Nucor (NUE) Beats Earnings in Q2, Forecasts Stronger Q3

Steel giant Nucor Corporation's NUE second-quarter 2014 profit came in at $147 million (or 46 cents per share), surging roughly 73% from $85.1 million (or 27 cents per share) posted in the prior-year quarter. Earnings per share surpassed the Zacks Consensus Estimate of 39 cents.

The improved second-quarter earnings results, when compared sequentially, were driven by improved performance by the steel mills segment, particularly at the sheet and bar mills.

The Quarter in Detail

Nucor registered revenues of $5,291 million in the quarter, up 13.4% from $4,665.6 million in the year-ago quarter. Sales surpassed the Zacks Consensus Estimate of $5,181 million.

The company's sheet steel and bar mills profitability increased due to higher sales volumes and margin improvement. However, structural steel experienced decreased volumes as Nucor-Yamato Steel underwent a planned three week outage in the second quarter. Nucor's fabricated construction products businesses returned to solid profitability in the quarter, due to improving conditions in the nonresidential construction markets.

Results from the raw materials segment decreased in the second quarter compared with the sequentially prior quarter as the company's new direct reduced iron DRI plant in St. James Parish, LA, underwent a three week outage to implement adjustments that is expected to improve yield and conversion costs.

However, the plant produced outstanding quality DRI units and also exceeded the company's volume expectations. Lower scrap selling prices also led to decreased profitability in the raw materials segment when compared with the sequentially prior quarter.

Average sales price per ton increased 4% from the year-ago quarter. Total tons shipped to outside customers rose 9% year over year to 6,370,000 tons in the reported quarter and total mill shipments increased 9% to 5,477,000 tons.

The average scrap and scrap substitute cost per ton used in the second quarter was $384, up 2% from $377 a year ago. Overall operating rates at Nucor's steel mills were 79%, up from 73% in the year-ago quarter.

Total steel mill energy costs in the reported quarter increased by $1 per ton year over year.

Financial Position

Nucor ended the second quarter with $1,167.6 million in cash and cash equivalents and short-term investments compared with $678.12 million in the year-ago quarter. Long-term debt was $4,368.9 million at the end of the quarter versus $3,380.2 million a year ago. It also has an unused $1.5 billion revolving credit facility that will mature in Aug 2018.

Guidance

Nucor expects strong earnings improvement in the third quarter of 2014. The company stated that non-residential construction market is improving at a modest pace, despite being historically low levels. The company anticipates further increased operating profits in its downstream products businesses. 

In the third quarter, steel mill profitability is also expected to improve as Nucor-Yamato Steel division has no planned outage and sheet and plate margins continue to benefit from positive pricing trends. Further, Nucor forecasts Louisiana DRI facility to demonstrate improvement in the performance in the third quarter with profitable performance anticipated by the end of the year. 

Nucor currently retains a Zacks Rank #4 (Sell).

Some other stocks worth considering in the steel and related industries include NN Inc. NNBR, Olympic Steel Inc. ZEUS and ThyssenKrupp AG (TYEKF). While NN holds a Zacks Rank #1 (Strong Buy), Olympic Steel and ThyssenKruppretain a Zacks Rank #2 (Buy).