Nucor Corp. (NUE) received an air permit from the state of Louisiana in January, which allowed it to order equipment to begin construction of an iron-making plant in St. James Parish, La., about 30 miles west of New Orleans.
The facility will convert iron ore pellets into direct-reduced iron for use by Nucor’s steel mills. Along with recycled scrap, the material will be used to make sheet, plate and bars. The company spent $50 million to acquire nearly 4,000 acres along the Mississippi River for the facility.
When fully built, the facility will have an annual capacity of 5.5 million tons.
The project’s first phase will create 150 permanent jobs with an average annual salary of $75,000, plus benefits. During peak construction, 500 workers are expected to be on site.
If the second plant is built, Nucor would have a total investment of more than $3.4 billion and 1,250 employees.
In the fourth quarter of 2010, Nucor recorded a net loss of $23.5 million or 4 cents per share, narrower than the Zacks Consensus Estimate of a loss of 10 cents per share compared with $58.9 million or 18 cents per share in the year-ago period.
Quarterly sales shot up 31% to $3.85 billion compared with $2.94 billion in the year-ago period, missing the Zacks Consensus Estimate of $3.93 billion. Revenues were driven by a 14% spike in average realized prices and a 15% rise in total shipments. Steel shipments were up 12% while downstream steel products sales volumes increased 14% year over year.
Nucor is negatively affected by a slowdown across all its product lines due to uncertainty in the overall economy. The most challenging markets for its products are associated with residential and non-residential construction. However, the company expects the price increases for all steel mill products to have a positive impact on earnings in the first quarter of 2011.
The company also anticipates that it will continue to experience volatile raw material costs during the first quarter of 2011. Nucor assumes that improvement in operating rates in the next quarter will be the result of combination of both improving demand and steel buyers reacting to increasing raw material and steel prices.
Nucor is facing higher costs in scrap prices and continued weakness in the non-residential market. Moreover, a slowdown in demand from the housing and construction sector and increased production in China are matters of concern.
However, long-term contracts, cost reduction efforts and a dominant acquisition strategy could benefit the company in the coming quarters. In addition, Nucor’s strong balance sheet positions it well for the long term, but the near-term headwinds in the end-markets are likely to make it difficult for the stock to outperform.
Nucor competes with the likes of United States Steel Corporation (X) and Sumitomo Metal Industries (SMMLY).
Currently, Nucor has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long- term Neutral recommendation.
NUCOR CORP (NUE): Free Stock Analysis Report
UTD STATES STL (X): Free Stock Analysis Report
Zacks Investment Research
