Nucor Corporation (NUE) reported net earnings of $181.5 million, or 57 cents per diluted share (excluding special items) in the third quarter of 2011, beating the Zacks Consensus Estimate of 51 cents per share. This was a significant increase from 23.5 million, or 7 cents per diluted share (excluding special items) reported in the year-ago quarter.
Nucor’s third-quarter earnings exceeded those of last year's quarter, but they declined from the second quarter of this year on lower steel prices and significantly lower metal margins.
Consolidated sales surged 27% year over year to $5.25 billion beating the Zacks Consensus Estimate of $4.86 billion. The growth was attributable to an increase of 24% in average price per ton and a rise of 3% in shipments (to 5.8 million tons) to outside customers. The company’s end markets such as automotive, heavy equipment, energy and general manufacturing demonstrated strength compared to 2010 but showed very little improvement compared with the first half of 2011.
Pre-operating and start-up costs of new facilities were $17.0 million in the third quarter of 2011 compared with $41.9 million in the prior-year quarter. The decrease in costs was driven by several projects coming out of start-up, at the Special Bar Quality (SBQ) mill in Memphis, Tennessee and the wire rod products mill in Kingman, Arizona and the galvanizing line in Decatur, Alabama.
Steel mill shipments grew 9% to 4.2 million tons during the quarter. The average scrap and scrap substitute cost per ton accelerated 27% to $449.
Overall operating rates at steel mills increased 68% from the previous year quarter. Total energy cost increased approximately $3 per ton from the prior-year quarter, driven by higher electricity unit costs.
Nucor’s liquidity position remained strong at the end of the quarter. The company had cash and cash equivalents, short-term investments and restricted cash and investments of $3.02 billion as of October 1, 2011. It has an untapped $1.3 billion revolving credit facility that will mature in November 2012.
In September 2011, the board of directors declared a cash dividend of $0.3625 per share payable on November 11, 2011 to stockholders of record as of September 30, 2011.
The company is on schedule for completion of construction and beginning of start-up of its 2,500,000-ton direct reduced iron (DRI) facility in Louisiana in mid-2013.
Although the company expects to see only slight improvement in demand in its non-residential construction markets through the end of 2011, it remains optimistic about its combined construction businesses (steel mills and downstream facilities) and anticipates that it will continue to operate profitably. Nucor expects fourth-quarter earnings to be below its third-quarter level. Nucor expects margin compression in the sheet market in the fourth quarter of 2011. Furthermore, the company forecasts a smaller compression in plate margins due to imports. The magnitude of margin compression will be favorably impacted by expected lower scrap costs through the quarter.
Nucor Corp. faces stiff competition from Commercial Metals Co. (CMC) and United States Steel Corp. (X). We currently provide a long-term Neutral recommendation on the stock. The company has a Zacks #3 Rank (Hold).
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