Nucor Trims Losses

Net losses for Nucor Corporation (NUE - Analyst Report), the largest recycler of steel scrap in the US, narrowed to $29.5 million, or 10 cents per diluted share, for the third quarter of 2009. The result was narrower than the Zacks Consensus Estimate for a loss of 14 cents.

In the second quarter, NUE announced a net loss of $133.3 million, or 43 cents per diluted share. However, the performance is dismal compared to a net income of $734.6 million, or $2.31 per share, in the third quarter of 2008.

Losses in the quarter were driven by the negative impact of high-cost pig iron inventories of about $180 million, or 37 cents per share. However, the company claims that the consumption of the high-cost pig iron inventories was completed by the close of the quarter. Additionally, pre-operating and start-up costs of the new facilities increased 58% year over year to $47.1 million in the quarter. These costs are primarily related to the SBQ mill in Memphis, Tennessee; the Castrip project in Blytheville, Arkansas; and the proposed iron-making facility and galvanizing line in Decatur, Alabama.

Net sales plummeted 58% year over year to $3.12 billion, while increasing 26% over the previous quarter. Average sales price per ton increased 1% over the second quarter of 2009 and decreased 45% from the third quarter of 2008. Steel shipments were 5,114,000 tons in the quarter, up 24% over the second quarter of 2009 and down 24% from the third quarter of 2008.

The average scrap and scrap substitute cost per ton used in the quarter was $299, down 4% compared with $312 in the second quarter of 2009 and down 44% from $533 in the third quarter of 2008. Total energy costs decreased about $9 per ton from the second quarter of 2009, due to lower electricity and natural gas prices combined with the productivity benefits of increased utilization. Total energy costs decreased about $8 per ton year over year.

Nucor's liquidity has remained strong with $2.22 billion in cash and cash equivalents and short-term investments. Nucor's steel mill utilization rate increased from 46% in the previous quarter to 69% in the reported quarter.

The company expects earnings in the next quarter to benefit from a significant improvement in raw material costs. However, lower operating volumes/rates in both sheet and bar products could impact fourth quarter results negatively. We maintain our Neutral recommendation on the stock.