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Steel giant Nucor Corporation (NUE - Analyst Report) 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.

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 the quarter.

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 earnings.

We currently have a long-term Neutral recommendation on Nucor. The company, which competes with Commercial Metals Co. (CMC - Snapshot Report) and United States Steel Corp. (X - Analyst Report), maintains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.

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