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Why Is Nucor (NUE) Down 9.3% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Nucor (NUE). Shares have lost about 9.3% 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 the most recent earnings report in order to get a better handle on the important drivers.

Nucor Beats Earnings and Revenue Estimates in Q1

Nucor registered higher profits in first-quarter 2019. The company delivered net earnings of $501.8 million or $1.63 per share, up from $354.2 million or $1.10 in the year-ago quarter.

Barring one-time items, adjusted earnings per share came in at $1.55, which beat the Zacks Consensus Estimate of $1.50.

Nucor recorded net sales of $6,096.6 million, up roughly 9.5% year over year. The figure also outpaced the Zacks Consensus Estimate of $6,034.1 million.

Operating Stats

Total steel mills shipments in the quarter were 5,989,000 tons, down 4% year over year. Total tons shipped to outside customers fell 3% year over year to 6,767,000 tons. Average sales price improved 13% year over year.

Steel mill operating rates fell to 87% from 92% in the year-ago quarter.

Segment Highlights

Profitability in the steel mills segment fell sequentially in the first quarter, affected by lower average selling prices and margins for sheet products. Additionally, harsher winter conditions delayed shipments to certain construction customers of steel mills and steel products divisions.

Performance in the raw materials unit fell sequentially in the first quarter, primarily due to margin compression in DRI businesses. The business has been experiencing a fall in average selling prices since fourth-quarter 2018.

Financial Position

Nucor ended the first quarter with cash and cash equivalents of roughly $1.6 billion, up more than two-folds year over year. Long-term debt was $4,233.8 million, up roughly 30.6% year over year.

The company repurchased around 1.2 million shares during the reported quarter. As of Mar 30, 2019, the company had roughly 304,786,000 shares outstanding and around $1.4 billion available under its share repurchase program.

Outlook

Nucor expects second-quarter 2019 earnings to be in line with first-quarter figure, barring the gain on the sale of the equity method investment.

The steel mills unit’s performance in the second quarter is expected to be consistent and in line with the first quarter. The company expects weakening margins for plate and sheet mill products to be offset by improving margins for bar and structural mill products.

Profitability of the company's steel products unit is forecast to improve considerably in the second quarter compared to the first quarter. Improved weather conditions and typical seasonal patterns are likely to benefit nonresidential construction markets.

Per the company, raw materials unit’s performance is likely to decline sequentially in the second quarter due to further margin compression in the DRI businesses.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.54% due to these changes.

VGM Scores

At this time, Nucor has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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