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Nucor Corporation (NUE - Analyst Report) is scheduled to report its third-quarter 2012 results before the market opens on Thursday, October 18. The Zacks Consensus Estimate for earnings for the quarter is 43 cents per share, representing an estimated year-over-year decline of roughly 24%.

With respect to earnings surprises, the company has missed the Zacks Consensus Estimate once in the preceding four quarters while beating the same in the remaining three. Nucor has delivered an average positive earnings surprise of 12.52% over the trailing four quarters, implying that it has beat the Zacks Consensus Estimate by the same measure.

Nucor has been struggling due to oversupply in the U.S. steel market and the gloomy European market. Last month, the company provided earnings guidance for the third quarter and expects earnings between 30 cents and 35 cents per share. The forecast is lower than Nucor’s third-quarter 2011 earnings of 57 cents.

Previous Quarter Performance

Nucor reported adjusted (excluding special items) earnings of 43 cents per share for the second quarter of 2012, below the Zacks Consensus Estimate of 47 cents. 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.

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 edge past the Zacks Consensus Estimate of $5.07 billion.

Estimate Revisions Trend

Agreement

Estimates for Nucor have shown a slight upward revision in the past week, with one out of the 13 analysts covering the stock revising its earnings estimate upward for 2012. An identical trend is witnessed for the third quarter, with 1 out of the 15 analysts making an upward revision in the estimate.

Estimates for 2012 demonstrate a negative bias over the last 30 days with 5 (out of 13) analysts lowering their forecasts and 3 analysts moving in the opposite direction. For the third quarter, 4 analysts made upward revisions while 3 reduced their forecasts over the last month.

Magnitude


Estimates for the third quarter remained unchanged over the last week. For 2012, estimate increased by a penny over the past week. Over the past month, estimates for the third quarter and 2012 have decreased by a penny and 2 cents, respectively. The current Zacks Consensus Estimates for 2012 is $1.74 per share.  

Our View

Nucor has a diversified client base and as such its business isn’t highly dependent on the conditions prevalent in a particular geography. In addition, the company’s cost structure is highly variable, giving it the luxury of adjusting its costs when the conditions call for. This enables Nucor to continue its operations without closing down its facilities, even if the market conditions in the steel industry are depressed.

Another remarkable fact about Nucor is that the company is very agile when it comes to adjusting its production output. As the company uses electric arc furnaces to produce steel, it can easily adjust its output according to the demand in the industry and avoid piling up inventories in adverse demand condition.

The steel industry is going through a difficult phase. There is not enough demand for steel products due to weakness in construction end markets, resulting in excess supply. Contributing toward this inventory glut are production ramp ups by domestic steel producers and rapid growth in Chinese production. All these factors are proving to be very difficult to manage for Nucor and hurting its profitability.

Moreover, the gloomy conditions in the euro zone are another area of concern for Nucor since it is the largest market for total U.S. exports. Steel imports have given rise to stiff competition in the domestic market and the financial crisis in Europe might give rise to the same conditions in the region.

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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