) reported adjusted (excluding special items) earnings of 43 cents
per share in the second quarter of 2012, below the Zacks Consensus
Estimate of 47 cents.
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A sticky situation in Europe led Nucor to record an impairment
charge of $30 million on its Duferdofin Nucor S.r.l. joint venture
as utilization rates continued to be depressed and fell well behind
budgeted levels through the first half of the year. The adjusted
earnings also exclude cost associated with Skyline Steel buyout and
a one-time gain.
Profit (as reported) dropped a substantial 63% year over year to
$112.3 million (or 35 cents a share) from $299.8 million or 94
cents per share reported a year ago. The effect of oversupply in
the industry and a gloomy European market is clearly visible in
Nucor's bottom line performance in the quarter.
Even though total tons shipped to outside customers increased 6%
year over year to 5,925,000 tons, a 6% fall in average sales price
constrained Nucor's revenues. As a result, consolidated net sales
inched down slightly to $5.1 billion in the quarter from $5.11
billion in the same period last year, but managed to brush past the
Zacks Consensus Estimate of $5.07 billion.
The average scrap and scrap substitute cost per ton used in the
quarter was $427, down 4% year over year. Also, overall utilization
rates at Nucor's steel mills went down sequentially to 76% in the
second quarter from 79% in the first quarter. However, utilization
rates improved from 71% seen in the second quarter last year.
The company had ample liquidity on its books in the quarter with
$1.68 billion in cash and cash equivalents and short-term
investments. It also has an untapped $1.5 billion revolving credit
facility that will mature in December 2016.
Nucor's Board declared a cash dividend of 36.5 cents per share in
June, which was the company's 157th quarterly cash dividend on the
trot. The dividend is payable on August 10, 2012, to stockholders
of record as of June 29, 2012.
Nucor's second quarter performance comes in line with the updated
guidance that it had issued last month. The U.S. steel market is
reeling under the effect of oversupply and increased imports.
Although Chinese steel production, which was responsible for
causing the glut to some extent, has slowed down of late, supply in
the steel market still overshadows demand, primarily driven by
weakness in the construction industry.
Oversupply in the industry has undermined the seasonal pricing
momentum usually seen in the early part of the year and this
affected Nucor's top-line performance. Moreover, production ramp
ups by domestic steel producers had a negative effect on the U.S.
sheet steel markets. In addition, lower scrap pricing proved to be
another area of concern for Nucor in the quarter.
On a positive note, Nucor's rebar fabrication, joist and decking,
and pre-engineered metal buildings businesses turned in an improved
performance in the quarter and the company expects this trend to
continue into the third quarter. Also, automotive, heavy equipment,
energy and general manufacturing markets continued to improve in
Nucor is still searching for stimulus from the depressed
construction sector and improved pricing. In addition, both
domestic and macroeconomic concerns might prove to be headwinds
going forward. These factors led Nucor to issue a depressing
forecast for the third quarter where it expects a modest fall in
We currently have a long-term Neutral recommendation on Nucor. The
company, which competes with
Commercial Metals Co.
United States Steel Corp.
), maintains a Zacks #3 Rank, which translates into a short-term (1
to 3 months) Hold rating.