Steel stock Worthington Industries crushed earnings estimates late Wednesday but missed on revenue, after Schnitzer Steel Industries also issued a mixed report Tuesday.
WOR stock popped in Thursday's premarket session, pointing to a possible early breakout, after management gave an upbeat outlook. Schnitzer Steel stock fell back from near a buy point.
Schnitzer posted better-than expected profits on the back of increased steel product sales. However, the company sees signs the economy could be "slowing" in the near-term.
Worthington Industries Stock
Estimates: Wall Street expected Worthington earnings to rebound 20% to $1.90 per share despite sales sliding 10% to $1.366 billion in the fiscal fourth quarter.
Results: Worthington earnings jumped 73% to $2.74 a share, FactSet shows. Revenue fell 19% to $1.229 billion. The sales decrease was driven by lower average selling prices in the steel processing business, the company said in an earnings release. Lower overall volumes hurt to a lesser extent.
In Q4, gross margin increased on higher direct spreads in steel processing, the company said. That was partially offset by the impact of lower overall volumes.
"Demand for most of our key end markets remained healthy with all business segments delivering solid cash flows and earnings despite some pockets of market softness," CEO Andy Rose said in the statement. The separation into two, distinct companies remains on track by 2024, he added.
Worthington added it is "very well positioned" in the new fiscal year, regardless of economic conditions, without giving specific guidance in the earnings release.
The Columbus, Ohio-based company operates a steel processing business, consumer and building products segments, along with a sustainable energy solutions offering.
The company's steel processing segment in fiscal 2020, 2021 and 2022 made up approximately 61%, 65% and 75%, respectively, of its net sales.
Consumer products generated around 12%, 16.5% and 15% of net sales over the last three fiscal years. The steel stock's building products averaged around 12% of net sales in the past three fiscal years while its sustainable energy solutions averaged 3.6% of sales in that time.
Analysts expect the steel processor to see fiscal 2023 EPS fall 31% to $4.99 from fiscal 2022 highs of $7.30. Full-fiscal year revenue is also forecast to slip more than 6% to $4.91 billion from $5.24 billion last year.
WOR stock traded more than 4% higher early Thursday, signaling a possible breakout. Worthington Industries stock rose 1.4% in Wednesday's session to 63.37, right on the 63.37 buy point from a cup-with-handle base, according to MarketSmith. WOR stock has shot up more than 27% this year. The steel stock is trading just above its 21-day and 50-day lines.
Additionally, Worthington is 9th in the steel stocks industry group. WOR has an 83 Composite Rating out of 99. Worthington Industries has an 82 Relative Strength Rating. And the steel stock has an EPS Rating of 61 out of 99.
Steel Stocks: Schnitzer Steel Earnings
Estimates: Analysts predicted Schnitzer Steel earnings would slump 75% to 64 cents per share with revenue falling 18% to $824 million in the fiscal third quarter. Wall Street had forecast an EPS fall of 84% for SCHN in fiscal 2023 after booming earnings in fiscal 2021 and 2022.
Results: Schnitzer Steel reported revenue down 20% to $810 million in the fiscal third quarter. The company's profits dropped 74% to 67 cents per share.
Schnitzer Steel said earnings were driven primarily by finished steel sales volumes jumping 30% sequentially due to seasonally stronger construction demand. SCHN added there was also high demand for recycled metals, which lead to higher average selling prices for ferrous and nonferrous products in Q3.
"Our financial and operating performance this quarter reflects stronger market conditions than we experienced earlier in the fiscal year," Schnitzer Steel Chief Executive Tamara Lundgren said in a statement.
Lundgren added the near-term economic environment is "showing some signs of slowdown."
However, the Schnitzer Steel executive said she is optimistic about demand for recycled metals and boosts to business from U.S. legislation, including the Inflation Reduction Act (IRA) and President Joe Biden's $1 trillion infrastructure law.
SCHN Stock
Schnitzer Steel stock slumped 3.5% to 29.64 after dropping 3.15% Tuesday. The steel stock had formed a cup-with-handle base with a 33.76 buy point, but now the handle is too low to be valid. Investors could still use 33.76 as an entry.
Shares haven't made a lot of headway since hitting a multiyear low last September. Schnitzer Steel stock is down 3% in 2023 but has bounced 8% in June, though paring monthly gains.
Portland, Oregon-based SCHN is one of the largest manufacturers and exporters of recycled metal products in North America. The company has a network of more than 50 retail self-service auto parts stores, 54 metals recycling facilities, and an electric arc furnace steel mill.
SCHN ranks 18th in IBD's Metal Processing & Fabrication group. The steel stock has a 46 Composite Rating out of 99. Schnitzer Steel stock has a 54 Relative Strength Rating and its EPS Rating is 26 out of 99.
Steel Stocks: Prices And China
HRC futures have dropped around 20% from 2023 highs of $1,185 per ton in late March. Analysts say this is predominantly due to softening demand, declining scrap prices and shortening lead times.
Meanwhile, steel rebar futures have retreated from a two-month high of $522 per ton on June 16 as markets continue to worry about China's disappointing economic recovery. China is the world's top importer of iron ore, and leading producer of steel and coal, as well as the dominant construction market.
The Covid-19 pandemic mangled global supply chains in many industries, including steel. As much of the world slogged through the crisis, demand for steel crashed. In 2021, U.S. steel prices skyrocketed to all-time highs, moving above $1,900 per ton in August 2021. Prices fell into a lull early in 2022, then surged to around $1,500 per ton after Russia invaded Ukraine. Before the pandemic, HRC prices ran near $500 per ton.
Currently, growth in China has lagged expectations since the world's second largest economy ended its restrictive Covid policies in December. Despite the reopening, consumer and producer prices have logged four months of declines. In May, China retail sales and factory output sharply undercut estimates, and exports fell far more than expected.
To try to shore up sagging steel prices, Nucor, United States Steel and Cleveland-Cliffs all recently hiked spot market base prices.
Morgan Stanley analyst Carlos De Alba wrote on June 20 that other steel mills will also likely hike steel prices to stop the decline in HRC futures.
"We continue to believe that steel prices will remain under pressure in the coming quarters on soft demand due to slower economic growth (despite initiatives boosting infrastructure and manufacturing construction) and new capacity starts," the analyst wrote.
Morgan Stanley forecasts average third-quarter HRC futures of $900 per ton, $50 per ton below Cleveland-Cliffs' minimum price.
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