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Nucor (NUE) to Report Q2 Earnings: What's in the Cards?

Zacks Equity Research

Nucor Corporation NUE is set to release second-quarter 2019 results ahead of the bell on Jul 18. Lower U.S. steel prices may weigh on its bottom line. Moreover, weaker expected performance in the steel mills unit will likely impact its results in the quarter.

Nucor beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters while missed twice. In this timeframe, the company delivered an average positive surprise of 2.1%.

Nucor’s shares have gained 6.6% so far this year, outperforming the industry’s 1% decline.


 

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

What do the Estimates Say?

The Zacks Consensus Estimate for second-quarter consolidated revenues for Nucor is currently pegged at $6,087 million, reflecting an expected year-over-year decline of around 5.8%.

Moreover, total steel mills shipments for the second quarter are expected to decline 5.7% year over year, as the Zacks Consensus Estimate currently stands at 6,072,000 tons. Total tons shipped to outside customers are currently pegged at 6,806,000 tons, reflecting an expected decrease of 5.4% on a year over year basis.

Factors at Play

Nucor, last month, issued downbeat earnings guidance for the second quarter. It expects earnings per share in the band of $1.20-$1.25 for the quarter. This reflects a decline from $1.63 in the first quarter of 2019 and $2.13 in the year-ago quarter.

Nucor expects performance in the steel mills unit to decline sequentially in the second quarter. The company noted that service center destocking is affecting order rates. Lower scrap prices and higher supply in the domestic market have led to aggressive inventory management by the company’s customers. Nucor is seeing stability in most of its end use markets with some weakness in automotive.

The company envisions profitability in its steel products unit to improve on a sequential comparison basis in the second quarter as better weather and typical seasonal patterns have benefited non-residential construction markets. Harsh winter conditions had delayed shipments to certain construction customers of steel mills and steel products divisions in the first quarter of 2019.

Moreover, performance in Nucor’s raw materials unit is forecast to decline sequentially in the second quarter due to margin compression in the DRI businesses.

A sharp decline in steel prices in 2019 is a concern for American steel makers. U.S. steel prices tracked downward in the back half of 2018 and continue to retreat this year.

Notably, after rallying to multi-year highs on the back of Trump administration’s imposition of 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 are now well below their peak level reached in July 2018.

Higher domestic steel production has contributed to the decline in U.S. steel prices this year. As such, lower U.S. steel prices will likely hurt Nucor’s profitability in the June quarter.

Nucor Corporation Price and EPS Surprise

 

Nucor Corporation Price and EPS Surprise

Nucor Corporation price-eps-surprise | Nucor Corporation Quote

Earnings Whispers

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 currently pegged at 0.00%. The Zacks Consensus Estimate for second-quarter earnings is currently at $1.26. 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 #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.  

Note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

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

Yamana Gold Inc. AUY has an Earnings ESP of +25% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arconic Inc. ARNC has an Earnings ESP of +2.04% and carries a Zacks Rank #1.

AK Steel Holding Corporation AKS has an Earnings ESP of +71.43% and carries a Zacks Rank #3.

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