Steel giant Nucor Corporation (NUE) recently provided its first quarter 2013 earnings guidance. Nucor expects its first quarter earnings per share to be in the range of 20 cents to 26 cents. The results include an estimated last-in, first-out (:LIFO) charge of $16.0 million or 3 cents per share.
The company’s Raw materials segment is expected to encounter an unplanned 18 day outage at the Trinidad Direct Reduced Iron facility which will hurt the results. Scrap processing business is also supposed to be negatively affected by weather conditions.
Operating performance of the steel mills segment is expected to be flat compared with the fourth quarter of 2012. The guidance represents the deteriorating performance of sheet steel, offset by improved profitability for structural steel.
Nucor’s Downstream steel products segment faced a cyclical deceleration in the first quarter. Hence, it is anticipated that the segment will report a loss despite having profitable quarters previously.
Management believes that Nucor’s performance will be positively impacted by perked up non-residential construction market and strong manufactured goods market comprising energy and automotive. However, there is an apprehension that Nucor may be negatively impacted by the import levels and general economic and political uncertainty.
Nucor reported adjusted earnings per share of 31 cents in the fourth quarter of 2012, ahead of the Zacks Consensus Estimate of 29 cents. Revenues slid 7.8% year over year to $4,451 million in the reported quarter, missing the Zacks Consensus Estimate of $4,463 million.
The steel industry is going through a difficult phase. There is not enough demand for steel products due to weakness in construction end markets, resulting in excess supply. Also, the gloomy conditions in the euro zone constitute yet another area of concern for Nucor, since it is the largest market for total U.S. exports.
Steel imports have given rise to stiff competition in the domestic market and the financial crisis in Europe might give rise to the same conditions in the region. All these factors, which are hurting its profitability, prove to be very difficult for Nucor to manage.
However, Nucor has a diversified client base, and as such, its business is not entirely dependent on the conditions prevalent in a particular geography. In addition, Nucor’s cost structure is highly variable, giving it the privilege of adjusting its costs whenever the conditions demand. This enables Nucor to continue its operations without closing down its facilities, even if the market conditions in the steel industry are depressed
Nucor and affiliates are manufacturers of steel products including carbon and alloy steel - in bars, beams, sheet and plate; steel piling; steel joists and joist girders; steel deck; fabricated concrete reinforcing steel; cold finished steel; steel fasteners; metal building systems; steel grating and expanded metal; and wire and wire mesh. Its operating facilities are primarily in the U.S. and Canada. Nucor is North America's largest recycler.
Nucor’s peers in the same industry are Shiloh Industries Inc. (SHLO), AK Steel Holding Corporation (AKS) and Companhia Siderurgica Nacional (SID).
Nucor currently retains a short-term Zacks Rank #3 (Hold).
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