Nucor's Q2 Earnings Top, Envisions Improved Results In Q3

Nucor (NYSE:NUE) saw higher profits in second-quarter 2016, aided by its cost management actions. The steel giant recorded a profit of $233.8 million, or 73 cents per share in the quarter, a roughly 87% surge from a profit of $124.8 million or 39 cents per share recorded a year ago. Earnings per share topped the Zacks Consensus Estimate of 70 cents.

Revenues, however, fell around 3% year over year to $4,245.8 million in the reported quarter. Sales trailed the Zacks Consensus Estimate of $4,638 million. Consolidated costs fell roughly 6% year over year in the quarter.

Operating Stats

Total steel mills shipments in the second quarter were 5,930,000 tons, up 11% year over year. Total tons shipped to outside customers rose 7% year over year to 6,457,000 tons. Average sales price in the quarter fell 9% year over year.

Steel mill operating rates rose to 83% in the reported quarter from 73% a year ago and 74% in the previous quarter.

Segment Highlights

Nucor saw improved performance in its Steel Mills segment in the second quarter compared to the previous quarter, helped by an increase in average selling prices and higher volumes. Profitability of its sheet, bar and plate mills improved sequentially in the quarter.

The sheet mills, which is benefiting from lower inventory levels in the supply chain, saw the biggest improvement in profitability. Average sheet product prices also rose in the second quarter. While the company saw strong momentum in the automotive market, weakness continued across energy, heavy equipment and agricultural markets.

Nucor also witnessed decreased levels of imports in the second quarter. Steel market conditions in the U.S. have improved lately, driven by favorable rulings (leading to levy of tariffs on imports) on steel trade cases in the recent past. These punitive actions have led to a reduction in steel imports in the first five months of 2016.

Performance of the company’s Downstream Products segment improved sequentially in the reported quarter owing to an improvement in non-residential construction markets.

For the Raw Materials segment, Nucor saw improved profitability on a sequential comparison basis in the second quarter on higher pricing in its scrap processing businesses, improved performance in its direct reduced iron (“DRI”) facilities and improved efficiency from cost reduction actions.

Financial Position

Nucor ended the quarter with a strong liquidity position with cash and cash equivalents climbing around 13% year over year to $1,781.2 million. Long-term debt was $4,337.6 million, down around 0.5% year over year.

Guidance

Moving ahead, Nucor sees strong improvement in earnings in the third quarter on a sequential comparison basis with most of the improvement is expected to be witnessed in the Steel Mills segment. The company also expects improved sheet steel pricing and margins in the third quarter.

The company expects a significant improvement in performance in the Raw Materials segment in the third quarter compared with the second on better performance in its DRI facilities that are expected to benefit from improved iron units pricing and lower iron ore costs.

Profitability in the Downstream Products segment is also expected to increase on a sequential comparison basis in the third quarter on gradual improvement in non-residential construction markets.

Nucor also said yesterday that it has agreed to buy Joy Global (NYSE:JOY)'s steel plate mill in Longview, TX, for around $29 million. The mill, which makes carbon and alloy plate products with heat-treating capabilities, has an annual capacity of 180,000 tons.

Zacks Rank

Nucor currently carries a Zacks Rank #2 (Buy).

Other well-placed stocks in the steel space include ArcelorMittal (NYSE:MT) , Olympic Steel Inc. (NASDAQ:ZEUS) and Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) , all carrying a Zacks Rank #1 (Strong Buy).

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