Steelmaker Nucor Corporation‘s (NUE) second-quarter 2012 results were a mixed bag. The company’s adjusted earnings missed the Zacks Consensus Estimate but revenues nudged ahead of the same.
Second Quarter Flashback
Net income (as reported) tumbled 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.
Nucor’s consolidated net sales fell slightly to $5.1 billion in the quarter, due to a 6% decrease in average selling price per ton. However, revenues were slightly ahead of the Zacks Consensus Estimate of $5.07 billion, aided somewhat by a 6% improvement in total tons shipped to outside customers.
Nucor expects earnings to decline modestly in the third quarter of this year. The company is witnessing improved demand in end markets such as heavy equipment, automotive, general manufacturing and energy. However, a sluggish construction market, industry oversupply and increased imports into the domestic market are causes for concern.
We have discussed the quarterly results at length here: Nucor Misses on Bottom Line
Agreement – Estimate Revisions
Estimates for Nucor have not moved much over the past week. Out of 13 analysts covering the stock, 1 has decreased the earnings estimate for fiscal 2012 over the past 7 days, while none moved in the opposite direction. None of the 14 analysts have changed their estimates for the third quarter over the past week.
Estimates for 2012 demonstrate a strong negative bias over the last 30 days with 10 analysts lowering their estimates while 3 upward revisions were witnessed. For the third quarter, estimates are negatively inclined over the past month with 6 analysts lowering their forecasts while 5 making positive revisions.
Magnitude – Consensus Estimate Trend
Estimate for the third quarter witnessed no movement over the past week. However, estimate for 2012 has been trimmed by 1 cent over the same period. The decline has been much more pronounced over the last month, with estimate for the third quarter having decreased by 6 cents and for 2012 by 9 cents.
The current Zacks Consensus Estimates for the third quarter and 2012 are 44 cents and $1.77 a share, respectively.
Our View
Nucor is a leading producer of structural steel, steel bars, steel joists, steel deck and cold finished bars in the U.S., operating around 123 facilities primarily in the U.S. and Canada. The company follows a well-defined growth strategy by streamlining and improving its existing operations, executing its raw material strategy, developing Greenfield projects to enable it to benefit from new technologies and opportunities, and through acquisitions and joint-ventures in international markets.
However, oversupply in the industry has undermined the seasonal pricing momentum usually seen in the early part of the year and this affected Nucor’s performance. Moreover, production ramp ups by domestic steel producers had a negative effect on the U.S. sheet steel markets.
On a positive note, Nucor’s rebar fabrication, joist and decking, and pre-engineered metal buildings businesses performed well and the company expects this trend to continue into the third quarter. However, the construction market is still depressed and its recovery might become more difficult in the midst of economic uncertainty.
We currently have a long-term Neutral recommendation on Nucor. The company, which competes with Commercial Metals Co. (CMC) and United States Steel Corp. (X), maintains a Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrated stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
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