Nucor (NUE) Issues Downbeat Q4 Guidance on Import Pressure
Nucor Corporation NUE has provided guidance for fourth-quarter 2017. The steel giant expects earnings for the quarter in the band of 50-55 cents per share. This is a decrease from 79 cents per share recorded in the previous quarter and is comparable to 50 cents earned a year ago.
The company’s guidance for the quarter fell short of expectations. Analysts polled by Zacks currently expect earnings of 75 cents per share for the quarter.
Nucor’s projections for the fourth quarter excludes any estimates related to the impact of the proposed federal tax legislation in the United States. Notably, third-quarter earnings included a net benefit of $13.2 million or 4 cents per share associated with tax return true-ups and state credits as well as expense of $22.5 million or 5 cents per share pertaining to certain legal matters. Moreover, fourth-quarter 2016 earnings benefitted from the effect of change in estimate to the cost of certain inventories of $77.6 million or 16 cents.
The company believes that the overall market demand in the fourth-quarter 2017 has been strong. However, expected earnings in the steel mills unit will be negatively impacted by margin compression owing to the surge of imports experienced in the summer of 2017. This pressure from imports along with weakness in plate steel has caused the company to lower its fourth earnings estimate for the steel mills segment. Nucor anticipates similar results for the steel products unit in the fourth quarter compared to the third-quarter 2017.
Nucor Steel Louisiana witnessed an unplanned outage during fourth-quarter 2017 and resumed operations in early this month. However, this outage was shorter than the unplanned outages experienced during the last quarter. Because of this, Nucor expect earnings of the raw materials unit in the fourth quarter to improve from the third quarter.
Nucor noted that the U.S. steel industry continues to be adversely affected by steel imports. The finished steel imports for the first ten months accounted for about 28% share of the American market and increased an anticipated 19.4% from the year-ago period.
However, the industry continues to combat unfair traded imports. Since the beginning of the year, the United States Department of Commerce has made several ruling imposing duties on additional steel products which are favorable for the domestic steel industry.
Nucor is encouraged by market conditions as it heads into 2018. The company expects the recently announced price hikes and the downward trend in imports late in the year from the mid-year peak to build positive momentum.
Moreover, automotive market continues to remain healthy and the company is increasing penetration of new automotive platforms. Nonresidential construction markets are stable at a level considerably below peak 2007 levels, while energy markets continue their recovery from the depressed levels experienced in late 2014 and 2015. Agriculture and heavy equipment are continuing to show signs of improvement and in general, Nucor is optimistic on expected overall industrial production in 2018.
Shares of Nucor have gained 9.1% in the past three months, outperforming the industry’s 6.8% growth.
Zacks Rank & Stocks to Consider
Nucor currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the basic materials space are Westlake Chemical Corporation WLK, Daqo New Energy Corp. DQ and Kronos Worldwide Inc. KRO, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Westlake Chemical has an expected long-term earnings growth rate of 10.6%. Its shares have moved up 79.8% year to date.
Daqo New Energy has an expected long-term earnings growth rate of 7%. Its shares have surged a whopping 144.4% year to date.
Kronos Worldwide has an expected long-term earnings growth rate of 5%. Its shares have rallied 112.7% year to date.
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