Nucor Corporation (NUE) recorded net profit of $23.5 million or 7 cents per share in the third quarter of 2010, missing the Zacks Consensus Estimate by 4 cents per share. Reported earnings, however, reversed the year-ago losses of $29.5 million or 10 cents per share. A difficult pricing and end-market demand scenario impacted both revenues and margins. Although Nucor posted sound year-over-year revenue numbers, they faltered sequentially.
Revenues
Quarterly sales shot up 33% to $4.1 billion and exceeded the Zacks Consensus Estimate of $3.9 billion. Revenues were driven by a 20% spike in average realized prices and a 10% rise in total shipments. Steel shipments were up 9% while downstream steel products sales volumes increased 5% year over year.
Revenues declined 1% quarter over quarter due to a 3% fall in average realized prices, partially offset by a 1% increase in shipments. During the third quarter, Nucor operated its steel facilities at 68% of its total capacity, which was down from 71% in the second quarter of 2010. Capacity utilization rate of 71% in the first nine-month of 2010 was higher than 53% in the same period of the previous year.
Costs
During the quarter, cost of sales accelerated by 32% to $3.9 billion. Average scrap and scrap substitute cost per ton fell 5% to $354. Nucor recorded a charge to value inventories using the last-in, first-out method of $50 million, compared with a credit of $120 million in the third quarter of 2009. Total energy costs increased about $4 per ton from the third quarter of 2009. Pre-operating and start-up costs of new facilities were $41.9 million compared with $47.1 million in the third quarter of 2009.
Liquidity
Nucor’s liquidity position remained strong at the end of the quarter. The company had cash and cash equivalents and short-term investments of $2.01 billion as of September 30, 2010. It has an unused $1.3 billion revolving credit facility that matures in November 2012.
Guidance
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. Moreover, overcapacity in the global steel industry has forced the steel manufacturers to export steel and steel products at prices below their cost of production, which are expected to negatively affect their profitability. As a result, we continue to recommend the shares as Sell (Zacks #5 Rank) in the short term.
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