) is feeling the heat of oversupply in the U.S. Steel market and
the gloomy European market. Nucor now projects earnings of 35 to 40
cents per share in the second quarter, way behind the 94 cents it
posted in the same period last year and below the 46 cents posted
in the first quarter this year.
However, the projected earnings include one-time adjustments
such as an impairment charge of approximately $30 million, or 9
cents per share, and an estimated last in first out (LIFO) credit
of $14.5 million (3 cents per share). Even after excluding these
items, estimated adjusted earnings for the second quarter, at its
mid-point, would be below first quarter results.
Nucor was already reeling under the effects of a weak steel
market in Europe and the situation degenerated as the political
situation took a turn for the worse. Utilization rates at
Duferdofin Nucor continued to be depressed, falling well behind
budgeted levels through the first half of the year. As a result,
the company reassessed Duferdofin Nucor and decided it called for
In addition, an increase in imports in the U.S. markets along
with production ramp ups by domestic steel producers led to an
oversupply in the industry, resulting in weak pricing. Hence, even
though steel demand exhibited improvement, industry oversupply
knocked the wind out of seasonal pricing momentum, which is usually
seen in the early part of the year.
Also, lower scrap pricing is affecting the operating performance
of Nucor's scrap processing business. But, the company believes
that the drop in scrap prices will result in a better operating
performance by steel mills as the lower prices will move down to
the cost of scrap used by them.
However, the company also said that all three of its
construction products businesses, rebar fabrication, joist and
decking, and pre-engineered metal buildings were in the black in
May, in spite of the sluggish construction market. The positive
results of the construction business were driven by Nucor's efforts
of moving lower on the cost curve and improving its position in the
market. Like last time, heavy equipment, energy and automotive
end-markets continued to perform strongly.
Nucor has beaten the Zacks Consensus Estimate for the last four
quarters, with an average positive surprise of 17.6%. However, with
the economic uncertainty in Europe and oversupply in the industry
pressurizing prices, Nucor's streak runs the risk of getting
snapped in the second quarter.
We currently have a long-term (more than 6 months) Neutral
recommendation on Nucor. The company, which competes with
U.S. Steel Corp.
Commercial Metals Co.
), currently holds a Zacks #5 Rank, reflecting a short-term (1 to 3
months) Strong Sell rating.
COMMERCIAL METL (CMC): Free Stock Analysis
NUCOR CORP (NUE): Free Stock Analysis Report
UTD STATES STL (X): Free Stock Analysis Report
To read this article on Zacks.com click here.