Stelco Holdings Inc T.STLC

RE:RE:RE:Expected earnings

[Jasonuw]

Good analysis. I think lead times are down quite a bit over the last 3 months from 12 weeks now down to 6 weeks and dropping. It's one of the main risk factors I am seeing. This is for Midwest steel. I have no idea if Stelco has a longer or shorter relative lead time but I would assume it follows the same trend? I'd love to be corrected if someone has data on this... Isn't there an option 4? Spot price at time order is made? Either way, I think Alan probably could make predictions when lead times were 3-4 months about the current quarter - he was speaking about Q1 results and Q2/Q3 predictions when he was mid-way Q2. He had the orders booked already until late Q3 so it doesnt take a genius to see what is in the order file and work out what the income will be...thats partly why I think it might be option 4. If order files collapse to 3-4 weeks, I doubt he would make predictions about the subsequent quarter prior to it beginning. I.e. I doubt we will get Q1 predictions when Q3 results are released this time. I partially agree with your final point. Cash is important (it places a floor/minimum on the stock price) but it doesn't give it a boost in my experience. I also follow Forest Products and some companies have 40% of their market cap in liquid assets or cash right now with no liabilities. The stocks have a floor (because of all the cash) but they really aren't going up because the prospects aren't great. Cash has to be put to work (buybacks) to boost the per share earnings which will boost the share price. Cash by it self is not really important imo.

geosan0 wrote:
I've been seeing a lot more interest on this thread so I decided to add my 2 cents worth.

The estimate posted by fishcarrier is not far off what management said during its Q1 conference call.  At that time, Alan K. mentioned that he was expecting Q2 earnings to be 3x more than Q1 earnings and that Q3 earnings would be 2x those expected for Q2.  He was almost bang on with the 3x for Q2, so I have no reason to think he won't be close to his estimate for Q3.  Based on Q2 numbers that translates to earnings of about $8.00 share. 

If some are wondering how he could have forseen Q2 earnings and also opine on Q3 earnings, it is because his order book is sold out months in advance.  So when he hosts his conference call in November to discuss Q3 earnings, he will (if asked) comment on how many months forward his order book is sold out.

Question I have for the board and thinking of submitting is when Stelco sells out its production months in advance what pricing it receives:
1. Spot price at time order is received;
2. Futures price at time order is received based on delivery date; or
3. Actual price at time order is delivered.

If it is 1. then earnings for Q4 and Q1 of next year will be known in advance.

Also, I see analysts are concerned with the future pricing of steel and accordingly assign a low multiple on this stock. What these analysts seem to forget is the enormous amount of cash that will be sitting on the balance sheet.  So, if this steel pricing lasts 1 more year than this company should have more than $20.00 per share on the balance sheet.  What value should be assigned to the stock based on normalized earnings after the cash is subtracted? At 2 years of this steel pricing this company can privatize itself with free cash flow.  Insane!!!!

Stay tuned for Q3 earnings.  Should be interesting!!!!