Nucor Beats Estimates in Q3

Zacks

Steel giant Nucor Corporation’s (NUE) adjusted (excluding special items) earnings of 49 cents per share for the third quarter of 2013 surpassed the Zacks Consensus Estimate of 38 cents. The adjusted earnings exclude charges of $14 million or 3 cents a share associated with the collapse of a storage dome at a new plant in Louisiana.

Profit (as reported) for the quarter came in at $147.6 million (or 46 cents a share), up 34% from $110.3 million or 35 cents per share reported a year ago. The results were aided by improvement in demand across some end markets and restocking of inventory by customers.  

Earnings for the third quarter were affected by the collapse of a storage dome at Nucor Steel Louisiana in St. James Parish on Sep 25 which led to a partial write down of inventory and fixed asset balances related to it. The collapse also delayed the opening of the new direct reduced iron (DRI) plant being constructed at the site. However, the collapse has not resulted in any injuries or any environmental damage.

The Quarter in Details

Revenues increased 3% year over year to roughly $4,941 million, beating the Zacks Consensus Estimate of $4,759 million. However, a 4% year-over-year fall in average sales price weighed on revenues in the quarter. Total tons shipped to outside customers rose 7% year over year to 6,166,000 tons in the reported quarter and total mill shipments increased 6% to 5,359,000 tons.

Better pricing for sheet steel improved operating performance in the steel mills segment in the quarter compared with the previous quarter. Profitability for sheet steel also improved due to competitor supply disruptions, inventory restocking by customers and demand improvement. Profitability of the structural steel also improved owing to Nucor-Yamato Steel's higher production. Fabricated construction products businesses also showed operating profits in five of its last six quarters.

The average scrap and scrap substitute cost per ton used in the third quarter was $372, down 2% from $380 a year ago. Overall operating rates at Nucor’s steel mills were 78%, up 7% compared with the year-ago quarter.

The company had ample liquidity on its books as of Sep 28, 2013, with $1,771.7 million in cash and cash equivalents, short-term investments and restricted cash. It also has an unused $1.5 billion revolving credit facility that will now mature in Aug 2018 after the amendment and restatement of the maturity date. Cash flow from operations was $883.6 million for nine months ended Sep 28, 2013, compared with $1,124.6 million recorded a year ago.

Nucor issued $500 million of 4.00% notes due in 2023 and $500 million of 5.20% notes due in 2043 in the third quarter. The bond offering helped to refinance $900 million of debt.

Nucor’s Board declared a cash dividend of 36.75 cents per share in Sep 2013, which was the company’s 162nd consecutive quarterly cash dividend. The dividend is payable on Nov 8, 2013, to stockholders of record as of Sep 27, 2013.

Guidance

Nucor expects the fourth quarter to show moderately lower earnings given lower shipping volumes due to seasonal factors.  In addition, planned outages are expected at SBQ mill in Norfolk, NE, at sheet mill in Berkeley County, SC, and at structural mill in Blytheville, AR, in connection with previously declared capital expansion projects at those facilities. However, metal margins are expected to be stable.

Nucor currently retains a Zacks Rank #3 (Hold).

Other companies in the steel industry with favorable Zacks Rank are Companhia Siderurgica Nacional (SID), Shiloh Industries Inc. (SHLO) and Gerdau S.A. (GGB).   While Companhia Siderurgica and Shiloh hold a Zacks Rank #1 (Strong Buy), Gerdau retains a Zacks Rank #2 (Buy).

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