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Steel giant Nucor Corporation (NUE - Analyst Report) reported adjusted (excluding special items) earnings of 45 cents per share in the third quarter of 2012, ahead of the Zacks Consensus Estimate of 42 cents. The adjusted earnings exclude cost associated with Skyline Steel buyout and loss on divestiture of the assets of Nucor Wire Products Pennsylvania, Inc.

Profit (as reported) came in at $110.3 million (or 35 cents a share), down 39% from $181.5 million or 57 cents per share reported a year ago. The bottom line was hurt by lower operating profits at the company’s steel mills, especially in sheet and plate.

An 8% fall in average sales price weighed on Nucor’s revenues in the quarter. Revenues slid 8.6% year over year to $4,801 million, missing the Zacks Consensus Estimate of $4,856 million. Total tons shipped to outside customers edged down 0.3% year over year to 5,768,000 tons in the reported quarter and total mill shipments decreased 1.7% to 5,043,000 tons.

The average scrap and scrap substitute cost per ton used in the quarter was $380, down 15% year over year. Also, overall operating rates at Nucor’s steel mills went down to 71% in the third quarter from 74% in the prior year quarter.

The company had ample liquidity on its books in the quarter with $2.54 billion in cash and cash equivalents, short-term investments and restricted cash and 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 September, which was the company’s 158th quarterly cash dividend on the trot. The dividend is payable on November 9, 2012, to stockholders of record as of September 28, 2012.

Nucor expects that the fourth quarter will also have reduced earnings after excluding one-time charges. The U.S. steel market is reeling under the effect of oversupply and increased imports. In addition, slow economic growth both globally and domestically is expected through the end of 2012. Political and economic uncertainty in global markets, along with volatility in scrap prices is impacting the steel supply-chain stocking levels.

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.

However, Nucor has a diversified client base and as such its business is not 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.

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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