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Nucor (NUE) Lowers Q3 Guidance on Outages & Import Pressure

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Nucor Corporation (NUE - Free Report) recently provided guidance for third-quarter 2017. The steel giant expects earnings for the quarter in the band of 75-80 cents per share. This is a decrease from $1.00 per share recorded in the previous quarter and 95 cents a share it earned a year ago.

The company’s guidance for the quarter fell short of expectations. Analysts polled by Zacks currently expect earnings of $1.03 per share for the quarter. Expected earnings for the third quarter are also lower than the qualitative guidance provided by the company in its second-quarter 2017 earnings call in July. Earlier, the company had expected earnings in the third quarter to be in a band similar to the quarterly results of first-half 2017.

Outages & Steel Imports to Dent Earnings

Nucor expects a decrease in earnings of the steel mills segment in third-quarter 2017 on a sequential comparison basis. Regardless of higher utilization rates at its sheet mills, continued import pressure has not allowed pricing to keep pace with rising input costs during the quarter. Earnings of plate mills unit are also anticipated to be considerably less owing to tepid demand in plate end use markets.

Moreover, Nucor Steel Louisiana was affected from unexpected outages for most of third-quarter 2017, which caused the company to lower its forecasted earnings estimate for the raw materials segment. The unit halted production in late July for repairing materials handling systems and address other equipment issues. Operations are expected to resume in October.

Nucor expects profitability of its steel products unit to improve on sequential basis in the third-quarter 2017, but less than what was witnessed a year ago. Non-residential construction indicators are showing signs of marginal improvement compared to activity levels in 2016.

Nucor noted that the U.S. steel industry continues to be adversely affected by steel imports. The finished steel imports for the first eight months accounted for about 28% share of the American market and increased an anticipated 16.5% from the year-ago period.

However, the industry continues to combat unfair traded imports. Since the beginning of the year, the United States Department of Commerce imposed duties on additional steel products which are favorable for the domestic steel industry.  

Price Performance

Shares of Nucor have declined 4.2% in the last three months against the industry’s 16.8% growth.

 

Acquisitions & Expansions to Aid Growth

Nucor, in early 2017, wrapped up its purchase of steel electrical conduit maker, Republic Conduit, from Luxembourg-based Tenaris S.A. for $335 million. The acquisition is expected to make Nucor a market leader in steel electrical conduits. Moreover, the company acquired Southland Tube for $130 million in January 2017. The buyout strengthens Nucor’s foothold in the hollow structural section (HSS) steel tubing maker.

Nucor is also expected to gain from continued momentum in the automotive market. The company remains focused on achieving greater penetration of this major market. The company has entered into a joint venture with JFE Steel Corporation of Japan to build and operate a plant in Mexico, which will supply sheet steel to the country’s growing automotive market. Construction of the plant started in June has the capacity to produce 400,000 tons annually.

Nucor, in May, also announced that it will build a hot band galvanizing line at its sheet mill in Kentucky that will serve its objective of growing share in the automotive market. The $176 million project is expected to expand the product capabilities of Nucor Steel Gallatin and the new line will have an annual capacity of 500,000 tons.

Nucor Corporation Price and Consensus

 

Nucor Corporation Price and Consensus | Nucor Corporation Quote

Zacks Rank & Key Picks

Nucor currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Sociedad Quimica y Minera de Chile S.A. (SQM - Free Report) , Arkema S.A. (ARKAY - Free Report) and Kronos Worldwide Inc. (KRO - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Sociedad Quimicahas an expected long-term earnings growth rate of 32.5%.

Arkema has an expected long-term earnings growth rate of 12.8%.

Kronos Worldwide has an expected long-term earnings growth rate of 5%.

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