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Nucor (NUE) to Report Q3 Earnings: What's in the Cards?

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Nucor CorporationNUE is set to release third-quarter 2015 results before the opening bell on Oct 22, 2015.

In the last quarter, the steel giant had delivered a positive earnings surprise of 56% despite its revenues and profits being hit by lower pricing. Let's see how things are shaping up for this announcement.

Factors to Consider

Amid a challenging steel industry backdrop, Nucor anticipates overall operating performance at the steel mills segment to improve sequentially in the third quarter of 2015. The company's steel mills have gained from an average lower cost of inventory in the third quarter compared to the previous quarter, thus leading to expectations of higher margins. While automotive markets remain strong and non-residential construction markets steadily improve, weakness in energy, heavy equipment and agricultural markets prevails.

The company projects its third-quarter 2015 earnings to be in the range of 45-50 cents per share, down from 76 cents earned in third-quarter 2014, and up from 39 cents earned in second-quarter 2015.

Moreover, per Nucor, excessively high levels of imports into the domestic market have been weighing on steel prices and margins. During the first eight months of 2015, imports accounted for about 30% of the finished steel market, against an estimated 27% in the comparable year-ago period.

Nucor also stated that the operating performance of the company's downstream products segment has improved in the third quarter compared to the prior-year quarter. Additionally, profitability in this segment for the first nine months of 2015 increased significantly compared to the year-ago period, owing to sustained improvement in non-residential construction markets.

Additionally, in the third quarter, Nucor expects the performance of its raw materials segment to be similar to that of the prior quarter. The company anticipates an operating loss of around $20 million (4 cents per share) at Nucor Steel Louisiana in the third quarter, in line with that incurred in the second quarter.

However, Nucor expects the performance of the raw materials segment to be adversely affected by lower performance in its scrap processing businesses in the third quarter compared to the preceding quarter, owing to the continuous fall in scrap prices.

Earnings Whispers

Our proven model does not conclusively show that Nucor is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Nucor is -2.13%. This is because the Most Accurate estimate stands at 46 cents, while the Zacks Consensus Estimate is pegged at 47 cents.

Zacks Rank: Nucor' Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies in the basic materials sector you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Franco-Nevada Corporation FNV has an Earnings ESP of +7.14% and a Zacks Rank #3.

The Chemours Company CC has an Earnings ESP of +6.90% and a Zacks Rank #3.

Commercial Metals Company CMC has an Earnings ESP of +4.65% and a Zacks Rank #3.

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NUCOR CORP (NUE): Free Stock Analysis Report

FRANCO NV CP (FNV): Free Stock Analysis Report

COMMERCIAL METL (CMC): Free Stock Analysis Report

CHEMOURS COMPNY (CC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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