Steel stocks drop as guidance comes up short
Two steel companies announce weak guidance as prices fall.
The steel industry continues to suffer from overcapacity, particularly in China.
End markets for the industry, including the auto industry, are still under pressure despite a clear improvement in worldwide economic conditions. Because of this, the steel sector has lagged most other areas of the market year to date.
With that said, investors should not be surprised that steel stocks saw increased pressure Monday. Friday after the market close, Steel Dynamics (STLD) announced weak second-quarter guidance. AK Steel (AKS) followed suit, announcing weak guidance Monday morning.
Steel Dynamics provided second-quarter earnings guidance in the range of 15 cents to 20 cents per share, below analysts' consensus estimates of 24 cents. The guidance is lower than earnings of 20 cents a share in the first quarter 2012 and 43 cents reported for the second quarter of 2011.
The company said its weaker guidance is primarily "the result of decreased sheet steel pricing, attributable to supply-side pressures from increased imports and increased domestic steel capacity." However, the company also mentioned that sheet steel demand quantities are relatively stable, and are seeing strength in the construction equipment, energy, agricultural and automotive sectors.
Monday morning, AK Steel said that it expects a second-quarter profit of between 4 cents and 6 cents a share. A recent drop in spot market pricing and an increased amount of volatility in short-term United States and global economic conditions were cited as primary drivers behind softer guidance.
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THOU SHALL STEEL:
Are you forgetting the aged infrastructure of America? Granted, because of solar energy, cell phones and satellite dishes, there is less use for the power grid or land lines. This is not the case with the infrastructure, needing girders for bridges, rails and railroads (super trains) for transportation, sewage and water mains, to name but a few in the repair of America.
There is also thee "iron horse" or the steel-framed automobile. I invented something for the iron horse to be hauled down our highways and by-ways by computerized solar panels on light posts that electro-magnetize the roads, like "Ripley's Believe it or Not" or lodestone hill. Steel will be needed for the cars, or iron horse, and magnetized steel will be needed to implant in the roads, charged by solar panels.
I say: continue to go long "Steel" for the 40-80 year old infrastructure and the iron horse and magnetized roadways. Be Bullish on America!
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These financials have thrived during a time of weak loan growth, decreased mortgage production revenues and the end of the Fed's QE program.
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