Steel producer Nucor (NYSE:NUE) stock has been pulling back despite raising its Q3 2021 earnings to be the highest in the history of the Company. The steel producer is operating on all cylinders as the perfect storm of rising steel prices and insatiable demand triggers record-breaking profits which should continue to extend past the fourth quarter 2021.
The post-pandemic reopening has seen a surge in demand with the federal infrastructure bill deemed as the cherry on top when it gets passed. The recovery on the automotive industry, heavy machinery, construction, and renewable energy are all sectors seeing more than recovery, but a resurgence since the reopening. Prudent investors seeking exposure in this segment can watch for opportunistic pullbacks in shares of Nucor.
Q2 FY 2021 Earnings Release
On July 22, 2021, Nucor released its fiscal second-quarter 2021 results for the quarter ending June 2021. The Company reported an earnings-per-share (EPS) profit of $5.04 excluding non-recurring items versus consensus analyst estimates for $4.78, a $0.26 beat. Revenues rose 103% year-over-year (YoY) to $8.79 billion beating analyst estimates for $8.24 billion. Revenues also grew 25% sequentially. The Company shipped a total of 7.482 million tonnes. The average prices rose 37% per ton YoY. Total steel mill shipments rose 41% YoY.
Raised Guidance
Nucor raised its Q3 guidance as per CEO Leon Topalian,
"We expect earnings in the third quarter of 2021 to be the highest quarterly earnings in Nucor history, surpassing the record set in the second quarter of 2021 (Q3 Capital IQ consensus $6.29). The primary drivers for the expected increase in earnings in the third quarter of 2021 are improved pricing and margins in the steel mills segment.
"We expect increased profitability across the steel mills segment, with the largest increase at our sheet mills. The steel products segment and the raw materials segment are expected to have increased earnings in the third quarter of 2021 compared to the second quarter of 2021."
Conference Call Takeaways
CEO Topalian set the tone,
“With demand for steel remaining strong in most of our facilities operating at peak performance, we have not lost focus on our goal of becoming the world's safest steel company. We continue to perform well on the safety front as we look to make 2021 our safest year ever, besting our record set just last year. In particular, I want to acknowledge the progress demonstrated by our sheet mills in our two DRI facilities for achieving world-class safety performance so far this year. I encourage all of our teammates to maintain their focus on safety so we can achieve the most important goal that we have set for our company.
"Consistent with last month's guidance, Nucor posted record quarterly earnings in the second quarter. Our earnings of $5.04 per share surpassed our previous earnings per share record set last quarter. Our first-half earnings of $8.13 per share exceeded our full-year EPS record of $7.42 set in 2018. All three operating segments are continuing to generate robust profits due to strong demand, higher average selling prices, and excellent execution across Nucor. In our Steel Mills segment, we saw the greatest improvement in profitability from our sheet and plate mills.”
He continued,
“The performance of our Steel Products group also improved compared to the first quarter. Jim will provide more details about our performance this quarter and our outlook for the third quarter in a few minutes. This level of performance is the result of years of work strategically growing and positioning our company to thrive in market conditions like we are experiencing today. My congratulations to the entire Nucor team.
"There are several fundamental drivers of the strong market conditions Nucor is benefiting from today. The most important of these is robust demand, virtually all the steel end-use markets that we monitor are growing. Some of this growth may simply be caught up from the pandemic-induced economic loan we experienced here in the U.S., but we think it goes beyond a temporary rebound. One sign of this is the increasing confidence about next year that we sense from our customers, ranging from automotive, trucking, heavy and ag equipment and across the construction sector.
"There are noteworthy new drivers for growth in steel demand, warehouses for e-commerce, renewable energy projects, and an increase in U.S. manufacturing investment, focused on greater supply chain resiliency are all creating new market opportunities for Nucor. Very strong housing and automotive markets are also creating incremental steel demand, not to mention activity by state DOTs, whose infrastructure investment spending has held up better than expected.”
He concluded,
“Federal infrastructure spending plans currently under consideration are expected to increase U. S. steel demand by as much as 5 million tons per year for every $100 billion of new investment. Nucor is incredibly well-positioned to provide steel for infrastructure projects across the U.S. We are encouraged that the President and members from both parties continue to focus on this issue, and we are hopeful that they can come together to form a bipartisan solution.”
Re-Raised Q3 Guidance
On Sept. 16, 2021, Nucor raised its Q3 2021 earnings guidance again with bottom-line EPS expected between $7.30 to $7.40. The Company expects the highest quarterly earnings in its history, surpassing the previous best EPS of $5.34. The Company expects the strength to continue through the fourth quarter.
NUE Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a precision view of the price action playing field for NUE stock. The weekly rifle chart broke down as the 5-period moving average (MA) at 102.74 has crossed over the 15-period MA at the $105.24 Fibonacci (fib) level. The weekly stochastic is falling through the 40-band. The weekly lower Bollinger® Bands (BBs) sit at $80.20.
The daily rifle chart has been down-trending on the inverse pup breakdown but has stalled with the flat 5-period MA at $97.68 and 15-period MA at $98.78. The daily market structure low (MSL) buy triggers a breakout back up through $100.82. The daily stochastic has crossed up for a make or break.
The breakout through the daily MSL trigger sets up a move towards the daily upper BBs near the $113.65 fib. The inverse pup breakdown would form if the stochastic falls back down as shares collapsed back under the daily 5-period MA setting up a downtrend target near the lower BBs at $89.20.
Prudent investors can watch for opportunistic pullbacks at $94.93, $91.82, $89.37, $86.28, $82.76, and the $79.63 level. Upside trajectories range from the $110.13 fib up towards the $134.96 fib level.