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Will Lower Steel Prices Dent Nucor's (NUE) Earnings in Q4?

Zacks Equity Research

Nucor Corporation NUE is set to release fourth-quarter 2019 results ahead of the bell on Jan 28. Lower U.S. steel prices and weak performance of the company’s steel mills unit are likely to have impacted its results in the quarter.

The U.S. steel giant beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. In this timeframe, the company delivered a positive surprise of roughly 6%, on average.

Nucor’s shares are down 8.6% over a year, outperforming the industry’s 12.3% decline.


Let’s see how things are shaping up for this announcement.

What do the Estimates Say?

Nucor, last month, issued downbeat earnings guidance for the fourth quarter. It expects earnings per share (EPS) in the range of 25-30 cents for the quarter. This reflects a sequential decline from EPS of 90 cents in the third quarter and a fall from $2.07 recorded in the year-ago quarter.

The Zacks Consensus Estimate for fourth-quarter consolidated revenues for Nucor is currently pegged at $5,012 million, reflecting an expected year-over-year decline of around 20.7%.

Moreover, total steel mills shipments for the fourth quarter are expected to decline 6% year over year, as the Zacks Consensus Estimate currently stands at 5,535,000 tons. Total tons shipped to outside customers are currently pegged at 6,421,000 tons, reflecting an expected decrease of 4% on a year over year basis.

Average sales price per ton for the company’s steel mills segment is also expected to decline 22.9% year over year as the Zacks Consensus Estimate for the fourth quarter currently stands at $663. The same for the steel products unit is pegged at $1,387, indicating a year-over-year decline of 9%.

Few Factors to Watch For

Nucor expects performance of its steel mills unit to sequentially decline in the fourth quarter due to lower steel prices. The steel products unit’s profitability is also forecast to decline sequentially in the fourth quarter due to normal seasonality.

Moreover, the company sees raw materials unit’s losses to sequentially widen in the fourth quarter, stemming from the planned outage at its Louisiana direct reduced iron (DRI) facility and further margin compression throughout the raw materials business.

Weaker U.S. steel prices are likely to have hurt Nucor’s profitability in the fourth quarter. After rallying to multi-year highs in 2018 on the back of the Trump administration’s imposition of steep tariffs on imported steel, U.S. steel prices fell back to the pre-tariff levels in 2019.

The benchmark hot-rolled coil steel prices fell sharply through the third quarter of 2019 and also slumped to a three-year low in October, hurt by weak domestic steel demand across major end-markets and global slowdown. Higher domestic steel production has also contributed to the decline in U.S. steel prices.

As such, impacts of lower steel prices might reflect on Nucor’s shipments in the fourth quarter. Softer domestic steel prices also likely to have put downward pressure on the company’s selling prices and crimped its margins in the to-be-reported quarter.

Nucor Corporation Price and EPS Surprise


Nucor Corporation Price and EPS Surprise

Nucor Corporation price-eps-surprise | Nucor Corporation Quote


What the Zacks Model Says

Our proven model doesn’t conclusively predict an earnings beat for Nucor this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that’s not the case here.

Earnings ESP: Earnings ESP for Nucor is -23.81%. The Zacks Consensus Estimate for the fourth quarter currently stands at 42 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Nucor currently carries a Zacks Rank #3.  

Stocks That Warrant a Look

Here are some companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Bunge Limited BG, scheduled to release earnings on Feb 12, has an Earnings ESP of +18.18% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Royal Gold, Inc. RGLD, scheduled to release earnings on Feb 5, has an Earnings ESP of +1.01% and carries a Zacks Rank #1.

Cleveland-Cliffs Inc. CLF, scheduled to release earnings on Feb 27, has an Earnings ESP of +6.25% and carries a Zacks Rank #2.

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