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Why Is Nucor (NUE) Down 10.8% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Nucor (NUE). Shares have lost about 10.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Nucor due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Nucor Surpasses Q2 Earnings, Lags Revenue Estimates

Nucor reported lower profits in second-quarter 2019. The steel giant logged net earnings of $386.5 million or $1.26 per share, down from $683.2 million or $2.13 in the year-ago quarter. Nevertheless, earnings beat the Zacks Consensus Estimate of $1.25.

Nucor recorded net sales of $5,896 million, down roughly 8.7% year over year. The figure missed the Zacks Consensus Estimate of $6,107.7 million.

Operating Stats

Total steel mills shipments in the quarter were 5,800,000 tons, down 10% year over year. Total tons shipped to outside customers fell 7% year over year to 6,724,000 tons. Average sales price declined 2% year over year.

Steel mill operating rates fell to 84% from 95% in the year-ago quarter.

Segment Highlights

Profitability in the steel mills segment fell sequentially in the second quarter. Per the company, the downside was primarily caused by the impact of service center destocking on order rates. Also, a declining scrap price environment and higher domestic supply led to aggressive inventory management by customers.

The performance of steel products unit improved sequentially in the reported quarter, courtesy of typical seasonal patterns along with better weather conditions benefiting the non-residential construction markets.

Performance in the raw materials division was in line with first-quarter levels. Notably, Nucor’s Trinidad-based DRI facility had a planned outage, which was started on Jun 19 and completed on Jul 13.

Financial Position

Nucor ended the second quarter with cash and cash equivalents of roughly $1.43 billion, down 3.7% year over year. Long-term debt was $4,234.3 million, modestly up from $4,232.2 million in the year-ago quarter.

The company repurchased around 2.3 million shares during the second quarter. As of Jun 29, 2019, the company had roughly 303,157,000 shares outstanding and around $1.3 billion available under its share repurchase program.

Outlook

Nucor expects the raw materials division’s performance to decline sequentially in the third quarter due to margin compression in its DRI businesses.

The company expects profitability in the steel products unit to witness continued improvement during the third quarter compared with the second quarter. Notably, the non-residential construction market is strong. Additionally, the recently implemented efficiency initiatives in metal buildings and rebar fabrication are boosting performance from those businesses.

Performance in the steel mills segment is expected to decline sequentially in the third quarter. Per Nucor, the downside will be mainly caused by lower flat rolled and plate steel prices. Moreover, the company stated that the prices of several key product lines have reversed the downward trajectory, which prevailed during the first half of 2019. This was mainly due to service center destocking and weather conditions. Nucor expects service center customers to resume normal market demand-driven buying trends in the third quarter.
 

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -15.61% due to these changes.

VGM Scores

Currently, Nucor has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Nucor has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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