Nucor's Q2 Guidance Falls Short Of Estimates, Shares Drop

Nucor Corporation (NYSE:NUE) has provided its guidance for the second quarter of 2017. The steel giant expects earnings for the quarter in the band of $1.00–$1.05 per share. This is a decrease from $1.11 per share recorded in the previous quarter, but an increase from 76 cents a share it earned a year ago.

The company’s guidance for the quarter fell short of expectations. Analysts polled by Zacks currently expect earnings of $1.26 a share, on an average, for the quarter.

The Charlotte-based company’s shares fell around 7.6%, to close at $54.60 yesterday.

Nucor said that the expected decrease in second-quarter performance on sequential basis is due to decreased performance of the steel mills segment, especially bar mills and sheet mills. The market condition for hot rolled steel products is also facing challenges due to aggressive competition. However, the company expects the profitability of plate mills to improve in second quarter of 2017.

The company expects the performance of its downstream products segment to improve in the second quarter as compared with the first, but to decrease from the prior-year quarter.

Nucor sees an overall positive trend in non-residential construction markets. The company expects performance of raw materials segment to improve in second quarter of 2017 on sequential basis due to profitable performance of direct reduced iron facilities.

Nucor noted that the U.S. steel industry continues to be adversely affected by cheaper imports, which account for about 26% market share. Finished steel imports from foreign producers have increased about 14% year over year during the first five months of 2017. However, several ongoing and completed cases are slowing down the flood of subsidized steel products from foreign producers. Nucor also appreciated the government’s initiative to restrict unfairly traded imports by imposing antidumping and countervailing duties, including Japan and Turkey.

Nucor’s shares fell 15.6% in the last three months, marginally outperforming the Zacks categorized Steel-Producers industry’s decline of 16.6%.

Nucor remains committed to expand its production capabilities. The company is investing an estimated $230 million to add an additional cold mill at its Nucor Steel Arkansas division. The additional cold mill (start-up expected in 2018) will give Nucor the capability to make new products.

Nucor has also been focusing on growth through strategic acquisitions and is well positioned to gain from such efforts to expand business through mergers and acquisitions. Nucor, in early 2017, wrapped up its purchase of steel electrical conduit maker, Republic Conduit, from Luxembourg-based Tenaris S.A. for $335 million. The acquisition positioned Nucor as the market leader in steel conduits. Moreover, the company acquired Southland Tube for $130 million in Jan 2017. The buyout has strengthened Nucor’s foothold in the hollow structural section (HSS) steel tubing segment.

However, the steel industry is still under pressure owing to years of excess steel-making. Unfairly-traded, subsidized imports are still flowing into the American market due to foreign producers' overcapacity.

Nucor Corporation Price and Consensus

Nucor Corporation Price and Consensus | Nucor Corporation Quote

Nucor currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked companies in the basic materials space include The Sherwin-Williams Company (NYSE:SHW) , The Chemours Company (NYSE:CC) and Huntsman Corporation (NYSE:HUN) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Sherwin-Williams has expected long-term earnings growth rate of 11.4%.

Chemours has expected long-term earnings growth rate of 15.5%.

Huntsman has expected long-term earnings growth rate of 7%.

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