth quarter 2016 earnings guidance in the range of $0.36 to $0.40 per diluted share, which is lower than the company's sequential third quarter results of $0.64 per diluted share and higher than prior year adjusted fourth quarter results of $0.09 per diluted share.
Fourth quarter 2016 profitability from the company's steel operations is expected to decrease significantly in comparison to sequential third quarter 2016 results, based on lower shipments and metal spread compression. Lower steel shipments are expected for both flat and long product categories.
In a press release, the company said that fourth quarter 2016 average steel product pricing is expected to decrease, more than offsetting the savings derived from lower ferrous scrap costs. The anticipated lower earnings are driven by the company's flat roll operations, as customers were hesitant to place orders earlier in the quarter, resulting in both lower shipments and product pricing.
However, supported by continued low customer inventory levels, rising world steel prices, reduced flat roll steel imports, seasonally steady demand and rising raw material costs, the company said both flat roll steel selling values and customer order activity have improved meaningfully in November and December, with an expectation for continued strength into 2017. The company believes that current and anticipated macroeconomic and market conditions are in place to benefit the domestic steel industry in the coming year.
Fourth quarter 2016 profitably for the company's metals recycling platform is expected to be similar to the sequential third quarter. Both ferrous and non-ferrous shipments are expected to be somewhat seasonally lower, and some ferrous metal margin contraction is also expected.
The company's fabrication platform continues to experience steady seasonal demand from the non-residential construction sector, the release said. Fourth quarter 2016 fabrication metal spread is expected to improve, as increased average selling values more than offset higher average steel raw material costs. However, fourth quarter 2016 fabrication shipments are expected to decrease based on seasonally slower demand, resulting in only a slight anticipated sequential improvement in fourth quarter 2016 profitability.