Steel manufacturer Nucor Corporation (NUE) foresees second quarter 2010 earnings in the range of 20 cents to 25 cents, in sharp contrast to a loss of 43 cents in the year-ago quarter. The forecast is also higher than the first quarter earnings of 10 cents. The Zacks Consensus Estimate for the second quarter is 24 cents.
Nucor expects second quarter operating results to improve significantly from the first quarter, partially offset by a higher last-in, first-out (LIFO) charge. Nucor estimates LIFO charges of $47 million versus $24 million in the previous quarter. Excluding the LIFO impact, Nucor expects margins to exceed previous quarter levels.
Nucor also notified that capacity utilization rates at most of its steel mills have remained almost unchanged from the first quarter, with some improvement at the beam mills and plate mills. However, Nucor expects the residential and non-residential construction markets — its key end-markets — to remain weak, which is likely to hamper sales in the downstream businesses.
Nucor is the nation’s largest recycler of steel scrap. With operating facilities primarily in the U.S. and Canada, the company operates in three segments: Steel Mills, Steel Products and Raw Materials. The Steel Mills segment manufactures hot rolled steel products such as rebar, sheets, wide-flange beams, pilings, billets, blooms, beam blanks and plates and cold-rolled steel products. Products in the Steel Products segment include steel joists and joist girders, steel deck, steel fasteners, metal building systems and light gauge steel frames. The Raw Materials segment produces direct reduced iron, ferrous and nonferrous metals, and pig iron as well as ferro-alloys, and processes ferrous and nonferrous scrap.
Of late, Nucor has been consolidating its position in the international markets. The company’s recent agreement with Mitsui & Co. (U.S.A.) Inc., a wholly owned subsidiary of Mitsui & Co. Ltd., to form a joint venture — NuMit LLC — is in line with this strategy as NuMit will invest in various steel and steel-related activities, both in North America and beyond. In addition, Nucor’s strong balance sheet positions the company well for the long term.
However, Nucor is suffering from higher costs in scrap prices and continued weakness in the non-residential market. We believe these near-term headwinds are likely to make it difficult for the stock to outperform. We reiterate our Neutral recommendation on Nucor.
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