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Will Lower Steel Prices Hurt Nucor's (NUE) Earnings in Q3?

Zacks Equity Research

Nucor Corporation NUE is set to release third-quarter 2019 results ahead of the bell on Oct 22. Softer 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 three of the trailing four quarters while missed once. In this timeframe, the company delivered an average positive surprise of roughly 2.6%.

Nucor’s shares have ticked down 0.1% so far this year, outperforming the industry’s 15.8% decline.


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

What do the Estimates Say?

The Zacks Consensus Estimate for third-quarter consolidated revenues for Nucor is currently pegged at $5,658 million, reflecting an expected year-over-year decline of around 16.1%.

Moreover, total steel mills shipments for the third quarter are expected to decline 6.6% year over year, as the Zacks Consensus Estimate currently stands at 5,880,000 tons. Total tons shipped to outside customers are currently pegged at 6,877,000 tons, reflecting an expected decrease of 2.4% on a year over year basis.

Average sales price per ton for the company’s steel mills segment is also expected to decline 17.1% year over year as the Zacks Consensus Estimate for the third quarter currently stands at $726. The same for the steel products unit is pegged at $1,427, indicating a year-over-year decline of 2.2%.

Factors to Watch For

Nucor, last month, issued downbeat earnings guidance for the third quarter. It expects earnings in the band of 75-80 cents per share for the third quarter, reflecting a sequential decline from $1.26 in the second quarter and a fall from $2.13 recorded in the year-ago quarter.

Nucor expects performance in its steel mills unit to sequentially decline in the third quarter mainly due to lower prices for sheet and plate steel. The company also expects performance of the raw materials division to decline sequentially in the quarter due to further margin compression in its direct reduced iron (DRI) businesses.

However, the company envisions profitability in its steel products unit to improve sequentially in the third quarter backed by favorable conditions in the non-residential construction market.

Weaker U.S. steel prices are likely to have hurt Nucor’s profitability in the September quarter. After rallying to multi-year highs last year on the back of the Trump administration’s imposition of steep tariffs on imported steel, U.S. steel prices have now fallen back to the levels seen prior to the tariff announcement.

The benchmark hot-rolled coil steel prices went downhill through the second quarter of 2019 and continued their slide in the third quarter, hurt by weak domestic demand and global slowdown. Higher domestic steel production has also contributed to the decline in U.S. steel prices. As such, headwinds from lower steel prices might reflect on Nucor’s bottom line in the third quarter.

Nucor, in its third-quarter guidance, also stated that it is seeing softness in automotive, power transmission and agricultural products markets. Weakness across these end-use markets may have also weighed on third-quarter performance in the steel mills unit. Lower shipments and average sales prices are likely to have hurt sales in this segment.

Nucor Corporation Price and EPS Surprise


Nucor Corporation Price and EPS Surprise

Nucor Corporation price-eps-surprise | Nucor Corporation Quote

Zacks Model

Our proven model does not show that Nucor is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. This is not the case here as you will see below:
Earnings ESP: Earnings ESP for Nucor is -5.88%. This is because the Most Accurate Estimate is currently pegged at 80 cents while the Zacks Consensus Estimate stands at 85 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Nucor carries a Zacks Rank #4 (Sell).

Stocks to Consider

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:

Agnico Eagle Mines Limited AEM, scheduled to release earnings on Oct 23, has an Earnings ESP of +7.93% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross Gold Corporation KGC, scheduled to release earnings on Nov 6, has an Earnings ESP of +25.93% and carries a Zacks Rank #1.

Newmont Goldcorp Corporation NEM, scheduled to release earnings on Nov 5, has an Earnings ESP of +3.13% and carries a Zacks Rank #2.

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