Nucor Beats on Q1 Earnings, Revs - Analyst Blog

Steel giant Nucor Corporation's NUE first-quarter 2014 adjusted earnings (excluding one-time items) of 41 cents per share surpassed the Zacks Consensus Estimate of 36 cents per share.

The adjusted earnings exclude charges of $12.8 million (or 4 cents a share) and $9 million (or 2 cents a share) associated with tax legislation changes in New York and asset disposal within the steel mills segment, respectively.

Profit (as reported) came in at $111 million (or 35 cents per share), surging roughly 31% from $84.8 million (or 26 cents per share) posted in the prior-year quarter.

First-quarter earnings results, when compared sequentially, were affected by severe weather conditions, leading to lesser demand, decrease in the availability of railcar and a weaker seasonal performance of the company's fabricated construction products businesses. Moreover, imports have adversely affected the company's pricing and margins at its bar and sheet mills.

The Quarter in Detail

Nucor, which is among the prominent steel producing companies along with ArcelorMittal MT and United States Steel Corp. X, registered revenues of $5,108.4 million in the quarter, up 12.3% from $4,550.8 million in the year-ago quarter. Sales surpassed the Zacks Consensus Estimate of $4,819 million.

Average sales price increased 3% compared with the year-ago quarter. Total tons shipped to outside customers rose 8% year over year to 6,189,000 tons in the reported quarter and total mill shipments increased 7% to 5,432,000 tons.

The average scrap and scrap substitute cost per ton used in the first quarter was $398, up 5% from $379 a year ago. Overall operating rates at Nucor's steel mills were 75%, up 3% compared with the year-ago quarter.

Increases in the natural gas and electricity unit costs led to increase the total steel mill energy costs in the first quarter by roughly $5 per ton compared to the first quarter of 2013.

The progress of the new direct reduced iron DRI plant in St. James Parish, LA, continued with 455,000 tons of production with peak operating rates outpacing 90% of the name plate capacity, thus achieving excellent metallization and carbon percentages. 

Verdict vs. Nucor in Texas Antitrust Case

In Mar 2014, a Houston, TX-based jury returned a verdict against Nucor and five other co-defendants in an antitrust lawsuit filed in the Federal District Court in Houston, TX, by complainant MM Steel, LP, a steel plate service center.

Per the verdict, all defendants jointly and severally are charged $52 million for damages caused. The amount is subjected to triple under the federal antitrust laws. The amount Nucor has to pay for the damages, if any, is unknown at this point. However, Nucor is pursuing every necessary post-trial motion and appeal to have the verdict overturned.

Financial Position

Nucor ended the first quarter with $1,252.5 million in cash and cash equivalents and short-term investments compared with $932.2 million in the year-ago quarter. It also has an unused $1.5 billion revolving credit facility that will mature in Aug 2018. Cash flow from operations was $149.2 million for first-quarter 2014, compared with $128.8 million recorded a year ago.

Guidance

Nucor expects better performance in the second quarter of 2014 compared with the first quarter (after excluding the impact of tax and disposal of assets expenses incurred). The company anticipates better performance from steel mills and fabricated construction product businesses (rebar fabrication, joist and decking and pre-engineered metal buildings) despite the expected continued pricing and margins pressure at the steel mills segment. Further, Nucor expects modest improvements in the nonresidential construction markets in 2014.

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

Another player in the steel industry worth considering is Companhia Siderurgica Nacional SID, carrying a Zacks Rank #1 (Strong Buy).